Macroeconomic Uncertainty Weighed on Commodity Market in October
NEW YORK, Nov. 13, 2012 /PRNewswire/ -- Commodities declined in October as continued macroeconomic uncertainty weighed on markets generally.
Nelson Louie, Global Head of Commodities in Credit Suisse's Asset Management division, said, "Hurricane Sandy, despite the extreme damage and tragic loss of life, has passed with relatively little impact on commodity markets. Ongoing macroeconomic uncertainty continues to be the biggest factor weighing on the commodity markets. At the end of October, politics remained very much in focus in two of the world's most important economies: the United States and China. Uncertainty remains on what policies will be followed and how they will impact the economy and markets. Both governments will oversee economies in transition, trying to deal with structural challenges while maintaining burgeoning economic recoveries. Neither political event will solve any long term structural issues automatically, though increased certainty may be supportive."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "Continued quantitative easing in the US, and accommodative monetary policy seen across most key markets, should continue to support the appeal of hard assets as an inflation hedge. Signs of improved economic growth in the US and elsewhere have not yet dampened central bank enthusiasm for trying to stimulate economic growth, nor caused inflation expectations to increase. Inflation expectations remain anchored at near historic levels, with markets continuing to focus on weak economic conditions and safety of capital, rather than on protection against the eventual impact of prolonged, exceptionally loose monetary policy on inflation. We believe investors will continue to benefit from the long-term diversification benefits that commodities provide."
The Dow Jones-UBS Commodity Index Total Return was down by 3.87% in October. Overall, 17 out of 20 index constituents posted negative returns. Livestock was the best performing sector, with both Live Cattle and Lean Hogs trading higher. Energy decreased 2.27% for the month. Crude oil and petroleum products declined despite tensions between Turkey and Syria and lower output at North Sea oilfields. Hurricane Sandy shut East Coast refineries, roads and airports, reducing crude oil and fuel demand expectations. Natural Gas was the best performing constituent within the sector, as excess storage levels continued to moderate. Agriculture decreased 3.33%, with Coffee the worst performer. Sugar also declined following reports of buyers in India and China paying to cancel orders due to existing oversupply. Seasonal harvest progress in the US and better prospects for Brazilian supply also weighed on Soybeans and Soybean Oil. Precious Metals fell 3.90%. The latest Hong Kong demand data, released for August, was weaker than the previous month and weaker than expected. This added to worries that Chinese demand may ease. Industrial Metals was the worst performing sector, falling 9.27%. Risk appetite weakened amid worsening macro-economic sentiment. The lack of concrete resolution in Europe and the World Bank's downgrade of its economic growth forecast for China were contributing factors. Chinese manufacturing data did offer some encouraging signs that activity may be beginning to accelerate.
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy has been managed for 18 years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:
- Spot Return: price return on specified commodity futures contracts;
- Roll Yield: impact due to migration of futures positions from near to far contracts; and
- Collateral Yield: return earned on collateral for the futures.
As of October 31, 2012 the team managed approximately USD 10.7 billion in assets globally.
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Certain risks relating to investing in Commodities and Commodity-Linked Investments:
Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative's original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor's portfolio management strategy.
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