Credit Suisse: Commodities Picked Up in July on Signs of Economic Improvement

The oil sector gained with improving demand, although expectations for OPEC’s prospects of bringing down global production were reduced.

Commodities were up in July, boosted by strong demand for petroleum products, and growing optimism on Chinese growth prospects, Credit Suisse Asset Management reports. This led to a positive total return for the Bloomberg Commodity Index for the month, with 15 of the 22 index inputs showing gains.

Some of the factors that boosted the commodities sector in July are:

  • Energy was up 4.56%, with crude oil and petroleum products gaining as a result of strong demand, and indications of US producers cutting capital expenditures.
  • Industrial metals gained 4.12% as China’s second-quarter GDP and industrial production beat expectations.
  • Precious metals rose 1.75% on the dollar’s weakening amidst lowered expectations on the pace of the Fed’s monetary tightening.
  • Agriculture was up 0.85%, with the Brazilian real’s strengthening versus the US dollar, boosted by sugar and coffee.

However, livestock prices were down 4.85% as lean hogs declined following the US Department of Agriculture’s report of June inventories’ hitting a high not seen since the 1960s.

Nelson Louie, global head of commodities for Credit Suisse Asset Management, said, “The expectations for OPEC’s success to bring down global inventories with output cuts diminished as compliance among participating nations began to slip and as other countries continued to grow production. However, US producer cuts to capital expenditures along with stronger-than-expected demand for petroleum products outweighed negative sentiment towards OPEC.”

He added that the market continued to watch weather conditions for indications on performance of soybeans.  August is a key production month for soybeans, and unexpected weather shocks could damage the crop output. And in the base metals market, China implementation of  stricter environmental guidelines means a ban on copper scrap metal imports beginning at the end of 2018. This could lead the country to import more refined copper.

Overall, economic growth continued to improve, Credit Suisse noted, in major developed and emerging markets, including Japan, China, the US, and the Eurozone.

Christopher Burton, senior portfolio manager, Credit Suisse Total Commodity Return Strategy, noted, “Overall, major central banks continue to remain accommodative, but are also mulling over when a potential tightening can take place. The timing and speed of such tightening may lead to periods of higher-than-unexpected inflation. This may be supportive for investments in commodities as a strategic diversifier in a well-diversified portfolio.”

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