April commodities increased as positive fundamentals carried on supporting returns, according to a new report by Credit Suisse. The authors point out that gains so far in commodities this year have coincided with lower-than-expected GDP (gross domestic product) growth in China.
Global Head of Commodities in Credit Suisse’s Asset Management business, Nelson Louie, said:
”If this were 2012 or even 2013, sluggish data of of China most likely would have weighed heavily on commodities, making any fundamental idiosyncratic drivers of individual commodities insignificant.”
“Instead, one-off event-driven risks which negatively affected supplies have actually been reflected in commodity return dynamics. If and when Chinese growth troughs, any advances here may support further upside to the commodities asset class.”
China’s import and export figures rebounded in April, the first positive sign so far this year that the world’s second largest economy is perhaps not slowing down.
Core inflation likely to rise
The persistent disinflation that has been apparent in several economies over the last few years may soon reverse, Christopher Burton, Senior Portfolio Manager at Credit Suisse Total Commodity Return Strategy commented.
He believes that core inflation in many of these economies may increase as growth prospects improve.
Mr. Burton said:
“The most recent US nonfarm payrolls number was well above consensus expectations, and despite first quarter GDP weakness, risks seem to be skewed to US economic growth coming in stronger than anticipated going forward.”
“The risk of inflation overshooting expectations is elevated. As a result, we believe investors will continue to benefit from the diversification benefits commodities offer as part of a portfolio.”
April saw a 2.44% increase in the Dow Jones-UBS Commodity Index Total Return. Sixteen out of 22 index constituents registered positive returns.
Agriculture performed the best, it was up 3.48%, led by Coffee. Increased tensions between the West and Russia over Ukraine, plus a mid-month cold snap in the United States drove up wheat prices.
Energy rose 2.98%, led by natural gas, following lingering concerns regarding supply. With summer approaching, strong US demand plus comparatively low inventory levels pushed up gasoline.
Industrial metals increased by 2.98%. Copper and Nickel rose as a result of shrinking worldwide inventories and better-than-expected durable goods figures coming out of the US.
Precious metals fell slightly by 0.09%. While silver slid, Gold became more popular as escalating tensions in Ukraine boosted its safe-haven appeal.
Livestock fell by 1.57%, led by lower Lean Hogs prices.
With the major advanced economies now expanding and interest rates expected to rise, bond investors should consider oil investments, say two economists in a study published in the Social Science Research Network.