Commodities were higher in July as fundamentals improved for some commodities, supported by positive macroeconomic data.
Nelson Louie, global head of commodities in Credit Suisse's asset management business, says: "Based on the July Purchasing Managers Index reports, global growth momentum may expand a bit faster in the second half of the year than the first. China may be able to maintain a reasonable pace of growth in the near term, supported by improving external demand, still resilient domestic consumption, a steadily expanding service sector, and incremental growth-friendly policy initiatives. However, caution remains as the Chinese government has been reticent to provide further stimulus measures due to concerns over inflation. While China's growth rates are still the envy of many other nations, they are significantly lower than the elevated rates markets had grown accustomed to. The period of adjustment will likely continue."
Christopher Burton, senior portfolio manager for the Credit Suisse Total Commodity Return Strategy, says: "The US economy continues to improve, though at levels not emphatic enough to ensure Federal Reserve tightening. The Federal Reserve continues to express desire to tighten its extraordinarily loose monetary policy, yet is reluctant to do so too early and risk derailing the recovery. Interest rates continued to rise throughout the month in anticipation of eventual policy changes and improving economic conditions. As a result, the Federal Reserve and markets in general do not currently seem concerned with inflation. This may increase the risk of inflation overshooting expectations should the Federal Reserve tighten its policies too slowly, especially should economic growth materialise stronger than is currently expected."
The Dow Jones-UBS Commodity Index Total Return increased 1.36 per cent in July. Overall, 13 out of 22 index constituents posted positive returns. Precious metals increased the most, up 5.61 per cent, supported by a weaker US dollar and expectations the Federal Reserve may take further actions to assure markets monetary policy will continue to be exceptionally loose. Energy gained 4.22 per cent, led by gasoline and crude oil, on the back of strong US economic data and continued draws of US inventories. Industrial metals ended the month 0.92 per cent higher as US signals on keeping monetary policy looser for longer eclipsed worries over growth in China towards the beginning of the month.
Livestock decreased 1.62 per cent, led by lean hogs. Asian buyers, including those in China, have become more active in the US market despite strict rules on using feed additives for pork going to China. Some US packers have adjusted by increasing the number of hogs that are not fed ractopamine, thus making them eligible for export to Asia.
Agriculture declined 2.97 per cent. The USDA reported improved crop conditions for US corn and soybeans, aided by warmer weather.