Commodities were higher in August as China's growth outlook improved and the risk of the US Federal Reserve tightening remained uncertain, according to Credit Suisse.
Nelson Louie, global head of commodities in Credit Suisse's asset management business, says, "Chinese growth may have stabilised over the period. Commodities are likely to benefit from improving Chinese growth momentum, as it may be supportive of increased demand. At the same time, mixed US economic data and sharply declining emerging market currencies and securities have clouded the already uncertain outlook regarding the possibility of a Federal Reserve tightening in September. Regardless of whether the Federal Reserve tapers or not in September, it seems unambiguous that the Federal Reserve is going to err on the side of being overly easy with its policies. This may increase the risk of inflation overshooting expectations, especially should economic growth materialise stronger than is currently expected."
Christopher Burton, senior portfolio manager for the Credit Suisse Total Commodity Return Strategy, adds: "In the near term, the increase in geopolitical risk in the Middle East has also been substantial. This has the capacity to lead to further oil supply disruptions, through further destabilising production and transportation of crude oil from nearby key producers. Increased geopolitical risk has also been a key driver in the gold rebound as investors move into safe havens. While a final decision on military intervention in Syria has been delayed in the US, recent events highlight the diversification benefits that commodities can add to a diversified portfolio."
The Dow Jones-UBS Commodity Index Total Return increased 3.40 per cent in August. Overall, 14 out of 22 index constituents posted positive returns. Precious metals increased the most, up 9.33 per cent, with both gold and silver higher. Gold increased after new home sales data were lower than forecasted, reducing expectations that the US Federal Reserve will scale back its economic stimulus program on the coattails of a strengthening economy. Energy gained 3.10 per cent, led by Brent Crude Oil, due to ongoing debate over military intervention in Syria and reduced exports out of Iraq and Libya.
Expectations remain elevated that the US may coordinate an attack in response to the use of chemical weapons against civilians in Syria. However, concerns eased slightly after Britain announced it would not join in any military action.
Livestock increased 2.59 per cent, led by lean hogs, amid rising feed costs and ongoing concerns over increased illnesses shrinking supply.
A heat wave in many areas of the US towards the end of the month also added to concerns that hog supplies could be curbed.
Agriculture ended the month higher, up 2.37 per cent, with soybeans and soybean products positive, and the rest of the sector constituents negative. Soybeans were more susceptible to yield damage due to the hot and dry weather in the US Midwest due to the delayed planting progress earlier in the year.
Industrial metals gained 1.74 per cent, led by copper, due to encouraging macroeconomic data from China.