Commodities were lower in April as economic data out of China and Europe supported expectations of continued dampened economic growth.
Nelson Louie, global head of commodities in Credit Suisse’s asset management business, says: "Commodities decreased in April on the back of less than encouraging GDP reports out of the US, China and Europe. Credit spreads of periphery government debt have narrowed dramatically, likely in reaction to incredibly expansionary central bank policies worldwide. The most striking recent examples being Japan’s commitment to even higher levels of quantitative easing than in the US, relative to the size of the economy, and recent reports of central bank equity buying. Certain central banks have made it very clear they will err on the side of tightening later rather than sooner, and doing too much rather than too little."
Christopher Burton, senior portfolio manager for the Credit Suisse Total Commodity Return Strategy, says: "The sudden reduction in anxiety associated with monetary easing, along with the diminution of imminent inflation fears – inflation expectations have actually trended down over recent months – leads us to believe that the chances of inflation over-shooting expectations have increased. Monetary policies seem to have been a boon for stocks and bonds, while commodities have been selling off. If economic growth is set to pick up, as the US equity market seems to suggest, commodities may benefit from increased demand."
The Dow Jones-UBS Commodity Index Total Return decreased 2.79 per cent in April. Overall, 16 out of 22 index constituents posted negative returns. Precious metals was the worst performing sector, down 9.57 per cent, with both gold and silver selling off sharply. Gold posted a loss amid fears of central bank sales due to announcements that Cyprus might liquidate some of its gold to fund debt payments. Investors also grew frustrated due to gold’s lacklustre performance over recent months, despite elevated European risks and increased commitments to extraordinary loose monetary policies, most recently in Japan. Industrial metals declined, down 5.06 per cent, as concern over global demand growth weighed on returns.
The International Monetary Fund trimmed projections for global economic growth for this year and next to take into account sharp government spending cuts in the United States and the latest struggles of recession-stricken Europe. Energy also declined, down 1.46 per cent, on worries about global oil demand due to weaker-than-expected economic data. Livestock decreased slightly, down 0.55 per cent, as the unseasonably cold weather delayed the expected increase in grilling demand for beef. Live cattle led the sector lower, while Lean Hogs was positive.
Agriculture was relatively unchanged, down 0.37 per cent. Corn declined following the USDA’s larger than expected estimate for ending corn stocks at the end of March. Soybeans and wheat increased as deep snow pack in the US Midwest raised the risk of flooding and may delay the spring plantings, while the winter wheat crop quality was also impaired.