Commodities were lower in June as uncertainty surrounding the future of the global economic recovery remained high.
Nelson Louie, Global Head of Commodities inCredit Suisse’s Asset Management business, said, “Macroeconomic news out of China weighed on commodities in June. With China now shifting to a more moderate rate of growth and modestly improving conditions elsewhere, it is likely that supply divergences are playing an increasing role at a time when the higher correlation observed between other asset classes and commodities since 2008 has begun to normalize. This may signal a return to a more fundamentally-driven market. Within the current trend, the pace of supply growth is likely to remain the key factor in driving commodity returns.”
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “Markets continue to be caught between good economic news being positive, indicating that the recovery is gaining traction, or good economic news being negative as it may mean monetary policy will tighten. While the pace of these programs may eventually soften, we believe that most major central banks will continue to err on the side of providing more stimulus until the economy improves rather than risk tightening too much. In the meantime, while inflation continues to be muted, the risk of unexpected inflation remains elevated.”
The Dow Jones-UBS Commodity Index Total Return decreased 4.71% in June. Overall, 15 out of 22 index constituents posted negative returns. Precious Metals was the worst performing sector, down 12.27%, on persistent worries over the US Federal Reserve's plan to wind down its monetary stimulus program and the rally of the US dollar in the second half of the month. Industrial Metals declined 7.11% as a preliminary survey showed that China's factory activity weakened to a nine-month low in June as demand faltered. This may heighten risks that a second quarter slowdown could be sharper than expected and increase pressure on the Chinese central bank to loosen policy.
Agriculture ended the month lower, down 4.16%, pressured by higher-than-expected ending corn stocks and further data showing larger-than-expected US acreages planted despite the earlier weather related planting delays. News that Australia’s new-crop wheat production increased 15% from a year ago added to concerns over larger global supplies. Australia is one of the world’s largest wheat exporters. Energy decreased 2.55%, led by Natural Gas, following the higher-than-consensus storage injections in June as reported by the US Energy Information Administration. Livestock was the best performing sector, up 3.10%, with both Live Cattle and Lean Hogs ending the month higher. The USDA lowered its forecast for 2013 pork production and reported lower feeder cattle placements for May than a year ago.