Commodities Daily - April 1, 2021

> Oil prices slide ahead of OPEC+ meeting as France announces month-long lockdown. Yesterday, the new front-month Brent contract for June slid from $64.50/bbl to $63.00/bbl amid renewed lockdowns in Europe and a pessimistic demand outlook from OPEC+ ahead of the decision on output today. This morning, Brent is paring yesterday's losses and trading around $63.5/bbl ahead of the main OPEC+ meeting, March manufacturing PMIs due out of developed countries, US initial weekly jobless claims and the Baker Hughes active rig count (to be released a day earlier due to the Good Friday holiday tomorrow in the US). In our view, OPEC+ is likely to decide against raising output for another two months, which will likely boost Brent above the $64/bbl resistance level, with a break above opening the path to the $64.50-65.80/bbl technical range.> Gold bounces from three-week low as dollar rally takes a pause. Gold jumped from $1,680/oz to $1,710/oz yesterday due to the US ADP employment report, which showed an increase of 517k, below the consensus forecast of 550k. Bullion is trading near $1,710/oz today, while investors are turning their attention to the US initial jobless claims data and US ISM manufacturing PMI due later. We think gold is likely to test support at $1,700/oz today, with a break above $1,720/oz appearing unlikely.> Non-ferrous metals falling in price after weak housing data from US. The US published data yesterday showing a 10.6% m-o-m drop in pending home sales in February, the sharpest drop since last May. The decline was attributed to an excessive rise in prices and a lack of affordable houses.OIL PRICES SLIDE AHEAD OF OPEC+ MEETING AS FRANCE ANNOUNCES MONTH-LONG LOCKDOWNFor most of the day yesterday, the new front-month June Brent contract traded in a $63.50-64.80/bbl range, and was quoted at $64.00/bbl ahead of the EIA weekly inventory update. Against expectations and following an API-reported crude oil build, the EIA reported yesterday a 0.87 mln bbl draw to 501.8 mln bbl. This came amid a 0.70 mln bpd increase in exports to 3.17 mln bpd and a 0.55 mln bpd increase in refinery inputs to 14.94 mln bpd. A 0.52 mln bpd increase in imports to 6.15 mln bpd, combined with a 0.10 mln bpd increase in crude oil production to 11.10 mln bpd, proved insufficient to offset the overall build. The refined product data, meanwhile, was mixed. Gasoline stocks were down 1.74 mln bbl at 230.50 mln bbl, while distillate stocks rose 2.54 mln bbl to 144.10 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) were down 1.35 mln bbl.Following the release, Brent gained around $0.50/bbl, as crude inventories fell for the first time in six weeks thanks to the fact that refineries boosted oil processing to the highest levels since lockdowns started back in March 2020, which outweighed the reported increase in crude production. Another source of optimism was the fact that gasoline inventories declined in large part due to higher demand, with a proxy suggesting an increase in demand to almost 8.9 mln bpd, the highest level since October, thanks to vaccines being rolled out. Gasoline demand also rose above the five-year average for the first time in a long time. In addition, yesterday the EIA released its 914 report, which showed that US crude oil production had fallen to 11.080 mln bpd in January from a revised 11.101 mln bpd in December.Having proven unable to break above $64.50/bbl for a couple of hours yesterday, Brent started a fall toward $62.50/bbl after French President Emmanuel Macron said the pandemic situation is now worse than it had been in the autumn and announced a nationwide four-week lockdown with schools and businesses to be closed. Meanwhile, yesterday the OPEC+ JMMC meeting ended without a policy recommendation. This comes after the Joint Technical Committee earlier this week lowered its 2021 oil demand growth forecast by 0.30 mln bpd, which reflects concerns about the oil market recovery due to the renewed lockdowns - this should strengthen the case for a cautious decision on output today. The new front-month Brent contract for June eventually settled at $62.74/bbl, $1.43/bbl below the previous settlement.This morning, Brent is paring yesterday's losses and trading around $63.5/bbl ahead of the main OPEC+ meeting, March manufacturing PMIs due out of developed countries, US initial weekly jobless claims and the Baker Hughes active rig count (to be released a day earlier due to the Good Friday holiday tomorrow in the US). In our view, OPEC+ is likely to decide against raising output for another two months, which will likely boost Brent above the $64/bbl resistance level, with a break above opening the path to the $64.50-65.80/bbl technical LD BOUNCES FROM THREE-WEEK LOW AS DOLLAR RALLY TAKES A PAUSEGold slid to as low as $1,680/oz early yesterday before recovering to $1,710/oz with EUR/USD advancing even as the US 10y Treasury yield traded sideways at 1.71-1.74%. We think investors likely saw the $1,680/oz mark as oversold. Moreover, the March ADP employment data showed a 517k increase versus the consensus forecast of a 550k rise. Delays to the US economic recovery create a tailwind for bullion. The eurozone core CPI came in at 0.9% y-o-y in March versus 1.1% in February. Europe's third Covid wave is manifesting itself and creating headwinds for the euro. US President Joe Biden called for a sweeping use of government power to reshape the world's largest economy and counter China's rise in a $2 trln-plus proposal that was met with swift Republican resistance. As we saw with Biden's first stimulus plan, a significant portion of the proposed stimulus measures will cause increased investor concern over monetary policy tightening and pressure gold.Gold is trading near $1,710/oz as we write. The highlight of today's calendar is the US ISM manufacturing PMI for March, which we think is likely to show improvement given the better weather and vaccination developments during the month. US initial jobless claims and the US Markit manufacturing PMI are also due today. We think gold is likely to test support at $1,700/oz with the recent gain proving short-lived, with a break above $1,720/oz appearing N-FERROUS METALS FALLING IN PRICE AFTER WEAK HOUSING DATA FROM USThe US published data yesterday showing a 10.6% m-o-m drop in pending home sales, the sharpest drop since last May. The decline was attributed to an excessive rise in prices and a lack of affordable houses.Prices on residential real estate have risen rather sharply in many countries around the world. Construction is the largest component of GDP, which is why governments and central banks have been attempting to boost construction through mortgage subsidies and by keeping rates low. One of the negative consequences of this has been an excessive rise in housing prices, which has made homes unaffordable for many potential buyers. Against this backdrop, many countries have begun to roll back some of the incentives to homebuyers. The central banks of Brazil, Turkey and Russia have already gone ahead with key rate hikes this year, while China has reduced the size of its housing subsidy program.The rapid growth of construction across the globe has had the greatest impact on the steel, iron ore and coking coal markets. In the case of the steel market, construction accounts for 30-70% of demand. The contribution of the construction industry to demand for steel is highest in developing countries such as China and India and lowest in developed markets such as the EU, the US and Japan, where the share of demand from machine builders is high.US flat steel (HRC) has risen in price 38% YTD to $1,325/tonne and is up 108% versus the average for 2019 ($635/tonne). This is because steel companies have not been able to keep up with the increase in demand from builders.As a rule, builders generally reduce the pace of construction when cash flow from the sale of housing under construction decreases, and weak home sales data is sometimes the first signal that it is time to slow down. At the moment, there are still no signs that demand for steel is dropping in any large developed countries or in China. Demand for construction has been supported by both incentive programs and the seasonal rise in construction activity. We do not expect demand for steel to wane and prices to ease until the middle of the summer at the