Commodities Daily - April 16, 2021

> Oil advances following a raft of upbeat US and Chinese data. Today, apart from the Baker Hughes weekly rig count, the oil market will be eying US housing starts for March and the University of Michigan consumer sentiment index for April. We believe Brent remains exposed to a correction to the $65.2-65.7/bbl range, as it faces a strong resistance zone at $66.80-67.2/bbl. A break above $67.2/bbl could open the way to the $67.7-68.4/bbl range.> Gold makes gains on decline in US Treasury yields. Gold is trading at $1,765/oz as we write. Investors are today eyeing US housing starts for March, University of Michigan consumer sentiment for April and eurozone CPI for March. We expect bullion to trade sideways at $1,745-1,765/oz today. We think a break above resistance at $1,770/oz is unlikely.> Base and platinum group metals rise ahead of Chinese GDP, amid two-week trend of weakening dollar. Aluminum climbed 0.7% yesterday to $2,339/tonne, copper jumped 2.3% to $9,284/tonne and zinc added 1.5% to $2,865/tonne. Chinese GDP was reported today to have risen 18.3% y-o-y and 10.3% versus 1Q19, a performance slightly off the Bloomberg consensus (18.5%). Meanwhile, political developments in Peru, where 11% of the world's copper concentrate is produced, are creating risks for the stability of global concentrate supplies. In particular, Pedro Castillo, a candidate for president who has promised to raise taxes on the mining sector, received the most votes in the first round of the presidential election. The second round is scheduled for June and we would expect volatility in copper prices to be elevated ahead of it.OIL ADVANCES FOLLOWING A RAFT OF UPBEAT US AND CHINESE DATAYesterday, Brent traded sideways at $66-67/bbl, gravitating toward the upper end of the range during US trading hours. It eventually settled at $66.94/bbl, up $0.36/bbl on the day. One highlight yesterday was various US economic data releases showing that the US economy's comeback is firing on all cylinders, with employment, retail spending and manufacturing exhibiting strong gains in March. Retail sales have returned to or surpassed pre-pandemic levels while initial jobless claims remain elevated but hit their lowest level in 13 months. The rebound in demand reflects a wave of business reopenings last month, rising vaccination rates and a fresh round of stimulus checks to households. In addition, production at US factories increased in March by the most in eight months following the weather-related setback in February. We believe positive US economic momentum is likely to continue through 2Q21 as the economy continues to reopen and vaccinations accelerate, reinforcing the view that we could see a very strong US summer driving season.Yesterday, Iran's chief negotiator at the talks in Vienna said the US needs to explicitly state which sanctions it is willing to lift to unblock the talks to revive the stricken 2015 nuclear accord. So far, diplomacy is struggling to bridge the gaps between the sides following three rounds of meetings in a little over a week. Negotiators are set to meet again today. The crisis over Iran's nuclear program deepened last Sunday when an unclaimed strike on a key enrichment facility at Natanz prompted Tehran to double down on its atomic activity and start purifying uranium to 60%, close to weapons grade. We stick to our view that a diplomatic breakthrough is likely in late 3Q21, with additional Iranian oil barrels (1-2 mln bpd) likely hitting the global market in 4Q21.Brent is trying to consolidate above $67/bbl as we write, while oil investors are digesting upbeat data out of China, where GDP jumped by a record 18.3% y-o-y in 1Q21, retail sales beat expectations and industrial output moderated. Refineries in the largest oil-importing nation processed 14.14 mln bpd in March, almost up 20% versus March 2020, when the country locked down to combat Covid-19. The March processing figure was close to the record throughput of 14.26 mln bpd registered in November and slightly below the average recorded over 2m21. Processing is set to dip in April as some private refiners have scheduled maintenance, although during the summer we would expect China's oil buying binge to return amid record refining activity, which should provide strong support for oil.Today, apart from the Baker Hughes weekly rig count, the oil market will be eying US housing starts for March and the University of Michigan consumer sentiment index for April. We believe Brent remains exposed to a correction to the $65.2-65.7/bbl range, as it faces a strong resistance zone at $66.80-67.2/bbl. A break above $67.2/bbl could open the way to the $67.7-68.4/bbl LD MAKES GAINS ON DECLINE IN US TREASURY YIELDSGold jumped to $1,765/oz yesterday as US 10y Treasury yields slid to 1.58%. EUR/USD consolidated near 1.197. US retail sales rebounded 9.8% in March, the largest increase since May 2020, in a gain that pushed the level of sales 17.1% above its pre-pandemic level to a record high. Initial jobless claims came in at 576k versus the consensus of 700k. The data backdrop was spoiled by US industrial production for March, which was weaker than expected. In such a situation bond yields can normally be expected to rise as investors start to be concerned over the potential end to QE, pushing gold lower. However, the opposite happened yesterday, and Treasury yields dropped. Suggested explanations for this include investors closing short positions with the stabilization of US Treasury yields, this week's healthy Treasury auctions, and increased demand from Japanese investors. We think it may have also been due to traders starting to contemplate the Fed tapering its bond buying at some point soon and reacting accordingly. Although this may appear to be counterintuitive at first glance, as scaled-back Fed purchases should in theory see push yields higher, history suggests otherwise: in September 2017, as the Fed was about to embark on trimming its balance sheet, 10y yields increased during periods of quantitative easing and fell once the programs ended. In 2014, as the Fed began to reduce the speed of its buying, Treasury yields fell. They also tumbled in 2019 as the bank abruptly shifted from raising rates to lowering them and yields only began to climb again as the Fed bolstered the repo market and increased its holdings. With Treasury yields on the wane, gold typically finds significant support due to the reduction in opportunity costs.Gold is trading at $1,765/oz as we write. Investors are today eyeing US housing starts for March, University of Michigan consumer sentiment for April and eurozone CPI for March. Should the trend of Treasury yields declining on back of positive US statistics remain in place then gold is likely to trade sideways today at $1,745-1,760/oz. We think a break above resistance at $1,770/oz is SE AND PLATINUM GROUP METALS RISE AHEAD OF CHINESE GDP, AMID TWO-WEEK TREND OF WEAKENING DOLLARAluminum climbed 0.7% yesterday to $2,339/tonne, copper jumped 2.3% to $9,284/tonne and zinc added 1.5% to $2,865/tonne. Meanwhile, platinum rose 1.9% to $1,198/oz and palladium 2.4% to $2,740/oz. Metals prices were firming ahead of Chinese 1Q21 economic data and a two-week trend of a globally weakening dollar.Chinese GDP was reported today to have risen 18.3% y-o-y and 10.3% versus 1Q19, a performance slightly off the Bloomberg consensus (18.5%). The Chinese statistics service has not yet published data on industrial production in physical terms, which is seen as a key for the metals markets.Meanwhile, political developments in Peru, where 11% of the world's copper concentrate is produced, are creating risks for the stability of global concentrate supplies. In particular, Pedro Castillo, a candidate for president who has promised to reform the mining industries in the country received the most votes in the first round of the presidential election. Castillo said he would raise taxes on the mining sector, while his Free Peru party is pushing for nationalization of the industry. Should either of these prospects materialize, we think copper prices would likely push higher. The second round of the presidential election is scheduled for June and we would expect volatility in copper prices to be elevated ahead of