Commodities Daily - August 16, 2021

> Oil pressured by downbeat data out of US and China as Delta strain spread clouds short-term demand outlook. This morning, Brent has dropped below $70/bbl as Chinese economic activity slowed more than expected in July as virus outbreaks have added new risks to a recovery already hit by floods and faltering global demand. In our view, the downbeat economic data out of China released this morning should keep pressuring Brent throughout today, and we think the benchmark is most likely to continue trading around its 100-day moving average, which is $70.3/bbl.> Gold advances amid decline in US Treasury yields. Gold rallied from $1,750/oz to $1,780/oz on Friday, while the 10y Treasury yield slipped from 1.36% to 1.27%. US data was positive for bullion on Friday. Gold is trading near $1,775/oz as we write. Today, the market awaits the Empire State manufacturing index for August. We expect bullion to remain range-bound at $1,755-1,775/oz today.OIL PRESSURED BY DOWNBEAT DATA OUT OF US AND CHINA AS DELTA STRAIN SPREAD CLOUDS SHORT-TERM DEMAND OUTLOOKOn Friday, Brent slid as much as $1.40/bbl to $70/bbl against the backdrop of the latest Covid-19 wave leading to more restrictions on movement across the globe, which in turn is clouding the short-term demand outlook for oil. Meanwhile, the University of Michigan preliminary sentiment index for August fell 11.0 points to 70.2, hitting the lowest level since December 2011 and falling well short of all estimates given in a Bloomberg survey of economists, as well as highlighting rising prices and concerns about the new coronavirus strains. The slump in confidence could mean a more pronounced slowing of economic growth in coming months. On the supply side, the US active oil rig count jumped last week the most in four months, rising by 10 units to 394, most of the gains coming outside the major Permian Basin. Front-month Brent eventually settled at $70.59/bbl, $0.72/bbl below the previous settlement.This morning, Brent has dropped below $70/bbl as Chinese economic activity slowed more than expected in July as virus outbreaks have added new risks to a recovery already hit by floods and faltering global demand. Chinese retail sales expanded 8.5% y-o-y in July, slower than the projected 10.9% rise, while industrial output grew 6.4% versus the 7.9% estimate; fixed investments grew 10.3% in 7m21, missing the 11.3% forecast, and the unemployment rate ticked up to 5.1%. The Delta coronavirus strain is prompting another round of targeted lockdowns in China, as well as travel curbs and mass testing. The government is taking aggressive measures, supposedly targeting zero Covid-19 infections, which could prove economically costly as consumers cut back on spending and supply chains are disrupted. Nevertheless, we expect Chinese crude oil purchases to pick up into 4Q21 as domestic inventories keep falling. In addition, the oil market is likely to react positively if/when what is expected to be a larger batch of import quotas are issued before 4Q21.Coronavirus cases are at or near records in Thailand, Vietnam and the Philippines, which is likely to keep weighing on investor sentiment throughout this week. In our view, the downbeat economic data out of China released this morning should keep pressuring Brent throughout the day today, and we think the benchmark is most likely to continue trading around its 100-day moving average, which is $70.3/bbl. Investors will also be eying the EIA drilling productivity report today. This week will be light in terms of fundamental oil market data, with only the usual weekly US inventory data, while eurozone 2Q21 GDP, US July retail spending and industrial production and FOMC meeting minutes are due as well. In our view, strong price headwinds will remain and Brent looks set to keep struggling to push above the 100-day moving average this week with very strong support near $68/ LD ADVANCES AMID DECLINE IN US TREASURY YIELDSGold climbed from $1,750/oz to 1,780/oz on Friday, while the 10y US Treasury yield sank from 1.36% to 1.27%, creating a tailwind for bullion. Additional support came from EUR/USD, which firmed from 1.173 to 1.180. Markets were focused on the University of Michigan sentiment index for August, which came in at a decade low of 70.2 points and well below the consensus of 81.2. One probable cause of this was rising concerns that the spread of the Delta variant will dent the pace of the economic recovery. The US reported more than 140k new Covid cases on Friday. Another likely reason is that US inflation remains well above the 2% target. All this pushed bullion higher and helped it to consolidate above the $1,775/oz resistance level. Further support came from Minneapolis Fed President Neel Kashkari, who said he would like to see a "few more" good reports on the labor market recovery before the Fed starts to withdraw its stimulus measures. Gold has corrected slightly to $1,775/oz as we write. Today, the market awaits the Empire State manufacturing index for August. Tomorrow sees a speech by Fed Chair Jerome Powell, with the FOMC meeting minutes arriving on Wednesday. In the US, this week will also see retail sales and industrial production for July, building permits and housing starts for July and weekly initial jobless claims, while in the eurozone, 2Q21 GDP and the CPI for July will be released. We expect gold to stay range-bound at $1,755-1,775/oz