Commodities Daily - August 23, 2021

> Oil prices begin to pare back losses from last week; DM PMIs for August eyed. This morning, Brent has risen toward $66.7/bbl as China has made progress in containing the fast-spreading Delta variant, bringing local cases down to zero. However, the virus continues to impact other nations and cloud the outlook for fuel demand. Today, investors will eye IHS Markit preliminary August PMIs primarily from developed markets with the annual Jackson Hole symposium, where the Fed will guide market participants down the QE taper path, to be the main global markets event this week. We think that today Brent will struggle to consolidate above the $67/bbl mark amid what are expected to be mixed PMI data, although the upbeat coronavirus news out of China will help keep the positive momentum in place.> Gold holds steady amid slight dollar softening. Gold remained virtually flat at $1,780/oz on Friday, while EUR/USD edged up from 1.168 to 1.170. Bullion is trading near $1,785/oz as we write. Today, the market awaits the Chicago Fed national activity index for July, US existing home sales for July and plenty of Markit IHS DM PMIs for August. We expect bullion to remain range-bound at $1,775-1,790/oz today.OIL PRICES BEGIN TO PARE BACK LOSSES FROM LAST WEEK; DM PMIS FOR AUGUST EYEDOn Friday, front-month Brent slid almost $2/bbl and even dipped below $65/bbl, tumbling for a seventh day amid last week's positive dollar momentum after the Fed signaled it would start tapering. Meanwhile, the pandemic remains a threat to energy demand, especially across Asia, with key importer China restricting mobility to combat an outbreak. Furthermore, Baker Hughes data released on Friday showed the US active rig count rising by 8 to 405. This comes on the heels of a 10-unit increase the week before. This supports the narrative of a gradual US crude oil production recovery in 2H21 and a stronger recovery next year. On Friday, Brent eventually settled at $65.18/bbl, fixing $1.27/bbl below the previous settlement.This morning, Brent has risen toward $66.7/bbl as China has made progress in containing the fast-spreading Delta variant, bringing local cases down to zero (China's health authority reported on Monday that there were no new locally transmitted cases of Covid-19 for the first time since July), but the virus continues to impact other nations and cloud the outlook for fuel demand. It was more difficult this time for China, even though the leaders of the world's most populous nation used the same playbook they followed to quell more than 30 previous flare-ups. The arrival of the more infectious Delta variant has raised the stakes. Although it's unclear how long the victory will last, the Chinese model has shown what it takes to get Covid under control, and raises questions about whether other nations will be willing or able to follow the same draconian steps. Also supporting oil prices is the fact that the dollar weakened against most FX majors and that the stock markets are higher, having staged a broad-based rebound following last week's brutal selloff.Today, investors will eye IHS Markit preliminary August PMIs primarily from developed markets. We think Brent will struggle to consolidate above the $67/bbl mark amid what is expected to be mixed PMI data, although the upbeat coronavirus news out of China will help keep the positive momentum in place. Oil and commodity markets in general are heading into a high-stakes week, as leading central bankers and economists will gather virtually this week for the annual Jackson Hole symposium, which this year is titled "Macroeconomic Policy in an Uneven Economy." The event, which runs for three days starting Thursday, has taken on much greater significance after last week's minutes of the Fed's last meeting showed that policymakers are prepared to start trimming bond purchases, possibly even later this year. The timing of the Fed's tapering will be crucial for raw materials, ranging from copper and iron ore to oil and grains (it was the massive stimulus from central banks that helped supercharge prices in the past year). Any hint that policymakers will shift from spurring growth toward curbing inflation earlier than expected could spell more trouble for commodities (Fed Chairman Jerome Powell will speak on Friday). All in all, for most of this week we expect Brent to be paring last week's losses, staging a comeback toward $70/bbl as China could start lifting coronavirus-related restrictions and also in light of what is expected to be upbeat weekly US inventory data. However, on Friday we expect price pressure to re-emerge as Powell will offer market participants guidance as the Fed embarks down the path of tapering QE. LD HOLDS STEADY AMID SLIGHT DOLLAR SOFTENINGGold traded sideways in a $1,775-1,790/oz range on Friday and eventually closed at $1,780/oz, while EUR/USD edged up from 1.168 to 1.170. The 10y US Treasury yield climbed from 1.24% to 1.26%, creating a headwind for bullion. Markets were starved of important macro releases on Friday, which curbed gold's movements. Dallas Fed President Robert Kaplan said he favors reducing QE sooner rather than later. However, he said he might adjust his view if the Delta variant affects the economic recovery. For now, the Fed bond-buying program consists of $80 bln per month in Treasury bond purchases and $40 bln in MBS. This is not the first time that Fed officials have sent signals that tapering is imminent, but it created a headwind for bullion on Friday. CFTC managed money positions in bullion showed a net increase on Friday after the lowest reading in almost half a year the previous week. This could signal that money managers have a more optimistic view than they did immediately after the nonfarm payrolls showed an improvement in the labor market recovery at the beginning of August. Gold is trading at $1,785/oz as we write. Today, the market awaits the Chicago Fed national activity index for July, US existing home sales for July and plenty of Markit IHS DM PMIs for August. Later this week Fed Chair Jerome Powell will give a speech on Friday at the Jackson Hole symposium, which runs from Thursday to Saturday. We will also see US GDP for 2Q21; PCE, personal income and spending, existing and new home sales, wholesale inventories, durable goods orders (all for July); the University of Michigan sentiment index for August; and weekly initial jobless claims. For the eurozone, ECB monetary policy meeting accounts are due. We expect gold to remain range-bound at $1,755-1,775/oz