Commodities Daily - August 27, 2021

> Oil prices stabilize as investors eye possible Fed tapering, storm in Gulf of Mexico. Oil investors await Fed Chairman Jerome Powell's speech at the Jackson Hole Symposium today and US personal consumption and spending data for July. In our view, Powell is most likely to remain dovish and say that more economic data and a further recovery are needed before adjusting policy given the Delta coronavirus risks. Against this backdrop, Brent should avoid a correction and could possibly even tick higher toward the 50-day moving average of $72.80/bbl.> Gold holds near $1,790/oz ahead of speech by Fed Chairman Powell. Gold traded near $1,790/oz yesterday, with the 10y Treasury yield remaining at 1.35%. US data was mostly positive. Gold has drifted up toward $1,800/oz as we write. Today, the market awaits the Jackson Hole Symposium with a speech by Fed Chairman Jerome Powell, US PCE statistics for July, personal income and spending in July, wholesale inventories for July and the University of Michigan sentiment index for August. We expect bullion to test support at $1,775/oz today.OIL PRICES STABILIZE AS INVESTORS EYE POSSIBLE FED TAPERING, STORM IN GULF OF MEXICOFor most of the day yesterday, Brent hovered below $72/bbl but eventually settled at $71.07/bbl ($1.18/bbl below the previous settlement), which capped a three-day rally, as investors await Fed Chairman Jerome Powell's speech at the Jackson Hole Symposium. (He could provide more guidance on the approach to paring stimulus measures, which is negative for commodities, including oil.) Multiple Fed presidents and board members over the past three months have suggested that the economy is sufficiently revived to begin tapering: Dallas Fed President Robert Kaplan said he favors starting in October or shortly after; St Louis's James Bullard called for a start in the autumn; and Kansas City Fed chief Esther George urged a move this year. In addition, the release of the July 27-28 FOMC meeting minutes on Wednesday drove a market selloff, weighing on virtually all commodities, as most members of the board seem willing to begin tapering when the economy is judged to have recovered enough.The key consideration now is to prevent a sudden spike in Treasury interest rates, as happened back in 2013 after the Fed announced a future tapering of its QE. The main worry behind the so-called taper tantrum back then was that the market would crumble after the Fed cut off QE. Note that the Fed chairman's speech is usually the highlight of the symposium and has been used to make important statements about the evolution of monetary policy - today, markets will be watching to see whether Powell, who has been one of the most cautious FOMC members about adjusting policy, will use his speech to make the case for withdrawing accommodation. Powell has previously insisted that the Fed's "sufficient further progress"' criteria for ending the bond program have not been met. We expect Powell to remain dovish today and suggest that more data and progress are needed before adjusting policy amid the risks from Delta. This means Brent would likely avoid a correction and could possibly even tick up toward the 50-day MA at $72.8/bbl Brent is already generating positive momentum this morning, drawing support from Tropical Storm Ida, which has already caused offshore oil production in the Gulf of Mexico to shutter. Ida formed in the Caribbean and is forecast to a grow into a powerful hurricane in the days ahead, wreaking havoc across the Gulf of Mexico and ultimately hitting the US coast. Today, oil investors will also eye US personal consumption and spending for July and the Baker Hughes weekly US rig count. Reported rises in US wages and enhanced child tax credit payments will boost personal incomes in July, more than offsetting a reduction in unemployment insurance benefit LD HOLDS NEAR $1,790/OZ AHEAD OF SPEECH BY FED CHAIRMAN POWELL Gold traded around the $1,790/oz mark yesterday, with the 10y US Treasury yield remaining steady at 1.35%. EUR/USD nudged down from 1.177 to 1.176. The second reading of 2Q21 US GDP demonstrated 6.6% Q-o-Q annualized growth, up from 6.5% in the first reading and slightly below the 6.7% consensus. However, it nevertheless showed an improvement in the US economy and created concerns among investors about further monetary policy tightening. Furthermore, weekly jobless claims in the US showed 353k new claims, largely in line with the 350k expected, which pushed gold lower. Hawkish comments came from three Fed officials. St Louis Fed President James Bullard called for tapering to start in the autumn. Dallas Fed President Robert Kaplan said he favors an announcement on tapering at the September meeting and starting it in October or shortly after. Kansas City Fed President Esther George also advocated for tapering starting sooner rather than later. However, none of them are voters this year, so markets are largely brushing off the comments and focused on today's speech by Powell.Gold has moved up to $1,800/oz as we write. The market will be eyeing the Jackson Hole symposium, Powell's speech, US PCE data for July, personal income and spending for July, wholesale inventories for July and the University of Michigan sentiment index for August. The focus will be on Powell, who is a dove, and we expect him to express a cautious tone today, despite the hawkish comments from other Fed officials. We think he might propose waiting a little longer before tapering to see how the situation with the Delta strain develops, though he is likely to describe tapering as imminent, and that could push gold lower. We expect bullion to test support at $1,775/oz