Commodities Daily - August 4, 2021

> Oil prices under pressure ahead of weekly EIA inventory report. This morning, Brent is trading near $72.5/bbl with the API data signaling a further drop in US crude oil and gasoline inventories. Today, apart from the weekly EIA inventory report, investors will eye the monthly ADP employment report and July service sector PMIs across the globe. We see Brent most likely rebounding toward its 50-day moving average at $73.5/bbl on what is expected to be upbeat US inventory data.> Gold edges lower ahead of US employment data. Gold fell from $1,815/oz to $1,810/oz yesterday, while EUR/USD retreated from 1.187 to 1.186. The economic data released created headwinds. Gold is trading near $1,810/oz as we write. Today, the market awaits the ADP July US employment report, the IHS Markit and ISM services PMIs for July, and the eurozone IHS Markit services PMI for July. We expect gold to test support near the 100-day moving average at $1,800/oz today, while a move above resistance at $1,820/oz seems unlikely.OIL PRICES UNDER PRESSURE AHEAD OF WEEKLY EIA INVENTORY REPORTAfter trading around $73/bbl at the start of the day yesterday, Brent suddenly began to slide toward $71/bbl. This was accompanied by a stronger dollar amid better than expected US data (such as June factory orders). Later in the day, however, thanks to a stock market rebound, Brent managed to pare back some of these losses and eventually settled at $72.41/bbl, $0.48/bbl below the previous settlement. However, the main area of concern for oil investors is that nearly half of China's 32 provinces have been gripped by the latest Covid-19 outbreak in Asia's largest oil market, with 5% of worldwide short-term oil demand potentially at risk. The latest outbreak in China has indeed triggered tougher restrictions on transport and fresh lockdowns. Oil demand over the summer season continues to face headwinds even after the devastating floods in Henan, which has underpinned much of the market's recent selloff. Although the total number of cases is still lower than during other recent flare-ups in China and is negligible when compared to rates in other countries, local governments are moving forcefully under a "zero-case" strategy. Major cities are testing millions of residents and isolating high-risk areas, while local governments have imposed travel restrictions to limit any further spread of the Delta variant. For example, all of Beijing's public travel links to areas with positive cases have been suspended, and tourists are banned from entering the capital. However, we very much doubt that China will resort to Wuhan-style nationwide lockdowns. Most of the population should be able to carry on daily life as usual, although further tightening of travel restrictions is possible. Of course, sentiment has worsened as a certain amount of panic sets in, given that this latest outbreak has the widest geographical spread of the virus since China's initial outbreak in January 2020. But accelerating vaccination rates mean hospitalization and death rates will remain manageable, which should help improve sentiment so long as the outbreak remains under control in the coming weeks. Local government officials have endeavored to find every case by conducting universal testing and running extensive contact tracing programs in order to cut off the transmission chain as quickly as possible. In addition, slowing manufacturing activity along with the new wave of infections could lead to another round of credit easing as consumer consumption hasn't fully recovered. Last week's Politburo meeting seemed to confirm bets that easing will occur, with leaders vowing to keep liquidity ample. Therefore, a slightly weaker 3Q21 could set up for a stronger 4Q21 if the government rolls out more supportive measures.This morning, Brent is trading near $72.5/bbl. API data signaled a further drop in US crude oil (-0.879 mln bbl) and gasoline inventories (-5.75 mln bbl), with distillates also drawing slightly (-0.717 mln bbl). Today, apart from the weekly EIA inventory report, investors will eye the monthly ADP employment report and July service sector PMIs across the globe. In our view, Brent will most likely rebound toward its 50-day moving average at $73.5/bbl on what should be upbeat US inventory data. We think the EIA's reported crude oil draw is likely to exceed API's estimate and approach the 3 mln bbl consensus amid a rebound in refining inputs and stronger exports. The gasoline category, meanwhile, is likely to be the main bullish highlight of the report amid a very strong inventory draw resulted from strong demand and possibly lower LD EDGES LOWER AHEAD OF US EMPLOYMENT DATAGold fell from $1,815/oz to $1,810/oz yesterday, while EUR/USD retreated from 1.187 to 1.186. The 10y US Treasury yield stayed steady near 1.17%. Eurozone PPI inflation for June was 1.4% m-o-m, in line with expectations, and 10.2% in y-o-y terms, slightly below the consensus of 10.3%. Meanwhile, US factory orders for June beat expectations, expanding at a 1.5% clip versus 1.0% expected, which supported concerns about faster monetary policy tightening by the Fed and created headwinds for bullion yesterday. In addition, since Fed Chairman Jerome Powell reiterated last week that more progress must be seen in the labor market recovery, gold has been struggling ahead of the US July jobs report due this Friday - today will see the ADP employment report for July. In remarks yesterday, Fed Governor Michelle Bowman said that the fact that US job openings are high "is a very promising sign that opportunities are increasing" and also noted many remain out of work.Gold is trading near $1,810/oz as we write. Today, the market awaits the ADP July US employment report, the IHS Markit and ISM services PMIs for July, and the eurozone IHS Markit services PMI for July. The consensus for US private payroll additions is 683k. Meanwhile, the US ISM services PMI is expected to rise to 60.5 points. We expect gold to test support near the 100-day moving average at $1,800/oz today, while a move above resistance at $1,820/oz seems