Commodities Daily - August 5, 2021

> Oil keeps sliding amid mixed EIA report, stronger dollar and as China battles coronavirus resurgence. This morning, Brent is trending lower yet again as traffic has thinned on some of China's typically busy city roads as the nation faces a coronavirus resurgence. Today, investors are eyeing the Bank of England rate decision, weekly jobless claims and will also be monitoring the developing coronavirus situation in China. In our view, Brent is unlikely to test support at its 100-day moving average of $69.8/bbl; rather, we think it will continue consolidating near $70/bbl amid a lack of bullish catalysts.> Gold prices jump after US employment data, retrace move on hawkish Fed comments. Gold ended yesterday's session about where it opened the day, at $1,810/oz, while EUR/USD slipped from 1.186 to 1.183. Yesterday's July employment report from ADP was weak, providing a lift to gold prices, while comments from Fed representatives shortly thereafter were hawkish, erasing the gains. Bullion is quoted near $1,810/oz as we write. Today, markets await the ECB Economic Bulletin from Europe, and the June goods and services trade balance and weekly jobless claims from the US. We expect gold to trade range-bound in a $1,800-1,820/oz corridor.OIL KEEPS SLIDING AMID MIXED EIA REPORT, STRONGER DOLLAR AND AS CHINA BATTLES CORONAVIRUS RESURGENCEAfter rising from $72/bbl toward $73/bbl early yesterday, front-month Brent began to slide toward $71/bbl during European trading. Renewed concerns about the demand recovery, as China battles a resurgence of the coronavirus, are driving the current oil price correction. China reported 62 confirmed Covid-19 cases yesterday, with most of the infections in the eastern province of Jiangsu. Meanwhile in Beijing, subway traffic will be restricted at some stations, and the city has canceled large-scale conferences and exhibitions scheduled in August. Also important to note is that the oil price drop yesterday came amid a broad decline in commodities after Fed Vice Chairman Richard Clarida suggested that the US central bank is on course to pull back on the massive support. He added that he expects conditions for raising interest rates to be met by the end of 2022 if inflation and employment outcomes meet his forecasts. Additionally, the US ISM services PMI jumped to 64.1 in July, beating expectations. These factors yesterday lifted the dollar, hurting raw materials priced in the currency.Ahead of the EIA inventory report, Brent was trading near $71.4/bbl. The report showed a surprise build of 3.6 mln bbl in crude oil inventories, with most of the increase in the Gulf Coast. That could be explained by lower exports of crude oil (down 0.58 mln bpd to 1.9 mln bpd), which were the lowest since early May. Imports and refinery inputs saw very little change from the week before. Crude oil output held steady at 11.2 mln bpd. Meanwhile, gasoline demand was up to its highest level since the record in early July, rising more than 0.44 mln bpd to 9.7 mln bpd as summer travel demand remains strong. With that, gasoline stockpiles drew by a very strong 5.29 mln bbl to 228.87 mln bbl. This was the third straight week in which gasoline inventories have fallen, even as refineries are concentrating on boosting gasoline production countrywide and also despite a drop in exports. Another upbeat factor is that jet fuel demand is finally increasing, with four-week average demand the highest since the pandemic began. Jet fuel inventories did fall, but this in attributable to higher exports. Demand in Mexico, the biggest buyer of US jet fuel, rose to a 14-month high in May as Americans flock to places like Cancun for vacations. On the other hand, diesel stockpiles rose for the first time in three weeks. This could be attributable to a drop in demand (down about 0.7 mln bpd to 3.6 mln bpd). However, demand is set to recover in the coming weeks as farmers in the Midwest are preparing for the soybean and corn harvest. Total oil and refined product stockpiles (excluding strategic petroleum reserves) fell 1.17 mln bbl. Despite the various upbeat factors in the report, the surprising crude oil stock build put Brent back on its downtrend following the release. It eventually settled at $70.38/bbl, $2.03/bbl below the previous settlement.This morning, Brent is trending lower yet again as traffic has thinned on some of China's typically busy city roads as the nation's coronavirus resurgence raises concerns about near-term fuel demand. Congestion in Beijing was down 30% from a week earlier at 11:00 local time today, while traffic on roads in other cities such as Shanghai and Yangzhou was marginally lower, according to Baidu data. Today, investors are eyeing the BoE rate decision, US weekly jobless claims and will also be monitoring the developing coronavirus situation in China. In our view, Brent is unlikely to test support at its 100-day moving average of $69.8/bbl; rather, we think it will continue consolidating near $70/bbl amid a lack of bullish LD PRICES JUMP AFTER US EMPLOYMENT DATA, RETRACE MOVE ON HAWKISH FED COMMENTSGold quotes moved up and down yesterday but ultimately closed nearly flat at $1,810/oz. Meanwhile, EUR/USD slipped from 1.186 to 1.183, creating headwinds for bullion. The 10y US Treasury yield was steady near 1.17%, which limited gold's movement. Yesterday's macro data from the eurozone suggested that the pace of economic recovery in Europe may have slowed. Retail sales growth in June came in at 1.5%, below the expected 1.7%, while the Markit IHS services PMI printed at 59.8, below the consensus estimate of 60.4. However, this data had little impact on gold prices, which held near $1,810/oz, as markets were waiting for employment data from the US. ADP's July employment report showed an only 330k increase in private payrolls, while the markets had expected nearly double that (690k). The Fed is still waiting to see substantial further progress in the labor market, so the weakening pace of jobs growth could give the Fed more reason to hold back on policy normalization. The ADP print launched gold above the $1,830/oz mark, but the rally ended about as fast as it started. That is because Fed Vice Chairman Richard Clarida said that the Fed was on course to roll back its massive stimulus and that an announcement on QE tapering could come later this year, with the first rate hike possibly arriving in 2023. Additionally, San Francisco Fed President Mary Daly, a voting member on the FOMC, said that she expects the Fed to start tapering its asset purchases in late 2021 or early 2022. These rather hawkish comments helped push gold back to $1,810/oz. Also creating headwinds for bullion was the ISM's US services PMI reading for July, which landed at 64.1, well above the expected 60.5. Gold is trading near $1,810/oz as we write. Today, the market awaits the ECB Economic Bulletin from Europe, and the June goods and services trade balance and weekly jobless claims from the US. The consensus for initial jobless claims is 383k. Gold prices are not likely to move much today, as investors will be looking ahead to the US jobs report due tomorrow. The consensus is for 870k new jobs to be added. We expect gold to be range-bound in a $1,800-1,820/oz corridor