Commodities Daily - August 6, 2021

> Oil prices rebound ahead of US nonfarm payrolls. This morning, Brent is hovering below $71.5/bbl. Today's focus is firmly on the July US jobs report. A robust payrolls figure would strengthen the case for the Fed to taper its massive stimulus, which would in turn create headwinds for risk assets. We see Brent struggling to generate further positive momentum today, also amid persisting Covid risks in Asia, and think it is likely to consolidate near $71/bbl.> Gold edges lower ahead of US jobs report. Gold edged lower from $1,810/oz to $1,805/oz yesterday. The 10y US Treasury yield rose 4 bps to 1.22%, which created headwinds, while EUR/USD was steady at 1.184. US macroeconomic data was mixed. Gold is trading near $1,800/oz as we write this morning. Today, the markets await the July US jobs report. Bullion may try to test support near the 100d MA at around $1,800/oz, which may open the way to $1,790/oz support.OIL PRICES REBOUND AHEAD OF US NONFARM PAYROLLSAfter sliding to as low as $69.75/bbl early yesterday, front-month Brent began to generate positive momentum, peaking at $71.5/bbl in early US trading amid stock market tailwinds, with the S&P 500 and NASDAQ 100 both rising toward record highs. Yesterday's weekly jobless claims data from the US showed continuing claims falling below 3 mln to a new post-pandemic low, while initial claims came in at 385k, matching the consensus and stoking expectations for a strong nonfarm payrolls figure today. Brent eventually settled at $71.29/bbl, $0.91/bbl above the previous settlement. Also worth highlighting is the fact that key pricing patterns have narrowed this week, indicating investor expectations of a weakening physical market. For Brent, the gap between the most immediate futures contract and the one a month later is now around $0.5/bbl in backwardation, compared with $0.9/bbl a week ago.In our view, the crude oil market is not yet reflecting what will likely be record drawdowns later this summer. Prices, calendar spreads and price differentials between different crude types are still strong, but they are not surging higher amid the strong market deficit. The reward for going long now is limited, as crude can only rally so much further without a catalyst. In our view, the catalyst may soon come in the form of the next round of Chinese crude import quotas. When Chinese crude buying picks up (especially since currently low crude stockpiles should also entice Chinese majors to buy, not just smaller independent refineries), Dubai calendar spreads will rally, followed by Brent. We remain bullish despite the recent price volatility and think the recent market setback has been due to the market having priced in the most bullish scenario too early. The current deviation from the bullish scenario amid the rise in Covid cases and China's restrictions was bound to cause a roll-down in calendar spreads.The impact of the latest Chinese outbreaks can already be seen, as traffic has thinned on some of the country's typically busy city roads, raising concerns about near-term fuel demand. A patchwork of restrictions on mobility include the cancellation of flights and train services. China, which has zero tolerance for new cases, reported 101 infections today (21 asymptomatic), the biggest daily increase in more than six months. Meanwhile, in Thailand daily cases set another record, as tightening containment measures have failed to halt the spread. In Australia, Sydney's daily cases also hit an all-time high, and authorities warned the situation in the nation's largest city could worsen.This morning, Brent is hovering below $71.5/bbl. The focus today is firmly on the July US jobs report. A robust payrolls figure would strengthen the case for the Fed to taper its massive stimulus, thus generating headwinds for risk assets. Hiring growth is likely to have accelerated in July, as the supply of available workers expanded. While we expect strong gains in service-sector employment, economic reopening is only part of the story. Since augmented unemployment benefits ended in around half of US states in early July, as many as one million workers have been incentivized to re-enter the workforce. We note that total nonfarm payrolls typically drop in July in unadjusted terms, in large part due to layoffs in the education sector. Trouble accounting for abnormal patterns in this sector could contribute to a solid payroll gain. We see Brent struggling to generate further positive momentum today, also amid persisting Covid risks in Asia, and think it is likely to consolidate near $71/ LD EDGES LOWER AHEAD OF US JOBS REPORTGold edged lower from $1,810/oz to $1,805/oz yesterday. The 10y US Treasury yield rose 4 bps to 1.22%, which created headwinds, while EUR/USD was steady at 1.184. US macroeconomic data was mixed. The June trade deficit came in at $75.7 bln versus the $74.2 bln expected. Meanwhile, US initial jobless claims came in at 385k, just slightly above the 383k consensus and 14k lower than the previous week, which was seen as a positive sign for the labor market recovery and put some pressure on gold. In addition, Minneapolis Fed President Neel Kashkari reiterated the view that the recent surge in US inflation is temporary and that the economy needs some time to match supply and demand. He also said he expects strong labor market numbers in the fall and flagged risks from the new strain of the coronavirus. Fed Governor Christopher Waller said he thought that the labor market numbers for July and August would be strong and that a tapering announcement could come in September. These mostly hawkish comments created additional headwinds for bullion.Gold is trading near $1,800/oz as we write this morning. Today, the markets await the July US jobs report: the unemployment rate in July is expected to be 5.7%, while the consensus NFP additions estimate is 858k, not far off June's 850k. We note that the consensus on NFP has been falling (it is down from 870k about a day earlier and 925k a week ago), though that has failed to support gold prices. Bullion may try to test support near the 100d MA at around $1,800/oz, which may open the way to support at $1,790/