Commodities Daily - December 1, 2021

> Oil remains under pressure as OPEC+ begins two days of talks. We think Brent is likely to continue trending higher today, approaching $72/bbl and possibly pushing higher. This would come despite what is expected to be mixed EIA data, as today's updated OPEC+ technical committee market outlook update is likely to build the case for OPEC+ pausing production hikes in January or even cutting the current quotas.> Gold down on hawkish comments by Powell. Gold declined from $1,785/oz to $1,775/oz yesterday, while the US 10y Treasury yield slid from 1.50% to 1.45%. Gold is trading at $1,780/oz as we write. Today, the market awaits ADP employment data for November, the ISM manufacturing PMI for November and Fed Beige Book. We expect bullion to retest support at $1,775/oz today.> Metal prices move lower on hawkish comments from Fed chairman; coal prices slip on China's continued interventions. Industrial metal prices moved lower yesterday amid bearish policy developments in the US and China. Base metals responded to the Fed chairman's hawkish comments in testimony to Congress yesterday and are bracing for the FOMC meeting later this month. Coal prices fell amid China's continued interventions and the potential for a further increase in domestic supply in December.OIL REMAINS UNDER PRESSURE AS OPEC+ BEGINS TWO DAYS OF TALKSYesterday, Brent slid $4.30/bbl toward $70.20/bbl after Fed Chairman Jerome Powell said that a strong US economy could warrant wrapping up Fed asset purchases sooner than planned next year. The comments, coming during a Senate Banking Committee hearing, moved financial markets as a looming end to the taper could lead to higher interest rates. Tighter monetary policy is typically bearish for commodities. Oil traders are also tracking talks this week aimed at reviving Iran's 2015 nuclear deal with world powers, but chances for progress toward a deal to lift sanctions are low, in our view. Iran seems to be slowing the process down and has made several demands it knows the US cannot deliver. Negotiators may eventually try for a more limited deal, but seem unprepared to abandon efforts to restore the 2015 JCPOA just yet. Sanctions relief is unlikely to occur until mid-2022, in our view, and there is a high chance it will come later or that no deal is reached at all. This morning, Brent is trending higher at above $71/bbl, despite a mixed API report (crude oil stocks fell 0.7 mln bbl, gasoline stocks swelled 2.2 mln bbl and distillates rose 0.8 mln bbl), with investors focused on the start of a series of OPEC+ meetings and the weekly EIA update on US oil and refined product inventories. While OPEC+ is less concerned about a potential Iranian supply recovery than it was over the summer, its 2022 balances already indicate massive stock builds without factoring in higher Iranian supply, and demand concerns are back in the spotlight. We think the group is likely to decide between pausing quota increases in January or even announcing a cut to the current quotas on Thursday.In our view, today Brent is likely to continue trending higher toward $72/bbl and possibly even above that, despite what is expected to be mixed EIA data, as today's updated OPEC+ technical committee market outlook update is likely to build the case for OPEC+ pausing production hikes in January or even cutting current quotas. Meanwhile, the US, Canada, India and Japan have prepared tighter measures for inbound travelers to help combat the omicron variant of the coronavirus. New Covid-19 cases in South Korea and Germany have jumped, while an outbreak in China has LD DOWN ON HAWKISH COMMENTS BY POWELLGold continued to trade lower yesterday, decreasing from $1,785/oz to support at $1,775/oz, while the US 10y Treasury yield slid from 1.50% to 1.45%. Meanwhile, EUR/USD rose from 1.129 to 1.134. The macro statistics yesterday created tailwinds for bullion. Gold tried to break the $1,800/oz level on weaker than expected releases. The preliminary eurozone CPI for November surprised investors with a 0.5% m-o-m increase (0.1% consensus) and 4.9% y-o-y (4.5% consensus). That was a positive sign for gold because high prices in Europe may compel the ECB to become more hawkish, which would lead to a stronger euro and as a result a weaker dollar. Meanwhile, in the US, the Conference Board consumer confidence and Chicago PMI, both for November, came in lower than expected and below the October readings. This fueled worries that the economic recovery in the US is uneven. However, later the market focus turned to Fed Chair Jerome Powell's testimony to Congress. He said that the word "transitory" is no longer an accurate term to describe the high inflation. He also said that it was appropriate to end the bond-buying program a few months earlier than previously anticipated, even as coronavirus risks remains. This paves the way for a quickening of the taper at the December meeting. Overall, the Fed continue to shift to a more hawkish stance, which has been weighing on gold. Eventually, bullion tested significant support at $1,775/oz but did not drop below that level.During Asian trading today, gold bounced higher to $1,780/oz. Today, the market awaits ADP employment data for November, the ISM manufacturing PMI for November and the Fed beige book. Additionally, we would highlight the release of the OECD economic outlook later today and the second day Powell's testimony in Congress, although nothing new from Powell is likely to emerge today. Crucial for markets today will be the employment data. The consensus expects 525k new private payrolls in November, which would be a good sign that the labor market is recovering. Also, the ISM manufacturing PMI for last month is expected to beat the October reading. Given all of this, we think bullion will retest support at $1,775/oz today, which would open the way to $1,750-1,775/oz, where gold consolidated in TAL PRICES MOVE LOWER ON HAWKISH COMMENTS FROM FED CHAIRMAN; COAL PRICES SLIP ON CHINA'S CONTINUED INTERVENTIONSBase metals mostly closed in the red yesterday. Three-month LME contracts on copper fell 1.41% (-$135/tonne from the previous day's close) to $9,443/tonne, aluminum edged down 0.19% (-$5/tonne) to $2,625/tonne, and nickel dropped 1.21% (-$244) to $19,897/tonne, while zinc was about flat at $3,201/tonne.Copper led the losses yesterday as markets evaluated the economic threats posed by the Omicron variant and hawkish comments from the Fed chairman in testimony to Congress. The uncertainty over the new strain and how it might impact global economic activity has significantly increased volatility in copper, a barometer for the health of the global economy. Meanwhile, Jerome Powell yesterday signaled a faster than currently planned rollback of the Fed's asset-purchase program and also indicated that it was time to stop using the word "transitory" to describe inflation trends (partly because of the confusion it has caused). However, there was some bullish news for the copper market yesterday from Latin America, where political developments have put mining operations in jeopardy. We believe all of the above-mentioned factors will remain on the agenda in the days to come, while the December Fed meeting will likely be the main focus in metals markets this month.Meanwhile, investors continued to closely track the situation in the coal market. International benchmarks plunged to new recent lows, with the most active API2 and Newcastle contracts closing the month of November at $112/tonne and $138/tonne. The correlation between global coal and natural gas prices has shrunk significantly, as the coal market has started paying more attention to the news coming out of China. Chinese authorities are still discussing a pricing mechanism that would keep coal prices within a "reasonable" range. At the same time, there is a good chance that even more Chinese supply will hit the market in December. According to Bloomberg, China's daily coal output might average as much as 12.7 mtpd this month, after the country hit its target of 12 mtpd in mid-November. However, despite China's efforts to prepare for the winter, there is still a risk of challenging weather conditions due to La Nina, which could bring new upswings in