Commodities Daily - December 17, 2021

> Oil fluctuates amid weaker dollar and concerns about the demand impact from Omicron. Today, investors will eye the November eurozone CPI and weekly Baker Hughes update on the active US rig count. In our view, Brent is likely to slide to $73.5/bbl on growing concerns about the demand impact from Omicron.> Gold rallies as Treasury yields slide. Gold rallied from $1,780/oz to $1,800/oz yesterday. Meanwhile, the US 10y Treasury yield fell from 1.46% to 1.41%. During Asian trading today, gold is quoted near $1,800/oz. Today's data calendar is light. We expect bullion to trade in a $1,795-1,810/oz corridor.> Base metals surge on supply disruptions. Copper jumped back to its technical levels after a Chilean mine closed production amid community protests, while zinc climbed on new closures of smelters in Europe. Supply-side disruptions are likely to remain in place in 1Q22 as well.OIL FLUCTUATES AMID WEAKER DOLLAR AND CONCERNS ABOUT THE DEMAND IMPACT FROM OMICRONDuring the US session yesterday, Brent gained $1.6/bbl to as high as $75.6/bbl amid a weaker dollar after the BoE and ECB adopted more hawkish stances than markets had expected, giving a boost to sterling and the euro. In a sign that inflation is now of bigger concern to leading central banks than the virus the BoE surprised most market participants by becoming the first major central bank to raise interest rates since the beginning of the pandemic. Later in the day, however, oil prices eased and Brent eventually settled at $75.02/bbl (fixing $1.14/bbl above the previous settlement). As China, the biggest oil importer, limits holiday travel to try to contain Omicron, the outlook for consumption appears to be deteriorating.Brent is under pressure this morning and is sliding toward $74/bbl as Covid 19 cases in the UK have jumped to a record, while hospitalizations have surged across the US. New York City's health commissioner said that Covid-19 data showed an "alarming trend" and predicted a further increase in the case curve. Meanwhile, China's southern Guangdong province is tightening Covid restrictions after a new cluster of infections emerged in the country's manufacturing hub. Today, investors will eye November eurozone CPI and the weekly Baker Hughes update on the active US rig count. In our view, Brent is likely to slide to $73.5/bbl on growing concerns about the demand impact from LD RALLIES AS TREASURY YIELDS SLIDEGold rallied from $1,780/oz to $1,800/oz yesterday. Meanwhile, the US 10y Treasury yield fell from 1.46% to 1.41% and EUR/USD again advanced, from 1.129 to 1.133, which created tailwinds for bullion. New US economic data came in below expectations, while the ECB and BoE came out with hawkish decisions. The US Markit manufacturing PMI for December fell to 57.8 (versus the consensus of 58.5) and the services PMI dropped to 57.5 (58.8 consensus). The report mentioned accelerating new business growth, remaining problems with worker shortages and increasing distribution costs. Meanwhile, the Philadelphia Fed manufacturing survey for December was reported at 15.4 points, about half the expected figure. In addition, US November industrial production rose 0.5% - slightly less than expected. The data might suggest weakness in the US economic recovery and a less hawkish Fed down the road. Yesterday, gold was also supported by ECB and BoE decisions in which the central banks took up a more hawkish stance than expected amid rising inflation.During Asian trading today, gold is quoted near $1,800/oz. Today's data calendar is light. The final eurozone CPI reading for November is due, but we would not expect a major revision. Gold prices, supported by a less hawkish than expected Fed and modest macro figures, could try to get a foothold at the current levels today due to the lack of data and expected news today. We expect bullion to trade in a $1,795-1,810/oz SE METALS SURGE ON SUPPLY DISRUPTIONSBase metals bounced back yesterday after a slide on Wednesday. The 3m LME contract for copper surged 3.35% (+$308/tonne from the previous day's close) to $9,508/tonne, aluminum added 2.70% (+$70/tonne) to $2,667/tonne, nickel advanced 2.66% (+$508/tonne) to $19,624/tonne and zinc jumped 4.60% (+$150/tonne) to settle at $3,422/tonne.The rebound came in the wake of the Fed's hawkish decision on Wednesday. Copper returned to its technical support at $9,500/tonne, as key producer MMG announced it would wind down operations at its Peruvian Las Bambas mine starting Saturday due to local protests. The mine became the second operational site in the region to suspend production after Nexa Resources halted production at Cerra Lindo earlier this week. The news has boosted copper prices and we would expect supply disruptions, especially in Latin America, to remain one of the key factors keeping prices at relatively elevated levels through 2022. Meanwhile, the rally in natural gas prices in Europe continues amid a lack of certification for the Nord Stream 2 pipeline, which means less supply through this winter. This has continued to spur coal prices and brought zinc operation closures in Europe. Soaring power prices in the region forced Trafigura's Nyrstar to place its French smelter on care and maintenance (it had been running at reduced capacity since October), with operations to be fully halted in the first week of January. Nyrstar's other two smelters, in the Netherlands and Belgium, have also been operating at reduced capacity and might run the risk of full closures should power prices move higher in the Benelux region. We believe that the probable supply disruptions create upside for zinc in 1Q22, with the supply-side issues likely to outweigh what is expected to be lower demand for zinc for galvanizing amid Chinese curbs on steel output in the