Commodities Daily - December 21, 2021

> Oil prices paring back losses after sliding along with broader financial markets. This morning, Brent is hovering just above $72/bbl, supported by the expectations that vaccines can help tame the omicron virus outbreak and signs that US President Joe Biden could yet revive his $2 trln economic agenda. Today, investors are eyeing the weekly API update on US oil and refined product inventories that is due overnight. We think the API figures will support Brent, which we expect to consolidate within the $72-73/bbl range today. > Gold loses shine as US Treasury yields climb. Gold slid from $1,800/oz to $1,790/oz yesterday, while the US 10y Treasury yield rose from 1.41% to 1.43%. Gold is trading near $1,790/oz as we write. Today, the market awaits the preliminary eurozone consumer confidence index for December. We expect bullion to trade in a $1,790-1,805/oz range today.> Base metals mostly lower on fast spread of Omicron; iron ore on the rise. Base metals closed mostly in the red yesterday as risk-off sentiment prevailed due to the fast spread of the Omicron variant and new restrictions in Europe. While the effect on metals is being smoothed by China having further eased monetary policy, copper prices are finding additional support from the Chilean election result. Iron ore prices continue to move higher, backed by steps taken by the Chinese authorities.OIL PRICES PARING BACK LOSSES AFTER SLIDING ALONG WITH BROADER FINANCIAL MARKETSYesterday, Brent slid almost $3.6/bbl toward $69.3/bbl before rebounding to $72/bbl. Pessimism prevailed across financial markets as rising infections have prompted restrictions on travel, while US economic sentiment took a hit after Biden's $2 trln spending package was derailed by the surprise revolt of Senator Joe Manchin. President Biden spoke to Manchin on Sunday, a conversation that the White House believes left the door open to revive talks on the spending plan. Yesterday, Manchin outlined possible changes that might draw his support, saying he could back a revised $1.75 trln bill. Yesterday, front-month Brent eventually settled at $71.52/bbl, $2/bbl below the previous settlement.This morning, Brent is hovering above $72/bbl, supported by expectations that vaccines can help tame the Omicron virus outbreak and signs that Biden could yet revive his $2 trln economic agenda. Moderna became the latest vaccine maker to say that a third dose of its Covid-19 shot increased antibody levels against Omicron, underscoring the range of coronavirus treatments now available. Omicron accounted for 73% of all Covid-19 infections last week in the US, according to CDC data. Almost all of the remaining cases were of the Delta strain. London hospitalizations were 34% higher than a week ago and the city canceled a New Year's Eve event. Today, investors are eyeing the weekly API update on US oil and refined product inventories that is due overnight. We think the API figures will support Brent, which we expect to consolidate within the $72-73/bbl range today. LD LOSES SHINE AS US TREASURY YIELDS CLIMBGold slid from $1,800/oz to $1,790/oz yesterday, while the US 10y Treasury yield inched up from 1.41% to 1.43% and EUR/USD firmed from 1.125 to 1.128. The US leading index for November came in at 1.1%, slightly above the 1% expected and the 0.9% reading in October. Positive US economic data is negative for bullion, as it reminds investors that the Fed could turn more hawkish at its next meeting. Another slight headwind for gold was provided by news that Democrats had failed to approve Joe Biden's $2 trln infrastructure plan, which investors interpreted as a setback for economic sentiment. However, the talks could be renewed, as Senator Joe Manchin has outlined possible changes that might draw his support to back a revised $1.75 trln bill. Meanwhile, the Omicron strain now accounts for 73% of new cases in the US, the hospitalization rate in the UK rose 34% last week and the World Economic Forum in Davos has been postponed. Moderna reported that a third dose of its vaccine raises antibody levels against the new strain. Overall, yesterday's coronavirus news didn't provide significant support for bullion.Gold is still trading near $1,790/oz as we write. Today, the market awaits the preliminary eurozone consumer confidence index for December. The spread of Covid could provide support for bullion, as new lockdowns remain a risk for the US recovery. Meanwhile, the consensus expects lower consumer sentiment in the eurozone in December, which could herald a stronger dollar and lower gold price. We expect bullion to consolidate near current levels and trade in a $1,795-1,805/oz corridor SE METALS MOSTLY LOWER ON FAST SPREAD OF OMICRON; IRON ORE ON THE RISEBase metals closed mostly in the red yesterday. Copper, however, was an exception: three-month LME contracts were up 0.10% (+$9 from the previous day's close) to $9,447/tonne. Meanwhile, aluminum slid 1.96% (-$54) to $2,671/tonne, nickel dropped 1.57% (-$308) to $19,340/tonne, while zinc was 0.96% (-$32) lower to settle at $3,355/tonne.Most base metals dropped yesterday on the general risk-off sentiment caused by the quick spread of the Omicron variant. New curbs to fight a surge in Covid-19 cases in Europe (stricter restrictions on travel at the height of the holiday period) and postponement of the World Economic Forum in Davos overshadowed some bullish signals for metals. The latter included the PBoC's move to further loosen monetary policy and Chile's election of leftist leader Gabriel Boric as the new president. Copper remained almost flat d-o-d yesterday, as investors weighed the potential changes that might come with the new president in the world's leading copper mining nation. Boric has emphasized social justice, a hot-button issue in the country right now, and backs higher taxes on both the rich and the mining industry, which could potentially limit global supply of the red metal and push prices higher.Meanwhile, iron ore futures extended their rebound from an 18-month low after yesterday the PBoC cut its one-year loan rate for the first time since the pandemic broke out (to 3.80% from 3.95%). This comes after it slashed its reserve-requirement ratio last week. Furthermore, Chinese authorities are encouraging local banks to fund acquisitions of projects of distressed developers, while additional support to iron ore quotes is coming from increased steel output this month after steel mills had cut back output excessively earlier this year due to the government-imposed curbs. However, we do not consider this rebound in output to represent a turnaround and expect the market to cool off in 1Q22, when the promised curbs on steelmaking take