Commodities Daily - February 2, 2021

> Oil prices rise as stock markets rally. Investors continue to eye the effort to push Biden's $1.9 trln relief plan through Congress. Also on the radar today will be a eurozone 4Q20 GDP estimate and an overnight API update on US oil and refined product inventories. This morning, Brent is trending higher amid rallying stock markets and trading just short of the $57.20/bbl resistance level, with a break above opening the path to gains into the $57.50-58.00/bbl range. In our view, however, prices are most likely to consolidate within a $56.40-57.20/bbl range amid profit taking, with a break below possibly causing a correction into the $55.90-56.20/bbl range.> Gold and silver trend lower, with speculative silver rally ebbing. Today, investors will continue to keep an eye on Reddit forum news and will await eurozone preliminary 4Q20 GDP. January's services and composite PMIs begin coming in overnight. We expect silver to move below $27/oz today, while gold is likely to test support at $1,840/oz.OIL PRICES RISE AS STOCK MARKETS RALLYAfter starting the week yesterday trading near $54.70/bbl, front-month Brent began to rally, mirroring major stock market indexes and S&P 500 futures in particular during the day. Having broken the nearest technical resistance at $55.50/bbl midday, it pushed toward and eventually broke through the next at $56.20/bbl during the Wall Street session. The positive momentum came despite a correction in EUR/USD from 1.213 to 1.206 as German retail sales plunged more than expected in December and the IHS Markit manufacturing PMI for the eurozone in January fell to 54.8 points, down from 55.2 in December (amid the second Covid wave and the reintroduction of quarantine measures). In addition, the January US ISM manufacturing PMI fell to 58.7 from a three-year high of 60.5 in December. Nevertheless, this all did little to derail yesterday's oil price rally, with the market seeing the results as consistent with a rapid manufacturing recovery. The MSCI Europe gained 0.7% on the day, while the S&P 500 rallied 1.6% and the NASDAQ Composite 2.5% as investors returned to tech. Front-month Brent eventually settled at $56.35/bbl, fixing $0.47/bbl above the previous settlement. In our view, the market is primarily focused on demand and unsure how to trade the current headwinds working against a demand recovery, given that April is now the front-month Brent contract and demand is expected (according to most analytical agencies) to be markedly stronger then than it is today - yet how much stronger remains the question. For there to be sustainable upward momentum in prices, demand must start to recover first. We believe a meaningful improvement in personal mobility will not come until Covid-19 vaccines are more widely distributed, so the slow rollout in several Western countries is a key factor for the timing of the uptick in demand. The latest news that the US now has more people vaccinated than have tested positive for Covid-19 is strongly supporting oil prices this morning. Meanwhile, investors continue to eye the effort to push Biden's $1.9 trln relief plan through Congress. The new president met with Republican senators yesterday and appeared poised to push forward with his plan even if it fails to draw Republican support (Republicans are countering with a much narrower $618 bln proposal). Note that yesterday Democratic leaders in Congress started the process of advancing a budget bill that would unlock special Senate rules allowing Biden's plan to pass with a simple majority vote in the Senate instead of the 60 votes usually needed, meaning no Republican votes would be necessary. Also on the radar today will be a eurozone 4Q20 GDP estimate and an overnight API update on US oil and refined product inventories. This morning, Brent is trending higher amid rallying stock markets and trading just short of the $57.20/bbl resistance level, with a break above opening the path to gains into the $57.50-58.00/bbl range. In our view, however, prices are most likely to consolidate within a $56.40-57.20/bbl range amid profit taking, with a break below possibly causing a correction into the $55.90-56.20/bbl range.GOLD AND SILVER TREND LOWER, WITH SPECULATIVE SILVER RALLY EBBINGGold opened near $1,855/oz yesterday while silver was trading at $28.65/oz before both started to generate momentum. Bullion eventually failed to break past the $1,870/oz mark, while silver peaked at $30/oz. The positive momentum came despite a correction in EUR/USD from 1.213 to 1.206, as German retail sales plunged more than expected in December, the eurozone January IHS Markit manufacturing PMI was down from last month, and so was the US ISM manufacturing PMI. Both silver and gold began to ease in the afternoon amid a rise in US 10y Treasury yields, which was also a delayed reaction to dollar strengthening.Investors continue to watch for progress in the US president's $1.9 trln Covid relief plan. Biden met with Republican senators at the White House yesterday and appeared poised to push forward with his plan, even without Republican support (Republicans have countered with a much smaller $618 bln proposal). Democratic leaders in Congress yesterday started the process of advancing a budget bill that could unlock special Senate rules allowing Biden's package to pass with a simple majority vote in the Senate, instead of the 60 votes usually needed, meaning no Republican votes would be necessary. Further progress would be supportive for both gold and silver.The silver price continues to make global headlines, and retail investor sentiment remains the main price driver. This morning, silver slid below the $28/oz mark while gold is falling toward $1,845/oz as we write. The gold/silver ratio has reversed to 66.5 after freefalling from almost 74 to 62.5, which we think is a sign that the recent speculative silver price rally is easing. Amid elevated volatility, CME Group raised margins on Comex silver futures to $16,500 per contract from $14,000. Meanwhile, the latest Reddit commentary seems to be very conflicting about the speculative silver trade, with many not supporting the idea of speculative inflow. Some market watchers are warning others that chasing up a commodity would be a tougher proposition than squeezing single stocks such as GameStop, while others point to the fact that US hedge fund Citadel is benefiting from the silver price increase. Today, investors will continue to keep an eye on Reddit forum news and will await eurozone preliminary 4Q20 GDP. January's services and composite PMIs begin coming in overnight. We expect silver to move below $27/oz today, while gold is likely to test support at $1,840/oz.