Commodities Daily - February 7, 2022

> Oil reaches YTD highs with Friday's strong US jobs report remaining in focus. There are no major data releases or oil market events scheduled today. We think Brent will likely stabilize below $94/bbl, as a strong US jobs report will keep leading traders to price in more than five 25 bp rate hikes by the Fed this year.> Gold virtually flat after Friday's US jobs data. Gold traded sideways near $1,805/oz on Friday, while the 10y US Treasury yield rose from 1.84% to 1.91%. Gold is trading near $1,810/oz as we write. There are no significant macro releases today. We expect bullion to trade in a $1,800-$1,810/oz corridor.> Base metals higher; aluminum breaks through resistance; iron ore at five-month high on supply issues. Base metals mostly traded higher on Friday, although the price dynamics were modest given the muted trading volumes on the last day of the Lunar New Year holidays. Today, aluminum is breaking through a strong resistance level and heading toward its October 2021 high. Meanwhile, iron ore is up again on supply issues, though the potential for Chinese policy changes likely limits the upside.OIL REACHED YTD HIGHS WITH FRIDAY'S STRONG US JOBS REPORT REMAINING IN FOCUSOn Friday, front-month Brent carried through the positive momentum from the day before, rising $2.5/bbl to as high as $93.7/bbl as the US stock market jumped to finish its best week of the year amid continued strength in 4Q21 earnings reports. Meanwhile, a much stronger than expected US employment report for January in terms of both job creation (along with substantial upward revisions to prior months) and wage growth implies strong gasoline demand. Businesses are trying to retain as many workers as they can, including those hired for the holiday season. However, this is not all positive for the oil market, as a strong labor market adds more pressure on the Fed to raise rates, which spells a rocky road ahead for risk sentiment. Also supportive was yet another weekly Baker Hughes report showing that the slow pace of active rig count additions in the US is continuing this year amid cold weather in the key oil-producing state of Texas. Brent eventually settled at $93.27/bbl, fixing $2.16/bbl above the previous settlement. This morning, Brent inched even higher, peaking at $94/bbl with Saudi Arabia over the weekend signaling confidence in the outlook for robust demand continuing by raising its crude prices for customers in Asia, the US and Europe for March. There are no major data releases or oil market events scheduled today. We think Brent will likely stabilize below $94/bbl as a strong US jobs report will keep leading traders to price in more than five 25 bp rate hikes by the Fed this year. This week, Iranian nuclear deal talks will be in focus and while there has been no formal announcement on when the next round of talks will start, expectations intensified that it could even be this week. On Friday, the Biden administration restored sanctions waivers to Iran to allow international nuclear cooperation projects, according to an Associated Press report. However, Iran said it still needs guarantees from Washington in order to revive a nuclear deal with world powers. The oil price rally, meanwhile, has been underpinned by rising demand, low stockpiles and interruptions to supply. Strong backwardation in the futures curves in both Brent and WTI continue to signal a tight market. Against this backdrop, EIA, OPEC and the International Energy Agency will release their monthly market outlooks this week, with many increasingly questioning their view of oil market oversupply this year. Meanwhile, European majors BP, Equinor and TotalEnergies report earnings. On the macro front, US January CPI, due on Thursday, is the key event this LD VIRTUALLY FLAT AFTER FRIDAY'S US JOBS DATAGold traded sideways near $1,805/oz on Friday, while the 10y US Treasury yield rose from 1.84% to 1.91%. Meanwhile, EUR/USD edged up from 1.143 to 1.145. The main focus last week was the January US jobs report, which was published on Friday. The report surprised investors, as it showed a significant increase in employment despite the rapid spread of Omicron and the drop in private payrolls reported by ADP on Wednesday. Nonfarm payrolls rose by 467k, more than triple the expected 125k increase, while upward revisions for November and December added another 709k jobs in total. Nonfarm payrolls have increased by an average of 550k per month since the beginning of 2021, suggesting the US labor market is in good shape. Friday's strong jobs data could allow the Fed to act more aggressively at its upcoming meeting in March - markets have already started to price in a larger than 25 bp rate hike. In addition, average hourly earnings rose 0.7% m-o-m in January (consensus 0.5%), which creates risks of a further pickup in inflation. Although gold was initially pressured below $1,800/oz after the data came out, it was later able to recover to around $1,805/oz. It likely found support from growing speculation that the US economy is overheating and that the Federal Reserve may not be able to quickly rein in inflation. Meanwhile, the unemployment rate ticked up to 4.0%, exceeding the consensus estimate and December reading of 3.9%.During the Asian trading session today, gold was quoted near $1,810/oz. There are no significant macro releases on today's agenda. Over the coming week, we will get US CPI for January and the European Commission's updated economic forecasts on Thursday and the February reading of the US consumer sentiment index on Friday. We think gold could move slightly lower today amid persisting pressure from Friday's jobs report, though we expect it to remain in a $1,800-$1,810/oz SE METALS HIGHER; ALUMINUM BREAKS THROUGH RESISTANCE; IRON ORE AT FIVE-MONTH HIGH ON SUPPLY ISSUESBase metals mostly traded higher on Friday. The 3m LME contract for copper was almost flat at $9,842/tonne, aluminum added 0.79% (+$24/tonne from the previous day's close) to reach $3,074/tonne, nickel added 0.50% (+$125/tonne) to settle at $22,991/tonne and zinc rose 0.44% (+$16/tonne) to $3,612/tonne.The previous week ended with base metals posting a restrained performance, as there was subdued action in markets on the last day of the Chinese New Year holidays. Today, there is much more activity, as investors are focused on the recovery in consumption after the week-long holiday. Aluminum is up 2% in the morning trading session, according to Bloomberg, as the focus of attention has shifted toward a supply disruption in the Chinese city of Baise in the Guangxi province, which was put into lockdown on Sunday after Covid-19 infections emerged. The nation's zero-Covid policy continues to significantly affect the economy, which is contributing to the currently elevated metals prices. After breaking through strong resistance at $3,123/tonne, aluminum futures are now likely to head toward their October 2021 high of $3,200/tonne.Meanwhile, iron ore futures in Singapore rose to a five-month high of $148/tonne following a decline in Brazilian and Australian shipments. Lower seaborne supply from the two key mining nations came as a result of unfavorable weather conditions and a resurgence in Covid-19 cases, which disrupted shipments of iron ore to the Chinese steelmaking sector. There might be elevated volatility in the market this week, as the Lunar New Year holidays have come to an end and some steelmakers are likely getting back to work. However, the restrictions on steelmaking during the Olympic games in Beijing are still in place, while Chinese authorities' intentions to crack down on speculation could lead to a cooldown in markets at any