Commodities Daily - January 14, 2022

> Oil stabilizes as investors digest the latest Fed comments and Chinese trade data. Today, investors will be focused on macro data from the US, including December retail sales and industrial production and a preliminary January reading of the University of Michigan consumer sentiment index. In our view, Brent is likely to continue consolidating around the $84/bbl mark amid what we expect to be a mixed batch of US macro data.> Gold edges down amid hawkish Fed comments. Gold slid from $1,825/oz to $1,820/oz yesterday, while the 10y US Treasury yield slipped from 1.74% to 1.71%. Gold is trading near $1,825/oz as we write. Today, the market awaits US retail sales and industrial production data for December, as well as a preliminary reading of the University of Michigan consumer sentiment index for January. We expect bullion to consolidate in a $1,810-1,825/oz corridor.> Base metals mixed as investors weigh US inflation data; Chinese trade data in focus. Base metals traded mixed yesterday, with the cool-off coming after some metals tested psychologically important levels on Wednesday. Meanwhile, iron ore is enjoying its last days at these high levels, in our view. Chinese trade data is in focus today.OIL STABILIZES AS INVESTORS DIGEST THE LATEST FED COMMENTS AND CHINESE TRADE DATAYesterday, Brent yet again failed to hold above $85/bbl. After peaking at $85.1/bbl midday, it eased toward $83.8/bbl as several Fed representatives signaled they would combat inflation aggressively. For instance, Fed Governor Lael Brainard said that the Fed could boost rates as early as March to ensure that inflationary pressures are brought under control. This weighed on risk assets including oil later in the day, along with comments from Philadelphia Fed President Patrick Harker and Chicago Fed President Charles Evans, who joined their policy-making colleagues in calling for higher interest rates this year. On the macro data front, the m-o-m reading of the US PPI gauge edged down in December after picking up significantly in previous months. However, producers continued to face shortages of a variety of materials, a limited supply of labor and transportation bottlenecks, factors that caused producer prices to soar last year. Front-month Brent eventually settled at $84.47/bbl, fixing $0.2/bbl below the previous settlement.This morning, Brent is hovering above $84/bbl as investors continue to digest this morning's Chinese trade data, which showed that crude imports rose 6.8% m-o-m to 10.91 mln bpd in December. However, this still meant that China imported less crude last year than in 2020, marking the first decline in imports since 2005. This decline was driven by rising prices and an ease in stockpiling following a buying spree. The nation imported 10.3 mln bpd of crude oil in 2021, which is about 0.58 mln bpd lower than in 2020. Today, investors will be focused on macro data from the US, including December retail sales and industrial production and a preliminary January reading of the University of Michigan consumer sentiment index. In our view, Brent is likely to continue consolidating around the $84/bbl mark amid what we expect to be a mixed batch of US macro data. A decline in car sales and gasoline prices, along with restaurant closures over the holidays as Omicron cases surged, likely weighed heavily on retail sales in December. Meanwhile, the December industrial production data may show that factories made further progress toward meeting strong demand (though there are signs pointing to a possible setback in January, as Covid-related employee absences have restrained factory activity and disrupted supply chains) LD EDGES DOWN AMID HAWKISH FED COMMENTSGold slid from $1,825/oz to $1,820/oz yesterday, while the 10y US Treasury yield slipped from 1.74% to 1.71%. EUR/USD rose slightly, from 1.144 to 1.145. Weekly initial jobless claims in the US came in at 230k, the highest figure since mid-November, but this failed to support gold. Meanwhile, the US PPI printed at 0.2% m-o-m (0.4% consensus) and 9.7% y-o-y (9.8% consensus) in December. This could signal a slight ease in inflationary pressure going forward, suggesting that the extremely elevated price growth may not prove as lasting as some market participants currently fear. However, the y-o-y PPI reading was at a record level and Fed officials remained hawkish in their comments yesterday. During the hearing on Lael Brainard's nomination for Fed vice chair in the US Congress yesterday, Brainard said the Fed could raise interest rates from the current near-zero level as soon as March, after the bond-buying program wraps up. She also indicated that inflation would remain elevated for at least the next two quarters, but that it might come down closer to 2.5% by the end of the year. Her hawkish remarks were in line with what many of her colleagues have been saying recently and created headwinds for bullion. When the new rate hike cycle kicks off, US Treasury yields will start to rise, which will weigh on gold, a non-yielding asset. Meanwhile, Philadelphia Fed President Patrick Harker said that he would be in favor of a first rate hike in March and three to four rate hikes in total this year, while Chicago Fed President Charles Evans advocated four hikes if price pressures don't improve quickly enough.During the Asian trading session today, gold was quoted near $1,825/oz. Today, the market awaits US retail sales and industrial production data for December, as well as a preliminary reading of the University of Michigan consumer sentiment index for January. Based on the consensus estimates, today's batch of US macro data is likely to be mixed and hence more or less neutral for gold. However, more Fed officials are scheduled to speak today, and they are likely to voice a hawkish view, much like their colleagues have in recent days. This could create headwinds for gold. Overall, we expect bullion to consolidate in a $1,810-1,825/oz corridor SE METALS MIXED AS INVESTORS WEIGH US INFLATION DATA; CHINESE TRADE DATA IN FOCUSBase metals closed mixed yesterday. The 3m LME contract for copper was down 1.05% (-$105/tonne from the previous day's close) at $9,959/tonne and aluminum dropped 1.02% (-$31/tonne) to $2,952/tonne, while nickel was up 0.51% (+$112/tonne) at $22,176/tonne and zinc added 0.32% (+$12/tonne) to $3,564/tonne.Base metals were mixed after a rally on Wednesday that had spurred quotes on most metals to their highest levels since October 2021, while yesterday the movement in the market was muted as investors digested the US inflation print. Today's focus is Chinese trade data. While exports came in just above expectations (20.9%) due to solid global demand, December imports missed the expected y-o-y growth of 26.3%, coming in at 19.5% following a surge of 31.7% y-o-y in November. The lower imports suggest the Chinese economy is slowing, with China, in our view, likely to face challenges in stabilizing trade in 2022. The Chinese property sector downturn, combined with the PBoC's limited room for easing, is among the key headwinds for economic growth in China and is a negative factor for metal demand.While supply risks due to flooding in Brazil (linked to La Nina) and restocking ahead of the Lunar New Year in China are keeping iron ore futures at elevated levels, there are signs that iron ore might be soon entering a consolidation phase. Bearish arguments include lower demand from Chinese steelmakers and a potential increase in the domestic supply of iron ore in China in an effort to become less dependent on exports and get more pricing power. We expect the market balance to move toward a surplus. With inventories already close to all-time highs, the days of iron ore futures at $130/tonne are numbered, in our