Commodities Daily - January 17, 2022

> Oil prices stabilize as investors focus on China's economic growth risks. There are no major data releases scheduled over the remainder of the day today. In our view, Brent is likely to stabilize near $86/bbl, as investors will probably remain cautious on the economic situation in China, where the central bank cut its key policy rate in response to mounting growth risks amid the spread of Omicron.> Rising US Treasury yields pressure bullion. Gold slid from $1,820/oz to $1,815/oz on Friday, while the US 10y Treasury yield jumped from 1.71% to 1.79%. Gold is back up near $1,820/oz as we write. There is a lack of significant macro data today. We expect bullion to trade in a $1,810-1,825/oz range.> Base metals mixed as investors assess US data; Chinese data in focus today. Base metals traded mixed on Friday, as investors weighed US economic data, with Omicron and inflation remaining on the agenda. Today, the focus shifts to Chinese data. We expect an upbeat mood to prevail in the markets.OIL PRICES STABILIZE AS INVESTORS FOCUS ON CHINA'S ECONOMIC GROWTH RISKSOn Friday, Brent rose $2.5/bbl to reach as high as $86.5/bbl despite data from the US showing that retail sales dropped and industrial production growth slowed in December. These data points suggest that the fastest inflation in decades is taking a greater toll on consumers and that factory output remains constrained by persistent struggles with shortages of materials and labor. Further economic headwinds have come from the fast-spreading Omicron variant, which will likely continue to weigh on growth in 1Q22. Despite this, expectations continue to build that the Fed will raise rates from zero at its meeting in March, as the latest comments from the central bank's representatives have suggested there is a growing need to rein in the upward pressure on prices. While the factors above are negative for oil prices, crude benchmarks continue to be driven higher by signs that the market remains tight, as global consumption is widely expected to be little affected by the Omicron strain. Front-month Brent eventually settled at $86.06/bbl on Friday, fixing $1.59/bbl above the previous settlement.This morning, Brent is hovering above $86/bbl as investors digest a raft of Chinese economic data. The data showed that China's economy expanded a strong 8.1% in 2021, far exceeding the government's growth target. However, investors remain concerned that momentum slowed in 4Q21, when the country contended with a deepening crisis in the real estate market and renewed Covid outbreaks (especially given Beijing's strict no-tolerance approach to controlling the virus). Consumption dramatically weakened in December, with retail sales increasing by just 1.7% y-o-y, a sharp slowdown from November's 3.9% y-o-y uptick. There are no major data releases scheduled over the remainder of the day today. In our view, Brent is likely to stabilize near $86/bbl, as investors will probably remain cautious on the economic situation in China, where the central bank also cut its key policy rate for the first time in nearly two years in response to the mounting growth risks amid the spread of Omicron. We note that the 10 basis-point reduction was announced shortly before data came out showing a 4% y-o-y increase in GDP in 4Q21, which was better than the 3.3% growth projected by economists but slower than growth in the previous three months.The main events for oil investors this week apart from the weekly US inventory updates are OPEC's monthly oil market report, which is due on Tuesday, and the IEA's monthly report, which comes out on Wednesday. The IEA report will be closely watched, as the agency's Executive Director Fatih Birol recently said that the demand dynamics are looking stronger than many observers had expected. It is also worth highlighting that following the latest oil price rally the Relative Strength Index (RSI) for ICE front-month Brent crude futures (and also for front-month WTI futures) rose above 70, indicating the front-month Brent contract may be overbought. In the past year, the front-month futures contract has crossed above this level 10 times and fallen an average of 1.3% over the next 20 SING US TREASURY YIELDS PRESSURE BULLIONGold retreated from $1,820/oz to $1,815/oz on Friday, while the US 10y Treasury yield jumped from 1.71% to 1.79% and EUR/USD dropped from 1.145 to 1.141, pressuring gold. Friday's macro data generally disappointed but failed to support bullion. US retail sales contracted by 1.9% in December, versus the consensus forecast of a 0.1% decline. Ten of the 13 categories included in the index declined during the month, which includes holiday-shopping season. Record-high inflation had an impact on sales and consumer demand, giving the Fed more reason to adopt a more hawkish policy at its upcoming meeting January 25-26 and providing an additional headwind for gold. Meanwhile, December US industrial production and the University of Michigan consumer sentiment index for January both came in below expectations. New York Fed President John Williams joined the chorus of Fed officials adopting a more hawkish position, as he said he expects the Fed's next step in reducing its accommodative monetary policy to be rate hikes from near-zero levels. San Francisco Fed President Mary Daly said she does not expect inflation to disappear by itself and expects the Fed to adjust policy. These hawkish comments boosted the 10y Treasury yield and pressured non-yielding bullion.Gold is trading back near $1,820/oz as we write. Today is a holiday in the US, so activity and data releases will be limited. This week will see the publication of the ZEW economic sentiment survey for the eurozone for January, the ECB monetary policy meeting accounts, the US leading index for December and US housing market data. We expect gold to move lower this week amid hawkish statements ahead of the FOMC meeting next week, especially if the data proves inclement for gold. Today, we expect bullion to trade in a $1,810-1,825/oz SE METALS MIXED AS INVESTORS ASSESS US DATA; CHINESE DATA IN FOCUS TODAYBase metals closed mixed on Friday. The 3m LME contract for copper fell 2.40% (-$239/tonne from the previous day's close) to $9,720/tonne and aluminum added 0.83% (+$25/tonne) to $2,977/tonne, while nickel was almost flat at $22,194/tonne and zinc ended the day lower 1.19% (-$43/tonne) at $3,521/tonne.The mixed dynamics came as investors weighed US economic data. Amid threats to economic growth from rising inflation and the Omicron variant, the data ended up intensifying the risk-off sentiment, which forced copper, a barometer for the health of the global economy, to drop the most in seven weeks back to long-held levels. It had recently been rising due to inventories remaining at lows and restocking ahead of the Chinese New Year holidays in full swing. Lower demand during the holidays might keep stocks from falling and bring some calm to the market in the weeks to come.Today, the focus is Chinese data. In 4Q21, Chinese GDP was reported to have grown 4% y-o-y, with 2021 growth at 8.1% y-o-y versus the government's target of "above 6%." Meanwhile, fixed investments and industrial output for December came out above expectations, which suggests the economy is still on the recovery track, despite a period of weak data earlier in 2021. Just before the data release, the PBoC also lowered its 1y medium-term lending facility rate and the 7d reserve repurchase rate, which was more than the market had expected in terms of PBoC easing. While the market still expects more easing measures in China this year, the support might be targeted at preventing a harsh economic slowdown rather than bringing about a rebound. Overall, for metals today's Chinese data might be a positive factor.Investors are also assessing fresh industrial output data out of China. Domestic thermal coal output hit another record, climbing to 385 mln tonnes in December. The annual number turned out higher y-o-y, with the government's effort to boost supply in 4Q21 compensating for lower volumes extracted in 1H21. We believe China seeks to decrease its dependence on foreign coal with the recent power crunch fresh in the mind. Today, coal futures might give up some of their recent gains on the strong Chinese output