Commodities Daily - January 18, 2021

> Oil slides on disappointing US data and ramp-up of Chinese lockdown amid rise in Covid-19 cases. Today is Martin Luther King Day in the US, with WTI scheduled to halt trading at 21:00 Moscow time, though it will be resumed overnight. We believe that ongoing dollar strengthening amid the rapid spread of the coronavirus globally still offers downside risks for oil, and today we expect Brent to test support at $54.1/bbl, which could pave the way to $53/bbl.> Gold paring some of Friday's losses to start the week. Covid cases are rising globally, which should be gold-supportive, with new lockdowns in China, rising cases in France and Germany and a rising death toll in Norway. Fears about vaccine side effects could also be unnerving investors. Also positive for gold is better than expected Chinese data reported this morning, including 4Q20 GDP and industrial production. The yellow metal has thus pared back some of Friday's losses and is battling with the $1,839/oz resistance level as we write. In our view, the dollar will most likely continue to advance globally, pressuring gold back to $1,810/oz later this week. A break below would likely cause a fall to $1,791/oz.OIL SLIDES ON DISAPPOINTING US DATA AND RAMP-UP OF CHINESE LOCKDOWN AMID RISE IN COVID-19 CASESBrent opened near $56.5/bbl on Friday but slipped to the $55.5/bbl mark during European trading. Early in the Wall Street session, it retreated to $54.6/bbl before eventually settling at $55.1/bbl, down $1.32/bbl on the day. Brent was mirroring EUR/USD, with the dollar posting significant gains, as well as global equities, which were suffering from falling risk asset appetite amid sluggish US retail sales. Sentiment was further hit by reports that the Trump administration intends to introduce more measures to make trade between Chinese and US companies more difficult prior to the end of its term this Wednesday. Further headwinds came from the US active oil rig count, which last week rose by 12 units to 287, its highest level since May. This morning, investors have been digesting upbeat data from China, where GDP expanded 6.5% y-o-y in 4Q20 (beating the Bloomberg consensus of 6.2%), taking 2020 growth to 2.3%. This means that China was the only major economy to avoid a contraction last year. Meanwhile, Chinese industrial output rose 7.3% in December, beating the Bloomberg consensus of 6.9%. This means that the ongoing rise in Chinese coronavirus cases could undermine this rare source of global economic growth, which would be strongly negative for industrial commodities. Today, China's National Health Commission reported more than 100 new cases for a sixth consecutive day, fueling concerns of another national wave ahead of Chinese New Year, the country's biggest holiday. Beijing will begin requiring travelers from abroad to undergo health monitoring for seven additional days following 21 days of medical observation, while the city of Gongzhuling in Jilin province, which has a population of around 1 mln people, has also imposed a strict lockdown, shutting all but essential stores.Today is Martin Luther King Day in the US, with WTI scheduled to halt trading at 21:00 Moscow time, though it will be resumed overnight. This morning's upbeat Chinese data has provided mild support for oil, though the rise in global coronavirus cases (particularly in China), fears over fairly serious vaccine side effects and concerns that Joe Biden's $1.9 trln stimulus plan might encounter problems in Congress are prevailing as key negative factors. Today, we expect Brent to test support at $54.1/bbl, which could pave the way to $53/bbl. After Friday's correction, the next resistance mark is at $55.2/bbl, with a break above potentially leading to a gain to the $55.6-56.2 range, although we think that this is unlikely this week. The IEA will publish its supply and demand estimates in its monthly oil market report tomorrow. The Atlantic Council begins its global energy forum online the same day and will involve the UAE's energy minister and OPEC's secretary-general. The US holiday today and Biden's inauguration on Wednesday will affect the weekly US inventory data, which will be released at the end of the week.GOLD PARING SOME OF FRIDAY'S LOSSES TO START THE WEEKOn Friday, after trading around $1,850/oz during the first half of the day, gold prices began to slide, hitting the $1,825/oz mark. This morning, it retreated further toward $1,810/oz before rebounding. A rising dollar is a key driver behind this correction, with global risk-off sentiment rising during the second half of the day on Friday amid a growing decline reported in US retail sales for December (as renewed virus measures undercut spending at restaurants and reduced shopping). In addition, the January University of Michigan consumer sentiment index also missed the consensus, falling to 79.2. Meanwhile, a possible collapse in Italy's ruling coalition has increased political risks for the euro (a snap election is thought could increase the power of euro-skeptics in the country), which has pressured gold.Covid cases are rising globally, which should be gold-supportive, with new lockdowns in China, rising cases in France and Germany and a rising death toll in Norway. Fears about vaccine side effects could also be unnerving investors. Also positive for gold is better than expected Chinese data reported this morning, including 4Q20 GDP and industrial production. The yellow metal has thus pared back some of Friday's losses and is battling with the $1,839/oz resistance level as we write. In our view, the dollar will most likely continue to advance globally, pressuring gold back to $1,810/oz later this week. A break below would likely cause a fall to $1,791/oz. Later in the day today, former US Fed Chair and current Treasury secretary nominee Janet Yellen will testify to the US Senate. Last pardons by outgoing US President Donald Trump may generate volatile political headlines. Wednesday will see the US presidential inauguration. BoE Governor Andrew Bailey is scheduled to speak, while China, Brazil and Canada are among countries to see central bank rate decisions. The ECB will make a rate decision on Thursday.