Commodities Daily - January 24, 2022

> Oil prices rebound ahead of preliminary January PMI data. Today, investors await IHS Markit's preliminary January PMIs for the eurozone and the US. We think Brent could retest its YTD high of $89.5/bbl later today, with tailwinds coming from the rebound in US equity futures this morning.> Bullion edges lower ahead of Fed decision. Gold fell from $1,840/oz to $1,835/oz on Friday, while the US 10y Treasury yield slid from 1.81% to 1.77%. During the Asian trading session today, gold is trading flat near $1,835/oz. Today's data releases include the preliminary Markit PMIs for January for the US and eurozone, as well as the Chicago Fed national activity index for December. We expect bullion to trade in a $1,825-1,840/oz range today.> Base metals mostly lower after rally last week; thermal coal back on the rise amid tight supply. Prices on most base metals slipped on Friday after rallying for most of the week. This week, the center of attention is the Fed meeting, which wraps up on Wednesday. Anticipation is high, so elevated volatility is likely to persist in markets. Thermal coal is back on the rise amid tight supply but remains susceptible to developments regarding the Indonesian export ban in the short term.OIL PRICES REBOUND AHEAD OF PRELIMINARY JANUARY PMI DATAOn Friday, after dropping sharply to levels where crude became attractive to buyers, Brent began to pare back its losses, rising $2.5/bbl to as high as $88.2/bbl. This occurred even as US stock markets continued to tumble amid growing expectations that the Fed will raise interest rates as soon as March and building anticipation for the Fed meeting this week. Tailwinds came from a pause in the streak of weekly increases in the US active oil rig count (the number of active oil rigs actually fell by one to 491). However, we think the pause will prove short-lived, as it owed to low temperatures across southern Texas, one of the main oil-producing regions in the US. Front-month Brent eventually settled at $87.89/bbl, fixing $0.49/bbl below the previous settlement. This morning, Brent pushed even higher, touching the $88.9/bbl mark, as President Joe Biden's chief medical adviser Anthony Fauci expressed optimism over the weekend that the surge in Omicron will soon peak, which could lead to a pickup in oil consumption as workers return to offices and people begin to travel more. Furthermore, in the Middle East, the UAE said it had intercepted two ballistic missiles fired by Yemen's Houthi fighters with no loss of life. Last week, the Iran-backed rebel group launched drone strikes on the UAE that caused explosions and a deadly fire outside the capital, prompting an uptick in oil prices. Today, investors await IHS Markit's preliminary January PMIs for the eurozone and the US. We think Brent could retest its YTD high of $89.5/bbl later today, with tailwinds coming from the rebound in US equity futures this morning.This week, apart from the Fed meeting, where the regulator could signal a start to rate hikes in March, oil investors will follow commentary from the Argus Americas Crude Summit, which kicks off in Houston (and online) today, with several executives from the industry scheduled to speak. Fourth-quarter earnings are also starting to roll in, with Chevron and Halliburton among those set to report. Halliburton's results should give investors a closer look at what is happening in the US shale industry, since the fracking giant generates more of its revenues in the US shale patch than rivals. Other highlights this week include January US consumer confidence on Tuesday, the first print of 4Q21 GDP from the US on Thursday, and December personal income and spending data from the US on Friday. In our view, Brent is likely to hit the $90/bbl mark this week. The biggest risk to this scenario is the Fed meeting, which could trigger a selloff in risk assets if the outcome is more hawkish than markets LLION EDGES LOWER AHEAD OF FED DECISIONGold fell from $1,840/oz to $1,835/oz on Friday, while the US 10y Treasury yield slid from 1.81% to 1.77%. Meanwhile, EUR/USD strengthened from 1.131 to 1.134. The macro data seemed slightly positive for gold. The US leading index rose 0.8%, in line with consensus and slightly higher than the revised data for November. In addition, the eurozone preliminary consumer confidence index for January dropped to -8.5, still higher than the expected -9.0. Still, gold failed to break above the $1,840/oz resistance level as markets started to look ahead to the FOMC meeting and decision this week. The Fed is expected to guide for a 0.25 pp hike in rates as soon as March and could give some guidance on the timing for balance sheet reduction. The hawkish expectations provided headwinds for bullion, as higher rates will mean higher Treasury yields and a stronger dollar.During the Asian trading session today, gold is trading flat near $1,835/oz. Today's data releases include the preliminary Markit PMIs for January for the US and eurozone, as well as the Chicago Fed national activity index for December. This week will see the FOMC meeting starting tomorrow, the decision and press conference of Fed Chair Jerome Powell on Wednesday, and preliminary US GDP for 4Q21, December durable goods orders on Thursday and December PCE inflation on Friday. In addition, Conference Board consumer confidence for January is due tomorrow and US house market data will come in during the week. Today, the macro schedule suggests a mixed outlook for bullion, with likely weaker than expected PMIs both in the US and eurozone failing to provide a clear path for gold. However, hawkish expectations in relation to the Fed decision could pressure gold prices. We expect bullion to trade in a $1,825-1,840/oz range SE METALS MOSTLY LOWER AFTER RALLY LAST WEEK; THERMAL COAL BACK ON THE RISE AMID TIGHT SUPPLYBase metals mostly closed in the red on Friday, with nickel an exception. Three-month LME contracts on copper slid 0.49% (-$49/tonne from the previous day's close) to $9,941/tonne, aluminum dropped 2.27% (-$70/tonne) to $3,041/tonne, nickel jumped 0.98% (+$233/tonne) to $24,028/tonne and zinc declined 0.40% (-$15/tonne) to $3,635/tonne.The rally in base metal markets came to a halt on Friday, with quotes slipping nearly across the board. Aluminum led the losses among the major industrial metals, dropping from a local high of $3,111/tonne. There are expectations of an increase in supply from China this year amid a ramp-up of new refining capacity and a return of previously halted production. Meanwhile, stockpiles at the LME and in Shanghai remain at lows, which has kept the market in backwardation, meaning that investors expect a deficit. We believe aluminum might soon retest the all-time high of $3,172/tonne reached in October 2021, when the energy crisis first set in. This week will see increased volatility across all base metal markets with the Fed meeting scheduled to wrap up on Wednesday.Thermal coal prices were up again on Friday, with Newcastle coal quotes (up 5% to $196/tonne) still trading at a premium to the European benchmark. The seaborne market remains tight, even after Indonesia partially lifted its ban on exports last week. We believe Covid-19 restrictions and weather conditions have also had an impact on the supply side, with weaker mining output, transport delays and customs issues putting a lid on global thermal coal deliveries. While prices are expected to remain at elevated levels this year, in the short run the situation with the Indonesian export ban will drive the market. As soon as the ban is lifted in full and the seaborne market is rebalanced, the premium in prices will