Commodities Daily - January 25, 2022

> Oil tumbles along with stock markets before starting to stabilize. Today, investors will eye January US consumer confidence data and the weekly API update on US oil and refined product inventories that is due overnight. In our view, Brent is likely to stabilize in the current $86-87/bbl range after the recent spike in volatility.> Gold advances slightly on weak macro data. Gold rose from $1,835/oz to $1,840/oz yesterday, while the US 10y Treasury yield traded sideways near 1.77%. Gold remains near $1,840/oz as we write. Today's data releases include the US Conference Board confidence index and the Richmond Fed manufacturing index, both for January, and the US housing price index for November. We expect bullion to trade in a $1,825-1,840/oz range today.> Base metals trade lower amid risk-off mood; Fed meeting still the main focus in metals markets. Base metals extended their declines yesterday amid heightened geopolitical risks and expectations of a further hawkish shift from the Fed this week. A stronger dollar pushed base metal prices lower, with volatility remaining elevated. The main focus in metals markets remains the Fed meeting, which wraps up tomorrow. OIL TUMBLES ALONG WITH STOCK MARKETS BEFORE STARTING TO STABILIZEYesterday, after rising to as high as $88.9/bbl, Brent slid toward $85/bbl, dragged down by a tumble in the S&P 500 and a strengthening in the dollar amid growing concerns about tighter US monetary policy. Another negative factor at play was a comment from Iran that a return to the nuclear deal was closer than ever, even if progress has been slow. The US has said that a revival of the deal is unlikely if Tehran doesn't release four Americans that Washington says are being held hostage. In our view, the lack of a strong negative price reaction to the positive tone emerging from the talks is partly because there has not been a breakthrough yet, and partly due to fatigue in markets from following the ups and downs in the process. We are clearly not at the point of breakthrough yet. We think it should become clearer within the next three to four weeks whether there is a viable path to reviving the deal, which is perhaps the main downside risk for the oil market in the near term.Preliminary European and US PMI readings did not help markets yesterday either, as they were generally downbeat. With the Omicron variant sweeping across Europe, governments have been encouraging citizens to stay home and avoid socializing, while soaring prices have discouraged consumers from spending. The bright spot was an upturn in the manufacturing PMI for Germany, where factories have benefited from an ease in supply chain bottlenecks. Meanwhile, the US manufacturing, services and composite PMIs fell to their lowest levels since 2020. However, dip-buyers swooped in late in the day as global risk-off eased, with Brent eventually settling at $86.27/bbl, fixing $1.62/bbl below the previous settlement.Today, investors will eye January US consumer confidence data and the weekly API update on US oil and refined product inventories that is due overnight. We think the consumer confidence index could drop substantially given the Omicron impact. Moreover, the gauge is sensitive to developments in the labor market, so the recent spike in jobless claims does not bode well for the January reading. As for the API report, we think crude oil, gasoline and distillate inventories could all be higher, providing headwinds for oil prices. In our view, Brent is likely to stabilize in the current $86-87/bbl range after the recent spike in LD ADVANCES SLIGHTLY ON WEAK MACRO DATAGold rose from $1,835/oz to $1,840/oz yesterday, while the US 10y Treasury yield traded sideways near 1.77%. EUR/USD slid from 1.134 to 1.131. Macro data provided a tailwind for bullion yesterday. The January Markit manufacturing and services PMIs for the US came in below the consensus. The services PMI was just above 50 points, down from 57 in December and reaching its lowest level since 2020. Producers clearly face problems with rising prices and soaring wages bills, with labor shortages pressuring businesses more than in December. This put the US recovery under increased scrutiny and slightly outweighed the market's expectations of Fed hawkishness. Meanwhile, the January Markit manufacturing PMI for the eurozone came in better than expected, while the services PMI declined somewhat, which failed to provide clear support for gold. The Chicago Fed national activity index reached its lowest level since last February. However, gold failed to climb significantly, as the FOMC will start today and investors may soon receive confirmation of their hawkish worries. Gold is still trading near $1,840/oz as we write. Today's data releases include the US Conference Board confidence index and the Richmond Fed manufacturing index, both for January, and the US housing price index for November. The FOMC meeting starting today could pressure gold ahead of the outcome, while the IMF will release an updated World Economic Outlook. Today's data could offer further clues as to whether the US recovery is slowing, which could support gold. However, in anticipation of pressure from the FOMC meeting, we expect bullion to trade in a $1,825-1,840/oz range SE METALS TRADE LOWER AMID RISK-OFF MOOD; FED MEETING STILL THE MAIN FOCUS IN METALS MARKETSBase metals closed in the red yesterday. Three-month LME contracts on copper dropped 2.14% (-$213/tonne from the previous day's close) to $9,728/tonne, aluminum dropped 0.39% (-$12/tonne) to $3,029/tonne, nickel plunged 6.76% (-$1,624/tonne) to $22,404/tonne and zinc sank 1.09% (-$39/tonne) to $3,596/tonne.The correction that started on Friday continued yesterday, with base metals erasing most of last week's gains. Notably, there was no significant news on supply and demand (except for nickel). While base metals were able to shrug off the negative global risk sentiment for most of last week, they have now joined the global selloff. The mood in global markets has turned increasingly risk-off amid heightened geopolitical tensions and as this week's Fed meeting draws nearer. The dollar is strengthening on growing expectations of policy tightening by the Fed, which has weighed on base metals. Copper, a bellwether for the global economy, is the base metal most sensitive to macroeconomic developments (it is also the most volatile in general), which is why it posted such a sharp decline yesterday. Aluminum, meanwhile, saw a more moderate decline, as its market is currently the tightest across the base metals space (for this reason, we still think it is poised to test its recent high of $3,172/tonne in the near future). Overall, tomorrow's Fed outcome will set the tone for all risky assets, including metals. No news would be good news and likely allow base metals to pare back some of their recent losses, or at least trade range-bound. On the other hand, if the regulator hints at a less cautious approach, amending its policy outlook or changing its rhetoric in a material way, we would likely see the dollar strengthen and base metal prices extend their losses.