Commodities Daily - January 27, 2022

> Oil prices come under pressure following Fed meeting results. This morning, Brent is hovering above $89/bbl, with investors today primarily eyeing the first print of US 4Q21 GDP, weekly US jobless claims and December US durable goods orders. We think that today Brent will keep trading near $89/bbl and will struggle to secure above $90/bbl after Fed Chairman Jerome Powell not only signaled a March interest-rate liftoff, but also stoked speculation about the possibility of unexpectedly aggressive policy tightening, which resulted in a stock market selloff and further strengthening of the dollar. > Gold falls after Fed decision. Gold fell from $1,845/oz to $1,815/oz yesterday, while the US 10y Treasury yield rallied from 1.77% to 1.86%. Gold is trading near $1,815/oz as we write. Today, markets await US GDP for 4Q21, US durable goods orders for December and plenty of other macro data. We expect bullion to test support at $1,810/oz.> Base metals to price in hawkish Fed today; iron ore flat after seasonal restocking ends. Base metals traded mostly higher yesterday ahead of the Fed decision. Today, they are likely to react to the Fed's hawkish stance and stronger dollar. Iron ore is flat as seasonal restocking has come to an end in China, with weaker demand from the steelmaking industry expected in the weeks to come.OIL PRICES COME UNDER PRESSURE FOLLOWING FED MEETING RESULTSYesterday, Brent rallied almost $2.7/bbl to peak at $90.47/bbl midway through the US trading session. This was despite a mixed EIA weekly inventory report showing a surprise 2.38 mln bbl gain in US commercial crude stocks. The rise was the largest since October and came amid still-subdued exports at below 2.8 mln bpd, although Cushing stocks kept falling. However, we expect to see draws in next week's data as exports pick up, with January draws at around 2 mln bbl but February builds at around 10 mln bbl. US gasoline stocks rose by 1.3 mln bbl to 248 mln bbl last week, the highest level in nearly a year as exports remained at extreme historical lows. Also note that gasoline demand rose w-o-w, but the rise was not enough to reverse a fourth consecutive week of losses on the four-week rolling average. Refiners continue to favor making gasoline, boosting its output, in turn building up inventories in preparation for strong seasonal demand this summer. We expect gasoline stocks to rise around 3 mln bbl in the week ending January 28.Meanwhile, US distillate stocks drew by 2.8 mln bbl as exports rose and the recent cold snap increased domestic heating demand. We forecast distillate stocks being flat next week. The four-week average for propane and propylene demand reached a record high also on the back of demand for heating, thus resulting in strong inventory draws. This came amid strong draws in the "other oils" category, resulting in a 4 mln bbl decrease in total US stocks including crude oil and refined products (excluding SPR).Following the weekly EIA inventory report, investors' attention turned to the Fed meeting, at which signals were provided that interest rate hikes would start soon. This dented appetite for risk assets including crude oil. Front-month Brent eventually settled at $89.96/bbl, fixing $1.76/bbl above the previous settlement. The hawkish Fed resulted in a strong global market risk-off, pressuring Brent toward $89/bbl, where it is trading this morning. Investors today will primarily eye the first print of US 4Q21 GDP, weekly US jobless claims and December US durable goods orders. We think that today Brent will keep trading near $89/bbl and will struggle to secure above $90/bbl after Fed Chairman Jerome Powell not only signaled a March interest-rate liftoff, but also stoked speculation about the possibility of unexpectedly aggressive policy LD FALLS AFTER FED DECISIONGold fell from $1,845/oz to $1,815/oz yesterday, while the US 10y Treasury yield rallied from 1.77% to 1.86%. Meanwhile, EUR/USD slid from 1.130 to 1.124, creating headwinds for bullion. Despite yesterday's at best mixed macro statistics, the hawkish tone of the FOMC meeting results sent gold prices downward. First of all, the federal funds rate target was kept unchanged, while the pace of the QE reduction remains the same $30 bln per month, which means the QE program is still on track to end in early March. The statement also mentioned Covid risks, the substantial decline in the unemployment rate and the likelihood of an interest rate hike in the near future. Interestingly, Fed Chairman Jerome Powell provided further hawkish signals in his press conference. He said that inflationary pressures may last longer than previously expected and that there is a risk that inflation will move even higher. He also made it clear that the central bank is closely monitoring price growth and is ready to adjust its monetary policy if needed. Moreover, he all but confirmed that the Fed will go ahead with the first rate hike at the March meeting and that the FOMC is open to a more aggressive rate hike cycle. However, Powell did not indicate what the plans are for the balance sheet reduction and when it might begin, though he did mention that it would come after the first rate increase. Overall, the statement and the press conference were slightly more hawkish than was expected and the narrative about inflation has changed somewhat, while the Fed sees risks of higher and longer-lasting price growth and is ready to respond. The Fed outcome caused gold prices to sink, as higher Treasury yields and a stronger dollar increase the opportunity costs of holding bullion.During the Asian trading session today, gold was quoted near $1,815/oz. Today, markets await US GDP for 4Q21 and US durable goods orders for December. The Kansas City Fed's manufacturing activity index (January) and weekly initial jobless claims are also on tap from the US. The consensus expects 5.5% GDP growth and signs of improvement in the labor market, which would create headwinds for bullion. Gold prices could also face pressure as Asian and European investors continue to weigh the Fed decision. We expect bullion to test support at $1,810/oz today, with a drop below opening the path to $1,800/ SE METALS TO PRICE IN HAWKISH FED TODAY; IRON ORE FLAT AFTER SEASONAL RESTOCKING ENDSBase metals closed mostly with gains yesterday. The 3m LME contract for copper was up 1.18% (+$116/tonne from the previous day's close) at $9,917/tonne, aluminum was about flat at $3,094/tonne, nickel added 1.59% (+$355/tonne) to $22,695/tonne and zinc gained 1.05% (+$37/tonne) to $3,610/tonne.Base metals mostly edged higher before the Fed decision. The Fed's hawkish stance pushed the dollar higher, which is likely to put a lid on commodity prices today. Although Chairman Jerome Powell promised action to tame inflation, we believe a U-turn in inflation is unlikely in the near future - the market expects prices to remain at elevated levels for some time. In this case, commodity prices would see moderate pressure from Fed tightening, with most base metals likely to remain above their technical levels (50-, 100- and 200-day moving averages) for some time.Meanwhile, iron ore futures in Singapore are flat as the Lunar New Year holidays and the Winter Olympics in Beijing approach in February. Seasonal restocking has come to an end in China, and we expect volatility in the iron ore market to be limited due to lower demand in China. While the Chinese government has promised to support economic growth via monetary and fiscal measures this year, demand for iron ore from the steelmaking sector will be hard to estimate until the annual "National People's Congress" in mid-March. In the meantime, weak iron ore demand in February could drive higher inventories, pressuring prices in the short