Commodities Daily - January 28, 2022

> Oil prices come under pressure despite upbeat US 4Q21 GDP. This morning, Brent is trading near $90/bbl with investors eying the first print of German 4Q21 GDP, eurozone January consumer confidence and US December personal income and spending. In our view, today Brent is most likely to continue consolidating near $90/bbl as strong oil market fundamentals run into headwinds from investors pricing in the outlook for multiple Fed rate hikes this year and next.> Gold prices continue to decline on record US GDP growth. Gold fell from $1,815/oz to $1,795/oz yesterday, while the US 10y Treasury yield slid from 1.86% to 1.81%. Gold is trading near $1,795/oz as we write. Today, markets await US PCE inflation figures and personal income and spending data for December. We expect bullion to test support at $1,785/oz.> Base metals mixed as investors weigh the outcome to the Fed meeting; thermal coal in decline. Base metals had a mixed session yesterday as investors were assessing the outcome to the Fed meeting. Aluminum and zinc still have the potential to test their October 2021 highs. Thermal coal is in retreat as the Indonesian export ban is coming to an end.OIL PRICES COME UNDER PRESSURE DESPITE UPBEAT US 4Q21 GDP Yesterday, Brent mirrored the choppy S&P 500 dynamics, first rallying $2/bbl during the first half of the day toward $91/bbl amid stronger than expected US 4Q21 GDP data. Growth came in at a 6.9% annualized rate following a 2.3% pace in 3Q21 and was the strongest quarterly performance in over a year. Although the highly-contagious Omicron variant has stifled growth in 1Q22, many economists expect solid growth this year as inflationary pressures and supply-chain challenges ease.However, later in the day yesterday both Brent and the S&P 500 began to pare back these earlier gains as investors continued to price in the start of what looks to be an aggressive Fed rate hike cycle. Indeed, the strong GDP growth fueled expectations that the Fed will be more aggressive. Earlier this week, Fed Chairman Jerome Powell said "the committee is of a mind to raise the fed funds rate at the March meeting" if the economic situation evolves as expected. Front-month Brent eventually settled at $89.34/bbl yesterday, fixing $0.62/bbl below the previous settlement. This morning, Brent is trading near $90/bbl with investors eying the first print of German 4Q21 GDP, eurozone January consumer confidence and US December personal income and spending. Regarding the latter, the surge in virus cases likely kept consumers from spending the extra money they received from rising wages in December. In our view, today Brent is most likely to continue consolidating near $90/bbl as strong oil market fundamentals (calendar spreads are at their widest levels since November) run into headwinds from investors pricing in the outlook for multiple Fed rate hikes this year and next. Market participants will also focus on the OPEC+ meeting set for Wednesday next week, with the group very likely to approve a 0.4 mln bpd production hike for LD PRICES CONTINUE TO DECLINE ON RECORD US GDP GROWTHGold fell from $1,815/oz to $1,795/oz yesterday, while the US 10y Treasury yield slid from 1.86% to 1.81%. Meanwhile, EUR/USD dropped from 1.124 to 1.114, touching the lowest levels since mid-2020, which provided significant headwinds for bullion. After the FOMC meeting results and the Fed's clear signals of policy tightening, markets expect five rate hikes this year, which would significantly increase the opportunity costs for holding gold. Gold also faced pressure from yesterday's 4Q21 GDP print from the US, which came in at 6.9%, well above the consensus of 5.5% (the full-year GDP growth figure was a record 5.7%). However, it is worth mentioning that a large portion of the growth stemmed from an increase in inventories, as companies (especially retailers and car producers) were worried about supply-chain bottlenecks and stocked up, expecting to eventually sell the items. This could weigh on GDP growth in 1Q22. Still, the data fueled concerns that the Fed could act more aggressively in its fight against inflation without causing significant harm to the economy. Yesterday's weekly initial jobless claims print was below expectations, suggesting that the impact of the Omicron strain on the labor market has not been all that significant. Gold retreated following these releases and moved through strong support at $1,800/oz, despite the fact that other macro data was mixed.During the Asian trading session today, gold was quoted near $1,795/oz. Today, markets await US PCE inflation figures and personal income and spending data for December. The inflation readings, which will be closely scrutinized by the Fed, will be the main focus. The consensus expects to see a 0.4% m-o-m reading for the PCE deflator and 0.5% m-o-m for core PCE. This would indicate that the upward pressure on prices has not let up. Moreover, given how hawkish the Fed was on Wednesday, market participants could become more worried about aggressive Fed policy, which would create headwinds for bullion. This could push gold below its current levels. We expect bullion to test support at $1,785/oz SE METALS MIXED AS INVESTORS WEIGH THE OUTCOME TO THE FED MEETING; THERMAL COAL IN DECLINEBase metals had a mixed day yesterday. Three-month LME copper contracts were down 1.36% (-$135 from the previous day's close) to $9,782/tonne, aluminum was almost flat at $3,099/tonne, nickel slid 1.31% (-$306) to $22,389/tonne, while zinc was up 0.57% (+$21) to $3,631/tonne.Investors continued to assess the implications of the Fed meeting, while the market consensus shifted toward five interest rate hikes this year (versus three as recently as December). Base metals quotes remain above their 50d, 100d and 200d MAs. Copper is trading just above these important support levels, whereas aluminum and zinc are well above. Aluminum and zinc are trading at higher premiums to other base metals as they have been faced with smelting curbs in Europe, and the risk of further or prolonged capacity shutdowns remain. Aluminum is now testing the $3,100/tonne mark, which if broken will pave the way to the October 2021 high of $3,200/tonne. We now consider this as our base assumption.Meanwhile, thermal coal prices are again retreating, with Newcastle FOB Australia now standing at around $190/tonne. The Indonesian export ban is coming to an end, with China's key trading partner now allowing 171 of around 600 coal miners to restart exports, according to Bloomberg. These companies have either met their domestic market obligation (DMO), which obliges miners to offer at least 25% of their coal to the local market at a capped price of $70/tonne, or paid a penalty. Miners are required to report their DMO compliance every month, with penalties and operating suspensions applied to those not meeting the requirements. With the Indonesian government now monitoring domestic coal supply more actively and the global market tightness still in place, we expect the seaborne market to remain tight. This means that quotes are likely to remain somewhat elevated.