Commodities Daily - July 20, 2021

> Oil plummets on broad global market selloff and after OPEC+ agreement to boost supply. This morning, Brent is hovering below $69/bbl after yesterday's global market selloff stoked by a Covid-19 resurgence, which has raised concerns about the short-term outlook for energy demand. Investors today will be focused on US housing starts for June and API data on US oil and refined product inventories that is due overnight. We do not expect the selloff to continue today and think that oil's plunge yesterday was overdone and that the market will soon recognize this. We expect oil prices to start gradually paring back these losses and start trending back toward the $70/bbl mark.> Gold trades sideways amid further rise in Covid fears. Gold stuck to a $1,795-1,820/oz range yesterday, while the 10y US Treasury yield declined from 1.29% to 1.18% on the back of rising coronavirus infections in the US and Europe . It is quoted near $1,815/oz as we write. Today, markets await US housing starts and building permits for June, and an ECB bank lending survey. We expect it to test resistance at 1,820/oz.OIL PLUMMETS ON BROAD GLOBAL MARKET SELLOFF AND AFTER OPEC+ AGREEMENT TO BOOST SUPPLYYesterday, Brent tumbled almost $5.6/bbl to as low as $67.75/bbl as the spread of the Delta strain of Covid-19 stoked a risk-off mood in broader markets and cast a pall over the economic recovery. Stocks around the world tumbled, the dollar advanced and investors rushed into safe-haven assets. Meanwhile, tensions between the US and China escalated. The S&P 500 and FTSE 100 fell the most in two months, the Dow Jones Industrial Average had its biggest decline since October and, with risk-off sentiment spreading across global markets, long-term Treasury yields plunged to their lowest level since February (the 10y tumbled as much 12 bps to as low as 1.17%). The resurgence of Covid-19 is unsettling global investors, who are weighing whether new lockdown restrictions could be introduced, which would sap the economic rebound. US government and health officials are warning Americans to avoid traveling to the UK because of a surge in the virus there. Geopolitical jitters also resurfaced yesterday after the US, UK and their allies said the Chinese government had been behind a series of malicious ransomware, data theft and cyber-espionage attacks against public and private entities, including the Microsoft Exchange hack earlier this year.The spread of the Delta strain is also threatening oil demand with fresh mobility restrictions around the world. This comes right on the heels of OPEC+ having agreed to gradually raise quotas by 5.76 mln bpd, 0.40 mln bpd per month from August through April 2022 and by 0.43 mln bpd thereafter. Indonesia has surpassed India and Brazil in daily case numbers, while US infections are outpacing the global rate of increase. The UK on Saturday reported the most cases since January. Sunday's OPEC+ deal should allay fears of an uncontrolled surge in oil production, but confused reporting and misunderstanding of baselines and quotas may keep bulls waiting. As we noted yesterday, OPEC+ baseline changes are essentially a political device to recognize that a core group (Saudi Arabia, Russia, the UAE, Iraq and Kuwait) is restraining production notably below their capacity. Indeed, OPEC+ will still only bring back 5.76 mln bpd to the market by the end of the deal, not the full 7.39 mln bpd implied by the higher baselines. Once the market realizes that the baseline increases are not bearish, prices will be able to rise on strong fundamentals. Brent eventually settled yesterday at $68.62/bbl, $4.97/bbl below the previous settlement.This morning, Brent is hovering below $69/bbl after yesterday's global selloff. Today, investors will be eying US housing starts for June and API data on US oil and refined product inventories (due overnight). We do not expect the selloff to continue today and think that oil's plunge yesterday was overdone and that the market will soon recognize this. We expect oil prices to start gradually paring back these losses and start trending back toward the $70/bbl LD TRADES SIDEWAYS AMID FURTHER RISE IN COVID FEARSGold was stuck in a $1,795-1,820/oz corridor yesterday, while the 10y US Treasury yield eased from 1.29% to 1.18%. EUR/USD closed virtually flat at 1.181, mirroring gold. Eurozone construction output for May edged up 0.9% following a 0.4% decline in April. The US NAHB housing market index for July came in at 80 points, slightly below the consensus of 81. The handful of economic publications yesterday failed to move gold, as markets were worried about the coronavirus. The rising infection rate around the world and especially in the US and some European countries is creating concerns that the economic recovery will slow. The US government yesterday warned citizens to avoid traveling to the UK and Indonesia. UK Prime Minister Boris Johnson's plans to return the country to normal life are in danger from the spread of the Delta variant. On the back of global risk-off sentiment, gold found itself pressured by dollar strengthening and touched $1,795/oz, its lowest point in a week. However, the decline in Treasury yields and the opening in the US brought support and pushed bullion back to as high as $1,815/oz.Gold is still trading near $1,815/oz as we write. Today, the market awaits US building permits and housing starts for June and the ECB's bank lending book. While the markets are expecting a slight increase in US housing construction, we will be keeping a closer eye on the US infection rate, which has tripled in the past month to 55k per day. We expect gold to test resistance at $1,820/oz today, which would pave the way to the 200d MA of $1,825/