Commodities Daily - July 23, 2021

> Oil continues to rise amid strong demand; preliminary PMIs in focus. This morning, Brent has continued to hover below $74/bbl, meaning that prices are now little changed on the week, having recouped most of the losses from Monday, when crude plunged along with global stock markets on concerns that the spread of the Delta Covid variant would crimp consumption just as the OPEC+ alliance moved to supply more barrels to the market. Today, oil investors will eye preliminary IHS Markit PMI data from DMs to see whether the economic momentum from previous months has carried through into July. We expect a mixed set of PMI data, which we think should lead to Brent holding below $74/bbl for the rest of the day.> Gold in horizontal trend with Treasury yields stable. Gold closed about where it opened yesterday, near $1,805/oz, while the 10y US Treasury yield consolidated around 1.28%. Yesterday's US macro data was supportive and the ECB reiterated its dovish stance. Bullion is trading near $1,805/oz as we write. Today, markets await preliminary July Markit PMIs for the US, the eurozone and other DMs. Bullion may try to test resistance at $1,810/oz.OIL CONTINUES TO RISE AMID STRONG DEMAND; PRELIMINARY PMIS IN FOCUSYesterday, Brent rallied $2.1/bbl to $73.9/bbl amid signs that gasoline demand is essentially back to normal in many of the biggest oil-consuming countries. Road traffic data also showed a return to normal. As more people get vaccinated against Covid-19, more movement restrictions are being eased. And while the emergence and spread of the highly infectious Delta variant has set back that process, especially in parts of Asia, investors think the broader positive narrative remains intact. Bloomberg's demand monitor shows that gasoline demand is within 4% (in either direction) of 2019 levels for the same time of the year in the US, India, Spain and Portugal, while consumption was down 6% in the UK in the latest weekly data available from various government agencies and companies. We also note that gasoline sales in India bounced back to pre-Covid levels in early July for the first time since the brutal wave of infections swept across the nation in April and May. Meanwhile, over the past two weeks Europe's air traffic data shows that flights are at close to two thirds of the 2019 level. Our demand modeling suggests that it may take another year until total global demand exceeds the 2019 levels, and that by mid-2022 about three quarters of global oil demand will come from countries where immunization has reached 60%, meaning they should no longer be at risk of lockdowns or other measures constraining economic activity and oil demand. Yesterday, Brent settled at $73.79/bbl, $1.56/bbl above the previous settlement.This morning, Brent has continued to hover below $74/bbl, pressured by a downtrend in EUR/USD that started after the ECB meeting yesterday. As widely expected, the regulator made no changes to its rates or facilities. However, the Governing Council revised its forward guidance on interest rates (having recently upgraded its inflation target to a symmetric 2% over the medium term), which investors took as a promise that the ECB will remain accommodative for a longer period of time. Meanwhile, the ECB's commitment to purchase $2.2 trln of bonds through March 2022 as part of its Pandemic Emergency Purchase Program remained intact. On a more negative note, escalating Covid woes in Australia and the UK, along with the gradual rise in Delta infections in the eurozone, have posed a challenge to risk sentiment. But in the US, policymakers remain hopeful that President Biden's infrastructure spending bill will pass through the House, even after it was turned down for opening debate.Oil prices are now little changed on the week, having recouped most of their losses from Monday, when crude plunged alongside global stock markets on concerns that the spread of the Delta variant would crimp consumption just as the OPEC+ alliance moved to supply more barrels to the market. Today, oil investors will eye preliminary IHS Markit PMI readings from DMs to see whether the economic momentum from prior months has carried through into July. We expect a mixed set of PMI data, which we think should lead to Brent holding below $74/bbl for the rest of the day. German PMIs are likely to come under pressure after the recent flooding, but the eurozone readings could be stronger, providing a boost to EUR/USD. Following those releases, the US PMIs could be somewhat soft due to rising concern about the Delta LD IN HORIZONTAL TREND WITH TREASURY YIELDS STABLEDuring the first half of the day yesterday, gold declined toward support at $1,795/oz, but in the early US hours it returned to the $1,805/oz mark, which is close to where it ended the day. Meanwhile, the 10y US Treasury yield traded sideways near 1.28% and EUR/USD edged down from 1.180 to 1.177, creating headwinds for gold. Yesterday's US macro data generally pointed to a slowdown in the pace of economic recovery, which supported gold prices during the US session. US initial jobless claims picked up to 419k last week, topping the consensus of 350k. This was the first print above 400k since mid-June, which led to some concern about the US labor market recovery. The Chicago Fed national activity index came in at 0.09 in June, below the expected 0.3. The June US existing home sales data was also somewhat disappointing. Though sales were up 1.4% m-o-m in June, the first increase in five months, the consensus had been calling for a 1.7% increase. Over in Europe, the eurozone consumer confidence index came in at -4.4, slightly lower than the expected -2.6. This helped push gold lower, as did the ECB's dovish rhetoric yesterday. In the press conference following the monetary policy meeting, ECB President Christine Lagarde reiterated her view that the ECB needs to be flexible and that it has learned from its previous mistakes. There were no changes to rates, as had been expected, and the ECB is keeping its stimulus measures for the eurozone economy in place, even as other major central banks shift to policy tightening. Lagarde also said that the ECB will not react immediately if inflation moves above the 2% target. All in all, the ECB outcome caused the euro to weaken slightly yesterday. Gold is trading near $1,805/oz as we write. Today, the market awaits preliminary July Markit manufacturing and services PMIs from the US, the eurozone, Germany, the UK and France. Analysts expect both the manufacturing and services PMIs for the US to come in slightly weaker, while they see the eurozone services PMI rising. With that in mind, we expect bullion to test resistance at $1,810/oz