Commodities Daily - July 27, 2021

> Oil highly volatile amid rise in global Covid cases; US data eyed. This morning, Brent inched above $75/bbl, though it started to slide after that. The global oil market remains fundamentally strong overall, and demand is still robust in China and India. Today, investors will eye an array of data from the US including durable goods orders for June, July consumer confidence and API's weekly oil and product inventory data due overnight. In our view, consensus-beating US macro data and an upbeat API report could help push Brent back above $75/bbl, where we expect it to consolidate.> Gold facing headwinds ahead of Fed decision. Gold tried to pare Friday's loses in the first half of the day yesterday and rose to as high as $1,810/oz as the 10y Treasury yield fell to touch 1.18%, but the latter bounced back to 1.28% and gold lost momentum and slid to where it opened at $1,800/oz. EUR/USD gained from 1.177 to 1.180. US new home sales and the Dallas Fed manufacturing activity index came in below expectations. Today, the market awaits the Conference Board US consumer confidence index for July, durable goods orders for June and the house price index for May. We see gold testing $1,795/oz today.OIL HIGHLY VOLATILE AMID RISE IN GLOBAL COVID CASES; US DATA EYEDYesterday, Brent slid $1.7/bbl to as low as $72.75/bbl, before rallying toward $74.8/bbl. The high volatility came amid the biggest increase in global Covid-19 cases in two months, with infections surging in the US, Brazil, India, Indonesia and the UK, and with countries with lower vaccination rates in parts of Asia seeing more fatalities and renewed restrictions. This all poses a threat to fuel consumption and hence demand for oil. Front-month Brent eventually settled at $74.5/bbl, $0.4/bbl above the previous settlement. In our view, the market volatility is likely to persist for a while, especially since we are now entering the summer period of low liquidity in the futures (paper) market. Since early July, market sentiment has increasingly been driven by fears about the Delta variant's potential to wreak havoc on the economic recovery outside the US. The market has started to worry that economic growth may have already peaked and that investors who bought oil as an inflation hedge (there were plenty of them) are now on the defensive. At the same time, the narrative around inflation is still being debated. With the surge in the US CPI, the strong Chinese economic data and the US Democrats' push for another huge fiscal package (Joe Biden's infrastructure bill), the peak for economic growth may yet be ahead of us and inflation could remain elevated. Furthermore, OPEC+ did not do much to weaken the fundamental outlook, as the oil market is still very likely to remain in deficit for the rest of 2021. There is still plenty of confusion over the OPEC+ production baselines and quotas. Some market participants incorrectly interpreted the 1.6 mln bpd baseline increase in May 2022 as meaning that production will surge in 2H22. At a time when the market is concerned about the prospects for demand, this has shaken the confidence of investors who do not understand that the deal will actually keep production growth in check all the way through the end of 2022. We think the demand fears are unfounded, especially given that China's total refined product demand hit a record high in June and continues to steadily grow. Furthermore, India's demand recovery has surprised to the upside, with preliminary data showing that gasoline demand was already back to pre-Covid levels over July 1-15. Meanwhile, the media's coverage of the Delta variant has taken focus away from the increased pace of global vaccinations, with Japan and Brazil now starting to catch up to the US and Europe. Countries with high vaccination rates are not seeing a surge in hospitalizations and severe symptoms even as Delta cases rise. Thus, we think large-scale lockdowns in the US and Europe can be avoided, at least for the next few months.This morning, Brent inched above $75/bbl, though it started to slide after that. The global oil market remains fundamentally strong overall, and demand is still robust in China and India. Today, investors will eye an array of data from the US including durable goods orders for June, July consumer confidence and API's weekly oil and product inventory data due overnight. In our view, consensus-beating US macro data and an upbeat API report could help push Brent back above $75/bbl, where we expect it to LD FACING HEADWINDS AHEAD OF FED DECISIONGold tried to pare Friday's loses in the first half of the day yesterday and rose to as high as $1,810/oz as the 10y Treasury yield fell to touch 1.18%. However, the latter ended up bouncing back to 1.28% and gold lost momentum and slid to where it opened at $1,800/oz. EUR/USD gained from 1.177 to 1.180, which was a positive tailwind for bullion. Meanwhile, US new home sales for June were down 6.6% m-o-m, versus the consensus of a 3.5% uptick. The Dallas Fed manufacturing activity index for July also came in below expectations at 27.3 versus 31.6 expected. Yet the gold-positive US macroeconomic backdrop yesterday did not help stop gold prices from falling later in the day. Gold came under pressure from hawkish expectations about the Fed decision tomorrow. Officials are expected to discuss tapering the bond-buying program amid the ongoing economic recovery and high inflation readings in recent months. For gold, it is important that the tapering of the $120 bln per month QE program will push US Treasury yields higher.Gold is trading near $1,800/oz as we write. Today, the market awaits the Conference Board US consumer confidence index for July, durable goods orders for June and the house price index for May. The consensus is for downbeat prints today. We do not expect this to lead to gains for gold, which is under pressure ahead of the Fed decision. We see gold testing $1,795/oz today, with a break below bringing up the next $1,790/oz support level, which was frequently tested last