Commodities Daily - July 28, 2021

> Oil stabilizes ahead of EIA inventory report, Fed decision. This morning, Brent is trading close to $75/bbl, supported by the API weekly US inventories report, including strong draws in crude oil and gasoline. Today, investors will primarily be eyeing the EIA weekly report and the Fed decision. In our view, the expectedly upbeat inventory data should support Brent to above $75/bbl in the early US trading hours; later, however, downside risks loom for oil (though in our view they will not play out) amid a stronger dollar if the Fed provides more details on the timeline for asset tapering.> Gold steady as markets await FOMC meeting results. Gold traded sideways near $1,800/oz yesterday, while the 10y US Treasury yield slid from 1.28% to 1.24%. Yesterday's US macro data was mixed and failed to support gold. Bullion is trading near $1,805/oz as we write. Today, markets await the FOMC meeting results and US wholesale inventory data for June. Gold looks set to retest support at $1,795/oz.OIL STABILIZES AHEAD OF EIA INVENTORY REPORT, FED DECISIONYesterday, front-month Brent traded in a $74-75/bbl range, supported on the one hand by a weaker dollar but pressured on the other by negative stock market dynamics. Tailwinds came from upbeat US macro data, with the US consumer confidence index edging up to a 16-month high of 129.1 points in July from 128.9 in June (now nearing pre-Covid highs). Meanwhile, US durable goods orders rose again in June. The economic recovery has sparked demand for cars, computers, consumer electronics and other goods, but has been marked by major shortages in both supplies and labor, which are likely to persist through the year-end and will constrain the recovery. Oil price headwinds yesterday came from downbeat stock markets, as US equities ended a five-day streak of gains, with the largest tech stocks like Apple and Microsoft tumbling ahead of their earnings reports. A rout in Chinese markets also put pressure on global stocks. Other factors were worries about the Delta coronavirus strain and monetary tightening. In China, the yuan slid to its lowest since April against the dollar and government bonds slumped (attention is on the government's regulatory crackdown in relation to education, food delivery and property, which could be expanded to cover other sectors). Yesterday, Brent eventually settled at $74.48/bbl, $0.02/bbl below the previous settlement. This morning, Brent is trading close to $75/bbl, supported by the API weekly US inventory report, including strong draws in crude oil (down 4.73 mln bbl) and gasoline (down 6.23 mln bbl), as well as a drop in distillate stocks (down 1.88 mln bbl). Today, investors will primarily be eyeing the EIA weekly report and the Fed decision. In our view, what should be upbeat inventory data should support Brent to above $75/bbl in the early US trading hours; later, we think the bullish stock draws reported by the API across all of the major categories will be confirmed by the EIA, with upbeat gasoline market developments to be a focus for the market. Still later, downside risks loom for oil (though in our view they will not play out) amid a stronger dollar if the Fed provides more details on the timeline for asset tapering. In particular, if the mounting inflation pressures prompt the Fed to launch a faster than expected slowdown in its bond-buying program, this would give Treasury yields and the dollar a boost. However, overall another hawkish surprise after the one delivered at the June meeting is unlikely, meaning a global risk-off move is as well, though investors will be on the lookout for any shift in tone or emphasis by the Fed. We expect Brent to hold on to its post-EIA report gains later in the LD STEADY AS MARKETS AWAIT FOMC MEETING RESULTSGold traded in a tight range of $1,795-1,805/oz yesterday, mainly sticking close to the $1,800/oz mark, where it eventually ended the day. The 10y US Treasury yield slid from 1.28% to 1.24%, creating tailwinds for gold, and EUR/USD edged up from 1.180 to 1.182, which also supported bullion. However, gold was unable to take advantage of these supportive factors, as yesterday's US macro data was mostly upbeat. The Conference Board's consumer confidence index printed at 129.1 in July, which was the highest reading since 2018 and above the expected 123.9. The housing data also topped expectations, with the FHFA housing price index rising 1.7% m-o-m (versus 1.6% expected) and the S&P Case-Shiller home price index registering a 16.99% y-o-y increase in May (versus 16.33% expected). This fueled concerns about the possibility of Fed policy tightening. The preliminary US durable goods orders data for June showed a significantly smaller increase (0.8% m-o-m) than had been anticipated (2.2% according to Bloomberg). While this was another supportive factor, gold prices failed to budge. However, the data, which hinted at a slowdown in the US economic recovery, did pressure silver yesterday, which dropped $0.5/oz to $24.7/oz. Silver derives more demand from industrial use than gold, so it is more sensitive to changes in the manufacturing segment of the economy. Silver prices faced additional headwinds from gold's test of support at $1,795/oz yesterday.Gold is trading near $1,805/oz and silver at $24.8/oz as we write. Today, the market awaits the Fed decision due late this evening, as well as US wholesale inventories data for June. Opinions on what messaging the Fed will come out with this evening are mixed. On the one hand, the fast-spreading Delta variant has pushed daily cases in the US up to around 89k and unemployment is still running a bit high at 5.9%, while on the other hand inflationary pressures have mounted and put price growth well above the Fed's 2% target. We expect the Fed to take on a slightly more hawkish tone today than at its last meeting. We think it is possible that Chairman Jerome Powell could provide some color on tapering, signaling that the rollback of QE will begin with MBS given the surge in home prices. We think gold is likely to test support at $1,795/oz today, which would open the way to the next support level at $1,790/oz, which was tested several times last week. Silver will probably also come under pressure and may retest support at $24.7/