Commodities Daily - March 19, 2021

> Oil recovering today after sliding yesterday along with stock markets. Brent is trading near $63.5/bbl as we write, supported by news that Germany and France are resuming the use of the AstraZeneca vaccine. Data releases are thin on the ground today, though oil investors will be looking out for the weekly Baker Hughes rig count as well as the CFTC data breakdown. We expect Brent to climb toward $64/bbl today as at current levels investors are likely to buy the dip amid the upbeat market outlook for 2H21.> Gold falls as UST yields surge. Today, gold is trading near $1,740/oz as the US 10y yield has retreated below 1.70% at the time of this writing. Investors are eyeing CFTC commitments of traders. We think gold is likely to trade sideways in a $1,715-1,740/oz range amid the lack of macro data today.> Base metals trade lower due to further rise in US Treasury yields. Trading on the LME finished in the red yesterday: copper lost 0.11% to $9,056/tonne, aluminum moved 0.52% lower to $2,216/tonne, nickel declined 0.58% to $16,036/tonne and zinc shed 1.24% to $2,792/tonne. The selloff was attributable to the rise in US Treasury yields to their highest levels in over a year. The market has become increasingly concerned that the rising production expenses due to high commodity prices will push central banks toward cutting back stimulus.OIL RECOVERING TODAY AFTER SLIDING YESTERDAY ALONG WITH STOCK MARKETSBrent was hovering below $68/bbl yesterday morning but later slid along with S&P 500 futures amid a stronger dollar. US equities retreated and Treasury yields pushed higher a day after the Federal Reserve maintained its monetary policy stance, with bond traders raising their bets that the bank will allow inflation to run higher during the economic recovery. US jobless claims unexpectedly rose last week to the highest level since mid-February. How the US labor market performs is a very important gauge of oil demand. Another key negative factor for oil now is Europe's struggle with Covid-19 amid low vaccination rates. Yesterday, France imposed a month-long lockdown on Paris and parts of the north due to the faltering vaccine rollout and the spread of highly contagious coronavirus variants. Poland will close most public venues this Saturday for three weeks, as a rapid surge in infections is threatening the country's already overwhelmed health care system. Meanwhile, the UK will have to slow its vaccine rollout next month due to a supply crunch caused by a delay to the shipment of AstraZeneca shots from India and the need to test the stability of an additional 1.7 mln doses. After initially attempting to consolidate around $65/bbl, Brent dropped to an intraday low of $61.45/bbl before settling at $63.28/bbl, down $4.72/bbl on the day.This year, several upbeat factors have pushed Brent swiftly up to $70/bbl (and even briefly to as high as $71.38/bbl), including OPEC+'s decision to maintain low supply along with voluntary Saudi production cuts, vaccination progress in the US, strong demand in Asia and the attack on a Saudi Arabian oil complex. As a result, hedge funds have piled into their most bullish positions in over a year, and prices had risen well above the upper Bollinger band, signaling that a pullback was virtually inevitable at some point. Yesterday, prices dropped to levels last seen in early March, when investors were incorrectly pricing in an OPEC+ production increase in April. Despite yesterday's correction, Brent remains in firm backwardation, which is a key indication that the market still expects demand to strengthen and supplies to tighten. This causes us to believe that yesterday's sharp decline has created an excellent buying opportunity amid the rapid rebalancing of the oil market expected over the coming months, with vaccinations driving an increase in mobility, including air travel. Furthermore, we think yesterday's correction is likely to cause Saudi Arabia to retain its cautious stance at the upcoming OPEC+ meeting on April 1 and again delay restoring the 1 mln bpd of production it has voluntarily cut.This morning, Brent rose to as high as $63.9/bbl, supported by news that Germany and France are resuming the use of the AstraZeneca vaccine. Data releases are thin on the ground today, though oil investors will be looking out for the weekly Baker Hughes rig count as well as the CFTC data breakdown. The CFTC figures will reveal how the largest market speculators, hedge funds, have repositioned (if at all) in Brent and WTI given yesterday's freefall. We expect Brent to climb toward $64/bbl today as at current levels investors are likely to buy the dip amid the upbeat market outlook for 2H21.GOLD FALLS AS UST YIELDS SURGEGold prices fell by $20/oz from $1,755/oz to $1,735/oz yesterday as the 10y US Treasury yield hovered around 1.70% after having climbed to as high as 1.75% (up 11 bps), the highest level since January 2020. Meanwhile, EUR/USD retreated and returned to 1.191 after a temporary rise in line with gold dynamics. In addition, US stock indexes fell 1.5-3.0%. Yesterday, US weekly initial jobless claims, the main macro data yesterday, came in at 770k versus 725k the previous week, but this failed to support gold. Market participants refocused on inflation and rates concerns. The latest surveys of investor expectations by major research institutes and banks showed that rising inflation and a potential bond market "taper tantrum" have replaced Covid-19 among the top perceived risks. This would seem to be an unfavorable environment for gold, especially the risks of inflation pushing yields up and of uncertainty due to the pandemic erasing.Today, gold is trading near $1,740/oz as the US 10y yield has retreated below 1.70% at the time of this writing. Investors are eyeing CFTC commitments of traders. We think gold is likely to trade sideways in a $1,715-1,740/oz range amid the lack of macro data today.BASE METALS TRADE LOWER DUE TO FURTHER RISE IN US TREASURY YIELDSTrading on the LME yesterday started off with gains but ended up the day in the red. Copper lost 0.11% to $9,056/tonne, aluminum moved 0.52% lower to $2,216/tonne, nickel declined 0.58% to $16,036/tonne and zinc shed 1.24% to $2,792/tonne. The selloff was attributable to the rise in US Treasury yields to their highest levels in over a year. The market has become increasingly concerned that the rising production expenses due to high commodity prices will push central banks toward cutting back stimulus.Given that there are no major data releases from the US or China today (only Germany will report the PPI for industrial goods at 10:00 Moscow time), we think that base metals will trade sideways today.