Commodities Daily - March 23, 2021

> Oil prices hold steady amid concerns over near-term demand. Today, investors will eye comments by Fed Chair Jerome Powell, who is to appear before the House Financial Services Committee alongside Treasury Secretary Janet Yellen, to discuss the coronavirus relief spending known as the CARES Act. In addition, on the agenda are US new home sales data and an overnight API weekly update on US oil and refined product inventories. In our view, the deteriorating coronavirus situation in certain parts of the world should continue to weigh on oil prices today. We expect Brent to test the $63.3/bbl support level, with a surge toward the closest $65.2/bbl resistance level now looking less likely.> Gold trades flat as US 10y Treasury yield stays near 1.67%. Gold traded sideways within a $1,730-1,745/oz range yesterday ahead of a speech by Fed Chair Jerome Powell. US existing home sales data for February showed a decline, which supported bullion. Gold is trading near $1,740/oz as we write. Investors today await testimony by Powell and Treasury Secretary Janet Yellen on their pandemic policies, as well as US new home sales data for February. We expect gold to stay in the $1,720-1,740/oz range today.> Copper, aluminum prices moving lower, while nickel, steam coal advancing. Copper prices have shed $100/tonne after having reached the $9,100/tonne mark, while aluminum prices are dropping on rumors of potential Chinese sales for inventories. Nickel is trading higher on reports of export restrictions on nickel ore remaining in place in Indonesia. The recent flood in Australia has pushed steam coal prices higher.OIL PRICES HOLD STEADY AMID CONCERNS OVER NEAR-TERM DEMANDAt the start of the day yesterday, front-month Brent was trading at around $64/bbl. Once the European session got underway, it managed to consolidate within a $64.5-65.0/bbl range, driven higher by dollar weakness and positive stock market momentum. US equities were buoyed as Treasury yields backed off multi-month highs, the S&P 500 for example rising for the first time in three sessions. Investors continue to weigh rising coronavirus cases in Europe against a break in the recent climb of bond yields, which had been sparked by concerns of higher global inflation. Yesterday, front-month Brent settled at $64.62/bbl, $0.09/bbl above the previous settlement.For oil prices now, the major concern is a third Covid wave across Europe (for example, Paris declared a four-week lockdown late last week). In addition, German Chancellor Merkel and German regional leaders have agreed to extend Germany's strict lockdown until April 18. Meanwhile, in recent weeks, new coronavirus cases have shot up across India despite a nationwide vaccination drive. Confirmed cases have risen to more than 40,000 daily from a low of about 9,800 in February, pushing the overall tally past the 11.5 mln mark. That said, unlike Europe, India has so far been reluctant to reintroduce any stricter restrictions. In the US, New York City's mayor urged a pause on the reopening, as the top US health official yesterday said Americans must recommit to wearing masks and taking other measures. Note that White House signaled that shipments of Johnson & Johnson's vaccine could fall just short of an early target. Against this backdrop, the front end of the Brent futures curve is very narrowly backwardated, with a rapid approach to a bearish contango structure about two months from the front-month, signaling oversupply. Weak short-term fundamentals and unfavorable sentiment are making oil bulls nervous, especially after last week's rout. Keeping in mind this and that global market destocking continues, we think that prompt Brent spreads may actually dip briefly into contango, though the fundamentals are not weak enough for the move to prove sustainable, in our view, and we still expect a rally this summer. The major risks to this view of a short-term shift to a moderate contango is the looming OPEC+ meeting on April 1, which could again deliver no supply increase despite the upbeat 2H21 demand prospects.Today, investors will eye comments by Fed Chair Jerome Powell, who is to appear before the House Financial Services Committee alongside Treasury Secretary Janet Yellen, to discuss the coronavirus relief spending known as the CARES Act. In addition, on the agenda are US new home sales data and an overnight API weekly update on US oil and refined product inventories. In our view, the deteriorating coronavirus situation in certain parts of the world should continue to weigh on oil prices today. We expect Brent to test the $63.3/bbl support level, with a surge toward the closest $65.2/bbl resistance level now looking less likely.GOLD TRADES FLAT AS US 10Y TREASURY YIELD STAYS NEAR 1.67%Gold traded sideways yesterday within a $1,730-1,745/oz range, while the 10y US Treasury yield was stuck around 1.67%. EUR/USD edged higher to 1.194. Fed Chair Jerome Powell yesterday said the US economy was much improved, though he warned the recovery was still far from complete. These comments and yesterday's data releases pushed gold up from $1,730/oz to $1,740/oz. US existing home sales fell 6.6% m-o-m in February after edging 0.2% higher in January. This indicated a patchy recovery in the US and caused investors to take a closer look at gold, as expectations of monetary policy tightening may be premature. Additional support for gold is coming from a third wave of Covid-19 across Europe due to highly contagious variants. This has raised concerns about another round of restrictions, with Paris going into a four-week lockdown late last week. However, the high likelihood of EUR/USD declining under those conditions would likely limit bullion prices.Gold is trading near $1,740/oz as we write ahead of today's testimony by Powell and Treasury Secretary Janet Yellen on their pandemic policies. Yellen could comment on recent reports that the US has further fiscal stimulus in the works, potentially including $3 trln in spending on infrastructure and the transition to a greener economy. US new home sales data for February is also due today. We expect gold to stay range-bound at $1,720-1,740/oz today, with the congressional testimony from Powell and Yellen likely to support the continuation of soft monetary policy.COPPER, ALUMINUM PRICES MOVING LOWER, WHILE NICKEL, STEAM COAL ADVANCINGYesterday, copper prices rose 0.57% to $9,107/tonne, although above the $9,100/tonne level investors exited positions and prices moved back to $9,000/tonne. Today, we think copper will once again try to break through the $9,100/tonne level amid reports of deficits in the markets. Aluminum has lost 1.86% to $2,229/tonne so far today. This move is attributable to rumors that China may start selling the metal from inventories in order to help drive prices down to what it believes to be a more reasonable level. Reports of possible selling of aluminum from inventories will probably continue to affect futures prices for the upcoming period. Nickel yesterday advanced by 1% to $1,6462/tonne. Quotes were supported by reports that Indonesia will continue to restrict exports of nickel ore, whereas restrictions on exports of copper concentrate, bauxite and other raw materials will be relaxed. Futures on steam coal in Asia (6,000 kcal/kg FOB Newcastle) climbed 1.35% to $94/tonne. Prices are climbing due to an interruption of deliveries from Australia owing to the stoppage of a coal loader that handles 15% of the country's steam coal exports. Risks of further disruptions intensified following the recent storm and flooding in Australia's eastern states. The extent of the damage caused by the flooding is still unclear, but usually it takes up to a quarter to eliminate the effects of large-scale flooding, while prices remain high for a year.