Commodities Daily - March 5, 2021

> Oil spikes on surprise decision of OPEC+ not to raise output. This morning, Brent is climbing toward $68/bbl amid optimism over the OPEC+ decision, despite yesterday's slump on Wall Street triggered by Fed remarks and a stronger dollar. Today, investors will keep an eye on China's National People's Congress, which will focus on the domestic budget and the country's 14th five-year plan, and pore over the February jobs report from the US. Following yesterday's rally, from a technical perspective it would appear Brent is set for a further push higher into the $68.1-68.6/bbl range, although we think oil prices will likely take a breather today amid a further decline in stock markets, with Brent consolidating above support at $67.7/bbl.> Gold slips below $1,700/oz as Powell's remarks cause yields to rally. Gold fell to $1,690/oz yesterday as 10y Treasury yields surged from 1.47% to 1.57% after Federal Reserve Chair Jerome Powell described the rise in yields as "not disorderly." US initial jobless claims for the last week of February came in at 745k, above the previous week's 736k. However, these statistics failed to support gold. Bullion is trading above $1,695/oz as we write. Investors today await the US jobs report for February (nonfarm payrolls are expected to have grown by 198k in February). Much uncertainty remains around today's report, and this uncertainty could well pressure gold into a $1,670-1,690/oz range today, particularly if the report is upbeat, while a disappointing figure could cause bullion to climb back above $1,710/oz.OIL SPIKES ON SURPRISE DECISION OF OPEC+ NOT TO RAISE OUTPUTAfter sliding $1.4/bbl midday to an intraday low of $63.3/bbl yesterday amid a brief dip in the FTSE 100, front-month Brent began to generate positive momentum as investors turned their attention toward the OPEC+ meeting. In an opening statement, the Saudi energy minister expressed a need for caution, which markets took as a signal that any production increase would be smaller than anticipated, causing oil prices to rally. We note that in the build-up to the meeting this week Brent slumped from around $67.7/bbl to as low as $62.4/bbl as investors increasingly priced in a 1.4 mln bpd production hike in April. About two and a half hours after the Saudi minister spoke, news emerged that OPEC+ members (except for Russia and Kazakhstan) would keep their production quotas unchanged in April. Hence, Saudi Arabia achieved its goal and again surprised the market by building a consensus to hold production at the same level as in February and March. It will also maintain its voluntary 1 mln bpd cut for at least another month. Following the news, Brent swiftly rallied back toward $67.8/bbl, close to the YTD high seen last week. The next JMMC discussions will be held on March 31, and the ministers will convene to decide on their May output targets on April 1. After yesterday's decision, the earliest OPEC+ quotas can reach phase-three levels (a total cut of 5.7 mln bpd) is the start of July.It is important to highlight that OPEC+ once again showed flexibility in maintaining a consensus, as Russia and Kazakhstan received exemptions to increase production in April by 0.13 mln bpd and 0.02 mln bpd, respectively. While the decision to have the other OPEC+ group members not raise their production in April will certainly boost producer revenues in the short term, it is unclear how long they will be content watching Russia and Kazakhstan increase production while they stay put. The market focus is now shifting to the risks of OPEC+ causing the market to overtighten amid the nascent economic recovery. China, which has been drawing down stocks and has been absent from the spot market because it had assumed an OPEC+ production hike, may panic and swiftly return to buying. Furthermore, following the OPEC+ decision, India's oil minister highlighted that "as one of the largest crude-consuming countries, India is concerned that such actions by producing countries have the potential to undermine the consumption-led recovery and more so hurt consumers, especially in our price-sensitive market." We note that in previous years Saudi Arabia was very keen to ensure that the oil market did not overheat in order to keep oil demand growth on track. The main goal of OPEC has always been to ensure market stability.This morning, Brent is climbing toward $68/bbl amid optimism over the OPEC+ decision, despite yesterday's slump on Wall Street triggered by Fed remarks and a stronger dollar. Today, investors will keep an eye on China's National People's Congress, which will focus on the domestic budget and the country's 14th five-year plan, and pore over the February jobs report from the US. Following yesterday's rally, from a technical perspective it would appear Brent is set for a further push higher into the $68.1-68.6/bbl range, although we think oil prices will likely take a breather today amid a further decline in stock markets, with Brent consolidating above support at $67.7/bbl. If today's jobs report is stronger than expected, which cannot be ruled out given the improving pandemic situation, then US Treasury yields could keep rising. Under these conditions, we would most likely see the dollar remain on the advance and stock markets continue to tumble, providing headwinds for oil prices.GOLD SLIPS BELOW $1,700/OZ AS POWELL'S REMARKS CAUSE YIELDS TO RALLYGold traded sideways within a $1,710-1,720/oz range yesterday ahead of a speech by Fed Chairman Jerome Powell. US 10y Treasury yields and EUR/USD were also treading water. US initial jobless claims for the last week of February came in at 745k, versus 736k the previous week. This, however, failed to boost gold, as investors were glued to Powell's comments. He repeated his pledge to keep credit loose. Although he mentioned that the rise in yields was "notable" and had caught his attention, he did not consider it a "disorderly" move, or one that had pushed long-term rates so high that the Fed would have to intervene more forcefully to bring them down, such as by increasing its $120 bln monthly bond purchases. He described the current policy stance as "appropriate." These comments proved quite disruptive for gold, which retreated to $1,690/oz as 10y Treasury yields scaled past 1.47% to reach 1.57%, while real yields settled at -0.66%. Bullion has bounced slightly from its nine-month low this morning and above $1,695/oz as we write. It remains under pressure as investors are awaiting the US jobs report for February. A stronger than expected reading (the Bloomberg consensus suggests a 198k rise in nonfarm payrolls for the month) - which cannot be ruled out given the improving pandemic situation - would likely cause Treasury yields to keep climbing. The ADP report earlier this week showed noticeably lower growth than expected (117k versus 205k), though it has diverged from the nonfarm payroll report recently. In light of this, much uncertainty remains around today's report, and this uncertainty could well pressure gold into a $1,670-1,690/oz range today, particularly if the report is upbeat, while a disappointing figure could cause bullion to climb back above $1,710/oz.