Commodities Daily - May 28, 2021

OIL RISES ON UPBEAT US MACRO DATA AHEAD OF SUMMER DRIVING SEASONAfter sliding almost $0.7/bbl during the first half of the day yesterday, to as low as $68.1/bbl, front-month Brent began to pare back its losses and surged toward $69.5/bbl amid a slew of upbeat US economic data, which boosted confidence in the bullish outlook for oil demand. First, while US durable goods orders fell in April, for the first time in a year, this was only due to a chip shortage that has bedeviled automakers. Meanwhile, businesses' investment in equipment continued to grow at a double-digit pace (growth has been in the double digits for three quarters now), highlighting that this key segment of the US economy is still expanding rapidly. Furthermore, the second print of US 1Q21 GDP confirmed that the US economy grew at a robust annualized rate of 6.4% in the first quarter.Meanwhile, the number of Americans filing new claims for unemployment benefits dropped more than expected last week. Layoffs are subsiding, as companies have been desperate for workers to meet the surge in demand unleashed by the rapidly reopening economy. This all came just ahead of the Memorial Day weekend, the traditional start of the summer driving season in the US, which should see a sharp uptick in fuel demand thanks in part to the pickup in vaccinations. One potential source of pressure on demand for gas this driving season is the fact that retail prices are now averaging around $3.04 per gallon nationwide, the most expensive since 2014 (according to data from AAA). We, however, do not think this will have too big of an impact, as after a year of lockdowns more than 34 mln Americans are expected to take to the highways over May 27-31 (according to AAA), up 53% from last year but down 10% from 2019.The front-month July Brent contract eventually settled at $69.46/bbl yesterday, $0.59/bbl above the previous settlement. We note that the already more heavily traded August contract currently offers a $0.25/bbl discount. Also worth mentioning is that next week's OPEC+ ministerial meeting on June 1 is beginning to attract more and more attention. The current market consensus is that the group will ratify the 0.84 mln bpd production hike scheduled for July, completing the three-stage restoration of just over 2 mln bpd of production this summer. This morning, Brent was closing in on the $70/bbl mark as investors looked ahead to the EIA 914 production report, which will contain data on actual US crude oil production in March. Today's data calendar includes May consumer confidence from the eurozone, April personal income and spending from the US, and the weekly Baker Hughes rig count update. We think further upbeat US macro data could see Brent begin to target the $70.4-71.0/bbl range today. In the event of a fall from the current levels, which we think is fairly unlikely, the decline could be limited to the $68.8-69.20/bbl range, where Brent should find LD HOVERING NEAR $1,890/OZ SUPPORT AS TREASURY YIELDS RISEGold ended the day yesterday at $1,895/oz, while the 10y US Treasury yield rose to 1.61%. Meanwhile, EUR/USD hovered near 1.219. US macro statistics were mixed yesterday. US 1Q21 GDP growth was reconfirmed at 6.4% in annual terms in the second reading, slightly below the consensus of 6.5%. Meanwhile, US durable goods orders dropped 1.3% (consensus: 0.8% growth) and US pending home sales declined 4.4% (consensus: 0.4% growth) for April. Those prints supported gold prices yesterday. However, initial jobless claims for the prior week again showed a decrease, this time to 406k (425k expected). The optimistic labor market numbers boosted concern about a possibly more imminent monetary policy tightening, which pushed bullion lower. During the Asian session today, gold was trading near $1,890/oz ahead of US core PCE data for April (the PCE is the primary indicator that the Fed uses). The consensus is for 0.6% m-o-m growth and 2.9% in y-o-y terms, although we recall that last month the figures came in 30% below what the consensus expects this month. A reading in line with or above expectations would increase concerns about monetary policy tightening, which would push gold lower. Also interesting to watch today are US personal income and spending, wholesale inventories for April, and University of Michigan sentiment index for May. We think that gold prices are likely to retest support at $1,890/oz today, which may open a path lower to $1,875/