Commodities Daily - November 1, 2021

> Oil holds steady with political pressure on OPEC+ building ahead of the meeting this week. Today, investors will eye the US October ISM manufacturing PMI and Bloomberg survey of October OPEC production. In our view, Brent today could rise to $84/bbl on what is expected to be upbeat US data. However, we think that price upside is limited to the $84.3/bbl mark. > Gold pares back Friday's losses, with all eyes on Fed meeting and US labor market data this week. We believe the upside for gold is limited as the Fed meeting is likely to prove hawkish and inflation expectations are on the wane, with gas, coal and oil prices all declining. We expect gold to slide back toward $1,775/oz today.> Most base metals close lower on further plunge in coal prices, with demand-side risks only adding pressure. Base metals mostly traded lower on Friday following a plunge in coal prices in response to the recent actions of Chinese authorities. While the supply-side risks are slowly fading, risks from the demand side have been adding pressure on metals prices, as the Chinese economy has continued to struggle.OIL HOLDS STEADY WITH POLITICAL PRESSURE ON OPEC+ BUILDING AHEAD OF THE MEETING THIS WEEKOn Friday, the new front-month January contract was capped below $84/bbl and traded within the $83-84/bbl range as natural gas prices in Europe (the price surge provided tailwinds to oil in September-October) slumped on the prospect of more supply from Russia and reduced demand from industrial users. On Friday, Gazprom said its target for domestic gas inventories had been reached and that it would send gas to European storage sites starting November 8, which is in line with a plan discussed last week with President Vladimir Putin. Furthermore, LNG prices in Asia also continued their slide and shipments of the fuel to Europe showed signs of reviving, while China's push for lower coal prices, which are now also falling, added to the bearish picture. The new front-month Brent contract eventually settled at $83.72/bbl on Friday, fixing $0.06/bbl above the previous settlement. This morning, Brent is trading near $83.5/bbl amid an upbeat Chinese October manufacturing PMI. At the G20 summit on Sunday, US President Joe Biden criticized Saudi Arabia and Russia for their inadequate response to managing supply, while declining to say what he planned to do if producers don't respond. OPEC+ will meet on Thursday to discuss its supply plans. Last week, Saudi Arabia signaled caution about increasing output. That sets up a potential clash with the US and other major oil consumers, who are lobbying hard for OPEC+ to open the pumps. In our view, OPEC+ will stick to its gradual production increase strategy, which would be price-supportive. We see the upside as limited to $85/bbl this week.Traders this week will be watching out for tomorrow's auctions of capacity to move Russian natural gas supplies via Ukraine and Poland in the first three quarters of next year. The Glasgow climate change conference will also be closely watched this week. The prospects for an ambitious climate deal took a blow after at the G20 over the weekend leaders struggled to toughen climate goals. British PM Boris Johnson said that the pledge from world leaders after two days of talks in Rome was "not enough" and warned of the dire consequences for the planet. We also note that a major risk factor for Brent this week is the potential risk asset selloff following what is expected to be a hawkish Fed meeting.Today, investors will eye the US October ISM manufacturing PMI and Bloomberg survey for October OPEC production. In our view, Brent today could rise to $84/bbl on what is expected to be upbeat US data. However, we think that price upside is limited to the $84.3/bbl mark today. We believe the combination of strong demand and bottlenecks will help push the ISM higher in October, in contrast to general expectations for a LD PARES BACK FRIDAY'S LOSSES, WITH ALL EYES ON FED MEETING AND US LABOR MARKET DATA THIS WEEKGold slid almost $30/oz on Friday to $1,771/oz, with the dollar gaining strength and short-term US Treasury yields on the rise, and traders pricing in a higher probability that the Fed will address elevated inflation expectations at its meeting this week. Gold has mostly been range-bound over the past few months as traders have weighed inflation worries against expectations that central banks will reduce stimulus. The Fed's meeting later this week is getting more attention than usual from the bullion market. Chairman Powell has sounded a note of heightened concern over persistent inflation. He has made clear that the bank will begin tapering bond purchases shortly but will remain patient on raising interest rates.This morning, gold has been paring back Friday's losses and is trading around $1,785/oz, with investors today focusing on the US October manufacturing PMI and September construction spending data. We expect the former to be upbeat and the latter to disappoint. We believe that the upside for gold is limited as the Fed meeting is likely to prove hawkish and inflation expectations are on the wane, with gas, coal and oil prices all declining. We expect gold to slide back toward $1,775/oz today. The rest of this week will likely bring more bad news for gold bulls, and we could see bullion dip below $1,750/oz following the Fed meeting late on Wednesday, while an upbeat US nonfarm payrolls report on Friday could even push it down below $1,725/oz. The pace of job growth will likely pick up in October after two straight months of disappointment, given the retreat of the Delta strain. Indicators also suggest that hiring has picked up in some reviving industries, and strong wage growth has lured more workers back.However, we now expect the labor market recovery to proceed more slowly than we had expected before, for two reasons. First, though Covid caseloads have subsided, households still cite caring for sick ones as an important reason for staying on the sidelines of the job market. Second, we estimate that the amount of excess savings (most relevant for incomes associated with jobs that suffer from labor shortages) will allow households as much as four to six months of leeway. This means that the blockbuster jobs gains that many had expected, including us, will likely prove elusive until next year. We believe that this factor is very important as it will likely determine the Fed strategy and degree of hawkishness going ST BASE METALS CLOSE LOWER ON FURTHER PLUNGE IN COAL PRICES, WITH DEMAND-SIDE RISKS ONLY ADDING PRESSUREOn Friday, most base metals closed in the red, with zinc the only exception. Three-month LME contracts on copper fell 1.76% (-$171/tonne from the previous day's close) to $9,496/tonne, aluminum dropped 1.09% (-$30/tonne) to $2,717/tonne and nickel declined 0.64% (-$126/tonne) to $19,448/tonne, while zinc edged up 0.19% (+$7/tonne) to $3,379/tonne.Base metals were responding to the ongoing decline in coal prices, with the most active contract on China's Zhengzhou Commodity Exchange plunging below $160/tonne on Friday. The authorities' measures to cap coal prices and boost production in an effort to resolve the power crisis have driven prices on all base metals lower, as the supply-side risks have continued to ease amid the sharp drop in coal prices. Copper stockpiles in Shanghai rose 24% w-o-w last week to almost 50 kt, rebounding from a 12-year low, while aluminum inventories were up for the sixth time in a row last week (+7% w-o-w).While the drop in prices and ease in China's power crunch might provide a boost to consumption, the country's weakening economic growth is likely to put a lid on demand. China's official manufacturing PMI fell to 49.2 in October, remaining below the 50 mark (meaning the sector contracted) for a second month in a row, probably due in large part to the power crisis, the continued threat of Covid-19 and the turmoil in the property sector. Although there are signs that the crisis in China's property market has eased somewhat (for example, Evergrande made another coupon payment before the grace period expired on Friday), the crisis seems to have already started to weigh on economic growth, and it does not look like the impact on the economy will be short-lived. Metals are reacting