Commodities Daily - November 26, 2021

> Oil slides as new heavily mutated coronavirus variant in South Africa raises concern. This morning, Brent is sliding toward $80/bbl along with stock markets as a new heavily mutated coronavirus variant in South Africa is raising concern. The UK has even temporarily banned flights from some countries in the southern part of Africa and put travelers in quarantine. There are no important data releases today. Focus will remain on the new strain of the virus and the impact it may have on global markets. This could spell further downside for Brent toward $79/bbl if support at $80/bbl is broken first. > Gold trades sideways yesterday, worries over new coronavirus variant providing support today. Gold traded sideways near $1,790/oz yesterday, while the US 10y Treasury yield was stuck around 1.64% with the US closed for a holiday. Gold is trading slightly above $1,795/oz as we write, supported by growing concerns over a new Covid variant. Today's macro calendar is light. We expect bullion to test resistance at $1,800/oz.> Most metals close lower yesterday as investors start to price in hawkish shift from Fed. Industrial metals mostly traded lower yesterday as investors finally began to shift their attention to the Fed's increasingly hawkish rhetoric indicating that its future rate hikes might come faster than was previously expected. This would drag down dollar-denominated commodity prices. Iron ore's recent rally seems to be running out of steam, as quotes have been leaning against resistance levels.OIL SLIDES AS NEW HEAVILY MUTATED CORONAVIRUS VARIANT IN SOUTH AFRICA RAISES CONCERNYesterday, front-month Brent traded sideways within a narrow $81.7-82.6/bbl range. Trading was thin yesterday due to the Thanksgiving holiday in the US. The market was focused on the looming OPEC+ meeting on December 2 at which the production policy for January will be decided. This will come amid the unprecedented move by the US and other nations to tap strategic stockpiles to tame rising energy prices. There are growing concerns that OPEC+ could hold back its monthly 0.4 mln bpd production increase as a result. The group will almost certainly discuss pausing the output hikes, particularly as Saudi Arabia and Russia have already flagged downside risks to demand from possible new Covid-related restrictions. Brent eventually settled at $82.22/bbl, fixing $0.03/bbl below the previous settlement. If Brent continues to hold around $80/bbl, the path of least resistance may be to go ahead with the quota increase as planned. Absent a fundamental catalyst that pushes prices lower before the OPEC+ meeting, such as further coronavirus surges, sticking to the plan would avoid widening the political divide with the US, without giving anything away. It would mean that the group would not have to use up one of the three months of pauses allowed under the deal, which it may need to smooth out the eventual return of Iranian oil. Ultimately, the US's SPR announcement was largely a political decision, given the focus on inflation, but President Biden will certainly try to take credit for any seasonal drop in gasoline prices. This morning, Brent is sliding toward $80/bbl, while stock markets are also lower following news of the emergence of a new heavily mutated coronavirus variant in South Africa (as of yesterday there were almost 100 cases detected in the country). The UK has even temporarily banned flights from some countries in the southern part of Africa and put travelers in quarantine over worries about the new strain. Scientists say that this variant carries a high number of mutations in its spike protein, which plays a key role in the virus's entry into cells and is also what is targeted by the vaccines. Researchers are still trying to determine whether it is more transmissible or more lethal than previous ones. Following these reports, markets began to fear that the new strain could fuel outbreaks in many countries and potentially evade vaccines. This could burden healthcare systems and complicate efforts to reopen economies and borders. There are no important data releases today. Today, focus will remain on the new coronavirus strain and the impact it may have on global markets. This could spell further downside for Brent toward $79/bbl if support at $80/bbl is broken LD TRADES SIDEWAYS YESTERDAY, WORRIES OVER NEW CORONAVIRUS VARIANT PROVIDING SUPPORT TODAYGold traded sideways near $1,790/oz yesterday, while the US 10y Treasury yield was stuck at 1.64% with the US markets closed for a holiday. Meanwhile, EUR/USD edged up from 1.120 to 1.121. Yesterday's economic calendar was almost empty. The Thanksgiving holiday in the US led to a drop-off in trading activity and a muted session for gold. However, the minutes to the most recent ECB meeting were released, which helped the euro climb slightly higher. The ECB believes it important to keep sufficient optionality for future monetary policy actions. It sees upside risks for inflation due to supply bottlenecks and energy prices, although price growth is not expected to exceed 2% in the medium term. Overall, the regulator downplayed expectations of an early rate hike. The subsequent rise in the euro was limited and did not buoy gold.During Asian trading today gold rose slightly above $1,795/oz, while the US 10y yield lost 10 bps and is trading near 1.54%. Today, the economic calendar is sparse, although the news flow is supportive for bullion. A new highly-mutated coronavirus strain has emerged in South Africa, which is causing concern. The UK has already banned flights from several African countries. One of the key questions is how effective the vaccines will be against the new strain. We recall that gold was significantly supported when the Delta strain dampened the economic recovery in the US. So if the new strain starts spreading in the world's biggest economy, it could push the Fed to delay hawkish moves. In light of the emergent risk-off sentiment, we expect bullion to test resistance at $1,800/oz today. However, we don't expect to see panic in markets and think that gold will likely consolidate in the $1,800-1,810/oz ST METALS CLOSE LOWER YESTERDAY AS INVESTORS START TO PRICE IN HAWKISH SHIFT FROM FEDYesterday, base metals closed in the red, with aluminum an exception. Three-month LME contracts on copper fell 0.34% (-$33/tonne from the previous day's close) to $9,802/tonne, nickel dropped 0.86% (-$179/tonne) to $20,667/tonne and zinc slid 0.65% (-$21/tonne) to $3,301/tonne, while aluminum rose 0.50% (+$14/tonne) to $2,718/tonne.The recent boost base metals received from China's announced intention to invest in the property and construction sectors has faded, and investors' attention is finally starting to shift toward the Fed's increasingly hawkish stance, as was confirmed in the FOMC minutes published yesterday. The decline in base metal prices carried on into today's early morning trading, with investors weighing the prospects of faster policy tightening from the Fed, which would weigh on all dollar-denominated commodity prices. Tight supply in almost all markets has so far not allowed prices to move below their 200-day moving averages, which have been very strong support levels since the consolidation in markets began. Depending on how hawkish the Fed's rhetoric turns out to be at its December meeting, base metals could either stay just above technical levels or drop through them.Yesterday saw a halt to the rally in iron ore futures from an 18-month low that began after a series of announcements from China that it would boost its investment in infrastructure, relax fundraising restrictions in the property sector and possibly ease monetary policy. The late-November rally that saw quotes climb back to around $100/tonne now looks unsustainable, as the economic slowdown has continued, with Chinese car and home sales down again in November and the property market crisis dragging on. Iron ore futures in Singapore bumped into resistance at $106/tonne, their 50-day moving average, yesterday. We believe there may still be some upside for iron ore prices thanks to government support and the usual pickup in construction activity right before the year-end in China. However, a second round of steel curbs is expected with the Winter Olympics looming and is likely to set the tone for iron ore consumption. We are likely to see an at least 30% cut to steel output from January 1 to March 15, 2022. Although it seems this was already priced in during iron ore's recent slump, the lower demand should put a lid on prices this