Commodities Daily - November 29, 2021

> Oil paring Friday's losses as investors reassess Omicron impact. Today, investors will continue to follow the Omicron news flow, while OPEC+ has pushed back its technical committee meeting from today to tomorrow in order to have some extra time to assess the market rout. In our view, Brent is likely to start consolidating around $75/bbl today, as the WHO has indicated that the symptoms of the new strain seem to be mild.> Gold steady as Fed remains hawkish. Gold traded sideways around $1,790/oz on Friday, while the 10y US Treasury yield plummeted from 1.64% to 1.48%. Gold is quoted at $1,795/oz as we write this morning. Today, the market awaits Fed Chairman Powell's speech, the Dallas Fed manufacturing index for November and US pending home sales for October. We expect bullion to trade in a $1,790-1,810/oz range.> Metals plunge on Omicron variant news. Industrial metals sold off on Friday as news flow about the new Covid variant led to worries about the prospects for the global economic recovery. Uncertainty about the severity of Omicron and the effectiveness of vaccines against it, in our view, is set to drive elevated volatility in the weeks to come.OIL PARING FRIDAY'S LOSSES AS INVESTORS REASSESS OMICRON IMPACTOn Friday, Brent slumped $9.5/bbl to $72.1/bbl, as the new coronavirus strain sparked fears of renewed lockdowns that would curtail global demand. The impact of the selling was only amplified by thin liquidity with many US investors still on holiday, and by the breach of several technical support levels. We note that the fears over the new Covid-19 variant have compounded the jitteriness in the market following the introduction of restrictions on mobility in Europe in recent weeks. However, the underlying demand impact so far is negligible, particularly compared to past lockdowns and restrictions, due to the much higher percentage of people globally that are fully vaccinated (43%). Moreover, governments have been quick to take action on border and travel controls, in part to avoid locking down their economies. Markets were worried that the existing vaccines would not work against the new variant that was discovered in South Africa and were thus pricing in extensive mobility restrictions, although this was largely based on speculation. Since the move came at a time when liquidity was thin due to the Thanksgiving holiday in the US, it looks overdone to us (especially after technical support at $77/bbl was broken) given the current fundamentals. Global crude stocks are at least 39 mln bbl below the October 2019 level, and over 51 mln bbl of crude will need to be put back into global SPRs next year outside of China. Oil product stocks are also low around the world. Compared to prior periods of lockdowns or restrictions, the overhang in European clean product stocks has now by and large disappeared. Without resupply, the market is set up for a very tight winter. However, the strong move lower on Friday was based on fear, so it could continue in the near term, at least until more clarity emerges on the new variant.This morning, Brent rebounded toward $76.5/bbl as traders reassessed the risks to global demand from the new virus, and as speculation mounted that OPEC+ might decide this week to pause its output increases. However, headwinds reemerged after Japan said it would ban the entry of foreign visitors due to concern over Omicron, and Brent eased below $75/bbl again. Today, investors will continue to follow the Omicron news flow, while OPEC+ has pushed back its technical committee meeting from today to tomorrow in order to have some extra time to assess the market rout. In our view, Brent is likely to start consolidating around $75/bbl today, as the WHO has indicated that the symptoms of the new strain seem to be mild. We note that the broad risk-off move on Friday achieved the outcome President Joe Biden was unable to with his SPR release. It also could give OPEC+ cover to respond by pausing the January 2022 quota increase when it meets on December LD STEADY AS FED REMAINS HAWKISHGold traded sideways around $1,790/oz on Friday, while the 10y US Treasury yield plummeted from 1.64% to 1.48% and EUR/USD strengthened from 1.121 to 1.131, which created tailwinds for bullion. Meanwhile, the macroeconomic calendar was light. The news flow was centered around the new Omicron Covid variant, which led the UK to put in place restrictions on flights from certain parts of Africa. Overall, the new variant created significant volatility for bullion as countries started to react to the news. The uncertainty about the severity of Omicron and the effectiveness of vaccines against it has fueled worries about the global economic recovery. This pushed gold up to as much as $1,810/oz. Later on, however, the gains were erased as investors weighed the potential for Fed tightening policy at a faster pace to keep inflation under control. In particular, Atlanta Fed President Raphael Bostic said that he expects the US recovery to keep pushing on throughout the next waves of the pandemic and that he favors a faster pace for tapering QE. His comments calmed markets and suggested that a hawkish Fed outlook remains in place, and gold returned to the $1,790/oz level.During Asian trading today, gold slightly rose to $1,795/oz. Today, the market awaits Fed Chairman Powell's speech, the Dallas Fed manufacturing index for November and US pending home sales for October. This week will see the US jobs report on Friday and the ADP employment report on Wednesday among other macroeconomic data, including a preliminary eurozone CPI print for November. In addition, Powell and Treasury Secretary Janet Yellen will speak in the US Senate tomorrow. Meanwhile, the WHO has said that it is unclear whether the Omicron strain is more transmittable and lethal than other variants. Overall, in our view, while the Fed remains hawkish in its rhetoric, gold will be pressured - despite the pandemic risks. Today, Powell's speech should reiterate the recent Fed rhetoric, while virus news flow may add volatility. We expect bullion to trade in a $1,790-1,810/oz TALS PLUNGE ON OMICRON VARIANT NEWSOn Friday, base metals closed in the red. The 3m LME contract on copper plunged 3.48% (-$342/tonne from the previous day's close) to settle at $9,460/tonne, aluminum 3.77% (-$103/tonne) to $2,615/tonne, nickel 3.73% (-$770/tonne) to $19,897/tonne and zinc 3.23% (-$107/tonne) to $3,194/tonne.The downward movement across the board came after the new Covid variant was reportedly detected in South Africa. The uncertainty about the severity of Omicron and the effectiveness of vaccines against it has fueled worries about economic growth and demand for raw materials. Copper - considered a barometer for global growth - saw its quotes slide to the recently long-persisting technical levels around $9,460/tonne, its 200-day moving average, which is acting as a support. In early trading today on the LME, we are seeing the losses slow, though metals are still in the red in Shanghai. The calming came as fears about Omicron eased slightly over the weekend, as there is evidence that symptoms are milder than feared. Still, the uncertainty remains and is likely to drive sentiment for metals in the weeks to come, with a period of elevated volatility upcoming.This week, China releases macroeconomic data, with the focus on the official November manufacturing PMI (tomorrow), followed by the Caixin PMIs (Wednesday). In addition, Fed comments ahead of the mid-December meeting will fuel volatility in the commodities markets. Together with news about the Omicron variant, this will determine the ups and downs we are set to see in the metals markets in the near