Commodities Daily - October 11, 2021

> Oil prices at YTD highs, heavy week of fundamental market data ahead. We think Brent could reach the $84/bbl mark today, but further gains are unlikely amid the lack of fundamental catalysts. Mid-week, however, will see the OPEC and IEA monthly oil market reports published. > Gold remains flat amid mixed US jobs report. Gold was virtually flat for the day at $1,755/oz on Friday, while the 10y Treasury yield rose from 1.57% to 1.61%. It has remained near $1,755/oz this morning. Today, the calendar is limited due to the holiday in the US, and we expect bullion to remain range-bound at $1,745-1,775/oz.> Metals higher on US news, iron ore prices may have overshot. Base metals advanced on Friday, backed by the news from the US. Meanwhile, iron ore is surging as China is back from holidays. The current levels are believed to be temporary, as the fundamentals suggest a soft supply-demand ratio.OIL PRICES AT YTD HIGHS, HEAVY WEEK OF FUNDAMENTAL MARKET DATA AHEADOn Friday, Brent traded sideways within a $82.0-83.5/bbl range, with some support coming from a weaker dollar on the back of worse than expected US labor market data (which could alter the Fed's tapering plans). Brent eventually settled at $82.39/bbl, $0.44/bbl above the previous settlement. Focus remains on the fundamental market picture for oil, gas and coal ahead of winter. The economic recovery from the pandemic along with supply disruptions in the US Gulf of Mexico had already tightened the crude oil market before rising natural gas prices spurred additional demand for oil products such as diesel and fuel oil. The decision by OPEC+ to only modestly increase output in November threatens to further constrain supplies, while the recent US Department of Energy's recent statement that it had no plans "at this time" to tap the nation's strategic oil reserves is also supportive for prices. Furthermore, Saudi Aramco last week said that a global natural gas shortage was already boosting oil demand for power generation and heating. Unlike certain other commodities (such as natural gas, oil has not seen an uncontrolled speculative spike this year. In our view, oil prices have been closely tracking the constantly improving market fundamentals and are in line with the supply-demand balance. The speculative surge in natural gas prices, meanwhile, was dampened by a comment last week by Russian President Vladimir Putin that the country would ramp-up gas exports to stabilize energy markets. Although prices eased, they still remain high enough to imply additional oil demand this winter, while switching from gas to hydrocarbon liquids is still economically viable.This morning, Brent registered a new YTD high of $83.8/bbl, driven by a tight physical market. Today will be uneventful data-wise and is also a federal holiday in the US, although oil futures exchanges remain open. We think Brent could potentially reach the $84/bbl mark, but further gains are unlikely amid the lack of fundamental catalysts. Mid-week, however, will see the OPEC and IEA monthly oil market reports published. They will offer updated supply and demand forecasts and thus more insight into how much the power crises are likely to boost fuel demand over the winter. The power crises in China, Europe and now India will continue to dominate the news flow and are likely to do so for the foreseeable future. With Chinese markets having reopened Friday after holidays, investors could expect announcements from big companies this week on whether production will be affected. Also possibly forthcoming are updates from Chinese provincial governments on reducing power deficits. This week, we would expect Brent to push toward $85/bbl on tight physical market fundamentals, with weekly US inventory data likely being a LD REMAINS FLAT AMID MIXED US JOBS REPORTGold was virtually flat for the day at $1,755/oz on Friday, while the 10y Treasury yield rose from 1.57% to 1.61%. Meanwhile, EUR/USD appreciated from 1.155 to 1.157, creating tailwinds for bullion. The US jobs report for September was the main focus, and investors found the data mixed. Nonfarm payrolls showed the smallest increase this year at 194k versus the 500k gain consensus forecast, while the August NFP gain was revised upward from 235k to 366k. This helped gold to test resistance at $1,775/oz. The US unemployment rate dropped to 4.8% in September versus the 5.1% consensus - mostly due to a decline in the workforce - while wages showed a 0.6% gain m-o-m (consensus 0.4% rise). This again indicated disparities in the labor market recovery and should push inflation expectations higher, renewing concerns about imminent Fed QE tapering. After markets had a chance to digest the jobs report, US Treasury yields moved higher, which returned gold to the $1,755/oz level. In addition, on Friday San Francisco Fed President Mary Daly said, "I think it's too soon to say it's [the labor market recovery] stalling, but certainly we're seeing the pain of Covid and the pain of the Delta variant impact the labor market."During the Asian session today, gold has remained near $1,755/oz. Today, the calendar is limited due to the holiday in the US. In terms of data this week we would highlight the US CPI and PPI for September on Wednesday and Thursday and Fed minutes on Wednesday. In addition, this week also sees JOLTS job openings for August, retail sales and NFIB small business optimism for September, the Empire State manufacturing index and University of Michigan consumer sentiment index for October, and weekly initial jobless claims. Meanwhile, the key releases for the eurozone include the ZEW economic sentiment index for October and industrial production and trade balance for August. We expect bullion to remain range-bound at $1,745-1,775/oz TALS HIGHER ON US NEWS, IRON ORE PRICES MAY HAVE OVERSHOTOn Friday, base metals closed in the green. Three-month LME contracts on copper added 0.49% (+$46 from the previous day's close) to settle at $9,348/tonne, aluminum edged 0.60% (+$18) to $2,961/tonne, nickel surged 4.34% (+797) to $19,175/tonne, while zinc was higher 3.48% (+$106) to settle at $3,165/tonne.Base metals broadly rose on Friday, backed by global positive sentiment as the US moved closer toward resolving the debt ceiling deadlock. Surprisingly weak US jobs data pushed the dollar lower, which also added fuel to the rebound in metals. Yet, macroeconomic uncertainty prevented copper from gaining more to break through $9,400/tonne. We believe that weakening economic growth, possible tapering in the US and China's power rationing are the key factors that will set the tone for metals in the coming months. Meanwhile, iron ore seems to have bounced too high after traders and manufacturers returned from the Chinese holiday. Futures in Singapore are hovering around $135/tonne as of this writing. At this level, the 50-day moving average is serving as a resistance. Strong steel mill margins must be holding the price up now, but it will probably be driven lower again amid soft supply-demand fundamentals, including a 5% build in iron ore inventories in Chinese ports over the past two weeks.This week, Chinese trade data, as well as Chinese and US PPI and CPI prints are coming into sight. Both will provide some indication about what actions the two nations might undertake in the months to come, with metals reacting