Commodities Daily - October 18, 2021

> Oil prices keep rising with attention turning to Chinese data. Today, investors will eye the EIA monthly drilling productivity report and US September industrial production. Brent, in our view, is most likely to stabilize near $86/bbl amid headwinds from the largely downbeat Chinese data released this morning.> Gold retreats amid rise in US 10y Treasury yield. Gold slid from $1,795/oz to $1,770/oz on Friday, while the US 10y Treasury yield climbed from 1.52% to 1.57%. Gold is trading just below $1,770/oz as we write. Today, the market awaits US industrial production for September and the US NAHB housing market index for October. We expect bullion to trade in a $1,745-1,775/oz corridor today.> Base metals extend rally as investors shrug off weak data from China. Base metals continued to rally on Friday, and they have extended their gains this morning despite a batch of weak macro data from China, as the global energy crisis remains in the spotlight. Meanwhile, it is possible some light will be shed on the Evergrande saga later this week. OIL PRICES KEEP RISING WITH ATTENTION TURNING TO CHINESE DATAOn Friday, Brent gained almost $1/bbl, rallying to as high as $85.1/bbl, before eventually settling at $84.86/bbl, fixing $0.86/bbl above the previous settlement. Apart from the gas and coal shortage that is triggering extra demand for oil products ahead of the heating season, there was another upbeat development late last week: a White House official said that the US will open its borders to vaccinated foreigners on November 8 (unvaccinated foreigners will generally be barred from entry, while unvaccinated Americans will need a negative Covid-19 test). This will potentially boost jet fuel demand at a time when the refined product markets are already tight. This morning, Brent has inched above $86/bbl. Investors are digesting Chinese data: Chinese 3Q21 GDP was up 4.9% y-o-y versus the estimated 5% growth and the 7.9% y-o-y mark in 2Q21, as electricity shortages in September forced factories to curb output or shut completely, which also weighed on crude oil processing last month (it dropped to the lowest level since May 2020). Industrial output rose 3.1% y-o-y in September, missing the median estimate of 3.8%, while retail sales expanded 4.4% in September, beating the median forecast of 3.5%. Greater policy support seems necessary to boost growth, but a quick turnaround is unlikely, in our view, as the slowdown is being driven predominantly by supply shocks, while the government looks committed to long-term structural reforms.Today, investors will eye the EIA monthly drilling productivity report and US September industrial production. Brent, in our view, is most likely to stabilize near $86/bbl amid headwinds from the largely downbeat Chinese data released this morning. An Iranian foreign ministry spokesman, meanwhile, has said that nuclear talks with world powers could last for several more rounds, highlighting that "the important thing is to waste no time." This week, oil investors will continue to follow European gas market developments. Eyes are now on Russia to see how much capacity Gazprom books for Europe in an auction today, while EU leaders seem poised to authorize emergency measures by member states to soften the pain for consumers. Elsewhere, the India Energy Forum starts Wednesday - though it will have a national focus, the event offers big-name guests and we expect additional pressure on OPEC+ from major importers given the current high prices and ample OPEC+ spare capacity. Overall, we expect Brent to continue its gradual uptrend this week and see it hitting $87/bbl amid the prevailing physical market LD RETREATS AMID RISE IN US 10Y TREASURY YIELD Gold slid from $1,795/oz to $1,770/oz on Friday, while the US 10y Treasury yield climbed from 1.52% to 1.57% and EUR/USD nudged down from 1.160 to 1.159. Friday's data releases were mixed for gold. US retail sales rose 0.7% in September, surprising the market (the consensus was for a 0.2% decline), while the August figured was revised from 0.7% growth to 0.9%. Despite rising inflation and the end of federal benefits in the US last month, purchasing power remained strong, and investors took this as a big sign that the economy is recovering at a healthy pace, bolstering expectations of Fed hawkishness at the November meeting. Other data was not so cheery, though it failed to prevent gold from declining. The University of Michigan consumer sentiment index for October came in at 71.4 points (versus the consensus of 73.1), below the September reading of 72.8 points, while the Empire State manufacturing index for October slid to 19.8 (versus the consensus of 25) from 34.3 in September.Gold is trading just below $1,770/oz as we write. Today, the market awaits US industrial production for September and the US NAHB housing market index for October. This week's calendar also includes IHS Markit's preliminary manufacturing, services and composite PMIs for the US and eurozone on Friday, and the Fed's beige book on Wednesday. Also due are US building permits, housing starts and existing home sales for September, the Philadelphia Fed manufacturing business outlook survey for October and weekly initial jobless claims. The eurozone will see preliminary consumer confidence for October and the CPI for September. We expect bullion to trade in a $1,745-1,775/oz corridor SE METALS EXTEND RALLY AS INVESTORS SHRUG OFF WEAK DATA FROM CHINABase metals closed in positive territory on Friday. Three-month LME contracts on copper climbed 2.00% (+$200/tonne from the previous close) to settle at $10,206/tonne, aluminum edged up 1.15% (+$36/tonne) to $3,173/tonne, nickel rose 2.81% (+$545/tonne) to $19,913/tonne and zinc surged 8.20% (+$289/tonne) to $3,814/tonne.The rally in base metals market continued through the end of last week, as the global energy supply crunch only deepened. Today, base metals are climbing to new highs despite a batch of disappointing macro data from China: GDP growth slowed to 4.9% y-o-y and 0.2% Q-o-Q in 3Q21, while in September industrial production growth decelerated to 3.1% y-o-y and fixed asset investment growth slowed to 7.3% due to the issues in the property sector.For now, base metal prices seem to be ignoring the demand risks, which are still very much relevant and even seem to be growing. October 23 (Saturday) will be a key date for the Chinese property market and Chinese markets in general, as this is when the grace period for Evergrande's first missed payment ends. We do not expect any bad news to reverse the trend in the metals market, at least in the near future, as the supply-side constraints seem to be absorbing investors' attention at the moment. Yet, there might be some calming down should Evergrande