Commodities Daily - October 26, 2021

> Oil prices stabilize as Iranian nuclear deal talks set to resume. This morning, Brent rebounded back above $86/bbl as investors today eye US October confidence data and the weekly API update on US oil and refined product inventories overnight. We think that today Brent is likely to take a breather ahead of the Iran-EU nuclear talks and stabilize near $86/bbl, though the overnight API release could provide support early tomorrow, in our view.> Gold firms amid mixed data. Gold advanced from $1,790/oz to $1,805/oz yesterday while the US 10y Treasury yield edged down from 1.64% to 1.63%. Gold is still trading near $1,805/oz as we write. Today, the market awaits the US housing price index for August, new home sales for September, and US consumer confidence and the Richmond Fed Manufacturing index, both for October. We expect bullion to trade in the $1,775-1,805/oz range today.> Metals push higher on inflation and Chinese liquidity boost. Base metals closed higher as inflation concerns boosted commodities, while the PBoC injected liquidity to support local governments amid a slowing Chinese economy. Nickel led the gains on a further tightening of supply.OIL PRICES STABILIZE AS IRANIAN NUCLEAR DEAL TALKS SET TO RESUMEYesterday, after rallying from $85.40/bbl to a new YTD high of $86.70/bbl, Brent pulled back toward $85.60/bbl on the news that Iran and the EU would hold discussions in Brussels on Wednesday ahead of a resumption in broader talks in Vienna on how to revive the Iran nuclear deal (which would provide relief on sanctions targeting Iranian oil in particular). The Iranian Deputy Foreign Minister said in a series of tweets that he would meet his EU counterpart, adding that other signatories to the deal should "call out" the US on its record as Tehran is "determined to engage in negotiations" that would remove sanctions.We have highlighted a potential imminent lifting of US sanctions on Iranian oil exports as a development that could halt the ongoing oil rally. The 80-90 mln bbl of stored Iranian crude and condensate could immediately be released for sale, as well as the 1.2 mln bpd of crude production capacity that we estimate Iran could restore over six to eight months once sanctions have been lifted. Current Iranian volumes arriving at destinations remain in the 0.4-0.5 mln bpd range that they had fallen to after Chinese authorities began tackling tax evasion by independent, teapot refineries. This in turn has stalled the recovery in Iranian production, which remains at around 2.4 mln bpd.This morning, Brent rebounded back above $86/bbl as investors today eye US October confidence data and the weekly API update on US oil and refined product inventories overnight. Consumer confidence could weaken slightly following three consecutive declines amid the higher gasoline prices and rising inflation as plans to buy car, homes, and major appliances are put on the backburner. Meanwhile, the Relative Strength Index (RSI) for the front-month Brent contract has risen above 70 points, indicating that it might be overbought. However, in the past year, the front-month contract has crossed above this technical level 13 times and subsequently rose an average of 3.1% in the next 20 days. We think that today Brent is likely to take a breather ahead of the Iran-EU nuclear talks and stabilize near $86/bbl, though the overnight API release could provide supportive early tomorrow, in our LD FIRMS AMID MIXED DATAGold climbed from $1,790/oz to $1,805/oz yesterday, while the US 10y Treasury yield edged down from 1.64% to 1.63%. EUR/USD softened from 1.164 to 1.161, creating a headwind for bullion. The Dallas Fed manufacturing business index for October came in at 14.6 points, above the consensus of 6 points and significantly above the 4.6 points registered in September. However, the Chicago Fed national activity index for October reached -0.13 points (versus the 0.2 consensus), significantly below last month's reading of 0.26 points. Gold generally found support in the data, as investors detected indications that the Fed might be less hawkish given the uneven US economic recovery. Gold also found support from rising inflation expectations. Commodity price inflation and supply-chain issues are affecting consumer prices, and investors regard gold as a hedge against inflation. However, we saw a similar picture with bullion in May and early June this year, and the Fed's hawkish reaction back then pushed gold lower. The FOMC meeting on November 2-3 will likely prove hawkish, in our view, as the regulator will probably start tapering QE, which would clearly push the 10y Treasury yield higher and create fundamental headwinds for bullion.Gold is holding steady at $1,805/oz as we write. Today, the market awaits the US housing price index for August, new home sales for September, and US consumer confidence and the Richmond Fed Manufacturing index, both for October. Expectations are mixed: the housing price index is expected to rise by 1.5% m-o-m; the consensus for the consumer confidence index is 108.3 points, after 109.3 points in September; new home sales are expected to rise 2.5% m-o-m in September, which would be negative for gold as this would mark an improvement from August; and the Richmond Fed manufacturing index is expected to come in at 5 points after last month's reading of -3 points, which would also be negative for gold. We expect bullion to trade at $1,775-1,805/oz TALS PUSH HIGHER ON INFLATION AND CHINESE LIQUIDITY BOOSTYesterday, base metals closed with gains. The 3m LME contract for copper rose 1.68% (+$164/tonne from the previous day's close) to $9,868/tonne, aluminum added 0.26% (+$8/tonne) to $2,876/tonne, nickel surged 2.87% (+$567/tonne) to $20,306/tonne and zinc gained 0.35% (+$12/tonne) to $3,460/tonne.The correction that had persisted ever since the Chinese authorities started intervening in the coal market last week effectively took a pause yesterday. The relief came as investors are preoccupied with rising inflation, which is favorable for commodities, with the Fed saying inflation is not expected to fade in the near term. Additional support came as the PBoC injected liquidity (CNY200 bln, or $31 bln) into the financial system via repo to support local governments as economic growth slows. Though the move gave a shot in the arm to metals prices, from a wider perspective it might mean no outright easing of monetary policy is forthcoming - neither a cut in reserve requirements, nor in the key rate.Nickel led the gains on the LME yesterday, surging almost 3% amid worries about further tightening supply. Producer Eramet SA saw a 19% drop in ferronickel production in New Caledonia due to a Covid resurgence in the area. With inventories constantly in decline, the nickel price is extremely sensitive to any news about lower production, pushing the cash-to-three-month spread to 2019 levels amid backwardation. Nickel seems little bothered by China's steel curbs (the metal is widely used in steelmaking) as growing demand from EV batteries and the tightening supply are