Commodities Daily - October 27, 2021

> Oil trades sideways with Iranian nuclear talks and US inventory data in focus. This morning, Brent has slid to $85.70/bbl after overnight the API reported stock builds in crude oil and refined products. Investors today are eyeing the weekly EIA inventory update, US September durable goods orders and the start of nuclear talks between Iran and the EU in Brussels. In our view, today's agenda looks set to keep Brent trading within the current $85.3-86.7/bbl range with the EIA report expected to support prices toward the upper end of this range in the latter half of the day.> Gold falls amid positive US macro data. Gold slid from $1,805/oz to $1,790/oz yesterday, while the US 10y Treasury yield edged down from 1.63% to 1.61%. Gold is still trading near $1,790/oz as we write. Today, the market awaits US durable goods orders and wholesale inventories data for September. We expect bullion to trade in the $1,775-1,805/oz range today.> Base metals trade lower as demand-side risks continue to dominate the agenda. Base metals traded lower yesterday, as the risks to Chinese demand remained in focus with stimulus seemingly unlikely to arrive. Aluminum led the retreat. Meanwhile, the thermal coal industry in China is being placed under closer scrutiny, and thermal coal futures are falling for the sixth straight trading session this morning.OIL TRADES SIDEWAYS WITH IRANIAN NUCLEAR TALKS AND US INVENTORY DATA IN FOCUSYesterday, front-month Brent kept trading near YTD highs in the $85.3-86.5/bbl range amid tailwinds from the US consumer confidence reading - the index rose in October for the first time in four months as concerns around the delta coronavirus variant eased. Consumers were also more optimistic about their future income and job prospects and said that they were more likely to purchase cars, homes and appliances. Vacation plans, which are reported every other month, also increased. That said, higher prices for household goods could hold back a further improvement in sentiment in the coming months. Brent eventually settled at $86.40/bbl, fixing $0.41/bbl above the previous settlement.This morning, it has slid to $85.70/bbl after overnight the API reported stock builds in crude oil (+2.32 mln bbl), gasoline (+0.53 mln bbl) and distillates (+0.98 mln bbl). Meanwhile, stocks at the Cushing storage hub keep falling (following builds over late September and early October) with the API reporting a 3.73 mln bbl weekly drop. We highlight that in WTI the first four calendar spreads have rallied to over $1/bbl backwardation as a result of lower West Texas flows into Cushing and slightly higher export flows to the US Gulf Coast. This rally in WTI has made US export arbitrage to Europe less attractive, meaning fewer exports, which will tighten North Sea balances further, leaving further upside for Brent. The entire WTI curve is now more steeply backwardated than Brent, and Brent calendar spreads are rolling higher with a lag.Investors today are eyeing the weekly EIA inventory update, US September durable goods orders and the start of nuclear talks between Iran and the EU in Brussels. Regarding the latter, as we understand, simply restoring the 2015 nuclear deal (the so-called JCPOA) would no longer satisfy the parties. The Iranians want guarantees that a future US administration will not re-impose sanctions, while the US wants additional safeguards given the advances in Iran's nuclear program over the last year. Underscoring the difficulty of the negotiations is the fact that the new Iranian government has appointed a vocal critic of the JCPOA to lead its negotiating team. This implies a slower timeline and more uncertainty over the chances of an agreement and the outline of any deal. In our view, today's agenda looks set to keep Brent trading within the current $85.3-86.7/bbl range with the EIA report expected to support prices toward the upper end of this range in the latter half of the LD FALLS AMID POSITIVE US MACRO DATAGold slid from $1,805/oz to $1,790/oz yesterday, while the US 10y Treasury yield edged down from 1.63% to 1.61%. EUR/USD slid from 1.161 to 1.159, creating additional pressure for bullion. The US macro data published yesterday was fairly upbeat. The FHFA housing price index rose 1.0% m-o-m in August, while the consensus was calling for a 1.5% increase. Since inflationary pressure remains one of the major uncertainties supporting bullion, the slowing pace of housing price growth created headwinds for gold yesterday. Further pressure came from the Conference Board's consumer confidence index, which printed at 113.8 in October, significantly above the consensus estimate of 108. The improvement in consumer sentiment could portend improvement in the overall US economy and the labor market as well, which in turn could allow the Fed to take on an even more hawkish stance at its coming meeting in early November. Another positive sign for the US economic recovery came from new home sales in September, which were up 14% m-o-m (at 800k, up from a revised estimate of 702k for August), while analysts were expecting an only 2.2% increase. Also, the Richmond Fed's manufacturing index rebounded sharply to a reading of 12 for the month of October, well above the consensus forecast of 5 and the -3 print for September. Overall, the positive data provided headwinds for bullion ahead of the US GDP data tomorrow and the FOMC meeting next week.During the Asian trading session today, gold has been hovering slightly below $1,790/oz. Markets await preliminary September data on US durable goods orders and wholesale inventories. The wholesale inventories data is expected to show a 1.0% increase, which would be weaker than the 1.2% increase reported for August. This would be negative for bullion, as it would be positive for the dollar. Meanwhile, the consensus for durable goods orders envisages a 1.1% decrease following the 1.8% rise in August. A weak read on durable goods could provide tailwinds for gold. We expect bullion to remain stuck in a $1,775-1,805/oz corridor SE METALS TRADE LOWER AS DEMAND-SIDE RISKS CONTINUE TO DOMINATE THE AGENDAYesterday, base metals closed in the red. Three-month LME contracts on copper fell 0.80% (-$79/tonne from the previous close) to $9,789/tonne, aluminum declined 1.62% (-$47/tonne) to $2,829/tonne, nickel dropped 1.06% (-$215/tonne) to $20,091/tonne and zinc slid 1.00% (-$35/tonne) to $3,425/tonne.Investors continued to weigh the demand-side risks after it was reported that car and housing sales in China were down in October, signaling a further slowdown in the economy. Since Chinese authorities do not seem to be in any rush to respond with stimulus and the property market is still in distress, the market has been focusing on the country's declining consumption of raw materials. Aluminum led the retreat in base metals yesterday, with the three-month LME contract dropping to its lowest level in six weeks, down 11% from the mid-October peak. Meanwhile, Russia's Rusal said that the aluminum market was in deficit to the tune of 1.1 mln tonnes in 9m21, after being balanced in the first half of the year. Notably, the global supply of primary aluminum has been on the rise, while the refined metal purchased by end-users is currently in short supply due to decarbonization-related commitments in China.Meanwhile, thermal coal futures in China are falling for the sixth straight session today, as Beijing is strengthening its grip on the sector. The most-traded contract on the Zhengzhou Commodity Exchange was down another 8% at $179/tonne at the time of this writing following reports that Chinese authorities would put producers under closer scrutiny, with plans to conduct industry-wide checks and impose stricter oversight on coal storage sites. The aim is to boost inventories of newly mined coal so that electricity plants are prepared for the heating season. It is worth mentioning that there have been some improvements in the fundamentals since the government started pushing miners to increase their output. Daily production of thermal coal is running at 11.6 mln tonnes so far in October, while it was below 11 mln tonnes in September (12 mln tonnes per day is the target), while coal inventories at major power plants are also growing. Despite the improvements on the supply side, we expect the market to remain tight in the coming months as we approach the heating season, which is likely to see colder weather than usual due to La