Commodities Daily - October 29, 2021

> Oil pares back some losses after dipping on news that Iranian nuclear talks will resume. Brent is hovering below $84.5/bbl this morning, with investors today awaiting eurozone 3Q21 GDP, the EIA monthly 914 oil production report and US September personal income and spending data. We think Brent is unlikely to pare back more of the losses it suffered midweek amid a lack of bullish catalysts, so we expect it to close the week near $84/bbl.> Gold steady amid mixed macro data. Gold remained near the $1,795/oz mark yesterday despite an uptick in the US 10y Treasury yield from 1.55% to 1.58%. Gold is still trading near $1,795/oz as we write. Today, the market awaits eurozone GDP data for 3Q21 and a US PCE inflation reading for September. We expect bullion to trade in the $1,775-1,805/oz range today.> Base metals climb higher as dollar weakens; iron ore in decline. Base metals erased some of their previous losses yesterday as the dollar weakened in the wake of disappointing 3Q21 GDP data from the US. However, iron ore was in decline amid pressure from both demand- and supply-side factors. We think the decline is likely to continue. OIL PARES BACK SOME LOSSES AFTER DIPPING ON NEWS THAT IRANIAN NUCLEAR TALKS WILL RESUMEBrent retreated to $82.3/bbl yesterday morning after reaching almost $86.5/bbl late on Tuesday, prompted by news that Iran and the EU had agreed to restart negotiations to revive the 2015 nuclear accord before the end of next month, with an exact date to be announced next week. The development has not altered our view that the US is unlikely to lift its sanctions on Iranian oil exports anytime soon. Since the last round of talks finished in June, Iran has offered numerous reasons to delay the diplomatic timeline, while also expanding its nuclear activities. Iran has signaled it is unwilling to pick up from the point reached in June and has called on the US to unfreeze $10 bln of Iranian overseas assets as a "goodwill gesture." The US sanctions are still causing severe economic hardship, but Iran's new government is stressing the importance of a "resistance economy" that can withstand sanctions. Tehran is also concerned that any relief could be temporary, particularly if Republicans win the White House in 2024, so it is demanding guarantees that the US will not re-impose sanctions in the future, though it knows the Biden administration cannot provide this. For now, we assume a relaxation of sanctions will enable Iran to ramp-up supplies in 2H22, but there are significant risks of an even slower timeline or no deal at all.Yesterday, Brent rebounded from the $82.3/bbl level and experienced a choppy session to end the day near $84.6/bbl, with weak US 3Q21 GDP data pressuring the dollar. US GDP rose 2% y-o-y during the quarter, down from 6.7% y-o-y growth in 2Q21, reflecting a slowdown in personal consumption, and with expectations for 2.6% growth. Meanwhile, Bloomberg reported that ahead of the OPEC+ meeting next week, the group's joint technical committee is now forecasting a 1.1 mln bpd reduction in global inventories in 4Q21, nearly double the previous projection of 0.67 mln bpd. Brent eventually settled at $84.32/bbl yesterday, down $0.26/bbl on the day.Brent is hovering below $84.5/bbl this morning, with investors today awaiting eurozone 3Q21 GDP, the EIA monthly 914 oil production report and US September personal income and spending data. We think Brent is unlikely to pare back more of the losses it suffered midweek amid a lack of bullish catalysts, so we expect it to close the week near $84/ LD STEADY AMID MIXED MACRO DATAGold remained near the $1,795/oz mark yesterday despite an uptick in the US 10y Treasury yield from 1.55% to 1.58%. EUR/USD advanced from 1.160 to 1.168, which supported bullion. Yesterday's macro data contained some surprising results. The most important release was the first reading of 3Q21 GDP growth from the US, which came in at 2.0%. This was the lowest Q-o-Q annualized growth rate since 2Q20 and well below the consensus of 2.6%. The GDP data also showed a slowdown in personal consumption growth to only 1.6%, which was above the consensus of 0.9% growth but followed a 12% surge in 2Q21. The slowdown owed to supply-side shortages, transportation bottlenecks, the spread of the Delta variant in August and September, rising inflation and higher commodity prices. The generally downbeat GDP report pressured the dollar and created tailwinds for bullion. Meanwhile, US pending home sales were down 2.3% in September versus an expected 0.5% increase. The other data releases yesterday were not so supportive for gold. The Kansas City Fed manufacturing activity index rose from 22 in September to 31 in October, while it had been expected to drop to 20. Moreover, weekly initial jobless claims fell to 281k last week, the lowest reading since March 2020, while analysts had expected a slightly higher reading of 288k. This relatively upbeat data from the US served to constrain gold's reaction to the ECB outcome yesterday. While the central bank did not make any changes to its policy and President Christine Lagarde tried to convey a dovish message, she also mentioned that the surge in inflation would likely last longer than had previously been expected.During the Asian trading session today, gold is hovering near the $1,795/oz mark again. The market awaits eurozone GDP data for 3Q21 and a US PCE inflation reading for September. Also on today's macro agenda are a preliminary eurozone CPI reading for October, US personal income and spending data for September, and a Chicago PMI reading for October. Analysts expect to see a 2.1% Q-o-Q increase in eurozone GDP and a 0.3% reading for the US PCE deflator. While eurozone GDP might come in below consensus due to supply-side issues, the PCE inflation reading could top expectations, as we saw with the September CPI data from the US. Overall, we expect bullion to remain range-bound in the $1,775-1,805/oz corridor SE METALS CLIMB HIGHER AS DOLLAR WEAKENS; IRON ORE IN DECLINEYesterday, base metals closed in positive territory. The three-month LME contract on copper rose 1.24% (+$119/tonne from the previous close) to $9,667/tonne, aluminum climbed 2.25% (+$61/tonne) to $2,747/tonne, nickel edged up 0.83% (+$162/tonne) to $19,574/tonne and zinc added 1.11% (+$37/tonne) to close at $3,372/tonne.Base metals bounced back yesterday, erasing some of their losses from previous days in the absence of news of further inventions from the Chinese authorities. Although the price of coal in China (the most active contract on the Zhengzhou Commodity Exchange) declined another 8% yesterday, metals prices found support from dollar weakness in the wake of a lower than expected 3Q21 GDP print from the US (due to supply chain disruptions and the surge in Covid-19 cases). The downbeat growth figure was seen as easing the pressure on the Fed to act to tame inflation, so it weakened the greenback, providing broad support to the commodities market.Meanwhile, iron ore dropped 3% to $108/tonne in Singapore yesterday, finally leaving the range it had been trading in since the end of September. It fell for the third straight day amid pressure from both demand- and supply-side factors. On the demand side, Beijing has remained firm in its commitment to keeping steel output this year below last year's level, while on the supply side output at mines is surging. There are signs that iron ore prices are likely to remain in decline. For instance, iron ore stockpiles at Chinese ports look to be set for their biggest monthly increase since 2014, and they are up 12% YTD. We believe the current fundamental factors, as well as Chinese authorities' determination to ensure that the skies are blue during the upcoming Olympics, will drag iron ore below $100/tonne in the months to