Commodities Daily - October 4, 2021

> Oil market awaits OPEC+ meeting. Brent is hovering just above $79/bbl this morning as attention turns to today's OPEC+ meeting at which output policy will be discussed amid a rapidly tightening market. The question is whether output will be raised in November by more than the planned 0.4 mln bpd. We think Brent will likely to rise toward $80/bbl today, as we expect OPEC+ to go ahead with the planned 0.4 mln bpd output hike for November. We think the political pressure on the group is not yet strong enough for a change of course and that Brent would need to hold above $80/bbl for a protracted period to elicit a change in stance.> Gold steady while 10y Treasury yield lower. Gold was virtually flat at 1,760/oz on Friday, while the 10y UST yield slid from 1.49% to 1.47%. Bullion is trading near $1,760/oz as we write. Today, the market awaits US factory orders for August. We expect gold to remain range-bounded in the $1,745-1,775/oz corridor today.> Metals close mostly higher on strong US manufacturing data; China on holiday. The gains followed a selloff that had lasted the rest of the week and came as investors weighed the economic recovery in the wake of strong US manufacturing data. The fact that China went on a week-long holiday starting on Friday helped to calm the situation and suggests that there might be lower volatility this week. Still, the Chinese power crunch and Evergrande saga remain in focus.OIL MARKET AWAITS OPEC+ MEETINGOn Friday, front-month Brent rebounded from $77.55/bbl and surged toward $79.4/bbl, rising in tandem with equity markets as investors focused on demand after China ordered its state-owned companies to secure energy supplies for winter at all costs as the country struggles with a deepening power crisis. The US ISM manufacturing PMI expanded in September at the fastest pace in four months (up to 61.1 points from 59.9), suggesting that manufacturers are making some headway working through still-elevated order backlogs, while solid consumer demand and business investment should continue to support growth in the sector in the months ahead. Brent eventually settled at $79.28/bbl, fixing $0.97/bbl above the previous settlement.Brent is hovering just above $79/bbl this morning as attention turns to today's OPEC+ video conference at which production policy will be discussed amid a rapidly tightening market. Ahead of the OPEC+ meeting last month, Brent was nearing $65/bbl and investors were wondering if OPEC+ would cut production or at least pause its planned 0.4 mln bpd monthly increases. Now, with prices nearer to $80/bbl, investors are asking if the group will add more than 0.4 mln bpd in order to cool the market. However, as was the case then, we currently see little appetite from OPEC+ to tweak the existing agreement. When the delegates meet today, we expect them to push ahead with the planned 0.4 mln bpd increase for November. We think that there is not enough market need or political pressure to warrant the group reopening the complex negotiations that would be needed to tweak the production increase plan at short notice. Moreover, OPEC's Joint Technical Committee continues to see a very oversupplied market in 2022 (stock builds of 1.4 mln bpd) and the group will be mindful of seasonal crude stock builds in 1Q22. It also bears keeping in mind the ever-present threat to demand from potential Covid-19 outbreaks this winter. This is especially the case for key demand centers in Asia, where mobility restrictions have tended to be implemented very quickly when cases rise. The return of Iranian oil is not an immediate concern for OPEC+, given the state of US-Iran talks, but it is still in the background and could quickly come to the fore on a few positive headlines. Still, looking beyond the coming meeting, there are plausible scenarios in which OPEC+ may act to increase production beyond the current plan in the next few months, especially as Saudi Arabia is keen to avoid price volatility on both the upside and downside. In our view, Brent is likely to rise toward $80/bbl today as we expect OPEC+ not to deliver extra supply. Ultimately, we think Brent needs to sustain above $80/bbl for a protracted period of time for the group to change course. This week, meanwhile, we do think it will gain a foothold above $80/bbl although it remains to be seen how sustainable that will LD STEADY WHILE 10Y TREASURY YIELD LOWERGold traded sideways near $1,760/oz on Friday, while the 10y Treasury yield slightly decreased from 1.49% to 1.47%. Meanwhile, EUR/USD moderately rose from 1.158 to 1.160, creating tailwinds for bullion. The macro data released on Friday was mixed but mostly negative for gold. The US PCE deflator for August increased to 4.3% y-o-y and 0.4% m-o-m, both 0.1 pp above expectations. The PCE deflator, which is the Fed's preferred inflation gauge, showed the largest annual increase in three decades. This lent further credence to the view that the Fed will embark on monetary policy tightening sooner rather than later. Although US personal spending in August rose 0.8%, above the expected 0.7%, personal incomes climbed only 0.2%. Additionally, the ISM manufacturing PMI for September printed 61.1 points (59.5 consensus), showing an improvement in economic conditions after the 59.9 reading in August. The ISM employment index rose to 50.2 points, after 49 in August. This created headwinds for bullion ahead of the nonfarm payroll report later this week. The final reading of the Michigan University consumer sentiment index for September rose to 72.8 points, after an initial reading of 71. US construction spending came in flat to August, while markets had expected 0.3% growth. This ended up being mildly positive for gold. During Asian trading today, gold is holding near $1,760/oz. Today, the market is awaiting US factory orders for August. This week we would highlight the US ADP employment report on Wednesday and US nonfarm payrolls and unemployment data for September on Friday. Also on the docket are the Markit and ISM service PMIs for September and weekly initial jobless claims. Meanwhile, the eurozone Markit service PMI for September, retail sales for August, PPI for August and ECB monetary policy meeting accounts. We expect bullion to remain range-bound at $1,745-1,775/oz TALS CLOSE MOSTLY HIGHER ON STRONG US MANUFACTURING DATA; CHINA ON HOLIDAYOn Friday, base metals closed mostly with gains, with zinc an exception. The 3m LME contract for copper was up 2.27% (+$203/tonne from the previous day's close) to settle at $8,951/tonne, aluminum edged up 0.72% (+$20/tonne) to $2,870/tonne and nickel added 0.40% (+$72/tonne) to $18,045/tonne, while zinc dropped 0.32% (-$10/tonne) to settle at $3,005/tonne.The gains on Friday followed a selloff that had lasted the rest of the week and came as investors weighed the economic recovery in the wake of strong US manufacturing data. In particular, the ISM PMI grew at the fastest pace in four months to 61.1 points versus 59.6 expected, fueled by healthy demand for factory goods and increased inventories. Meanwhile, China continues to grapple with an energy crisis. Announcements of curbs on power use are possible this week, even though the country is on a week-long holiday through Thursday. This week, we expect lower volatility in the metal markets due to a lack of major data from key producer or consumer countries (Chilean copper exports for September due on Thursday are an exception).Against the backdrop of the Chinese power crunch, we believe that energy-intensive aluminum will remain an outperformer versus other base metals, while copper and nickel are likely to remain under pressure due to falling consumption and negative sentiment around the Evergrande story. In the near term, much will depend on how the Chinese government decides to ration power over the winter. If producers of primary metals are asked to cut back more than secondary users, i.e. manufacturers, the constrained supply should boost prices for raw materials. Meanwhile, Chinese authorities might use the power crunch as another opportunity to control commodity prices and rein in markets besides the auctions from the state metals