Commodities Daily - October 6, 2021

> Oil ticks higher ahead of EIA's weekly inventory update. This morning, Brent is hovering below $83/bbl, weighed down by last night's API inventory data, which showed stock builds for crude oil, gasoline and distillates. The EIA's weekly inventory report is due today, along with August retail sales data from the eurozone and ADP's September employment report from the US (ahead of Friday's nonfarm payrolls data). In our view, Brent is likely to face headwinds later today from what we expect to be another set of bearish inventory data across all categories from the EIA. We think the benchmark may slip toward $82/bbl following the release.> Gold slides as US 10y yield increases. Gold declined from $1,770/oz to 1,760/oz yesterday, while the 10y Treasury yield rose from 1.48% to 1.53%. Gold is trading near $1,750/oz as we write. Today, the market awaits the ADP employment report for September and eurozone retail sales for August. We expect bullion to retest support at $1,745/oz today.> Metals mostly higher, copper down on Chinese property market debt crisis. Yesterday, base metals mostly closed higher, while copper plunged on the Chinese property market crunch and looming QE tapering. Though China is still on holiday, the focus remains on its energy crisis with the implications for winter currently being assessed by investors. OIL TICKS HIGHER AHEAD OF EIA'S WEEKLY INVENTORY UPDATEYesterday, Brent rose nearly $2/bbl to an intraday high of $83.1/bbl amid upbeat September services PMI readings for the eurozone and the US. The growth of the services sector remained strong across Europe last month, though elevated inflationary pressure dented demand and ongoing supply issues constrained business activity, issues which are likely to continue. Although many restrictions imposed to contain the coronavirus pandemic have now been lifted in the region, firms are suffering from shortages of staff, raw materials and transport. Meanwhile, the US services sector expanded at a faster than expected pace in September, supported by a pickup in business activity and solid growth in new orders. Concerns about the Delta variant, though still present, have been abating, and many Americans are starting to feel more comfortable going out to eat and traveling. Also worth mentioning is that yesterday Saudi Aramco noted that the gas crisis was already boosting demand for oil, though it decided to cut prices for all its crudes destined for Asia in November following the OPEC+ meeting. The world's largest oil exporter also cut prices for nearly all grades headed for the US, the Mediterranean and Northwest Europe. Front-month Brent eventually settled at $82.56/bbl, fixing $1.3/bbl above the previous settlement. This morning, Brent is hovering below $83/bbl, weighed down by last night's API inventory data, which showed stock builds for crude oil (+0.95 mln bbl), gasoline (+3.68 mln bbl) and distillates (+0.34 mln bbl). The EIA's weekly inventory report is due today, along with August retail sales data from the eurozone and ADP's September employment report from the US (ahead of Friday's nonfarm payrolls data). In our view, Brent is likely to face headwinds later today from what we expect to be another set of bearish inventory data across all categories from the EIA. We think the benchmark may slip toward $82/bbl following the release. We believe that the recovery in US crude oil production, along with elevated imports of oil and gasoline amid moderating end-user demand, likely contributed to builds in crude oil as well as LD SLID AMID 10Y TREASURY YIELD INCREASESGold declined from $1,770/oz to 1,760/oz yesterday, while the 10y Treasury yield rose from 1.48% to 1.53%. EUR/USD decreased from 1.162 to 1.160, pressuring bullion. Yesterday's macro statistics were mixed. The eurozone Markit services PMI for September showed a slight increase in the final reading to 56.4, after 56.3 earlier. Meanwhile, eurozone PPI data for August demonstrated a slightly slower pace of inflation pressure, coming in at 1.1% m-o-m (1.3% expected) and 13.4% y-o-y (13.5% expected). The slowing pace of price growth supports views that the ECB's measures to boost the European economy will take longer than previously expected. This dampened the euro and created headwinds for bullion. Meanwhile, another sign of improvement in the US economy emerged yesterday, thus boosting confidence that the Fed will take a hawkish stance on tapering QE. Both the Markit and ISM service PMIs for September rose above expectations. The Markit printed 54.9 points in the final reading (54.4 consensus), while ISM showed 61.9 points (59.9 consensus). Moreover, the Institute for Supply Management noted that problems with transportation bottlenecks, parts and workforce shortages remain the main issue. Also, the ISM employment index for the services sector slid from 53.7 points in August to 53 points in September. That created support for bullion ahead of the employment data statistics later this week. Chicago Fed President Charles Evans said that supply problems remain the driver of inflation and that these issues are temporary. He also reiterated the view that the Fed is on its way to begin reducing its monthly asset purchases.During Asian trading today gold slid lower to $1,750/oz. Today, the market awaits the ADP employment report for September and eurozone retail sales for August. The market consensus for the ADP private payroll change in the last month is 430k. The ADP data will be the main proxy before Friday's nonfarm payrolls, but because these two reports can show some disparity, we think the effect of the ADP print will be limited. We expect bullion to retest support at $1,745/oz TALS MOSTLY HIGHER, COPPER DOWN ON CHINESE PROPERTY MARKET DEBT CRISIS Yesterday, base metals mostly closed higher, with copper an exception. The 3m LME contract for copper fell 1.33% (-$123/tonne from the previous day's close) to settle at $9,148/tonne, while aluminum edged up 0.63% (+$18/tonne) to $2,923/tonne, nickel added 0.47% (+$85/tonne) to $18,120/tonne and zinc rose 0.26% (+$8/tonne) to settle at $3,049/tonne.The base metals market was mixed yesterday, with movements dominated by the energy crunch in China, despite the fact that Chinese market participants are on a holiday. Chinese local governments' energy consumption curbs present demand and supply risks. The combination of subdued demand and supply is likely to prevent quotes from going far in one direction, but much will depend on who China prioritizes in terms of electricity consumption during the winter - metal producers or manufacturers.Copper was an outlier yesterday, as it proved sensitive to the property market story once again - recall that 30% of its consumption in China is attributable to the property sector. Another developer, Fantasia, failed to meet obligations on Monday, adding to the risks of a debt crisis across the sector. We are likely to continue seeing negative news flow in the near future, in our view, which will keep pressure on copper quotes. In addition, we note the signs of a worsening global economic outlook and investor fears that elevated inflation will lead to a pullback of stimulus. We expect copper to continue moving downward in a corridor as it acts as a bellwether for where the global economic cycle is