Commodities Daily - October 8, 2021

> Oil rebounds after US Energy Department says no plans yet for physical market intervention. Yesterday, Brent rebounded from $79.10/bbl to $82.50/bbl after the US Energy Department said it had no plans "at this time" to tap into the nation's oil reserves to counter rising gasoline prices and is not pursuing a ban on crude oil exports. This morning, Brent is trading near $83/bbl and could retest the YTD high of almost $83.5/bbl during first half of the day, extending yesterday's rally amid a bullish fundamental backdrop. We expect an NFP addition today of around 500k (in line with the market consensus) - such a print would likely satisfy the Fed's "substantial progress" criteria, which would mean a risk-off environment in markets later and pressure on oil prices.> Gold under pressure ahead of nonfarm payrolls. Gold retreated from $1,760/oz to $1,755/oz yesterday, while the US 10y Treasury yield rose from 1.53% to 1.57%. Gold is still trading near $1,755/oz as we write. The market's focus today will be on US nonfarm payrolls for September and unemployment statistics. We expect bullion to test support at $1,745/oz today.> Base metals trade higher as China returns from holiday. Base metals traded higher yesterday, as markets were happy to see China back in action after a week-long holiday. Iron ore is rebounding amid restocking, but the trend seems unlikely to last long given China's intention to scale back its steel output. The power crunch in the country also remains in focus and is driving aluminum prices higher.OIL REBOUNDS AFTER US ENERGY DEPARTMENT SAYS NO PLANS YET FOR PHYSICAL MARKET INTERVENTIONYesterday, Brent rebounded from $79.10/bbl to $82.50/bbl after the US Energy Department said it had no plans "at this time" to tap into the nation's oil reserves to counter rising gasoline prices and is not pursuing a ban on crude oil exports. The assurance followed a Financial Times report on Wednesday that Energy Secretary Jennifer Granholm had raised the idea of releases from the Strategic Petroleum Reserve, which became a factor pushing oil prices lower mid-week. According to the statement made Thursday by the Energy Department, Granholm had been referring to already-planned congressionally mandated releases when she had told a forum held by the Financial Times that "all tools are on the table" in response to a question on how the Biden administration planned to confront surging gasoline prices.This morning, Brent is trading near $83/bbl and could retest the YTD high of almost $83.5/bbl during first half of the day, extending yesterday's rally amid a bullish fundamental backdrop. Overall, the economic recovery from the pandemic, along with the supply disruption in the Gulf of Mexico following Hurricane Ida and the OPEC+ deal, had already tightened the market before rising natural gas prices spurred additional demand for oil products like diesel and fuel oil. The squeeze, further exacerbated by higher coal prices, has come ahead of an expected increase in fuel consumption over winter.Investors today are eying the US September jobs report and weekly Baker Hughes report with the US active rig count. The former poses big risks to the current rise in oil prices, as global markets could go risk-off, weighing on oil prices, if the report is upbeat. The September FOMC meeting suggested the Fed is all but certain to announce a taper plan in November, while the one condition for tapering that still looks unfulfilled is "substantial progress" in the labor market. Today's jobs report is the last one FOMC participants will get before the November meeting. We expect an NFP addition of around 500k (in line with the market consensus), with payrolls boosted by the expiration of pandemic unemployment benefits. Such a print would likely satisfy the Fed's "substantial progress" criteria, which would mean a risk-off environment in markets later today and pressure on oil LD UNDER PRESSURE AHEAD OF NONFARM PAYROLLS Gold eased from $1,760/oz to $1,755/oz yesterday, while the US 10y Treasury yield rose from 1.53% to 1.57%. EUR/USD edged down from 1.156 to 1.155, providing negative sentiment for bullion. Yesterday's macro data had a muted impact on gold. US initial jobless claims for the week to October 2 saw 326k new claims, versus the consensus of 348k. This was the lowest reading in a month and created a headwind for gold ahead of today's US nonfarm payrolls data. Cleveland Fed President Loretta Meister said she sees inflation risks tilted to the upside and that inflation should prove temporary, but it may take longer to erase supply-demand issues. The ECB monetary policy minutes noted that the inflation picture for 2022 and 2023 is uncertain, and it could climb higher than currently expected. Overall, the report did not provide any firm signals of hawkish views at the ECB and failed to support bullion yesterday.Gold remains near $1,755/oz as we write. The market's focus today will be on US nonfarm payrolls for September and unemployment statistics. The consensus is for 500k new jobs and an unemployment rate of 5.1%. We think the figures could go either way. On one hand, the end of federal unemployment support of $300 a week for 2.7 mln US citizens in early September, the upbeat ADP private payrolls figure of 588k and the decline in daily cases Covid augur well. On the other, the slide in the ISM services employment index to 53 points in September from 53.7 in August, the remaining elevated risk from the Delta strain, with average daily cases above 100k in the past month, and the significant disparity between the ADP and official employment data in some recent months, are cause for concern. We expect bullion to retest support at $1,745/oz SE METALS TRADE HIGHER AS CHINA RETURNS FROM HOLIDAYYesterday, base metals closed higher. Three-month LME contracts on copper surged 2.32% (+$211/tonne from the previous close) to settle at $9,302/tonne, aluminum edged up 1.49% (+$43/tonne) to $2,943/tonne, nickel rose 1.51% (+$273/tonne) to $18,378/tonne and zinc gained 1.50% (+$55/tonne) to settle at $3,059/tonne.Base metal prices moved higher yesterday in anticipation of China's return from a week-long holiday. Today, they have extended their gains amid reports that producers have begun restocking after the holiday period. Steel mills spurred a surge in demand for iron ore, with iron ore futures in Singapore shooting up 5.4% to $124/tonne and prices in Dalian also jumping more than 5% this morning, according to Bloomberg. Zinc and nickel, also used in steelmaking, benefited as well. Although markets seem to be pleased with the fact that Chinese investors are back in action, the global picture remains pretty much the same: China still intends to scale back its steel production, keeping this year's output at last year's levels. With this in mind, we do not expect the rebound in iron ore prices to last long.Meanwhile, the global energy crunch is still in focus, with key commodity prices still being driven by the cost of power. One of the most affected commodities has been aluminum, the most energy-intensive metal (with electricity accounting for around 30% of its cost). The coal shortage, which has resulted from supply constraints in China and India, and the European gas market turmoil, are unlikely to ease in the near term. Hence, China's power rationing ahead of the winter will be the key driver for base metal prices, and aluminum is likely to remain an outperformer in the near