Commodities Daily - September 1, 2021

> Oil holds steady ahead of OPEC+ meeting, EIA inventory report. This morning, Brent has continued to trade near $72/bbl amid downbeat August manufacturing PMI data from China and a mixed API US inventory report showing strong crude oil and distillate draws but a buildup in gasoline inventories. The main event today is the OPEC+ meeting. We expect the group to go ahead with the 0.4 mln bpd production hike in October, as was agreed upon earlier. The EIA weekly inventory report (which is not likely to attract much attention, as it will only show changes in inventories before Hurricane Ida struck) and August manufacturing PMIs from around the globe (which should be downbeat) are also due today. In our view, Brent is likely to face headwinds today and could slip toward $71/bbl by the end of the day.> Gold trades sideways before today's ADP employment data. Gold mostly traded in a tight $1,810-1,815/oz range yesterday, while the 10y US Treasury yield rose from 1.28% to 1.33%. Yesterday's macroeconomic releases provided support. Gold is trading near $1,815/oz as we write. Today, the market awaits the ADP employment report for August, the ISM manufacturing index, IHS Markit manufacturing PMIs for the US and eurozone for August, and eurozone unemployment for July. We expect bullion to test support at $1,800/oz today.OIL HOLDS STEADY AHEAD OF OPEC+ MEETING, EIA INVENTORY REPORTYesterday, the now-expired front-month October Brent contract traded near $73/bbl throughout the day and settled at $72.99/bbl, $0.42/bbl below the previous settlement. The new front-month November contract traded around $72/bbl and settled at $71.63/bbl, fixing $0.6/bbl below the previous settlement. Investors were weighing the prospects for a continued rise in OPEC+ production and the restoration of crude output in the US after Hurricane Ida. Headwinds came from the August reading of the US consumer confidence index, which fell to a six-month low, reflecting concerns about the Delta variant and the outlook for inflation and the economy as a whole. This morning, the November Brent contract continued to trade near $72/bbl amid downbeat August manufacturing PMI data from China and a mixed API US inventory report showing strong draws in crude (-4.05 mln bbl) and distillates (-1.96 mln bbl) but a build in gasoline (+2.7 mln bbl). The EIA's weekly update is due this evening but will likely receive less attention than usual, as it will only reflect changes in inventories before Hurricane Ida struck. Meanwhile, today's macro calendar features August manufacturing PMIs from around the globe, which are expected to be broadly downbeat due to the spread of the Delta variant and supply chain disruptions. However, the main event for the oil market today is of course the virtual OPEC+ meeting (recall that ministers now gather frequently to assess whether their supply strategy fits the current market conditions).We expect OPEC+ to go ahead with the 0.4 mln bpd production hike in October that was agreed upon in July. Although prices have been volatile recently amid lower than expected demand in Asia and the spread of Covid-19 in the US and elsewhere, Brent has moved comfortably back above $70/bbl. Sentiment is strengthening again, refining margins have been boosted by the logistical impact of Hurricane Ida and demand in China is set to grow strongly now that the country has brought its latest Covid wave under control. In addition, various other outages have disrupted global supply. And while Covid cases have been rising in the US, the FDA's full approval of the Pfizer vaccine is expected to lead to higher vaccination rates, cooling concerns about the virus denting demand in North America. All in all, there are clear fundamental reasons for OPEC+ to go ahead with its October output increase. While there are some members within OPEC+ that are concerned about raising production at a time when Covid cases are rising in Asia (where vaccination rates remain low), there is not currently enough of a push to pause the next scheduled monthly increase. That said, we expect delegates to discuss Asian demand concerns and allude to the potential for a pause, likely during the winter but perhaps as early as November, depending on market conditions. In our view, with multiple headwinds and OPEC+ likely to stick to its gradual production hikes, Brent will probably come under pressure today, possibly slipping toward $71/bbl by the end of the day. From a technical standpoint, a drop to $70.5/bbl looks possible, as Brent has broken support at $71.86/ LD TRADES SIDEWAYS BEFORE TODAY'S ADP EMPLOYMENT DATA Gold mostly traded in a tight $1,810-1,815/oz range yesterday, despite the 10y US Treasury yield climbing from 1.28% to 1.33%. EUR/USD edged up from 1.180 to 1.181. Yesterday's economic data generally provided tailwinds for bullion. Preliminary eurozone inflation for August came in at 1.6% m-o-m (versus the 1.5% consensus) and 3% y-o-y (2.7% consensus). Markets interpreted that as a signal that the eurozone recovery is improving, though that caused concern that the ECB might now be studying the possibility of reducing its stimulus measures. This helped to fuel the euro and also gold. ECB Governing Council member Robert Holzmann said the economic rebound will enable the regulator to consider scaling back QE. Meanwhile, the US consumer confidence index dropped to a six-month low at 113.8 in August, well below the consensus forecast of 123 and the revised figure of 125.1 for July. The decline likely stemmed from the spread of the Delta variant last month and a rise in food and gasoline prices. Reduced economic expectations typically slow concerns about monetary policy tightening, which should be positive for gold. However, bullion is coming under pressure from the approach of today's US private payrolls data for August, which is closely monitored by the Fed. Yesterday, the Chicago PMI for August came in at 66.8, below the consensus of 68. However, the S&P Case-Shiller home price index rose 19.1% y-o-y, while the consensus was near 18.6%. Rising housing prices create a headwind for bullion.Gold is still holding near $1,815/oz as we write. Today, the market awaits the ADP employment report for August, the ISM manufacturing index, IHS Markit manufacturing PMIs for the US and eurozone for August, and eurozone unemployment for July. The ADP employment report for August is expected to register a 638k rise in private payrolls. This will be followed by the official nonfarm payrolls statistics on Friday. We expect today's number to be in line with or above the consensus, so we see bullion testing support at $1,800/oz later today.