Commodities Daily - September 17, 2021

> Oil pared back yesterday's losses and held to recent gains. Brent is trading near $75.5/bbl this morning. Today, investors are eyeing eurozone CPI data for August, preliminary September University of Michigan consumer sentiment index and the weekly Baker Hughes update on the active US rig count. In our view, today Brent is most likely to retest its recent high of $76.1/bbl amid fundamental market tightness.> Gold falls after strong US retail sales. Gold fell from $1,795/oz to $1,755/oz yesterday as the 10y Treasury yield rose from 1.30% to 1.33%. US August retail sales rose 0.7% in August, delivering a big beat on the expected 0.7% decrease. Gold is trading near $1,760/oz as we write today. The market awaits a eurozone CPI print for August and the University of Michigan US consumer sentiment index for September. We expect bullion to remain range-bound at $1,750-1,775/oz today.> Base metal prices drop on Chinese property market concerns; all eyes turning to the Fed. Base metal prices fell yesterday amid growing worries about demand from the property sector in China, where a real estate giant is on the verge of a collapse that could have serious implications for the entire economy. Meanwhile, China's metal auctions have continued. Investors' focus is shifting to the Fed meeting next week.OIL PARED BACK YESTERDAY'S LOSSES AND HELD TO RECENT GAINSOil ended yesterday's session unchanged after sliding $1.2/bbl to as low as $74.5/bbl on a stronger US dollar amid upbeat US retail sales data. Retail sales unexpectedly increased by 0.7% m-o-m in August, likely boosted by back-to-school shopping and child tax credit payments from the government, which could temper concern about a sharp slowdown in economic growth in 3Q21. The market viewed the upbeat retail sales report as a good indicator that the Fed will confirm a tapering of QE this year. In this context, eyes now turn to next week's FOMC meeting. This line of thinking generally weighed on risk assets, with Brent yesterday also mirroring moves in the S&P 500 during the day (both were down early on but started to pare back losses later in the day). Brent eventually settled at $75.67/bbl, $0.21/bbl above the previous settlement. One of the key developments supporting oil prices this week is that global oil demand is now expected to receive a boost from the surge in natural gas prices in Europe. Gas prices have been surging in Europe on lower than expected flows from Norway and Russia, reduced storage inventories, and competition from Asia for LNG imports. High carbon prices have also encouraged switching from coal to gas, adding to demand, low wind speeds have dampened output from wind generation, thus increasing demand for gas for power generation. In our view, soaring gas prices may boost global oil demand by around 0.5 mln bpd over October 2021-March 2022 (against what we previously estimated in our balances) as high natural gas prices encourage switching to alternative fuels such as gasoil and low-sulfur fuel oil. The latter is most likely to be the main beneficiary while a colder than usual winter could pose upside to an already constructive diesel outlook. Note that at current oil and carbon price levels, further increases in European gas prices would make increasingly less efficient oil-fired power plants more economical versus high efficiency gas-fired plants. In our view, benchmark European gas prices would have to rise to around EUR81/MWh at current prices for refined products and carbon to fully incentivize using all available Western European gasoil-fired power generation capacity.This morning, Brent is trading near $75.5/bbl, with investors today eyeing eurozone August CPI data, the preliminary University of Michigan consumer sentiment index for September and weekly Baker Hughes US active rig count. In our view, today Brent is most likely to retest its recent high of $76.1/bbl amid fundamental market LD FALLS AFTER STRONG US RETAIL SALESGold fell from $1,795/oz to $1,755/oz yesterday as the 10y Treasury yield rose from 1.30% to 1.33%. In addition, EUR/USD retreated from 1.180 to 1.176, creating headwinds for bullion. US retail sales rose 0.7% in August, delivering a big beat on the expected 0.7% decrease. Sales increased at online and grocery stores, while spending in bars and restaurants stagnated, indicating the impact of the spread of the Delta strain in August. Meanwhile, the July estimate was revised lower to a 1.8% decline from a 1.1% decline. Overall, markets found hints of strengthening purchasing power in the US, which led to concerns that the Fed could start tapering its bond-buying program earlier than expected. Additional pressure on gold came from the September Philadelphia Fed manufacturing survey, which was reported at 30.7 points (versus the consensus of 19) and reflected higher shipments and new orders, while employment was steady. On the weak side yesterday, US weekly initial jobless claims rose from the recent lows to 332k, above the 322k consensus. July US business inventories were in line with expectations at 0.5% growth.During the Asian trading session today, gold is trying to pare some losses and is trading near $1,760/oz. Today, the market awaits a eurozone CPI print for August and the University of Michigan US consumer sentiment index for September. The consensus for the eurozone CPI inflation is 0.4% m-o-m, with an overshoot possibly providing tailwinds for bullion. Meanwhile, the University of Michigan consumer index is expected at 72.0 points, up from 70.3 in August. We expect bullion to remain range-bound at $1,750-1,775/oz SE METAL PRICES DROP ON CHINESE PROPERTY MARKET CONCERNS; ALL EYES TURNING TO THE FEDYesterday, base metals closed in the red. Three-month LME contracts on copper plunged 2.88% (-$277/tonne from the previous close) to settle at $9,330/tonne, aluminum edged down 0.10% (-$3/tonne) to $2,891/tonne, nickel fell 2.75% (-$547/tonne) to $19,388/tonne and zinc was flat at $3,074/tonne.Base metal prices were under pressure from growing worries about demand in the Chinese real estate sector due to the potential default of Evergrande Group, a real estate firm with around $300 bln in liabilities. The possible outcomes for Evergrande range from a governmental bailout to a collapse that would deepen concerns about China's already faltering economy. The ongoing crisis should preclude stimulus for the overheated property sector, a vital source of demand for commodity markets. China also reiterated yesterday that it would continue to sell copper, aluminum and zinc from state reserves in an effort to ease imbalances between supply and demand and rein in commodity prices.Meanwhile, investors' focus has been turning to the Fed meeting next week. If the regulator hints that it may start tapering in November-December, risk assets, including base metals, might come under pressure. We expect base metals to trade range-bound ahead of the