Commodities Daily - September 23, 2021

> Oil rises despite mixed EIA report, Fed signaling stimulus scale-back in November. This morning, Brent is hovering below $76.50/bbl as investors eye preliminary eurozone and US September PMIs, as well as US initial weekly jobless claims. In our view, Brent is now clearly on track to test its YTD high of $77.84/bbl, thanks to strong fundamentals in the market, and today could finish around the $77/bbl mark, as what is expected to be mixed September PMI data should not derail the upbeat sentiment.> Gold weakens in wake of FOMC meeting. Gold retreated from $1,775/oz to $1,770/oz yesterday, despite the US 10y Treasury yield declining from 1.33% to 1.31%. The Fed provided hawkish signals to the market. Gold is trading near $1,765/oz as we write. Today, the market awaits the Chicago Fed national activity index for August, the Kansas City Fed manufacturing activity index for September, US weekly initial jobless claims, preliminary Markit PMIs for the US and eurozone, and the ECB's economic bulletin. We expect bullion to remain range-bound at $1,750-1,775/oz today.> Metals rebound, with news from China easing the pain. Base metals traded higher yesterday, getting a boost from the news that Evergrande had promised to meet its nearest-term obligations, and also from reports that China's central bank had injected liquidity into the system to calm markets. The rout in iron ore has come to a halt, though the metal looks vulnerable to a further price correction from a fundamental standpoint.OIL RISES DESPITE MIXED EIA REPORT, FED SIGNALING STIMULUS SCALE-BACK IN NOVEMBERYesterday, Brent rallied almost $1.80/bbl to inch above the $76/bbl mark despite a mixed EIA weekly inventory report. Crude oil inventories were reported to have fallen almost 3.5 mln bbl to 413.9 mln bbl, the lowest level since October 2018, though the draw was less than expected. The latter may be attributable to higher w-o-w oil production (up 0.50 mln bpd to 10.60 mln bpd) and imports (up 0.70 mln bpd to 6.46 mln bpd). Production rose as platforms in the Gulf of Mexico came back online following Hurricane Ida more than three weeks ago, while the crude import pace was the highest since July. Note that Royal Dutch Shell recently restarted the key regional Amberjack pipeline to the Louisiana coast. The 0.25 mln bpd pipeline handles about 57% of the entire supply of Mars crude oil, a medium-weight, high-sulfur oil favored by many refiners. On the demand side, the EIA numbers finally reflected the restart of several Louisiana refineries with total refinery inputs rising 0.96 mln bpd to 15.35 mln bpd. Crude exports rose to 2.8 mln bpd last week, though volumes are expected to be constrained moving forward amid an outage at the Mars oil field operated by Shell.Meanwhile, the 3.74 mln bbl gasoline build was unexpected - it was likely the result of higher refinery output, as well as gasoline imports to the Gulf Coast, which reached the highest volume seen since October 2008. Four-week average gasoline demand slipped by 0.17 mln bpd to 9.24 mln bpd as of last week, and it is still lower than during the same week in 2019. Distillate stocks were reported to have fallen 2.55 mln bbl. Jet fuel demand appears to be leveling off near 1.50 mln bpd, though it could get a boost from the plans of the US and Australia to reopen their borders for vaccinated travelers.Later in the day yesterday, a much-feared risk selloff was avoided following the Fed decision. Nevertheless, the Fed did give hawkish signals, expecting more rate hikes in the long term than it did back in June (it also revealed a growing inclination to raise rates next year) and signaling that QE tapering could start in November. This morning, Brent is hovering below $76.50/bbl as investors eye preliminary eurozone and US September PMIs, as well as US initial weekly jobless claims. In our view, Brent is now clearly on track to test its YTD high of $77.84/bbl, thanks to strong fundamentals in the market, and today could finish around the $77/bbl mark, as what is expected to be mixed September PMI data should not derail the upbeat LD WEAKENS IN WAKE OF FOMC MEETINGGold slid from $1,775/oz to $1,770/oz yesterday despite the US 10y Treasury yield easing from 1.33% to 1.31%. EUR/USD retreated from 1.173 to 1.169, creating a headwind for bullion. Macro releases were generally supportive for gold yesterday. US existing home sales fell 2% in August, slightly worse than the anticipated 1.7% decline. The eurozone consumer confidence index for September came in at -4 points, which was better than the consensus of -5.9 and the -5.3 reading for August. However, the market was swept by the Fed's decision later in the evening. The Fed left rates and the QE program untouched, while the general statement remained unchanged but mentioned progress in the economic recovery and the lingering pandemic risks. The regulator lowered its growth forecast from 7.0% to 5.9% for this year but increased it from 3.3% to 3.8% for 2022, while it raised its PCE inflation projection from 3.4% to 4.2% for this year and from 2.1% to 2.2% in 2022. The higher inflation expectations were reflected in the dot plot, which showed that half of the FOMC members expect one rate hike in 2022, with the median suggesting a 1% rate at the end of 2023 and 1.8% at the end of 2024. However, the elevated uncertainty caused by Covid-19 is limiting the impact of the long-term projections on the current market conditions. Investors are more focused on the near-term views. Fed Chairman Powell indicated that the Fed is likely announce and start tapering QE after the November FOMC meeting and end the process in mid-2022. This gives the Fed considerable flexibility if the recovery fails to proceed as expected. Overall, gold found this outcome slightly hawkish. Gold is trading near $1,765/oz as we write, with the market today awaiting the Chicago Fed national activity index for August, the Kansas City Fed manufacturing activity index for September, US weekly initial jobless claims, preliminary Markit PMIs for the US and eurozone, and the ECB's economic bulletin. We expect bullion to remain range-bound at $1,750-1,775/oz TALS REBOUND, WITH NEWS FROM CHINA EASING THE PAINYesterday, base metals closed in the green. Three-month LME contracts on copper closed 3.12% higher (+$281/tonne from the previous close) at $9,300/tonne, aluminum edged up 3.19% (+$91/tonne) to settle at $2,939/tonne, nickel rose 1.59% (+$300/tonne) to $19,145/tonne and zinc added 1.16% (+$35/tonne) to settle at $3,033/tonne.Base metals opened higher yesterday, as the troubled Chinese property developer Evergrande announced that it had reached an agreement with bondholders on its repayment of debt due today. In addition, the PBoC injected CNY120 bln ($18.6 bln) in liquidity into the banking system via reverse repo in an effort to reverse the negative sentiment that had been building over the last few days with Evergrande potentially on the verge of collapsing. The Chinese authorities' traditional loosening of liquidity toward the quarter-end (and ahead of the one-week holiday at the start of October) came at just the right time for base metals, which had been under pressure for several days.The plunge in iron ore prices slowed yesterday, and futures are up 4% this morning in Singapore at around $118/tonne as we write. We do not expect this rebound to last long given the curbs on Chinese steel output. As demand for iron ore wanes, miners are rushing to export iron ore to meet their full-year guidance, which has led to a glut in inventories at Chinese ports that has pushed down prices. We think iron ore prices are likely to fall to a range of $80-90/tonne next year or even