Commodities Daily - September 29, 2021

> Oil slides on US stock market selloff ahead of today's EIA data. Oil prices have come under additional pressure this morning, after the API reported strong crude oil and refined product stock builds. Today, investors await the weekly EIA data to see if it will confirm the API's findings. Yesterday's sudden global equity selloff is likely to spill over into today's session, while additional pressure on oil could come from the EIA report if it does back up the API's numbers. We see Brent dipping toward $77/bbl later in the day as a result.> Gold slips as US Treasury yields head north. Gold retreated from $1,750/oz to 1,735/oz yesterday while the US 10y Treasury yield rose from 1.49% to 1.55%. Gold is trading near $1,740/oz as we write. Today, the market awaits scheduled comments from Fed Chair Jerome Powell and ECB President Christine Lagarde, US pending home sales for August and eurozone consumer and industrial confidence for September. We expect bullion to retest $1,730/oz today.> Metals mostly finish lower; key Chinese PMI data looming. Base metals mostly traded lower yesterday, with energy-intensive aluminum an exception. Investors continue to assess the impact of China's power shortages on the nation's economic growth. We expect metals markets to see elevated volatility in the coming days due to highly anticipated Chinese PMI figures and the ongoing fight over the US debt limit.OIL SLIDES ON US STOCK MARKET SELLOFF AHEAD OF TODAY'S EIA DATAYesterday, after peaking at $80.75/bbl, Brent dove toward $78/bbl, dragged lower by a tumble in US equities amid warnings that a US default due to a failure to raise the debt ceiling would have catastrophic consequences. It eventually settled at $78.22/bbl, fixing $1.44/bbl below the previous settlement. Yesterday was the worst day for US stocks since May, as risk-off took hold in global markets, resulting in a spike in US Treasury yields and dollar strengthening. During a Senate hearing, Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen both warned that failure to raise the US debt ceiling would have dire consequences. Earlier, Republicans had blocked a Democratic move in the Senate to raise the debt limit. Heated remarks from Senator Elizabeth Warren also weighed on markets. After slamming Powell on his track record over financial regulation, Warren said he's a "dangerous man to head up the Fed," and that that is why she will oppose his renomination.This morning, oil prices are under additional pressure, after the API reported strong stock builds in crude oil (+4.13 mln bbl) and refined products (gasoline +3.55 mln bbl, distillates +2.48 mln bbl). It is likely that crude oil production in the Gulf of Mexico continued to recover over the past week, contributing to the inventory buildup (higher imports probably also contributed), with total outages likely having fallen below 0.3 mln bpd. To date, more than 30 mln bbl of production has been lost because of Hurricane Ida, far more than was lost from other storms over the past 10 years. The impact is, however, far from over, as Shell has announced that extensive damage to one of its platforms will keep some production offline until 1Q22, which could bring the total amount of crude production lost to 55-60 mln bbl.The gasoline stock build was likely a result of the US continuing to absorb a wave of imports, so we think the buildup should slow or even revert to a drawdown by mid- to late October. However, last week US passenger vehicle miles traveled on interstate highways fell 2% w-o-w to a level 4% below the figure for the same week in 2019, whereas over the summer traffic had been running around 2% below the 2019 levels. If this trend continues, it could suggest that rising Covid-19 cases are starting to affect driving patterns again, even as the number of workers staying home continues to decline.Today, apart from the weekly EIA data, investors will eye September eurozone consumer confidence data. Yesterday's sudden global equity selloff is likely to spill over into today's session, while additional pressure on oil could come from the EIA numbers if they back up the API's findings. We see Brent dipping toward $77/bbl later in the day as a LD SLIPS AS US TREASURY YIELDS HEAD NORTH Gold dropped from $1,750/oz to 1,735/oz yesterday, while the US 10y Treasury yield climbed from 1.49% to 1.55%. EUR/USD eased from 1.170 to 1.168, creating a further headwind for bullion. Yesterday's decline came despite generally positive data for bullion. The US Conference Board's consumer confidence index reached 109.3 in September, the lowest reading in seven months and below the consensus of 115. This may have been a reflection of high inflation and lingering coronavirus risks for consumers. US wholesale inventories rose 1.2% in August, above the consensus forecast of 0.8% and indicating the slowing pace of the economic recovery. The Richmond Fed manufacturing index slid to -3 points, well below the consensus of 10 points. However, the market was more focused on the US Congress, which faced difficulties reaching an agreement on a new debt limit for the government, creating turbulence in the US markets. This boosted yields and strengthened the dollar. Fed Chair Jerome Powell said the Fed still believes high inflation will prove temporary and the US economy is still far from achieving maximum employment, but investors brushed off his comments. St Louis Fed President James Bullard found himself more in tune with market sentiment, as he indicated that it might require more aggressive steps by the central bank to tackle inflation, including two interest rate hikes in 2022.Gold has pared back some of yesterday's losses as we write and currently stands at $1,740/oz. Today, the market awaits scheduled comments from Fed Chair Jerome Powell and ECB President Christine Lagarde, US pending home sales for August and eurozone consumer and industrial confidence for September. Bullion may also be pressured today by the tensions around the US debt situation. Later today, Powell will speak at an ECB forum during a policy panel with the governors of the ECB, Bank of England and Bank of Japan, so we may see further hints regarding the Fed's monetary policy. We expect bullion retest the $1,730/oz mark TALS MOSTLY FINISH LOWER; KEY CHINESE PMI DATA LOOMINGYesterday, base metals traded lower, with aluminum an exception. Three-month LME contracts on copper fell 1.00% (-$94/tonne from the previous close) to settle at $9,257/tonne, aluminum edged up 1.00% (+$22/tonne) to $2,933/tonne, nickel dropped 2.14% (-$405/tonne) to $18,488/tonne and zinc sank 0.76% (-$24/tonne) to settle at $3,070/tonne.Base metals extended their recent losses yesterday as investors continued to assess the impact of China's power crunch on both the production and consumption of raw materials. Power shortages in China have been causing blackouts and hence production shutdowns in several provinces, fueling concerns of an economic slowdown in the world's top metal-consuming nation. Yesterday, China's August industrial profit data showed a fifth straight monthly decline. Since industrial profits often foreshadow what is to come in manufacturing PMI readings, we do not expect to see a rebound in the September reading of China's official manufacturing PMI, which is due overnight. In fact, we expect the gauge to indicate contraction in the manufacturing sector. The Caixin manufacturing PMI, which assesses the activity of smaller and export-oriented firms, also looks set to decline. We believe that China's manufacturing sector has yet to stabilize even though investment has been showing some improvement thanks to government support. The power shortages in China have become much more acute recently, and houses have been given priority over factories in electricity provision. With China heading toward a week-long holiday beginning on Friday, we expect elevated volatility in metals markets over the coming days, especially in light of the Evergrande saga, the upcoming Chinese PMI data and the fight over the US debt