EUROPEAN COMMODITIES UPDATE: Commodities sullied by the cautious risk tone and resilient Dollar

Analysis details (10:05)

WTI and Brent futures are softer intraday as the cautious risk tone and resilient Dollar weighs on the commodities complex. The losses come despite the larger-than-expected draw in Private Inventories yesterday (Crude -6.4mln vs exp. -3.3mln), whilst China’s constructive COVID updates overnight also failed to spur demand-driven gains, in which China's Health Commission said asymptomatic patients and cases with mild symptoms can undergo home quarantine, while it will accelerate vaccination of the elderly against new coronaviruses. Furthermore, China’s Politburo met overnight and suggested China will maintain its prudent monetary policy and that monetary policy should be targeted and forceful, while it urged coordinating COVID controls and economic development. China will also fine-tune COVID control measures and allow home quarantine, as well as ease testing, according to Xinhua. Analysts at ING believe are not overly optimistic about the above two updates from China, and believe that they will not lead to a significant uptick in economic growth: “In short, economic growth in December and January will not be overly impressive, though we expect a quarter-on-quarter improvement in GDP from -0.4% year-on-year in the fourth quarter of this year to 3.4% YoY in the first quarter of 2023”, the desk says.   Ahead, markets will eye the weekly DoEs alongside the China-Saudi summit. At the summit, the two sides will likely reaffirm their willingness to work together to support the stability of the global oil market. The two sides will also likely confirm the use of local currencies for settlement in bilateral trade, particularly oil, according to some desks. “The summit between Xi and Saudi Arabia’s MBS will mark a new stage of “comprehensive strategic partnership” between the two countries including on MBS’ controversial NEOM city project in the desert, oil and gas resources, clean energy, e-commerce, high technology, people to people exchanges, and national defense.”, according to SGH Macro Advisors. Meanwhile, headlines also pointed out that Russian President Putin and the UAE leader discussed OPEC+ cooperation in a call alongside the oil price cap, according to Tass. WTI has dipped under USD 73/bbl (vs USD 74.82/bbl high) while Brent Feb had lost the USD 78/bbl handle (vs USD 79.93/bbl high) at the time of writing. Spot gold is trading horizontally around USD 1,775/oz after encountering resistance around the level throughout the APAC hours, whilst headlines also suggested Chinese gold reserves rose for the first time in three years, according to Bloomberg. Base metals are mixed with a downside bias amid the cautious tone and firmer Dollar, with 3M LME copper just dipping under USD 3,800/t from a USD 3,873/t high. Furthermore, Chinese nickel buyers are seeking to use Shanghai Future Exchange contracts not London Metal Exchange for 2023 pricing, according to Reuters sources.

07 Dec 2022 - 10:05- Research Sheet- Source: Newsquawk