Global commodities markets are in severe turbulence in August, fears of a Fed tightening and coronavirus outbreaks in China are expected to dominate sentiment in the coming days after a sharp opening on Monday.

Gold fell the most since January after US jobs figures posted larger-than-expected gains, fueling bets on limiting central bank stimulus measures. Investors will be on the lookout for any further hints of tightening, which only adds to the global uncertainties as China and other Asian countries grapple with the delta variant of Covid-19. Crude added to its worst weekly crisis since October to start on Monday.

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Oil watchers can look to a triptych of key market assessments expected this week, including one from OPEC, which is expected to offer more water on demand risks. Elsewhere, watch the gas markets after a 1,000% price surge, or iron ore as futures have almost given up on this year’s gains. On the earnings side, there’s No.2 gold miner Barrick Gold Corp, a panoply of European electric utilities including Germany’s RWE AG, as well as meat giants Tyson Foods Inc. and the Brazilian JBS SA.

Delta blues
Asian countries, from Indonesia to Thailand and Japan, are grappling with an increase in the number of cases, but it is the surges from China that are causing the greatest concern in commodity markets. The delta variant is testing China’s largely successful zero tolerance approach to quashing the pandemic. Investors are waiting for signals that Beijing has managed to reverse the trend – or that it will need to impose even tighter restrictions. Goldman Sachs Group Inc. lowered its growth forecast for China on Monday in light of the delta gap.

As the weekend approaches, cases in China peaked in six months on Friday, and the delta reached regions that together account for 38% of the country’s gross domestic product. The restrictions so far have hammered transport activity, with road traffic in the affected cities reaching only 70% of normal levels and daily flights down by a third. Elsewhere, falling pork prices point to possible repercussions on food demand as more people stay at home.

Gross recoil
Oil is the most obvious first victim of the rapid spread of the delta. West Texas Intermediate prices are heading for their worst week since March as the highly infectious variant threatens recoveries in Asia. The surprise expansion in US stocks this week didn’t help either. In a sign of weaker momentum, Saudi Arabia’s attempts to raise the price of its oil in Asia are backfiring as demand slows as competition for supply intensifies.

The headwinds in demand come just weeks after OPEC and its allies agreed to continue easing supply restrictions imposed last year. The risk is that more prolonged or broader restrictions on activity in China and Asia will cause the cartel to move too quickly. No doubt Riyadh and the other oil capitals will scrutinize demand data more than ever. OPEC releases its latest monthly market outlook on Thursday, the same day as an offer from the International Energy Agency, and after the US Energy Information Administration on Tuesday.

Breathless
Energy prices are rising around the world as the global economy emerges from the pandemic, fueling concerns about inflation and electricity shortages. European gas hit a record last week amid tight supply from Russia. In the United States, natural gas has traded near 31-month highs as the global supply crunch and hot summer weather limit winter inventory replenishment. Gas deliveries to Asia are near record levels for this time of year.

Higher commodity prices give electric utilities a boost – usually a dull corner of the market – as they pass the higher costs on to electricity consumers. The German RWE AG, which publishes its results on Thursday, is up and has already raised its outlook for the year, as has the French Engie SA. In addition to the energy gains, Uniper and E.ON SE will also report back next week.

Large ingots
After announcing quarterly production just below expectations, Barrick Gold Corp. will unveil how this translated into its results. The world’s second-largest bullion producer – and a major copper supplier – reports financial results on Monday, with a focus on costs as the industry begins to struggle with more expensive inputs. Profits are expected to remain around first quarter levels, but well above last year due to higher metal prices.

Barrick said gold production is likely to be higher in the second half of the year, and the company is also hoping that a key mine in Papua New Guinea will restart later in the year after an ownership agreement with the government. CEO Mark Bristow will be invited to comment on future investments and how they stack up against pressure from investors and host countries for more of the mining windfall.

Corn crunch
For a third consecutive “WASDE”, analysts expect the US Department of Agriculture to lower estimates of US corn yields. In June and July, he defied forecasts, keeping his estimate unchanged even as drought spread across the western half of the country, affecting crops in affected fields. But the third time around may well be the charm of analysts, as the yield potential of corn is highlighted by farmers sharing crop data with the government.

Supply shocks may be needed to push corn and soybean prices above highs reached earlier this year. Markets were relatively calm in the days leading up to WASDE’s release on Thursday, amid uncertainty over crops and demand. While it was hot and dry in the western United States, conditions were milder and wetter in the east. Currently, the USDA is forecasting small increases in late corn and soybean supplies during the next shipping season.

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