Commodities Daily - August 10, 2020

> Oil recovering from dollar-driven decline; EIA, OPEC and IEA monthly reports due this week. This morning, oil prices have found support from Saudi Aramco's prediction that oil demand will continue to improve through the rest of the year and Iraq's pledge to deepen its supply cuts. This week, oil investors will be focused on the monthly oil market reports from the EIA, OPEC and the IEA, which in our view are likely to make rather bearish downward revisions to their oil demand growth estimates for this year given the resurgence in coronavirus cases. This, in the absence of US refined product inventory draws, would likely keep Brent pinned down near $45/bbl this week. There is no major economic or oil data scheduled for release today. We think Brent is likely to climb back above $45/bbl, but we do not see sufficient tailwinds for a test of resistance at $45.6/bbl.> Gold slides on stronger US dollar, investors wary of further correction. A correction in gold at the start of this week could occur amid safe-haven demand for the US currency, which could resurface as uncertainty over the US fiscal aid continues and a further escalation in US-China tensions is possible. A major factor that highlights that investors are becoming cautions and wary of a correction this week is the CTFC data showing hedge fund managers cutting net bullish gold positions to a seven-week low. In our view, gold prices could drop toward $2,020/oz today, with a break below opening the door for a test of Friday's low at $2,015/oz.OIL RECOVERING FROM DOLLAR-DRIVEN DECLINE; EIA, OPEC, AND IEA MONTHLY REPORTS DUE THIS WEEKAfter hovering above $45/bbl early on Friday, front-month Brent began to slide as the dollar pared back losses it took in the middle of the week. The dollar picked up steam as the US session got underway thanks to a better than expected US nonfarm payroll figure for July, which had investors pricing in a faster rebound in the US economy. This weighed further on oil prices. With the number of new daily coronavirus infections in the US beginning to abate, we expect a further improvement in the country's employment situation, which would support demand for motor fuels during what many see as a crucial period given concerns that demand is set to drop off sharply once support from the summer driving season dissipates. The dollar also strengthened after President Donald Trump sanctioned several Chinese officials, including Hong Kong Chief Executive Carrie Lam, over the crackdown on protesters in Hong Kong.Meanwhile, little progress was made toward a new US fiscal package, which, when signed, should provide a further tailwind for the US economic recovery and also boost sentiment over the outlook for oil demand. After hitting an intraday low at $44.3/bbl, oil prices bounced back slightly, along with US stocks, on expectations that Donald Trump would take executive action to secure some form of economic support for Americans. Also supportive was a four-unit drop in the Baker Hughes US active oil rig count to 176, the lowest since 2005. Energy companies have been idling rigs nearly without interruption for more than four and a half months now. Meanwhile, according to Bloomberg (citing the latest plans of ExxonMobil and Chevron), oil companies are in a battle to remain relevant to investors and have been channeling cash into dividends to appease investors fed up with years of poor returns instead of searching for new untapped deposits of crude. Brent eventually settled at $44.4/bbl on Friday, fixing $0.69/bbl below the previous settlement.This morning, investors took in Donald Trump's announcement over the weekend that he had signed four executive orders, including one that will enact a temporary payroll tax deferral for some workers and another that will extend enhanced unemployment benefits. Meanwhile, US House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin both said they were willing to resume their talks on a deal to cover the rest of 2020. Also supportive for oil prices were Saudi Aramco's prediction that demand will continue to improve through the rest of the year and Iraq's pledge to deepen its supply cuts. This week, oil investors will be focused on the monthly oil market reports from the EIA, OPEC and the IEA, which in our view are likely to make rather bearish downward revisions to their oil demand growth estimates for this year given the resurgence in coronavirus cases. This, in the absence of US refined product inventory draws, would likely keep Brent pinned down near the $45/bbl mark this week. There is no major economic or oil data scheduled for release today. We think Brent is likely to climb back above $45/bbl, but we do not see sufficient tailwinds for it to test technical resistance at $45.6/ LD SLIDES ON STRONGER US DOLLAR, INVESTORS WARY OF FURTHER CORRECTIONOn Friday, after a protracted rally gold prices plummeted by almost $60/oz and for a brief period even slid below the $2,020/oz mark. The major catalysts were a stronger US dollar and upbeat US labor market report. US private payrolls rose by 1.763 mln in July, after a record rise of 4.791 mln in June, beating the consensus estimates and confirming that, despite the resurgence in new coronavirus cases in July, the recovery remains firmly intact. The unemployment rate fell for a third month, dropping to 10.2% from 11.1% in June, although this is still way above the pre-pandemic level. Meanwhile, the upside in gold remains capped by the US fiscal impasse and lingering US-China tensions. Late Friday, the US President Trump signed executive orders to extend stimulus measures unilaterally, although Democrats and some Republicans have criticized the orders as both illegal and ineffective. Stimulus negotiations among members are set to continue despite the recess in Congress, and will likely again be a key driver for gold prices this week. Note that a breakthrough in negotiations, which in our view is unlikely until later this week, could be a strong enough supportive factor for gold to pare back Friday's losses.For the time being, however, investors are wary of another correction in gold at the start of this week amid safe-haven demand for the dollar that could resurface, as uncertainty over the US fiscal aid looms and a further escalation in US-China tensions remains a risk. Note that if a correction in gold toward $2,000/oz does occur, given that the backdrop for gold this year remains bullish, it would provide a good opportunity to start rebuilding long positions at more attractive prices, in our view. A major factor that highlights that investors are becoming cautions and wary of a correction this week is the CTFC data showing hedge fund managers cutting net bullish gold positions to a seven-week low. Also, while deteriorating US-China relations are weighing heavily on sentiment, statistics showing an eased decline in China's PPI have boosted hopes of an economic recovery in the world's second biggest economy. In our view, gold prices could drop toward $2,020/oz today, with a break below opening the door for a test of Friday's low at $2,015/