Commodities Daily - August 11, 2020

> Oil rises on signs of virus easing, US stimulus hopes; EIA report eyed. Today's data highlights include US July PPI at 15:30 Moscow time, the EIA monthly report at around 19:30 and API's weekly stockpile update overnight. In our view, the EIA report is likely to show that global crude stock draws will continue over the rest of 2020, but that amid lower demand the pace of draws will slow in August, September and more dramatically in October, driven by autumn refinery maintenance. Brent is currently fluctuating between $44.9/bbl support and $45.2/bbl resistance. A downbeat monthly EIA report would likely pressure it into a $44.4-44.7/bbl technical range, while a break above $45.2/bbl would likely send it into a $45.6-46.1/bbl range.> Gold dips below $2,000/oz on further dollar strengthening, profit taking. The macro highlights later today include the German and European ZEW surveys, and US releases for NFIB small business optimism and PPI. From a technical standpoint, it looks like gold still has further to fall. However, as we noted yesterday, we see the downside as limited to $1,980/oz. This is because the outlook for gold this year remains bullish, so prices below $2,000/oz provide a good opportunity for investors to rebuild their long positions. UK GDP, industrial production and trade balance data, as well as Japanese machine tool orders, will be in focus early tomorrow.OIL RISES ON SIGNS OF VIRUS EASING, US STIMULUS HOPES; EIA REPORT EYEDAfter starting yesterday near $44.6/bbl, front-month Brent began to trend higher. It moved slightly above $45/bbl in early US trading but eventually settled at $44.99/bbl, fixing $0.59 above the previous settlement. In our view, one of the most significant upbeat developments early this week has been the reporting that hospitals in some US coronavirus hot spots are getting some respite. However, nationwide US Covid-19 hospitalizations are elevated compared with the June lows, and maintaining a positive trend may prove tricky, as positive data leads to public complacency. The number of global Covid-19 cases surpassed 20 mln yesterday, the day after the US passed the 5 mln mark. Investors have also been closely following developments in the US stimulus talks, and yesterday US Treasury Secretary Steven Mnuchin said that the White House was open to resuming negotiations with Democrats, although he did not give a timeline for this. As we noted yesterday, a new US fiscal package would provide a further tailwind for the US economy and boost sentiment over the outlook for oil demand. Also upbeat for sentiment yesterday was President Donald Trump's comment that he's "very seriously" considering a capital gains tax cut, although according to Bloomberg he cannot cut the 20% long-term capital gains rate without the approval of Congress. Still, some advisers have told him that he could issue an executive order that would slash tax bills for investors when they sell assets.This morning, Brent has been able to hold just above $45/bbl amid relief that China's sanctions on 11 US citizens (a response to the US sanctions on Chinese individuals over Beijing's crackdown in Hong Kong) seem to have ended the latest round of tit-for-tat moves. Today's data highlights include US July PPI at 15:30 Moscow time, the EIA monthly report at around 19:30 and API's weekly stockpile update overnight. In our view, the EIA report is likely to show that global crude stock draws will continue over the rest of 2020, but that amid lower demand the pace of draws will slow in August, September and more dramatically in October, driven by autumn refinery maintenance. This, in our view, would keep the front end of the Brent futures curve under pressure, meaning that time spreads would trade sideways and likely find a floor in the coming weeks. Backing this up is the latest observation by Energy Aspects that the bullish set of Saudi September official selling prices published last week will discourage refiners across all regions from nominating Saudi barrels. As we have noted on a number of occasions, further upside for Brent time spreads depends on the return of aggressive Chinese buying, which we expect to re-emerge later this year, though we expect the pace of purchases to be somewhat slower given that China's inventories are already brimming. Brent is currently fluctuating between $44.9/bbl support and $45.2/bbl resistance. A downbeat monthly EIA report would likely pressure it into a $44.4-44.7/bbl technical range, while a break above $45.2/bbl would likely send it into a $45.6-46.1/bbl range. As for the API inventory data, we note that investors have begun to focus primarily on the refined products category, where there have been few signs that demand is anywhere close to returning to normal, particularly demand for gasoline. The likelihood that millions of children will not return to school in the autumn suggests that gasoline demand will not return to normal in the foreseeable LD DIPS BELOW $2,000/OZ ON FURTHER DOLLAR STRENGTHENING, PROFIT TAKINGAround mid-day yesterday, gold rallied $20/oz to $2,050/oz, as following the less than fruitful round of stimulus talks on Friday, US Treasury Secretary Steven Mnuchin said that he thought Democrats were ready to compromise, which made a deal on the next pandemic relief package seem within reach again. However, during the US trading hours gold swiftly pared back its earlier gains. It slid back toward $2,020/oz as the dollar extended its recent gains, spurring some investors to lock in their profits in gold after its sharp rally in July. This morning, the dollar continued to advance amid the escalating war of words and sanctions between the US and China, which encouraged further profit taking in gold and caused prices to plummet below $2,000/oz. Stock markets, meanwhile, are trending higher as investors reallocate from gold to equities. Stocks also found support this morning from the PBoC's reiterated commitment to opening up China's financial sector in line with the phase-one trade deal. Another strong source of pressure for gold prices has been a rebound in US bond yields from multi-month lows. The macro highlights later today include the German and European ZEW surveys, and US releases for NFIB small business optimism and PPI. From a technical standpoint, it looks like gold still has further to fall. However, as we noted yesterday, we see the downside as limited to $1,980/oz. This is because the outlook for gold this year remains bullish, so prices below $2,000/oz provide a good opportunity for investors to build up long positions. UK GDP, industrial production and trade balance data, as well as Japanese machine tool orders, will be in focus early