Commodities Daily - August 21, 2020

> Oil remains range-bound ahead of eurozone and US PMI data. Today, investors will primarily focus on the array of eurozone and US IHS Markit PMI data for August, which we think is likely to reflect a slowing economic recovery, with the PMIs showing little change m-o-m. We also expect a stronger m-o-m uptick in the US PMIs than in the eurozone. This could boost the dollar, especially if coupled with upbeat US existing home sales for July (although we think this will likely be significantly smaller than the previous month's gain). We therefore assume that Brent will remain under pressure today and could retreat toward $44/bbl around midday, though a likely upbeat Baker Hughes rig count later in the day could push it back up to $45/bbl.> Gold correction temporarily halted by downbeat US economic data. Today, preliminary DM PMIs for August will be coming in, as well as eurozone consumer confidence and US existing home sales. As we write, downbeat eurozone PMIs have been released, supporting the dollar, which is also being boosted by expectations that the US PMIs will be upbeat. Therefore, in our view, gold prices will remain under pressure throughout the day today. If they break below $1,935/oz, the strong $1,925/oz support level should provide a backstop.OIL REMAINS RANGE BOUND AHEAD OF EUROZONE AND US PMI DATAFront-month Brent was trading close to the $45/bbl mark early on yesterday but then sank to an intraday low of $44/bbl, although it managed to swiftly pare back those losses, as it has done on several occasions recently. It eventually closed at $44.9/bbl, down $0.47/bbl on the day. Since pushing up from the $43.0-44.5/bbl range in early August into a new corridor at $44.5-46/bbl, Brent had not fallen to as low as $44.0/bbl; previous corrections had only taken it down to $44.5/bbl. Yesterday it failed to recover to the $45.5/bbl level that we have recently become accustomed to, despite US equities generating positive momentum. We think this indicates a high risk of oil prices slipping lower, especially on the back of Brent's prompt spread (the difference in price between the front-month contract and the following month) being near its widest contango since May, signaling concerns of oversupply. The message from this week's OPEC+ meeting was mostly downbeat, emphasizing that the market remains fragile and the demand outlook uncertain. This means there should now be stronger pressure on OPEC+'s quota transgressors, with Reuters recently reporting that the group has calculated that some members would need to slash output by a hefty 2.31 mln bpd to make up for their recent oversupply. A major negative factor for oil prices yesterday was heightened concern about the economy following a higher than expected rise in weekly US jobless claims back above the 1 mln mark last week. The previous week's level had been seen as very upbeat and had marked the first time since March that new claims had come in below 1 mln.Today, investors will primarily focus on the array of eurozone and US IHS Markit PMI data for August, which we think is likely to reflect a slowing economic recovery, with the PMIs showing little change compared to a very strong jump in July. Capital Economics recently noted that high frequency data measuring mobility, restaurant bookings and electricity demand suggest the recovery has slowed since the start of August. We think this could be either due to the usual summer slowdown or the recent rise in virus cases and localized lockdowns, which are curbing economic activity. Nevertheless, we expect the US PMIs to come in stronger than in Europe. This could boost the dollar, especially if coupled with upbeat US existing home sales for July (although we think this is likely to be significantly smaller than the previous month's gain). We therefore assume that Brent will remain under pressure today and could retreat toward $44/bbl around midday, though a likely upbeat Baker Hughes rig count later in the day could push it back up to $45/ LD CORRECTION TEMPORARILY HALTED BY DOWNBEAT US ECONOMIC DATAYesterday, gold traded sideways in a range of $1,925-1,955/oz, continuing to mirror volatile UST yields and remaining highly sensitive to dollar moves. Prices on numerous occasions failed to break below the $1,925/oz level, which has solidified as a major support level, having emerged during the abrupt selloff following the release of the latest FOMC minutes on Wednesday evening. We think that should gold fall through this level today, a major correction toward $1,900/oz could ensue. In the middle of the day yesterday, weaker than expected US employment data pressured yields and in turn supported gold prices. US jobless claims rose 135k w-o-w to 1.1 mln for the week ending August 15 (the consensus had expected 920k). Another factor that boosted gold and put pressure on the dollar yesterday was the latest Philly Fed index reading, which was17.2 points for August, down from last month's 24.1 and compared with the consensus of 20.8. In addition, the negotiations for another US fiscal stimulus bill remained in a stalemate. This morning, gold has resumed its downtrend and is trying to stay above $1,935/oz.Today, preliminary DM PMIs for August will be coming in, as well as eurozone consumer confidence and US existing home sales. As we write, downbeat eurozone PMIs have been released, supporting the dollar, which is also being boosted by expectations that the US PMIs will be upbeat. Meanwhile, the latest geopolitical developments are also not favorable for gold bulls, as China has confirmed plans to hold talks with the US soon to review progress on their phase one trade deal, which would take place amid deterioration across other issues in their relations like Hong Kong and tech security. Therefore, in our view, gold prices will remain under pressure throughout the day today. If they break below $1,935/oz, the strong $1,925/oz support level should provide a backstop.