Commodities Daily - August 3, 2020

> Oil so far steady as global DM manufacturing PMIs for July come in. In focus in early European trading hours is the IHS Markit eurozone manufacturing PMI, already out as we write, while markets are awaiting the IHS Markit and the official ISM US manufacturing PMI for July later today. Oil investors will be particularly interested in Bloomberg's estimate of July OPEC oil production due today, after Russia reported a very slight increase in its production in July (9.371 mln bpd average, up 0.042 mln bpd m-o-m) and ahead of the start to OPEC+ easing its record supply cuts this month. We doubt that today's macro releases will be sufficiently upbeat to overshadow the persisting demand-side risks, as many countries continue to struggle to contain the pandemic while the m-o-m OPEC+ supply increase should be around 1.5 mln bpd in August. Thus, we are inclined to believe that Brent will be under pressure at the start of this week. We see it testing the $42.8/bbl technical support level today, with a break below that likely triggering a fall to $42.2/bbl.> Gold unable to break above $2,000/oz. Despite Fitch downgrading its outlook for the US sovereign rating and unresolved differences between US lawmakers on another stimulus bill, gold prices have been consolidating in a range of $1,960-1,980/oz. According to CFTC data, in the week through July 28 hedge funds began to take profit and cut both their long and short positions in gold. The main focus of traders on Friday was the settlement of gold futures contracts with delivery in August: traders announced 3.27 moz in deliveries of physical gold, the largest volume of physical gold delivered since 1994. Today, we close our recommendation to buy gold in rubles in light of the fact that our FX strategy team sees the ruble as currently oversold. Meanwhile, we maintain our recommendation to buy gold in dollars. Since we opened the idea on March 13, the trade has yielded 24.6%.OIL SO FAR STEADY AS GLOBAL DM MANUFACTURING PMIS FOR JULY COME INAfter trading around $43.5/bbl early on Friday, the front-month Brent contract for October slid to $42.9/bbl, near technical support at $42.8/bbl; however, it then managed to pare these losses later in the day, as has been the pattern lately. It eventually settled at $43.52/bbl, fixing $0.27/bbl above the previous settlement. The US saw a late rally amid strong tech earnings and stock performances and also on news that US lawmakers would meet over the weekend to negotiate another fiscal stimulus plan. As of this morning, however, there has been no breakthrough reported. Meanwhile, US Secretary of State Mike Pompeo made comments over the weekend that have led markets to consider the possibility that the US may ban not only TikTok but other Chinese-owned software companies that collect user data, which would represent an escalation in the standoff between the two countries and which would suggest strong downside for risk assets.This morning, investors were digesting rather upbeat July IHS Markit manufacturing PMIs for China, Japan, South Korea and Taiwan. China's index hit 52.8, which is the highest reading since 2011 and which comes after the official Chinese manufacturing PMI was reported on Friday to have risen to 51.1 in July from 50.9 in June. In focus in early European trading hours is the IHS Markit eurozone manufacturing PMI, already out as we write, while markets are awaiting the IHS Markit and the official ISM US manufacturing PMI for July later today. In our view, the ISM data should be stronger m-o-m, as orders and production likely recovered further, which should have been accompanied by a reduction in delivery delays; however, we think the result could still be below the rather optimistic consensus of 53.6. In addition, markets will be eyeing US construction spending for June and automobile sales for July. Oil investors will be particularly interested in Bloomberg's estimate of July OPEC oil production due today, after Russia reported a very slight increase in its production in July (9.371 mln bpd average, up 0.042 mln bpd m-o-m) and ahead of the start to OPEC+ easing its record supply cuts this month. We doubt that today's macro releases will be sufficiently upbeat to overshadow the persisting demand-side risks, as many countries continue to struggle to contain Covid-19 while the m-o-m OPEC+ supply increase will be around 1.5 mln bpd in August. Thus, we are inclined to believe that Brent will be under pressure at the start of this week. We see it testing the $42.8/bbl technical support level today, with a break below that likely triggering a fall to $42.2/ LD UNABLE TO BREAK ABOVE $2,000/OZNegative news flow out of the US continued into the weekend, but has yet to significantly affect gold prices. On Friday, gold was trading above $1,960/oz and ended up adding 1% for the day. As we write this morning, it has opened higher, jumping to $1,984/oz before returning to the $1,970/oz mark as of this writing. We think prices will continue to trade in a wide $1,960-1,980/oz range for the rest of the day.Late on Friday, Fitch affirmed the US sovereign rating at AAA, but downgraded its outlook to negative, citing worsening government finances and the lack of a clear plan for fiscal consolidation. This happened against the backdrop of unresolved differences between US lawmakers over a new spending bill. On Friday, expanded unemployment benefits expired, and over the weekend Congressional Republicans and Democrats failed to reach a deal on new stimulus. The gold market is seeing mixed currents right now: according to CFTC data, in the week through July 28 hedge funds began to take profit and cut both their long and short positions in gold. Long contracts fell to 211.5k, while short contracts dropped to 36.9k. However, the main focus of traders on Friday was the settlement of gold futures contracts with delivery in August. According to Comex data, traders announced 3.27 moz in deliveries of physical gold, the largest volume of physical gold delivered since 1994. This demand was met by the sharply elevated inventories of gold stored at Comex. Stockpiles of bullion began to climb when the pandemic started spreading, which coincided with increased demand for physical gold. Today, we close our recommendation to buy gold in rubles, an idea that provided exposure to the ruble (which has weakened) and gold prices (which are strongly higher). Since we opened the idea on March 13, it has yielded 24.6%. We close the idea in light of the fact that our FX strategy team sees the ruble as currently oversold and expects it to return to USD/RUB 70 by year-end. Meanwhile, we maintain our recommendation to buy gold in dollars, given our expectations of further softening of monetary policy from the Fed and strong investment demand for