Commodities Daily - August 7, 2020

> Oil under pressure from renewed US-China tensions; US nonfarm payrolls and any news on new US stimulus deal on the radar. Today, investors will primarily focus on July US nonfarm payrolls data, which will cover the period of rising Covid-19 cases, an uptick in jobless claims and renewed deterioration in consumer sentiment. We think a more downbeat reading than the market expects is likely today, which would weigh on sentiment. Brent, meanwhile, seems to have found strong support at $44.9/bbl. A break below this would likely cause a fall to $44.4/bbl, which we see as likely today. We note, however, that if there is an abrupt bullish development (i.e. US Republicans and Democrats strike a coronavirus relief deal ahead of the recess in the US Congress), Brent would most likely to retest resistance at $45.6/bbl, with a break above leading to a gain to $46.1/bbl.> Gold prices still climbing, up another 1.2% to $2,064/oz yesterday. Investors are focused on the escalation in tensions between the US and China ahead of high-level meetings between the countries scheduled for August 15. US lawmakers failed to reach a deal for a new stimulus package yesterday. Meanwhile, ETFs continue to buy gold, with Bloomberg data showing 108.9 mln oz in holdings as of yesterday. OIL UNDER PRESSURE FROM RENEWED US-CHINA TENSIONS; US NONFARM PAYROLLS AND ANY NEWS ON NEW US STIMULUS DEAL ON THE RADARYesterday, front-month Brent was trading sideways within the $44.8-45.7/bbl range as the dollar weakening had stalled but demand-side fears continued to plague the market in light of the resurgence of the virus in a number of regions. Infections are rising in Europe and in a number of US states, including Colorado, Ohio and Virginia. A supportive factor yesterday was the unexpected fall in the number of weekly US initial jobless claims to the lowest level since March, offering a ray of hope for an economy still battered by the pandemic. Meanwhile, another upbeat factor was that Saudi Arabia lowered the key Arab Light price for Asian buyers by just $0.3/bbl, less than the $0.5-1/bbl cut the market had expected. This comes as OPEC+ producers ease the self-imposed limits on output. In our view, the small cuts to Asian prices indicate that the Saudis plan to limit the increase in their September exports. Aramco, meanwhile, left prices for US buyers unchanged, while prices to Europe were cut more sharply, although the weakness in forward Urals prices will discourage European refiners from sourcing more Saudi barrels, in our view. All in all, it appears that Saudi Arabia is committed to ensuring supply only returns at a pace the market can absorb. Also note that Iraq yesterday said that it would make an additional cut in its oil production of about 0.4 mln bpd in August to compensate for earlier overproduction under the OPEC+ supply cut deal. Brent eventually settled at $45.09/bbl, fixing $0.08/bbl below the previous settlement.Later in the day yesterday US stocks gained after lawmakers pledged to keep working toward a coronavirus relief package, with Trump saying he could act unilaterally on some measures. Meanwhile, overnight Trump signed executive orders prohibiting US residents from doing any business with WeChat, TikTok or the Chinese applications' owners beginning 45 days from now, citing national security risks. This is weighing on oil prices this morning, as fresh US-China turmoil ahead of bilateral trade deal talks threatens to derail the latest rally in global shares and risk assets in general. The announcement dampened any excitement from China's trade data, which showed China's crude imports in July at 12.08 mln bpd, which is well above the 9.66 mln bpd imported in July 2019, but below the previous record of 12.94 mln bpd set last month. Today, investors will primarily focus on July US nonfarm payrolls data, which will cover the period of rising Covid-19 cases, an uptick in jobless claims and renewed deterioration in consumer sentiment. We think a more downbeat reading than the market expects is likely today, which would weigh on sentiment. Brent, meanwhile, seems to have found strong support at $44.9/bbl. A break below this would likely cause a fall to $44.4/bbl, which we see as likely today. We note, however, that if there is an abrupt bullish development (such as US Republicans and Democrats striking a coronavirus relief deal ahead of the recess in the US Congress, which would clear the way for votes in the Senate and House), Brent would most likely to retest resistance at $45.6/bbl, with a break above leading to a gain to $46.1/ LD PRICES STILL CLIMBING, UP ANOTHER 1.2% TO $2,064/OZ YESTERDAYThe US initial jobless claim data published yesterday came in better than expected (1.19 mln versus the consensus of 1.40 mln), but this was unable to quell the rally in gold prices, as bullion pushed through technical resistance at $2,055/oz and reached $2,064/oz, a gain of 1.2%. Gold is finding support from burgeoning geopolitical risks, key among which is the prospect of a further escalation between the US and China. Yesterday, President Donald Trump issued orders that would ban US residents from doing business with the TikTok and WeChat apps (owned by ByteDance and Tencent, respectively) in 45 days. Also, the Trump administration is seeking to require Chinese companies listing in the US to adhere to tighter disclosure standards. This comes ahead of high-level meetings between US and Chinese officials scheduled for August 15. This backdrop has increasingly triggered investors to move into defensive assets such as gold.According to Bloomberg data, gold ETF holdings grew for a 30th straight day yesterday, reaching 108.9 moz. This indicates that investors are continuing to purchase gold, even at very high price levels (above $2,050/oz yesterday), suggesting they still see further upside. Today, markets will be keeping an eye on the developments on Capitol Hill, where US lawmakers are still trying to reach an agreement on the next round of stimulus. Also in the spotlight is the US jobs report for July, which is due to come out at 15:30 Moscow time. The next technical resistance level for gold is $2,075/oz.