Commodities Daily - December 17, 2019

> Oil stabilizes amid mixed macro data as US-China optimism abates. Today, oil investors will eye November US industrial production data and an API update on US crude inventories. We think the headline industrial production figure will show a strong m-o-m rebound thanks to a bounce in auto sector output after the GM strike. However, due to the stronger dollar and slower consumer spending, we believe growth is likely to fall short of the 0.8% consensus estimate, thus providing headwinds for oil prices. We are skeptical that Brent will be able to break above $66/bbl today and expect it to continue trading sideways within the $65.0-65.5/bbl range.> Gold stable yesterday and today; market focused on US industrial production, housing starts. Preliminary PMIs from across DMs, which pointed to stagnation in December in the eurozone and Japan but a modest pickup in the US economy, failed to affect prices yesterday. In addition, important new comments about the US-China negotiations failed to emerge.> Base metals prices consolidating at higher levels following announcement of possible phase one deal. Statistics from key base metals markets were in focus yesterday. LME data shows that aluminum stocks are up by nearly 50% since November 12, whereas stocks of copper at leading exchanges have shown the opposite trend. Data published by the International Lead and Zinc Study Group showed a small deficit in the zinc and lead markets over 10m19.OIL STABILIZES AMID MIXED MACRO DATA AS US-CHINA OPTIMISM ABATESFront-month Brent started this week trading at $65/bbl. It rose slowly toward $65.5/bbl during yesterday's European trading hours and hit an intraday high of $65.66/bbl early in the Wall Street session. It eventually settled at $65.34/bbl, fixing $0.12/bbl above the previous settlement. Global market optimism over the official US-China phase one trade agreement supported risk assets throughout the day, with all three major US stock market indexes closing at a record high. We note, however, that this optimism may be rather fragile, as we are still waiting for clarity on the details of the agreement and investors are likely to remain skeptical until something is actually signed. Moreover, Reuters reported yesterday (citing several Chinese officials) that the "wording of the agreement remains a delicate issue and care was needed to ensure expressions used in text did not re-escalate tensions and deepen differences." White House economic advisor Larry Kudlow, meanwhile, told Fox News yesterday that the "phase one" deal is "absolutely completed," also highlighting that US exports to China will double under the agreement and that the second phase of talks would start "pretty soon," although he did not provide a specific date.Investors were also digesting mixed macro data from around the globe yesterday. Upbeat November Chinese industrial output and retail sales data supported oil prices ahead of the European open. Oil refining output in China averaged 13.65 mln bpd in November, up from 13.62 mln bpd in October but down from the record of 13.75 mln bpd set back in September. Later, the IHS Markit preliminary December manufacturing PMI for the eurozone came in at 45.9, below the Bloomberg consensus of 47.3 and the November reading of 46.9. The chief economist at IHS highlighted that "the eurozone economy closes out 2019 mired in its worst spell since 2013, with businesses struggling against the headwinds of near-stagnant demand and gloomy prospects for the year ahead" amid "scant signs of any imminent improvement." The December manufacturing PMI for the US later printed at 52.5, a touch below the consensus of 52.6.The EIA's drilling productivity report was in focus later in the day. The agency predicted that US tight oil production would rise by 0.029 mln bpd to 9.14 mln bpd in January. Production in the Permian Basin is seen growing by 0.048 mln bpd (more than total tight oil production) to 4.74 mln bpd. The report also registered yet another decrease in the number of drilled but uncompleted wells (down by 131 to 7,574). It is important to note that the EIA's m-o-m growth forecasts continue to decline, supporting the bullish narrative of a slowdown in US oil production growth. In December last year, m-o-m growth for January was seen at 0.134 mln bpd, while m-o-m growth has been projected at 0.07-0.08 mln bpd for most of this year. Today, oil investors will eye November US industrial production data and an API update on US crude inventories. We think the headline industrial production figure will show a strong m-o-m rebound thanks to a bounce in auto sector output after the GM strike. However, due to the stronger dollar and slower consumer spending, we believe growth is likely to fall short of the 0.8% consensus estimate, thus providing headwinds for oil prices. We are skeptical that Brent will be able to break above $66/bbl today and expect it to keep trading sideways within the $65.0-65.5/bbl LD STABLE YESTERDAY AND TODAY; MARKET FOCUSED ON US INDUSTRIAL PRODUCTION, HOUSING STARTSIt was a quiet day for gold yesterday. Preliminary PMIs from across DMs, which pointed to stagnation in December in the eurozone and Japan but a modest pickup in the US economy, failed to affect prices. In addition, comments out of the US that it intended to successfully conclude the phase one deal with China had little effect. White House economic advisor Larry Kudlow said that US exports to China would double and that the US wanted to start work on a trade deal with the UK soon.US industrial production and housing starts are due today. We expect the gold price to stay flat at close to $1,480/oz SE METALS PRICES CONSOLIDATING AT HIGHER LEVELS FOLLOWING ANNOUNCEMENT OF POSSIBLE PHASE ONE DEALYesterday, the copper and aluminum markets saw the briskest trading. Following publication of strong macro data from China, prices on 3m forward contracts for copper again tested the $6,200/tonne mark and are continuing to trade near that level today. The ongoing decline in inventories at leading exchanges (total inventories are down 64% to 325k tonnes since mid-August) is continuing to fuel interest in copper. The exact opposite, however, is prevailing in the aluminum market. An inflow of nearly 30k tonnes of the metal was recorded at the LME-approved warehouses in Singapore, meaning that stockpiles there are up nearly 50% since November 12. The International Lead and Zinc Study Group also published data on the zinc and lead market for 10m19 yesterday. Demand for zinc remained at nearly the same level as in September, whereas supply was up 4%. Despite the fact that the market remains in deficit (0.8% of the global balance as of 10m19), investors are expecting the market to rebalance toward a surplus in the upcoming months. Nearly the same situation is being seen in the lead market, where there was a deficit of 1.3% of the global balance in 10m19. Production of lead in October outpaced demand (1.178 mln tonnes versus demand of 1.171 mln tonnes), meaning that there was a small