Commodities Daily - December 22, 2020

> Oil remains pressured by demand-side fears amid virus developments. Though the passage of the US fiscal stimulus bill is positive, it was widely expected and did not surprise on size. It thus failed to buoy markets this morning. Today, investors await the third print of US 3Q20 GDP, December US consumer confidence and existing-home sales. Driving the oil market today, in our view, will be investor fears about possible new lockdowns, which would damage the oil demand recovery. We think that this, combined with the general global risk-off mood, which favors the dollar, could pressure Brent to as low as the $49.4/bbl technical support level.> Gold weighed down by global market risk-off, while US House passes aid bill. The virus situation in developed countries is unlikely to improve significantly in the near future and quarantine measures could well be tightened, so we expect the dollar to continue strengthening, weighing on gold. We see bullion falling to the $1,862/oz support level today, with the next support level at $1,845/oz.OIL REMAINS PRESSURED BY DEMAND-SIDE FEARS AMID VIRUS DEVELOPMENTSHaving ended last week trading near $52.4/bbl, front-month Brent began to tumble yesterday morning, unsuccessfully attempting to consolidate near $50.5/bbl before hitting an intraday low of $49.2/bbl. Behind this move were demand-side fears, stoked by the threat of new lockdowns amid the virus mutation in the UK, where more than 16 mln people are already required to stay at home. The oil price correction also took place against the backdrop of a broad global risk selloff, with major stock indexes freefalling as investors fled to the dollar for safety, which only added to headwinds for oil.Another negative factor yesterday was a Bloomberg report that, according to unnamed officials familiar with Russian oil policy, Russia intends to support a further 0.5 mln bpd increase in OPEC+ production in February (after the already agreed to 0.5 mln bpd increase in January) at the group's meeting early next month. This comes despite the concerns about demand amid the new virus strain. Yet OPEC+ has shifted to monthly meetings in order to react quicker to changes in the market and make more gradual production adjustments. An issue such as the sudden emergence of a faster-spreading version of Covid-19 would seem to be just such an issue that OPEC+ might take action on at one of these meetings. A decision to increase production threatens to dent sentiment during the seasonally weak 1Q21. During the US trading session yesterday, oil and risk assets generally started to pare earlier losses as investors reacted to the deal reached on Capitol Hill for a $900 bln fiscal stimulus bill. Front-month Brent eventually settled at $50.91/bbl, fixing $1.35/bbl below the previous settlement. Overnight, the bill was passed and will now go to President Trump to sign (his aides said he will sign it when it arrives). Though the passage of the bill is positive, it was widely expected and did not surprise on size, and it has failed to buoy markets this morning. Today, investors await the third print of US 3Q20 GDP, December US consumer confidence and existing-home sales. Driving the oil market today, in our view, will be investor fears about possible new lockdowns, which would damage the oil demand recovery. Note that the governor of New York has said he believes the new strain is already circulating in the state. We think that this, combined with the general global risk-off mood, which favors the dollar, could pressure Brent to as low as the $49.4/bbl technical support level.GOLD WEIGHED DOWN BY GLOBAL MARKET RISK-OFF, WHILE US HOUSE PASSES AID BILLGold jumped almost $25/oz to $1,905/oz yesterday morning after US Congressional negotiators on Sunday struck a deal on a new $900 bln fiscal stimulus package. This money injection will boost inflation expectations, supporting gold as a traditional hedge against higher prices. However, in early European trading, bullion plunged to $1,870/oz amid a global market selloff, with investors making a dash for the safe-haven dollar. This was sparked by the reports of a more virulent strain of Covid-19 spreading in England that has led to travel bans and taken some of the froth off the recent market rally.Gold managed to consolidate around the $1,880/oz mark in the afternoon as markets calmed following the announcement that the EU had approved Pfizer's vaccine for deployment, while it was also digesting the potential impact of the $900 bln US fiscal stimulus deal reached over the weekend. Last night, both chambers of the US Congress passed the bill, which will include the provision of $600 checks for every tax-independent adult. The legislation will now go to President Donald Trump, who is likely sign it when it arrives at the White House this week. Although this is positive, the bill's size and passage were widely expected, and the event has failed to rally markets this morning, with gold falling to $1,870/oz yet again. Today, investors will focus on the third print of US 3Q20 GDP, December US consumer confidence and existing home sales. The virus situation in developed countries is unlikely to improve significantly in the near future and quarantine measures could well be tightened, so we expect the dollar to continue strengthening, weighing on gold. We see bullion falling to the $1,862/oz support level today, with the next support level at $1,845/oz. The global market risk-off is negative for gold as the dollar is strengthening, though the new strain of the virus is likely to boost gold's safe-haven premium once the global market panic subsides. Coronavirus mutation headlines usually attract retail and ETF investors into gold, so if the situation deteriorates, we would expect gold to receive further support.The Christmas holidays mean scheduled events are growing rapidly scarcer, and volumes are following suit. Covid-19 headlines will remain the key theme. A heavy schedule for US macro releases today and tomorrow will give ample opportunities for investors to react in likely thin markets, prior to shortened sessions on Christmas Eve and closures on Christmas Day.