Commodities Daily - December 23, 2019

> Oil slides on Saudi-Kuwaiti neutral zone pact despite upbeat US data. Today, investors will eye US durable goods orders data for November at 16:30 Moscow time. Weak spending on transportation equipment due to the grounding of the Boeing 737 Max has weighed on US GDP growth this year. We note, however, that Boeing recently reported that it received 63 orders in November versus just 10 in October, which should be supportive for the durable goods data, as should the output recovery following the GM strike in October. Still, we are skeptical that Brent will be able to secure above $66/bbl later today even if today's US data is upbeat given the progress in the Saudi-Kuwaiti negotiations.> Gold holding firm near $1,485/oz. Ahead of what appears to be an imminent signing of a phase one trade deal, China has announced that it will cut tariffs on more than 850 goods not just from the US but from other countries as well. The cuts will take effect on January 1. Media reports indicate that Xi Jinping is not planning to attend Davos this year, meaning that a meeting with Donald Trump is not likely to occur in the near term. Gold prices may drift higher today ahead of macro releases from the US for new home sales and durable goods orders.OIL SLIDES ON SAUDI-KUWAITI NEUTRAL ZONE PACT DESPITE UPBEAT US DATAEarly on Friday, front-month Brent was trading around $66.6/bbl. Later, in the early European trading hours, it started to slide. It reached as low as $65.7/bbl in early trading on Wall Street before eventually settling at 66.14/bbl, fixing $0.5/bbl below the previous settlement. The negative momentum - which we attribute to profit taking and a strengthening US dollar - came despite gains in the S&P 500 and upbeat US macro data. The third print of US 3Q19 GDP growth was unchanged at 2.1% (implying a very low likelihood that the Trump administration's 3.0% target for this year will be reached), propped up by the strong labor market. The consumer income and spending data was the main bullish highlight of the day. Personal income rose 0.5% in November, beating the Bloomberg consensus of 0.3% growth, while spending growth was in line with estimates at 0.4%. Especially important for oil investors was that spending on vehicles made a strong contribution. Another highlight from Friday was a phone call between US President Donald Trump and Chinese President Xi Jinping. Both Washington and Beijing claim that the leaders made progress on issues including trade, North Korea and Hong Kong, although Xi reportedly accused the US of interfering in China's internal affairs. Donald Trump also tweeted after the phone call that arrangements were being made for the formal signing of the phase one trade deal. However, a downbeat Baker Hughes report, which showed an 18-unit weekly increase in the US active rig count to 685 (the second consecutive rise), weighed on oil prices later in the day.This morning, oil investors are digesting comments made by Kuwait's oil minister over the weekend on oil production in the Saudi-Kuwaiti neutral zone. He said, "We hope that by the end of the year things will be cleared out and things will go back to normal." Some 0.5 mln bpd of joint production in the zone was halted three years ago and has yet to be restored. Sources have told Reuters that the restart of production will be in phases, and that it will take months to return to full capacity. Investors now fear that this oil pact could derail the efforts of OPEC+ to avoid market oversupply next year. Today, investors will eye US durable goods orders data for November at 16:30 Moscow time. Weak spending on transportation equipment due to the grounding of the Boeing 737 Max has weighed on US GDP growth this year. We note, however, that Boeing recently reported that it received 63 orders in November versus just 10 in October, which should be supportive for the durable goods data, as should the output recovery following the GM strike in October. Still, we are skeptical that Brent will be able to secure above $66/bbl later today even if today's US data is upbeat given the progress in the Saudi-Kuwaiti LD HOLDING FIRM NEAR $1,485/OZStrong macro data from the US was unable to spur gold investors into action on Friday, and gold prices closed the day essentially flat. US personal incomes added 0.5% in November (0.2 pp above the consensus), while the PCE deflator climbed 1.5% y-o-y after 1.3% growth in October (the consensus was for 1.4% growth). On Friday, US President Donald Trump said that he had had "very good" talks with his Chinese counterpart Xi Jinping and that a phase one deal would be signed soon. This morning, meanwhile, it is being reported that China will cut tariffs on more than 850 goods (not just from the US but from other countries too) starting January 1.Gold prices have been climbing higher today and are up almost $10/oz as we write, just below the $1,485/oz mark. It seems to us that investors are concerned that Chinese President Xi Jinping does not plan to attend the World Economic Forum in Davos in January, which implies that he will not have a chance to meet with Donald Trump face-to-face. With new home sales and durable goods orders data due from the US today, gold may be able to extend its gains. Investors seem to be fairly optimistic about the prospects for gold. According to CFTC data, long positions in gold rose by 243k contracts in the week ending December 17, while the net long position was quite high at nearly 220k contracts.