Commodities Daily - February 25, 2020

> Oil slides on fears of coronavirus turning into global pandemic. Today's technical picture suggests that Brent's surge above $56.15/bbl has opened the path to resistance at $57.4/bbl or perhaps even to $58/bbl. We, however, doubt that $58/bbl will be breached and see the current rally as technical in nature and likely to prove short-lived, with strong downside risks remaining.> Gold price volatility remains high; Fed speakers are focus today. Gold prices shot up $45/oz early on yesterday to as high as $1,688/oz amid a flight to safety caused by coronavirus outbreaks in South Korea, Italy and Iran. However, prices are on the retreat this morning, easily having broken through support at $1,650/oz. They are quoted at $1,640/oz as we write. Markets will be focused on comments due from four Fed officials, one of whom is Vice Chairman Richard Clarida, and whether they will confirm the market view of upcoming Fed cuts.OIL SLIDES ON FEARS OF CORONAVIRUS TURNING INTO GLOBAL PANDEMICAfter falling $2/bbl late last week to $58/bbl, front-month Brent continued to slide yesterday throughout the European and US trading sessions. It eventually settled at $56.3/bbl, fixing $2.2/bbl below the previous settlement. Overnight, it fell to as low as $55.1/bbl, although this morning it has been paring back yesterday's losses and now seems to be headed toward $57/bbl. The coronavirus, which remains the main driving force in global markets, has now spread to more than 30 countries, which has increased the risks that it will become a global pandemic and has caused analysts to raise their estimates of its impact on the global economy. The latest developments in the spread of the virus sent risk assets tumbling yesterday. Stocks across the globe fell by the most since mid-2016 amid a jump in coronavirus cases outside of China. A key point of concern was a sharp rise in cases in Northern Italy (home to 28 mln people) from three on Friday to 220 on Monday, with seven reported deaths so far. Markets are now beginning to fear that Europe will experience infrastructure and supply chain disruptions similar to those in China. The Italian regions of Lombardy and Veneto, among those hardest hit by the virus, are of major importance to the European economy. They consume around 25% of Italian oil products and account for over 30% of the country's GDP, according to Bloomberg. We note that there was also a sharp rise in infections in South Korea (to over 600 confirmed infections, with six deaths) and Iran (43 confirmed cases and eight deaths) over the weekend, and that Saudi Arabia, Kuwait, Iraq, Turkey and Afghanistan have already imposed travel and immigration restrictions on Iran. After the latest developments, it now looks like the strong recovery in crude prices and calendar spreads in mid-February was overdone given the still-uncertain demand picture and the growing likelihood that the full impact of the slowdown in global economic growth will not be felt until 2Q20. A rebound in risk sentiment this morning seems to be attributable to investors seeking out bargains following the correction in previous sessions, as well as an upbeat WSJ report on a possible vaccine (although human trials of the drug are not likely until the end of April and results until July or August). Meanwhile, Saudi Aramco CEO Amin H. Nasser remains upbeat ahead of the OPEC+ meeting in Vienna on March 5-6. He noted that "we think this is short term and I am confident that in the second half of the year there is going to be an improvement on the demand side, especially from China." More upbeat comments from OPEC officials could come today from the ICCUS conference in Riyadh, along with some possible insight into the coming meeting. We note that the OPEC+ deliberations remain complicated due to the fact that just over 1 mln bpd of Libyan production is still offline, with the eventual restart beginning to seem more and more distant. However, the general consensus is that supply losses are only partially offsetting the reduced demand. The chief of Vitol Group estimates a 0.2 mln bpd drop in global demand in 1Q20 and a whopping 4 mln bpd decrease in China due to the effect of the virus on economic activity and travel. Today's technical picture suggests that Brent's surge above $56.15/bbl has opened the path to resistance at $57.4/bbl or perhaps even to $58/bbl. We, however, doubt that $58/bbl will be breached and see the current rally as technical in nature and likely to prove short-lived, with strong downside risks LD PRICE VOLATILITY REMAINS HIGH; FED SPEAKERS ARE FOCUS TODAYGold prices shot up $45/oz early on yesterday to as high as $1,688/oz amid a flight to safety caused by coronavirus outbreaks in South Korea, Italy and Iran. Prices were climbing against the backdrop of a falling real yield on the US 10y Treasury (the 120-day correlation with gold is now high at negative 0.90). Meanwhile, gold's typical negative correlation with the DXY index turned positive at the beginning of last week, and the 120d correlation ended yesterday at positive 0.31. Gold prices are on the retreat this morning, however, easily having broken through support at $1,650/oz. They are quoted at $1,640/oz as we write. Nevertheless, gold generally continues to see strong investment demand. Gold ETF investments are at historical highs (funds added 26 koz yesterday). In addition, CFTC data for the week ending February 18 showed that hedge funds had 320k long contracts in gold on the COMEX, which represented a 22% rise just over the last week.Markets will be focused on comments due from World Bank President David Malpass and four Fed officials, one of whom will be Vice Chairman Richard Clarida. Judging by Fed funds futures, markets are pricing in two full 25 bp rate cuts from the Fed, one in June and the other in December. If the Fed officials' rhetoric turns out neutral, challenging the market view, we think gold prices could fall to $1,634/oz; however, if it turns out dovish, we see prices rebounding to $1,650/