Commodities Daily - February 27, 2020

> Oil continues to slide on pandemic fears despite upbeat EIA data. This morning, Brent managed to break below the important technical support level of $52.8/bbl that we mentioned in yesterday's daily. This has opened the path to the next support level of $50.7/bbl, which is now very likely to be reached ahead of the OPEC+ gathering in Vienna next week. Today, investors will eye US durable goods orders for January at 16:30 Moscow time, which we expect to be downbeat given that Boeing reported zero orders in January.> Gold nearing $1,650/oz this morning. US new home sales data had no impact on the market yesterday as sentiment is being entirely driven by the coronavirus situation. Last night, the US Food and Drug Administration said the coronavirus could turn into a pandemic, and it presents a threat to the US. More US data is scheduled for today, and two Fed officials are set to give speeches. We expect safe-haven demand to remain elevated today and tomorrow ahead of Chinese February PMI readings, which will be released on February 29 and March 2. We think we could see gold climbing to $1,656-1,660/oz today.OIL CONTINUES TO SLIDE ON PANDEMIC FEARS DESPITE UPBEAT EIA DATAAfter trading around $55/bbl during the Asian session yesterday, front-month Brent started to resume its decline, falling for the fourth consecutive day alongside a correction in global stock markets. It briefly broke below $54/bbl mid-way into the European trading hours. Ahead of the EIA inventory report, it managed to pare some of these losses, moving back to $54.5/bbl. This move was partially attributable to data showing US new home sales surging to a 12.5-year high in January. Later on, the EIA report ended up showing a small 0.45 mln bbl increase in US crude stocks to 443.3 mln bbl last week, which was more upbeat than the Bloomberg consensus of a 2.6 mln bbl build and smaller than the API's reported 1.3 mln bbl increase. The buildup came amid a 0.2 mln bpd decrease in refinery inputs to 16 mln bpd and despite a 0.33 mln bpd decrease in imports to 6.22 mln bpd and a 0.09 mln bpd increase in exports to 3.66 mln bpd. US crude oil production remained unchanged at 13 mln bpd. It is important to note that crude stocks are not building as strongly as usual amid the ongoing seasonal refinery maintenance. This is due to elevated exports. However, a further spread of the coronavirus could soon put the brakes on US crude exports, while US refiners are expected to boost oil inputs in late March unless domestic refined product demand is dented by the epidemic. The EIA's refined product data was bullish, with total petroleum stocks (including oil but excluding strategic petroleum reserves) down 2 mln bbl. Gasoline stocks fell 2.7 mln bbl to 256.4 mln bbl, while distillate stocks were down 2.1 mln bbl to 138.5 mln bbl. Brent had a positive initial reaction to the report, gaining $0.7/bbl to $55.2/bbl, although it rather quickly began to retrace back toward $54/bbl and then even moved below the mark. It eventually settled at $53.43/bbl, fixing $1.52/bbl below the previous settlement. Oil started selling off again after US President Donald Trump failed to calm markets at his briefing on the outbreak. Just minutes after his upbeat speech, the US Center for Disease Control announced the first coronavirus case in the US of unknown origin. New cases were also diagnosed in Pakistan and Brazil, while Germany is now taking measures to prepare for the epidemic and Saudi Arabia is halting religious visits. This morning, Brent has even managed to break below the important technical support level of $52.8/bbl that we mentioned in yesterday's daily. This has opened the path to the next support level of $50.7/bbl, which is now very likely to be reached ahead of the OPEC+ gathering in Vienna next week. We note that an aggressive stance from OPEC+ toward deeper and longer output cuts is now seen by the market as the only factor that could halt the current oil price slump. Today, investors will eye US durable goods orders for January at 16:30 Moscow time, which we expect to be weak given that Boeing reported zero orders in the LD NEARING $1,650/OZ THIS MORNINGGold remained volatile yesterday, dropping to as low as $1,627/oz and testing a high of $1,655/oz. The coronavirus continues to drive sentiment. Yesterday, investors were alarmed by Microsoft's claims that the epidemic was putting its logistics at risk, while the US Centers for Disease Control and Prevention warned that the virus could spread further. Strong macro data was completely brushed off by the gold market. US new home sales rose 7.9% m-o-m in January to 764k (versus the consensus forecast of 3.5% growth to 718k).Today will see a raft of US data: the second estimate for 4Q19 US GDP, preliminary durable goods orders for January, the pending home sales index for January and initial jobless claims. Speeches by the Fed's Evans (19:30) and Mester (23:30) are also scheduled, which could contain further indications of the Fed's intentions. Yesterday, interest rate futures began to price in a 45% probability of a cut at the March meeting (up from 30% earlier this week). We expect safe-haven demand to remain elevated today and tomorrow ahead of Chinese February PMI readings, which will be released on February 29 and March 2. We think we could see gold climbing to $1,656-1,660/oz