Commodities Daily - February 28, 2020

> Oil keeps tumbling as OPEC hints at deeper production cuts. We are skeptical that Brent will manage to break below the psychologically important $50/bbl mark today, as it would first have to overcome resistance at $50.7/bbl. However, it could do so early next week. China's Caixin manufacturing PMI, due early Monday, will be the first high-profile data release reflecting the full extent of the coronavirus disruption. Analysts expect the weakest reading since the survey was launched almost two decades ago. This could potentially push Brent to the next technical support level of $48.5/bbl.> Gold prices under pressure this morning amid decent US economic data, neutral statements by Fed officials. Gold prices remain volatile, having fallen from yesterday's intraday high of $1,659/oz to $1,622/oz as we write. The US published better than expected durable goods orders and pending home sales yesterday, while Chicago Fed chief Charles Evans said that a rate cut in reaction to the coronavirus situation would be premature. St Louis Fed head James Bullard will speak today. In addition, the market will be focused on a new batch of US data. We see the gold price consolidating around the $1,635/oz mark today, supported by continued investment demand for safe-haven assets.OIL KEEPS TUMBLING AS OPEC HINTS AT DEEPER PRODUCTION CUTSAfter hovering near $52.5/bbl during the Asian session yesterday, front-month Brent began to resume its decline, falling for the fifth consecutive day amid an ongoing correction in global stock markets. Following the US open, it even managed to briefly break below $51/bbl, although a recovery in risk assets later in the day helped it rebound and eventually settle at $52.18/bbl, fixing $1.25/bbl below the previous settlement. The fact that the number of new coronavirus infections reported outside China began to exceed new Chinese cases this week (the virus has now spread to another 46 countries) has been a major headwind for risk assets globally. As we have mentioned, oil bulls' hopes now rest on the coming OPEC+ decision next week in Vienna on whether to extend and deepen production cuts. OPEC Secretary General Mohammed Barkindo, during a visit to Saudi Arabia yesterday, highlighted that "there is a renewed commitment" in the alliance "to build the consensus for a joint action in mitigating the current hyper volatility in the market." Such rhetoric makes deeper cuts and a deal extension look more likely. However, it remains to be seen whether any measures taken would be enough to halt the selloff. The Financial Times reported yesterday that Saudi Arabia wants OPEC+ to agree to an additional 1 mln bpd of production cuts. The kingdom would account for most of this, with the remainder split up mainly among Russia, Kuwait and the UAE. It was also reported yesterday that Saudi Arabia would reduce its crude shipments to China in March by at least 0.5 mln bpd due to low refinery demand. Earlier this month, the OPEC+ technical committee recommended extending the current deal to the end of this year, along with an additional 0.6 mln bpd of cuts in 2Q20. However, recently there has been growing doubt that Russia will choose to participate. Russia's Energy Minister rejected this notion yesterday, saying that he is "very satisfied" with the level of cooperation. In our view, a decision to deepen cuts by another 1 mln bpd in 2Q20 and return to the current levels in 2H20 would be sufficient to halt the decline in prices, while anything slightly less bullish would likely keep Brent near the current $50/bbl until the coronavirus situation improves. On the bright side, we note that WTI is approaching $45/bbl, nearing levels that may be uneconomical for US shale producers, which could lead to slower US production growth this year than previously projected. If shale producers in fact trim their production plans for this year, we think this would be a strong bullish factor in 2H20. Furthermore, China's largest container ports are clearing the backlog of cargo on their docks as workers return to their jobs, while highways have started to become busier, a sign that motor fuel demand may soon recover. China may even be able to return to a more normal way of life in 2Q20.We are skeptical that Brent will manage to break below the psychologically important $50/bbl mark today, as it would first have to overcome resistance at $50.7/bbl. However, it could do so early next week. China's Caixin manufacturing PMI, due early Monday, will be the first high-profile data release reflecting the full extent of the coronavirus disruption. Analysts expect the weakest reading since the survey was launched almost two decades ago. This could potentially push Brent to the next technical support level of $48.5/ LD PRICES UNDER PRESSURE THIS MORNING AMID DECENT US ECONOMIC DATA, NEUTRAL STATEMENTS BY FED OFFICIALSDespite the fact that investment demand for gold remains high (yesterday, gold ETFs continued adding to their holdings, which at 84.42 mln oz are at historical highs), the gold price has come under pressure this morning. It has fallen from yesterday's intraday high of $1,659/oz to $1,622/oz as we write.We attribute this to two factors. First, investors have continued to see decent economic data out of the US and are awaiting new numbers today. Yesterday, GDP was reported to have grown 2.1% in 4Q19, while personal consumption expenditures rose 1.7% in 4Q19, durable goods orders dropped by just 0.2% in January (versus the consensus forecast of a 1.4% decline) and pending home sales were up 5.2% in January (versus the consensus of 3.0% growth). On today's agenda are US wholesale inventories (16:30 Moscow time), personal income and outlays (17:45), Chicago PMI (also 17:45) and University of Michigan consumer sentiment (18:00). The second reason for the current pressure on gold is that Fed officials continue to keep a relatively neutral line. Chicago Fed head Charles Evans said yesterday that cutting rates in reaction to the coronavirus would be premature, though fed funds futures suggest three 25 bp cuts by the end of the year, with a cut at the meeting next month 70% priced in. St Louis Fed head James Bullard will speak today. We see the gold price consolidating around the $1,635/oz mark today, supported by continued investment demand for safe-haven