Commodities Daily - February 6, 2020

> Oil prices rally on upbeat macro data and mixed EIA report; OPEC+ JTC decision eyed. How oil prices shape up today will largely be determined by what emerges from Vienna and the progress in containing the coronavirus. Yesterday, the WHO played down bullish media reports of "breakthrough" drugs being discovered to treat the virus. In our view, if Brent is able to clear resistance at $56.6 today (and assuming the global risk rally continues), it could rise further toward its next technical resistance point of $57.8/bbl.> Gold shrugs off yesterday's strong US macro data. How the gold market shapes up today will hinge largely on comments by ECB President Christine Lagarde, US initial jobless claims at 16:30 Moscow time and Donald Trump's speech at 20:00 Moscow time. We expect gold to remain in the $1,555-1,565/oz range today. > Base metal prices post solid growth for third straight day amid generally buoyant market sentiment. Prices on 3m copper contracts are now up 5.3% since Monday, while zinc has climbed 4.1% and nickel 4.6%. The positive sentiment was supported by news that China was cutting in half tariffs on $75 bln worth of US imports effective February 14, which mirrors a previously announced US tariff cut on Chinese goods that will take effect the same day. For the copper market, a key headline has been reports that Chinese manufacturers have requested that Chilean producers suspend shipments of copper concentrate. Tomorrow morning investors will be eyeing data on Chinese foreign trade for January, although of course the figures will be skewed by the effects of the virus. OIL PRICES RALLY ON UPBEAT MACRO DATA AND MIXED EIA REPORT; OPEC+ JTC DECISION EYEDAfter falling to $54/bbl on the downbeat API report, front-month Brent began to generate positive momentum thanks to rallying equity markets and a raft of upbeat macro data releases yesterday. This pushed it up to $56/bbl ahead of the EIA inventory report. The Markit PMI prints for the eurozone (services and composite) showed business activity having accelerated in January, which may suggest an uptrend is taking hold in the bloc's struggling economy. Both the US ADP employment report and ISM nonmanufacturing PMI released later in the day beat the consensus, suggesting the US economy (following a very upbeat ISM manufacturing PMI reading released earlier this week) could continue to grow this year despite the apparent weakness in consumer spending.The EIA report ended up showing a 3.35 mln bbl increase in US crude stocks to 435 mln bbl last week, which slightly exceeded the Bloomberg consensus of a 3 mln bbl build but was below the API's reported 4.2 mln bbl increase. The buildup came amid a 0.09 mln bpd decrease in exports and despite a 0.05 mln bpd decrease in refinery inputs to 15.97 mln bpd, a 0.04 mln bpd decrease in imports to 6.6 mln bpd and a 0.1 mln bpd decrease in US oil production to 12.9 mln bpd. Note that previously (in the week to January 24) refinery inputs plummeted by 1 mln bpd (resulting in a large drop in oil consumption and also leading to lower output of refined products). The refined product data was bullish, with total petroleum stocks (including oil but excluding strategic petroleum reserves) down 0.9 mln bbl. Gasoline stocks fell by a small 0.09 mln bbl to 261.1 mln bbl, while distillate stocks were down 1.5 mln bbl to 143.2 mln bbl. Brent had a mixed reaction to the report, oscillating within the $55.7-56.5/bbl range, although it eventually settled lower at $55.3/bbl, fixing $1.32/bbl above the previous settlement.This morning, Brent has pared back overnight losses and is trading back near $56.5/bbl. All eyes are now on the OPEC Joint Technical Committee (JTC), whose meeting in Vienna has been extended to a third day. According to a Reuters article citing its internal sources, Russia prefers an extension of the deal and is not supporting a further cut to output. The article also says that if there is only an extension of the current deal, then OPEC+ will not shift its next meeting to February but will meet in March as scheduled. How oil prices shape up today will largely be determined by what emerges from Vienna and the progress in containing the coronavirus. Yesterday, the WHO played down bullish media reports of "breakthrough" drugs being discovered to treat the virus. In our view, if Brent is able to clear resistance at $56.6 today (and assuming the global risk rally continues), it could rise further toward its next technical resistance point of $57.8/ LD SHRUGS OFF YESTERDAY'S STRONG US MACRO DATA.Gold came under pressure in the first half of yesterday's trading, with much of the pressure coming after the publication of strong PMI data from the UK. The Markit/CIPS composite reading came in above the consensus estimate of 52.4 at 53.3, while the services gauge topped the consensus of 52.9 with a reading of 53.9 (the highest since September 2018). A strong batch of macro data from the US proved unable to trigger a second wave of selling. This included a reported 291k rise in ADP private payrolls in January (versus the consensus of 157k) and an ISM nonmanufacturing index print of 55.5 (above the expected 55.1). Even though the data strengthened investors' confidence in the US economy and lowered the likelihood of a rate cut at the Fed's meeting in March, gold prices were able to hold on above the $1,550/oz mark.How the gold market shapes up today will hinge largely on comments by ECB President Christine Lagarde, US initial jobless claims at 16:30 Moscow time and Donald Trump's speech at 20:00 Moscow time. We expect gold to remain in the $1,555-1,565/oz range SE METAL PRICES POST SOLID GROWTH FOR THIRD STRAIGHT DAY AMID GENERALLY BUOYANT MARKET SENTIMENT.Base metal prices have been climbing - copper and zinc in particular - amid quite high volumes. Yesterday, sentiment was buoyed early on amid reports that Chinese researchers had found a drug to treat the coronavirus. However, at 18:00 Moscow time the WHO held a press conference refuting the story. Investors are currently assuming that major Chinese companies will return to work on Monday. However, the repercussions for the physical metals market will linger on in the medium term. Today, reports have emerged in the press that Chinese producers of copper products have requested that Chilean producers suspend deliveries of copper concentrate. Negotiations are ongoing under the current contracts, the terms of which are not being changed. Early this morning, it was reported that effective February 14 China will reduce tariffs on approximately $75 bln worth of annual goods from the US. These tariffs have been in effect since last September. The tariffs on certain goods are being reduced from 10% to 5% and on others from 5% to 2.5%. This reduction will coincide with the decrease in US tariffs on $120 bln worth of Chinese goods from 15% to 7.5%, which is also due to take effect on February 14. Tomorrow morning investors will be looking out for data on Chinese foreign trade for January, although of course the figures will be skewed by the effect of the virus, the disruptions from which began around January 20, ahead of the Lunar New