Commodities Daily - January 14, 2020

> Oil prices slide on concerns over market fundamental weakness. Today, the December US CPI data is due at 16:30 and the monthly EIA report at 20:00 Moscow time. We think that US inflation will be in line with expectations, while the EIA report could include a bullish downward revision to the agency's estimate for US oil production this year as well as an upward revision to its 2020 y-o-y oil demand growth forecast given the recent agreement on the phase one trade deal between the US and China. In our view, this could halt the correction in Brent, allowing it to consolidate within a range of $64-65/bbl today.> Gold prices slide as risk appetite grows ahead of the US-China trade deal signing; US CPI data eyed. The December US CPI data is due at 16:30 Moscow time. We expect it to be in line with expectations. We note that a core CPI reading of around 2.3% y-o-y (this is the consensus estimate) would be consistent with a reading of the core PCE price index (the Fed's preferred gauge of inflation) of around 2.0% (the Fed's inflation target). With US GDP running close to 2.0% (which is unlikely to result in inflation overshooting the target), this would likely give the Fed reason to remain patient, along with the recent global economic weakness. We think gold is likely to continue gradually moving toward $1,525/oz today.OIL PRICES SLIDE ON CONCERNS OVER MARKET FUNDAMENTAL WEAKNESSDuring trading in Asia and for most of the European session yesterday, front-month Brent oscillated in a tight range around $65/bbl as investors digested a raft of UK economic data for November as well as comments from the Saudi energy minister and the CEO of Saudi Aramco. The UK economy unexpectedly shrank in November (GDP contracted 0.3% m-o-m, which was considerably worse than the expected growth reading of zero and implied 0.1% growth in the three months to November) amid a fall in consumer spending and a downturn in manufacturing. The data provided headwinds for the FTSE 100 and oil prices. The Saudi energy minister, meanwhile, noted yesterday that the kingdom's oil production stood at 9.744 mln bpd in early January and would remain there in February. This is exactly the level Saudi Arabia committed to for 1Q20 at the December OPEC+ meeting, when it pledged to overcomply by 0.4 mln bpd versus a new target of 10.144 mln bpd. Saudi Aramco's CEO, however, told Bloomberg yesterday that Saudi Arabia was currently pumping around 9.87 mln bpd. We note that the general consensus among the major analytical agencies is that it is essential for the countries of OPEC+ to comply fully with their output targets and for Saudi Arabia to produce the pledged 9.74 mln bpd for there to be a chance of balancing supply and demand in 1Q20. Monthly oil market reports from the EIA, OPEC and IEA are due this week and will provide data on Saudi Arabia's actual production in December. The first estimates of output in January (from Reuters and Bloomberg) will not be out until early February. Until then, investors will only be able to guess whether Saudi Arabia is in fact producing at the pledged rate of 9.74 mln bpd.The disparity in the Saudi production estimates and the growing acknowledgement of fundamental weakness in the oil market (last week's bearish EIA report may be the best example of this) weighed on Brent during the US trading session yesterday, causing the benchmark to even briefly dip below $64/bbl, though it failed to break through the $63.95/bbl technical support level we highlighted yesterday. Brent has been unable to rally in recent days despite the emergence of the "golden cross" (when the 50-day moving average breaks above the 200-day moving average), a pattern suggesting that it should. Brent eventually settled at $64.2/bbl yesterday, fixing $0.78/bbl below the previous settlement. This morning, China published data showing that it imported 10.78 mln bpd of crude oil in December, which was the second highest level on record according to Reuters, behind only November's 11.13 mln bpd. The customs data also implied that China's oil imports were up 0.882 mln bpd y-o-y in the year 2019, during which 0.9 mln bpd of new refining capacity was added. Today, the December US CPI data is due at 16:30 and the monthly EIA report at 20:00 Moscow time. We think that US inflation will be in line with expectations, while the EIA report could include a bullish downward revision to the agency's estimate for US oil production this year as well as an upward revision to its 2020 y-o-y oil demand growth forecast given the recent agreement on the phase one trade deal between the US and China. In our view, this could halt the correction in Brent, allowing it to consolidate within a range of $64-65/bbl LD PRICES SLIDE AS RISK APPETITE GROWS AHEAD OF THE US-CHINA TRADE DEAL SIGNING; US CPI DATA EYEDAfter rallying almost $15/oz to slightly above $1,560/oz late Friday following slightly downbeat US nonfarm payrolls data, gold began to pare these gains yesterday and consolidated around $1,550/oz during the second half of the day. This week, investors have been upbeat and stock markets have been trading higher ahead of the expected US-China phase one trade deal signing ceremony, which is scheduled for tomorrow. This is when investors expect to get the first actual details of the agreement, which in turn will likely shape sentiment going forward. So far, the mood remains upbeat, having received a boost from yesterday's news that the US would likely lift its designation of China as a currency manipulator as part of the deal. We view this as the main factor behind gold's correction this morning to $1,535-1,540/oz. At this point, we would like to reiterate what we said in yesterday's comment - that the technical picture for this week suggests that if global risk appetite persists, gold could slide toward $1,525/oz (it has already broken below support at $1,545/oz). The December US CPI data is due at 16:30 Moscow time. We expect it to be in line with expectations. We note that a core CPI reading of around 2.3% y-o-y (this is the consensus estimate) would be consistent with a reading of the core PCE price index (the Fed's preferred gauge of inflation) of around 2.0% (the Fed's inflation target). With US GDP running close to 2.0% (which is unlikely to result in inflation overshooting the target), this would likely give the Fed reason to remain patient, along with the recent global economic weakness. We think gold is likely to continue gradually moving toward $1,525/oz