Commodities Daily - January 28, 2020

> Oil prices looking for firm footing as virus death toll mounts; OPEC vows support. We think risk-off sentiment could pick up this evening, which would weigh on oil prices. What is likely to be downbeat US December durable goods orders data (16:30 Moscow time) could also provide headwinds today. In our view, today Brent will likely break below yesterday's support of $58.5/bbl.> Gold rally pauses as risk-off rally takes a breather. Nevertheless, we think gold could retest yesterday's highs later on today amid another global risk-off move. It also remains to be seen whether the dollar will prove resilient to what we expect to be downbeat US December durable goods orders amid elevated demand for the greenback as a safe-haven currency amid the coronavirus epidemic.OIL PRICES LOOKING FOR FIRM FOOTING AS VIRUS DEATH TOLL MOUNTS; OPEC VOWS SUPPORTYesterday, after sliding to $59/bbl right at the start of the Asian session (having closed on Friday near $60.5/bbl), front-month Brent slid another $0.5/bbl to $58.5/bbl once European trading got underway. This came amid a downturn in the FTSE 100 and S&P 500 futures. The important takeaway yesterday was that for the first time in six trading days Brent did not sell off sharply later in the day when trading volumes picked up (which usually happens when European trading peaks and the US opens). This resilience could be attributed to strong verbal OPEC support and comments made by the head of Libya's National Oil Corporation that the country's output could fall to just 0.072 mln bpd (from 1.2 mln bpd earlier this month) soon if the blockade of oil infrastructure continues. On Friday as well as yesterday, Saudi Arabia's energy minister attempted to soothe the market by saying that the kingdom is closely monitoring the impact of the virus on the Chinese and global economy, as well as on oil market fundamentals. He highlighted that all options will be on the table at the March 5-6 OPEC+ meeting, including further cuts to output to offset any potential oil demand losses. He was then backed by Oman's energy minister, who stated that Oman fully supports Saudi Arabia's "readiness to react to any market condition that may be caused by the ongoing coronavirus outbreak in China." In a similar vein, the UAE's energy minister noted that OPEC+ should "ensure continued market balance" when it meets in March. Brent eventually settled at $59.32/bbl, fixing $1.37/bbl below the previous settlement.This morning, Brent continues to hover above $59/bbl, while global risk sentiment seems to be improving. This comes despite the death toll from the virus having risen by 25 over the past day to 106, while the number of total confirmed cases in China surged by 1,680 d-o-d to 4,515 as of yesterday. In addition to extending the Lunar New Year holiday to February 2 nationwide and to February 9 for Shanghai, officials have also suspended all public transit in Tangshan, the largest steelmaking city in the northern Hebei province. The preventive measures, which have included what amounts to lockdowns of cities, will certainly impact both businesses and consumers and put a dent in 1Q20 GDP growth (consumption contributed close to 3.5% to the overall real GDP growth rate of 6.1% last year). Oil demand growth will be hit via decreased demand for jet fuel, which accounts for about 15% of total demand in China. Meanwhile, the US and other countries put out advisories warning against travel to China and travel agencies are cancelling trips to China en masse. In our view, markets will really stabilize only when the spread of the virus is brought under control (that is, when the containment measures start to yield results) or a vaccine is found (which looks unlikely over the next couple days). Thus, we think risk-off sentiment could pick up this evening, which would weigh on oil prices. What is likely to be downbeat US December durable goods orders data (16:30 Moscow time) could also provide headwinds to oil today. Civil aircraft orders are expected to show a decrease, with Boeing-related headwinds unlikely to subside until mid-year, according to Bloomberg. In our view, today Brent will likely break below yesterday's support of $58.5/ LD RALLY PAUSES AS RISK-OFF RALLY TAKES A BREATHERAfter rising almost $20/oz to $1,575/oz on Friday afternoon amid a severe global risk-off turn, gold added another $10/oz during yesterday's Asian trading session. Following these two sharp moves, the rally came to a halt and gold consolidated in the $1,575-1,585/oz range. It has been trading close to the lower end of that range this morning. Although the risk-off appears to be fading, we think it would be premature to give up on safe-haven assets, as they could find support from further emergency measures by China in the coming days or weeks that could damage economic growth. The death toll rose by 25 yesterday to 106 and the number of total confirmed cases in China jumped by 1,680 to 4,515. Markets will likely stabilize only when the spread of the virus has been brought under control or a vaccine has been found (which looks unlikely over the next couple of days). We therefore think risk-off sentiment could pick up again this evening, pushing gold back to $1,585/oz. It also remains to be seen whether the dollar will prove resilient to what we expect to be a downbeat US December durable goods orders report (16:30 Moscow time) amid elevated demand for the greenback as a safe-haven currency amid the coronavirus epidemic. Should a drop in civil aircraft orders cause the data to fall well short of the consensus (as we expect) and weigh on the dollar, gold could undergo an even more pronounced spike later