Commodities Daily - January 29, 2021

> Oil slides after brief rally on new Covid concerns, demand worries. Today will see US personal income and spending data, the monthly EIA 914 production report containing November data, and the Baker Hughes rig count. Reuters is also likely to publish its OPEC production estimate for January; Bloomberg publishes its assessment on Monday. Whether Iraq follows through on its pledge to cut output by 0.25 mln bpd will be the key factor in the OPEC production assessments. We expect Brent to drift slightly lower today amid global market risk-off and test support at $55.2/bbl, with a break below likely to see it consolidate within a $54.5-54.9/bbl range. A break above resistance at $55.6/bbl could pave the way to $56.0-56.3/bbl.> Gold fails to hold on to intraday gains yesterday; US personal incomes and spending eyed. Today, investors will eye US personal incomes and spending, pending home sales, and Michigan confidence. January PMIs for China and Japan are due early Monday. We do not expect the US data to disappoint today, so we see gold holding close to the current $1,845/oz or possibly breaking above its 200-day moving average near $1,850/oz and pressing onward toward resistance at $1,853/oz. A break above that resistance level could lead to a further advance into the $1,864-1,875/oz range.OIL SLIDES AFTER BRIEF RALLY ON NEW COVID CONCERNS, DEMAND WORRIESBrent opened at $55.5/bbl yesterday and climbed to $55.8/bbl before spiking to $56.6/bbl in early US trading. This was spurred by US macro data releases, with the most important showing modest 4.0% GDP growth in 4Q20 (slightly below the Bloomberg consensus of 4.2%) after record 33.4% growth in 3Q20. This was mainly due to temporary weakness in consumption, which was dragged down by the resurgence in Covid infections. Personal consumption, the biggest part of the economy, increased 2.5% in 4Q20, trailing projections for a 3.1% rise. Given the new $900 bln stimulus package agreed by Congress late last year and the current decline in infections, we expect consumption growth to accelerate again in 1H21. Although the aforementioned macro data is very important for the trajectory of oil demand, the surge in the oil prices around the Wall Street open was primarily attributable to an abrupt wave of global market risk-on, with stocks rising sharply and the dollar weakening globally. This may have been partly due to the decision by some large US brokers to restrict individuals from trading in certain shares that have recently risen in price by several hundred percent, sparking worries of a possible bubble. The uptick proved short-lived, however, as Brent slid back to $55.5/bbl by the end of the day and eventually settled at $55.53/bbl, down $0.28/bbl on the day. The Brent March contract expires today, with the premium between the front-month over the second-month contract reaching $0.45/bbl yesterday, its highest level since last February. This came amid an upcoming 1 mln bpd production cut by Saudi Arabia, Russia diverting oil exports to domestic refiners, lower Iraqi production and export hiccups in Libya, which are more than offsetting increased demand concerns related to the coronavirus.China yesterday reported its lowest daily increase in new Covid cases in nearly three weeks, but the US reported its first cases of the potent South African variant (which is partly resistant to the vaccines and antibody treatments), raising the risk over the oil demand recovery. Israel, despite leading in terms of vaccination progress, remains cautious on the South African strain, with the deputy health minister highlighting that highly infectious foreign variants are currently flooding Israeli hospitals with serious cases, and the existing vaccines have yet to be proven fully effective against them. Uncertainly over the EU's vaccine supplies intensified, with the bloc warning AstraZeneca that it would use all legal means or even block exports unless it agrees to deliver shots. The EU is far behind Israel, UK and the US in rolling out vaccines. Today will see US personal income and spending data, the monthly EIA 914 production report containing November data, and the Baker Hughes rig count. Reuters is also likely to publish its OPEC production estimate for January; Bloomberg publishes its assessment on Monday. Whether Iraq follows through on its pledge to cut output by 0.25 mln bpd will be the key factor in the OPEC production assessments. We expect Brent to drift slightly lower today amid global market risk-off and test support at $55.2/bbl, with a break below likely to see it consolidate within a $54.5-54.9/bbl range. A break above resistance at $55.6/bbl could pave the way to $56.0-56.3/bbl.GOLD FAILS TO HOLD ON TO INTRADAY GAINS YESTERDAY; US PERSONAL INCOMES AND SPENDING EYEDAt the start of the day yesterday, gold was trading near $1,840/oz. It then slid to $1,835/oz as the dollar gained ground during the Asian trading session. As on numerous occasions this month, investors started to pick up gold when it dropped below $1,840/oz, and yesterday they found additional encouragement from an upbeat eurozone business climate index reading. Near the start of the US trading session, gold started to push toward $1,865/oz, while silver began an even sharper rally, surging almost $1.85/oz to $26.84/oz (the gold-to-silver ratio slumped from 73.5 to 69.3 yesterday). This rally in both metals came on the back of an abrupt bout of global risk-on sentiment, during which stocks rose sharply and the dollar weakened globally. This could have been partly due to the decision of some large US brokers to restrict individuals from trading in certain shares that had skyrocketed in price in recent days, sparking concerns of a possible bubble. Furthermore, some traders were also moving to cover short positions as rumors rippled through the market about new GameStop-style squeezes driven by retail investors. Calls to drive silver prices higher by buying shares in silver miners and exchange-traded funds were circulating on social media platforms such as Reddit and Twitter.Meanwhile, the US initial jobless claims data was slightly upbeat, with US GDP posting 4% growth in 4Q20, though in our view this had little effect on the aforementioned rally. Gold failed to hold on to its gains yesterday and has been hovering near $1,845/oz this morning, below its 200-day moving average, which is near $1,850/oz today. Silver, on the other hand, is trying to hold on near yesterday's highs and is quoted around $26.35/oz as we write. Today, investors will eye US personal incomes and spending, pending home sales, and Michigan confidence. January PMIs for China and Japan are due early Monday. We do not expect the US data to disappoint today, so we see gold holding close to the current $1,845/oz or possibly breaking above its 200-day moving average near $1,850/oz and pressing onward toward resistance at $1,853/oz. A break above that resistance level could lead to a further advance into the $1,864-1,875/oz range.