Commodities Daily - January 31, 2020

> Oil rebounding but remains under pressure. Today, investors will eye 4Q19 GDP data from the eurozone, the PCE index from the US and the EIA's 914 oil production report. In our view, it would be wise to start looking for an opportunity to lock in profits or to buy on dips. We expect oil prices to make another move lower later in the day amid persisting worries over how the spreading virus will impact demand for oil and refined products.> Gold prices come under pressure following WHO press conference. Gold is trading near the $1,575/oz mark this morning ahead of a batch of macro data from the US due later today. Yesterday, the World Gold Council published a report about global trends in the gold market. One key takeaway from the report is just how sensitive consumer demand for gold in Asia is to prices.OIL REBOUNDING BUT REMAINS UNDER PRESSUREBrent slid $1/bbl amid deteriorating global risk sentiment during the first half of the day yesterday and tried to consolidate around $58.5/bbl midday, a level that has proven to be strong support several times this week. One source of support yesterday was Saudi Arabia, as it was reported that the kingdom had proposed moving the OPEC+ policy meeting from March to early February, according to undisclosed sources. During the US trading hours, however, the $58.5/bbl support level was broken, after which Brent fell to an intraday low of $57.7/bbl. This move was partially attributed to the release of preliminary 4Q19 US GDP data that showed an above-consensus 2.1% growth reading (0.1 pp higher; it was the same reading as in 3Q19) but also some signs for concern. Among these were a slowdown in consumer spending and the third consecutive drop in business investment. Crucially, this is likely to result in inflation remaining below the target, which in tandem with the damage from the coronavirus could push the Fed toward a rate cut in March. Front-month Brent eventually settled at $58.29/bbl, fixing $1.52/bbl below the previous settlement.This morning, the March contract (which will no longer be the front-month contract after today; it will be replaced by the April contract, which is trading at a $1/bbl discount) is gravitating toward $59.0/bbl amid a rise in China's nonmanufacturing PMI from 53.5 in December to 54.1 in January, which beat the consensus, while the manufacturing gauge fell from 50.2 to 50.0, matching the consensus and implying flat activity in the sector. This data is hardly a meaningful read on the economy given the recent coronavirus outbreak, which the National Bureau of Statistics warned was not fully reflected in the survey. We note that Bloomberg believes the virus could shave 1.5 pp off 1Q20 GDP growth, bringing it down to 4.5% y-o-y. Also supporting oil prices this morning was upward momentum in US futures, which rebounded late in yesterday's session, and Asian stocks, which halted a six-day decline. The ease in global risk aversion was triggered by the WHO saying that "travel and trade restrictions were not necessary" when it declared a global health emergency yesterday. The coronavirus has now killed 213 people and infected more than 9,800 globally, surpassing the number of infections during the 2002-03 SARS epidemic.Today, investors will eye 4Q19 GDP data from the eurozone, the PCE index from the US and the EIA's 914 oil production report. In our view, it would be wise to start looking for an opportunity to lock in profits or to buy on dips. We expect oil prices to make another move lower later in the day amid persisting worries over how the spreading virus will impact demand for oil and refined products. The next technical support level is $58.69/bbl. A break below this would likely cause a fall to $57.71/bbl. Next Wednesday will be two weeks since the lockdown of Wuhan in response to the coronavirus, which has an incubation period (the time from exposure to the onset of symptoms) of up to two weeks. This means that by that time we could begin to see some signs that the coronavirus has been contained. Thus, if you went along with the trade idea we outlined earlier this week (going short Brent at $59.6 - see below), we would advise taking profit now with Brent below $58/bbl (if you did not do so earlier). If you didn't, it would be a good idea to consider opening a long LD PRICES COME UNDER PRESSURE FOLLOWING WHO PRESS CONFERENCEGold prices got a boost early in the day yesterday from news flow about the coronavirus outbreak, holding firmly at $1,580/oz, and testing $1,585/oz before the WHO press conference in the evening (22:30 Moscow time). Though the outbreak was declared a global emergency, no restrictions on travel or trade were recommended, given that the overwhelming majority of cases are in mainland China. The WHO comments pressured gold down to $1,571/oz overnight. This morning, gold is consolidating around $1,575/oz. As we write, there have been almost 10,000 cases registered and also 213 deaths (204 in the province of Hubei). Investors are focused on the reopening of trading in Shanghai, which is currently scheduled for Monday (the last day of trading was January 23). We think gold has the potential to rebound today if there is another sharp drop in risk appetite. Yesterday, the World Gold Council released its report on global demand trends for gold in 2019 and 4Q19. It estimated that total demand dropped 1% to 4,356 tonnes, which it attributes to a major drop in gold jewelry purchases (by 133 tonnes) and investment in gold bars and coins (by 223 tonnes). Inflows into gold ETFs and similar products boosted demand, with their demand estimated rising by 325 tonnes. The report shows the high sensitivity of Asian consumers to price. After gold surpassed the $1,500/oz mark in August, demand for physical gold in China and India - both in the form of jewelry and gold bars and coins - began to wane. For 2H19, demand for jewelry was down 24% in India and 12.5% in China, while investment in gold bars and coins was down 25.5% in India and 43% in India. Overall, as of end-2019, the physical gold market saw a surplus of 393 tonnes, above the 231 tonne surplus seen at the end of 2018. US personal income and consumer spending for December are due today and will be a focus for markets, along with the Chicago PMI and University of Michigan consumer confidence. Ahead of the Shanghai open on Monday, we think gold could return to making gains and approach the $1,590/oz mark by the end of the day