Commodities Daily - July 20, 2020

> Oil slides on demand-side fears; EU and US fiscal stimulus, US inventories and DM PMIs on the radar this week. There is no major economic or oil data scheduled for release at the start of this week, so investors are likely to focus on the ongoing surge in global coronavirus cases and the discussions over further fiscal stimulus in the EU and the US. In the middle of the week, oil and refined product inventory data from the US will likely move the markets if it shows a second consecutive draw in total inventories. Then on Friday, preliminary July PMI readings for the eurozone and US will be on the agenda. We see more downside than upside for oil prices this week. Brent has already broken below support at $42.85/bbl this morning and in our view is likely to continue sliding to $42.2/bbl today. A break below this level could put it on the path to $41.2/bbl.> Gold trading around $1,810/oz after gaining 0.7% on Friday. Data from the CFTC on open positions in gold published last week showed a decline in long positions following gold's break above $1,800/oz. The mood in global markets remains cautious due to the continued spread of Covid-19 in the US. The focus today will be on the stimulus talks in the US and EU. OIL SLIDES ON DEMAND-SIDE FEARS; EU AND US FISCAL STIMULUS, US INVENTORIES AND DM PMIS ON THE RADAR THIS WEEKDuring the first half of the day on Friday, front-month Brent traded sideways within a $42.9-43.4/bbl range, before sliding to an intraday low of $42.6/bbl in the early US trading hours. It eventually pared back some of these losses and settled at $43.14/bbl, fixing $0.23/bbl below the previous settlement. Focus in markets appears to be returning to the rise in Covid-19 infections in key global cities and regions that have scaled back lockdown measures. Steady upticks in daily coronavirus infections in Hong Kong and Tokyo have spurred headlines but not unsteadied markets this morning. Oil investors are also keeping an eye on the stalled oil demand recovery in the US, where several states have re-imposed measures to contain the spread of the virus. According to data from GasBuddy, which tracks real-time prices at US gas stations, US retail gasoline demand fell 5% in the week ended July 11. It also seems that Chinese refiners may be about done adding crude to their stockpiles and that China's Strategic Petroleum Reserve is close to full capacity, implying that China's recently record-high purchases could slow. As we noted on Friday, we think the latest economic data and the continuing rise in the Covid-19 infection rate have started to strongly suggest that the expected V-shaped recovery in global oil demand - as projected by the three main global forecasting agencies - is under threat for the first time since the global lockdowns began to be lifted. Should a resurgence in Covid-19, particularly in North and Latin America, result in new large-scale lockdowns, this would be a very serious concern for oil investors, who would begin to worry that the rebound in oil demand would falter. The net result could be a market re-pricing, pressuring Brent toward $40/bbl. There is no major economic or oil data scheduled for release at the start of this week, so investors are likely to focus on the ongoing surge in global coronavirus cases and the discussions over further fiscal stimulus in the EU and the US. After three days of intense talks in Brussels, EU leaders have still not reached an agreement on the unprecedented EUR1.85 trln ($2.1 trln) EU budget and the coronavirus recovery fund. In the US, Congress will begin debating a new aid package this week, with the $600 top-up to unemployment benefits set to expire at the end of July, the Paycheck Protection Program set to stop accepting new applications on August 8 and the freeze on student debt repayments set to end in September. In the middle of the week, oil and refined product inventory data from the US is likely move the markets if it shows a second consecutive draw in total inventories. Then on Friday, preliminary July PMI readings for the eurozone and US will be on the agenda. We see more downside than upside for oil prices this week, though any downtrend triggered by fears of fuel demand being derailed by a rising pace of coronavirus infections is likely to be only gradual given the prospects for further US and EU fiscal stimulus and upbeat inventory data. Brent has already broken below support at $42.85/bbl this morning and in our view is likely to continue sliding to $42.2/bbl today. A break below this level could put it on the path to $41.2/bbl. LD TRADING AROUND $1,810/OZ AFTER GAINING 0.7% ON FRIDAYOn Friday, gold prices were back on the upswing, with most of the gains coming during the US session. In spite of some rather encouraging macro data from the US (housing starts were up from 1.01 mln in May to 1.19 mln in June, while building permits were up from 1.22 mln to 1.24 mln), investors remain fearful, in large part because of the continued rise in Covid-19 infections in the US, including in San Francisco, where the mayor announced that the reopening of the economy would be rolled back. Dallas Fed President Robert Kaplan also noted the negative economic trends in place since mid-June, which threaten to put many SMEs out of business. The IMF, meanwhile, struck a cautionary note in a report it published on the US economy, pointing to the high level of debt and how ineffective certain elements of the country's trade and foreign exchange policy have been.Important for the gold market were the latest CFTC statistics for the week ending July 14. Long positions held by hedge funds in gold dropped 1% after bullion broke through the $1,800/oz mark. However, net long positions remain significant at above 177k contracts. Today, investor attention will be on discussions among US and European lawmakers about new stimulus measures. In the US, President Trump will continue working with both parties on a new relief package, while in Europe talks will continue about finalizing a recovery fund and reaching a budget deal. We expect gold prices to continue consolidating in the $1,800-1,820/oz range today.