Commodities Daily - July 21, 2020

> Oil pares back losses following successful trial of Covid-19 vaccine. Today's macro data calendar is largely empty, with the US Chicago Fed index and Canadian retail sales the highlights. The oil market will be watching for API inventories overnight, along with the Japan preliminary PMIs for July. Yesterday's sudden risk-on rally has strongly undermined our view that Brent was more likely to shift lower this week. The benchmark now appears set to revisit its July 15 high of $43.85/bbl, with a break above this level likely to open the way to the $44.1-44.4/bbl technical range. However, should the uptrend be interrupted by an abrupt bearish development (we have seen persistent choppy sideways trading this summer, with oil prices still struggling for direction), Brent would first test support at $43.2/bbl, and, if broken, would likely head to the $42.4-42.7/bbl technical range.> Precious metals prices continue to rise. Gold gained 0.4% yesterday, approaching the upper bound of our target range at $1,820/oz (which we laid out in yesterday's daily). Silver added 3%, testing the psychologically important $20/oz mark. Demand for defensive assets remains strong amid major fiscal support being discussed in the EU and US, as well as news of rising Covid-19 cases in California, Florida and Arizona. Technical resistance for gold is now $1,824/oz. We think it could break through it given the ongoing high investment demand.OIL PARES BACK LOSSES FOLLOWING SUCCESSFUL TRIAL OF COVID-19 VACCINEYesterday morning, front-month Brent was retreating toward technical support at $42.2/bbl amid demand-side fears stemming from the potential reintroduction of lockdown measures in the US and other countries. Another factor negatively weighing on the demand side is increasing concerns that Chinese refiners may be almost finished adding crude to their stockpiles and that China's strategic petroleum reserve is close to full, implying that China's recently record-high purchases are about to slow. A recent decrease in the price of physical oil barrels traded in Asia (including Russia's ESPO grade) is already signaling a slowdown in Chinese demand. Yesterday, Bloomberg reported, citing people with knowledge of the matter, that China's Sinopec plans to reduce refinery runs at some of its coastal plants this month, as massive flooding along the Yangtze River has killed more than 30 people, caused $9.2 bln in damage and is weighing on fuel consumption.In early US trading yesterday, the negative momentum was suddenly turned around, with risk assets rallying after the University of Oxford and AstraZeneca reported the successful results of a Covid-19 vaccine trial with a sample of 1,077 patients. Three other vaccine programs have also reported positive early results in the past two days, though the Oxford University/AstraZeneca program appears to have published the most data with the most participants. Also positive for global risk sentiment were reports of significant progress in both EU and US stimulus negotiations, which suggests an increased chance for economic stability and investment inflows in the coming months. Brent eventually settled at $43.28/bbl, up $0.14/bbl on the day. The EU's EUR750 bln deal was subsequently confirmed overnight.Today's macro data calendar is largely empty, with the US Chicago Fed index and Canadian retail sales the highlights. The oil market will be watching for API inventories overnight, along with the Japan preliminary PMIs for July. Yesterday's sudden risk-on rally has strongly undermined our view that Brent was more likely to shift lower this week. The benchmark now appears set to revisit its July 15 high of $43.85/bbl, with a break above this level likely to open the way to the $44.1-44.4/bbl technical range. However, should the uptrend be interrupted by an abrupt bearish development (we have seen persistent choppy sideways trading this summer, with oil prices still struggling for direction), Brent would first test support at $43.2/bbl, and, if broken, would likely head to the $42.4-42.7/bbl technical ECIOUS METALS PRICES CONTINUE TO RISEYesterday, precious metals prices continued to rise, with gold adding 0.4% to $1,818/oz and silver 3% to $19.91/oz. A key driver of the ongoing high demand for safe-haven metals is the major fiscal stimulus programs being discussed in the US and Europe. Yesterday, EU leaders adopted a plan to stimulate the economy worth EUR750 bln (EUR390 bln in grants and EUR360 bln in low-interest-rate loans). The news helped the euro to strengthen, pressured the dollar and supported precious metals. Meanwhile, the US is beginning to push through a new package worth $1.0-3.5 trln.This morning, Swiss gold exports for June were published - the data indicates that the physical market in the US has stabilized. Recall that a record 126.6 tonnes of gold were exported from Switzerland to the US in May on the backdrop of a sharp increase in gold demand from both financial and retail investors. In June, export volumes returned to normal, with a total of 96.4 tonnes exported, and shipments to the US fell 46% to 68.3 tonnes.During the day today, we expect gold prices to push higher. As we write, gold is trading around $1,822/oz. We think silver prices are likely to consolidate around the $20/oz mark. Despite the coronavirus situation in the US, market sentiment is bullish as vaccine tests are expected to show positive results. The Chicago Fed's business activity index is scheduled for 15:30 Moscow time today. Technical resistance for gold is now $1,824/oz. We think it could break through it given the ongoing high investment