Commodities Daily - July 23, 2020

> Oil steady as weaker dollar, stock market gains counterbalance downbeat EIA data. Market players are now busy weighing US stimulus hopes (although Republicans and Democrats remain far apart on the size of the next round of relief) and strong corporate earnings against US-China tensions. Today, investors will eye US initial jobless claims. We think the chances of a downbeat reading are high. Given the multiple headwinds, we think Brent will at best revisit Tuesday's high of $44.9/bbl today. However, if it manages to break through this level, $47/bbl would be the next target. We also stick to the view that in the event of an abrupt risk-off turn, Brent would likely break below technical support at $43.8/bbl and move into the $42.7-43.3/bbl range.> Gold and silver continue to advance ahead of next week's FOMC meeting. Gold added 1.6% yesterday while silver surged 7.9% thanks to a weakening dollar and a decline in the real 10y US Treasury yield. ETFs continued to purchase both metals despite the elevated price levels. Today, US jobless claims for the week to July 18 will be published, in addition to the leading indicators.OIL STEADY AS WEAKER DOLLAR, STOCK MARKET GAINS COUNTERBALANCE DOWNBEAT EIA DATABrent slid slightly below $44/bbl midday yesterday. Oil investors were primarily focused on the EIA inventory report, which ended up indicating a strong 4.89 mln bbl build in US crude stocks to 536.6 mln bbl. This came amid a 0.37 mln bpd increase in US imports to 5.94 mln bpd, a 0.1 mln bpd decrease in refinery inputs and to 14.2 mln bpd and a 0.1 mln bpd increase in oil production to 11.1 mln bpd. A 0.45 mln bpd increase in exports was insufficient to offset the overall buildup. Inventories at Cushing, the WTI delivery hub, increased by 1.37 mln bbl to 50.1 mln bbl. The refined product data was mostly bearish, showing gasoline stocks falling 1.8 mln bbl to 246.7 mln bbl and distillate stocks rising 1 mln bbl to 177.9 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) brushed away the upbeat data from last week, rising a strong 8.8 mln bbl, largely due to an increase in oil, propane/propylene and "other oils." One of the main bearish highlights, meanwhile, is that gasoline demand is hitting a plateau - in fact, the four-week average has even tipped into a decline. The latest data shows that demand is not yet high enough to ensure consistent draws in all categories despite the quite restrained supply of oil and refined products. Meanwhile, Iraq's crude oil exports have reportedly increased so far in July, which implies a high risk that the planned OPEC+ production increase in August (meant to be counterbalanced by pledged overcompliance from Iraq) will not be as smooth as the JMMC ministers recently suggested. The bearish EIA report yesterday was eventually counterbalanced by further weakening in the dollar and positive risk sentiment during the US session. Brent eventually settled at $44.29/bbl, fixing $0.03/bbl below the previous settlement. Market players are now busy weighing US stimulus hopes (although Republicans and Democrats remain far apart on the size of the next round of relief) and strong corporate earnings against US-China tensions. The net result this morning is rather neutral global risk sentiment. Brent is hovering just below $44.5/bbl. The new accusations from the US against China did not elicit a strong market reaction, although they are generally negative for risk sentiment. Multiple US officials have now claimed that Chinese hackers are committing new industrial espionage against the US and/or participating in forms of "election interference," and the US ordered the Chinese consulate in Houston to close. China said the order was an "unprecedented escalation" by Washington, and a source said Beijing was considering shutting the US consulate in Wuhan in retaliation. Meanwhile, US President Donald Trump said that other consulate closures were "always possible."Today, investors will eye US initial jobless claims (15:30 Moscow time). We think the chances of a downbeat reading are high. We note a Bloomberg report highlighting that Google search data for unemployment benefits, which provides a rough proxy, showed an uptick in searches in the reporting week. Given the multiple headwinds, we think Brent will at best revisit Tuesday's high of $44.9/bbl today. However, if it manages to break through this level, $47/bbl would be the next target. We also stick to the view that in the event of an abrupt risk-off turn, Brent would likely end up breaking below technical support at $43.8/bbl and move into the $42.7-43.3/bbl LD AND SILVER CONTINUE TO ADVANCE AHEAD OF NEXT WEEK'S FOMC MEETINGDollar weakness and a further slide in the real 10y US Treasury yield supported precious metals yesterday. For gold, the rally commenced during Asian trading and continued amid robust demand from US investors in the afternoon. Gold finished the day up 1.6% at $1,871/oz. The 120d negative correlation between gold and the real 10y US Treasury yield is currently very high at 0.89; the real 10y yield yesterday fell to -0.88%, its lowest level since 2012. Gold's recent ascent has also had a positive correlation with the S&P 500 (120d correlation of 0.86), which suggests that a reversal in sentiment could lead to elevated volatility in gold.Investors are demonstrating extremely inelastic demand for precious metals in price terms. Despite the rally of the last few days, ETFs yesterday increased their gold and silver investments by a respective 0.4% and 1.8%. It could be that investment demand is being buoyed by expectations regarding next week's FOMC meeting (scheduled for July 28-29).US jobless claims for the week to July 18 will be released at 15:30 Moscow time. Investors will also be monitoring the tensions between the US and China and the latest coronavirus data. Given how easily gold has been overcoming technical resistance levels, we would not rule out an approach to the $1,900/oz mark today, which would be the highest level since May