Commodities Daily - July 28, 2020

> Oil rebounds amid weak dollar, Fed anticipation, US stimulus news. Today, investors await the July reading of the US consumer confidence index, which in our view is likely to soften, as the disruption of the economic reopening in a number of states likely dampened household perceptions of the pace of the labor market recovery. Another factor that likely weighed on the index is the ongoing clash in Congress over jobless benefits and the extension of other essential aid. While some media attention has focused on rising Covid-19 infections in parts of Asia (particularly in Hong Kong), this has not held back markets. In our view, Brent is likely to stay stuck below $43.9/bbl, the 50% Fibonacci retracement level. Overnight, API will report on US oil and refined product inventories, which, along with the EIA data on Wednesday, could affect the trajectory of oil prices. > Gold refreshes all-time high this morning. Gold rose to nearly $1,981/oz this morning, setting a new all-time high. However, Chinese data on gold consumption in 1H20 sparked a reversal, sending gold back to $1,920/oz. Gold prices are hovering in a range of $1,920-1,940/oz as we write. The two-day FOMC meeting gets underway today and wraps up in the second half of tomorrow's trading, during the US session, at which point we may see volatility in metal prices pick up.OIL REBOUNDS AMID WEAK DOLLAR, FED ANTICIPATION, US STIMULUS NEWSAhead of yesterday's US trading session, Brent gained $0.8/bbl to reach an intraday high of $43.8/bbl amid further dollar weakening. US durable goods orders data released before the open on Wall Street failed to impress oil investors despite showing a larger than expected rise in June, which owed to companies' response to a sudden spike in demand. Commercial aircraft orders were back on the decline, reflecting canceled orders from Boeing, but this was more than offset by a rebound in motor vehicle orders, which mirrored the bounce-back in auto production. This is positive, as it suggests the US consumer segment is recovering, though the overall economic recovery is likely to slow considerably from the pace of May and June. Before the US open, Brent slid first to $42.8/bbl (a strong technical support level it failed to break on Friday), and then, after a brief pause, to an intraday low of $42.4/bbl. However, over the course of the US session it managed to reverse course and pare back all of its earlier losses, eventually settling at $43.41/bbl, fixing $0.07/bbl above the previous settlement. One factor that helped oil prices rebound was growing anticipation that Fed Chairman Jerome Powell will strike a dovish tone following the FOMC meeting tomorrow, given the resurgence in coronavirus cases around the world, and signal that rates will stay near zero for some time to come. Another supportive factor for oil prices has been the significant weakening of the dollar amid concerns about the surge in US coronavirus cases and expectations that the Fed will remain committed to rock-bottom rates. Further support came from the US Republicans' unveiling of a $1 trln stimulus package, which leading Democrats have remarked should be far larger.We note that the shape of oil futures curves has changed dramatically in recent days. Brent's prompt spread is now showing the highest degree of contango since May, which is a bearish signal pointing to market oversupply. It strongly suggests that the market rebalancing may have paused amid the slowdown in Chinese crude purchases. We think Chinese demand will return, causing crude spreads to rise again, as the macro backdrop in China remains supportive due to the government's vast stimulus programs.Today, investors await the July reading of the US consumer confidence index, which in our view is likely to soften, as the disruption of the economic reopening in a number of states likely dampened household perceptions of the pace of the labor market recovery. Another factor that likely weighed on the index is the ongoing clash in Congress over jobless benefits and the extension of other essential aid. While some media attention has focused on rising Covid-19 infections in parts of Asia (particularly in Hong Kong), this has not held back markets. In our view, Brent is likely to stay stuck below $43.9/bbl, the 50% Fibonacci retracement level. Overnight, API will report on US oil and refined product inventories, which, along with the EIA data on Wednesday, could affect the trajectory of oil LD REFRESHES ALL-TIME HIGH THIS MORNINGYesterday, for the second day in a row, most of the volatility in gold prices came during the Asian trading session. In the first half of yesterday's trading, gold rose to a new record high amid a weakening dollar and growing anticipation over the Fed meeting. The rally resumed this morning, with gold surging 1.8% to a new high of $1,981/oz before retracing to $1,940/oz following downbeat data from China.The China Gold Association reported that Chinese gold consumption fell 38% y-o-y to 323 tonnes in 1H20, reflecting not only the impact of the coronavirus epidemic on demand for gold, but also the metal's high demand price elasticity. The data, however, showed the supply of gold in China recovering in 2Q20, up 5.8% from the 1Q20 level.Gold investors have also been keeping an eye out for key macro data, stimulus news flow and rhetoric from regulators. Yesterday, representatives from the Republican Party proposed lowering weekly federal unemployment benefits in the US from $600 to $200, while Senate Republicans unveiled a $1 trln stimulus package. US durable goods orders published yesterday showed a 7.3% m-o-m increase in new orders in June, which beat the consensus of 6.9%. Core capital goods orders were up only 3.3%, however, reflecting a fairly slow pace of recovery. With investors becoming increasingly concerned about the impact of the surge in Covid-19 cases in the US in June and July, Fed Chairman Jerome Powell's press conference following the conclusion of the FOMC meeting on Wednesday has taken on even more significance.Gold prices are hovering in a range of $1,920-1,940/oz as we write. We expect volatility in the gold market to be elevated at least until Friday, with the Fed decision on Wednesday and the World Gold Council's quarterly report due on