Commodities Daily - July 31, 2019

> Oil surges following bullish API report and amid Fed rate cut expectations; EIA inventory report on the agenda. Today, the market awaits 2Q19 GDP and July CPI readings for the eurozone and the EIA's "914 Oil and Natural Gas Production" report, which will reveal production figures for May. But the key event today is, of course, the outcome to the FOMC meeting (21:00 Moscow time), when a rate cut is very likely to be announced, which will be followed by the press conference by Jerome Powell (21:30), who could open the door to further cuts. We think Brent is likely to approach the $66/bbl mark following the EIA inventory report and could even touch $66.5/bbl later if the Fed proves sufficiently dovish.> Gold trading near $1,430/oz this morning ahead of Fed decision. The macro data from the US yesterday pointed to a still stable economy. In the latest edition of our quarterly Multi-Asset Sputnik, we noted the sharp rise in gold prices in June amid growing expectations of monetary policy easing among the major central banks. If the Fed fails to clearly signal a cut in September at today's meeting, we would expect a spike in volatility and possibly a correction to below $1,400/oz. But if things play out as our FX analysts expect - a 25 bp cut today, with signaling of a 25 bp cut in September - we believe gold prices would either hold in place or rise no more than $10-20/oz.> Base metal prices constrained by news from China. Yesterday, China's Politburo said that property will not be used for short-term stimulus of the economy. As a result, copper prices ended up drifting 1.2% lower on the day. Additional pressure on copper and other base metals came from the US president's twitter feed, in which he expressed frustration over the state of the ongoing US-China trade negotiations. The twelfth round of the talks wrapped up today without any firm agreements. Base metal prices were mixed this morning following the publication of in-line official PMI data from China.