Commodities Daily - March 24, 2020

> Oil ticks higher on further US monetary economic support measures; fiscal stimulus eyed. Brent is currently trading at around $28/bbl as risk appetite has risen and the dollar is weakening against G10 peers following the Fed's unlimited quantitative easing plan. All eyes today will be on the US Senate, which yesterday yet again failed to pass a measure advancing a $1.8 trln stimulus plan. Reports suggest that the gap between the party leaders is narrowing, however. Preliminary March DM PMIs are due today, along with US new home sales, the Richmond Fed index and API inventories. If the US can agree upon a fiscal stimulus plan today, Brent could test resistance at $28.7/bbl, with a break above potentially leading to a gain to $29.8/bbl.> Gold prices post strong rally amid new support measures from Fed, ECB. The Fed announced that it was embarking on an essentially unlimited QE program, which was being expanded to $375 bln in Treasuries and $250 bln in mortgage-backed securities this week. In Europe, meanwhile, for the first time ever the European Commission has temporarily suspended budget rules limiting deficits to 3% of GDP and national debt to 60% of GDP. These measures buoyed previous metals yesterday: gold climbed 3.6%, silver 5.1%, platinum 5.1% and palladium 5.0%. The spotlight today will be on PMI data from across the globe and a conference call with G7 finance ministers and central bank heads to discuss the response to the coronavirus pandemic. If the markets like what the policymakers have to say, gold could shoot above the $1,600/oz mark.> Base metals climbing thanks to central bank measures, positive coronavirus news. Today, 3m forward contracts for copper have added 2.5%, while those on zinc are up 2.7% and on nickel and lead 2.0% each. The rally in commodities has been driven to a large extent by the Fed's latest moves. In addition, sentiment has been boosted by news that the quarantine in Wuhan is planned to be lifted in early April and that the number of hospitalizations in the Italian region of Lombardy is falling. Meanwhile, fundamental supply-related factors are also at work. Zinc and copper mines in Peru have been closed because of a quarantine, while Chile has announced a three-month quarantine as well. Major companies have been announcing that production will be halted.OIL TICKS HIGHER ON FURTHER US MONETARY ECONOMIC SUPPORT MEASURES; FISCAL STIMULUS EYEDFront-month Brent sank to $25/bbl yesterday morning before rallying $2/bbl in a choppy session to eventually settle at $27.03/bbl, $0.05/bbl above the previous settlement. The key support came from the Fed unveiling more immediate and potential emergency measures, including a plan to directly refinance real-sector firms, which the regulator has traditionally left in the hands of private-sector intermediaries, and a plan for essentially unlimited purchases of Treasuries and mortgage-backed securities to prop up the economy. However, the measures also highlighted the regulator's concerns about the current crisis. Oil investors continue to follow the latest developments in the US's attempts to reverse the oil market downturn. Yesterday, US Energy Secretary Dan Brouillette commented on the idea of a US-Saudi oil alliance, saying that "at some point we will engage in a diplomatic effort down the road. But no decisions have been made on anything of that nature." Yesterday, the US administration appointed Victoria Coates as special energy representative to Saudi Arabia, where she will be based in an attempt to make a diplomatic push to stabilize the energy markets. US President Donald Trump has expressed mixed feelings about the oil price collapse, saying that low gas prices are helpful for consumers (personal consumption accounts for 70% of US GDP), but also noting that the decline "hurts a great industry and very powerful industry" and that "we're trying to find some kind of medium ground." We think this indicates that Trump, who is now primarily focused on protecting the US economy (which is on the brink of recession) from the impact of the coronavirus, will not do anything that could trigger higher fuel prices (yesterday, US gasoline futures tumbled 32% to a record low of 41.18 cents per gallon). Trump is also likely to ensure that fuel prices remain low for the rest of the year for his own political benefit as he is running for re-election in November. Meanwhile, the US shale industry is likely to receive financial support ahead of the administration's attempts to resolve the structural problems on the oil market by, for example, persuading Saudi Arabia to bring back OPEC's market balancing function in return for other benefits. Given the US's inclination toward free markets, we do not see it joining with the cartel to boost profits. This means that OPEC will be rebalancing the market on its own, so it will take a long time to pare back this year's overstocking and for Brent to subsequently move back above $50/bbl.Brent is trading at around $28/bbl so far as risk appetite has risen and the dollar is weakening against all of its G10 peers following the Fed's unlimited quantitative easing plan. All eyes today will be on the US Senate, which yesterday yet again failed to pass a measure advancing a $1.8 trln stimulus plan due to disagreements between the two parties. Reports suggest that the gap between the party leaders is narrowing, however. Preliminary March DM PMIs are due today, along with US new home sales, the Richmond Fed index and API inventories. If the US can agree upon a fiscal stimulus plan today, we would expect Brent to test resistance at $28.7/bbl, with a break above potentially leading to a gain to $29.8/ LD PRICES POST STRONG RALLY AMID NEW SUPPORT MEASURES FROM FED, ECBYesterday, prices on precious metals recovered nearly half of the losses they suffered last week. Gold climbed 3.6%, silver 5.1%, platinum 5.1% and palladium 5.0%. The rally was largely attributable to central bank measures to support liquidity and expectations of further fiscal stimulus. The Fed took the lead yesterday with an announcement that it was embarking on an essentially unlimited QE program, which was being expanded to $375 bln in Treasuries and $250 bln in mortgage-backed securities this week but with no upper limit for the overall scale of the program. The BoJ, meanwhile, has also announced additional liquidity injections, while South Korea has announced the creation of a market stabilization fund with KRW100 trln. In Europe, meanwhile, for the first time ever the European Commission has temporarily suspended budget rules limiting deficits to 3% of GDP and national debt to 60% of GDP. This could mean a wave of new debt in order to finance deficits and stimulus programs.The mood in markets is fairly optimistic this morning. Gold has found support from the news that the South African government has called for a 21-day nationwide quarantine (from March 26 to April 16), which should result in a temporary drop in the supply of precious metals. South Africa is one of the world's leading producers of platinum (75% of global output), palladium (38%) and gold (4%).The spotlight today will be on PMI data from across the globe and a conference call with G7 finance ministers and central bank heads to discuss the response to the coronavirus pandemic. If the markets like what the policymakers have to say, we think there is a chance gold could shoot above the $1,600/oz SE METALS CLIMBING THANKS TO CENTRAL BANK MEASURES, POSITIVE CORONAVIRUS NEWSToday, 3m forward contracts for copper have added 2.5%, while those on zinc are up 2.7% and on nickel and lead 2.0% each. The rally in commodities has been driven to a large extent by the Fed's latest moves, which we discuss in the gold comment above. However, fundamental supply-related factors are also at work. As we have written, zinc and copper mines in Peru have been closed because of a quarantine, while Chile has announced a three-month quarantine as well. Major companies have been announcing that production will be halted, for instance Rio Tinto in Canada (aluminum assets) and South Africa, as well as Freeport-McMoRan and Newmont Corporation.Yesterday, the International Copper Study Group released its market report for 2019. Total supply of refined copper was 23.95 mln tonnes last year. This exceeds demand, which was estimated at 24.30 mln tonnes for a 341 kt deficit. The report called the market more or less balanced last year, though refining capacity usage was 83%, down 3.3 pp from