Commodities Daily - March 27, 2020

> Pressured by deteriorating fundamentals, oil inert despite rising risk appetite. Today, investors are eyeing US personal incomes and spending, University of Michigan consumer confidence and the Baker Hughes rig counts. We continue to expect Brent to test the YTD low of $24.5/bbl in coming days. In April, the June Brent contract, now trading around $28.5/bbl, could even test the $20/bbl level amid deteriorating oil market fundamentals.> Weak US economic data fails to affect gold. Comments by regulators and politicians yesterday - including G20 leaders, Fed Chairman Powell and US President Trump - remain hopeful, but the latest news about the spread of the virus has caused more doubt about the effectiveness of the response. The dollar looks set for a rebound today, but we expect gold to continue trading sideways at around $1,620/oz.PRESSURED BY DETERIORATING FUNDAMENTALS, OIL INERT DESPITE RISING RISK APPETITEUntil the US session started yesterday, front-month Brent traded in a range of $26.3-27.7/bbl. In early US trading, it slid to $26.0/bbl, despite stock indexes rebounding. The stock market seemed to brush off the record 3.3 mln initial jobless claims last week in the US (versus the previous record of 0.7 mln set in October 1982 and the highest number of continuing claims, 6.6 mln, set in May 2009). Meanwhile, the G20 failed to offer new, concrete commitments following a call between political leaders, but noted that total stimulus already launched by members totaled more than $5 trln. Brent eventually settled at $26.34/bbl, fixing $1.05/bbl below the previous settlement.For most of this week, major equity indexes and risk appetite in general have been rising, buoyed by vast monetary and fiscal stimulus measures put in place across the globe in response to the coronavirus outbreak. However, crude oil, despite also being a risk asset - since mid-February it has exhibited a particularly strong correlation to the S&P 500 - has been an exception to the trend this week and has even retreated. We attribute the divergence to deteriorating oil market fundamentals. Yesterday, the head of the IEA said that 3 bln people find themselves locked down currently and warned that global oil demand could fall at some point this year to about 20 mln bpd. Rising OPEC output, meanwhile, means crude oil stocks should build by almost 1 bln bbl in 1H20, with total liquids stocks building to reach over 1 bln bbl, on our estimates.Global onshore storage capacity will be fully utilized, and though floating storage should help some, it is unlikely to be enough to cope with the flood of unsold oil. Thus, the only balancing mechanism left for the market is to curtail supply. According to Energy Aspects, the average production-weighted lifting cost (cash cost) for the main OPEC producers is $9/bbl and $15/bbl for non-OPEC producers, which suggests that to force supply reductions to come through quicker than now expected, the $15/bbl level should be tested. It is important to note that Brent futures may be trading near $26/bbl, but oil producers are selling their crude in the physical market at much lower prices -close to or below $20/bbl. This is due of course to the super contango in the market and price structure. Market data compiled by Reuters this week showed that Russia has been selling its medium sour Urals for as low as $18/bbl, while Saudi Arabia was selling its Arab Light in Europe for $16/bbl. Some oil majors have reported plans to slash 2020 spending by a combined $25 bln, or a drop of 20% from the initially planned $127 bln, which will inevitably translate into production declines.Today, investors are eyeing US personal incomes and spending, University of Michigan consumer confidence and the Baker Hughes rig counts. We continue to expect Brent to test the YTD low of $24.5/bbl in coming days. In April, the June Brent contract, now trading around $28.5/bbl, could even test the $20/bbl level amid deteriorating oil market AK US ECONOMIC DATA FAILS TO AFFECT GOLDContrary to fears that weak economic data out of the US would trigger another selloff yesterday, markets remained more or less stable throughout the day. Gold prices traded a little below $1,610/oz, but an hour before the US initial jobless claims release, they pushed through the $1,620/oz level and then moved higher to $1,631/oz around which level prices hovered for the rest of the day.Initial jobless claims last week came in at a record 3.28 mln (double the consensus estimate and compared with the previous week's 281k), which indicates that US companies are laying off employees. We note that St Louis Fed head James Bullard has said before that the US unemployment rate could reach 30% in 2Q20. The next major reports on the US labor market (for March) will be released next week - the ADP on Wednesday, followed by the official report on Friday.Meanwhile, yesterday's call between G20 leaders went practically unnoticed by markets, as details about some kind of coordinated response were lacking. Nevertheless, they said their governments would allocate a combined $5 trln to support national economies.The calendar is light today. US personal incomes and spending and University of Michigan consumer confidence are to be released. The dollar looks set for a rebound today, but we expect gold to continue trading sideways at around $1,620/