Commodities Daily - March 3, 2020

> Oil prices surge as investors brace for market stimulus measures. Today, investors eagerly await the results of a call to be held by G7 finance ministers and central bank heads to coordinate measures to support the global economy and counter the deleterious effects of the coronavirus. We may also get some early comments from Vienna, where delegations are starting to arrive for the OPEC+ summit. We are skeptical that Brent will be able to continue its rally today after falling short of resistance at $53.9/bbl and expect it to trade sideways or possibly retrace to support at $51.8/bbl if the G7 call fails to cheer markets.> Gold stable, trading around $1,600/oz in anticipation of action from central banks to support economy. This morning, Australia's central bank cut its policy rate from 0.75% to 0.50%, while today at 15:00 Moscow time the G7 finance ministers and central bank heads will hold a teleconference after which a joint communique will be issued. Investors will be looking for further comments from the Fed, particularly after Larry Kudlow and Steven Mnuchin called for an emergency rate cut before the March 17-18 meeting. Gold prices traded with only modest volatility yesterday and ended up closing 0.2% higher. Further sideways trading is likely today, although if emergency measures are announced by central banks, gold could bounce $10-15/oz higher to reach the next technical resistance point at $1,618/oz.OIL PRICES SURGE AS INVESTORS BRACE FOR MARKET STIMULUS MEASURESOil prices started the week on a very upbeat note, with front-month Brent rallying over $3/bbl during Asian trading yesterday to almost $52/bbl amid a rebound in stocks and risk sentiment in general. Oil bulls were also encouraged by comments from President Vladimir Putin, who hinted that Russia would join OPEC+ in its efforts to offset the drop in oil demand this year through deeper output cuts. Following reporting by the Financial Times last week, many investors expect an additional 1 mln bpd joint cut by OPEC+. A recent Bloomberg survey of 29 analysts, traders and brokers suggests OPEC+ will decide on an additional 0.75 mln bpd cut (the average forecast; estimates range from 0.3-1.5 mln bpd). This is above the 0.6 mln bpd that was recommended by the OPEC+ technical committee in February. Following the open of trading in Europe yesterday, Brent started to slide toward $50/bbl, mirroring dynamics seen in global stock markets, after a rather downbeat comment from Russia's energy minister ahead of this week's OPEC+ meetings in Vienna. Alexander Novak said that Russia was looking at the recommendation made by the joint technical committee (i.e. for a 0.6 mln bpd cut) and that it had not received a proposal to deepen cuts by 1 mln bpd. We maintain our forecast of a 1 mln bpd cut in 2Q20 and a return to the current level in 2H20, which we think would be enough to stabilize oil prices.Both Reuters and Bloomberg yesterday published preliminary estimates of OPEC production in February, with the former putting it at 27.84 mln bpd (down 0.51 mln bpd m-o-m) and the later at 27.91 mln bpd (down 0.48 mln bpd m-o-m). A sharp drop in Libya, where almost all oil production remains offline, was the main reason for the rather steep decline. The cartel's production is now close to the levels of early 2009, after it slashed its production by more than 5 mln bpd to offset the impact of the global financial crisis. Meanwhile, Russian oil output in February averaged 11.29 mln bpd, slightly up from January's 11.28 mln bpd (Russia continues to report combined crude oil and condensate output without a breakdown; in December, Russia was allowed to exclude gas condensate from its quota). After Brent successfully defended the $50/bbl frontier midway into the European session, it rallied toward the $52/bbl mark and eventually settled at $51.9/bbl, fixing $2.23/bbl above the previous settlement. Early this morning, Brent continued its rally, surging to as high as $53.8/bbl before sliding back to $52/bbl. Brent's rally in European trading was triggered by hopes of coordinated actions by G7 central banks and governments to offset the effects of the coronavirus amid the ongoing contraction in global manufacturing (the latest data suggests the sector faces its biggest test since the financial crisis). Fed Chairman Jerome Powell on Friday vowed the Fed would "act as appropriate," which has markets pricing in a more than 25 bp cut at the March 17-18 meeting. Today, investors eagerly await the results of a call to be held by G7 finance ministers and central bank heads to coordinate measures to support the global economy and counter the effects of the coronavirus. We may also get some comments from Vienna, where delegations are starting to arrive for the OPEC+ summit. We are skeptical that Brent will resume its rally today after falling short of resistance at $53.9/bbl. We expect it to trade sideways or possibly retrace to support at $51.8/bbl if the G7 call fails to cheer LD STABLE, TRADING AROUND $1,600/OZ IN ANTICIPATION OF ACTION FROM CENTRAL BANKS TO SUPPORT ECONOMYYesterday was heavy with economic data releases, which generally fell a bit short of expectations. The Markit US manufacturing PMI was reported at 50.7 points for February versus the consensus forecast of 50.8, while the Caixin Chinese manufacturing PMI was 40.3 versus an expected 46.0 and the Markit eurozone manufacturing PMI was 49.2 versus an expected 49.1. The OECD downgraded its global GDP growth forecast for this year from 2.9% to 2.4%, souring the mood on markets. Overall, yesterday's data flow helped gold to rise to $1,610/oz, though it fell to $1,591/oz with the US open. Central banks and their response to the coronavirus epidemic will be the focus today. At 15:00 Moscow time, G7 finance ministers and central bank heads will hold a call and then release a joint statement. In addition, following reports that White House economic advisor Larry Kudlow and Treasury Department Secretary Steven Mnuchin are pushing for an emergency Fed rate cut before the March 17-18 meeting, markets will be looking out for comments by Fed officials. On Friday evening, Fed Chairman Jerome Powell had said the US economy was stable, but that the coronavirus epidemic threatened the outlook for it and that the Fed was ready to take action if necessary. A cut of more than 25 bps is now priced in for this month's meeting, which has been partially reflected in the current gold price. We expect gold to trade sideways today, though if major central banks announce emergency measures it could add $10-15/oz to the next resistance level of $1,618/