Commodities Daily - May 22, 2020

> Oil prices slide despite upbeat PMI data from DMs, US-China tensions send stocks tumbling. The recent China-related headlines sent Brent to as low as $33.5/bbl this morning, although the losses are swiftly being pared back as we write. More headlines could emerge from the National People's Congress today and in the coming days. Overall, we think Brent is likely to consolidate in the $34.3-34.9/bbl technical range today. The US market will close early today and both the US and UK will be closed on Monday. > Gold paring back yesterday's losses as Hong Kong news sparks decline in global risk appetite. US politicians and policymakers will continue debating the next stimulus measures today and through the weekend, which is likely to support gold. We think that if it can break above technical resistance at $1,741/oz today, it could open up the way to $1,765/oz, where it was trading at the start of this week.OIL PRICES SLIDE DESPITE UPBEAT PMI DATA FROM DMS, US-CHINA TENSIONS SEND STOCKS TUMBLINGDuring the first half of the day yesterday, front-month Brent generated positive momentum, gaining slightly more than $1/bbl and reaching just short of the $37/bbl mark. A major factor behind this price increase was the rather upbeat May IHS Markit PMIs for developed markets. The majority of the manufacturing, services and composite PMIs from a number of DM countries beat the consensus. The eurozone's flash composite PMI also outpaced expectations, recovering to 30.5 in May from April's 13.6. (April's was by far the lowest reading in the survey's nearly 22-year history.) Meanwhile, US manufacturing and service-sector firms also reported a slightly slower rate of contraction in May and also beat forecasts. IHS Markit highlighted that the rate of economic contraction seems to have peaked in April. We think the May readings imply that DM economies might be recovering at a slightly faster than expected pace, although we note that the PMI data is still a very long way from the 50 point mark that separates growth from contraction. Another interesting recent IHS Markit highlight is that China's oil demand earlier this month was at around 92% of the levels at the same time last year. The agency expects China's full-year consumption to be around 8% lower than in 2019. Note that according to TomTom road navigator data, traffic in Berlin and Tokyo has returned to the levels of a year ago, while traffic in Moscow and Paris is also seen to be rising significantly. However, in London and New York traffic has increased but not sharply. Meanwhile, US driving season, when gasoline use tends to be at its highest, kicks off with this weekend's Memorial Day holiday. We anticipate global liquids demand recovering to close to 98 mln bpd in 4Q20 (falling short of the almost 100 mln bpd in January), from as low as 75 mln bpd in April.During US trading yesterday, Brent began to pare back earlier gains and consolidated around $36/bbl later in the day. It eventually settled at $36.06/bbl, fixing $0.31/bbl above the previous settlement. The recent global market downturn comes amid an announcement by the Chinese government of intentions to impose a new national security law on Hong Kong. US President Donald Trump warned the US would react "very strongly" against China if it went ahead with the law. US-Chinese tensions had already been escalating this week after the passage of a Senate bill to ban US listings of Chinese companies that do not use US-inspected auditors. There has also been a stream of negative remarks toward China from the US president. Albeit almost lost in the shrill political news this morning, the Chinese government has also decided to scrap its GDP target for this year on the back of the Covid-19 crisis. Beijing said it would not set a GDP target this year (for the first time in decades) due to "great uncertainty," implying that China's economic growth this year is likely to be subdued. The recent China-related headlines sent Brent to as low as $33.5/bbl this morning, although the losses are swiftly being pared back as we write. More headlines could emerge from the National People's Congress today and in the coming days. Overall, we think Brent is likely to consolidate in the $34.3-34.9/bbl technical range today. The US market will close early today and both the US and UK will be closed on LD PARING BACK YESTERDAY'S LOSSES AS HONG KONG NEWS SPARKS DECLINE IN GLOBAL RISK APPETITEGold slid by around $30/oz to $1,720/oz yesterday following upbeat DM PMIs for May, with investors locking in profits from the recent rally. However, it has swiftly pared back those losses this morning. Late yesterday, the Chinese government said it will impose a new national security law on Hong Kong, accelerating the downturn in global equities, which is positive for gold. Asian stock markets were tumbling this morning while gold approached the $1,735/oz mark, as investors are concerned about the consequences for the Hong Kong market and about escalating tensions between China and the West, particularly the US. US President Donald Trump has warned that the US would respond to any moves by Beijing to curb democracy in the financial hub.US-Chinese tensions had already been escalating this week after the US Senate passed a bill to ban US listings by Chinese companies that do not use US-inspected auditors and following a stream of invective toward China from the US president. Almost lost in the shrill of this morning's political news, the Chinese government has also decided to scrap its GDP target for this year on the back of the Covid-19 crisis. More headlines could emerge from the National People's Congress today and in the coming days. US politicians and policymakers will continue debating the next stimulus measures today and through the weekend, which will likely support gold. We think that if it can break above technical resistance at $1,741/oz today, it could open up the way to $1,765/oz, where it was trading at the start of this