Commodities Daily - May 27, 2020

> Gold retreats 1.2% yesterday and now stands at $1,710/oz. Cheery US data yesterday provided positive sentiment for stock markets. Meanwhile, comments by Fed officials, particularly, St Louis Fed President James Bullard, also caused gold to tick lower during US trading. Today in the US, the Fed's Beige Book, weekly mortgage application data and the Richmond Fed manufacturing index will be released. The technical picture suggests that if gold drops below $1,700/oz, the next support level stands at $1,693/oz.> Base metals under pressure this morning after further escalation in US-China tensions. Yesterday, base metals (except for zinc) rose in price during trading in London amid heightened appetite for risk assets. However, caution has prevailed so far in today's trading following President Trump's promise of US action on China and mildly negative data yesterday on the global copper balance in 2m20 from the ICSG. Meanwhile, China has reported an only 4.3% y-o-y drop in industrial profits in April after the 34.9% plunge in March. Three-month forwards are down across the board, including those on copper concentrate (by 1.0% at $5,300/tonne), nickel (by 1.1% at $12,180/tonne) and zinc (by 2.3% at $1,934/tonne).GOLD RETREATS 1.2% YESTERDAY AND NOW STANDS AT $1,710/OZGold was consolidating around the $1,730/oz mark yesterday morning, but at 17:00 Moscow time, strong data emerged from the US. New home sales reached 623k in April (above the consensus forecast of 480k), while the consumer confidence index for May came in at 86.6 (close to the consensus of 87). In response, gold rapidly dropped from an intraday high of $1,735/oz to $1,709/oz.Fed officials also provided upbeat comments yesterday. St Louis Fed President James Bullard told Fox Business that the US economy had moved past the initial shock from the coronavirus, so the bulk of the impact should be reflected in the 2Q20 data, while the labor market recovery was likely to be quick and unemployment could drop below 10% by December.Today in the US, the Fed's Beige Book, weekly mortgage application data and the Richmond Fed manufacturing index will be released. The market is keeping a close eye on developing tensions between the US and China and possible sanctions that could be announced by the weekend. The technical picture suggests that if gold drops below $1,700/oz, the next support level stands at $1,693/ SE METALS UNDER PRESSURE THIS MORNING AFTER FURTHER ESCALATION IN US-CHINA TENSIONSThe conflict between the US and China continues to escalate, and we note that tomorrow is the last day of China's National People's Congress. Just yesterday, US President Donald Trump promised some very "interesting" action on China by the end of this week. The White House is reportedly considering sanctions not only on Chinese officials, but on businesses and financial institutions as well. The measures could even include a freeze on their assets in the US. In the wake of these developments, base metals have been under pressure this morning. Three-month forwards are down across the board, including those on copper concentrate (by 1.0% at $5,300/tonne), nickel (by 1.1% at $12,180/tonne) and zinc (by 2.3% at $1,934/tonne).The latest data has had only a modest effect on prices, including a report from China showing an only 4.3% drop in industrial profits in April versus the 34.9% plunge in March. Yesterday, the International Copper Study Group posted an update on the global copper balance in 2m20, which we note was not necessarily representative, as demand plummeted in Asia in January-February, while the coronavirus had not yet spread to key copper producers such as Peru and Chile. The ICSG estimated a 131 kt market surplus in the first two months of the year, which was attributable largely to significant drops in demand in China (4%) and Japan (2%), while production in Chile was up 4%. It is possible that the market was more balanced in March and April as a result of the spread of the pandemic and lockdown measures in copper-producing countries, which may have wiped out some of the 2m20 surplus.