Commodities Daily - May 31, 2019

> Oil tumbles on new US-Mexico trade dispute, slump in Chinese PMI and lack of strong seasonal US oil inventory draw. Markets have come under severe pressure this morning following a surprising new trade threat from the US, a drop in China's May PMI and reports that Beijing will retaliate against the US. US Treasury yields have dropped to a 20-month low, while German bunds are at an all-time low as investors are seeking safety. We expect Brent to fall further today given the significant global market risk-off sentiment, which is likely to dominate the European and US sessions. We see support at $63.99/bbl, which is the 38.2% Fibonacci retracement level from Brent's October correction.> Gold breaks above resistance at $1,290/oz after Trump announces new tariffs for Mexico. Trump's tweet last night has left investors wondering if further protectionist measures should be expected from the US, including measures directed at the EU. A large batch of macro data is due from the US today, including the core PCE deflator, the Chicago PMI and the University of Michigan consumer sentiment survey. If the data keeps alive expectations of a softening in Fed policy, gold could continue to trade close to $1,300/oz.> Base metals remain under pressure. Prices remain under pressure following the release of weaker than expected Chinese manufacturing PMI data. Copper is still trading close to the $5,850/tonne mark despite the growing risk of a strike at a Codelco mine in Chile. Nickel continues to test support at $12,000/tonne, while zinc is quoted near $2,500/tonne. If the trade dispute between the US and China further escalates today, we would expect base metal prices to remain under pressure throughout the day.