Commodities Daily - November 6, 2020

> US election uncertainty weighs on oil ahead of October jobs report. Today, the oil market will continue to track the results from the US presidential election. The votes are still being counted, with Joe Biden appearing to be on the brink of claiming victory and Democrats still unlikely to win control of the Senate. We note, however, that potential recounts and legal challenges could lead to a more prolonged period of political uncertainty. Today's macro agenda includes US October nonfarm payrolls and the weekly Baker Hughes rig count data, both of which we think are more likely to be on the bearish side. Brent is hovering just below $40/bbl as we write. If the election outcome remains uncertain and the US jobs and rig count data is indeed bearish, we think Brent could drop into the $38.6-39.5/bbl range.> Gold rally fades as outcome to US elections remains unclear. We expect gold to be dictated by today's US labor market report, with a recent steady decline in jobless claims and the downbeat ADP report released earlier suggesting it could tilt either way. If Biden is declared the winner, we would expect gold to push up past $1,951/oz and head toward $1,977/oz or $1,997/oz, otherwise it is likely to stick near $1,950/oz.US ELECTION UNCERTAINTY WEIGHS ON OIL AHEAD OF OCTOBER JOBS REPORTAfter trading around $40.5/bbl at the start of the day yesterday, front-month Brent began to edge upward to $41.5/bbl amid a weakening dollar and upbeat trading in global stock markets as investors became increasingly convinced that Republicans would hold on to control of the US Senate and be able to block any changes under a possible Biden administration that would crimp corporate profits, including a potential hike in the corporate income tax rate from 21% to 28%. And while investors still widely expect a second round of fiscal stimulus in the US, the size of the package that is likely to pass in a divided Congress is probably much smaller than what a Democrat-controlled Congress would be able to push through, which could put pressure on the Fed to pump even more liquidity into the financial system. On a more negative note for oil prices, yesterday Saudi Arabia cut prices for its December oil shipments to customers in Asia (even though the region remains a rare bright spot in the global oil demand outlook) and the US, as the resurgence of the coronavirus continues to cloud the outlook for energy markets. However, it raised prices for northwest Europe and the Mediterranean region. Saudi Arabia's monthly pricing update usually sets the tone for other Middle East suppliers, including Iraq and the UAE, the second- and third-largest producers in OPEC. The lockdown measures in Europe have forced major producers to be more competitive, as they have caused a drop in traffic and motor fuel consumption that only continues to deepen. Yesterday, Greece became the latest European country to declare a national lockdown. Saudi Arabia's announcement, as well as President Donald Trump's claims late yesterday that he would win the election if only "legal" votes were counted, pushed Brent back below $41/bbl. It eventually settled at $40.93/bbl, fixing $0.3/bbl below the previous settlement.Today, the oil market will continue to track the results from the US presidential election. The votes are still being counted, with Joe Biden appearing to be on the brink of claiming victory and Democrats still unlikely to win control of the Senate. We note, however, that potential recounts and legal challenges could lead to a more prolonged period of political uncertainty, which would be negative for risk assets and positive for the safe-haven dollar. Today's macro agenda includes US October nonfarm payrolls and the weekly Baker Hughes rig count data, both of which we think are more likely to be on the bearish side. Regarding the former, Wednesday's ADP October employment report showed private payroll growth slowing sharply and missing expectations by a wide margin, which suggests that the US economy and the service sector in particular have struggled amid the resurgence of the pandemic. However, it is also worth noting that jobless claims data indicated that there was a modest improvement in the labor market from September to October. Brent is hovering just below $40/bbl as we write. If the election outcome remains uncertain and the US jobs and rig count data is bearish, we think Brent could drop to the $38.6-39.5/bbl range.GOLD RALLY FADES AS OUTCOME TO US ELECTIONS REMAINS UNCLEARGold was hovering below the $1,910/oz mark yesterday morning but climbed to $1,950/oz, above its 50d and 100d MAs amid dollar weakening and finally braking out of the narrow range in which it was trading for most of October. Yesterday's move implies that the US elections are being viewed as dollar bearish and broadly favorable for risk. Investors widely expect a fiscal stimulus package, but the size of a deal, given a divided Congress, is likely to be much smaller than it would have been with a Democratic-controlled Congress, which is likely to limit the upside for gold into the year-end. The worsening coronavirus situation and reduced chances of a larger US fiscal stimulus package are putting pressure on the Fed to pump even more funds into the financial system, which would be gold price supportive. Yesterday, Fed Chair Jerome Powell opened the door to a possible shift in the bank's bond purchases in the coming months, saying that more fiscal and monetary support are needed. The Fed is not alone in undermining the value of its currency, as the RBA and BOE have already increased QE, and the ECB is likely to follow suit next month - a negative move for fiat currencies but a positive one for gold, which has limited supply.Yesterday's gold price rally took a break this morning, as gold slipped back toward $1,940/oz with the US and France registering record infections, and Greece and Denmark tightening restrictions. The US presidential election is still not finalized. Biden has increased his lead in Nevada and Arizona and narrowed the gap in Pennsylvania and Georgia. However, Trump is challenging the results. We expect gold to be dictated by today's US labor market report, with a recent steady decline in jobless claims and the downbeat ADP report released earlier suggesting it could tilt either way. If Biden is declared the winner, we would expect gold to push up past $1,951/oz and head toward $1,977/oz or $1,997/oz, otherwise it is likely to stick near $1,950/oz.