Commodities Daily - October 23, 2020

> Oil prices stabilize ahead of preliminary DM October PMIs. Today, investors will eye preliminary October manufacturing, services and composite PMIs from IHS Markit for the eurozone and the US. The PMI data should provide insight on how both economies are performing amid the difficult coronavirus situation in Europe and the lack of further fiscal stimulus in the US. In our view, the eurozone data is likely to come out downbeat, while the US PMIs due later in the day could potentially trigger an improvement in risk sentiment. The Baker Hughes weekly rig count data will be in focus later on. We think it could show another slight weekly rise in the US active oil rig count, which would provide mild headwinds for prices this evening. We expect Brent to be under pressure today and think it will likely test support at $42.2.bbl, with a break below possibly causing a fall to $41.6/bbl.> Gold slides back to $1,900/oz amid positive dollar momentum. Investors are digesting the first batch of preliminary European PMIs for October as we write. Overall, they are expected to disappoint and weigh on EUR/USD and gold, pointing to an economic slowdown amid the second wave of Covid-19 and new restrictions. Later, investors will get to see preliminary US PMIs for October, which are expected to be healthy in light of the considerable decline in US weekly jobless claims reported yesterday. We see a high chance that gold will test $1,887/oz technical support today.OIL PRICES STABILIZE AHEAD OF PRELIMINARY DM OCTOBER PMISAfter sliding $1.5/bbl on Wednesday and then trading near the $41.5/bbl mark at early yesterday, front-month Brent began to generate positive momentum yesterday, first rising to $42/bbl and then peaking at $42.79/bbl during the US trading session. It eventually settled at $42.46/bbl, fixing $0.73/bbl above the previous settlement. The positive momentum stemmed from a rise in global risk appetite, which also drove major stock indexes higher. The optimism owed in part to US House Speaker Nancy Pelosi's comment that Republicans and Democrats are "nearly there" on the coronavirus relief package, which indirectly boosted investors' expectations for a recovery in oil demand. Support also came from signs of improvement in the US labor market, as initial jobless claims fell to 787,000 last week, the lowest since March, while continuing claims dropped from 9.39 mln to 8.37 mln.Another factor providing a tailwind for oil prices yesterday was commentary from Russian President Vladimir Putin, who said, "We do not rule out that we could keep existing restrictions on (oil) production, and not remove them as quickly as we had planned to do earlier." These comments came after discussions with both Saudi Arabia and the US on the matter, which highlights that there is still a constructive dialog among the world's largest oil producers and that they are willing to confront market challenges. This is a positive sign ahead of the big OPEC+ meeting on November 30-December 1. One of the major challenges for the market, apart from the slower than previously expected oil demand recovery, is the ongoing rise in Libyan oil production, which is now close to 0.5 mln bpd after hovering around 0.1 mln bpd for most of the year. The government in Tripoli expects output to continue climbing toward 1 mln bpd by the end of this year. In our view, Libya's production is likely to average around 0.6 mln bpd in 4Q20 and 0.9 mln bpd in 2021. We see the recovery as still fragile and believe it could even reverse if a revenue-sharing agreement between the East and West and a ceasefire are not in place by the year-end. Meanwhile, investors are now increasingly questioning whether the market will be able to absorb the planned production increase of nearly 2 mln bpd from OPEC+ in January, which could result in a global inventory buildup amid rising Libyan supply and a tepid oil demand recovery.Today, investors will eye preliminary October manufacturing, services and composite PMIs from IHS Markit for the eurozone and the US. The PMI data should provide insight on how both economies are performing amid the difficult coronavirus situation in Europe and the lack of further fiscal stimulus in the US. In our view, the eurozone data is likely to come out downbeat, while the US PMIs due later in the day could potentially trigger an improvement in risk sentiment. The Baker Hughes weekly rig count data will be in focus later on. We think it could show another slight weekly rise in the US active oil rig count, which would provide mild headwinds for prices this evening. We expect Brent to be under pressure today and think it will likely test support at $42.2.bbl, with a break below possibly causing a fall to $41.6/bbl.GOLD SLIDES BACK TO $1,900/OZ AMID POSITIVE DOLLAR MOMENTUMGold was trading near $1,925/oz yesterday morning but fell to as low as $1,895/oz in early US trading as the dollar began to stage a comeback after weakening earlier this week. EUR/USD initially surged from 1.17 to 1.188 this week, pushing gold to as high as $1,930/oz on Wednesday, but it is now closing on the 1.180 mark, providing headwinds. The dollar snapped a four-day losing streak after US President Donald Trump expressed skepticism over the chances of a stimulus deal, with the correction in the euro compounded by profit-taking following its strong rally earlier this week. House Speaker Nancy Pelosi continues to signal optimism over a deal, but staunch opposition in the Republican-controlled Senate makes a pact before the election less likely as we near November 3. Much better than expected US jobless claims data released yesterday was negative for gold as it takes away some of the urgency to seal a stimulus deal as soon as possible. In the final US presidential debate, the candidates traded accusations of taking money from foreign interests.As we write, investors are digesting the first batch of preliminary European PMIs for October. Overall, they are expected to disappoint and weigh on EUR/USD and gold, pointing to an economic slowdown amid the second wave of Covid-19 and new restrictions. However, there have been some bright spots, with Germany's manufacturing PMI coming out much better than expected. Later, investors will get to see preliminary US PMIs for October, which are expected to be healthy in light of the considerable decline in US weekly jobless claims reported yesterday. We see a high chance that gold will test $1,887/oz technical support today. We think a break above $1,912/oz could pave the way to $1,931/oz.