Commodities Daily - October 29, 2020

> Oil tumbles amid sharp global risk-off turn and reported build in US crude stocks. Today, investors have lots of macro data to digest, including eurozone October consumer confidence and the business climate indicator, the first print of 3Q20 US GDP, US weekly jobless claims and an ECB rate decision (the asset-purchase program is expected to be expanded against the backdrop of rising Covid-19 cases). We think that after yesterday's selloff, Brent should manage to pare some of the losses, as sub-$40/bbl levels proved attractive for buying a month ago. We expect a test of resistance at $39.7/bbl, with a break above it leading to gains to $40.1/bbl, supported also by the short-term supply losses in the US Gulf of Mexico due to Hurricane Delta (two thirds of Gulf oil production is already shut).> Gold paring back losses today after yesterday's flight to the dollar. Gold plummeted yesterday but has ticked up to $1,885/oz this morning amid a lack of material news, indicating that bargain hunters are buying the dip. US GDP and jobless claims are due today, with GDP growth expected to be the strongest on record following the Covid-induced collapse earlier in the year. As we write, gold is struggling to push above $1,887/oz, which has now become a resistance level, though we think it is more likely to head toward $1,900/oz than resume falling toward support at $1,872/oz and $1,847/oz.OIL TUMBLES AMID SHARP GLOBAL RISK-OFF TURN AND REPORTED BUILD IN US CRUDE STOCKSYesterday, front-month Brent was trading near $40.5/bbl in early trading before a slide toward the $39/bbl mark commenced amid a sharp global risk-off turn. Stock markets tumbled and the safe-haven dollar advanced sharply, as Germany and France began to reinstate restrictions similar to the nationwide lockdowns in the spring, as coronavirus deaths across Europe have jumped almost 40% in a week. Meanwhile, yesterday the weekly EIA inventory report showed a 4.32 mln bbl build in US crude oil stocks to 492.4 mln bbl last week, the first increase in seven weeks. It came amid a 0.55 mln bpd increase in imports to 5.66 mln bpd and most importantly a 1.2 mln bpd production increase to 11.1 mln bpd - production had recovered in the Gulf of Mexico following disruptions caused by Hurricane Delta. (That said, next week's inventory data is expected to show another strong weekly production decrease given shutdowns related to Hurricane Zeta.) A 0.42 mln bpd increase in exports to 3.46 mln bpd and a 0.36 mln bpd increase in refinery inputs to 13.38 mln bpd were insufficient to offset the overall crude oil inventory build. In addition, yesterday the US energy secretary said he does not expect US oil production to return soon to the pre-pandemic levels of almost 13 mln bpd, citing a lack of demand. The EIA's refined product data was upbeat, contradicting the builds reported by the API, with gasoline stocks falling 0.89 mln bbl to 226.1 mln bbl and distillate stocks easing 4.49 mln bbl to 156.2 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) fell 3.88 mln bbl. In addition, the EIA's indicator for total refined product demand is now at its highest since March, with the pickup driven more by diesel than anything else, as trucking related to online commerce continues to boom. Seasonal demand from tractors and heating oil has also been important. Gasoline demand, meanwhile, has plateaued since the end of summer. Overall, following the EIA report yesterday, Brent began to consolidate around the $39/bbl mark and eventually settled at $39.12/bbl, fixing $2.08/bbl below the previous settlement.Today, investors have lots of macro data to digest, including eurozone October consumer confidence and the business climate indicator, the first print of 3Q20 US GDP, US weekly jobless claims and an ECB rate decision (the asset-purchase program is expected to be expanded against the backdrop of rising Covid-19 cases). We think that after yesterday's selloff Brent should manage to pare some of the losses, as sub-$40/bbl levels proved attractive for buying a month ago. We expect a test of resistance at $39.7/bbl, with a break above it leading to gains to $40.1/bbl, supported also by the short-term supply losses in the US Gulf of Mexico due to Hurricane Delta (two thirds of Gulf oil production is already shut).GOLD PARING BACK LOSSES TODAY AFTER YESTERDAY'S FLIGHT TO THE DOLLARGold peaked at $1,910/oz yesterday morning but later tumbled along with major global stock market indexes, moving below technical support at $1,887/oz and heading toward the $1,870/oz mark. The dollar generated considerable positive momentum, with EUR/USD sliding to 1.172 after having traded near 1.186 at the start of this week. Markets sold off at a quicker pace yesterday as Covid-19 numbers grew grimmer and government responses grew more severe. France and Germany announced national lockdowns. Concern over the prospects for more US stimulus measures (which are feeding the economic outlook, along with coronavirus developments) and the US election arguably also contributed to the retreat. News that Pfizer has not yet determined the efficiency of its late-phase Covid-19 vaccine added to the cautious mood.This morning, gold has ticked up to $1,885/oz amid a lack of material news, indicating that bargain hunters are buying the dip (yesterday we asserted that this would be likely if gold fell below $1,900/oz), as the increasing likelihood of a Biden victory means that another round of vast fiscal stimulus is only a matter of time, which is generating a very bullish fundamental backdrop for gold. Today the focus in Europe will be on the ECB rate decision. Markets are watching for signs of a deteriorating economic outlook and willingness to increase asset purchases. US GDP and jobless claims are due today, with GDP growth expected to be the strongest on record following the Covid-induced collapse earlier in the year. Other significant macro releases include eurozone confidence and German CPI. Japanese industrial production, housing starts and employment statistics will be announced overnight, with French and German GDP to come early tomorrow. As we write, gold is struggling to push above $1,887/oz, which has now become a resistance level, though we think it is more likely to head toward $1,900/oz than resume falling toward support at $1,872/oz and $1,847/oz.