Commodities Daily - October 30, 2020

> Oil slumps as European lockdowns threaten demand. Today, investors will eye the EIA's 914 report, which will reveal the actual level of US oil production in August. Also prominent on today's agenda are eurozone 3Q20 GDP and September US personal income and spending data. This morning, Brent failed to extend its recovery from yesterday's low of $36.64/bbl beyond technical resistance at $38.1/bbl. We expect it to continue to hover below this level for the rest of the day amid a bearish backdrop that makes a climb into the $38.4-38.8/bbl technical range unlikely. However, even if the selloff resumes, we think a decline below support at $36.1/bbl is unlikely given the lack of potential catalysts.> Gold attempts to pare back losses after dollar-driven retreat. Rising Covid-19 numbers and uncertainty ahead of next Tuesday's US election are likely to dominate the global market backdrop unless a new, unexpected catalyst emerges. Later today, investors will eye US personal incomes and spending for September and Michigan confidence. We expect gold to claw back yesterday's losses and climb toward technical resistance at $1,887/oz amid eurozone 3Q20 GDP data, which we expect to be upbeat.OIL SLUMPS AS EUROPEAN LOCKDOWNS THREATEN DEMANDAfter hovering above $39/bbl at the start of the day yesterday, front-month Brent resumed its decline from Wednesday, when it shed around $1.7/bbl and began to target the $37/bbl mark. During the US trading session, it began to consolidate in a $37-38/bbl range and then eventually settled at $37.65/bbl, fixing $1.47/bbl below the previous settlement. The January 2021 contract, which will become the front-month gauge on Monday, settled at $38.26/bbl. The main factor at play in the oil market yesterday continued to be the worsening coronavirus situation. Case numbers rose in 47 US states, overwhelming hospitals in some parts of the country. Meanwhile, Germany and France, the EU's two biggest economies, are clamping down on movement for at least a month to try to curb Covid-19's spread. This is sure to stunt the demand recovery in Europe, although personal mobility had already been subdued and the new lockdowns are not as strict as those in place during the spring, so the impact on demand is not likely to be as pronounced as in March. There were already signs that road use in Europe was slumping and thus weighing on motor fuel consumption. According to data from toll road operator Atlantia, the drop in highway usage in Europe accelerated again last week, with traffic down around 20% y-o-y after dropping 10% the week prior. Energy Aspects expects the lockdowns to remove an incremental 0.20 mln bpd of road fuel demand over November (-0.35 mln bpd y-o-y), with gasoline likely to be the fuel most affected, as it is used almost exclusively for personal transportation. Diesel demand, meanwhile, will be cushioned by strong demand from the trucking sector. The lockdown-related slowdown in demand comes as oil consumption is set to dip during the holiday season. Refineries are likely to reconsider restarts following seasonal maintenance to avoid exacerbating the inventory overhang in local product markets. The drop in oil prices early yesterday was amplified by falling stock markets and a strengthening dollar as investors continued to flee to safety. During the second half of the day, an upbeat set of US data, including weekly jobless claims and 3Q20 GDP, provided support to risk assets, halting the oil price slump and also helping trigger some stock buying on Wall Street. Today, investors will eye the EIA's 914 report, which will reveal the actual level of US oil production in August. Also prominent on today's agenda are eurozone 3Q20 GDP and September US personal income and spending data. This morning, Brent failed to extend its recovery from yesterday's low of $36.64/bbl beyond technical resistance at $38.1/bbl. We expect it to continue to hover below this level for the rest of the day amid a bearish backdrop that makes a climb into the $38.4-38.8/bbl technical range unlikely. However, even if the selloff resumes, we think a decline below support at $36.1/bbl is unlikely given the lack of potential catalysts.GOLD ATTEMPTS TO PARE BACK LOSSES AFTER DOLLAR-DRIVEN RETREATGold slid toward $1,860/oz yesterday after trading around the $1,880/oz mark on Wednesday afternoon and yesterday morning amid yet another strong positive dollar push, with EUR/USD retreating to 1.165 from 1.175 at the start at the day. The ECB offered no major surprises, saying it will increase support for the economy amid the pandemic before the year-end (probably via the expansion of its asset-purchase program), which weighed on the euro even though the policy was left unchanged. US President Donald Trump's chief economic adviser, Larry Kudlow, yesterday said any deal on US coronavirus relief would have to wait for now, which creates short-term concern over the timing of the gold-price-positive stimulus. Gold consolidated around the $1,870/oz mark during the US trading session amid support from a jump in US GDP in 3Q20 and positive US weekly jobless claims data, with both lifting inflation expectations.Rising Covid-19 numbers and uncertainty ahead of next Tuesday's US election are likely to dominate the global market backdrop unless a new, unexpected catalyst emerges. As we write, 3Q20 GDP releases for eurozone countries are coming out upbeat, which is supportive for EUR/USD and gold, which is climbing toward $1,880/oz. Later today, investors will eye US personal incomes and spending for September and Michigan confidence. We expect personal incomes to remain flat in September, as reduced unemployment aid offset another increase in wages. This implies that personal incomes have settled back to pre-crisis trends after being pushed well above trend by the fiscal aid. We expect gold to claw back yesterday's losses today and climb toward technical resistance at $1,887/oz amid the eurozone 3Q20 GDP data, which we expect to be upbeat.