Commodities Daily - October 5, 2020

> Oil paring last week's losses on upbeat reports on Trump's health. Apart from reports about the US president's health, oil investors today will be keeping an eye out for eurozone August retail sales data, US September services and composite PMIs from IHS Markit, and the ISM US nonmanufacturing index. We see the ISM gauge as the key data point today and think it is likely to edge down further following its initial post-lockdown surge. However, we think it will still come in above consensus, as the period covered by the index most likely saw improvement in recreation, restaurants, education, and healthcare. We believe a better than expected reading would provide additional tailwinds for risk assets today, allowing Brent, which broke above technical resistance at $39.9/bbl this morning, to continue its uptrend and move into the $40.2-40.8/bbl technical range.> Gold stabilizes after surging on reports of Trump's health. From a technical perspective, after breaking below the $1,896/oz support level, gold is poised to fall toward the $1,877/oz level. In our view, however, a reversal toward resistance at $1,910/oz is more likely in the second half of the day today amid what we expect to be an upbeat US September ISM nonmanufacturing PMI (above the consensus of 56.2), which would boost inflation expectations and gold prices. A break above $1,910/oz would open the way for gains to $1,925/oz.OIL PARING LAST WEEK'S LOSSES ON UPBEAT REPORTS ON TRUMP'S HEALTHAfter hovering above $40.5/bbl early Friday, front-month Brent began to slide, hitting the $39/bbl mark in the early US trading hours. It eventually settled at $39.27/bbl fixing $1.66/bbl below the previous settlement. Friday's highlight data-wise was the September US jobs report, which showed just a 661k rise in nonfarm payrolls, which was much weaker than the upwardly revised 1.5 mln gain in August and implied that the economic rebound is entering a new, weaker phase. Another downbeat release on Friday was the Baker Hughes rig count data, which showed a six-unit increase in the active US oil rig count, to 189. Both of these releases came in the wake of the day's big headline that US President Donald Trump had tested positive for Covid-19. The latest reports from doctors suggest that the president is improving, although they are monitoring his lungs after giving him supplemental oxygen. They also said he could be discharged as soon as today, which is supporting risk assets as we write.Oil investors are also monitoring developments in Norway, where oil workers have expanded an ongoing strike, which may force the shutdown of oil and gas production at up to six offshore fields. Reuters reports that the strike could reduce Norway's petroleum production capacity by as much as 0.33 mboepd, or 8% of the country's total oil and gas output. The conflict began on September 30 when a group of 43 workers organized by the Lederne labor union went on strike, though it did not initially impact oil and gas output. In our view, only a sustained production outage, which is unlikely, would support North Sea crude oil grades, given the sizable overhang in the Atlantic basin, where millions of barrels of crude oil are still being kept in offshore storage. Apart from reports about the US president's health, oil investors today will be keeping an eye out for eurozone August retail sales data, US September services and composite PMIs from IHS Markit, and the ISM US nonmanufacturing index. We see the ISM gauge as the key data point today and think it is likely to edge down further following its initial post-lockdown surge. However, we think it will still come in above consensus, as the period covered by the index most likely saw improvement in recreation, restaurants, education, and healthcare. US businesses have continued to adapt to the new operating environment, though any fresh restrictions on activity this fall would disproportionately impact the services sector. Moreover, in-person services are likely to remain under pressure without a vaccine. We believe a better than expected reading would provide additional tailwinds for risk assets today, allowing Brent, which broke above technical resistance at $39.9/bbl this morning, to continue its uptrend and move into the $40.2-40.8/bbl technical range. Meanwhile, technical support lies at $39.3/bbl. A break below this level would likely cause a drop to $38.3-38.8/bbl. This week will see the EIA's monthly oil market report on Tuesday and OPEC's annual World Oil Outlook on Thursday. China is on holiday from Monday through Thursday.GOLD STABILIZES AFTER SURGING ON REPORTS OF TRUMP'S HEALTHAfter surging $26/oz to $1,915/oz early on Friday following the news that US President Donald Trump had tested positive for Covid-19, gold prices began to ease and slid back toward $1,900/oz. A downbeat US September jobs report, worsening global Covid-19 numbers and the lack of a US fiscal stimulus deal, which combined to strengthen the dollar, put pressure on gold. This morning, investors are digesting remarks over the weekend from Trump and House Speaker Nancy Pelosi that emphasized that a compromise on more fiscal stimulus must be found soon; however, this has proven insufficient to offset the gold-price-negative news that Trump's condition has improved. Against this backdrop, gold is struggling to hold above $1,890/oz as we write, near the level where it was trading just before the initial news about Trump's diagnosis.Today, investors are eyeing services and composite PMIs from the eurozone and US, while rising Covid-19 infections globally are likely to generate headlines throughout the week. Trump's health also remains under close scrutiny - over the weekend, reports emerged that he had received treatments usually reserved for severe cases. Meanwhile, EU-UK negotiations over Brexit are due to continue throughout the week; IMF Managing Director Kristalina Georgieva will discuss what is being planned for the joint IMF and World Bank meetings the following week; Fed Chairman Jay Powell, ECB President Christine Lagarde and ECB Chief Economist Philip Lane are also scheduled to speak at conferences - in fact, the week is full of speakers from leading central bankers and development organizations. Wednesday will see the US vice presidential debate, while key chapters of the newest IMF World Economic Outlook will be released over Wednesday and Thursday. From a technical perspective, after breaking below the $1,896/oz support level, gold is poised to fall toward the $1,877/oz level. In our view, however, a reversal toward resistance at $1,910/oz is a more likely scenario in the second half of the day today amid what we expect to be an upbeat US September ISM nonmanufacturing PMI (above the consensus of 56.2), which would boost inflation expectations and gold prices. A break above $1,910/oz would open the way for gains to $1,925/oz.