Commodities Daily - October 6, 2020

> Oil prices rose yesterday; attention today turning to EIA monthly report, API inventory data. This afternoon, investors will eye the EIA monthly oil market report. Overnight, they will take in API's weekly assessment of US oil and refined product inventories. We think that, after failing to break resistance at $41.7/bbl, Brent is very likely to retreat into a $40.2-40.8/bbl technical range due to what will probably be a rather downbeat EIA report. Meanwhile, the API report is likely to show inventory draws across all categories (at least judging by the latest consensus estimates), which could spur a rebound. A break above resistance at $41.7/bbl would likely lead to a move into the $42.0-42.6/bbl technical range.> Gold prices rise on weaker dollar, speeches by heads of Fed and ECB eyed. Today, investors will eye remarks from IMF Managing Director Kristalina Georgieva who will illuminate the plans for the joint IMF and World Bank meetings due next week, while Fed Chairman Jerome Powell, ECB President Christine Lagarde, ECB Chief Economist Philip Lane and three regional Fed presidents are also scheduled to make remarks at conferences. In our view, gold has not yet completed its full rebound from the $1,850/oz level seen last week. Having cleared resistance at $1,910/oz, it is now poised to edge up toward the $1,925/oz mark, where it may run out of steam for now.OIL PRICES ROSE YESTERDAY; ATTENTION TODAY TURNING TO EIA MONTHLY REPORT, API INVENTORY DATAAfter trading near $39.5/bbl at the start of the day yesterday, front-month Brent began to rise, hitting $41.5/bbl in the early US trading hours and remaining near this level for the rest of the day. It eventually settled at $41.29/bbl, fixing $2.02/bbl above the previous settlement. The main bullish factors at play yesterday were optimism over further US fiscal stimulus and US President Donald Trump's check-out from the hospital following treatment for the coronavirus. After Trump's call on negotiators to "work together" and close a deal on fresh fiscal stimulus for the US economy, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin engaged in another round of talks on a pandemic relief package yesterday. However, after an hour-long conversation, no signs emerged that they are close to a deal. The sides will continue trying to craft a relief bill today. Meanwhile, after three days of treatment for Covid-19 at a military hospital, Trump returned to the White House. Officials plan to significantly restrict physical access to him as he continues his recovery. Also supporting risk assets yesterday was a marginal rise in the ISM services index (previously the nonmanufacturing index) from 56.9 to 57.8 in September, which is another encouraging sign that the US economy is continuing to recover gradually. In contrast, the PMIs released earlier yesterday from the eurozone mostly posted declines. Oil investors have also been keeping an eye on Tropical Storm Delta, which has reached hurricane strength and continues to drift toward the Gulf of Mexico.This afternoon, investors will eye the EIA monthly oil market report. Overnight, they will take in API's weekly assessment of US oil and refined product inventories. Last month's EIA report was rather downbeat, suggesting that US crude oil production is set to fall less sharply y-o-y this year. The EIA also lowered its 2020 and 2021 global demand forecasts. We think the risks are skewed to the downside this time as well and see an upbeat revision to this or next year's oil market outlook as very unlikely given the fundamental backdrop. We think that, after failing to break resistance at $41.7/bbl, Brent is very likely to retreat into a $40.2-40.8/bbl technical range due to what will probably be a rather downbeat EIA report. Meanwhile, the API report is likely to show inventory draws across all categories (at least judging by the latest consensus estimates), which could spur a rebound. A break above resistance at $41.7/bbl would likely lead to a move into the $42.0-42.6/bbl technical range.GOLD PRICES RISE ON WEAKER DOLLAR, SPEECHES BY HEADS OF FED AND ECB EYEDAfter sliding around $15/oz at the start of the day yesterday to $1,887/oz, gold prices began to pare back losses as the dollar began to weaken amid the risk rally. EUR/USD is now knocking on the door of 1.18 after hovering just above 1.16 in late September. As we have noted on many occasions, in the current environment of ultra-low rates, the dollar has become the safe haven of choice for investors. However, this has meant that gold has at times benefited when risk assets have rallied. During times of risk-on, investors are also seek to add exposure to gold to hedge against potentially high inflation. Yesterday, the US session, and to some extent European one, were buoyed by news that the US president had been released from the hospital, which signaled to market participants that the risks of US political instability from his illness were less significant than some feared. News of further stimulus negotiations between top US officials also helped. As we noted in the oil section above, also supporting sentiment yesterday was a marginal rise in the ISM services index to 57.8 in September, from 56.9 the previous month. This is another encouraging sign that the US economy is continuing to recover gradually, which in turn boosts inflation expectations.Today, investors will eye remarks from IMF Managing Director Kristalina Georgieva who will illuminate the plans for the joint IMF and World Bank meetings due next week, while Fed Chairman Jerome Powell (due to speak about the US economic outlook), ECB President Christine Lagarde, ECB Chief Economist Philip Lane and three regional Fed presidents are also scheduled to make remarks at conferences. The main data release today is the August US trade balance, which is likely to have widened, suggesting net trade will be a drag on 3Q20 GDP growth. In our view, gold has not yet completed its full rebound from the $1,850/oz level seen last week. Having cleared resistance at $1,910/oz, it is now poised to edge up toward the $1,925/oz mark, where it may run out of steam for now.