Commodities Daily - September 23, 2020

> Oil prices stabilize ahead of PMIs, EIA inventory data. Today, in the run-up to the EIA inventory report, investors will be digesting PMI data from the US and eurozone. Given the deteriorating coronavirus situation in Europe, we expect the PMIs from the US to be stronger than those from the eurozone. Such an outcome would likely support the dollar and thus provide headwinds for oil. In light of last night's API inventory data, we expect the EIA to show very little change to US crude oil inventories and possibly even a very small draw. This would be less upbeat for oil prices than the consensus is calling for. The main focus will likely be on what is expected to be upbeat refined product data, although we do not expect the draws to be as strong as the API print. Overall, we think the risks for oil prices are still skewed to the downside and expect Brent to break support at $41.1/bbl, which will open a path toward the $39.4-40.4/bbl technical range. > Gold prices continue to tumble amid strong dollar. This morning, gold slipped to $1,875/oz as the dollar continued to strengthen. Today, for the second day in a row, investors will be keeping an eye out for Fed Chairman Jerome Powell's testimony in Congress, this time before the House Select Subcommittee on the Coronavirus Crisis. In his remarks, Powell will discuss the central bank's response to the virus. Later in the day, we expect upbeat US PMIs to provide further tailwinds for the dollar, thus pressuring gold prices. After gold's break below support at $1,886/oz this morning, the next technical support level of $1,855/oz is now in sight, though the August low of $1,863/oz stands in the way.OIL PRICES STABILIZE AHEAD OF PMIS, EIA INVENTORY DATAAfter sliding by more than $2/bbl on Monday to $41/bbl, yesterday front-month Brent began to consolidate within the $41-42/bbl range. Concerns over the deteriorating coronavirus situation, especially in Europe, remain the key source of pressure on oil prices. British Prime Minister Boris Johnson announced new restrictions that are likely to last six months and urged residents to work from home where possible. France's infections jumped after a weekend lull and Swedish authorities are weighing whether to tighten restrictions in Stockholm following an uptick. A 0.7% increase in US coronavirus cases compared with the same time Monday to 6.88 mln is also a source of concern. Furthermore, Fed Chairman Jerome Powell highlighted that the recovery in the US economy remains highly uncertain and will need further support. Brent eventually settled at $41/72/bbl, fixing $0.28/bbl above the previous settlement.Overnight, the API reported that US crude stocks were up 0.69 mln bbl to 495.3 mln bbl last week (versus the EIA's latest 496 mln bbl estimate). The buildup came amid a 0.09 mln bpd increase in imports and a 0.2 mln bpd decrease in refinery runs. Crude stocks at Cushing rose 0.3 mln bbl. The refined product data, on the other hand, was very bullish, showing a strong 7.7 mln bbl draw in gasoline stocks and a 2.1 mln bbl decrease in distillate inventories. The EIA inventory data is due today at 17:30 Moscow time. The Bloomberg consensus is for a 3.27 mln bbl crude stock draw, a 0.92 mln bbl decrease in gasoline inventories and a 1 mln bbl increase in distillate stocks.Today, in the run-up to the EIA inventory report, investors will be digesting PMIs from the US and eurozone, as well as day two of Powell's congressional testimony on the economic impacts of Covid-19. Given the deteriorating coronavirus situation in Europe, we expect the PMIs from the US to be stronger than those from the eurozone. Such an outcome would likely support the dollar and thus provide headwinds for oil. In light of last night's API inventory data, we expect the EIA to show very little change to US crude oil inventories and possibly even a very small draw. This would be less upbeat for oil prices than the consensus is calling for. The main focus will likely be on what is expected to be upbeat refined product data, although we do not expect the draws to be as strong as the API print. Data from GasBuddy based on retail receipts indicates that US gasoline demand fell nearly 0.4% in the week ending September 19. More declines are expected in the coming weeks as temperatures continue to cool. Also, last week saw a surge in gas consumption due to evacuations from Hurricane Sally along the Gulf Coast. Overall, we think the risks for oil prices are still skewed to the downside and expect Brent to break support at $41.1/bbl, which will open a path toward the $39.4-40.4/bbl technical range. However, if Brent manages to break above $41.8/bbl, the upside would be limited to resistance at $42.8/bbl.GOLD PRICES CONTINUE TO TUMBLE AMID STRONG DOLLARAfter plummeting almost $70/oz to as low as $1,885/oz on Monday, gold prices began to consolidate within a $1,895-1,920/oz range yesterday, still pressured by relentless safe-haven demand for the dollar amid the resurgence of the coronavirus in Europe and solid US housing data. Existing home sales in the US jumped to a 14-year high in August and were up 10.5% y-o-y, the highest growth rate since December 2006 (even before the Great Financial Crisis). Yesterday, gold investors also watched Fed Chairman Jerome Powell's speech to Congress, during which he reiterated his previous message that even though economic growth has been weak, the US economy itself has proven fairly resilient throughout the crisis. He also once again called for more fiscal stimulus. The dollar also drew support from renewed concerns over US-China relations following President Donald Trump's speech at the UN General Assembly yesterday. Trump stressed yet again that China should be held accountable for mishandling the coronavirus outbreak.This morning, gold slipped to $1,875/oz as the dollar continued to strengthen. Today, for the second day in a row, investors will be keeping an eye out for Jerome Powell's testimony in Congress, this time before the House Select Subcommittee on the Coronavirus Crisis. In his remarks, Powell will discuss the central bank's response to the virus. Preliminary September DM manufacturing PMIs have already started to come in. The euro has been paring its losses versus the dollar after downbeat data for France was followed by upbeat data for Germany. We expect strong US PMI readings later in the day to provide tailwinds for the dollar, thus pressuring gold prices. After gold's break below support at $1,886/oz this morning, the next technical support level of $1,855/oz is now in sight, though the August low of $1,863/oz stands in the way. Other key macro releases today include US mortgage applications and FHFA housing prices.