Commodities Daily - September 25, 2020

> Oil rises on growing risk appetite despite fundamental headwinds. Today, investors will focus on US durable goods orders data for August as well as the latest rig count update from Baker Hughes. Both releases are likely to be oil price-supportive, in our view. However, persisting Covid-19 concerns in Europe and increased supply from Libya and Iraq are likely to somewhat offset any positive developments. We see Brent as neutral at $41.6-$42.1/bbl and think an escape from this range would likely provide direction for the benchmark. Above this corridor lies the September 23 high of $42.62/bbl and below it the September 21 low of $40.96/bbl.> Gold rebounds as Republicans and Democrats strike a constructive tone on a new fiscal support package. Today, gold investors will be focused on US durable goods orders data for August. We think it is likely to come in below consensus and indicate only a mild advance m-o-m, which could pressure the dollar. Gold has found support at the $1,855/oz mark, so a weaker dollar would likely push quotes toward technical resistance at $1,886/oz. There is a high chance that this bounce would end at around $1,886/oz, with the risks still skewed to gold sliding to the $1,806/oz support level in coming weeks, or until the coronavirus situation in Europe improves, which would boost EUR/USD.OIL RISES ON GROWING RISK APPETITE DESPITE FUNDAMENTAL HEADWINDSAfter hovering below $41.5/bbl early yesterday, front-month Brent began to generate mildly positive momentum in what was a very choppy session. It peaked at $42/bbl before eventually settling at $41.94/bbl, fixing $0.17/bbl above the previous settlement. Oil prices were supported by an improvement in risk appetite (after a series of strong setbacks this week) on reports that US House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin were open to resuming stimulus talks, although the chances of a compromise anytime soon still seem slim. During a Senate Banking Committee hearing yesterday, Mnuchin said that a further pandemic relief package (which would strongly support risk appetite and, thus, oil prices, since it would be a very strong catalyst for further economic recovery) is "still needed." However, Bloomberg reported yesterday that lawmakers in both parties had expressed skepticism that an agreement could be reached and legislation passed before the November 3 election.From a fundamental standpoint, investors are beginning to take notice of increasing headwinds. Among them are the re-introduction of some lockdown measures in countries including France and the UK and the possibility of an increase in Iraqi supply at a time when Libya is already beginning to resume oil exports as the civil war abates. Bloomberg has reported that oil traders are registering a sharp increase in Iraqi export cargoes that are being sold in the spot market for October loading. As for Libya, we note that production restarts there have been slow, with key eastern terminals still shut following the partial lifting of the force majeure. In our view, Libyan supply is unlikely to exceed 0.3 mln bpd in October, while the chances of the deal reached between the East and West collapsing remain high. The key source of tension is very likely to be revenue sharing arrangements, which need to be established rapidly. We note that OPEC+ will likely monitor the situation in Libya for several months before making any decision about whether to delay the move to phase-three quotas.Today, investors will focus on US durable goods orders data for August and the latest rig count update from Baker Hughes. We expect headline durable goods orders to come in below consensus with only a moderate m-o-m increase, weighed on by weak aircraft orders, as Boeing recently reported that cancellations had been outpacing its new orders. This would exert moderate pressure on the dollar. As for the further outlook for durable goods orders in 4Q20, we think that currently low inventories mean that factory output gains could persist even if broader economic momentum slows. With regard to the Baker Hughes data, we think a slight decline in the US oil rig count is likely given WTI's correction in September toward $36/bbl. We see Brent as neutral at $41.6-$42.1/bbl and think an escape from this range would likely provide direction for the benchmark. Above this corridor lies the September 23 high of $42.62/bbl and below it the September 21 low of $40.96/bbl.GOLD REBOUNDS AS REPUBLICANS AND DEMOCRATS STRIKE A CONSTRUCTIVE TONE ON A NEW FISCAL SUPPORT PACKAGEGold traded sideways within a $1,850-1,860/oz range yesterday but moved higher during US trading hours amid a reversal in positive dollar momentum. Weekly US initial jobless claims (arguably the most important high-frequency data point at present) acted as the initial trigger for the move higher, as they showed an unexpected w-o-w increase as the boost from stimulus measures faded. Some 26 mln people were claiming unemployment benefits in early September, and the latest update essentially showed a choppy pattern of gains and losses, with some businesses hiring or bringing back workers, and others reducing staffing, with no additional government stimulus in sight. The main global market highlight of the day - news that Republican and Democratic leaders planned to resume talks on the next stimulus plan - boosted gold to $1,880/oz, but quotes then retreated as it appeared that neither side was making any initial compromises.US Treasury Secretary Steven Mnuchin highlighted that "if the Democrats are willing to sit down, I'm willing to sit down anytime for bipartisan legislation" and expressed readiness to "pass something quickly." House Speaker Nancy Pelosi said she was ready for negotiations. Fed Chairman Jerome Powell reiterated the need for more fiscal stimulus, telling lawmakers that it could make the difference in the pace of the recovery. Bloomberg noted yesterday that lawmakers in both parties had expressed skepticism that an agreement can be reached and legislation passed before the November 3 election.Today, gold investors will be focused on US durable goods orders data for August. We think it is likely to come in below consensus and indicate only a mild advance m-o-m, which could pressure the dollar. Gold has found support at the $1,855/oz mark, so a weaker dollar would likely push quotes toward technical resistance at $1,886/oz. There is a high chance that this bounce would end at around $1,886/oz, with the risks still skewed to gold sliding to the $1,806/oz support level in coming weeks, or until the coronavirus situation in Europe improves, which would boost EUR/USD.