The financial market eased after Friday's sharp selloff and rebounds in commodities were seen in Asia Monday. WTI crude oil snapped 5 days of decline and recovered to 72.5 while Brent crude rebounded to 72.4. Base metals also gained after the Chinese government assured 'steady and relatively fast' growth. However, stock markets remained under pressure as China's serices PMI fell to a 15-month low in June. Gold price stayed firm and edged higher to 1215 in Asian session.

After a business visit to Hunan, China's Premier Jiabao Wen said the government will maintain flexible policies to ensure 'steady and relatively fast' domestic growth. Wen also said that the severity of international financial crisis and the difficulties of global economic recovery have exceeded market expectations. Therefore, the government will not only strive to solve the long-term structural problems but also need to solve some urgent problems.

Chinese officials have recently been reassuring the market that the country's growth outlook remains intact. However, we will inevitable see a moderation in the second half as the government implemented measures to prevent economy from overheating. That said, China will continue to be the biggest growth driver in the world.

Asian stocks were mixed after HSBC reported that China's services PMI plunged for a third month to 55.6, the lowest level in 15 months, from 56.4. This, together with the drop in manufacturing PMI (released last week), indicates China's growth has moderated from the beginning of the year.

Weaker-than-expected economic data from the US and China reignited worries about global economic slowdown and raised risk aversion last week. Stock markets fell across the board with DJIA and S&P 500 losing -4.51% and +5.03% respectively, Europe's Stoxx 600 slipped -4.45% while the MSCI Asia Pacific Index dropped -3.39%. Commodities' slump was also severe with oil prices getting the biggest hit.

While central bank meetings (RBA, ECB, BOE) will be the focus of this week, the market is still vulnerable and weakness will resume as soon as bad news from European banking system or disappointing macroeconomic data are released.

On Tuesday, US' services ISM probably dropped to 55 in June from 55.4. surprise is to the downside with the 3.5-point drop in the manufacturing ISM. Australia and Canada will release employment report on Thursday and Friday respectively while the UK and Germany will deliver May's industrial production data Thursday.

Commitments of Traders

With the exception of natural gas, the market turned bearish towards the energy complex last week. Net speculative long positions for crude, heating oil and gasoline dropped. For crude oil, long positioned added +372 but was outpaced by increase in short positions (+2.89K), resulting in a decline in net length by -2.52K to 37.12K. Decline in long positions were seen in both heating oil and gasoline. However, net length dropped more severely in heating oil futures than in gasoline's as the former recorded increase in short positions while the latter recorded decline in short positions. Weaker-than-expected economic data from the US and China reignited worries about global economic slowdown and raised risk aversion last week. This in turn raised concerns about demand outlook for energy and eventually caused trimming in net length in oil-related futures. Moreover, the threat of hurricane Alex on oil facilities in the Gulf of Mexico proved insignificant. This also disappointed some bulls. Meanwhile net shorts in natural gas dipped despite price fell during the week. We expect net shorts in natural gas to rise in the coming week as exceptional demand driven by abnormally hot weather in the US dissipated.

Speculators remained bullish towards gold and silver but they turned bearish towards PGMs. Net length in gold and silver increased for the 4th and the 3rd week respectively. Risk aversion drove capitals to safe-haven assets and benefited gold. Silver, usually being treated as 'poor people' gold', also looked appealing, given the fact that correlation of gold and silver prices are as high as 70%. In PGMs, net length in platinum dropped, reversing the modest gain in the prior week, while decline in palladium net length accelerated.