Crude oil price rebounds above 69 as rally in China stock market boosted confidence on better oil demand. Reports show that crude oil production in Russia rose +1.3% yoy to 9925M bpd in August, the 6th straight month of increase since March 2009. Year-to-date, production increased +0.8% in the nation and we believe the growth should be attributed to recovery in oil price and support from the government including tax benefits. However, some believed that the output growth in Russia may have unsettled the OPEC.

A few weeks ago, the market has been expecting Russia will join OPEC's meeting on September 9. However, earlier this week, an OPEC official announced that no non-members have been invited this time. According to Qatar's oil minister, Russia promised to reduce oil output in support of OPEC's production cut. However, recent data indicated the opposite outcome.

In China, the Shanghai Composite Index jumped +4.7%, the strongest gain in 6 month, to settle at 2845 as Liu Xinhua, vice chairman of the China Securities Regulatory Commission, said that the government will promote a stable and healthy market. Most stocks also rose in Asia as driven by strong gold rally. Zijin, China's biggest gold producer, added +8.5% in its Hong Kong listed shares while Newcrest Mining, Australia's largest gold miner, surged +7.7%. Aluminum companies rocketed after Alcoa said that Chinese demand for the base metal will increase this year.

In European morning, stocks change little with all benchmark indices trading within narrow ranges. Data released so far was rather mixed. In the UK, services PMI improved to 54.1 in August, compared with consensus of 53.9, from 53.2 in the previous month. In the Eurozone, final reading in August PMI was revised slightly upward to 49.9. However, retail sales in the 16-nation region contracted -0.2% mom in July after a flat reading in June. The market had expected a +0.2% gain.

The focus today is ECB's meeting. While it's widely anticipated that the central bank will keep the main refinancing rate unchanged at 1% in September, what we are interested is ECB staff's new economic forecasts. As economic data in the Eurozone have shown impressive improvement in recent months, we believe the GDP estimates (both 2009 and 2010) should have been upgraded from what were projected in June, though the level of revisions might not be large. This is consistent with ECB's usual cautious attitude. However, we expect the ECB will not made adjustment on inflation outlook as this will support the central bank's 'wait and see' stance on monetary policy.

Moreover, regarding the 1-year open market operations in late September, we expect the ECB will not add any spread over the 1% interest rate. That is unlimited liquidity will be provided at 1% interest.

Gold price extends strength to 986 while USD declines for the second consecutive day against the euro and the pound. Bullion holdings in SPDR Gold Trust surged +1.53 metric tons to 1063 metric tons yesterday, the first increase since August 21 as well as the biggest gain since June 1. Silver also gains another +2.3% to 15.7 in concert with the rise in the yellow metal.