Crude oil remains under pressure in European session as weakness in stock markets drag down confidence. Currently trading at 74.7, WTI crude oil price has dropped for a 4th day after reaching a 7-week high at 79.38 on June 28. Apart from China, manufacturing PMIs released in Taiwan and South Korea today also surprised to the downside, indicating recovery in manufacturing activity, even in emerging markets, is losing steam.

China's manufacturing PMI declined for a second month, slipping to 52.1 in June from 53.9 in the prior month. The market had anticipated a milder drop to 53.2. Data compiled by HSBC showed a decline to 50.4 from 52.7 in May. The PMI index for South Korea fell to 53.3 from 54.6 in May while that for India eased to 57.3 from a 27-month high of 59.

Base metals slump amid concerns over slowdown in China growth and global economic recovery. In the second quarter, base metals generally performed poorly with losses ranging from 5-25%. Tumbling more than -30%, zinc was the worst performer in 1H10. For 2H10, we remain cautious about the metal's outlook as slowdown in US recovery, fiscal consolidation Europe and cool down of Chinese property market may weaken demand.

50% of zinc demand comes from galvanized steel which is employed in construction and automotive sectors. US housing data in May disappointed the market markedly, unveiling underlying vulnerability in the property market after the homebuyer tax credit expired in April. In fact, analysts expect further weakness in coming months before housing starts and home sales data begin to improve.

In Europe, not only peripheral economies but also large economies such as the UK have announced aggressive fiscal consolidative measures. These suggest shrinkage in public spending, hence, decline in infrastructure investments.

In China, sharp plunge in property transaction volume in April should lead to significant deterioration in construction activities. This in turns leads to decline in demand for galvanized steel.

Gold price changes little in European session while the euro surges to 1.233 against the dollar. Oversubscription of the 5-year Spanish bond auction boosted the single currency. The Spanish Treasury said that demand was 1.7 times the amount sold despite Moody's potential downgrade of Spain's Aaa rating.

Inverse correlation between gold and the euro developed in May when sovereign crisis in the Eurozone elevated. Investors dumped the euro with panic and moved their capitals to gold and USD, treating them as safe havens. The last time that gold and the euro moved in opposite direction was in 1Q09, the apex of the financial crisis and recession.