WTI crude oil price plunges below 71 in European morning. In August, the benchmark contract probably stays flat or only edges slightly higher after modest decline in the previous month. Tumble in China stock markets trigger selloffs in commodities whose strong rises in the first half of the year were driven by stockpiling in China.

The Shanghai Composite Index fell -6.7% to close at 2668. On monthly basis, the gauge plummeted -22% and has become the worst performing stock index in the world in August. Commodity shares had a broad-based decline. Baoshan Iron plunged -7% as the company said that 'the global economy hasn't recovered substantially and the foundations for a domestic recovery aren't solid'. Oil companies slid as the Chinese government may reduce the frequency of adjusting fuel price in order to support the economy. Sinopec and Petrochina dropped -10% and -6.7% respectively as the refinery sector may suffer.

In Japan, the Nikkei 225 Stock Average slipped -0.4% to 10493 as Japanese yen surged and housing starts dropped -32.1% yoy in July, worse than market expectation of -30.3%.

In European morning, stocks sink with both of Germany's DAX index France CAC 40 index losing -0.6%.We have a light calendar today and stock trading is likely range-bounded in Europe.

The chart below shows that WTI and Brent crude oil traded at similar price level week. We believe this was driven by draw in Cushing stockpile as well as better market expectation on US oil demand. Although recent weekly data have shown that fuel demand should have been troughed, it remained far below levels seen in previous years. Moreover, as driving season comes to an end, we suspect we will see significant stockpiles again in coming weeks.

Currently trading at 956, gold continues to move within a narrow range. USD's relative strength against high yield currencies today should exert downward pressure on the yellow metal. However, there's possibility for the dollar to decline tomorrow. The RBA will meet Tuesday to discuss about rate decision. While the street has been priced in the first rate hike in 1Q09, the market is looking for a change of tone in the policy statement - from neutral to tightening bias. Should this speculation materialize, the Australian dollar will rise strong against the dollar and such rally should boost other currencies (except USD and JPY).