Crude oil initially surged to as high as 75.99 as driven by improved risk appetite and strong economic data. However, gains were pared in NY session after Moody's downgraded Greece's credit rating to junk. WTI crude oil futures ended the day at 75.12, up +1.82% while Brent crude edged higher, by +0.57%, to close at 76.23.

Financial markets were strong in Asian and European sessions as both Japanese large manufacturing sentiment and Eurozone's industrial production data beat market expectations. Sentiment was also boosted after St. Louis Fed President James Bullard said that he did not foresee contagion of sovereign crisis in the Eurozone to the US or Asia and unless events in Europe turn out to be much worse, 'in the near term, the US is probably a beneficiary of the crisis in Europe'.

Investors' excitement was however damped as Moody's cut Greece's credit rating by 4 notches to Ba1, or junk, from A3. According to the rating agency, the rating incorporated 'a greater, albeit, low risk of default' as there is 'considerable uncertainty surrounding the timing and impact of these measures [EU/IMF package] on the country's economic growth, particularly in a less supportive global economic environment'. The downgrade also reflected the analysis of' the balance of the strengths and risks associated with the Eurozone/IMF support package. The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels...Nevertheless, the macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating'. The Wall Street reversed gains made earlier in the day with both of DJIA and S&P settling -0.2% lower.

Gold weakened as risk-sensitive assets strengthened. The benchmark contract for the yellow metal plunged but buying interests emerged around 1220. The contract ended the day at 1224.5, down -0.46%. We believe Moody's downgrade indicates fragility in the development of the Eurozone, especially the peripheral economies. Highly uncertain outlook, including effectiveness of austerity measures and contagion of fiscal risks to other parts of the world, should spur investment demand for gold. Moreover, while the EU/IMF rescue package may help eliminate any near-term risk of a liquidity-driven default, it may result in excessive inflationary pressure and there's too much liquidity in the market. Gold may also benefit as an inflation-hedge.

Today's major economic data in European session include May CPI in the UK, ZEW Survey in the Eurozone. In the US, focus will be turned to Empire State Manufacturing Index and NAHB housing market index.