After days of decline, equities have reached a level that investors find 'reasonable' to buy. Led by China with the Shanghai Composite Index jumping almost +2%, stocks in Asia were generally higher today. The MSCI Asia Pacific Index soared +1.4%, the biggest increase over the past 2 weeks. RBA's decision to leave the cash rates unchanged boosted banking shares in Australia while policymakers' comments of an about-trend growth also boosted market confidence. European stocks open higher with benchmark indices gaining 1.5- 2.5%.

Crude oil also rebounds strongly as driven by the positive sentiment in the stock market. WTI crude oil price jumped to 73 after plunging to a 1-month low of 71.09 earlier in the day. Strength in the euro against the dollar also made crude oil more attractive.

Another near-term catalyst for the oil market is that the US National Hurricane Centre warned there is a 30% chance that a weather system near the Yucatan Peninsula will become a tropical cyclone during the next 48 hours. Threat of the system is however lowered as the Centre's forecast was 40% previously.

The RBA decided to keep the cash rate unchanged at 4.5% for the second time in July. AUD fell initially after the statement but then rebounded strongly as Glen Stevens reiterated that output growth 'is likely to be about trend'. RBA's cautiously optimistic outlook has also helped support the financial markets.

Gold changes little in European session. Failure to break above the record high and subsequent decline to around 1200 has ruined the yellow metal's outlook to rally. Price is currently in a consolidative mode as there lacks a positive catalyst to push gold higher.

ECB's 12-month LTRO expired last week and it was replaced by 3-month and 6-day operations. Reduction of liquidity after the expiry has apparently not yet caused funding pressured in banks. We believe this is part of the reasons driving the euro higher. Smooth expire of the 12-month LTRO has made investors concerned less about the crisis in the Eurozone and reduced their needs for safe-haven assets. Therefore, the demand for gold is also lowered.

We do not believe European banks will be comfortable with the reduction in liquidity which will decline further as the 6-day operation expires. Moreover, the ECB will not stand the increases in money market rates. We expect the ECB will announce other refinancing operations in coming months. At the same time, results of stress tests for European banks will be released later this month. If these events shake the market confidence on the Eurozone, demand for gold may once again be boosted.