Financial markets resumed volatile trading yesterday as the UK and the US were back from holiday. Spurred by weaknesses in Asian and European session, US bourses began the day lower. This added pressure on crude oil prices with WTI and Brent futures plunging to as low as 71.64 and 71.51, respectively. Better-than-expected ISM data in the US did boost sentiment a bit and stimulated rebounds. Yet both the Wall Street and energy ended the day with loses. D%JIA and S&P 500 slid -1.7% and -1.1% respectively. WTI and Brent crude closed at 72.58 (-2.50%) and 72.71 (-2.60%), respectively.

US ISM manufacturing index dipped -0.7 points to 59.7 in May while the market had anticipated a sharply fall to 59.4. Details in the report reinforced underlying strength in the manufacturing sector. 'New orders' and 'production' stayed above 60 while exports orders rose to 62 from April's 61. 'Employment' improved to 59.8 from April's 58.5. Construction spending surged +2.7% m/m in April, compared with consensus of a flat reading and March's mild growth of +0.2%. While the biggest expansion since 2000 was boosted by rush-buying ahead of tax credit expiry, the reading was encouraging.

Gold shone as concerns over European sovereign lingered. The benchmark contract soared +1.21% to 1226.9, the highest close since May 17. The euro yesterday slumped to a 4-year low against the dollar as ECB's Financial Stability Review said that the financial sector is facing tremendous risks from deficit problems and banks may need to write down as much as 195B euro these 2 years.

The ECB warned that 'notwithstanding plans for fiscal consolidation, the sizeable near-term funding requirements of governments could still crowd out issuance of bonds by banks. The risk that this implies for bank funding costs also raises the possibility of a setback to the recovery in banking sector profitability'. We believe the situation will benefit gold as demand for the yellow metal normally increases when government heavily increases spending and during 'crowd-out' which will result in high inflation but stagnant economic growth.

Commodity currencies were generally lower with AUD, CAD and NDZ falling 0.6-1.7% against USD. The RBA decided to keep the cash rate unchanged at 4.5% in June as current level in interest rates is 'appropriate' and the crisis in the Eurozone increases uncertainty in global economic outlook. The market currently prices in no rate hike until next year while the chance of a rate cut in October rises to 12%. The BOC raised the overnight rate by +25 bps to 0.5% as robust domestic economic growth warranted gradual exit from the ultra-accommodative monetary policy. Yet, CAD slid as the central bank cautioned that future market developments remained considerably uncertain and 'any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments'.