Broad market sentiment is dampened by the Conference Board's downward revision of the Leading Economic Index (LEI) for China. After adjusting for a calculation error, LEI for China grew +0.3% in April, following a +1.2% increase in March and a +0.4% increase in February. The initial reading for April was +1.7%. According to the Board, the correction does not affect the view that growth in China is not likely to accelerate. Rather, moderation is possible.

Meanwhile, economic data from Japan shows the country's recovery faltered in May. Industrial production contracted -0.1% in May after expanding +1.3% in the prior month. At the same time, unemployment rate rose to 5.2% in May from 5.1% a month ago. In Asia, the MSCI Asia Pacific index fell -1.6%, the biggest fall in 3 weeks. Japan's Nikkei plummeted -1.27% while China Shanghai Composite Index tumbled +4.27%.

Slides in stock markets trigger selloff in the commodity sector with crude oil and copper extend weaknesses further. The front-month contract for WTI crude oil plunges to 76.5 (intra-day low: 76.25) while that for Brent crude slides to 76.4 (intra-low: 76). Base metals including copper, aluminum and zinc slump with 1.5-3% declines. China is the world's biggest growth driver. Slowdown in its economy should hurt global economic outlook.

In the precious metal complex, silver (-0.59%), platinum (-1.17%) and palladium (-1.57%) slide in tandem with other commodities while gold changes little and remains hovering around 1230 and 1240. This is because silver and PGMs have heavy industrial applications in China. In 2009, China accounted for 34% of platinum demand and 22% of palladium demand in the world.

Looking at the currency market, the euro weakens for the second day against the dollar despite unexpected improvements in Eurozone's confidence index. The 16-nation region's confidence index rose to 98.7 in June from 98.4 in May. The market had anticipated a dip to 98. Bearishness in the single currency has been driven by funding stress as ECB's 12-month LTRO expires later in the week. At the same time, the Bank for International Settlements (BIS) warned that European banks may 'face significant refinancing pressures when sentiment turns adverse'. In our opinion, the environment reveals fragile confidence and decline in risk appetite in the medium- to long-term and should bode well for gold.