Despite pullback below the all-time high at 1254.5, Comex gold's rally yesterday signaled growth concerns and expectations of prolonged low-rate monetary policy after negative US economic data. The benchmark contract closed at 1248.7, up +1.48% and the biggest one-day gain since June 7. On the other hand, WTI crude oil declined despite modest gains in stock markets and the euro. Investors worried that slowdown in economic recovery would dampen oil demand. The front-month WTI contract settled at 76.76, down -1.13%, while the Brent crude contract gained +0.58% to 79.14.

In the US, initial jobless claims surprisingly increased to +16K to 472K in the week ended June 12, compared with consensus of a decline to 452K. The rise lifted the 4-week moving average by +1K to 464K and indicated drop in non-farm payrolls in June might exceed market expectations. The Philly Fed Index slid -13.4 points to 8 in June and the components depicted a mixed picture. 'New orders' and 'vendor deliveries' improved but were offset by negative reading in 'employment' and decline in 'shipments'.

Headline CPI contracted -0.2% m/m in May, following a -0.1% decline in the prior month, as food prices were flat and energy prices slipped -2.9%. On annual basis, the reading eased to +2% from +2.2% in April. Core inflation rose +0.1% m/m, keeping the annual rate flat at +0.9%. Given benign inflationary outlook, the Fed is likely to keep its policy stance accommodative and maintain the Fed fund rate at 0-0.25% for an extended period.

The Wall Street struggled but ended the day mildly higher with the DJIA and the S&P 500 Indices adding +0.2% and +0.1% respectively. The relative strength was an extension of a 7-day rise in Europe's Stoxx600 index as Spain's bond auction was well-received. Spain sold 3B euro of 10-year bonds and 479.2M euro of 30-year bond, after receiving total bids worth 6.83B euro. Good response in recent auctions by peripheral European economies signaled ease in market concerns regarding sovereign crisis in the Eurozone. Another phenomenon we observed in recent days is that gold's movement has been less correlated to auction results in peripheral European countries and euro's movement. In May, gold rallied as the euro slumped and Greece's bond auctions were unsuccessful. These were due to flight to safe-haven amid worries over deficit risks in Europe. The link appears to have broken (temporarily) in recent days and this may suggest the market is less worried than before. Yet, we do believe the situation will end gold's bullishness as uncertainty remains in the Eurozone. Gold benefits from low rate environment and maybe later as an inflation hedge should inflationary pressure surges as driven by massive stimulus implemented by policymakers.

The EU planned to publish results of bank stress test, on a 'bank-by-bank' for the 25 biggest banks, as pushed by the central bank of Spain's decision to release test results to the public. The new may have boosted market sentiment as the action will give the market a clear understanding of health of the financial system in Europe. However, the risk is that confidence will be deteriorated if the results are 'unpleasant' and this may lead to resumption of euro's weakness and decline in financial markets.

We have a light economic calendar today but UK's public sector net borrowing (PSNB) in May should catch attention as investors await the emergency Budget on June 22.