Risk appetite has returned as seen in strength in equities and growth currencies. Although many investors remain skeptical to the credibility of the stress test, the strong result (only 7 out of 91 banks failed) released last Friday eased market concerns and the euro has rallied 3 straight days against the dollar and Japanese yen. Corporate earnings results lifted sentiment. FedEx raised its earnings forecasts for the first quarter ending August 31.

The company expects earnings jump to $1.05-1.25/share (previous forecasts was $0.85-1.05/share), up +81-116% from $0.58/share a year ago. Moreover, headline new home sales beat market expectations. New home sales soared +23.6% to 330K, compared with consensus of 320K, in June while inventory for sale fell to 210k, the lowest level since September of 1968. However, we find it difficult to describe the data as bullish as readings in both May and April were revised down.

May's sales were revised down from 300K to 267K, the lowest point since, while April's sales were revised down to 422K from 446K estimated previously. The downward revisions signaled demand was not that strong despite tax credit stimulus. Yet, investors were thrilled by the news and sent benchmark stock indices DJIA and S&P 500 higher, by +1% and +1.1% respectively.

Base metals shared the optimism and rallied. Comex copper surged for a 5th consecutive day to a 10-week high and LME metal index added +1.61% for the day. Oil trading was choppy as price has approached the top end of recent range. While awaiting the weekly inventory data, the market anticipate crude stockpile increased +0.3 mmb while distillate stockpile rose +2 mmb. Gasoline, however, probably drew -1.75 mmb.

Notwithstanding lack of upside momentum, there is several news supporting oil price currently. Venezuelan President Hugo Chavez said it would suspend oil shipments to the US if Colombia launches a military attack against its country. Venezuela contributes 8.7%, or 0.851M bpd, of total US oil imports. Moreover, The EU, supporting the US, imposed the toughest sanctions on Iran. The sanctions include a ban on new investment in or equipment sales to Iran's oil and natural-gas industries. Iran is the second-largest oil producer in OPEC, after Saudi Arabia.

Gold slid to as low as 1178.6 before recovery and the benchmark contract ended the day at 1183.1, down -0.40%. There's lack of upside catalyst for gold in the near-term. Seeing contraction in ETF investments and net speculative long positions in CFTF, we suspect further downside is likely. However, we stick to the view that a sharp fall would be unlikely as price tends to be supported by physical buying.

There are a few reasons for Indian buyers to enter the market soon. Inflationary pressure in India is looming and it has pushed the central bank to raise interest rates further on July 2. Buying gold as an inflation-hedge sounds reasonable. Furthermore, demand for gold in India hinges on a good monsoon (rain), which boosts farm output and rural incomes. According to the Indian Weather Service, the monsoon this year, after the worst period in 40 years in 2009, has come earlier and is classified either as 'normal' or 'better' in major agricultural areas. A better harvest season should boost incomes of farmers, who make up 65% of the country's gold demand, and eventually boost gold buying.