Market Stabilizes after Sharp Falls, Near-term Outlook Remains Fragile

WTI crude oil price rebounds above 76 after falling to as low as 75.33 while Brent crude recovers to 75.8 after sliding to 75.25 earlier in the day. WTI crude oil price has returned to premium over Brent crude since last week Cushing stock drew. We expect the spread to widen further after today's inventory report which should show another week of storage decline. In the medium-term, moderation in economic growth in China and slowdown in global economic recovery as driven by fiscal consolidation measures worldwide may threaten oil demand, hence oil prices.

Silver recovers to 18.6 in European session after a 2-day selloff. Price outlook remains choppy. PGMs extends the fall for a third day with platinum slipping below 1530, down -3% from last Friday's close, and palladium breaking below 450, down almost -6% from last week's close. Uninterrupted power supply to production mines from Eskom, the South African state utility company, during the World Cup disappointed traders who bought PGMs on speculative reasons. Wage negotiations between labors and Eskom may be a threat but the company said it would be able to reach an agreement with workers.

Base metals slumped yesterday with losses ranging from 3-8%. Lead, sliding -7.53% yesterday, has been among the worst performers since the beginning of the year. Lead has declined almost -30% year-to-date due to rapid expansion of supply in China. However, the situation is going to reverse in the second half of the year as there will be less secondary production and droughts lead to closures in smelters. In May, china returned to a net importer of lead for the first time in 6 months. The situation should continue for the rest of the year and this is supportive for price outlook.

On the macro front, the number of unemployed in Germany dropped -21K in June while May's reading was revised to -41K from -45K. The jobless rate stayed at 7.7%. Meanwhile, Eurozone's CPI estimate eased to +1.4% y/y in June from +1.6% in May.

In the US, ADP's report will probably show payroll addition of +60K in June following a gain of +55K in the prior month while Chicago PMY may have dropped to 59 in June from 59.7 in May.