Renewed pessimism over global economic outlook surrounded financial markets. Worries over the European banking sector were triggered by news that the ECB had lent US$ 500M to a European bank and that the Fed was examining the impacts of contagion of Eurozone's sovereign crisis on the US banking system. US economic indicators turned out to be disappointing with initial jobless claims surprisingly rising last week, the Philly Fed index slumping in August and existing home sales contracted in July. Wall Street dived with DJIA and S&P 500 plunging -3.68% and -4.46% respectively. European bourses also tumbled 4.5-5.8%. In the commodity sector, oil resumed the recent selloff with the front-month WTI and Brent crude contracts losing -5.94% and -3.26% respectively. Investors sought for safe-haven desperately. Gold surged to a new record high of 1832 yesterday (Intra-day high in Asian session today: 1847.9) although the US dollar advanced.

The ECB said yesterday that it has recently lent US$ 500M in its 7-day liquidity-providing operation to a bank at above market rates. This was the first time since February that the facility was used. Fears that more banks will seek ECB's funding because of their heavy exposure to debts of Greece and other debt-ridden countries increased and would make the market outlook negative. Concerns over contagion of Eurozone's sovereign crisis have spread to the US. The WSJ said that US regulators are taking a closer look at the US units of Europe's biggest amid concerns that the region's debt problems will spread to the US banking system. The report said that the New York Fed is 'very concerned' about the issue and has been seeking information about the banks' ability to access funds to maintain their US operations. New York Fed President Dudley denied the officials are watching a particular group of banks closely and reiterated that the central bank treats US and European banks 'exactly the same' and is 'always scrutinizing banks'.

In the US, economic data released was worrying, Initial jobless claims unexpectedly rose +9K to 408 K in the week ended august 13, sending the 4-month moving average to a 4-month low of 403K. Existing home sales dropped -3.5% m/m to 4.67M units in July. The market had anticipated a rise to 4.90M units. Philly Fed Manufacturing Index tumbled -33.9 points to -30.7 in July. This was the biggest month-on-month fall since October 2008 and was driven by extremely weak components. For instance, new orders plummeted to -26.8 from +0.1 while shipments plunged to -13.9 from +4.3.

US inflation surprised to the upside with the headline CPI rising to +0.5% m/m in July from -0.2% a month ago. On annual basis, the reading soared to +3.6% from +3.4% in June. Core CPI eased to +0.2% on monthly basis from rose to +1.8% from a year ago with price pressures coming from various areas including rental and apparel. Heightening inflation has complicated the Fed's move to stimulate the economic. While it has sent a signal of further easing at the August meeting, asset purchases would inevitably add pressures to price levels.