Energy prices were strong yesterday as speculations of strong Chinese exports and loan data boosted financial markets. The excitement was followed by decline in crude oil inventory, including Cushing stocks, and Beige book reading which pointed to moderate growth in the US. WTI crude oil price surged +3.32% and settled at 74.38. The contract recorded an intra-day high at 74.96. Brent crude also rose, albeit in a lesser extent, and closed at 75.52, up +2.55%.

Comex gold slid to as low as 1223.1 before settling at 1229.9, down -1.26%. Profit-taking is expected in the near-term as price hit a record high as 1254.4 Tuesday and encouraging economic data lifted risk appetite.

According to the US Energy Department, crude oil inventory declined -1.83 mmb to 361.4 mmb in the week ended June 4. This exceeded market expectations of a dip of -0.9 mmb. Increase in inventory level was seen in all regions except for the Gulf Coast where a drop of -4.66 mmb was recorded. Cushing stock also slid -0.47 mmb.

We would like to highlight the gasoline data was disappointing. Its stockpile and demand were largely flat from a week ago despite the long weekend (the Memorial Day holiday). Distillate stockpile increased +1.84 mmb as imports and production surged +11.8% and +1.4% respectively. At the same time, demand fell -3.18% to 3.903M bpd.

The Wall Street was strong initially as an extension of robustness in European bourses. At the testimony to the House Budget Committee, the Fed Chairman Ben Bernanke reiterated that growth will be at a moderate pace, although the pace might not be as fast as one would like, with real gross domestic product growing 'in the neighborhood of +3.5% over the course of 2010 as a whole and at a somewhat faster pace next year'. Concerning developments in the Eurozone, the Chairman said the 'effects of the crisis on economic growth in the United States seem likely to be modest'. These comments were welcomed by the market. In the Beige Book released after the Chairman's speech, all 12 districts showed economic activity continuing to improve, despite at 'moderate' pace for many of them.

However, selling pressure was seen in late trade with financial and energy stocks leading the decline. Former US Fed Chairman Paul Volcker said yesterday that there's 'pretty good' chance for the reform legislation in the US to be passed. Investors worried that stricter regulations may limit growth. At the same time, BP tumbled amid concerns that the company will not be able to cover all expenses for the cleanup of oil spill in the Gulf of Mexico. The CDS on it bonds jumped more than +100 points and was traded as if it's junk. Other energy producers also got hammered. DJIA and S&P erased earlier gains and ended -0.4% and -0.6% lower respectively.

In Asian session today, risk-sensitive assets including oil and commodity currencies remain firm as China's exports surged +48.5% y/y (+10.9% m/m seasonally adjusted) in May, exceeding market expectations of +32%. What's more encouraging is that China's export to EU jumped +49% y/y in May, compared with +28% in April. This suggested the impacts of sovereign crisis in the region were limited so far.

In Australia, unemployment rate dropped to 5.2% in May from 5.4% in the prior month. Payrolls rose +26.9K (consensus: +20K) during the month while April's addition was revised up to 35.3K form 33.7K. AUD rallied to 0.839 against USD and 1.238 against NZD. AUD plummeted against NZD for the first time in 3 days yesterday as the RBNZ raised its office cash rate by +25 bps to 2.75%.

Focus will be shifted to Europe on ECB and BOE's meetings later today. While both central banks are expected to keep the policy rates unchanged, we would like to see policymakers' outlook on the development of Eurozone's sovereign crisis.