Although crude oil recovers after the 4-day decline last week, near-term outlook is skewed to the downside as global economic recovery has showed more signs of slowing down. Currently trading at 75.7, WTI crude oil price has returned to where it was a month ago. The upside break above 80 but the lack of momentum of further rally and eventual reversal indicates crude oil will continue trading within a broad range in coming months. Gold remains firm in Asia Monday and edges higher to 1221, a level not seen since July 1, as investors find its safe-haven status appealing. Signs of rising sovereign risks in the Eurozone as shown in bond yield spreads and CDS have also increased demand for the yellow metal.

Japan's GDP expanded at an annualized 0.4% in 2Q10, lower than consensus of +2.3% and a downwardly revised +4.4% in 1Q10. The outcome was disappointing as household consumption weakened despite government' stimulus measures. High unemployment have hurt consumer confidence and constrained spending.

Stocks in Asia dropped after the report with the MSCI Asia Pacific Index losing -0.5%. Japanese yen surged against the dollar after falling for 2 days on intervention talks. The yen has also risen for a second day against the euro. Reduction in risk appetite has driven investors to higher-yield currencies.

Gold extends gains investors put their capitals to safe assets. Eurozone's 2Q10 GDP growth beat market expectations as driven by strength in Germany (+2.2%). Yet economists forecast this would be the peak for the nation's growth. Worse still, peripheral economic developments were disappointing. Economy in Greece declined -1.5%, the 7th quarterly contraction, while Spain and Portugal only climbed +0.2%. The 2-speed economic recovery has re-ignited worries on peripheral European economic outlooks. Yield spreads between peripheral European bonds and German bunds widened last week. The 10-year yield spread between Greek and German government bonds rose to the highest level since May 7, before the EU announced a 750B-euro financial package to aid debt-ridden nations. We believe renewed sovereign crisis concerns boosted demand for gold.

Concerning economic data, the focus will be turned to the UK this week. The July CPI and the public finance numbers will be closely monitored while the BOE minutes may unveil the central bank's path of monetary stance. In the US, industrial production and housing starts data should be under the spotlight.

Commitments of Traders:

The speculative community's view on the energy complex was mixed. While net length for crude oil increased +4.66K to 60.34K, that for heating oil and gasoline dropped, by -2.50K and -3.10K, to 28.96K and 48.15K respectively. We expect net length to contract in the coming week as concerns on economic slowdown should drive investors away from taking long positions in energy futures. Net shorts in natural gas declined for the first time in 3 weeks amid worries that the pace of demand lags that of gas production. Moreover, failure of tropical storms to hurt gas facilities in the Gulf of Mexico also dampened anticipations of supply disruption.

For precious metals, speculators were more bullish on gold than others during the reporting week. Net length for the yellow metal rose +5.17K to 190.69K while that for silver, platinum and palladium dropped during the week. As safe-haven demand for gold rose since late last week, we expect to see further increase in net length for the yellow metal.