While turmoil in Libya and other countries in the MENA region continued to lead oil and gold prices higher, market sentiment appeared to have to improved a tad with Wall Street rising modestly. Better-than-expected US employment data and a more upbeat Beige Book raised optimism on the economic outlook. At the semiannual testimony at House, Fed Chairman Ben Bernanke signaled to keep QE2 until expiry in June and refused to rule out the possibility of further QE measures. These comments triggered selloff in the US dollar. The DOE/EIA recorded huge stock-build at Cushing, sustaining the wide spread between WTI and Brent crude prices.

Oil prices rallied for another day after news that Gaddafi's warplanes hit Brega which is just 2 km from a key Libyan oil terminal. The front-month contract for WTI crude oil surged to as high as 102.43 before settling at 102.23, up +2.61%, while corresponding Brent crude contract rallied to 117.81 before ending the day at 116.35, up +0.81%. Should the situation escalate, oil prices have further to run. Indeed, Shokri Ghanem, chairman of Libya's National Oil Corporation, said oil prices could rise to 130 or above in the next month.

On the dataflow, ADP's report showed that US' employment rose +217K in February (consensus: 185K) from an upwardly revised 189K in the prior month. The Beige Book covering the period from the beginning of January to the middle of February showed that 'overall economic activity continued to expand at a modest to moderate pace'. All districts, except St. Louis, experienced 'solid growth' in manufacturing production. Changes in loan demand were mixed across Districts', while 'lending standards remained tight'. Market sentiment was lifted as the report indicated improved economic developments.

On the second day on the semiannual testimony, Fed Chairman Ben Bernanke signaled the central bank will continue with the 600B asset-buying program announced last November. He does not believe the end of the asset-buying program would have a 'big impact' on interest rates. Regarding questions on the possibility of QE3, the Chairman did not rule it out but stated he and other FOMC members would like to see 'a sustainable recovery' and 'don't don't want to see the economy falling back into a double dip or to a stall-out'. Concerning inflation, Bernanke pledged that the Fed is 'looking very closely at inflation both in terms of too low and too high. Inflation and potential risks for inflation are 'a major consideration as we look to determine how to manage this policy'. The US dollar slumped as the Chairman's comments signaled he's not in a hurry to unwind the stimuli in the near-term. What's more, further easing may be seen. Weakness in USD also helped send gold higher.

The major event today is the ECB meeting. While no change in monetary policy is expected, President Trichet may sound more hawkish at the press conference and in the policy statement. We expect no rate hike until the results of the stress test have come out. The central bank will also extend LTROs for another 3 months but certain rules will be tightened. The ECB staff projections for growth and inflation are expected to be revised higher.