Despite the rise in Wall Street and crude oil prices, market sentiment remained fragile amid renewed concerns over sovereign debt crisis in the Eurozone. The greater-than-expected demand for the ECB's first LTRO raised worries that the balance sheets of European banks were worse than previously anticipated. Added to the worries were the US existing home sales which surprisingly dropped last month.

The ECB lend 489.2B euro to 523 banks in the Eurozone through a 3-year LTRO at 1%. The amount awarded exceeded original expectations of 300B euro and this raised market worries. No matter the strong demand was due to the weaker-than-expected bank balance sheets or aggressive restoration of capital, this indicated the banking sector's reliance on the ECB and the central bank is the key to restore stability in the region. Banks borrowing from the ECB mainly came from peripheral economies as they could hardly tap funding from the public due to the high yields. While banks from core countries have reduced borrowing from the ECB over the past few months, they might be active in the next 3-year LTRO allotment in February due for carrying or replacing existing funding.

Performance in the commodity was also affected by the lending outcome. Gold initially rebounded to a 5-day high of 1643.7 but gains were than erased as the US dollar soared. The benchmark Comex contract ended the day at 1613.6, down -0.25%. On the contrary, crude oil prices strengthened with the front-month contracts for WTI and Brent crude gaining +1.49% and +0.92% respectively. The decline in oil inventory and the sanction of Iran upstaged the problematic European banking system.

Market sentiment was also damped by the US housing data. Despite pleasant surprises from housing starts and building permits, existing home sales unexpectedly fell to 4.42M in November from 4.97M a month ago. The market had anticipated a rise to 5.09M. We will have a series of US data today. Initial jobless claims probably increased +9K to 375K in the week ened December 17. University of Michigan Confidence might have been revised higher by +5 points to 68.2 in December. The final reading for GDP should have stayed unchanged at +2% in 3Q11. Leading indicators probably gained +0.3% m/m in November, easing from +0.9% a month ago.