European shares opened lower on Tuesday as investors concerned about the progress of the European bank union and intensified tensions between China and Japan over territory dispute. Fitch Ratings warned that it might downgrade ratings of Japan's auto and tech companies if tensions prolonged. This is expected to affect the outlook of the world's third largest economy which heavily depends of exports of auto and technological products. In the commodity sector, crude oil prices eased a tad with front-month WTI and Brent contracts trading at 96 and 113 respectively. Gold is expected to drop for a second consecutive day on profit-taking and recovery in the US dollar. We remain bullish in gold's outlook, expecting it to reach 2000 by the middle of next year and then higher in 2014. These forecasts were based on the expectations that the Fed's mortgage program would continue until the end of 2014 and the operation twist would be extended further.

The abrupt decline in oil prices yesterday triggered attention of the CFTC and the CME. At an email issued by a CFTC representative, it's stated that its surveillance group has placed this issue on top priority and is "working to gather trading information" and such rapid volatility raises questions about high-frequency traders' activities in the market. Yet, the CME announced that it would not cancel the trades made during the period.

As tensions between China and Japan escalate, investors have turned cautious over investing in Asia. Ahead of the BOJ meeting on Wednesday, Fitch Ratings warned that it might cut credit ratings of Japan's auto and tech companies should tensions deteriorate. According to the rating agency, "Japanese companies' sales and reputation with Chinese consumers are likely to be affected, at least in the short term... major Japanese auto and technology manufacturers' ratings may come under pressure". Electronics firms Sharp, Panasonic and Sony, and automaker Nissan are having the greatest risk of a downgrade as they have the highest exposure in China in terms of sales.

On the dataflow, the ZEW confidence indices for Germany improved for the first time in 5 months. We expect the recovery was driven by the ECB's announcement of the new asset buying program. "Economic sentiment rose to -18.2 in September from -25.5 in August. The market had anticipated a modest improvement to -20. "Economic sentiment climbed 17.4 points to -3.8 during the month. "Current situation", however, slipped to 12.6 from 18.2 in August. The US' NAHM housing market index probably added +1 point to 38 in September.