Macroeconomic data released last week was generally supportive and this lifted market sentiment and triggered investors to go for risk-sentiment sentiments.

China's exports surged +48.5% y/y (+10.9% m/m seasonally adjusted) in May, exceeding market expectations of +32%. Despite sovereign crisis woes, 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. Domestically, Chinese CPI rose +3.1% y/y in May, exceeding the government's upper range of +3%. The government forecast further overshooting is likely in coming months. Other data were also strong with fixed asset investment surging +25.9% (consensus: +25.7%) in the first 5 month through May, compared with +26.1% in the first 4 months while retail sales soaring +18.7% y/y, after +18.5% rise in April. While the set of data suggested growth remained intact despite risks in the Eurozone, it may trigger the government to accelerate tightening measures to cool down growth and curb inflation. While stocks, growth currencies and commodities strengthened since the middle of the week, worse-than-expected US retail sales triggered profit-taking. Retail sales surprisingly contracted -1.2% m/m in May after gaining +0.4% in April. Excluding auto, the reading still fell -1.1%. The data inevitably caused doubts over growth outlook

Crude Oil

Movement of crude oil continued to be driven by macroeconomic development and sovereign crisis condition in the Eurozone. WTI crude oil price plunged below 70 briefly earlier in the week after the new Hungarian government's comment on the country fiscal situation. Price rebounded and the rally accelerated in the middle of the week as macroeconomic data from the US and Asia was generally encouraging, the US Energy Department (EIA) reported another week of crude inventory draw and the International Energy Agency (IEA) raised its forecast on global oil demand. However, profit-taking was seen Friday after disappointing US retail sales. The front-month WTI contract ended the week at 73.78, up +3.17%. Corresponding contract for Brent crude surged +5.15% and settled at 74.35, up +3.13%.

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.

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.

In its Short-term Energy Report, the EIA factored in the impact of the 6-month moratorium in deepwater drilling and hurricanes in Gulf of Mexico in its latest forecasts in crude oil production. For 2010, US crude oil production is expected to rise +70K bpd to 5.392M bpd in 2010 from a year ago. This is -113K bpd lower than May's projection as the new NOAA forecasted a more active hurricane season this year. For 2011, crude oil production will probably drop -20K bpd to 5.38M bpd (also -113K bpd less than May's projection) from a year ago. The new forecasts have taken into account total cumulative reductions in the output of crude oil from the deepwater Gulf of Mexico of 2.4 million barrels in 2010 and 25 million barrels in 2011 because of the recently-imposed 6-month drilling moratorium.

On May 27, the US Department of the Interior announced a series of aggressive new operating standards and requirements for offshore energy companies and ordered a 6-month moratorium on deepwater drilling. Furthermore, there were cancellation in a pending lease sale in the Gulf of Mexico and a proposed lease sale off the coast of Virginia suspension of proposed exploratory drilling in the Arctic.

In our opinion, the overall impact of the new measures on production is limited IF the drilling ban ends 6 months later, given the high inventory level and huge spare capacity in the country. However, the overhang is if the government will extend the moratorium beyond 6 months. After all, the Gulf of Mexico accounts for more than 50% of the undiscovered hydrocarbon resources in the US.

As triggered by the current oil spill, long-term energy policy change is imminent. We believe tax hikes for oil and gas productions as well as acceleration in implementation of renewable energy are likely.

Natural Gas

Nymex gas price retreated after faltering below 5. According to the US Energy Department, gas storage increased +99 bcf to 2456 bcf in the week ended June 4, narrowing the level above 5-year average to 14.4%. After sliding for 2 weeks, Baker Hughes recorded +7 units increase in rig counts to 954 units.

Precious Metals

Comex gold extended gains earlier in the week and hit a new all-time high on Tuesday as worries over Hungary's deficit conditions boosted demand for safe-haven assets. Yet, price dropped thereafter amid improvement in risk appetite and long liquidation. The yellow metal ended the week with modest gain on a late rally on Friday.

Silver, gained +5.39% over the week, outperformed gold and others in the precious metal complex. However, the rally only pared the losses made over the past weeks. Year-to-date, the benchmark contract for silver added +7.29%, compared with +11.8% rise in corresponding gold contract.

PGMs traded rather quietly last week. Buying interests was found at around 1500 for platinum and the metal ended the week +0.64% higher. For palladium, price was supported at around 420 and then grinded higher as general market sentiment improved.

Base Metals

The complex was generally supported by robust economic data and improved market sentiment. Although China's imports for copper dropped for the third month to 396.7M tons, the level remained high given recent government tightening and lack of arbitrage between LME and SHFE. Aluminum imports increased +1.23% to 94.49M tons in May but was still down -72% from a year ago. Last week, Oleg Deripaska, owner of the world's largest aluminum company, said producers may shut smelters as aluminum price slumps. Deripaska said that about 70% of smelters around the world are unprofitable at current prices and this may trigger production suspension of around 2-3M tons in 2Q and 3Q, thus causing a 'deficit of physical supply. Deripaska's comment may trigger aluminum price further.