Crude oil slumped in tandem with Wall Street in early NY session as disappointing PPI and manufacturing data upstaged JP Morgan's strong earnings results. Price recouped most losses later in the day as driven by turnaround in BP's and Goldman Sachs' shares. Yesterday, WTI crude oil price plunged to as low as 75.33 before settling at 76.62, down -0.55%.

US producer price index missed market expectations and contracted -0.5% m/m in July. Meanwhile, both the Empire State manufacturing index and Philly Index fell sharply. The Empire State manufacturing index plunged to 5.08 in July from 19.57 a month ago. The market had anticipated a milder drop to 18.25. For Philly Fed, the index slid -2.9 points to 5.1 in July while consensus forecast a rise to 10.

Industrial jobless claims fell surprisingly to 429K for the week ended July 3. However, continuing claims rose +247K during the week following a -203K decline in the prior week.

Recent economic data nevertheless indicates economic recovery has been slowing in the second quarter.

Gold remained bounded within a range of 1200 and 1220. Price has been trading without direction as sovereign crisis in the Eurozone stabilized for now. We think that FOMC's dovish June minutes depicted a low rate environment which is positive for gold. While the Fed does not see immediate needs to adopt further stimulus, it will continue to keep the policy rates low for an extended period. The fact the policymakers did not have much discussion about exit strategy signals that the process of withdrawing stimulus has been delayed.

US 10-year notes gained solidly amid weaker-than-expected economic data. Yields dropped below 3% yesterday, signaling risk aversion is still there and is probably increasing. We believe this environment is positive for gold. The next key event to event to watch for is European banks' stress results which will be released on July 23. The market has priced in non-negative outcomes for the tests and this is one of the reasons driving the euro higher in recent days. If the results turned out to be unsatisfactory, it would inevitably trigger selloff of risk assets and boost demand for safe-haven assets.