The two issues Investors concentrated on were the general election in Greece on Sunday and the possibility of QE3 to be announced by the Fed. For the former, the latest poll survey before the blackout period showed that neither the New Democracy nor the Syriza party would have a sure win in the election. Yet, market sentiment improved as the EU welcomed Spain's request for the bailout fund and news reports that the EU/IMF might soften conditions of the Greek bailout plan. Disappointing US data surprisingly lifted market sentiment as weaker-than-expected economic environment was thought to have increased the likelihood of additional Fed easing. Indeed, gold prices have in recent weeks been pushed and pulled as speculations of QE3 waxed and waned.

The Sunday Greek election is a key event for the global financial markets in coming weeks as victory of the pro-bailout or the anti-bailout party is viewed as a key determinant of whether Greece would stay in the 17-nation Eurozone. The latest polls published before the blackout period (June 1) signaled that the Sunday event would be a close race between New Democracy (right wing, pro-bailout) and Syriza (left wing, anti-bailout). It is likely that neither party would win a sufficient share of the vote to form a government on its own.

In case of a victory by the New Democracy party, market reaction would be positive in the near-term as the government formed would then be less likely to directly oppose the EU/IMF on the austerity measures. However, in the longer term, the market would realize that the situation would be complicated as Syriza would make strong opposition in the next parliament. On the other hand, market reaction would be more pessimistic If Syriza wins amid worried over the far-left party's conflict with the European authorities. However, as long as Syriza fails to win the majority, it has to form a coalition with a more moderate party, thus lowering its anti-bailout influence.

US economic data released in recent weeks raised the chances of additional easing from the central bank. The US economic indicators released were disappointing. Initial jobless claims surprisingly rose +6K to 386K in the week ended June 9. Inflation moderated further with the May CPI rising +1.7%, following a +2.3% gain a month ago. The core reading stayed unchanged at +2.3% during the month. Industrial production unexpectedly contracted -0.1% in May following a +1.1% gain in the prior month. The Empire State Manufacturing index shrank markedly to 2.3 in June from 17.1 in May. This sent a signal that the ISM manufacturing index for this month would worsen. Moreover, the University of Michigan index showed that confidence fell to 74.1 in June from 79.3 in May. The upcoming FOMC meeting would catch a lot of attention as policymakers may decide whether to adopt more unconventional stimulus to bolster the economic growth. Yet, it is unlikely for the Fed to act this month. Besides the situation that recent deterioration in US data has not reached a level that triggers an immediate move, policymakers would prefer to wait after the Greek election and expiry of operation twist.

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Energies: The OPEC announced after the Thursday meeting that member would adhere to the production quota of 30M bpd agreed in December. However, members have been producing more than what is allowed over the past months. Regarding this, Abdullah El-Badri, the secretary-general of the OPEC, stated that countries produced exceeded the quote were asked to reduce their output. In the meeting statements, members of the cartel, acknowledged heightened price volatility witnessed during the early part the year 2012 was a reflection of geopolitical tensions and increased levels of speculation in the commodities markets, rather than solely a consequence of supply/demand fundamentals.

Natural gas jumped on Thursday by as much as +15.8% as the increase in US inventory rose less than expected. On weekly basis, the benchmark contract gained +7.3%. According to the DOE/EIA, natural gas stock rose +67 mmb to 2944 mmb in the week ended June 8. Stocks were 708 bcf higher than the same period last year and 666 bcf, or +29.25, above the 5-year average of 2278 bcf. Separately, Baker Hughes reported that the number of gas rigs dropped -3 units to 562 in the week ended June 15. Oil rigs decreased -9 units to 1 405 and miscellaneous rigs fell -1 units to 4 and the total number of rigs was down -13 units to 1 971 units. Directionally oriented combined oil, gas, and miscellaneous rigs fell -2 units to 233 while horizontal rigs decreased -15 units to 1 162 and vertical rigs rose +4 units to 576 during the week.

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Precious Metals: Gold recaptured 1600 as hopes for QE3 heightened. Since the beginning of the year, the market has been confused by the yellow metal's movement and whether it should be treated as a safe haven asset or a risk asset. The chart below shows that gold price and Spain's 10-year CDS moved rather inline from 2009 to 2011, signaling the former's safe-haven status during the period. However, the correlation has changed since the beginning of this year. It's seen that gold price soared as the CDS fell and similarly, the latter soared as the former fell. This showed that gold price performed as a risk asset. Indeed, investors probably have treated gold as a risk asset since the Fed's operation twist announced in September. Global economic uncertainty has not since then raised the yellow metal's appeal. However, we believe a good opportunity for gold to regain its safe-haven asset has now reemerged as the US recovery moderates and hopes of QE3 intensified.

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