Financial leaders showed deliberation in preventing global economy from returning to recession. After announcing joint action to enhance liquidity support to the global financial system on December, central banks also moved unilaterally to stimulate the market. The ECB lowered the main refinancing rate by -25 bps to 1.0% and announced several new easing measures to ease liquidity tension. However, the market were disappointed by President Draghi's comments that ECB's bond purchases would only be temporary and limited. The next key event would be the EU summit.

The RBA lowered the cash rate for a second consecutive month, by -25 bps to 4.25%, amid worries that the financial turmoil in Eurozone would further drag down economic conditions in Australia. Policymakers revealed their concerns about the sovereign debt crisis in the 17-nation Eurozone as the problems are 'likely to weigh on economic activity there over the period ahead'. Deteriorating financial market conditions and 'precautionary behavior by firms and households' will likely result in material slowdown in global economic growth.

Emerging markets were also affected by economic and debt problems occurred mainly in the Western hemisphere. Growth deterioration made China cut the reserve requirement ratio (RRR) for all depository financial institutions by -50 bps, effective December 5, 2011 as reduction in inflationary pressure has lowered the need for tightening monetary policy.

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Crude Oil: Oil prices traded steadily for most of the week but plummeted Thursday as the ECB meeting disappointed. WTI-Brent crude spread remained steady at around $9/bbl. The gap has been moving at levels of $20/bbl or above for first 10 months of the year, only to narrow sharply in mid-November due to the acquisition of 50% of the Seaway pipeline by Enbridge and the announcement of a reversal in crude oil flows at the pipeline. The reversal, to be started in 2Q12, would divert crude oil out of Cushing and into the Gulf Coast with initial capacity of 150K bpd. The planned expansion will bring total capacity to 400K bpd by early 2013. The ease of supply bottleneck at Cushing after the reversal would reduce the huge stockpile in the area and support WTI crude oil prices.

China, as the world's biggest growth driver and the second largest oil consumer, is facing economic slowdown as shown by recent economic data. The moderated oil demand in the country should have much impact on the world market. According to the IEA, China monthly apparent demand climbed only +1.90% y/y in September while that growth in August was revised down slightly to +5.60%. Consumption in September was driven by higher demand in gasoline, jet/kerosene and gasoil.

The Chinese government has started to unwind the tightening monetary policy adopted earlier in the year, seeing moderation in inflation and weakening in manufacturing activities. The PBOC lowered requirement ratios for banks in early December and is expected to focus its strategy in stimulating economic growth.

In 2012, China's oil demand would be strengthened by not only commercial demand but also SRP purchases. It is expected that China will resume strategic restocking for its Phase 2 tanks (with capacity of 20M barrels) in Dushanzi.

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Natural gas remained under pressure. The DOE/EIA reported that gas inventory dropped -20 bcf to 3831 bcf in the week ended December 2. Stocks were +102 bcf above the same period last year and +307 bcf, or 8.7%, above the 5-year average of 3524 bcf.

Separately, Baker Hughes reported that the number of gas rigs fell -36 units to 820 in the week ended December 6. Oil rigs added +29 units to 1161 and miscellaneous rigs added +1 unit to 5, sending the total number of rigs to 1987 units. Directionally oriented combined oil, gas, and miscellaneous rigs stayed flat at 217units while horizontal rigs decreased -5 units to 1151 and vertical slipped -1 unit to 619 during the week.

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Precious Metals: Gold continued its directionless movement last week. Gold's trading pattern in this wave of sovereign debt crisis was quite different from those in 2009 and 2010, During the heights of debt problems in the Eurozone in the past 2 years, gold surged in tandem with the strength of the US dollar amid risk aversion. However, gold moved more in line with other commodities this time, i.e. fell as USD rose. The relentless rise of gold price since the beginning of the year and an eventual reach of a record high of 1923.7 in September has sent the metal to an overvalued territory. CME's margin hike attempting to reduce market volatility also hurt appetite.

Yet, we maintain our bullish outlook on gold as long as global central bankers continued to keep interest rates low and opt for easing monetary policies. Low interest rates reduce the opportunity cost of holding gold and money printing measures implemented by central banks is equivalent to currency depreciation. These factors would trigger investors to flee to gold investment.