Intensifying global economic uncertainty weighed on the market last week. There was once a boost on Friday as the US employment report in July exceeded expectations but the momentum was week. Asian markets should open with great caution on Monday as the S&P downgraded US' rating to AA+ (from AAA) after the US market closed on Friday. Investors' confidence soured and risk appetite slumped as macroeconomic data disappointed, giving more evidence on slowdown, and sovereign debt problems in the US and the Eurozone persisted. Equities, commodities and high-yield currencies tumbled while safe-haven assets rallied. The DJIA lost -5.75% during the week, erasing all gains made since the beginning of 2011. Year-to-date, the benchmark is down -1.15%. The S&P 500 Index plummeted -7.19%, the biggest weekly drop since 2008, to settle at 1199.38, the lowest level since November 2010. In the commodity sector, oil dived with the front-month WTI and Brent crude contracts falling -9.22% or -6.31% respectively. The WTI-Brent crude spread widened to 22.49. Base metals declined with LME Metal Index slipping -8.94%. Gold was the only gainer in the commodity universe under our coverage. The metal surged to a record high of 1683.5 on Thursday before pulling back. The benchmark Comex contract ended the week +1.26% higher. We expect gold will remain supported and extend the uptrend after consolidation, as long as the economic turmoil persists. Silver initially followed gold's coattail and rose higher. Yet, the decline on Thursday resulted in a weekly loss of -4.73%. For PGMs, both platinum and palladium slipped amid demand worries.

Optimism over a resolution to raise the US debt ceiling proved to be short-lived. Financial markets advanced early last week as the House and the Senate passed a deal agreed between the Democrats and Republicans to raise the debt ceiling by 2.1 trillion, an amount adequate to satisfy the country's borrowing needs through 2013, and cut the deficit by as much as 2.5 trillion over a decade. Bullishness quickly evaporated as soon as economic data returned to the spotlight. US' ISM manufacturing index fell much more than anticipated, by -4.4 points, to 50.9, the lowest level since July 2009, as nearly every component declined. It's likely that the index will fall below 50 (a reading below 50 signals contraction) in coming months unless economic conditions improve. Elsewhere in the UK, manufacturing PMI plunged to 49.1 in July from an upwardly revised 51.4 in June. This was the first time since September 2009 that UK's manufacturing sector fell in the contraction territory. The final estimate of Eurozone's manufacturing PMI stayed unchanged at 50.4 in July. However, the reading for Germany was revised down -0.1 point to 52. In peripheral countries, the Spanish PMI declined for the 5th consecutive month to 45.6 from 47.3 while Italian PMI edged higher to 50.1 from 49.9. China's manufacturing PMI eased to 50.7 in July from 50.9 in the prior month. The market had expected a deeper slowdown to 50.2. Similar data compiled by HSBC showed a drop to 49.3 in July from 50.1 in June. A reading below 50 signaled contraction in manufacturing activities.

Central bankers are obviously aware of the problem and have begun easing. SNB and BOJ intervened in the currency market to curb excessive appreciation of CHF and JPY respectively. The BOJ shortened the monetary meeting to 1 day and announced to increasing the size of its asset purchase program by +10 trillion yen to 50 trillion yen. Global easing was followed by the ECB which announced a new round of LTROs and extension of full allotment of fixed rate MROs 'at least until the end of the last maintenance period of 2011 on January 17, 2012. Meanwhile, President Trichet also signaled that the Securities Market Program (SMP) has been re-activated. Despite different measures, central banks are unanimous in providing liquidity to stimulate the recovery as downside risks to growth are increasing.

The focus next week will be on the Fed. There have been intensifying speculations that policymakers will announce a third buying program, i.e.: QE3. Moreover, the Fed may change the language in the accompanying statement to signal that exceptionally low interest rates will stay longer than previously expected. If that's the case, the US dollar will decline while stocks and commodities will advance. Gold will also be bolstered as investors lost confidence in fiat currencies. Indeed, in a low-rate environment, gold should be well-supported and have high chances to rise to record levels.

""

Energies: Losing -9.22% and -8.26% respectively, Nymex crude oil and gasoline were the worst performers in the energy complex last week. Indeed, these 2 commodities rose sharply in the first quarter and the first half of the second quarter of the year. The trend only reversed in May when sovereign crisis in the Eurozone reemerged and economists began to warn of the adverse impacts of high oil prices on the economy. The commodities plunged after the IEA announced the emergent SPR release on June but recovered rapidly. For the first 7 months of the year, Nymex crude gained +4.73% and gasoline surged +26.9%. Elevated crude oil and fuel prices have been thought to be a major cause in the global economic slowdown.

The US Census Bureau reported that gasoline station sales represented 13.01% of total adjusted retail sales in May, followed by a drop to 12.82% in June. As gasoline prices fall further, the percentage will fall further to 12-12.5% in coming month. This is probably a good sign for consumer spending.

Regular gasoline retail prices have been trading above the Nymex RBOB gasoline futures. The DOE/EIA said in May that 'several studies have found that futures prices are unbiased predictors of realized spot prices'. If that's true, regular gasoline retail prices may soon follow the selloff in gasoline and converge with futures prices.

""

""

Natural gas storage added +44 bcf to 2758 bcf in the week ended July 29. Stocks were -186 bcf below the same period last year and -68 bcf, or -2.4% below the 5-year average of 2826 bcf. Separately, Bake Hughes reported that the number of gas rigs increased +6 units to 883 units in the week ended August 5.

""

""

Precious Metals: Gold strengthened and surged to a new record high of 1684.9 on Thursday. While price retreated on Monday after the US reached a deal on raising the debt ceiling and on Friday after a better-than-expected US employment report, the tone remained strong. Despite elevated price levels, gold will still rise further as heightening uncertainties in global economic outlook should drive investors to the yellow metal. A new round of monetary easing in advanced economies is underway. The measures mainly concentrated on quantitative easing, i.e. pumping money to the market by buying bonds, as interest rates in these countries have been exceptionally low. Just as what had happened in the past 2 years, QE measures will ruin investors' confidence on fiat currencies and trigger them to find shelter in gold which is safe and will not be devalued.