Commodities continued to rise ahead of the US session. Brent crude contract recovered after the decline yesterday. The WTI-Brent crude spread also narrowed amid news of Seaway pipeline extension. Gold price climbed for the first time in 3 days amid hopes on the resolution for the fiscal cliff. Japanese yen continued to fall after the landslide victory of the LDP as investors anticipate aggressive easing from the central bank. The RBA minutes for the December meeting indicated the key reasons for rate cut were peaking of mining investments, sluggishness in non-mining sector and benign inflation.

Enterprise Products Partners announced that it and Enbridge would complete a 350K bpd expansion to the 150Kbpd Oklahoma to Texas Seaway pipeline in early January. They would also expand the Seaway pipeline to transport 850K bpd of crude between Oklahoma and southern Texas. Increase in future oil production weighed on oil prices yesterday and narrowed the WTI-Brent crude spread.

RBA minutes revealed that the rate cut by -25 bps to 3% was driven further information evidencing peaking of resource sector investment and sluggishness in non-mining sectors. While the pause in November was mainly due to the stronger-than-expected CPI, policymakers believed that the inflation outlook should be contained due to softening job market conditions and thus implemented the reduction in December.

Investors' reaction suggested that the LDP's victory in Japan's general election was well received. The new coalition government's immediate goal would be to stimulate the economy through both fiscal and monetary measures. It is widely anticipated that this week's BOJ meeting would lead to announcement of increase in the size of the Asset Purchase Program (APP) by 10 trillion yen. Concerning fiscal policies, the immediate job for the new administration is to propose the supplementary budget for FY2012 to combat deflection through increase in public spending. The new government will also begin planning on the FY2013 budget as well. Concerning the consumption tax, Abe had joined the DPJ in supporting doubling the tax to 10% by 2015. However, he recently stated that Japan's economy needs to pick up more before the law can be enacted. The market currently anticipates 50% of chance that the new administration would push this measure in the current market environment.

On the dataflow, UK's headline CPI stayed at +2.7% y/y in November, same as a month ago. Core CPI also stayed at +2.6% y/y in November. In the US, current account deficit probably narrowed to US$103.6B in 3Q12 from 117.4B a quarter ago. NAHB housing market index might have risen to 47 in December from 46 a month ago.


Oil and Gold Reports contributed by Oil N' Gold