Crude oil rallied as high as 78.15 after the US Energy Department reported crude inventory fell more than expected. However, gains were erased as the FED downgraded its economic forecasts. Disappointing retail sales also weighed on prices. The front-month WTI contract closed largely flat at 77.04. Today in Asia, prices remain under pressure as China's GDP growth eased to +10.3% in 2Q10, signaling the tightening policies have been effective.

While the market might have been thrilled by a -5.06 mmb decline in crude oil inventory and a surge of last week utilization rate to 90.5% last week. The overall outlook of the report was not too bullish as Cushing stock indeed rose +0.31 mmb and both gasoline and distillate stockpile surged more than feared.

In the June FOMC minutes, the Fed downgraded its growth and inflation outlook for 2010 and 2011 while unemployment rate forecasts were revised up. Financial markets were hurt as a result. However, the overall dovish tone was anticipated as the Fed released the meeting statement on June 23. The Fed noted the adjustments were 'relatively modest' and do not warrant 'policy accommodation beyond that already in place'. That said the Fed would consider whether 'further policy stimulus might become appropriate if the outlook were to worsen appreciably'.

While we said the dovish tone of the minutes were widely expected, market sentiment was nevertheless damped as economic data released in the US yesterday were disappointing. Retail sales contracted -0.5% m/m in June, worse than consensus of -0.2% although May's reading was revised up mildly. Excluding auto, the reading contracted -0.1% as expected but May's reading was revised lower. Import price index plunged -1.3% m/m in June after a -0.6% drop in the prior month, while the market had anticipated modest improvement to -0.4%.

Gold plunged yesterday as price soared to a 2-week high. The benchmark contract slipped -0.54% and settled at 1207. Today in Asia, price rebounds and we believe recent choppy trading in the yellow metal will continue in the near-term.

China's National Statistics Bureau reported the country's GDP grew +10.3% in 2Q10, eased from +11.9% in the prior quarter. Moreover, inflation and industrial production also cooled to +2.9% and +13.7% in June. Urban fixed-asset investment expanded +25.5% in the first 6 month of 2010, compared with +33.6% the same period last year. The market has different interpretation of the dataset. While some view it bullishly and believe no more tightening for the rest of the year as the economy should have avoided overheating, others worry the slowdown would continue and hurt commodity demand.

China U.S.