A Big Week Begins: We have Presidential Election, ECB and BOE Rate Decisions and Non-Farm

il price keeps trading below 70.6 today. Direction is unclear as investors are still trying to get clues on demand outlook. In Asian session, the benchmark futures rebound from Friday's close at 67.81 to 69.19 on expectation that rate cuts in US, China and India would induce economic growth. Also, OPEC's production cut in December in order to defend a floor at $80/bbl, as well as the possible reduction in non-OPEC countries such as Russia led to speculation on tightened supply. However, the black gold retreated by more than $2/bbl to 66.84 after news on reduced imports by Asian refiners was released.

South Korea, the fourth biggest economy in Asia, imported 1.4% less crude oil in October as the global credit crisis impacted on the nation's economy. In the meantime, Sinopec, Asian's biggest oil refiner, will process less crude oil because of lower profitability. The news, which further evidenced “re-coupling” of emerging markets, worried investors and they sold off their long positions on oil.

Oil price movement slightly deviated from equity markets today. Extending the rally last week, the MSCI Asia Pacific excluding Japan Index rose 5.2% to 256.26, led by financial stocks. Some of the sectors have fallen to very low valuation and that spurred investors' risk appetites to enter into the market.

Gold rebounded today as dollar weakened. The dollar fell for the first time in three days against the Euro amid speculation that US economy will slow further and FED would continue to cut interest rate after the next FOMC meeting. US Presidential election is the focus of the week. Unless some extraordinary thing happened, we do not expect much impact to the markets as the result was largely priced in. Although the gold contract fro December delivery recovered $16/oz to 734.3 from 718.2, Friday low, outlook is mixed and we expected it will gyrate within the range of 681 and 778.3.

October ISM will be released at 10am today and it expected to come in at 41.5, a decline from 43.5 a month ago. On Friday, non-farm payroll is expected to show a 10th consecutive decline in October.

The precious metal has lost its appeal as a safe haven as it was during every US recession and there are 2 main reasons for gold's weakness in recent months. First, deflation and dollar strength reduced gold's attractiveness as an inflation-hedge. Second, gold is now classified as ‘commodity' which was regarded as a poor investment due to sluggish demand growth.

Demand for gold dropped. CFTC showed in a report that institutional investors reduced their net long position by 21% from a week ago in gold futures in the week ended Oct 28.

Apart from the election, rate decisions continue to be a focus this week. Both ECB and BOE will be cutting rates Thursday. As it's widely anticipated that ECB will cut rates by 50bps to 3.25%, focus was hence on President Trichet's speech after meeting. We believe he would remain dovish and hint further easing in rates. The Bank of England will also announce its interest rate decision and the market is looking for another cut to take the base rate down to 4.0%.