Firmness in dollar and speculations on huge crude oil triggered profit-taking in the energy market. The front-month contract for WTI crude oil price plummeted to as low as 80.16 before recovering to 81.49, down -0.5%.Today in Asian session, crude oil continues hovering around 81 with thin trading.

USD and JPY strengthened yesterday as Fitch left Portugal in negative rating watch and warned that it would cut the country's AA credit rating if it fails to reduce its budget deficit after introducing the budget reforms. While the market had been relieved after EU leaders' promises of helping Greece when necessary, worries about implementation of the deficit-reduction plan arose again as Fitch said that while Greece's outlook in 'probably OK' in the short-term, it's less certain in the six to nine months.

Not in the 16-nation region but one of the biggest economies, the UK is also facing the problem of having astronomical budget deficit as it pledged ample liquidity to help overcome recession last year. Fitch said the country should lower its deficit at a faster pace than currently planned. The agency suggested a cut to 3% of GDP by 2014/15. At the same time, Moody's raised concerns about UK banks which failed to improve their financial positions to weather the withdrawal of government stimuli.

Deficit concerns once again pressured the euro and the pound. Risk appetite is like roller coaster. We see peripheral debt spreads widen again.

After market close, the industry-sponsored API estimated +6.5mmb increase in crude oil inventory in the week ended March 5. The market changed little after the report as the negative news of huge stock build in crude oil was offset by unexpected decline in gasoline and distillate stockpiles.

The US Energy Department (EIA) will probably report that crude oil inventory rose +2 mmb last week. For oil products, gasoline stockpile should have risen +0.15 mmb while that for distillate drew -1 mmb.

With market sentiment dramatically diminishes, the mildly supportive news came from EIA's monthly report, which upgraded global oil demand for 2010 and 2011 to 85.51M bpd (previous: 85.30M bpd) and 87.06M bpd (previous: 86.86M bpd), respectively. The major reason for the upgrades is higher world economic growth forecasts. The EIA forecasts US real GDP will grow +2.8% yoy (previous: +2.3%) and world oil-consumption-weighted real GDP will expand +3.4% (previous: +2.7%) this year.

Gold price slumped to as low as 1112.1 before recovering to 1122.3, down -0.02%, yesterday, as driven by broad-based decline in the commodity sector. Investors were also disappointed by Yi Gang's, head of the State Administration of Foreign Exchange's (SAFE), comments that 30-year return of gold is not attractive despite lucrative gains in recent years. Yi Gang added that 'the US Treasuries market is very important for China. China is a responsible investor, and we don't want to politicize the issue'.

While the official's comment may weigh on gold price, the impact should be short-lived. We still believe that China will continue increasing gold reserve, given the extremely low proportion of the yellow metal in its foreign exchange reserve. However, as we mentioned in the past, China will accumulate gold domestically or through acquisition of gold mines.