The market appeared to have priced in negative news from the US for now as Wall Street surprisingly strengthened although the Fed's Beige Book said there were ‘widespread signs of deceleration' from mid-July to end-August. Market sentiment was also boosted as bond auctions in Portugal and Poland were well-received. This alleviated renewed fears of defaults in peripheral European bonds. Crude oil gained for the first time in 3 days despite downgrades in price forecasts by the US Energy Department and consensus of crude stock-build last week. Gold pulled back after climbing to 1264.7, $1.6 below all-time high, as increase in risk appetite drove investors to higher-yield investments.

The Beige Book shows that economic recovery in the US moderated further last month. Of the 12 districts, 5 saw growth at 'a moderate pace', 5 pointed to 'positive developments or net improvements compared with the previous reporting period' and the rest showed 'mixed conditions or deceleration in overall economic activity'. Manufacturing activities and the housing market slowed down while wage pressure remained limited. Slight growth was seen in consumer spending and tourism. The overall picture is that the economy continued to expand but at a relatively slower pace when compared with earlier in the year.

Yet, the stock market remained firm after the report with DJIA an S&P 500 adding +0.45% and +0.64%, respectively. Stoxx600, a gauge of European stock performance, also rose +0.99% to 262.33 at close. Bond markets in the US and Germany slipped with spread between peripheral European bonds and German bunds narrowed. Portugal's auctions of 3-year and 10-year bonds were successful. Although borrowing costs turned out to be higher than several months ago, the strong demand in the sale indicated the market remained confident that the country has the ability to repay the debts. Canada's bond market also dropped with yields higher after the BOC raised the overnight rate target, by +25 bps, to 1% and delivered a less dovish statement than the market anticipated.

Against the backdrop crude oil rose for the first time in 3 days with the benchmark WTI contract gaining +0.78% at close (closing price: 74.67). That said, price has been clustering within a narrowing range between 70 and 76 in recent weeks and significant improvements in the demand/supply outlook is needed for an upside break.

The industry-sponsored API reported a +7.31 mmb decline in crude inventory in the week ended September 3. Meanwhile, gasoline and distillate rose +0.654 mmb and +1.28 mmb, respectively. The market, however, anticipates increases in crude and distillate but drop in gasoline inventories from EIA's report.

In EIA' Short-Term Energy Report, the agency revised down its average oil price forecasts to 77 for 2010 and 82 for 2011, compared with corresponding forecasts of 81 and 84 made in August.