Commodities rebound as some market participants find recent selloffs offer opportunities for bargain-hunting. The front-month contract for WTI crude oil price recovers to 72 after plunging to as low as 71.32 yesterday. Prices for heating oil and gasoline also climb higher. Copper price rebounds from a 1-month low while gold extends strength to above 1240, the highest level since July 1. While we expect prolonged global economic uncertainty and resurface of sovereign crisis woes in peripheral European economies should support gold’s rally, the energy and base metal complex may undergo further pressure in coming months as economic conditions deteriorate further.

Base metals resumed the decline late last week as US’ initial jobless claims rose more than expected and ECB’s Weber signaled prolonged stimulus measures in the Eurozone. While weakening macroeconomic backdrop is a crucial issue triggering the selloff, the inventory trend in LME warehouse has also turned less supportive. The downtrend of LME stock levels in July has shown signs of shifting over the past 2 weeks. On Monday, only aluminum and tin recorded dips in inventory whilst others showed increases. Lead inventory has even soared for a 6th consecutive day to 192 850 metric tons, the highest level since June 14. Although China’s trade report in July appeared to be stronger than expected, it failed to boost buying as investors anticipate slowdown to be imminent in coming months. Note that China tends to import less in October due to a week-long National Day holiday and mid-autumn festival. Therefore, significantly softening will likely be observed in 4Q10.

Germany’s IFO data came in stronger than expected in August. The business climate index surprisingly rose to 106.7 from 106.2 in July. This exceeded consensus of a drop to 105.7 and marks the highest reading since June 2007. The current assessment index also beat market expectations and rose to 108.2 from 106.8 in July while the expectations index dropped to 105.2 from 105.5, compared with market forecasts of 104.3.

Focus in the US session will be on durable goods orders which probably expanded +3%m/m in July after contracting -1% in the prior month. The reading after excluding transporation should have reduced to only +0.5%. House price index should have climbed +0.1% in June, easing from a +0.5% gain in May. While the market forecasts new homes sales to hold at a 330K annual pace in July, a weaker-than-expected reading should trigger severe selloff in financial markets.