I. Yesterday's News
International News
1. North Korea fired a missile that flew over Japan and landed in waters off the northern region of Hokkaido early on Tuesday, South Korean and Japanese officials said, marking a sharp escalation of tensions on the Korean peninsula. South Korea's military said the missile was launched from the Sunan region near the North Korean capital just before 6 a.m. (2100 GMT Monday) and flew 2,700 km (1,680 miles), reaching an altitude of about 550 km (340 miles). "North Korea's reckless action is an unprecedented, serious and a grave threat to our nation," Japanese Prime Minister Shinzo Abe told reporters. Abe said Japan was seeking an urgent meeting at the United Nations to strengthen measures against Pyongyang. Japan's Chief Cabinet Secretary Yoshihide Suga said the latest North Korean missile fell into the sea 1,180 km (735 miles) east of the Cape of Erimo on Hokkaido. In Washington, the Pentagon confirmed the missile flew over Japan but said it did not pose a threat to North America and said it was gathering further information. The S&P mini futures fell as much as 0.85 percent to 2,443 on the news before paring losses a tad to trade 0.7 percent below its close on Monday. The yen was up 0.8 percent against the dollar after hitting 108.330, its lowest since April 18. Spot gold rose 0.9 percent at $1,324 an ounce, after rising to its highest since early November.

2. Historic flooding from Tropical Storm Harvey killed at least seven people in Texas and was expected to drive 30,000 from their homes, as officials on Monday warned that floodwaters would likely rise in the coming days as the storm hovers over the U.S. Gulf Coast. The storm was the most powerful hurricane to strike Texas in more than 50 years. Harvey was expected to remain over Texas' Gulf Coast for the next few days, dropping another 25-51 cm of rain, with threats of flooding extending into neighboring Louisiana. Almost half of the U.S. refining capacity is in the Gulf region. The nation's second-largest refinery was shutdown in Baytown. The floods' path of destruction could destroy as much as $20 billion in insured property, making it one of the costliest storms in history for U.S. insurers, according to Wall Street analysts.

3. The U.S. goods trade deficit increased in July as exports fell, suggesting that trade would make a modest contribution to economic growth in the third quarter. The Commerce Department said on Monday the goods trade gap increased 1.7 percent to $65.1 billion last month. Exports declined 1.3 percent, weighed down by an 8.0 percent tumble in shipments of motor vehicles. The government will publish its comprehensive trade report, which includes services, next week. The Commerce Department also reported on Monday that wholesale inventories increased 0.4 percent in July after rising 0.6 percent in June. However, retail inventories fell 0.2 percent after advancing 0.6 percent in June. Despite July's soft inventory data, economists remained optimistic that inventory investment would contribute to growth in the third quarter.

4. China will allow participants in its interbank bond market to trade government debt ahead of its issuance, its foreign exchange market operator said on Monday. The China Foreign Exchange Trade System (CFETS) will issue announcements five working days before each government debt issuance, the statement said. The introduction of so-called "when-issued" trading for Chinese treasuries will have benefits for price discovery and strengthening of the government bond yield curve, CFETSsaid in a statement on its website. When-issued debt refers to debt that has been announced but not yet issued. All participants in China's interbank bond market will be able to conduct when-issued trading on Chinese government bonds from four working days before their issue date until one working day before, the statement said.

Domestic News
5. China's Foreign Ministry on Monday said Indian troops had withdrawn to the Indian side of a disputed border area, while Chinese troops would continue to patrol the disputed Doklam region. China said it had confirmed that India had withdrawn personnel and equipment from Doklam at 14:30. China will continue to safeguard its territorial sovereignty according to historical boundary treaties. Earlier on Monday, India's foreign ministry said it had agreed with China to an "expeditious disengagement" of troops at the disputed border area.

6. China will count on upgrading "Made in China" to drive economic restructuring and realize new industrialization, Chinese Premier Li Keqiang has said. For this purpose, China will roll out more fiscal support and preferential taxation policies to facilitate manufacturing upgrading, and propel inclusive finance to help cash-starved micro, small and medium-sized firms, according to Li.

7. China's commerce ministry late on Friday banned North Korean individuals and enterprises from doing new business in China, in line with United Nations Security Council sanctions passed earlier this month.

8. China's State Council has approved a merger between China's major power generator China Guodian Corporation and coal producer Shenhua Group, an official statement said Monday. The two companies will be restructured to form a new energy investment company, the State-owned Assets Supervision and Administration Commission (SASAC) said on its website.

II. Market Overview
FX
1. Global Market
The U.S. dollar dropped to its lowest in roughly 16 months against a basket of major currencies and a more than 2-1/2-year low against the euro on Monday, following comments from central bankers on Friday and worries over Tropical Storm Harvey. The greenback was last down 0.2 percent against the yen at 109.08 yen, off an eight-day high touched on Friday of 109.84 yen. A public holiday in global foreign exchange capital London kept trading volumes thin.

2. Home Market
China's yuan climbed to its strongest against the U.S. dollar in more than a year on Monday, after the central bank raised its official guidance following a slide in the greenback. A stronger euro weighed on the dollar index following comments from central bankers. Yuan is expected to closely track the dollar index due to lackluster sentiment for forex settlement.

Precious Metals
Gold rallied to a 9-1/2-month high on Monday, breaching $1,300 per ounce as the dollar fell and the euro rose after the head of the European Central Bank (ECB) said that the euro zone's economic recovery had taken hold at a meeting of central bankers. Spot gold rose to $1,309.50 an ounce, after rising to its highest since early November at $1,309.98. U.S. gold futures settled up 1.3 percent at $1,315.30. In other precious metals, silver was up 2 percent at $17.39 an ounce, after touching its highest since early June at $17.45.

Commodities
1.Crude Oil
Gasoline prices surged to two-year highs on Monday as Tropical Storm Harvey knocked out several refineries and disrupted fuel production, while a back up in crude supplies pushed U.S. crude oil futures down more than 2.5 percent. Spot prices for U.S. gasoline futures surged 7 percent to a peak of $1.7799 per gallon, the highest since late July 2015, before easing to settle at $1.7123, up more than 3 percent. U.S. West Texas Intermediate (WTI) crude futures settled down $1.30 or 2.7 percent to 46.57. Brent crude futures were down 52 cents or around 1 percent at $51.89 per barrel.

2.Base Metals
Most Chinese base metals futures were mixed on Monday as investors took profits following hefty gains last week. Metals linked with steel markets - nickel, zinc and lead - recorded the biggest losses, with copper only barely in positive territory. Monday is a market holiday in Britain and the London Metal Exchange will be closed. The most traded Shanghai Futures Exchange zinc contract dropped 1 percent to 25,830 yuan ($3,890.24) a tonne by the close. ShFE Nickel fell 0.7 percent, while lead lost 1.7 percent. ShFE copper eked out a 0.9 percent gain, building on a robust demand outlook for the metal in China.

U.S. Treasuries
1. U.S. Bonds
U.S. benchmark Treasury yields fell to two-month lows on Monday after the government saw strong demand for a five-year note auction, and as market participants waited on data that will culminate on Friday with the August employment report. Wall Street's top 23 firms took a record low share of five-year government notes, while direct bidders bought their biggest stake since July 2014. Benchmark 10-year notes gained 5/32 in price to yield 2.155 percent, the lowest since June 27.

2. Chinese bonds
Slower growth in industrial enterprises' profits boosted market earlier on Monday. But net withdrawal by the central bank in open market fueled worries over the tightened operations. Cash bonds weakened, tracking futures.

Stock Market
1. U.S. Equities
The S&P 500 and Dow ended little changed on Monday, with energy and bank shares lower as Tropical Storm Harvey crippled the U.S. energy hub in Texas, while tech and healthcare gave a light boost to the Nasdaq. The Dow Jones Industrial Average fell 5.27 points, or 0.02 percent, to close at 21,808.4, the S&P 500 gained 1.19 points, or 0.05 percent, to 2,444.24. The Nasdaq Composite added 17.37 points, or 0.28 percent, to 6,283.02 helped by rises in Apple and Gilead Sciences.

2. Hong Kong Equities
Hong Kong's benchmark stock index ended Monday flat, after briefly breaching the 28,000-point level for the first time since May 2015, as weakness in consumer and technology stocks offset strength in financial plays. The market has been bolstered by a raft of forecast-beating results from mainland companies listed in the city. The Hang Seng index rose 0.1 percent, to 27,863.29, while the China Enterprises Index gained 0.5 percent, to 11,342.07 points.

3. China Equities
The Shanghai Composite Index settled up to an almost 20-month high, led by brokers. After crossing over 3,300, risk appetite and market morale improved. But after a two-day rally, sector rotation will dominate the market.