I. Yesterday’s News
International News

1. Chinese officials reviewing the country's vast foreign exchange holdings have recommended slowing or halting purchases of U.S. Treasury bonds amid a less attractive market for them and rising U.S.-China trade tensions, Bloomberg News reported on Wednesday. The report sent U.S. Treasury yields to 10-month highs and sent the dollar lower. China has the world's biggest currency reserves, and is the biggest foreign holder of U.S. government debt, according to data from the Treasury Department.

2. U.S. import prices recorded their smallest increase in five months in December and underlying imported price pressures were muted amid declining costs for food and consumer goods. The Labor Department said on Wednesday import prices edged up 0.1 percent last month after an upwardly revised 0.8 percent rise in November. That was the smallest gain since July and was well below economists' expectations for a 0.5 percent increase. Import prices were previously reported to have increased 0.7 percent in November. The Labor Department also reported that export prices slipped 0.1 percent in December, declining for the first time since June, as agricultural prices fell for a second straight month. Export prices rose 0.5 percent in November.

3. The global economy is set to expand by 3.1 percent in 2018, slightly up from 3 percent last year and marking the first year since the 2008 Great Recession that it will near or achieve full growth potential, the World Bank said on Tuesday. In an update of its twice-yearly economic report, the World Bank however warned that the economic upswing this year was temporary unless governments adopted policies that would focus on increasing workforce participation. The pace of world growth was expected to moderate to 3 percent in 2019 and 2.9 percent in 2020, it said.

4. A government reshuffle by British Prime Minister Theresa May was dismissed even by some of her allies on Tuesday as a failure that one said left her attempt to reassert her authority in “smoke and wreckage”. One former minister, George Osborne led the criticism, calling the moves a “farce”. But other more loyal members of her governing Conservatives also questioned the prime minister’s ability to put the party back on track for election success after a year of scandals, gaffes and divisions over Brexit.

Domestic News

5. China's consumer inflation grew at a slower pace in 2017, well below the government's target to hold the CPI at around 3 percent, and is expected to each 2 percent this year this year due to the low base and steadied pork and food prices. Production prices are also expected to grow mildly, constrained by a high base. In short, inflation is expected to continue at a mild rate this year despite of rising risks of higher prices, imposing no impact on monetary policy.

6. The country’s cabinet, the State Council, amended 11 sets of administrative regulations that impose restrictions on international firms in pilot free-trade zones (FTZs), allowing gas station construction and operation by wholly foreign-owned enterprises (WFOEs) and canceling the requirement that the local equipment sourcing rate be more than 70 percent for urban rail transit projects funded by foreign businesses.

7. China and France Tuesday agreed to further advance their comprehensive strategic partnership. Chinese President Xi Jinping and French President Emmanuel Macron reached the consensus during their talks in Beijing. He called on the two countries to deepen strategic cooperation in traditional areas such as nuclear energy and aerospace, nurture new growth points of cooperation, and promote cooperation in emerging areas including agriculture and food, health and medical services, urban sustainable development, green manufacturing and finance.

8. The People's Bank of China had notified banks that contribute mid-point estimates that they could adjust the counter-cyclical factor by themselves, sources familiar with the matter told Reuters on Tuesday, reflecting confidence that depreciation pressure on the currency has eased for now.

II. Market Overview
FX
1. Global Market

The U.S. dollar fell to a more than six-week low against the Japanese yen and weakened against a basket of major currencies on Wednesday after a report that China was ready to slow or halt its U.S. Treasury purchases. The dollar was down 1.13 percent at 111.37 yen, after touching 111.29 yen, its weakest since late November. The greenback was 0.65 percent higher against the loonie and up 0.47 percent against the Mexican peso.

2. Home Market

China's yuan pared losses after weakening to its lowest in nearly two weeks against the U.S. Dollar on Wednesday, following changes to the central bank's midpoint fixing mechanism. Trading was thinned amid cautions sentiment.

Precious Metals

Gold rose on Wednesday, hitting its highest in nearly four months as the dollar swooned after a report that Chinese officials had recommended slowing or halting purchases of U. S. Treasury securities. Spot gold was up at $1,316.81 an ounce. Its session high of $1,326.56 was its highest since Sept. 15. U.S. gold futures for February delivery settled up $5.60, or 0.4 percent, at $1,319.30 per ounce. Silver was up to $16.94 an ounce, while palladium ended at $1,082.99 an ounce.

Commodities
1.Crude Oil

Crude oil prices jumped on Wednesday and settled near three-year highs after U.S. government data showed a drop in crude inventories and production, even as fuel inventories rose. U.S. West Texas Intermediate (WTI) crude futures settled at $63.57 a barrel, up 61 cents, or 1 percent, their highest settlement since December of 2014. Earlier in the session, prices hit $63.67, their highest since Dec. 9, 2014. Brent crude futures settled at $69.20 a barrel, up 38 cents. The session high for the global benchmark was $69.37, highest since May 2015.

2.Base Metals

Nickel broke through key technical levels to reach its highest since 2015 on Wednesday as a sharply weaker dollar helped push dollar-denominated industrial metals broadly higher by making them cheaper for users of other currencies. Benchmark nickel on the London Metal Exchange closed up 1.9 percent at $12,935 a tonne after touching $13,200, the highest since June 2015. Copper closed 0.7 percent higher at $7,153, aluminium ended up 1.4 percent at $2,182.

U.S. Treasuries
1. U.S. Bonds

U.S. Treasury yields jumped to 10-month highs on Wednesday after Bloomberg News reported that Chinese officials have recommended the country slow or halt its purchases of the U.S. Bonds. The 10-year notes pared price losses after the U.S. auctioned $20 billion of reopened 10-year government bonds to strong demand. Benchmark 10-year note yields were last down to 2.564 percent, after peaking at 2.597 percent, the highest since March 15. The yield curve between two-year notes and 10-year notes was last flatter at 58.6 basis points, after steepening to 62.4 basis points earlier Wednesday.

2. Chinese bonds

China’s interbank bond market swung sharply on Wednesday morning, with the yields of 10-year Treasury bonds rising 6 bps before paring gains. Tumbling U.S. Treasury and lower yuan’s prices had a limited impact on China’s debt market. In the medium and longer term, yuan’s outlook remained steady supported by demand from banks and foreign investors. Bond investors were muted to the mild data on consumer prices in December.

Stock Market
1. U.S. Equities

Wall Street's major stock indexes ended lower on Wednesday after a choppy trading session as investors worried that China would slow U.S. government bond purchases and that U.S. President Donald Trump would end a key U.S. trade agreement. The Dow Jones Industrial Average fell 16.67 points, or 0.07 percent, to 25,369.13, the S&P 500 lost 3.06 points, or 0.11 percent, to 2,748.23 and the Nasdaq Composite dropped 10.01 points, or 0.14 percent, to 7,153.57.

2. Hong Kong Equities

Hong Kong stocks extended their winning streak to a 12th day on Wednesday, aided by strong inflows from mainland China. One-third of the daily quota under the Shanghai-Hong Kong Stock Connect was used up, as Chinese investors continued to buy Hong Kong shares at a steady pace. At the close of trade, the Hang Seng index was up 62.31 points or 0.2 percent at 31,073.72. The Hang Seng China Enterprises index rose 0.27 percent to 12,289.17.

3. China Equities

Chinese stocks rose for the ninth consecutive day, hovering at an over 1-1/2-month high on Wednesday, boosted by banks amid cautious sentiment after recent rally. Major indexes are expected to consolidate at highs in coming sessions. The benchmark Shanghai Composite Index closed up 7.93 points or 0.23 percent at 3,421.83. The trading volume of Shanghai A-shares fell to 254.3 billion yuan from 238.1 billion yuan. The Hushen 300 index ended at 4,207.81, up 0.44 percent.