I. Yesterday's News
International News
1. European Central Bank policymakers are open to a further step towards reducing their monetary stimulus but are likely to move slowly out of fear of causing market turmoil, minutes of their last meeting showed on Thursday. Rate setters meeting on June 7-8 discussed dropping a long-standing pledge to boost the ECB's 2.3 trillion euros bond purchase programme. Eventually they decided against doing so, stressing the need for "continued caution in communication". German government bond yields hit new 18-month highs and the euro edged higher after the minutes were released as traders speculated on a "tapering" of the ECB's debt-purchase programme, due to run until December.

2. Japan and the European Union agreed on Thursday to a free trade pact, creating the world's biggest open economic area and signalling resistance to what they see as U.S. President Donald Trump's protectionist turn. Signed in Brussels on the eve of meetings with Trump at a summit in Hamburg, the "political agreement" between two economies accounting for a third of global GDP is heavy with symbolism. It leaves some areas of negotiation still to finish, though officials insist the key snags have been overcome.

3. The ADP National Employment Report showed private sector payrolls increased by 158,000 jobs last month, below economists' expectations for a gain of 185,000. In a separate report, the Labor Department said initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 248,000 for the week ended July 1. It was the third straight weekly increase in claims, pointing to some loss of momentum in job growth as the labor market nears full employment. Those signs were also evident in another report on Thursday showing growth in services industry employment slowing in June even as the sector, which accounts for more than two-thirds of the U.S. economy, continued to expand at a healthy clip. The moderation in job gains likely reflects difficulties by employers finding suitable workers amid an unemployment rate that is at a 16-year low. Even so, the labor market remains strong and tightening conditions could allow the Federal Reserve to raise interest rates again later this year. After the ADP report, the dollar index slipped, U.S. Treasury yields fell and U.S. stocks edged lower.

4. The U.S. housing finance system continues to put taxpayers at risk in a market dominated by government-backed agencies, Federal Reserve Governor Jerome Powell said on Thursday, calling for further reform of an "unsustainable" situation. Key lawmakers in the House and Senate have started to examine proposals to overhaul housing finance, and U.S. Treasury Secretary Steven Mnuchin has also indicated the issue a top priority.

5. Australia's trade surplus rebounded sharply in May as coal shipments recovered faster than expected from cyclone-induced disruptions, putting exports back on track to add to economic growth in the quarter. Thursday's figures from the Australian Bureau of Statistics showed the trade surplus surged to A$2.47 billion ($1.88 billion) in May, up from a downwardly revised A$90 million in April and more than twice market forecasts of A$1.1 billion. Exports of coal alone jumped 62 percent to a cool A$5 billion. That suggests net exports made a welcome contribution to gross domestic product (GDP) in the June quarter, having been the biggest single drag on growth early in the year.

Domestic News
6. Market-oriented interest rate formation, regulation and transmission mechanism will be improved to enhance central bank's regulatory capacity on interest rates, according to the China Financial Market Development Report 2016. The central bank will also guide and keep market expectation stable, keep cross-border capital flow in balance and maintain yuan's exchange rage at a reasonable balanced level. China will also steadily push financial regulatory reform and improve the stability of financial institutions, put financial risk prevention and control to a more important place to better serve the real economy, the report said.

7. China disposable income per capital rose 62.6 percent in 2016 compared with 2010, laying a solid foundation for doubling household income by 2020, the National Bureau of Statistics said. This goal can be achieved as long as household income increases 5.3 percent in the next four years.

8. China's Ministry of Commerce said it will reinforce monitoring and supervision over foreign enterprises and foreign investment, as risk also increases as Chinese enterprises' "going out" strategy goes forward.

II. Market Overview
FX
1. Global Market
The dollar fell on Thursday after a round of weaker-than-expected U.S. employment data, affirming a gradual pace of interest rate hikes by the Federal Reserve as the labor market cools. In late trading, the dollar index was down 0.5 percent at 95.828. The dollar was little changed against the yen, at 113.25 yen , after rising more than 1 percent this week. The euro, meanwhile, rose 0.6 percent to $1.1418.

2. Home Market
China's yuan extended losses against the dollar on Thursday, while the midpoint rates posted the fourth consecutive decline amid quiet external environment. Big banks provided liquidity in the dollar as demand for forex lingered. In the afternoon session, forex prices were traded in a tight range. Yuan is expected to rebound in the medium term as Bank of England and European Central Bank normalize their monetary policy. 

Precious Metals
Gold eased but hovered above the previous session's two-month low on Thursday as weaker-than-expected private sector payrolls data fed into a more cautious view on the pace of U.S. interest rate hikes this year and Treasury yields firmed. Spot gold was down at $1,224.65 an ounce. U.S. gold futures for August delivery settled up 0.1 percent at $1,223.30.

Commodities
1.Crude Oil
Oil futures settled up slightly on Thursday, well off session highs, after a sharp but short-lived boost from a much bigger-than-expected decline in U.S. inventories of crude oil and gasoline. After hitting a high of $46.53 a barrel, U.S. futures settled up 39 cents to $45.52 a barrel. Brent futures hit a high of $49.18 a barrel after the inventory figures were released, but settled up 32 cents to $48.11 a barrel.

2.Base Metals
Aluminium prices climbed to more than five-week highs on Thursday as worries about supply from top producer China escalated on market talk that local smelters would be forced to shut capacity. Benchmark aluminium on the London Metal Exchange ended up 0.8 percent at $1,944 a tonne from an earlier $1,948, its highest since May 30. A softer U.S. currency helped boost sentiment in industrial metals markets. Copper ended up 0.2 percent to $5,851, zinc added 0.2 percent to $2,786, lead rose 0.8 percent to $2,284 and tin added 1.1 percent to $19,900.

U.S. Treasuries
1. U.S. Bonds
U.S. Treasury yields rose on Thursday, with benchmark yields touching nearly eight-week highs, on the prospect of hawkish global central bank policy and concern that rising oil prices could spur inflationary pressures. Longer-dated yields were last rising the most, with 30-year yields up about five basis points from Wednesday's closing level and set to post their biggest one-day rise in more than two months. Those yields hit a six-week high of 2.923 percent. Benchmark 10-year yields touched a nearly eight-week high of 2.391 percent before easing from that peak to last stand at 2.373 percent. U.S. five-year Treasury yields hit a more than three-month high of 1.968 percent while seven-year yields hit an eight-week high of 2.228 percent.

2. Chinese bonds
Yields of cash bonds and IRS inched down in China's interbank bond market, while T-bonds rallied after opening higher. Easing liquidity and softer tone in financial regulators boosted market sentiment. But lingering worries on liquidity and uncertainty over domestic fundamentals and foreign market keep the sustainability of the round of rally in check.

Stock Market
1. U.S. Equities
U.S. stocks were sharply lower on Thursday after disappointing labor market data clashed with the possibility of a more hawkish Federal Reserve, while rising tensions in the Korean peninsula providing additional pressure. The Dow Jones Industrial Average fell 158.13 points, or 0.74 percent, to 21,320.04, the S&P 500 lost 22.79 points, or 0.94 percent, to 2,409.75 and the Nasdaq Composite dropped 61.39 points, or 1 percent, to 6,089.46.

2. Hong Kong Equities
Hong Kong stocks followed most Asian markets lower, after minutes from the Federal Reserve's last meeting showed a lack of consensus on the pace of U.S. future interest rate increases. The Hang Seng index fell 0.2 percent, to 25,465.22, while the China Enterprises Index lost 0.3 percent, to 10,346.32 points.

3. China Equities
The Shanghai Composite Index closed higher to an over 2-1/2-month high after lingering around the key mark of 3,200. A sharp decline before and after the noon bell suggested mounting profit-taking, while coal and nonferrous metals extend gains. Major indexes are expected to retain moderate upward momentum.