I. Yesterday's News
International News
1. The Federal Reserve needs to continue gradual rate hikes despite broad uncertainty about the path of inflation, Fed Chair Janet Yellen said on Tuesday in remarks that acknowledged the central bank's struggles to forecast one of its key policy objectives. It is possible, Yellen said, that the Fed may have "misspecified" its models for inflation, and "misjudged" key facts like the underlying strength of the labor market and whether inflation expectations are as stable as they seem, and central bankers need to remain open to that possibility as they decide on policy. Still, recent low inflation was likely a reflection of factors that would fade over time and despite uncertainties, it "would be imprudent to keep monetary policy on hold until inflation is back to 2 percent," Yellen said. "Without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession," she said. The dollar shot up then retreated after Yellen's comments, reflecting uncertainty about her message. Treasury yields and stocks edged slightly higher.

2. President Donald Trump warned North Korea on Tuesday that any U.S. military option would be "devastating" for Pyongyang, but said the use of force was not Washington's first option to deal with the country's ballistic and nuclear weapons program. "We are totally prepared for the second option, not a preferred option," Trump said at a White House news conference, referring to military force. Despite the increased tension, the United States has not detected any change in North Korea's military posture reflecting an increased threat, the top U.S. military officer said on Tuesday.

3. U.S. Republicans on Tuesday fell short yet again in their seven-year drive to repeal Obamacare, in a bitter defeat that raises more questions about their ability to enact President Donald Trump's agenda. The party was unable to win enough support from its own senators for a bill to repeal the 2010 Affordable Care Act and decided not to put it to a vote, several Republicans said. The bill's sponsors vowed to try again, but face steeper odds after Sunday, when special rules expire that allow them to pass healthcare legislation without Democratic support.

4. U.S. consumer confidence fell in September and home sales dropped to an eight-month low in August due to the impact of Hurricanes Harvey and Irma, supporting the view that the storms would hurt economic growth in the third quarter. But U.S. economic growth remained solid with other data on Tuesday showed surging home prices in July.

5. North Korea has been moving airplanes and boosting defences on its east coast after the United States dispatched B-1B bombers to the Korean peninsula over the weekend, South Korea's Yonhap News Agency reported on Tuesday, citing the country's spy agency. The United States seemed to have disclosed the flight route of the bombers intentionally because North Korea seemed to be unaware, the report said. South Korea's National Intelligence Service was unable to confirm the report immediately.

6. Developing Asia is on track to grow faster this year and next, the Asian Development Bank said on Tuesday, buoyed by a pick-up in world trade and China's expansion, but it flagged risks from tightening U.S. monetary policy. Developing Asia is expected to grow by 5.9 and 5.8 percent in 2017 and 2018, respectively, the Manila-based lender said. That is unchanged from its July estimates, but higher than the 5.7 percent forecast it gave for both years in its Asian Development Outlook (ADO) released in April. China is expected to grow 6.7 percent this year and 6.4 percent next year, the ADB said, unchanged from its July estimates.

7. Bank of Japan policymakers said they should stick with their current policy framework and had reason to be optimistic about consumer prices because measures of inflation expectations have stopped falling, minutes of the central bank's July 19-20 meeting showed on Tuesday. Policymakers' optimism about achieving their inflation target is unlikely to quell concern that BOJ needs to change its policy stance because it has so far failed to boost prices.

Domestic News
8. China's economic growth likely slipped in the third quarter but was still in far better shape than last year, a private survey showed on Wednesday, while adding that major risks are looming for 2018. Profits at Chinese firms are much healthier and hiring remains robust, but a five-quarter boom in commodities which has stoked growth has begun to reverse, according to the quarterly survey of thousands of Chinese firms by China Beige Book International (CBB). While the survey painted a picture of still solid economic growth, it pointed to a number of major risks including a continued over-reliance on cheap, easy credit and "old" growth drivers such as manufacturing and property. But CBB said China's capacity cuts are largely a myth, with firms in its survey reporting that capacity and output are still on the rise. China's recovering economy is boosted by property in the first half of this year, but growth is expected to slow down to 6.7 percent in the second half from 6.9 percent under the central government's regulation, said Fan Jianping, chief economist of the State Information Center,

9. The Asian Development Bank raised its outlook for China's economic growth this year on the back of strong domestic consumption, an export recovery and solid growth in services. ADB now expects China's economy to grow 6.7 percent in 2017, up from a previous projection of 6.5 percent made in April.

10. China is committed to improving its macro regulation to keep economy within a reasonable range, He Lifeng, director of the National Development and Reform Commission, said, adding that China will also push forward economic restructuring and reform in key area to deepen supply-side reform and keep systematic financial risks from happening.

II. Market Overview
FX
1. Global Market
The U.S. dollar hit five-week highs against the euro on Tuesday after Federal Reserve Chair Janet Yellen was seen as striking a slightly hawkish tone on rates, before the greenback gave back some gains as the move was seen as overdone. The dollar was last up 0.35 percent against the single currency at $1.1808, after briefly strengthening to $1.1756, the strongest level since Aug. 23, immediately after Yellen's comments. The euro also weakened as worry about political fallout in Germany and other euro zone countries grew.

2. Home Market
China's yuan was trading in a wide range against the dollar in the morning session, while the official yuan midpoint hit a one-month low. The midpoints rates were set higher as regulators did not want to see depreciation expectations out of sharp corrections in yuan, traders said. Yuan is expected to retain high elasticity.

Precious Metals
Spot gold dipped more than 1 percent after Federal Reserve Chair Janet Yellen said the central bank needed to continue gradual rate hikes, despite weak inflation. Spot gold was down 1.27 percent at $1,293.51 per ounce, while U.S. gold futures for December delivery settled down 0.75 percent at $1,301.70. Meanwhile, silver was down over 2 percent at $16.767 per ounce. Platinum was down at $922 per ounce, after reaching $918.75, the lowest since July 28.

Commodities
1.Crude Oil
Oil prices ended 1 percent lower on Tuesday after investors took profits following a rally to 26-month highs spurred largely by threats from Turkey to cut crude exports from Iraq's Kurdistan region. Brent settled 58 cents, or 1 percent, lower at $58.44 a barrel after hitting $59.49, its highest since July 2015 and more than 34 percent above their 2017 low. U.S. crude futures closed 34 cents, or 0.7 percent, lower at $51.88 a barrel, after hitting a five-month high of $52.43.

2.Base Metals
Copper closed lower on Tuesday, extending four straight days of losses as oil prices retreated from the previous session's more than two-year high and the dollar strengthened. London Metal Exchange copper ended the day down 0.6 percent at $6,411 a tonne. Prices touched their lowest since mid-August on Friday at $6,366 a tonne. LME zinc closed up 0.6 percent at $3,116 a tonne, while lead ended 0.5 percent higher at $2,488 a tonne.

U.S. Treasuries
1. U.S. Bonds
U.S. Treasury yields rose on Tuesday as Federal Reserve Chair Janet Yellen stuck to the view that the central bank remains on track for gradual interest rate increases even as inflation remains below its 2 percent goal. The notion of higher rates caused investors at the two-year Treasury note auction to demand the highest yields in nearly nine years, kicking off this week's $88 billion short- and medium-dated government debt supply on a soft note. The yield on benchmark 10-year Treasury notes was up almost 2 basis points at 2.239 percent. The two-year yield touched 1.456 percent, the highest since October 2008. The Treasury Department sold $26 billion of two-year notes at a yield of 1.462 percent, the highest in nearly nine years.

2. Chinese bonds
China's cash bonds yields were little changed in the morning session on Tuesday, with market sentiment dampened by tightening capital and higher cross-quarter funding prices. T-bonds yields also weakened with the five-year and ten-year treasury note opening lower against solid U.S. treasuries. The 10-year contract ended in the negative territory in a largely sluggish session.

Stock Market
1. U.S. Equities
The S&P 500 ended flat on Tuesday and the Nasdaq posted modest gains as technology shares bounced from sharp losses in the prior session and comments from Fed Chair Janet Yellen boosted expectations of a December rate hike. The Dow Jones Industrial Average fell 11.77 points, or 0.05 percent, to 22,284.32, the S&P 500 gained 0.18 points, or 0.01 percent, to 2,496.84 and the Nasdaq Composite added 9.57 points, or 0.15 percent, to 6,380.16.

2. Hong Kong Equities
Hong Kong shares steadies on Tuesday following the previous session's sharp falls, as investors looked past rising tensions on the Korean peninsula and instead focused on signs of improvement in China's economy. The Hang Seng index rose 0.1 percent, to 27,513.01, while the China Enterprises Index gained 0.5 percent, to 10,968.39 points.

3. China Equities
China's stocks settled up in shrinking turnover. Major indexes lingered below the 30-day moving average in withered trading volume. The market is expected to remain rangebound in lackluster trading volume ahead of the National Day holidays.