I. Yesterday's News
International News
1. The U.S. economy is healthy enough for the Fed to raise rates and begin winding down its massive bond portfolio, though low inflation and a low neutral rate may leave the central bank with diminished leeway, Fed Chair Janet Yellen said on Wednesday. Reductions in the Fed's portfolio of more than $4 trillion in securities are likely to begin "this year," she said. But she also noted that given current estimates, the federal funds rate "would not have to rise all that much further" to reach a neutral level that neither encourages nor discourages economic activity.

2. The U.S. economy grew at a "slight to moderate" pace over the last several weeks across all regions of the country, with wage pressures reported for both low- and high-skilled jobs, the Federal Reserve reported in its latest compendium of regional economic activity.

3. U.S. President Donald Trump said on Wednesday he did not fault his son Donald Trump Jr. for meeting with a Russian lawyer during the 2016 presidential election campaign and that he was unaware of the meeting until a few days ago. In the White House interview, the president said he directly asked Russian President Vladimir Putin if he was involved in what U.S. intelligence says was Russian meddling in the presidential campaign and that Putin had insisted he was not.

4. The Bank of Canada raised interest rates for the first time in nearly seven years on Wednesday, citing a need to look through soft inflation but saying it will wait for more economic data before committing to its next move. Economists said the central bank's statement suggested at least one more quarter-percentage point rate increase is in store for 2017, with more likely to follow gradually if growth continues to meet expectations.

5. OPEC said on Wednesday its oil production jumped in June and forecast world demand for its crude will decline next year as rivals pump more, pointing to a market surplus in 2018 despite an OPEC-led output cut. Giving its first 2018 forecasts in a monthly report, the Organization of the Petroleum Exporting Countries said the world will need 32.20 million barrels per day (bpd) of crude from its members next year, down 60,000 bpd from this year. OPEC said its oil output in June rose above the demand forecast. OPEC Secretary-General Mohammad Barkindo said compliance with supply cut remains high.

Domestic News
6. Chinese banks extended 1.54 trillion yuan in net new yuan loans in June, well above analysts' expectations of 1.2 trillion yuan. Broad M2 money supply, which includes demand deposits and monies held in easily accessible accounts, grew 9.4 percent in June from a year earlier. Economists expected 9.5 percent growth.

7. China's economic growth is expected to have cooled to 6.8 percent in the second quarter, a Reuters poll of 60 institutions showed. Stronger consumption and net export boosted growth, while slower investment weighed on the economy.

8. China Wednesday issued a guideline allowing local governments to issue special bonds to support the construction of toll roads, while standardizing the financing activities in this area to boost healthy economic development, according to the guideline jointly issued by the ministries of finance and transport.

9. China will continue to propel its ongoing reform on state-owned enterprises (SOE), try to make new breakthrough on key areas and to improve corporate management in the ongoing commitment to the state-owned enterprise system in the form of a “Modern State Enterprise System with Chinese Characteristics”, China's official news agency Xinhua said.

II. Market Overview
FX
1. Global Market
The dollar eased against the yen on Wednesday, after Federal Reserve Chair Janet Yellen said interest rates hikes would be gradual and that the U.S. central bank may not be able to raise rates by "all that much." The dollar index, which tracks the greenback against six major rivals, was up 0.08 percent to 95.748, after falling to 95.511, its lowest since June 30. Against the yen, the greenback was 0.64 percent lower at 113.19 yen following a decline in short-term U.S. interest rates after Yellen's testimony. The dollar, which fell against the euro soon after the release of the remarks, reversed course and was trading near session highs against the European common currency.

2. Home Market
China's yuan rose sharply against the dollar in the morning session on Wednesday, tracking the midpoint rates that hit a one-week high. Offshore and onshore yuan also rose on the plunging dollar index overnight. No big moves were seen by big banks. Heavy resistance can be expected around the level of midpoint rates.

Precious Metals
Gold prices rose on Wednesday, edging further from this week's near four-month low after comments from Federal Reserve Chair Janet Yellen curbed speculation that U.S. interest rates would rise more than once this year. Spot gold was up at $1,219.50 per ounce. The most-active U.S. gold futures for August delivery settled up $4.40 or 0.36 percent, at $1,219.1 per ounce.

Commodities
1.Crude Oil
Oil futures rose, maintaining some gains from earlier in the day, as a report showing hefty drawdowns in U.S. crude inventories was offset by data pointing to lackluster gasoline demand. Brent crude futures rose 22 cents, or 0.5 percent, to settle at $47.74 a barrel, while U.S. West Texas Intermediate (WTI) crude gained 45 cents, or 1 percent, to settle at $45.49. That bigger gain in U.S. crude, pressured the premium of front-month Brent futures over WTI to $2.08 per barrel, the lowest so far this month.

2.Base Metals
Zinc prices climbed to their highest in more than three months on Wednesday as the market worried about falling stocks in exchange warehouses, shortages and expectations of stronger demand from top consumer China. Benchmark zinc ended up 0.4 percent at $2,833 a tonne. Earlier, prices of the metal used to galvanise steel touched $2,874.50, the highest since March 30. Three-month aluminium slid 0.6 percent lower at $1,889. Copper closed 0.5 percent higher at $5,905 a tonne, lead gained 0.9 percent to $2,327, tin rose 0.6 percent to $19,900 and nickel added 0.9 percent to $9,210 a tonne.

U.S. Treasuries
1. U.S. Bonds
U.S. Treasury yields fell on Wednesday after Federal Reserve Chair Janet Yellen dampened expectations for an interest rate hike later this year and in 2018, as she remained cautious about inflation. Yields dropped to three-week lows for the two-year note, while those on three-to-10-year maturities slid to two-week troughs. In late trading, the benchmark 10-year Treasury yield fell to 2.302 percent, its lowest in two weeks, from 2.362 percent late on Tuesday. It was last at 2.319 percent. At the front-end of the curve, the two-year yield dropped as low as 1.331 percent, a three-week trough, from 1.379 percent late on Tuesday, and last traded at 1.347 percent.

2. Chinese bonds
China's repo rates edged up on tight liquidity in the interbank market. Capital flow in the middle and second half of July still need injection from the central bank. News of MLF renewal shall be closely watched.

Stock Market
1. U.S. Equities
The Dow rose to a record high close while U.S. stocks kept their upward momentum Wednesday following Federal Reserve Chair Janet Yellen's congressional testimony to gradually raise interest rates. The Dow Jones Industrial Average rose 123.07 points, or 0.57 percent, to close at 21,532.14, a record high. The Dow also hit an intraday record. The S&P 500 gained 17.72 points, or 0.73 percent, to 2,443.25 and the Nasdaq Composite added 67.87 points, or 1.10 percent, to 6,261.17.

2. Hong Kong Equities
Hong Kong's benchmark stock index rose for the third straight day on Wednesday to a two-year closing high, bolstered by China fund flows and investors' bargain hunting for blue chips. The market was firm even as Hong Kong's second board for start-ups fell to another record low and as investors braced for a possible hawkish policy stance ahead of the Bank of Canada's upcoming policy meeting and Yellen's testimony to Congress. The Hang Seng index rose 0.6 percent, to 26,043.64, while the China Enterprises Index gained 1.0 percent, to 10,517.37 points.

3. China Equities
China's major indexes extended losses to the third consecutive day, dampened by financial and property names that plunged after early gains. The losing ground of 3,200 suggests heavy resistance and correction in the near term. But upbeat semi-annual earning results would provide a floor to the market. The Shanghai Composite Index closed down 5.5 points or 0.17 percent at 3,197.54 with a session low at 3,177.93. The trading volume fell to 201.6 billion from yesterday's 205.2 billion.