I. Yesterday’s News
International News

1. U.S. President Donald Trump said on Wednesday he will use a strengthened national security review process to thwart Chinese acquisitions of sensitive American technologies, a softer approach than imposing China-specific investment restrictions. The Treasury Department has recommended that Trump use the Committee on Foreign Investment in the United States (CFIUS), whose authority would be enhanced by new legislation in Congress, to control investment deals. The legislation expands the scope of transactions reviewed by the interagency panel to address security concerns, Trump said. The decision marks a victory for Treasury Secretary Steven Mnuchin in a fierce White House debate over the scope of such curbs. "We're going to treat China the way we're going to treat other people, and to the extent that we're worried about transactions, we will block them, Mnuchin said on CNBC on Wednesday. "But we are not going to, on a wholesale basis, discriminate against China as part of a negotiation."

2. New orders for U.S.-made capital goods and shipments unexpectedly fell in May, but upward revisions to data for the prior month pointed to moderate growth in business spending on equipment in the second quarter. Other reports on Wednesday showed a sharp narrowing in the goods trade deficit last month, the latest indication that the economy was accelerating this quarter after losing some steam at the start of the year. The Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, slipped 0.2 percent last month. April data was revised to show the so-called core capital goods orders surging 2.3 percent instead of the previously reported 1.0 percent rise. In other data, the Commerce Department said the goods trade deficit declined 3.7 percent to $64.8 billion in May as an increase in exports outpaced a rise in imports. The department also said wholesale inventories increased 0.5 percent in May and stocks at retailers gained 0.4 percent. But housing continues to lag the strong economy, with reports on Wednesday showing contracts to buy previously owned homes falling again in May and applications for loans to purchase a home declining sharply last week.

3. The Reserve Bank of New Zealand (RBNZ) on Thursday held interest rates at 1.75 percent for the 11th straight time, and warned of looming risks to the outlook such as slowing growth and global trade frictions, signalling its resolve to maintain record-low rates for some time. In a slightly more dovish tone than in the previous meeting in May, the RBNZ in its statement added warnings over recent weakness in economic growth and the potential fallout from escalating trade tensions among major economies. "The recent weaker gross domestic product (GDP) outturn implies marginally more spare capacity in the economy than we anticipated," it said. The New Zealand dollar fell to $0.6783 after the policy announcement, before rebounding to around $0.68.

4. Moscow and Washington struck a deal on Wednesday to hold a summit soon between Russian president Vladimir Putin and US president Donald Trump, a move likely to worry some US allies and draw a fiery reaction from some of Trump’s critics at home. Moscow and Washington will announce the time and place of the summit on Thursday. The summit is expected to take place after Trump attends a Nato summit and visits Britain next month. A senior US official said on Tuesday that Finland’s capital Helsinki was being considered as a location.

5. Two major auto trade groups on Wednesday warned the Trump administration that imposing up to 25 percent tariffs on imported vehicles would cost hundreds of thousands of auto jobs, dramatically hike prices on vehicles and threaten industry spending on self-driving cars. The Association of Global Automakers, said the tariffs would harm automakers and U.S. consumers. The Alliance of Automobile Manufacturers urged the administration not to go forward.

Domestic News

6. A leaked report from a Chinese government-backed think tank has warned of a potential “financial panic” in the world’s second-largest economy, a sign that some members of the nation’s policy elite are growing concerned as market turbulence and trade tensions increase. Bond defaults, liquidity shortages and the recent plunge in financial markets pose particular dangers at a time of rising U.S. interest rates and a trade spat with Washington, according to a study by the National Institution for Finance & Development which was seen by Bloomberg News and confirmed by a NIFD official. We think China is currently very likely to see a financial panic,” NIFD said in the study, which appeared briefly on the Internet on Monday.

7. Profits at China's industrial firms rose 21.1 percent to 607.06 billion yuan in May, maintaining the previous month's sizzling pace driven by price gains and lower costs. But slower sales may keep the growth in check despite of some supports in prices.

8. A new unit of Bank of China Ltd, China's fourth-largest bank by assets, has been authorized to begin operations in Mexico, the country's banking regulator, CNBV, said on Tuesday, making it the second Chinese bank permitted to offer services locally.

II. Market Overview
FX
1. Global Market

The U.S. dollar rallied against most currencies on Wednesday, including against traditional safe-havens like the Swiss franc and Japanese yen, after a moderation in the U.S. administration's approach to Chinese investment. The dollar was up 0.15 percent against the yen at 110.21 yen, and advanced 0.64 percent against the franc. The U.S. dollar index, which measures the greenback against a basket of six currencies, was up 0.65 percent at 95.274, on pace for its second day of gains. The euro was 0.76 percent lower at $1.1557, under pressure from worries about the trade conflict, the threat of a political crisis in Germany, and uncertainty over a European Union summit dealing with immigration.

2. Home Market

China's yuan weakened beyond a psychologically key 6.61 per dollar level to an over six-month low on Wednesday. But it managed to recoup some of the losses. China's central bank also lowered its yuan midpoint by almost 400 bps to the weakest in six months. The sharp volatility may suggest that yuan will move in line with the dollar again after the independent downward tendency is over.

Precious Metals

Gold prices dipped to a fresh six-month low on Wednesday as the U.S. dollar strengthened, making bullion more expensive for buyers using other currencies. Gold prices have shed more than 3 percent this month - the biggest monthly loss since September - driven by a dollar rally, a large decline in gold held by exchange-traded funds and a sharp fall in speculative bets. Spot gold closed at $1,251.62 per ounce. U.S. gold futures for August delivery settled down $3.80, or 0.3 percent, at $1,256.10 per ounce.

Commodities
Crude Oil

Oil prices jumped on Wednesday as plunging U.S. crude stockpiles compounded supply worries in a market already uncertain about Libyan exports, a production disruption in Canada and Washington's demands that importers stop buying Iranian crude from November. U.S. crude futures rose $2.23, or 3.16 percent, to settle at $72.76 a barrel. The contract touched $73.06 a barrel, the highest since Nov. 28, 2014. Brent crude rose $1.31, or 1.7 percent, to settle at $77.62 a barrel.

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

U.S. Treasury yields fell to four-week lows on Wednesday on concerns that trade wars will harm economic growth, even after U.S. President Donald Trump indicated that he would not impose restrictions on Chinese investments in U.S. technology firms. Bonds were also in demand by portfolio managers rebalancing for month- and quarter-end. Benchmark 10-year notes gained 13/32 in price on the day to yield 2.833 percent, the lowest since May 31 and down from 2.880 percent late on Tuesday. The yield curve between two-year and 10-year notes flattened to 32 basis points, the lowest level since 2007.

2. Chinese bonds

Major cash bonds in China’s interbank bond market were traded in a tight range, while benchmark Treasury bonds were also little changed. Easing liquidity and bullish expectations on bonds offset the impact of yuan’s recent depreciation on bonds.

Stock Market
1. U.S. Equities

U.S. stocks fell on Wednesday on renewed uncertainty regarding the U.S. stance on Chinese investments in American technology companies, reversing gains earlier in the session. At the market open, stocks rose as President Donald Trump said he will use a strengthened national security review panel — the Committee on Foreign Investment in the United States (CFIUS) — to deal with potential threats from Chinese acquisitions of U.S. technology, instead of imposing China-specific restrictions. The decision was seen by investors as a somewhat softer approach than plans reported earlier. The Dow Jones Industrial Average fell 165.52 points, or 0.68 percent, to 24,117.59, the S&P 500 lost 23.43 points, or 0.86 percent, to 2,699.63 and the Nasdaq Composite dropped 116.54 points, or 1.54 percent, to 7,445.09.

2.Hong Kong Equities

Hong Kong stocks slid to nearly a seven-month low on Wednesday as a sharp fall in the yuan added to worries about China's economic growth amid escalating U.S.-China trade tensions. The Hang Seng index fell 525.14 points or 1.8 percent, to 28,356.26, while the China Enterprises Index lost 2.16 percent, to 10,879.17 points.

3. China Equities

China stocks fell to a 25-month low amid upbeat economic data on Wednesday. Dampened by heavyweights, Shanghai stocks crossed below the key mark of 2,800. Amid weak environment, investors inclined to sell liquid assets. The Shanghai Composite Index lost 31.33 points or 1.10 percent, to 2,813.18 points. The turnover of Shanghai A shares fell to 142.3 billion yuan from previous session’s 138.3 billion yuan.