I. Yesterday's News
International News
1. The Federal Reserve will likely need to raise interest rates at an upcoming meeting, Fed Chair Janet Yellen told the U.S. Senate Banking Committee on Tuesday, saying “waiting too long to remove accommodation would be unwise", although she flagged considerable uncertainty over economic policy under the Trump administration. The dollar climbed on Tuesday to a three-week peak against a basket of major currencies as investors raised their outlook on a faster pace of U.S. interest rate increases following the comments. U.S. government bond prices fell while Major U.S. stock indexes established record highs on Tuesday, led by bank stocks.

2. The U.S. Labor Department said on Tuesday its producer price index for final demand jumped 0.6 percent last month, which was the biggest rise since September 2012. Higher energy prices contributed to the increase in January. But the core PPI excluding food, energy and trade, rose only 0.2 percent, pressured by a strong dollar. The gauge of the greenback versus six major currencies pared initial losses after the data.

3. The gross domestic product (GDP) sharing the euro grew 0.4 percent on the quarter in the last three months of 2016, revised down from an earlier estimate of 0.5 percent. On a year-on-year basis, it slowed to 1.7 percent from the 1.8 percent recorded in the third quarter.

4. Australian business conditions jumped to their highest in nearly a decade in January as firms reported a pick up in sales while profits steadied, pointing to solid economic growth after a soft patch late last year. National Australia Bank's monthly survey of more than 400 firms showed its index of business conditions jumped 6 points to +16 in January. That took it back to the highs seen in mid-2007 and well above the long run average of +5. The data is among the latest in a string of surveys that show Australian economy is humming along, cementing views the central bank will stand pat on interest rates after easing twice last year.

5. GM and PSA, owner of brands including Peugeot, were in advanced discussions in M&A that could result in PSA buying GM's European auto operations, two sources said. The deal is likely to be announced in days, they said. Shares in PSA Group rose 4.3 percent to an 18-month high, boosting European auto shares.

Domestic News
6. China's consumer price index (CPI) and producer price index grew at a faster pace than expected, hitting a 2-1/2-year and 5-1/2-year peak respectively, due to such elements as China's New Year and previous low-base, etc. But the CPI is expected to pull back as the seasonal effect faded, economists said. The monthly growth of PPI is also expected to slow down in the second quarter on higher base.

7. China's total social financing (TSF) surged to a record high of 3.74 trillion yuan in January on expanding off-balance sheet forms of financing, while new credit in yuan touched one-year peak. China's central bank is unlikely to adjust interest rates for the time being in wake of the U.S. tightening circle and a stabilizing domestic economy. Instead, the POBC is expected to sustain a modestly tightening monetary policy by raising the interest rates of medium-term leading facility (MLF)) and reverse repo in open market.

8. China's state planning agency said on Tuesday it had selected the first batch of 11 companies in a pilot scheme for 2017 that will allow them to issue foreign-currency bonds more flexibly and efficiently to cut borrowing cost and improve funding.

9. China's insurance industry investment gains reached 707.113 billion yuan last year, with the rate of investment returns by insurance funds down 2 percent from 2015 to 5.66 percent, according to data from the China Insurance Regulatory Commission. The total profits of Chinese insurers were about 200 billion yuan last year, down almost 30 percent year-on-year.

10. The general plan of the third batch of free trade zones is about to issue during the two sessions, a media reported. The plan is formulated by the Ministry of Commerce, the Ministry of Land and Resources, the Ministry of Housing and Urban-Rural Development, the State Oceanic Administration in conjunction with seven provinces and municipals.

II. Market Overview
FX
1. Global Market
The dollar climbed on Tuesday to a three-week peak against a basket of major currencies as investors raised their outlook on a faster pace of U.S. interest rate increases following comments from Federal Reserve Chair Janet Yellen. U.S. producer prices posted the largest monthly rise in more than four years in January, supporting the view that domestic inflation is approaching the Fed's 2 percent goal. The dollar index was last up 0.25 percent at 101.21.

2. Home Market
China's yuan jumped over 100 basis points, with the central parity rate bouncing off a four-week trough, boosted by ample bids for FX settlement. The encouraging inflation data in January had a limited impact.

Precious Metals
Gold came off its highs on Tuesday, as the dollar advanced after U.S. Federal Reserve Chair Janet Yellen said the central bank will likely need to raise interest rates at an upcoming meeting. Spot gold traded 0.3 percent higher at $1,228.2 an ounce, while U.S. gold futures settled down 0.03 percent at $1,225.40.

Commodities
1.Crude Oil
Oil prices pared gains on Tuesday, as evidence of surging U.S. crude oil stockpiles underscored concerns that shale production might limit the effectiveness of an OPEC-led effort to cut global output. Brent crude was up 38 cents at 55.97 a barrel. U.S. West Texas Intermediate crude settled up 27 cents at $53.20.

2.Base Metals
Copper slipped into the red on Tuesday on hopes strike talks would restart at the world's biggest copper mine in Chile while aluminium touched its highest in 21 months on renewed concerns about potential closures of Chinese smelters to cut pollution. Also pressuring base metals was a stronger dollar, which rebounded after Federal Reserve Chair Janet Yellen's comments. Benchmark copper on the London Metal Exchange closed down 1.4 percent at $6,021. Aluminium bucked the weaker trend and ended up 0.9 percent at $1,887, paring gains after touching a session peak of $1,907, a high since May 13, 2015.

U.S. Treasuries
1. U.S. bonds
U.S. Treasury yields jumped on Tuesday after Federal Reserve Chair Janet Yellen said it would be unwise to wait too long to raise interest rates, striking a more hawkish tone than investors expected. Benchmark 10-year notes were last down 10/32 in price to yield 2.47 percent, after rising as high as 2.50 percent, the highest since Feb. 3, where the notes have technical support. The yield curve between five-year notes and 30-year bonds flattened to 109 basis points, the lowest since Feb. 1.

2. Chinese bonds
China's interbank money rates edged down in a choppy trade after high demand for CDB's new bonds countered the lifting effect of the upbeat CPI and PPI report. The trading range remained within 1-2 bps, sustaining recent swing.

Stock Market
1. U.S. Equities
Major U.S. stock indexes established record highs on Tuesday, led by bank stocks after Federal Reserve Chair Janet Yellen said it would be unwise to wait too long to raise interest rates. Apple racked up a record high close for the second straight session. The Dow Jones Industrial Average climbed 92.25 points or 0.45 percent to end at 20,504.41 points, while the S&P 500 gained 9.33 points or 0.40 percent to 2,337.58. The Nasdaq Composite added 18.62 points or 0.32 percent to 5,782.57.

2. Hong Kong Equities
Hong Kong stocks ended little changed on Tuesday as growing profit-taking after a two-month rally offset sustained inflows from mainland Chinese investors.

3. China Equities
China stocks extended gains for the fifth consecutive day, hitting an over two-month peak as the upbeat CPI and PPI report triggered concerns over inflation, analysts said. Market volatility is expected to accelerate amid a tighter liquidity in wake of a four-day winning streak. This wave of rebound is expected to continue, judging by the fact that main stock indexes bottomed up during the session.