I. Yesterday's News
1. With the U.S. economy close to full employment and inflation headed toward the Federal Reserve's 2 percent goal, it "makes sense" for the U.S. central bank to gradually lift interest rates, Fed Chair Janet Yellen said on Wednesday. "Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road - either too much inflation, financial instability, or both," Yellen said. The Fed chief said that she and other Fed policymakers expected the central bank to lift its key benchmark short-term rate "a few times a year" through 2019, putting it near the long-term sustainable rate of 3 percent.

2. U.S. consumer prices recorded the largest year-on-year increase in 2-1/2 years, signaling that inflation pressures could be building. Another reported showed industrial output increased at the fastest pace in two years. Rising inflation and accelerating economic growth, if the momentum continues, could lead the Federal Reserve to lift interest rates quicker than expected. The Labor Department said its Consumer Price Index rose 0.3 percent last month. In the 12 months through December, the CPI increased 2.1 percent, the biggest year-on-year rise since June 2014. Underscoring the economy's momentum, another report from the Fed on Wednesday showed industrial production rose 0.8 percent in December, the biggest gain since November 2014. A pickup in manufacturing and "widespread" reports of labor shortages set the stage for the Federal Reserve's December rate hike amid signs of steady economic growth across the country, the Fed reported Wednesday in its latest Beige Book compendium of economic conditions.

3. OPEC signalled a falling oil supply surplus in 2017 on Wednesday as the exporter group's output slips from a record high and outside producers show positive initial signs of complying with the accord. The OPEC figures published on Wednesday showed the group, excluding Indonesia, pumped 33.085 million bpd last month, according to figures OPEC collects from secondary sources, down 221,000 bpd from November. OPEC also cut its forecast of non-OPEC supply growth in 2017 to 120,000 bpd following an expected 300,000 bpd cut in its report last month, although this was offset by a upward revision to U.S. supply.

4. Britain's financial services will accelerate plans to move some business overseas after Prime Minister Theresa May said on Tuesday the country will quit the European Union's single market. May will meet the heads of several big players, including Goldman Sachs and JP Morgan CEOs Lloyd Blankfein and Jamie Dimon, at the World Economic Forum in Davos for private talks on Thursday. She faces an uphill struggle to persuade them not to shift some operations given Britain's exit from the single market almost certainly means banks will lose "passporting" rights which enable them to sell products across the EU from their European hubs in London. The five largest U.S. banks employ 40,000 people in London, more than in the rest of Europe combined, although some in London fear that could all change.

II. Market Overview
FX
The dollar rose across the board on Wednesday, boosted by comments from Federal Reserve Chair Janet Yellen that suggested the U.S. central bank was ready to raise overnight interest rates quickly in the coming year. The dollar gained 0.2 percent against the euro, 1.2 percent against sterling and 1.5 percent against the Japanese yen. The dollar index, which measures the U.S. currency against a basket of six major peers, stood at 101.260, up 0.95 percent. The dollar added substantial gains against the currencies of North American Free Trade Agreement partners Canada and Mexico, adding 1.7 percent against the Canadian dollar and more than 2 percent versus the beleaguered Mexican peso, which again neared its lowest level on record.

Precious Metals
Gold retreated on Wednesday from the previous day's eight-week high as data showing the biggest pick-up in U.S. consumer prices in 2-1/2 years lifted the dollar and U.S. Treasury yields. Spot gold was down at $1,203.54 an ounce. U.S. gold futures for February delivery settled down 0.07 percent at $1,212.10.

Commodities
1.Crude Oil
Oil prices fell on Wednesday to their lowest in a week, on a strong dollar and expectations that U.S. producers would boost output even as OPEC's output fell from a record high. Brent crude ended the session at $53.92 per barrel, down $1.55 or 2.79 percent, while U.S. crude settled at $51.08, down $1.40, or 2.67 percent. Ahead of settlement, both contracts sank to their lowest since Jan. 11.

2. Base Metals
Copper steadied on Wednesday after its biggest fall in a month in the previous session when U.S. President-elect Donald Trump rattled investors by saying the dollar was too strong. Benchmark copper closed up 0.3 percent at $5,769 a tonne at the London Metal Exchange. Aluminium ended 2 percent higher at $1,834.50, the highest since May 2015. Nickel finished 0.2 percent firmer at $10,180 as data showed the global nickel market was in a deficit of 63,600 tonnes in the first 11 months of last year.

U.S. Treasuries
U.S. Treasury yields rose to session highs on Wednesday after Federal Reserve Chair Janet Yellen made comments supporting further, gradual interest rate increases. Benchmark 10-year notes fell 24/32 in price to yield 2.41 percent, up from 2.33 percent late Tuesday.

Stock Market
1. U.S. Equities
The S&P 500 ended a choppy session slightly higher on Wednesday, helped by a rise in financials after Federal Reserve Chair Janet Yellen said it "makes sense" to gradually lift interest rates. The Dow Jones Industrial Average closed down 22.05 points, or 0.11 percent, to 19,804.72, the S&P 500 gained 4 points, or 0.18 percent, to 2,266.00 and the Nasdaq Composite added 16.93 points, or 0.31 percent, to 5,555.65.

2. Hong Kong Equities
Hong Kong stocks closed at 2-1/2 month highs on Wednesday and rose above the psychologically key 23,000 level unseen in six weeks. The Hang Seng index added 1.1 percent, to 23,098.26 points, while the Hong Kong China Enterprises Index gained 1.0 percent, to 9,802.86 points.