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ICBC Financial Market Daily Review - January 29, 2018

I. Yesterday’s News
International News

1. Japan's inflation in December continued to lag a strong economic revival, leaving the central bank in a dilemma on how to turn off crisis-era stimulus policies that even some of its own board members warn will start to hurt more than help if retained for too long. Government data showed core prices last month rose 0.9 percent year-on-year, unchanged from November. That was well off the BOJ's 2 percent price goal and argued for its ultra-easy stance to stay in place for now even as other central banks start to wind back. All the same, some BOJ board members are already starting to get nervous about keeping policy loose for a prolonged period, saying they saw room to raise rates or slow purchases of risky assets if the recovery continues, minutes of the December rate review showed.

2.Bank of England Governor Mark Carney said Britain's economy could start to grow more quickly and stop lagging behind the global economy later this year if there is clarity about Britain's future relationship with the European Union. "There is the prospect this year, as there is greater clarity about the relationship with Europe and subsequently with the rest of the word, for a conscious recoupling of the UK economy with the global economy." British finance minister Philip Hammond called for a moderate Brexit to make sure the country maintain a close tie with the European Union after leaving the bloc in 2019. He said it is likely Britain will want to negotiate a bespoke arrangement for future trade deals with the European Union to ease investors’ concern over turbulence likely resulted from Brexit.

3. U.S. President Donald Trump is offering a path to citizenship for up to 1.8 million "Dreamers" - young illegal immigrants brought to the country illegally as children, senior White House officials said. The White House described it as a major concession aimed at attracting enough votes for an immigration deal from Democrats. But the plan comes with significant strings attached to appeal to Republicans, including requirements to tighten border security and curb new immigrants.

4. Real gross domestic product (GDP) increased at an annual rate of 2.6 percent in the fourth quarter of 2017, according to the estimate released by the Bureau of Economic Analysis, lower than economists’ forecast of a 3.0 percent growth in a Reuters poll. The PCE price index increased 2.8 percent, compared with an increase of 1.8 percent forecast in a Reuters survey. Consumer spending increased at a 3.8 percent rate.

5. Orders for long-lasting manufactured goods rose 2.9 percent in December, the Commerce Department said Friday, well above previous estimate of a 0.8 percent hike. Still, a category that measures business investment — orders for nondefense capital goods excluding aircraft — dipped 0.3 percent in December.

Domestic News

6. The China Banking Regulatory Commission (CBRC) said that overall risk in the banking sector was under control, but the situation remained "grim and complicated". The China's banking regulator determined to push forward the transition of the banking sector from high-speed growth to high-quality development, and strictly reduce financial risk. Among the regulator's top priorities is lowering corporate debt, while strictly controlling credit to highly indebted firms, it said.

7. Industrial companies with annual revenue over 20 million yuan reported total profits of 7.51871 trillion yuan in 2017, up 21 percent from 2016, marking the strongest growth in 6 years, boosted by across-the-board profit growth, enhanced corporate profitability, and improved efficiency in using funds. Among them, mining and manufacturing firms posted the strongest growth in profits. The growth rate was 12.5 percentage points faster than the 2016 reading, but well below the record high of 25.4 percent in 2011.

8. China's registered unemployment rate in urban areas stood at 3.9 percent at the end of 2017, the lowest since 2002, and well below the 4.5 percent target, the Ministry of Human Resources and Social Security said Friday. "China's job market is expected to remain stable this year, but uncertainty in economic growth at home and abroad will impose some impact on employment, putting pressure on the job market" ministry spokesperson Lu Aihong said.

9. China approved launch of the pilot scheme covering 11 cities that allows the development of collectively owned land into residential properties for leasing, announced by the Ministry of Land and Resources and Ministry of Housing and Urban-Rural Development. The 11 cities are Shenyang, Nanjing, Hangzhou, Hefei, Xiamen, Zhengzhu, Wuhan, Guangzhu, Foshan, Zhaoqing, Chengdu.

10. China's JD.com Inc is preparing to enter the United States by the end of this year, Bloomberg News reported on Thursday, in a move that will challenge its Chinese rival Alibaba Group Holding Ltd and U.S.-based Amazon Inc. JD.com is seeking funds for its international expansion and is in final talks to sell 15 percent of its logistics arm to shareholder Tencent Holdings Ltd and other investors in an early fundraising round, Bloomberg reported. "Southeast Asia is our international focus for now, with the U.S. being a longer-term aspiration," a spokesman for JD.com told Reuters. "We are considering different options, but any near-term efforts in the U.S. would likely look at partnership models."

II. Market Overview
1. Global Market

The dollar remained weak against a basket of currencies on Friday, bruised by comments by senior U.S. officials this week backing a weak dollar, and was on pace for its worst weekly fall since June. The dollar index, which measures the greenback against a basket of six major currencies, was down 0.33 percent at 89.1 and on track for a weekly fall of 1.6 percent. The euro was up 0.15 percent against the greenback at $1.2413. The dollar slipped to 4-1/2-month low against the Japanese yen after Bank of Japan Governor Haruhiko Kuroda said the central bank expects the economy to continue growing at a moderate pace and inflationary expectations are picking up slightly. The yen gave up some gains later in the session.

2. Home Market

China's yuan rose against the U.S. Dollar on Friday morning, with its growth narrowing down after hovering below yesterday’s highs throughout the session. The the central bank's midpoint rates, however, renewed an almost 27-month high. U.S. President Donald Trump’s comments eased bearish sentiment on the dollar, but investors continued to stay on the sidelines, keeping liquidity on check. Widened bilateral spread capped appetite of proprietary funds.

Precious Metals

Gold rose on Friday, climbing back toward the previous day's 17-month peak as a report of slow economic growth pushed the U.S. dollar lower, days after the greenback was hammered by a senior U.S. official backing a weaker currency. Spot gold was up 0.3 percent at $1,351.86 by 1837 GMT, up 1.5 percent this week. U.S. gold futures for February delivery settled down $10.80, or 0.78 percent, at $1,352.10 per ounce.

1.Crude Oil

Oil prices settled higher on Friday after hitting three-year highs, with crude also posting a weekly gain as a weaker U.S. dollar underpinned prices. Brent crude futures settled up 10 cents, or 0.1 percent, at $70.52 per barrel after hitting a session high of $70.83. U.S. West Texas Intermediate (WTI) crude futures closed at $66.14 a barrel, up 63 cents, or nearly 1 percent. Brent posted a nearly 2.7 percent weekly gain, while WTI reached a weekly gain of 4.3 percent.

2.Base Metals
Zinc touched a fresh a 10-year high on Friday due to a weaker dollar and as inventories slipped to their lowest levels since 2008, indicating tight supply. Benchmark LME zinc ended 0.4 percent higher at $3,478 per tonne, after touching its highest since 2008 at $3,481.85. It recorded its seventh straight week of gains, the longest weekly winning streak since early 2016. Three-month copper fell 0.7 percent to $7,085 per tonne but ended 1 percent higher on the week.

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

U.S. Treasury yields rose Friday following data showing the nation's economy grew 2.6 percent in the final quarter of 2017 and the governor of the Bank of Japan said inflation is finally close to reaching its target. At 2026 GMT, the yield on 10-year Treasury notes was 2.660 percent, above Thursday's close at 2.621 percent. The two-year note yield reached a high of 2.132, its highest since September 2008.

2. Chinese bonds

Cash bonds and bond futures were trapped in a tight range in thinned trading on Friday morning, due to muted fundamentals, steady liquidity, and a balanced market. Treasury bond futures were also trapped within rangebound after opening higher. Industrial profits growth slowed down yoy in the fourth quarter, but posing limited impact on the market.

Stock Market
1. U.S. Equities

The latest round of strong earnings reports, including from Intel and AbbVie, along with continued weakness in the dollar lifted each of the major Wall Street indexes to closing records on Friday. The three main indexes notched their best four-week run since 2016. The Dow Jones Industrial Average rose 223.92 points, or 0.85 percent, to 26,616.71, the S&P 500 gained 33.62 points, or 1.18 percent, to 2,872.87 and the Nasdaq Composite added 94.61 points, or 1.28 percent, to 7,505.77.

2. Hong Kong Equities

Hong Kong's benchmark index Hang Seng ended Friday at a record high, capping its seventh week of gains, amid optimism toward global economic recovery and accelerated money inflows from mainland China. At close of trade, the Hang Seng index was up 499.67 points or 1.53 percent at 33,154.12. The Hang Seng China Enterprises index rose 2.51 percent to 13,723.96. The sub-index of the Hang Seng tracking energy shares dipped 0.28 percent while the IT sector rose 2.37 percent, the financial sector was 2.22 percent higher and property sector rose 1.27 percent.

3. China Equities

Chinese stocks rose in a choppy trading on Friday, buoyed by blue chips including home appliances, building materials, transport, financial and real estate, after opening lower. The benchmark Shanghai Composite Index hit a new high at 3,574.90, and is expected to retain steam in the near term. The index closed at 3,558.13, up 9.82 points or 0.28 percent. For the week, the index rose 2.01 percent, extending its winning streak to the sixth week. The Hushen 300 Index ended at 4,381.30, up 0.37 percent.