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·         China’s yuan rose to a more than one-week high against the U.S. dollar on Wednesday helped by firmer central bank guidance, but gains were capped by rising corporate demand for the greenback.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 6.4040 per dollar, 117 pips firmer than the previous fix and in line with a softer dollar.

The spot market CNY=CFXS opened at 6.4036 per dollar and climbed to 6.3910 at one point, the strongest since May 28.

·         Borrowing costs in Italy rose further on Wednesday, hit by signs the new government wasn’t planning to tone down its big-spending plans in Europe’s third-biggest economy, while hawkish comments from the European Central Bank also added upward pressure.

Benchmark yields in 10-year maturities IT10YT=RR on the government bond market in Italy rose 15 basis points to 2.91 percent while yields on two-year maturities surged 39 basis points at 1.38 percent IT2YT=RR.

The jump in eurozone bond yields pushed up Spanish and Portuguese bond yields by 6 to 12 basis points across the board.

·         Mexico responded in kind to U.S. President Donald Trump’s metals tariffs by imposing its own duties on American steel on Tuesday, while also targeting politically sensitive agricultural products from pork to bourbon.

·         Next Wednesday the U.S. central bank will likely raise key overnight borrowing costs to roughly match its target for inflation, meaning that for the first time in almost a decade the cost of borrowing dollars will no longer be essentially free.

“We are looking at a tipping point now that inflation is rising,” said Bill Merz, head of fixed income research at U.S. Bank Wealth Management in Minneapolis.

U.S. overnight borrowing costs are in a range of 1.50 percent to 1.75 percent, with traders largely expecting the Fed to raise that target by a quarter of a percentage point next week. The Fed’s target rate has been below its 2 percent inflation goal ever since the 2007-2009 financial crisis.

Some analysts cautioned the rate increase would unsettle the bond market by pushing short-term borrowing costs to levels that will make some trades less appealing, such as carry trades using cheap loans to buy high-yielding securities and so-called curve flatteners selling short-dated debt and buying longer-dated issues.

“It’s always rising short-term rates that cause problems in the credit and other risky assets,” said James Camp, managing director of fixed income at Eagle Asset Management in St. Petersburg, Florida.

Higher short-term borrowing costs would likely have more sustained consequences for traders and investors than a recent spike in benchmark 10-year Treasury yields, Camp said.

·         ZTE Corp (000063.SZ) has signed an agreement in principle that would lift a U.S. Commerce Department ban on buying from U.S. suppliers, allowing China’s No. 2telecommunications equipment maker to get back into business, according to sources familiar with the matter.

The Commerce Department plans to amend its 2017 settlement agreement and count the $361 million ZTE paid as a part of that, allowing the United States to claim a total penalty of as much as $1.7 billion, the sources said.

·         The European Central Bank is increasingly confident that inflation is rising back to its target and will next week debate whether to gradually unwind bond purchases, ECB chief economist Peter Praet said on Wednesday.

·         Japanese Prime Minister Shinzo Abe, seeking to draw on his close ties with President Donald Trump in talks on Thursday, will urge the U.S. leader not to forget Tokyo’s security concerns in his drive for a historic deal with North Korean leader Kim Jung Un.

·         Mexico’s economy minister said on Tuesday that he sees a better than 50 percent chance of reaching an agreement in principle on NAFTA this year despite escalating tensions between his country and the United States.

Mexico will import more pork products from Europe after imposing a 20 percent tariff on U.S. pork legs and shoulders in retaliation to steel tariffs, Economy Minister Ildefonso Guajardo said on Tuesday.

·         Oil prices rose on Wednesday after Venezuela raised the prospect of a halt to some crude exports, but gains were capped by reports that the U.S. government had asked Saudi Arabia and some other OPEC producers to increase output.

Brent was up 50 cents a barrel at $75.88 by 0730 GMT. U.S. light crude was 20 cents higher $65.72.

Reference: Reuters