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Crytocurrencies get even crazier

The U.S. expands North Korean sanctions to include three Chinese firms, Southeast Asia emerges as second-half growth standout, and cryptocurrencies are even crazier than usual. Here are some of the things people in markets are talking about.

Korean Sanctions Hit China

(Bloomberg)-A day after labeling North Korea as a state sponsor of terrorism, the Trump administration levied additional sanctions against Kim Jong Un’s regime and its enablers – which include three Chinese trading companies. More important to investors, however, are China’s self-imposed actions to ensure financial stability and transition to a more sustainable growth track. Regulators are poised to continue their crackdown on shadow banking after last week’s action to curb the risks associated with popular asset-management products. To wit: American depositary receipts of some Chinese lenders tumbled on Tuesday after a report suggesting Beijing will stop approving new microlenders.

Warm EMbrace

Southeast Asia is emerging as the shining start of the global economy in the second half of 2017, with a string of surprisingly strong growth numbers. Thailand’s economy expanded by 4.3 percent year-over-year as of the third quarter, according to figures released on Monday; and third-quarter growth data from Singapore due out on Thursday is slated to show activity accelerated to an annualized pace of 7.8 percent quarter-on-quarter. That’s not just good news for the region, but also the Federal Reserve, as it suggests those economies can weather additional tightening from the U.S. central bank. The latest dot plot implies four interest rate hikes between now and the end of 2018. Economists at Goldman Sachs think even more tightening  will be warranted as solid U.S. growth fosters an acceleration in take-home pay and inflation in 2018.

Crypto Craziness

It was a wild day, even by cryptocurrency standards. Tether, a lesser-known digital currency, announced that it had suffered a $31-million theft. And this isn’t the first time the world’s 20th most-valuable cryptocurrency has been embroiled in controversy. Bitcoin originally tumbled more than 5 percent on news of the Tether theft, then proceeded to pare all those losses to post a fresh record high before returning to negative territory on the day. Despite the hijinks, wealth managers across the U.S. have been inundated with calls about the asset class – no doubt due to its parabolic rise. Hedge fund manager Mike Novogratz, for his part, sees bitcoin hitting $10,000by year-end.

2,600

The S&P 500 Index briefly touched 2,600 on Tuesday, a fresh intraday high, and managed to post a record closing high just below the psychological level. Tech shares paced gains on major indexes, but they’re not partying like it’s 1999: there are far more participants in this rally than the dot-com bubble. The Philadelphia Semiconductor Index finally managed to close above its previous March 2000 peak. An enduring search for yield continues to buoy risk assets. According to Bank of America Merrill Lynch, $25 trillion in debt that yields 4 percent or more has disappeared since 2008 – and the vanishing act is set to continue. Though major issues remain, small signs of progress in Nafta renegotiation talks helped the Mexican peso and Canadian dollar advance on Tuesday.

Futures Up

Nikkei 225 and S&P/ASX 200 futures are trading markedly to the upside ahead of the open, poised to build on the prior session’s gains for each benchmark gauge. On Tuesday, Chinese stocks in Hong Kong had their best day in seven weeks, sending the Hang Seng China Enterprises Index to a two-year high. It’s a fairly light economic calendar on Wednesday. Australia’s Westpac Leading Index rose 0.13 percent month on month, while we still have Malaysian inflation for October on the docket. The marquee event of the day comes after Asian markets close with the release of minutes from the Federal Reserve’s November meeting.

 

And finally, here’s what David’s interested in this morning

 

Proper party now in Hong Kong. The Hang Seng Index is less than 200 points away from reclaiming 30,000, a level it last touched in 2008. Fueling the rally has been a whole lot of love being flung across the border from Mainland China. Think Care Bare Stare but through digits via the exchange stock connects. The chart below tracks the daily quota balances on both tunnels into Hong Kong from Shanghai and Shenzhen.

For those who aren’t familiar, every day we start out at 10.5 billion yuan (daily quota). The more net flows into Hong Kong, the lower the line moves. Normally, a good day means about a 2 billion yuan take-up. The last six weeks have seen a substantial pick-up in funds coming across. The chart shows more and more of daily bandwidth is being used up, especially from Shenzhen. The result is fairly straightforward – Hong Kong is Asia’s hottest major market this year. An additional nugget in case you’re wondering which names have been the favorites (and may get hit if things turn): Tencent, ICBC, SMIC have been the top recipients of money coming from Shanghai. And Tencent, SMIC and ZTE are top for the Shenzhen tunnel in the last week or so. Anyway, if it feels like early 2015 before they turned the music off in the spring, that’s because we experienced a similar dynamic back then. Watch the chart above closely. It’s as close as you can get to watching the tide.

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