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China cracks down on hedge funds

Bitcoin lands on Wall Street, China cracks down on hedge funds, and investors are being told to brace for interest rate hikes. Here are some of the things people in markets are talking about.

Bitcoin Debuts on Wall Street

The cryptocurrency made it through its first full day of futures trading relatively unscathed. Contracts rose as much as 26 percent in their debut on Cboe Global Markets Inc.’s exchange, triggering two temporary trading halts designed to calm the market. Initial volumes in Asia hours exceeded dealers’ expectations, though trading thinned significantly into the U.S. session. New contracts were seen more than 10 percent higher than bitcoin itself, likely creating opportunities for arbitrage traders in the coming days. Stocks tied to the virtual currency also rallied. And despite regulatory scrutiny, initial coin offerings are still on pace to hit a record.

China’s Hedge Fund Crackdown

China’s securities regulator is cracking down on the fast-growing hedge-fund industry, investigating 10 cases of alleged wrongdoing. Officials are looking into private fund practices including market manipulation, misappropriation of client funds, insider trading and trading by managers using their personal accounts, the China Securities Regulatory Commission said in a statement on its website Friday. The crackdown comes as China mounts a campaign to limit financial dangers lurking in the economy. On a separate note, Chinese leadership is preparing a contingency plan to counter the consequences of U.S. tax changes and the Fed’s expected interest rate increases, the Wall Street Journal reports, citing unidentified people familiar. Under the plan, the PBOC is preparing to use a combination of tools, including higher interest rates, tighter capital controls, and more frequent currency intervention to support the yuan.

Brace for Rate Hikes

That’s the message Wall Street economists are sending to clients. Citigroup and JPMorgan are both predicting that average interest rates across advanced economies will climb to at least one percent next year in what would be the largest increase since 2006. Adding to that, Bloomberg Economics expects net asset purchases by the main central banks to fall to a monthly $18 billion at the end of 2018, from $126 billion in September. It all reflects strengthening economies across the globe, which might spur the inflation that has thus far remained elusive. The test for policy makers will be how well they can balance the pull back without sending shockwaves through financial markets. Meanwhile, years of cheap money across Asia have left a legacy of surging debt that will force the region’s central bankers to be cautious when they eventually follow in the footsteps of South Korea by raising interest rates.

NYC Bombing Injures Three

A Brooklyn man wearing a pipe bomb attached with Velcro and zip ties set off an explosive in the Times Square subway station Monday, injuring himself and three others. The 27-year-old suspect, Akayed Ullah, wore the device that went off shortly after 7 a.m. local time in an attempted terror attack, Police Commissioner James O’Neill said at a news conference near the scene. Ullah suffered serious burns, while other victims had minor injuries, O’Neill said. U.S. stocks brushed off the news, with the S&P 500 closing at another record high.

Up Next:

Australian economy watchers may be on edge a bit heading into Tuesday as they wait to see if the NAB Business Survey can remain perhaps the last unmitigatedly bullish indicator left in the country. The conditions index is expected to drop back from a record high, so whether confidence can hold its uptrend when all the other indicators are losing theirs may be a key data point Down Under in December. Australia also reports on house prices, while other Asia-Pacific releases of note include Philippine trade and employment, Singapore retail sales, industrial output for India and Malaysia and Indian CPI. The European day brings CPI data for Sweden and the U.K., before the U.S. Reports PPI. Mario Draghi speaks at the closing of the 2017 Cultural Days organized by the ECB in Frankfurt.

 

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

Many in the equity investing community have bought into the idea of U.S. tax reform helping certain companies boost earnings. Over in the junk bond market, however, investors will need to be on high alert, as Justin Davey at BT Investment Management, pointed out last week. The money manager’s assessment suggests the tax changes could put further pressure on already strained cash flows at junk-rated companies.

On his forecasts, as many as four out of five high-yield issuers could be worse off as a result of the proposals, which reduce the amount companies can deduct in interest payments from taxable earnings. If Davey is right and this exacerbates and accelerates the current default cycle, we may see a fork in the road for the stellar junk-bond rally we’ve witnessed in recent months.

 

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