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Asia’s fiscal discipline, China’s Treasuries retreat, and bitcoin hacks. Here are some of the things people in markets are talking about.
Governments across Asia are keeping a wary eye on fiscal deficits and surging debt, providing only a modest cushion as central banks slowly begin raising interest rates. China and Japan, the world’s second and third-largest economies, are treading cautiously by attempting to control government spending rather than unleash new stimulus. It’s a similar story in India and Australia where governments there are focused on containing budget deficits. Those with room to spend include the Philippines and South Korea. In China, fiscal policy is expected to support economic growth even as policy makers curb debt in parts of the financial system. But unlike past cycles, the spending will be targeted, and already the usual year-end binge isn’t materializing.
China’s Treasuries Appetite Wanes
China’s appetite for Treasuries may be about to ebb just as America needs its biggest foreign creditor to step up. Wells Fargo says this year’s resurgence in Chinese buying of Treasuries is likely to peter out as the yuan stabilizes after a steep gain in 2017. Yet the specter of cooler Chinese demand comes at an inopportune time, with the Federal Reserve tapering its portfolio of Treasuries and Congress debating a tax-overhaul plan that could increase the federal deficit by $1 trillion over the next decade. The U.S. debt burden was already forecast to swell by $10 trillion in that period even before any tax changes. That doesn’t bode well for bond bulls.
Uh oh. One of the world’s biggest bitcoin exchanges said hackers are seeking to prevent user access in what are known as denial-of-service attacks. While Bitfinex doesn’t disclose where it’s located, the firm ranks second in trading volume among exchanges worldwide, according to Coinhills. Elsewhere in the crypto-space, other virtual assets are also surging. Ether and litecoin, the second and fourth biggest cryptocurrencies, are surging to all-time highs on optimism that bitcoin futures will attract institutions to the fledgling market.
Traders Await Fed, ECB
U.S. stocks fluctuated, the dollar rose and Treasuries slipped as investors wait for the year’s final central bank policy moves. The Federal Reserve is expected to raise rates at its meeting on Wednesday and the European Central Bank is expected to reveal details of plans to taper asset purchases on Thursday. Comments from officials on the outlook for 2018 will be in focus, as investors weigh the impact of coming policy normalization on global asset markets. In the European session, stocks rose to a five-week high amid a $5 billion deal in the tech sector. The euro weakened and most European bonds declined as German investor confidence slid in December for the first time in four months. In commodities, Brent crude jumped above $65 a barrel for the first time since June 2015 before handing back gains after an important pipeline was shut because of a crack.
What’s on Tap
Any surprises that may come from Australian consumer sentiment, South Korean unemployment or Japanese machine orders are likely to bounce off a market that is marking time before the FOMC. Even trips to Beijing by the leaders of South Korea and Hong Kong may do little to move the needle. RBA Governor Philip Lowe and RBA Assistant Governor for Financial Markets Chris Kent are delivering speeches in Sydney, so there may be some interest in those. The European day may face a similar fate even as reports loom on industrial output for Italy and the EU, and U.K. joblessness. The U.S. session brings inflation data that will still have plenty of impact, and then finally the Fed.
What we’ve been reading
This is what caught our eye over the last 24 hours.
- South Korea’s president visits Beijing.
- Goldman Sachs is very confident in its bullish call on commodities.
- Pakistan’s rupee falls to record low.
- What hedge funds will do after the hedge fund model dies.
- Chip boom masks weakness in Korea’s economy.
- Emerging markets are shrugging off a number of crises.
- A mall tycoon says goodbye to his empire.
— With assistance by Garfield Clinton Reynolds