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Novum Alpha - Daily Analysis 8 October 2021 (10-Minute Read)

Global stocks are on course for their best week since early September, helped by the U.S. move to avert the risk of an immediate default amid the political wrangling over the debt limit.

 
A fabulous Friday to you as equities continue their relentless push upwards. 
 

In brief (TL:DR)

 
  • U.S. stocks closed higher Thursday with the Dow Jones Industrial Average (+0.98%), the S&P 500 (+0.83%) and the tech-centric Nasdaq Composite (+1.05%) all up, with the debt ceiling issue kicked down the road to December. 
  • Asian stocks climbed Friday aided by a rise in Chinese shares and easing concerns about the U.S. debt ceiling.
  • Benchmark U.S. 10-year Treasury yields advanced to 1.59% ahead of a key American jobs report (yields rise when bond prices fall).
  • The dollar was steady.
  • Oil extended a rebound with November 2021 contracts for WTI Crude Oil (Nymex) (+0.98%) at US$79.07 after the U.S. Energy Department said it has no plans “at this time” to tap into the nation’s oil reserves to help quell rising fuel prices.
  • Gold was little changed with December 2021 contracts for Gold (Comex) (-0.05%) at US$1,758.30.
  • Bitcoin (-0.96%) maintained the gain at US$54,303 as outflows continue to lead inflows (outflows typically signal that investors are looking to hold Bitcoin in anticipation of higher prices). 
 

In today's issue...

 
  1. Forget About Evergrande, Hong Kong’s Building Out
  2. China’s Central Bank Governor Weighs in on Fintech Crackdown
  3. Never Underestimate the Cryptocurrency Lobby
 

Market Overview

 
Global stocks are on course for their best week since early September, helped by the U.S. move to avert the risk of an immediate default amid the political wrangling over the debt limit.
 
Commodity-fueled price pressures, the prospect of tighter Fed monetary policy and China’s property-sector slowdown remain as risks for the recovery from the pandemic.
 
China’s reopening turns the focus back on the debt woes in its property sector and Beijing’s wider regulatory broadsides.
 
In Asia, markets climbed Friday aided by a rise in Chinese shares and easing concerns about the U.S. debt ceiling with Tokyo's Nikkei 225 (+2.22%), Hong Kong's Hang Seng (+0.43%), Sydney’s ASX 200 (+0.72%) and Seoul's Kospi Index (+0.23%) all up in the morning trading session. 
 

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1. Forget About Evergrande, Hong Kong's Building Out

 
  • Hong Kong's real estate sector stocks rallied as the city’s pro-Beijing government pledged to ease the chronic housing shortage with plans for a new metropolis.
  • The release of land in the agricultural northern region of Hong Kong will help developers who have parcels there and potentially alleviate the chronic housing crunch in Hong Kong.
 
Battered by the headwinds from China Evergrande Group’s liquidity issues, Hong Kong property stocks have been taken down more than a peg or two in recent times.
 
But on Wednesday, real estate sector stocks rallied as the city’s pro-Beijing government pledged to ease the chronic housing shortage with plans for a new metropolis.
 
Hong Kong’s hilly terrain has meant that the bulk of its population are massed on the edges of hillslopes clustered around Hong Kong Island and Kowloon, but its more remote northern region is far more sparsely populated, which is where the government plans to build a new 600-hectare city within a city.
 
Concerns over Beijing’s crackdown on the Chinese property sector and the uncertain fate of China Evergrande Group have weighed heavily on sentiment in Hong Kong’s property sector, with investors betting that Hong Kong might be the next target of property curbs.
 
Chinese media has long portrayed Hong Kong’s powerful real estate tycoons as robber barons whose political influence was tempered in the city’s last election, for contributing to the city’s chronic housing shortage by deliberately restricting supply.
 
Beijing has also blamed protests that rocked Hong Kong in 2019 on real estate moguls who have kept housing in the city unaffordable for decades.
 
The release of land in the agricultural northern region of Hong Kong will help developers who have parcels there and potentially alleviate the chronic housing crunch in Hong Kong.
 
While real estate may take on a far more speculative role in China, Hong Kong is in dire need of housing and the move should help to highlight to investors the different paths that are being tread by Hong Kong and Chinese real estate developers.
 
Compared to their mainland counterparts, Hong Kong developers are in a far more solid position, both in terms of prospects and balance sheets. 
 

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2. China's Central Bank Governor Weighs in on Fintech Crackdown

 
  • China will continue taking steps to curb monopolistic behavior among internet platform companies and strengthen the protection of consumer privacy and data security, central bank Governor Yi Gang said.
  • Regulators in the U.S. will be watching the subsequent moves by Beijing as they seek to reign in the significant monopolies of U.S. Big Tech as well.
 
During a keynote speech at the Bank for International Settlements conference on Regulating Big Tech, the People’s Bank of China Governor Yi Gang noted,
 
“We will continue to cooperate with anti-monopoly authorities to curb monopolies and actively deal with algorithm discrimination and other new forms of anti-competition behavior.”
 
The pronouncement by the head of the PBoC comes as revelations over how the world’s largest social media platform Facebook has been allegedly using its algorithms to put profits over user safety.
 
Although China has been cracking down on its tech giants in since last November, with new regulations on fintech and the scuttled public offering of Jack Ma’s Ant Group, for years, Beijing had more or less given its biggest tech firms free reign to grow.
 
Of late, Beijing has launched anti-monopoly investigations in e-commerce giant Alibaba Group Holding and food delivery leader Meituan, while simultaneously rolling out new rules governing areas from online games to afterschool education, overseas listing and data security.
 
In a nutshell, the PBoC has moved that tech companies which behave like financial services companies need to adhere to the same rules as other financial services companies, including capital reserve requirements.
 
One of the more interesting information monopolies that the PBoC is looking to bust up is the direct link between personal credit services and financial institutions, to promote information sharing.
 
Regulators in the U.S. will be watching the subsequent moves by Beijing as they seek to reign in the significant monopolies of U.S. Big Tech as well.
 
The PBoC’s Yi has named three principles to guide the regulatory cleanup of fintech, financial businesses must obtain licenses to operate, firewalls must be set up between different parts of the business, like insurance and wealth management, to prevent cross-sector risks and the direct link between non-banks and banking information services needs to be severed.
 
As Big Tech bleeds into financial services, with digital payments and the prospect for central bank digital currencies, tech companies, especially in the case of China, are increasingly behaving like banks and traditional financial institutions, without necessarily having to shoulder the regulatory and compliance burdens of their legacy equivalents.
 
Advancements in payment technologies, microlending and app-based financial services have all given significant advantages to Big Tech, even as they have sought to avoid coming under the umbrella of traditional financial services regulations.
 
 

3. Never Underestimate the Cryptocurrency Lobby

 
  • In growing signs that crypto money is flowing into K Street, a senior Republican from the House of Representatives has lashed out against U.S. Securities and Exchange Commission Chairman Gary Gensler over his attempts to regulate cryptocurrencies.
  • Confounding issues of jurisdiction, cryptocurrencies sit at the nexus of several agencies, including the U.S. Federal Reserve and the U.S. Commodity and Futures Trading Commission.
 
As the price of cryptocurrencies has skyrocketed, some of the biggest players in the digital asset space haven’t been spending their newfound wealth on Lambos, but lobbyists.
 
In growing signs that crypto money is flowing into K Street, a senior Republican from the House of Representatives has lashed out against U.S. Securities and Exchange Commission Chairman Gary Gensler over his attempts to regulate cryptocurrencies.
 
Tom Emmer, the Republican representative for Minnesota and co-chair of a group of lawmakers interest in blockchain technology, has said he believes Gensler was overstepping his authority with this attempts to expand the SEC’s role in regulating the cryptocurrency space.
 
And there’s sufficient evidence to back Emmer’s claims.
 
Recently, Coinbase Global, a Nasdaq-listed cryptocurrency exchange, walked back plans to roll out a cryptocurrency lending product that looked very similar to a fixed deposit or bank account, on threat of litigation from the SEC.
 
To be fair, Coinbase Global’s proposed cryptocurrency lending product ought to have fallen within the purview of the U.S. Office of the Comptroller of the Currency, should have had jurisdiction in that case.
 
Yet Gensler very deftly threatened litigation to shut down Coinbase Global’s intention, without having to fire out the first subpoena.
 
And it’s this regulator zeal and overreach that Emmer believes is amounting to overstep and is part of a broader move by supporters of cryptocurrencies to push back on Democrat-led attempts to increase oversight of the US$2 trillion market.
 
Testifying before Congress on Tuesday, Gensler said that he wanted cryptocurrency platforms to be registered with the SEC, adding,
 
“Right now (investors) don’t have the benefit of that basic bargain that we protect people against fraud and manipulation. People are going to get hurt.”
 
Speaking with the Financial Times, Emmer disagreed,
 
“I think the vast majority of cryptocurrency offerings or related offerings are actually currencies or commodities. The SEC is not involved.”
 
“If the SEC were to deem one of these coins a security, the value of that token would plummet. And those retail investors would be seriously hurt – that’s directly the opposite of his (Gensler’s) mission and his authority.”
 
Confounding issues of jurisdiction, cryptocurrencies sit at the nexus of several agencies, including the U.S. Federal Reserve and the U.S. Commodity and Futures Trading Commission.
 
Nonetheless, that hasn’t stopped Gensler from going on a landgrab to try and coalesce the regulation of cryptocurrencies under the SEC’s umbrella.
 
But the cryptocurrency industry is fighting back, with digital asset companies setting up a range of new lobbying organizations to argue their case on Capitol Hill and lobbyists have found a receptive audience in Emmer’s blockchain caucus.
 
 

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Oct 08, 2021

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