North Korea announced on Sunday that it had successfully conducted its sixth and most powerful nuclear test, using what it said was an advanced hydrogen bomb — or an ‘H-bomb’.
North Korea announced on Sunday that it had successfully conducted its sixth and most powerful nuclear test, using what it said was an advanced hydrogen bomb — or an ‘H-bomb’.
Ethereum and bitcoin are crashing this morning, after China confirmed its recent threat of an ICO crackdown (reported here last Monday) when the central bank said on Monday that initial coin offerings are illegal and disrupt financial markets, according to statement on China’s central bank website. The PBOC also asked all related fundraising activity to be halted immediately, issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales.
The crackdown was announced in a statement on the PBOC’s website in which the central bank said that it had completed investigations into ICOs, and will strictly punish offerings in the future while penalizing legal violations in ones already completed. The regulator said that organizations or individuals that completed initial coin offerings should return the money raised, in move “to protect investors’ rights and properly handle risks,” though it didn’t specify how the money would be paid back to investors.
Taking the recent SEC crackdown on Initial Coin Offerings several steps further, the PBOC also said digital token financing and trading platforms are prohibited from doing conversions of coins with fiat currencies. Digital tokens can’t be used as currency on the market and banks are forbidden from offering services to initial coin offerings, and are also also banned from offering pricing and information services on coins. Most importantly was the PBOC’s determination that “digital token can’t be used as currency on the market” and its warning that “China will strictly punish over sustained offerings and law violations in completed ones.”
The central bank’s Monday directive made no mention of cryptocurrencies such as ether or bitcoin. Bitcoin tumbled over 8%, the most since July on a closing basis, to $4,480. Ethereum was down more than 11% Monday, to just above $310, after trading nearly $400 last week.
“This is somewhat in step with, maybe not to the same extent, what we’re starting to see in other jurisdictions – the short story is we all know regulations are coming,” Jehan Chu, managing partner at Kenetic Capital in Hong Kong, which invests in and advises on token sales, told Bloomberg. “China, due to its size and as one of the most speculative IPO markets, needed to take a firmer action.”
As described previously, ICOs are controversial digital token sales that have seen unchecked growth over the past year, raising $1.6 billion and surpassed traditional venture capital raising pathways. They have been deemed a threat to China’s financial market stability as authorities struggle to tame financing channels that sprawl beyond the traditional banking system. Widely seen as a way to sidestep venture capital funds and investment banks, they have also increasingly captured the attention of central banks that see in the fledgling trend a threat to their reign.
While hardly the world’s biggest coin offering market, China accounts for about a quarter of the blockchain based capital raising activity YTD: there were at least 43 ICO platforms in China as of July 18, according to a report by the National Committee of Experts on the Internet Financial Security Technology. Sixty-five ICO projects had been completed, the committee said, raising 2.6 billion yuan ($398 million).
Incidentally, just as we speculated in late July, when the SEC announced its own crackdown on initial coin offerings, a move we deemed would be beneficial in the long run for weeding out the various criminal and ponzi schemes that have proliferated in the unregulated market, so today’s move by China is seen by some as favorable for blockchain dynamics:
“This is a positive move given the rapid proliferation of low quality and possibly fraudulent coin sales promising the moon,” said Emad Mostaque, London-based co-chief investment officer at Capricorn Fund Managers Ltd. “There is tremendous value in the model but we need to see more separation of high quality, ethical offerings versus those seeking to circumvent securities law for a quick buck.”
Indeed, the SEC signaled greater scrutiny of the sector when it warned that ICOs may be considered securities, though it stopped short of suggesting a broader clampdown. The regulator reaffirmed its focus on protecting investors, however, and said issuers must register the deals with the government unless they have a valid excuse. The vast amount of money amassed in a short span of time has also attracted cyber criminals, with an estimated 10 percent of money intended for ICOs looted away by scams such as phishing this year, according to Chainalysis, a New York-based firm that analyzes transactions and provides anti-money laundering software.
China will likely eventually allow token sales, according to Chu of Kenetic Capital, however only on approved platforms, and may even vet projects individually. “I think they will allow the sale of tokens in a format which they deem safe and more measured,” he said.
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New Delhi: India’s total domestic crude oil production in July remained almost flat, declining 0.53 percent to 3,061 Thousand Metric Tonne (TMT) as …
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Having started off with a sharp gap lower following Sunday’s news of the latest, 6th nuclear test by North Korea, global stocks and US futures pared losses in the overnight session, despite reports of North Korean preparations for yet another missile launch, while the yen trimmed its risk-off gains even as gold kept its upside and the South Korean Kospi closing 1.2% lower, with traders asking whether “this time will be different:, or inversely, will today’s market reaction will be a carbon copy of what happened last Monday, when stocks gapped sharply lower on North Korea missile launch fears, only to surge 1% by the end of the week, as shown in the chart below.
Still, concern that U.S. President Donald Trump has few viable options to rein in North Korea has disrupted a three-week-long rally in emerging markets, sending stocks to the biggest loss since Aug. 11: The MSCI index of world stocks dropped 0.7%, led by consumer-discretionary and industrial-goods sectors, as the relative strength index, a measure of momentum, fell to 60 from 68 on Friday.
The South Korean Kospi extended declined at the close, down 1.2% after Yonhap reported South Korea had detected North Korea’s preparation for an ICBM missile launch. The index fell as much as 1.7% at the open Monday before paring back some of its decline to a 0.9% drop; volatility among South Korean stocks surged as much as +15%, although absent further escalation, that spike will likely be faded in the coming days.
Europe’s Stoxx Europe 600 Index declined, with all industry sectors in the red, after a Monday morning report from Yonhap that Pyongyang is preparing to launch an intercontinental ballistic missile heightened investors’ unease. European equity markets opened lower and stay within a tight range, with tech and banking lagging.
Both USD/JPY and U.S. equity futures fell, but have stayed within overnight ranges and in the case of the Yen, much of the latest gains have been unwound, while European government bonds advanced and Swiss franc led currency gains.
The euro strengthened even as economists expect European Central Bank President Mario Draghi to express concern Thursday about the currency’s rise. Industrial metals including copper and nickel extended a rally. US Treasuries and bund futures briefly hit session highs on Korean concerns before fading. The German curve steepened, with focus on upcoming supply this week.
Having surged to the highest level since the Trump election victory, spot gold edged modestly lower from overnight high, tagging $1,334 in early trading.
Currencies, as a group, erased losses thanks to an advance in offshore yuan; otherwise, most currencies are lower against the dollar.
Meanwhile, China’s onshore yuan extended gains to a 15-month high as North Korea’s nuclear test failed to dent bullish sentiment on the currency. The Chinese exchange rate traded in Hong Kong’s overseas market rose for a 14th day, the longest rally on record. In onshore markets, the CNY climbed 0.5% to 6.5245 per dollar; the currency climbed 1.35% last week, the strongest showing in CFETS data going back to April 2007. The PBOC strengthened the yuan reference rate by 0.37%, the most since Aug. 10, to 6.5668 against the greenback.
It wasn’t just the Yuan that proved immune to Korean worries: shares in mainland China rose as strength in commodity producers outshone concerns about North Korea saying it successfully tested a hydrogen bomb over the weekend. Hong Kong’s benchmark fell for a third day. The Shanghai Composite Index rises 0.4%, most in a week, to 3,379.58
What happens next for global risk is in the hands of China and the US as the North Korean conflict is rapidly escalating into a proxy war of the world’s two most powerful nations.
US markets are closed on Monday for holiday.
Top Overnight Headlines
In European equities, risk-off sentiment following North Korea’s nuclear test has hit European shares in early trading this Monday, with all sectors in negative territory, led by financials. In regards to stock specific movers, Fiat Chrysler are down around 3 percent after its CEO said that Fiat had received no offer for the firm.
In fixed income, EGB’s trading a better levels following the aforementioned newsflow out of North Korea. Peripheral bonds outperforming against their German counterpart as spreads tighten. Eyes could be on the performance of PGB’s vs. Bunds after Moody’s placed Portgual’s sovereign rating on positive outlook, as such a possible upgrade to investment grade from junk may see the spread narrow to YTD lows at mid-220bps.
In currencies, JPY/CHF: Safe haven flow dominating sentiment to begin the week, which came after reports that North Korea successfully launched its most powerful so-called H-Bomb to date. In turn, USD/JPY slipped to the mid-109s while USD/CHF broke through 0.96 as risks are seemingly skewed to the downside as markets digest and monitor the situation. Aside from the tensions on the Korean Peninsula, concerns over the US debt limit will keep a lid on risk appetite, providing further headwinds for the greenback. The soft NFP report on Friday and dampened risk sentiment has underpinned EUR this morning. Although the currency remains below 1.1900 as the ECB meeting is likely to cap near term gains as speculation mounts over potential comments from Draghi and Co. regarding the recent appreciation in EUR.
In commodities, WTI and Brent crude futures slipping this morning, more notably in Brent as WTI is somewhat supported as several refineries resume activity. RBOB gasoline futures easing after emergency stocks had been released amid early indications that the damage to infrastructure were not as bad as initially feared.
* * *
DB’s Jim Reid concludes the overnight wrap
With August behind us and the weather here in the UK yesterday already starting to resemble autumn it feels like the final push into the end of the year is well and truly on. This week should be an interesting one with the highlight likely coming this Thursday with the ECB meeting. We aren’t expecting any policy announcements – indeed our economists expect Draghi’s strategy to be one whereby he and the ECB wrap the QE exit step in dovishness when it is announced in October – but the risk is perhaps that Draghi says very little at all and buys even more time for the ECB. In this regard, what Draghi does or doesn’t say about the euro is what most in the market will probably be looking out for. It feels like the consensus expect Draghi to address the recent appreciation but we’d imagine that he will probably have to also strike a bit of a delicate balance given that the data is holding up pretty well still. Draghi’s job was perhaps made ever so slightly easier by that fact that the single currency closed on Friday 1.75% off Tuesday’s highs but it is still up 3.50% since the ECB last met back in July.
Anyway that is for Thursday. In the meantime, it feels like déjà vu writing this again this morning as the weekend headlines are once again dominated by the latest North Korea missile test. Yesterday’s test was called a “perfect success” by the Korean Central News Agency with the underground explosion supposedly ten times more powerful than previous detonations. The explosion also caused a magnitude 6.3 earthquake and all the talk is that the test has reached new ground in terms of potential magnitude and power. President Trump responded to the latest test by saying that “the United States is considering, in addition to other options, stopping all trade with any country doing business with North Korea”. Treasury Secretary Mnuchin confirmed that he is drafting a sanctions package to send to Trump and Defence Secretary Mattis said that the US has “many military options” when questioned about a possible response. Other world leaders also had their say. Germany Chancellor Angela Merkel said that North Korea’s latest actions had reached a “new dimension” while Russia’s Putin and China’s Xi Jinping also responded and agreed to “appropriately deal with” the latest test. An emergency UN meeting has been called for today.
The latest development has seen markets in Asia start the week with a risk-off tone although moves overall have been fairly modest still. In terms of safe havens, Gold is up +0.61%, while the Yen and Franc are +0.41% and +0.38% respectively. Equity markets across Asia are down with the Nikkei (-0.86%) and Kospi (-0.79%) standing out the most, while the ASX 200 (-0.49%) and Hang Seng (-0.47%) are also in the red. Markets in China are flat.
It’s worth noting that the US is off today for the Labour Day holiday so we will have to wait until tomorrow to see how cash markets across the pond respond although S&P 500 futures are down around -0.32% as we go to print. In terms of other news from the weekend, in Germany, Merkel and her Social Democratic opponent Martin Schulz took part in a TV debate where they clashed over refugee policy with Merkel standing by her view on keeping the country’s borders open and Schulz attacking Merkel for her early response to the refugee crisis in 2015. This was actually the only live TV debate between the two leaders before the election on September 24th and the latest polls show Merkel as holding a roughly 13-14% lead over Schulz after the latter had at one stage closed that gap completely earlier in the year. According to Bloomberg two flash polls released after yesterday’s debate were scored a draw and a Merkel win.
Elsewhere, here in the UK, Brexit Secretary David Davis called a Sunday Times report suggesting that PM Theresa May was to approve a £50bn Brexit Bill as “nonsense”. The report also suggested that May won’t disclose any details on kick starting trade talks until after the Tory Party conference in October. Conversely, EU negotiator Barnier said the British people need to be “educated” about the price they will pay for quitting the EU.
Meanwhile in the US it’s worth noting that Congress will return from the August recess on Tuesday with the debt ceiling debate almost certain to be front and centre. Over the weekend Mnuchin noted that the debt limit should be linked into a package of relief for victims of Tropical Storm Harvey. The suggestion on Friday was that the House could plan a vote on funding as a standalone bill this week but the latest comments suggest that this is less likely now. Assuming lawmakers don’t get in the way of relief efforts, one would imagine that this perhaps lowers the risk around the debt ceiling as time ticks down towards the end of month deadline.
Now just recapping the macro data on Friday. In the US, the main focus was a softer than expected August employment report, with the change in nonfarm payrolls coming in at 156k (vs. 180k). Adding to the disappointment, the unemployment rate was a tad higher at 4.4% (from 4.3%) and average hourly earnings rose just 0.1% mom (vs. +0.2% expected), leaving growth at +2.5% yoy.
However, we would still characterize the labour market as being in solid shape and note that the August reports can be impacted by difficulties in seasonaladjustment around the holiday period. Further, our US economics team notes that they would not be surprised to see subsequent positive revisions (since 2010, August payrolls have been revised up by +55k on average between the initial and third prints). Elsewhere, the August ISM manufacturing was higher than expected at 58.8 (vs 56.5 expected), marking the best reading since March 2011. Moving along, the University of Michigan consumer confidence print was softer than expected at 96.8 (vs 97.5) but the final Markit US manufacturing PMI was revised up slightly to 52.8 from 52.5.
In Europe, UK’s manufacturing expanded at the strongest pace in four months, with the August PMI at 56.9 (vs. 55.0 expected). In Italy the manufacturing PMI was also higher than expected at 56.3 (vs. 55.3 expected) while the final reading for 2Q GDP was confirmed at +0.4% qoq and +1.5% yoy. Elsewhere, other final Markit manufacturing PMIs were broadly in line with the flash estimates, with the Eurozone at 57.4 and France at 55.8, but Germany was a tad lower at 59.3 (vs. 59.4 flash).
By the end of play markets ended slightly firmer with the S&P 500 closing +0.20% and Stoxx 600 up +0.60% driven by gains in mining names. Bond yields rose in the US and Europe, with UST 10y up 5bp to 2.166% and core European bond yields up around 2bps. The US dollar index was broadly unchanged on Friday and has dipped 0.20% this morning. Elsewhere, WTI oil edged up 0.3% and US gasoline prices fell 1.8% on Friday (first decline in the week) and have fallen a further 2.8% this morning.
Taking a step back, it’s worth noting that the current rally in the S&P 500 is the 3rd longest since WWII without a 3% selloff, but our asset allocation chief strategist Binky Chadha remains constructive. He noted that the market remains overdue for a pullback and rising domestic and geopolitical risks provide plenty of potential catalysts. But as in past episodes, he views the economic and market context dominating. On the economic front, Binky sees further upside to global growth, with PMIs having further to recoup pre dollar and oil shock levels, a strengthening in the US labour markets and capex, while Binky also expects earnings growth to sustain in the double digits. On the market front, he sees the demand-supply picture for US equities becoming more supportive with inflows on a turn up in data surprises and higher rates as inflation picks up.
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“There is a need to consider how we place our stocks, where we place our stocks and the combination of crude oil versus products is an issue that we …
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“At bedtime, I am afraid to turn the lights off. I am not a coward, it is just that I worry that this bulb hanging from the ceiling is the last light that remains (shining) in my life.” Soon after he penned these words, Moath Alhaj, a young artist from a Gaza refugee camp, passed away in his sleep. After disappearing for two days, Moath’s friends broke down the door of his house and found him huddled with his blanket in a place in which he lived alone for 11 years. Moath lived in the Nuseirat Refugee Camp, one of Gaza’s most crowded camps, a name which is associated with historic hardship, war, and legendary resistance. Raised in the United […]
Since late 2015, China has allowed 31 mostly privately-owned oil refineries to import crude oil, the majority of them based in Shandong province.
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Barely had the market digested news of the latest, 6th – and this time allegedly thermonuclear – test by North Korea (with the South Korean Kospi cutting initial losses of as much as 1.6% in half on yet another BTFNWD ramp), when Yonhap reported that South Korea’s spy agency said it had detected that North Korea is making preparations for a possible intercontinental ballistic missile launch, a move that would further raise tensions a day after it conducted its sixth and most powerful nuclear detonation.
Chang Kyung-soo, acting chief of the defense ministry’s policy planning office, told lawmakers on Monday that North Korea was making preparations for a missile firing, according to Bloomberg while Yonhap adds that South Korea’s spy agency said there was a chance the North could fire an ICBM into the Pacific Ocean, saying that the isolated state was able to conduct a nuclear test at any time. Gen. Jang didn’t say what the signs of activity were, nor did he give a time frame for a possible launch. But many experts have been preparing for a weapons test around Sept. 9, when North Korea marks the anniversary of its foundation in 1948.
His assessment was echoed by South Korean intelligence officers, who said North Korea could test launch another ICBM toward the northern Pacific Ocean or a submarine-launched ballistic missile, according to lawmakers who attended a closed-door legislative meeting on Monday. The intelligence officers also said North Korea could conduct further nuclear tests at any time, based on construction work on two tunnels at its test site that appear to be near completion, these lawmakers said.
The National Intelligence Service (NIS) told lawmakers in a closed session that Pyongyang may lob the missile around the anniversary of the regime’s foundation slated for Saturday or the establishment of the ruling Workers’ Party of Korea on Oct. 10.
North Korea fired ballistic missiles, including two ICBMs fired in July, at a lofted angle to prevent them from crossing over other countries including Japan. But Pyongyang lobbed a Hwasong-12 intermediate-range ballistic missile that flew over Japan last week.
“There is a possibility that the North would fire an ICBM on a standard trajectory,” the NIS was quoted as saying by lawmakers.
Separately, Gen. Jang said the U.S. and South Korea are in talks about deploying an aircraft carrier or stealth bombers to South Korea as part of the response to North Korea’s recent actions. Top South Korean officials had said in recent days that the two allies were in discussions about the deployment of “strategic assets” to the Korean Peninsula. At the time, officials didn’t elaborate on what strategic assets they were considering, but the phrase typically refers to aircraft carriers, bombers or nuclear weapons.
The NIS also said that more analysis is needed to verify whether the North
detonated an electromagnetic pulse-based bomb or a hydrogen bomb during
its nuclear test, according to lawmaker. “North Korea claimed an H-bomb test, but we are analyzing it on the assumption that there could be three possibilities — a hydrogen bomb, an atomic detonation and a boosted fissile weapon,” the agency was quoted as saying.
It said that Pyongyang appeared to try to show that international sanctions are not working and to express its complaints against China or Russia by timing the detonation with a Beijing-hosted five emerging nations BRICS summit and Russia’s economic forum slated for later this week.
“The North also seemed to want to spark tensions to pressure the United States into changing its North Korea policy,” it added.
It said that the latest detonation was conducted in a northern tunnel of its nuclear site in the northeastern area where Pyongyang previously carried out three tests.
Meanwhile, South Korea earlier in the day paved the way for the full deployment of a U.S. missile defense system while its military conducted a live-fire drill with North Korea’s test site as the virtual target. The Environment Ministry on Monday conditionally approved an environmental impact report on the Terminal High-Altitude Area Defense system.
That removes the final administrative hurdle for complete installment of the missile shield, known as Thaad, which China sees as a threat to the region’s “strategic equilibrium.” South Korea’s Defense Ministry said it would install the system’s remaining launchers “soon.” The governments in Seoul and Washington were also discussing deployment of a U.S. carrier group and strategic bombers, Yonhap said.
Following Sunday’s latest nuclear test, President Trump threatened to increase economic sanctions and halt trade with any nation doing business with North Korea – a threat he has used before without following through. That list would include China – the U.S.’s biggest trading partner – which accounted for about a sixth of its overseas commerce. China hit back at Trump’s threat, with Foreign Ministry spokesman Geng Shuang saying the comments were “neither objective nor fair.”
While Asian stocks fell on Monday as investors turned to haven assets, sending the yen, gold and Treasury futures higher, the fallout was relatively contained with S&P futures down just 0.3% as of 6am ET. The biggest declines were in Tokyo and Seoul, with more moderate reactions elsewhere in the region.
Trump, who threatened over the weekend to pull out of the U.S.-South Korea trade agreement, took a shot at President Moon Jae-in’s administration after the nuclear test. On Twitter, he said that South Korea is finding that its “talk of appeasement with North Korea will not work.” In response, Moon’s office said that war shouldn’t be repeated and that South Korea and its allies “will pursue the denuclearization of the Korean peninsula through peace.” The two leaders haven’t spoken since North Korea detonated what it called a hydrogen bomb.
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