Stocks mixed as US debt bill news offset by Fed, China worries
by AFP Staff Writers
Hong Kong (AFP) June 1, 2023

Markets were mixed Thursday after the US House passed a bill to avoid a painful default, but as traders turn their attention to the Federal Reserve's next policy meeting and China's struggling economy.

After weeks of brinkmanship, Democrats and Republicans came together to push through an agreement to lift the debt ceiling in rare bipartisan cooperation.

Hardline Republicans had warned they would shoot the deal down, saying it did not have enough spending cuts, and some Democrats were also angry at the reductions made.

The bill now goes to the Senate before President Joe Biden can sign it off, allowing the government to borrow more cash to service its mammoth debts.

Failure to do so before the cash run out -- said to be June 5 -- would have resulted in a default that many warned would hammer the global economy and markets.

After the vote, Biden said in a statement: "Tonight, the House took a critical step forward to prevent a first-ever default and protect our country's hard-earned and historic economic recovery.

"The only path forward is a bipartisan compromise."

House Speaker Kevin McCarthy, who drew up the deal with Biden after weeks of wrangling, said: "Passing the Fiscal Responsibility Act is a crucial first step for putting America back on track.

"It does what is responsible for our children, what is possible in divided government, and what is required by our principles and promises."

Still, after a strong start to the day, worries over the chances of a Fed interest rate hike and ongoing weakness in China's economy dampened the mood.

Tokyo, Sydney, Wellington, Singapore and Mumbai rose but Shanghai was flat while Hong Kong, Seoul, Taipei, Manila and Bangkok slipped.

London, Paris and Frankfurt edged up in the morning.

- China worries linger -

Focus will now turn to the release of US jobs data on Friday, which will be pored over for an idea about the state of the world's top economy.

Continued strength in the labour market has been a key factor in the Fed's decision to keep hiking rates for more than a year as it tries to rein in inflation.

On Wednesday, data showing an unexpected jump in job openings did little to soothe investor concerns the central bank could lift again later this month.

The figures come after the Fed's preferred gauge of inflation picked up pace in April.

Suggestions from some officials that they should take a breather from hiking at the next policy meeting provided investors with a little hope.

"Market calls that the Fed is done hiking won't be able to shake off this labour market strength if Friday's (jobs) report confirms this trend," said OANDA's Edward Moya.

"Wage pressures will push inflation higher, which should seal the deal for more Fed rate hikes."

And China's economy continues to show signs of fragility as the initial rally after the lifting of zero-Covid measures last year fades.

On Wednesday, figures showing the country's vast manufacturing sector contracted further last month highlighted the big job Beijing faces in kickstarting growth.

But there was some good news Thursday in a private survey that suggested it had expanded slightly. The Caixin manufacturing index data beat estimates for a contraction.

"The optimism that characterised the rebound in economic activity in the early part of this year has given way to a realisation that Chinese demand may well remain lacklustre for a while to come," said Michael Hewson at CMC Markets.

"It's not as if the signs of a weakening Chinese economy haven't been there, they've been apparent in Chinese factory gate inflation which has been stuck in negative territory since October of last year."

The release next week by China of inflation and trade data will be closely tracked by investors for fresh clues about the outlook.

Hong Kong launches retail-friendly rules for crypto exchanges
Hong Kong (AFP) June 1, 2023 - Hong Kong opened its arms to the virtual asset world on Thursday, launching new retail-friendly rules for the city's crypto exchanges.

The Chinese finance hub is pivoting to embrace crypto despite high-profile failures in recent months, including the meltdown of trading platform FTX, which wiped out more than $1.5 trillion in the market.

China has had a strict crypto ban since 2021, but in Hong Kong -- which operates on a separate legal framework -- trading has been allowed though unregulated, meaning individual investors use unlicensed platforms.

The regulatory regime launched Thursday means that after a one-year transition period, all crypto exchanges in Hong Kong must be licensed, and will be able to take on retail clients.

"(The sector) fundamentally is going to stay despite all the risks... These activities have to be allowed in a regulated way," the city's financial services and treasury chief Christopher Hui told AFP.

The new rules have an emphasis on investor protection measures, like requiring exchanges to vet their clients and limit their risk exposure, as well as restricting trade to "large-cap" tokens such as bitcoin.

Crypto exchange OKX -- founded in China but now based in Seychelles -- told AFP it was "committed to the Hong Kong market" and will apply for a licence.

"Hong Kong is making concrete strides and is building confidence among industry players," said Lennix Lai, OKX's global chief commercial officer.

Regulators said they hope to move quickly to issue the first licences.

But a prominent activist investor in Hong Kong said Thursday the new policy lends credibility to a risky sector and endorses speculation.

"Hong Kong has a history of jumping onto financial bandwagons just as the wheels are falling off," David Webb, a former investment banker, told AFP.

The government may say the new crypto regime is similar to that of traditional finance, but Webb said the "analogy breaks down" as most crypto -- unlike stocks or futures on companies and commodities -- have no intrinsic value.

"There's no reason why (the government) should encourage people to bet on someone else paying more for something that has no fundamental value," Webb said.

Last year, the city said HK$1.7 billion ($217 million) was lost to crypto-related scams, which police attributed to criminals taking advantage of the public's lack of sector knowledge.

The new rules ask exchanges to conduct a "holistic assessment" of a client's understanding of digital currencies before taking them on, but give no specifics.

One company licensed under Hong Kong's previous regime tells its prospective clients to take a screenshot showing they have finished watching 13 instructional videos in a free online course.

But they "DO NOT need to complete any programme assignments or take any tests", it wrote on its website.

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