A wonderful Friday to you as investors contend with another round of policy tightening.

In brief (TL:DR)

• U.S. stocks continued to fall on Thursday with the Dow Jones Industrial Average (-0.35%), the S&P 500 (-0.84%) and the Nasdaq Composite (-1.37%) all down.

• Asian stocks headed for a sixth weekly decline following another day of losses for US shares and surging Treasury yields that underscore expectations for tighter monetary policy and a slowing global economy.

• Benchmark U.S. 10-year Treasury yields soared 18 basis points to pierce 3.7% on Thursday, its highest in a decade as investors weighed the risk of recession (yields rise when bond prices fall).

• The dollar held near a record high after a day of dramatic moves in currency markets that saw Japan intervene to prop up the ailing yen for the first time since 1998.

• Oil fell with November 2022 contracts for WTI Crude Oil (Nymex) (-0.35%) at US$83.20.

• Gold fluctuated with December 2022 contracts for Gold (Comex) (-0.15%) at US$1,678.50.

• Bitcoin (+3.72%) rose to US$19,312, extending gains to a second day, while remaining below US$20,000.

In today's issue...

1. Just the beginning of Central Bank rate hikes?

2. Japan Holds Yen Up for First time in over Two Decades

3. Bitcoin’s 60% Correction Looks Bad, But Pales in Comparison to Some Stocks

Market Overview

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The Federal Reserve has given its clearest signal yet that it’s willing to tolerate a recession as the necessary trade-off for regaining control of inflation, with officials forecasting a further 1.25 percentage points of tightening before year-end. Japan’s intervention hasn’t addressed the underlying cause of yen weakness - the yawning gap between Japan’s ultra-loose monetary policy and rising rates in other countries - leaving the currency vulnerable. Rate hikes overnight in the UK, Switzerland and Norway, along with increases Thursday in Asia in the Philippines, Indonesia and Taiwan, look set to damp market sentiment in the region. Asian markets were lower on Friday with Sydney’s ASX 200 (-1.87%), Hong Kong's Hang Seng Index (-1.13%) and Seoul's Kospi Index (-1.81%) all in the red, while Japan market is closed.

1. Just the beginning of Central Bank rate hikes?

• Global central banks are continuing to raise interest rates even as they run the mounting risk of driving their economies into recession, in what appears to be a race to the bottom.

• Central bankers were adamant that curbing runaway price growth was their main task at present but are bracing for their actions to take a toll, as rising borrowing costs typically dampen investment, hiring and consumption.

You stop hiking if you want to, the Fed’s not for stopping.

With the U.S. Federal Reserve caught in the fight of a generation against inflation, shockwaves continue to reverberate through financial markets and the economy.

Global central banks are continuing to raise interest rates even as they run the mounting risk of driving their economies into recession, in what appears to be a race to the bottom.

Policy makers across the globe have lifted their benchmark borrowing costs in a three-day window that made clear the biggest concern is the strongest run of inflation since the 1980s.

While the Fed increased its benchmark by 75 basis points for the third meeting in a row, the biggest movers included Sweden’s Riksbank, which surprised with a 100 basis-point hike.

In Asia, Indonesia was also more aggressive than expected and Vietnam made a rare move, while Switzerland ended Europe’s experiment with subzero rates.

Meanwhile, the Bank of Japan stood out among developed economies by maintaining ultra-low rates, and China is keeping with a loose policy because of its own unique economic challenges.

The Bank of Japan has said it will hold its main interest rate at negative levels, widening the gulf between its loose monetary policy and the trend towards jacking up rates demonstrated by other central banks.

Central bankers were adamant that curbing runaway price growth was their main task at present but are bracing for their actions to take a toll, as rising borrowing costs typically dampen investment, hiring and consumption.

Because most other central bankers almost inevitably take their cue from the Fed, until such point that policymakers turn course, or at the very least flatten, other central banks will need to follow suit at risk of their currencies rapidly losing ground against the dollar.

2. Japan Holds Yen Up for First time in over Two Decades

• Tokyo intervened to strengthen the yen for the first time since the late 1990s on Thursday and according to government data, it was the first time Japan had sold dollars since 1998.

• Intervention on the yen appeared inevitable after the Bank of Japan insisted it will hold rates negative despite the Fed hiking borrowing costs aggressively.

The Japanese yen hit its lowest level since 1998 after the U.S. Federal Reserve hiked interest rates aggressively while the Bank of Japan kept its rates in negative territory in a bid to boost its fragile economic recovery and lost about 20% against a surging dollar this year alone.

Against this backdrop, Tokyo intervened to strengthen the yen for the first time since the late 1990s on Thursday and according to government data, it was the first time Japan had sold dollars since 1998.

Japan is also the world’s second largest holder of U.S. Treasuries, just behind the U.S. Federal Reserve, but it has a mountain of dollars with which to defend the yen, for now.

The country’s top currency official Masato Kanda said the government had “taken decisive action” to address what it warned was a “rapid and one-sided” move in the foreign exchange market.

The yen surged to ¥140.34 to the dollar in the space of a few minutes and is well above levels which most traders could not even fathom just months ago.

Intervention on the yen appeared inevitable after the Bank of Japan insisted it will hold rates negative despite the Fed hiking borrowing costs aggressively.

The Bank of Japan’s dogged adherence to a low-rate policy sent the yen plunging to 145 to the dollar initially, before losses were reversed thanks to intervention.

How long can the yen hold on?

Unlike in 1998, in the aftermath of the Asian Financial Crisis, Japan is holding a mountain of dollars and U.S. Treasuries, that should in theory allow it to defend the yen for a considerable amount of time, but not indefinitely.

Tokyo will be wont to avoid the decades of stagnation in the aftermath of that crisis and are keen to harness the growth that Japan has witnessed in the last few years.

3. Bitcoin's 60% Correction Looks Bad, But Pales in Comparison to Some Stocks

• While Bitcoin and Ether fell some 60% and 66% respectively in 2022, many once-favored stocks haven’t done much better.

• As central banks withdraw stimulus measures and increasing interest rates, many major corporations have seen even larger drawdowns in their stock prices in 2022.

Sure, Bitcoin may be down over 60% year-to-date, but have you taken a look at your stock portfolio lately?

While 2022 has definitely not been a good year for cryptocurrencies, with Bitcoin and Ether falling some 60% and 66% respectively, many once-favored stocks haven’t done much better.

As central banks withdraw stimulus measures and increasing interest rates, many major corporations have seen even larger drawdowns in their stock prices in 2022.

A handful of multi-billion dollar companies around the globe have suffered with losses that surpass 85% in 2022 alone.

Saipem, an Italy-based oil and gas engineering and exploration service provider for offshore and onshore projects, saw its shares decline by 99.4% in 2022.

Uniper, a German energy company with over 10,000 employees, faced severe impairments after its Nord Stream 2 gas pipeline project was suspended, resulting in a 91.7% loss in the stock year-to-date.

But Saipem and Uniper are hardly alone with their record share price falls as Cazoo Group fell a 90% and U.S. auto retailer Carvana saw its shares hammered by 87%.

Biotech companies I-Mab and Kodiak Sciences have both also lost more than 90% of their value in 2022 alone.

Software services was another sector deeply affected by the lower growth and increased hiring costs and a handful of other tech companies saw corrections of 80% or more in 2022, including Cardlytics, Bandwidth, Matterport and Zhihu.

Central bank tightening has left few safe havens for investors, with soaring U.S. Treasury yields dulling the attractiveness of non-yielding assets, like Bitcoin.

But a bleak macroeconomic outlook has also hit everything from commodities to cryptocurrencies, equities to earnings, so while Bitcoin may indeed be volatile, it’s certainly not been alone in its correction.