A terrific Friday to you as stocks plummet to 22-month low as Fed hawks circle.

In brief (TL:DR)

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• U.S. stocks fell on Thursday with the Dow Jones Industrial Average (-1.54%), the S&P 500 (-2.11%) and the Nasdaq Composite (-2.84%) all down.

• Asian stocks fell on Friday, following US stocks plunge as another group of Federal Reserve officials struck a hawkish tone, and turmoil in Europe continued to fray investor nerves.

• Benchmark U.S. 10-year Treasury yields advanced three basis points to 3.76% (yields rise when bond prices fall).

• The dollar edged higher.

• Oil was higher with November 2022 contracts for WTI Crude Oil (Nymex) (+0.28%) at US$81.46.

• Gold rose with December 2022 contracts for Gold (Comex) (+0.64%) at US$1,679.30.

• Bitcoin (+0.25%) was little changed at US$19,443 with US$20,000 remains a strong overhead resistance.

In today's issue...

1. Pound Rebounds, But is the Worst Over?

2. Chips Everywhere and Nobody Wants Them as South Korea Slashes Production

3. BlackRock Plans Another Crypto ETF Despite Weak Initial Debut

Market Overview

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Investors are grappling with threats posed by discordant moves from central banks over the past few days, with Fed officials adamant on further monetary tightening, the Bank of England unveiling a plan to support government debt and authorities in Asia trying to prop up weakening currencies. In Europe, UK gilt yields rose after Prime Minister Liz Truss’s defense of unfunded tax cuts that sent markets into turmoil failed to persuade investors. German inflation topped 10% and the country agreed to energy caps that could add to inflationary pressures. Asian markets were lower on Friday with Tokyo's Nikkei 225 (-1.84%), Sydney’s ASX 200 (-1.23%) and Seoul's Kospi Index (-0.71%) down, while Hong Kong's Hang Seng Index (+0.33%) was up slightly.

1. Pound Rebounds, But is the Worst Over?

• After the selloff threatened to push the gilt market into a downward spiral and spark a pension-fund crisis, the Bank of England had no choice but to step in Wednesday, pledging unlimited purchases of longer-maturity bonds.

• Although the pound has now erased its losses and rallied almost 8% from its all-time low of US$1.0350 set early on Monday to trade at US$1.1168 in early Asian trade, it’s unlikely out of the woods for now.

Tax cuts and bond buying have helped to shore up the precipitous crash in the pound, with the Bank of England folding to pressure from the dollar and shoring up the embattled currency in a bid to boost economic growth.

But a US$179 billion five-year package has led concerns of faster inflation and a spiraling government debt burden, which could threaten to knock the British economy off its feet, regardless of what happens to the pound.

After the selloff threatened to push the gilt market into a downward spiral and spark a pension-fund crisis, the Bank of England had no choice but to step in Wednesday, pledging unlimited purchases of longer-maturity bonds.

The reaction to the pound’s collapse by the Bank of England is in essence reversing all of the previous tightening measures rolled out by the central bank in response to soaring inflation as the cost of living rises.

Although the pound has now erased its losses and rallied almost 8% from its all-time low of US$1.0350 set early on Monday to trade at US$1.1168 in early Asian trade, it’s unlikely out of the woods for now.

While the BoE’s promise of bond purchases have helped to stabilize markets, the strength of the greenback and rapidly deteriorating economic situation in the United Kingdom means that the central bank may be stuck in a stop-start cycle of policymaking, in response to external stimulus.

In the 1970s, and in response to soaring inflation, the U.S. Federal Reserve embarked on a stop-start policy response to disastrous results, not fully eradicating inflation and not assisting with the economic situation.

Given that the United Kingdom faces problems both foreign and domestic, there is a risk that the BoE’s moves will continue to be reactive, and hamstring its ability to set a consistent policy path to deal with the myriad economic challenges ahead.

2. Chips Everywhere and Nobody Wants Them as South Korea Slashes Production

• According to Statistics Korea, semiconductor production slid 1.7% in August from a year earlier, a sharp reversal from the 17.3% gain reported in July.

• The global economy is headed toward a downturn at the very least, as indicated by cooling electronics demand that has been a major source of economic growth.

Not so long ago, in a factory not so far away, entire production lines were idle because of a global shortage of chips.

From electric kettles to electric cars, microchips, the brains of countless products used today, proved incredibly scarce and lockdown demand and supply chain disruption led to a global shortage.

But the situation has since changed dramatically thanks to a sharp reversal in policy by global central banks in an effort to stave off record high inflation and South Korea’s dominant semiconductor industry has seen output fall for the first time in more than four years.

According to Statistics Korea, semiconductor production slid 1.7% in August from a year earlier, a sharp reversal from the 17.3% gain reported in July and factory shipments also fell for a second consecutive month in August, dropping 20.4%.

The first fall in output since January 2018 coincides with chip inventories soaring 67.3%, suggesting producers are adjusting to a deteriorating international outlook and the prospect of a central bank-induced recession.

The global economy is headed toward a downturn at the very least, as indicated by cooling electronics demand that has been a major source of economic growth.

Reflecting the increased likelihood of a global recession have been lackluster sales of Apple’s new iPhone 14, which has also dampened demand for the chips required to power the smartphone.

Chipmakers are the biggest industrial sector in South Korea’s trade-reliant economy, which is battling high energy prices and a currency that has depreciated the most in Asia this year outside the yen.

3. BlackRock Plans Another Crypto ETF Despite Weak Initial Debut

• Despite the lackluster reception of BlackRock’s first slew of ETFs, the asset manager is launching the iShares Future Metaverse Tech and Communications ETF in the hope to turn things around.

• BlackRock now joins other traditional finance companies in launching funds composed of companies with exposure to the metaverse, including Franklin Templeton, Invesco, and Fidelity.

BlackRock (-3.67%), the world's largest asset manager, with some US$10 trillion in assets, has already launched cryptocurrency and blockchain-focused ETFs, but is now announcing that it will be creating an ETF that gives its clients exposure to metaverse companies.

Despite the lackluster reception of BlackRock’s first slew of ETFs, the asset manager is launching the iShares Future Metaverse Tech and Communications ETF in the hope to turn things around.

Although prices remain weak, investment and interest in metaverse, blockchain, Web3, and cryptocurrency appear strong despite the negative sentiment and a worsening macroeconomic backdrop.

The BlackRock fund, for which fees and a ticker weren’t yet issued, might possibly include firms that have products or services tied to virtual platforms, social media, gaming, digital assets, augmented reality and associated applications.

Blackrock recently launched the iShares Blockchain Technology UCITS ETF that tracks the New York Stock Exchange FactSet Global Blockchain Technologies capped index, targeted towards European customers.

In August, BlackRock announced it was partnering with Coinbase to provide clients with crypto trading, custody, prime brokerage and reporting capabilities.

BlackRock now joins other traditional finance companies in launching funds composed of companies with exposure to the metaverse, including Franklin Templeton, Invesco, and Fidelity.