A great Thursday to you as stocks rally falters and the pound falls as doubt returns.

In brief (TL:DR)

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• U.S. stocks were higher on Wednesday with the Dow Jones Industrial Average (+1.88%), the S&P 500 (+1.97%) and the Nasdaq Composite (+2.05%) all up.

• Asian stocks trimmed gains on Thursday as investors returned their focus to inflation and the risk of global recession.

• Benchmark U.S. 10-year Treasury yields rose 10 basis points to 3.83% (yields rise when bond prices fall).

• The dollar edged higher.

• Oil was lower with November 2022 contracts for WTI Crude Oil (Nymex) (-0.95%) at US$81.37.

• Gold fell with December 2022 contracts for Gold (Comex) (-1.03%) at US$1,652.80.

• Bitcoin (+3.49%) rose to US$19,458 with US$20,000 remains a strong overhead resistance.

In today's issue...

1. China Becomes the Sick Old Man of Asia for First time in Decades

2. Wall Street in Best Rally Since 2020 as Bank of England Pulls Out All the Stops

3. NFTs Everywhere But No One Seems to Want to Trade

Market Overview

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Investors are contending with threats posed by discordant moves from central banks over the past few days, with Federal Reserve officials adamant on further monetary tightening, the BOE unveiling a £65 billion ($71 billion) plan to support government debt and authorities in Asia trying to prop up weakening currencies. Federal Reserve officials continued to hammer home the central bank’s hawkish outlook. European Union officials unveiled fresh economic limits on Russia in response to further annexing of Ukraine. Asian markets rose on Thursday with Tokyo's Nikkei 225 (+0.95%), Sydney’s ASX 200 (+1.44%) and Seoul's Kospi Index (+0.07%) up, while Hong Kong's Hang Seng Index (-0.25%) was down slightly.

1. China Becomes the Sick Old Man of Asia for First time in Decades

• According to the World Bank’s latest outlook, China’s economic output will lag behind the rest of Asia for the first time since 1990.

• By contrast, economies in east Asia and the Pacific, particularly the export-driven economies of south-east Asia, are mostly expected to grow faster and have lower inflation in 2022.

If China was the massive potential energy behind an Asian century of economic growth and prosperity, it’s since caught Covid in a bad way and become a drag to the region’s output.

According to the World Bank’s latest outlook, China’s economic output will lag behind the rest of Asia for the first time since 1990.

The world’s second-largest economy’s is forecast to decelerate to 2.8% this year from 8.1% in 2021 amid ongoing Covid-related restrictions and a real estate slump, down from earlier forecasts made in April of between 4% and 5%.

The World Bank’s downgrade to China forecasts comes as economists are increasingly pessimistic about the outlook for next year, expecting any rebound to be bumpy under Beijing’s zero-Covid strategy and disruptions likely when the country eventually reopens.

At the same time, expectations for the rest of east Asia and the Pacific have improved, thanks to opening up and soaring global demand for commodities.

The region, excluding China, is expected to grow at 5.3% in 2022, up from 2.6% last year, thanks to high commodity prices and a rebound in domestic consumption after the pandemic, which means the rest of Asia will grow faster than China for the first time in decades.

Investment banks are also cutting their outlook on China’s growth with Nomura Holdings last week slashing its 2023 growth forecast for China to 4.3% from 5.1%, while Goldman Sachs also downgraded its outlook to 4.5% from 5.3%.

Many economists and analysts had predicted Beijing would significantly increase stimulus measures in response, boosting consumption and accelerating easing measures to help arrest the housing market downturn, but so far these measures have been lackluster and piecemeal.

At its core, the Chinese real estate market is suffering from the worst possible confluence of factors, oversupply, poor sentiment and zero-Covid lockdowns, which means that China can’t necessarily spend its way out of this crisis.

By contrast, economies in east Asia and the Pacific, particularly the export-driven economies of south-east Asia, are mostly expected to grow faster and have lower inflation in 2022.

2. Wall Street in Best Rally Since 2020 as Bank of England Pulls Out All the Stops

• On Wednesday, the combined advance of the biggest ETFs tracking U.S. stocks, Treasuries, investment-grade bonds, high-yield credit and raw materials reached 12%, the strongest concerted rally since April 2020.

• The Bank of England’s latest move also sparked debate on the future path of rate hikes and whether the Fed would do the same during times of financial stress.

Even before the U.S. Federal Reserve started raising interest rates, the Bank of England, in an effort to stave off soaring inflation, started its tightening measures in earnest.

But the weak British economy and Brexit, coupled with a collapsing pound, have been too much even for the Bank of England to stomach and policymakers have since taken steps to reverse some of the unintended consequences of their tightening.

Amid a self-inflicted financial crisis that threatens to accelerate the economy’s dive into recession, the Bank of England pledged a fresh round of debt buying to forestall a systemic crash in the pound, even as interest rates have been raised.

Bears who had sought cover from the U.S. Federal Reserve-induced rout over the past week, were burned as a Goldman Sachs basket of the most-shorted stocks jumped 4.6%.

Short traders in U.S. Treasuries were also caught out, as the 10-year yield plunged more than 20 basis points and demand for bonds soared.

Oil, gold and copper all spiked more than 2%, torching anyone betting that dollar strength would keep a lid on commodity gains.

On Wednesday, the combined advance of the biggest ETFs tracking U.S. stocks, Treasuries, investment-grade bonds, high-yield credit and raw materials reached 12%, the strongest concerted rally since April 2020.

While inflation may be the main driver for central bank tightening, rising correlation across all asset classes has been a significant challenge to both bulls and bears, whipsawing traders on both sides of the divide.

After the Bank of England unveiled its rescue plan, the pound jumped more than 3% from Wednesday’s low, while yields on the 30-year gilt sank the most ever, burning bears two days after staging the biggest jump in history.

The Bank of England’s latest move also sparked debate on the future path of rate hikes and whether the Fed would do the same during times of financial stress.

While the Bank of England is not the Fed by a longshot, that it didn’t take much for policymakers to waver should provide plenty of food for thought for investors betting that central banks have the resolve and the wherewithal to push in one direction only.

3. NFTs Everywhere But No One Seems to Want to Trade

• Trading volumes in NFTS –digital art and collectibles recorded on blockchains – has fallen 97% from a record high in January this year.

• On the world’s largest NFT marketplace OpenSea, trading volume has dropped to 99% in four months between May and August 2022 according to DappRadar, an analytics platform.

Scrolling through Twitter, you’d think that non-fungible tokens or NFTs are still doing a roaring trade but you’d be wrong.

Falling after the initial hype that followed their rise in popularity many NFTs are now worth fractions of what they were when purchased and are prompting many to question their long-term viability.

Trading volumes in NFTS –digital art and collectibles recorded on blockchains – has fallen 97% from a record high in January this year.

According to data from Dune Analytics, NFT trading volumes slid to just US$466 million in September from US$17 billion at the start of 2022.

On the world’s largest NFT marketplace OpenSea, trading volume has dropped to 99% in four months between May and August 2022 according to DappRadar, an analytics platform.

The fading NFT mania is part of a wider, US$2 trillion wipeout in the cryptocurrency sector as rapidly tightening monetary policy starves speculative assets of investment flows and a series of bankruptcies rocked markets.

An Interpol Red Notice has been issued for doomed algorithmic stablecoin TerraUSD creator Do Kwon and the managers of one of the industry’s most well-known hedge funds, Three Arrows Capital, remains at large.