Bank of England hikes by 50 basis points, says UK may already be in recession (5 min read)
The Bank of England raised its base rate from 1.75% to 2.25%. The increase was higher than traders expected and the highest in the UK since 2008. This is the seventh consecutive rate hike in an effort to bring inflation down. The inflation in August was 9.9% year-on-year with energy and food contributing the most. However, even after striping them out, the core inflation is still at 6.3%, remaining well above the bank’s 2% target. The bank said it believes the UK economy is already in a recession. Many analysts have previously said the UK will be in recession by the end of the year as it faces multiple problems such as high energy prices, trade bottlenecks from the pandemic and Brexit, and falling retail sales.
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Yen jumps as Japan intervenes in currency market for first time since 1998 (2 min read)
Japan attempts to strengthen the Yen as it continues to slide against the dollar. The last time Japan intervened with its own currency was during the Asia financial crisis in 1998. This intervention came after the Bank of Japan insisted on holding the negative-rate policy even when the Federal Reserves hikes aggressively. The Yen managed to pull back and rose as high as 2.3% against the dollar. Experts said Japan’s action will only slow down the depreciation but will not bring it back up. The Yen dropped 20% against the dollar this year. The weakened Yen has a major impact on companies and households as costs and energy prices soared.
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Stocks close lower, major averages on pace for weekly declines as recession fears mount (1 min read)
Major indexes continue to go lower as the US stock markets react to the Fed’s rate hike decision on Wednesday. Following the 0.75% rate hike, the Fed projects the key rate to be 4.4% by the end of 2022 and to remain high the next several years. Central banks around the world had also followed the Fed’s lead by adding their own rate increases. The S&P 500, Nasdaq, and the Dow were down 2.98%, 3.33%, and 2.42% respectively. Bond yields, on the other hand, are surging with the US 10 year and 2 year treasury at one of their highest levels.
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Cashing In as Interest Rates Top 4% (4 min read)
The one year treasury bill rate hit 4.08% this week, the highest in the last 20 years. As the Fed recently increased the key rates again, short-terms rates are now yielding more than longer-term rates. This means shorter-term bonds can generate higher return while taking on less interest rate risks. For investors who don't want to deal with individual bonds as it requires holding until maturity, ETFs are a great option. This article includes some of the top ETFs for short treasury from less than a year to three years maturity and money market funds.
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WisdomTree Emerging Market ETF Excludes China (1 min read)
WisdomTree launched a new emerging market ETF that excludes China. The WisdomTree Emerging Markets ex-China Fund (XC) is listed on the NYSE and has a management fee of 0.32%. One of the key features of XC is that it includes an ESG overlay in its methodology. This is the fourth emerging market ex-China ETF on the US exchanges. Emerging market ETFs that include China have been performing worse than ex-China this year. China’s economy is greatly affected by the pandemic and recent research shows their GDP growth will fall behind other emerging market countries in 2022 and 2023.
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Amazon vs. the S&P 500: Where Should You Invest Right Now? (3 min read)
This article looks at when is suitable for an index fund and when is for an individual stock. An index like the S&P 500 already consists of 500 largest companies, which means there is no need to worry about choosing and studying individual companies. It's also typically a safer investment because historically the S&P 500 has recovered from every market downturn. The downside is it can never beat the market since it is the market. Holding an individual stock on the other hand, can give you the potential to beat the market. For example, Amazon was up 864% in the last 10 years while the S&P 500 was only up 167%. Individual stocks give you more control in what you hold but it also comes with much more research. Choosing between the two will depend on your investing approach. If you prefer easy and less risk then an index fund is the better option. But if you are willing to put in more work to achieve above average returns, then individual stocks are more suitable.
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That's it for today! You can reply to this email if you have any comments or feedback.
Thanks,
Thomas
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