Top 10 Central Banks Have Raised Rates a Combined 2,000 Basis Points So Far this Cycle

This week marked the official start of autumn—or so we’re told. Here in San Antonio, the daytime high temperatures are still hovering in the mid-90s.

The week also felt like a huge pivotal shift in global central banks’ fight against sticky price inflation. Monetary policymakers added 350 basis points (bps) in rate hikes, bringing the total amount of hikes in the world’s top 10 largest economies to a massive ~2,000 bps so far this cycle, according to Reuters. The single holdout is Japan, which is still facing only moderate inflation of under 3%.

Central banks aren’t close to being done, of course. The Federal Reserve projects that the U.S. rate will be 4.4% by year-end, before peaking at 4.6% in 2023. Some macro research firms believe we’ll see 5%.

The question is: Will this even have an effect on inflation? The Fed has historically had to raise rates well above the annual consumer price index (CPI) to make a difference, but that’s been a tall order for Jerome Powell, whose starting point was essentially 0%.

Will Higher Rates Trigger a Recession?

The risk is that the Fed’s medicine could be ineffective yet come with serious side-effects. It’s possible that current rate hikes won’t be enough to bring down inflation, but they may be enough to trigger a recession. Then we’re dealing with stagflation, the toxic combination between rising prices and rising unemployment. The next CPI report is scheduled to be released on October 13, and I’m hopeful we’ll see that inflation continue to slow.

Below is the so-called Misery Index, which adds together the monthly unemployment rate and monthly inflation rate. We haven’t reached 1970s levels yet, but the trend is clearly going in the wrong direction.

If we’re not in a recession already, this may be as close to being the highest level outside of an economic pullback as we’ve ever seen.

Misery Index near highest rate

Cash Is King, but Bonds Also Look Attractive

With a recession potentially making landfall, and stocks slipping a further 5%+ this week, investors may wonder what their next move should be. Perhaps making no move is the best path forward, for now. It’s often said that cash is king in recessions, and today may be no exception. The Bloomberg Dollar Spot Index has advanced more than 14% so far in 2022, compared to the S&P 500, which has declined 22%, wiping out the past two years.

Government bonds are also having one of their worst years in recent memory. The iShares 1-3 Year Treasury Bond ETF (SHY), the largest such ETF with over $26 billion in assets, is currently down 4.4% for the year. This puts SHY on pace for its worst year in its 20-year history.

And yet if you know anything about bonds, it’s that as prices drop, yields rise. For this reason, Treasury bonds are starting to look like a possible buy again. The yield on the 10-year bond has climbed to nearly 3.7%, its highest since 2011, while two-year paper is trading with a yield as high as 4.1%, a level last seen in 2007. In both cases, that’s well above the S&P 500 dividend yield.

Stocks facing tough competition

I should pause to point out that the spread between the short-term yield and long-term yield is now at its most pronounced since 2000, around the time of the tech bubble. This inversion indicates that investors are becoming more pessimistic of the U.S. economy over the next two years. What’s more, since 1955, every yield curve inversion has been followed by a recession in the subsequent months.

A Case for Optimism

Having said all that, I still urge readers to remain optimistic, even though nearly every sign points to further economic and financial pain.

There are many misconceptions about optimism, by the way. Some people maintain it’s the belief that only good things will happen. Others believe you have to be naïve to express optimism, or that only extraordinarily happy people can be optimistic.

I don’t think any of those things. I believe optimism is simply the acknowledgement that, while there may be setbacks along the way, some of them major, the odds of things working out in the end increase over time.

A perfect analogy is the stock market. Huge selloffs like the one we’re witnessing at the moment warp some people’s attitudes about investing. They see that the S&P is in correction territory and may conclude that investing is too risky. The reality is that stocks have been up three out of every four years, historically speaking.

I’ve been in the game for decades, and one of the most important lessons I’ve learned is that an optimistic attitude helps you identify opportunities where a pessimist may see only risks. There are always going to be risks, as we all know. Sometimes it’s best to avoid the risk altogether. Other times, taking on the risk dramatically increases your odds of achieving rewards beyond your wildest dreams.

Have a blessed weekend!

Index Summary

  • The major market indices finished down this week. The Dow Jones Industrial Average lost 4.00%. The S&P 500 Stock Index fell 4.77%, while the Nasdaq Composite fell 5.07%. The Russell 2000 small capitalization index lost 6.68% this week.
  • The Hang Seng Composite lost 4.89% this week; while Taiwan was down 3.04% and the KOSPI fell 3.89%.
  • The 10-year Treasury bond yield rose 23 basis points to 3.687%.


Emerging Markets


  • The best relative performing country in emerging Europe for the week was Poland, losing 2.5%. The best performing country in Asia this week was Indonesia, gaining 0.1%.
  • The Russian ruble was the best performing currency in emerging Europe this week, gaining 5.6%. The Pakistani rupee was the best relative performing currency in Asia this week, losing 0.2%.
  • This week Poland released stronger economic data. Industrial/construction output climbed, retail sales were reported higher on a month-over-month and year-over-year basis, unemployment declined, and consumer confidence came in less negative than expected.


  • The worst performing country in emerging Europe for the week was Russia, losing 14.0%. The worst performing country in Asia this week was Hong Kong, losing 4.8%.
  • The Polish zloty was the worst performing currency in emerging Europe this week, losing 3.6%. The Philippine peso was the worst performing currency in Asia this week, losing 2.3%.
  • Bloomberg data shows that IPOs in Hong Kong represented just 7% of Asia’s total year-to-date. The data shows $7.75 billion has been raised through new listings this year, the lowest market share since 1999. Proceeds this year are down 78% year-over-year with rising interest rates, inflation, and Beijing’s zero-Covid policy being blamed for the steep fall.


  • Russians who disapprove of Putin’s call for partial mobilization walked out this week protesting the dictator’s push to escalate fighting in Ukraine. This proves that a growing percentage of the Russian population is withdrawing support for President Putin and his aggressive strategy toward the country’s neighbors.
  • China approved Hong Kong’s plans for reopening to global travelers. Shortly after, the Hong Kong government announced the end to its formal quarantine for international travelers after more than two-and-a-half years of stringent pandemic controls. Under new rules that will take effect starting September 26, incoming travelers will be required to undergo three days of self-monitoring on arrival. Although travel restrictions will not be fully removed, travel will become more convenient.
  • Service and manufacturing PMIs for China will be released next week. Bloomberg economists predict the service index to remain above the 50 mark separating growth from contraction, at 52.6. However, the China/Caixin manufacturing PMIs will likely remain unchanged, below the 50 mark. The Caixin Manufacturing PMI, which measures the manufacturing activity among smaller private companies, is expected to be released at 49.4, slightly above the official China Manufacturing PMI at 49.5, which measures production activity among larger, state-owned entities.


  • Russia escalated conflict in eastern Europe. President Putin called for partial mobilization, calling an additional 300,000 military personnel into service. In addition, referendum in the east and south regions of Ukraine will take place this weekend, asking people who leave whether they agree to join Russia. Following the event from Russia’s annexation of Crimea, the outcome of such a referendum seems obvious. At the same time, the President of Ukraine, Zelensky, wants to re-take all territory from Russia, including Crimea.
  • Goldman Sachs cut China’s GDP growth forecasts for 2023 to 4.5% from a previous projection of 5.3%. It kept its 2022 GDP forecast of 3.0% unchanged. The bank said the cuts came after assessing that the country would not reopen fully until after the Lunar New Year holiday and next March’s parliament session.
  • Last week, the MSCI Emerging Markets ETF (EEM) saw the biggest withdraws among ETFs that invest across developing nations (as well as those that target specific countries), Bloomberg reports. This exodus of money may continue as the dollar gets stronger. This week the Federal Reserve hiked its rate by 75 basis points, pushing the dollar to new highs.
investors exit large etfs

Energy and Natural Resources


  • The best performing commodity for the week was coffee, up 2.49%, on news at the start of the week that Brazilian coffee stocks have fallen to their lowest level since 1999. A board member of Brazil’s National Coffee Council noted that even if Brazil gets a good harvest next year, it will barely be enough to meet demand.
  • In the refining sector, even assuming no China export control in the future, there may be a tight global refining supply-demand balance (especially for middle distillates) through 2024, driven by: 1) continued permanent capacity closures (overall 5.5 million bpd capacity closing between 2019 to 2023) and 2) elevated gas prices in Europe (providing cost curve benefits for Asian refineries and creating upside risk to diesel demand for heating into the winter season as an alternative to gas).
  • European gas storage utilization has continued to increase at above-average rates in recent weeks despite the drop in Russian gas exports via Nord Stream 1. As of September 17, storage was 86% full versus the 10-year average of 84% and 71% at the same time last year. At average injection rates, there could be 90% inventory levels by the end of October. European Union gas consumption was down 18% year-over-year in August, after a 14% drop year-over-year in July, bringing the decline year-to-date to -12%.


  • The worst performing commodity for the week was natural gas, down 11.81%, and continuing its longest streak of weekly losses in January 2019. Fundamentals are becoming more bearish. U.S. gas inventories are up, and larger-than-expected stockpiles are signaling to the market that record production is now having an impact on prices, as demand wanes in the off season plus a slower economy.
  • Gasoline inventories are running low on the West Coast and in the Midwest, as reported by Bloomberg. Consumers are again seeing surging prices at the gas pump, yet gasoline futures are falling in price. Refinery fires and unplanned shutdowns, on top of scheduled maintenance, sent wholesale prices in Los Angeles, San Francisco, and Portland to record highs. Stockpiles of gasoline in the U.S. are running at their lowest level in 14 years.
  • The potash market sentiment continues to be bearish, as demand remains scarce and supply abundant, with incremental product from Belaruskali emerging across various regions. On the other side, Russia states it still faces a level of logistical export hurdles in terms of elevated insurance premia, securing trade finance/LoC, and product into Brazil has diminished over the last two months.


  • Morgan Stanley is selectively turning more positive on mining equities as most stocks in its coverage trade at increasingly attractive stock valuations — global Metals & Mining stocks’ relative valuation stands at 1.4 standard deviations below their historical average — despite strong free cash flow generation, capex discipline, and low leverage.
mining metals breakout
  • After flattening in 2017-2018, footage drilled/rig/day in the Permian has steadily risen over 2019-2021 and year-to-date. It’s not surprising that 2019-2020 saw strong increases in rig efficiencies as declining activity typically results in high grading of the operator base and active rig fleet. What is surprising is that rig efficiency has continued to improve at a decent clip in 2021 and year-to-date despite rig activity doubling over this period, which runs counter to 2017-2018, when efficiencies flattened out as activity increased. Typically, less efficient rigs are added as activity increases.
  • U.S. permitting activity increased in August with 1,306 approved permits compared to 1,152 permits in July. On a month-over-month basis (August versus July), the total approved permit count for horizontal wells increased by 154 permits, or 13.4%, to 1,306 permits. Private operators received 576 approved permits compared to 730 approved permits for public operators in August, which compares to private operators with 558 permits and public operators with 587 permits in July.


  • According to Morgan Stanley, although mining equities have typically outperformed during periods of high inflation, risks around China demand for metals from a deepening housing downturn and a doubling-down on zero-Covid policy, along with a lingering energy crisis in Europe, are likely to remain obstacles to a broad sector re-rating. In fact, China property demand indicators, such as land sales and floor space starts, are still in deep contraction, offsetting an anticipated pick-up in infrastructure demand.
  • LNG cost inflation appears under-reported by market players. There could be potentially 20-30% cost inflation for projects, or over $800 per ton construction costs. With many LNG prices still in the $2.00-$2.25/MMBtu range despite these emerging pressures, returns for projects could be eroded. 
  • As introduced in the U.K., a new windfall profit tax is expected to raise more than $30.9 billion (£28 billion) from oil and gas companies. The 25% tax on the profits of oil and gas will be used to offset government assistance to consumers on current purchases. Companies can invest in new production as an offset to the tax. Only the oil and gas industry is targeted by the newly proposed tax. U.S. investors should take notice of the transfer of revenue back to consumers via a tax as a potential threat to the earnings of our domestic oil and gas industry.


Blockchain and Digital Currencies


  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was XRP, rising 49.29%.
  • Nasdaq is making its first major push into crypto, reports Bloomberg, as the second-largest stock exchange prepares to capitalize on increasing appetite for digital currencies among big-money investors. A new group dedicated to digital assets will initially offer custody services for Bitcoin and Ether to institutional investors. As a custodian of digital assets, Nasdaq would be competing with crypto firms such as Coinbase, Anchorage Digital and Bitgo, the article continues.
  • A crypto industry lobby wants the judge in a high-profile digital assets case to consider Congressional efforts to establish a new legal framework for the nascent industry before moving ahead, reports Bloomberg. The chamber of Digital Commerce, a crypto advocacy organization, filed an amicus brief Wednesday in the SEC lawsuit against Ripple Labs.


  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was RavenCoin, down 23.82%.
  • A slide in cryptocurrencies on Monday sent Bitcoin to a three-month low as sentiment took a knock from a wave of monetary tightening that’s set to stretch from Europe to the U.S. Bitcoin sank as much as 7.4% and was trading at $18,644, which is the lowest since digital asset prices tumbled after the collapse of crypto lender Celsius in June, writes Bloomberg.
  • Cryptocurrency hedge funds lost 4.9% in August, the most among all investment styles, according to Bloomberg Hedge Fund Indices. The Bloomberg All Hedge Index fell .2% in the month and lost 5.9% year-to-date. So far this year, cryptocurrency funds are down 41%, according to Bloomberg.


  • Colorado taxpayers can now pay their taxes in Bitcoin, Ether, and other cryptocurrencies under a one-of-a-kind state tax payment program in conjunction with PayPal. Businesses and individuals will be able to use cryptocurrency assets to pay tax duties under Colorado’s primary tax programs, writes Bloomberg. Because Colorado can’t directly accept crypto itself, the Revenue Department has contracted PayPal to broker each transaction and immediately convert digital currencies into U.S. dollars. 
  • Cryptocurrencies outperformed U.S. equities for a change, with Bitcoin and Ether gaining for the first time in five days. Bitcoin rose about 2% on Friday and Ether rose about 1.5%. Markets are shuddering at the Fed’s determination to fight inflation by constricting financial conditions, writes Bloomberg. 
  • Cryptocurrency exchange FTX is in talks with investors to raise $1 billion in funding, CNBC reports. The valuation of billionaire Sam Bankman-Fried’s firm will be at $32 billion, according to the report. That’s the same as in January when the company raised $400 million, writes Bloomberg. 


  • The U.K.’s Financial Conducts Authority published a warning to consumers about Sam Bankman-Fried’s crypto exchange FTX, saying it isn’t authorized by the regulator to offer financial services or products in the country. The regulators said that FTX “is targeting people in the U.K.” adding that investors are “unlikely to get your money back if things go wrong,” writes Bloomberg. 
  • South Korean prosecutors signaled that Do Kwon, the progenitor for a $60 billion cryptocurrency wipeout, is at risk of an Interpol red notice and trying to evade redress over a meltdown that roiled digital assets. Kwon had moved from South Korea to Singapore, reports Bloomberg, where the now-collapsed Terraform Labs project had a base, but the city-state says he’s no longer there. Kwon’s location is unclear, and he denies being on the run even as prosecutors in Seoul seek his detention for allegations including breaches of capital-markets law.
  • Jesse Powell, co-founder of crypto exchange Kraken, is planning to step down as CEO, Kraken confirmed with CoinDesk. Kraken’s current chief operating officer will take over as CEO until someone is hired to fill the position, according to an article published by CoinDesk.

Gold Market

This week gold futures closed at $1651.20, down $32.30 per ounce, or 1.92%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 4.96%. The S&P/TSX Venture Index came in off 8.25%. The U.S. Trade-Weighted Dollar soared 2.95%.

Date Event Survey Actual– Prior
Sep-20 Housing Starts 1450k 1575k 1404k
Sep-21 FOMC Rate Decision (Upper Bound) 3.25% 3.25% 2.50%
Sep-22 Initial Jobless Claims 217K 213K 208k
Sep-26 Hong Kong Exports YoY -8.9%
Sep-27 Durable Goods Orders -0.1% -0.1%
Sep-27 Conf. Board Consumer Confidence 104.3 103.2
Sep-27 New Home Sales 500k 511k
Sep-29 Germany CPI YoY 9.5% 7.9%
Sep-29 Initial Jobless Claims 220k 213k
Sep-29 GDP Annualized QoQ -0.6% -0.6%
Sep-29 Caixin China PMI Mfg 49.5
Sep-30 Eurozone CPI Core YoY 4.7% 4.3%


  • The best performing precious metal for the week was gold, but still off 1.92%. Gold caught a break on Wednesday when the Bank of Japan intervened in the foreign exchange markets overnight to try and halt the slide in the yen against the dollar. Strength in the U.S. dollar is affecting world trade flows as the dollar is approaching trading levels not seen in the last 20 years. The rapid change has stressed balance sheets.
  • Revival Gold reported new drill results for the Beartrack-Arnett Gold Project in Idaho. One of most significant intercepts was 3.49 grams per tonne (g/t) over 115.4 meters, which included 10.12 g/t gold over 11.4 meters. This hole was a 150-meter step out from a previous intercept of 4.34 g/t over 110.6 meters, which included 12.00 g/t gold over 13.7 meters. The continuity of the higher-grade subsection within the larger intercept raises the potential for better improved economics for the project.
  • Iamgold Corporation is tracking toward the upper end of its 2022 production guidance of 570-640,000 ounces. The company noted it could have increased production guidance in the second quarter, but due to potential geopolitical risks in Burkina Faso, it remained conservative. Previously reported cost guidance is TCC of $1,100-$1,150 per ounce and AISC of $1,650-$1,690 per ounce.


  • The worst performing precious metal for the week was platinum, falling 4.95%, likely on anticipated weaker auto sales in the near future with an apparent recession playing out. Gold headed for a second weekly decline, reports Bloomberg, after a slew of central banks raised interest rates to cool inflation. Bullion slipped even lower on Friday, as the U.S. dollar climbed to a record.
  • CFO Daniella Dimitrov has left Iamgold Corp., and Vice President of Finance Maarten Theunissen has been appointed interim CFO. Management changes add uncertainty, in addition to Cote development issues and liquidity concerns.
  • Newmont’s dividend remains a focus point, and it is reasonable to expect upcoming changes, including a net reduction. Management emphasized balance sheet flexibility was the company’s priority, and Newmont was in the process of evaluating key variables that affect its capital allocation. These include: 1) reserve pricing for gold, which could be increased from the current $1,200 per ounce by $100-$200 per ounce, and may impact the company’s current base dividend rate, and 2) industry inflation, which remains a factor into 2023, but is viewed as moderating into 2024. When evaluating the dividend, Newmont discussed 3.0% as being a notable threshold for some investors. It is unclear how the base dividend will change, a net reduction in the overall dividend as reasonable to expect at current gold prices.


  • Newmont’s near-term capital profile includes high existing spending for the Tanami II and Ahafo North projects, which are guided to provide growth in 2026—the advancement of Yanacocha Sulfides would have exaggerated both near-term spending over 2022-25, and growth in 2026, ultimately increasing near-term cash flow risk. Project deferral reduces Newmont’s near-term capital risk profile, enabling the company to smooth its free cash flow (FCF) outlook and potentially sustain the existing dividend at current gold prices of $1,700 per ounce, while capital return sustainability risks could persist at lower gold pricing.
  • According to UBS, platinum has diverse end uses; 85%-90% of palladium demand is for automotive catalysts. Since April, there has been a 36% recovery in ICE passenger vehicle sales in key end markets as the pent-up demand created by the order backlog was unwound after the easing of the chip shortage. During the year, UBS has constantly revised its primary platinum supply forecasts lower due to Russia’s invasion of Ukraine, disappointing operational updates and the recent two-month delay to the Amplats’ Polokwane smelter rebuild.
  • Coeur Mining has announced that it has entered into a definitive agreement with AngloGold Ashanti to sell its Crown and Sterling holdings for closing cash consideration of $150 million and deferred cash consideration of $50 million to be paid upon Crown Sterling, attaining a total resource of at least 3.5 million gold ounces.


  • UBS calculates that platinum margins are still close to record levels on a dollar per ounce basis and continues to forecast a gradual normalization in margins back to mid-cycle levels. However, in a falling platinum basket price, coupled with an elevated inflationary environment, there could be a quicker-than-expected normalization in sector margins. While a steepening cost curve could provide some support to prices, the basket price could trade closer to the 50th percentile in a severe cyclical downturn.
  • AngloGold Ashanti acknowledged that mergers and acquisitions (M&A) activity is generally difficult to complete, and the best way for the company to add value is through organic growth opportunities. This is underpinned by the recent acquisition of Coeur Mining’s Nevada assets in the Beatty district.
  • Gold sales in India may suffer this year as inflationary pressures and an erratic monsoon could hurt farmers’ incomes, reducing their ability to buy the precious metal. The livelihood of millions of farmers in the country depends on the annual monsoon, and uneven rains this year could hurt incomes in the farm sector, the biggest buyer of gold in India. An increase in the import tax in July also reduced appetite for the precious metal in the second-biggest consumer.

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Author: Frank Holmes