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OCTOBER 9, 2023

SIGNIFICANT RETREAT

Venture capitalists, once key players in the cryptocurrency industry’s growth, are now facing increased scrutiny, prompting a significant retreat. According to PitchBook data, global funding for crypto startups has plummeted by 63% compared to last year, hitting its lowest level since 2020. Additionally, the third quarter saw a mere $2 billion invested worldwide, highlighting a notable decline in investor interest. This downturn can be attributed, in part, to the absence of substantial deals, resulting in companies being forced to make difficult decisions like implementing cost-cutting measures and layoffs. Furthermore, the departure of late-stage tech investors from the space further compounds the challenges faced by the industry. Moreover, the fallout from the FTX scandal adds another layer of complexity, as it is concerns emerging regarding the potential devaluation of crypto startup equity.

INVESTORS SEEK SAFE-HAVENS

Gold prices have risen amidst increased tensions following an attack by Hamas on Israel as investors have been prompted to seek refuge in safe-haven assets like gold, which resulted in a 1.2% surge. Gold had rebounded last week from its lowest level since March, despite positive U.S. employment data supporting higher interest rates, and although it has added a small premium due to the current crisis, it is worth noting that this upward trend remains uncertain as U.S. Treasury yields and the dollar could limit gold’s upside. Moreover, looking at how other markets have responded, oil prices have spiked as there is potential for the conflict to disrupt the Middle East, which is a major global oil supplier. In addition, the yen and dollar, known for their safe-haven status, have strengthened as well.

LOWER GROWTH ERA

BlackRock Inc. Vice Chairman Philipp Hildebrand has raised concerns about the changing economic landscape and its impact on central banks. In a recent interview, HIldebrand urged the International Monetary Fund (IMF) to acknowledge the new reality where interest rate cuts are no longer a reliable tool for stimulating growth. Hildebrand emphasized that inflation is becoming more persistent, making it challenging for rates to respond effectively to economic weaknesses. Moreover, as the IMF and World Bank gather in Marrakech, Morocco for their annual meetings, the market has already adjusted to the prospect of higher rates over an extended period. This shift represents a departure from historical practices, where central banks intervened to support economic activity during downturns. Hildebrand noted that central bankers now face difficult decisions, having to navigate supply constraints in the global economy and an increasingly fragmented geopolitical landscape. Furthermore, he highlighted the elevated risk premium associated with geopolitical tensions, citing the recent conflict between Israel and Hamas as an example. Despite temporary market instability, Hildebrand believes that stability will eventually prevail, however, he emphasizes the combination of these factors signifies a lower growth era ahead.

SIGNIFICANT INFLOWS

Investors are flocking to global bond exchange-traded products (ETPs) this year, pouring in a staggering amount of money as, based on industry data from BlackRock, over $235 billion has flowed into these fixed income ETPs in the first three quarters of the year, surpassing the $170 billion seen during the same period last year. Unsurprisingly, bond ETFs, which allow investors to buy and sell shares throughout the day and track an index, have been the top choice. In fact, bond ETFs reached a momentous milestone in July, with assets under management hitting $2 trillion for the first time ever. The allure of these investments lies in the substantial yields they offer, which haven’t been seen in over a decade. Nevertheless, investing in bonds has been a precarious proposition, as yields continue to surge. Moreover, despite the risks involved, fixed income investments have gained immense prominence in portfolios due to their ability to navigate unpredictable market conditions. One prominent player in this space is BlackRock’s iShares section, which has captured approximately 35% of the total investments in fixed income ETFs this year.

KEY EVENTS HAPPENING THIS WEEK

Monday: Speeches from Dallas Fed President Logan and Fed Gov. Jefferson.

Tuesday: NFIB optimism index report for September, and Wholesale inventories report for August.

Wednesday: Producer price index (PPI) report for September, and Minutes of Fed’s September FOMC meeting.

Thursday: Initial jobless claims report for week ending on October 7, and Consumer price index report (CPI) for September.

Friday: Import price index report for September, and  Preliminary Consumer sentiment report for October.

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