December 11-17, 2017

Weekly Macro:

The US dollar declined Monday and looks poised to snap a 5-day winning streak, while US 10yr Treasuries remained capped below 2.40%. Gold lingered near a 4-month low while crude oil held above $57/bbl.

US Dollar:

• The Dollar Index gained for a second consecutive week, rising 1.1% to just shy of the 94 handle for the week ended Friday. The dollar rose following further progress in the US tax reform bill, and after a report said President Trump will release his long-promised infrastructure plan next month.
• However, according to the latest Commitment of Traders report released by the US commodity Futures Trading Commission last Friday, net long US dollar positioning in the greenback fell for a third consecutive week, indicating confidence for a continued rally in the USD is slipping.
• With this week’s widely-anticipated rated hike largely priced in, further upside to the Dollar Index seems to be capped around its 4-month high of 95.15. To the downside, 92.50 represents an important support level.
• The longer-term direction remains biased to the upside, after the DXY broke out of its downtrend channel during end-October.
  

Treasuries:

• The benchmark 10yr Treasury yield gained slightly, by around 2bps, last week though it still remains below the 2.40% level. 2yr Treasury yields rose as well, gaining by a basis point to 1.79%.
• After weeks of relentless narrowing of the spread between short- and long-dated Treasuries, strategists have been left with little choice but to contemplate an inverted yield curve when crafting outlooks for 2018 and beyond. Now, they’re warming to the idea that this oft-cited recession signal could flash as soon as next year.
  
• The spread between 2yr and 10yr notes is 56 basis points, down from 125. The spread between 5yr and 30yr bonds, which was 114 basis points at the start of the year, is now 63.
• Six of 11 analysts surveyed by Bloomberg since last week said the curve from 2 to 10 years will invert at least briefly within 24 months, with four calling for it to happen in 2018.

Gold:

• Gold sank to its lowest in 4 months Friday as investors higher US interest rates and as progress on tax reform buoyed the US dollar. Spot gold declined 2.6% last week, the most since the period ended May 5.
• While bullion is still heading for the first back-to-back annual advance since 2012, the rally has stalled this quarter as stock markets hit record highs and the Fed continues tightening monetary policy. The policy-setting Federal Open Market Committee is widely expected to raise rates at its meeting on Dec. 12-13, which would be the third hike this year, further curbing the appeal for non-interest bearing bullion.
• According to a recent Bloomberg Gadfly report, the outlook for gold could be stronger now than it has for several months. Reasons include:

1. Historically, gold has generally declined pre-rate hike but risen post-rate hike, a common case of selling the rumour and buying the fact. Every time yields have peaked north of 2.5% over the past 5 years, gold has promptly rallied. Economists predict that yield barrier should be broken sometime in the first quarter of 2018.
   
2. Seasonally, gold tends to do better in January and February, before tallying off in March. That seems to relate to resurgent demand from bar, coin and ETF investors coinciding with the tail end of the Diwali-Christmas-Lunar New Year peak buying period for jewelry.
   
3. With Citigroup’s index of positive economic surprises at an unusually high level, the risk for a negative shock is high. When that occurs, demand for safe haven assets such as gold tends to soar.
4. With the cryptocurrency craze at euphoric levels, the risk of the crypto-bubble bursting is at an all-time high. It’s anyone’s guess when or why bitcoin fever will break, but at a time when the bosses of major brokerages are warning darkly of “a catastrophe in the cryptocurrency market,” it’s not impossible to imagine a disorderly retreat. If that happens, many of the fiat-money brigade who’ve pumped up the value of digital currencies will switch quickly from bitcoin, to cash, to their perceived safe haven of gold.

• The key support around the $1,260/Oz level was broken last week, although gold bulls could resume buying around the $1,245/Oz mark – the base of the previous downtrend line, last breached in August. The more significant support lies lower below at the psychological $1,200/Oz.
  

Oil:

• Crude oil futures rebounded off the $56/bbl last week, to pare back some of its weekly loss. Futures were little changed Monday after climbing 2.5% in the previous 2 sessions. US drillers boosted the rig count by 2 to 751 for a third weekly advance, according to Baker Hughes data on Friday.
• OPEC-led output curbs may end earlier than scheduled if the market re-balances by June, Kuwait’s Oil Minister Issam Almarzooq said Sunday.
• Oil is heading for a second yearly gain as OPEX and its allies including Russia extend supply cuts through to the end of 2018. Shale explorers have signalled they’re gearing up for a drilling surge next year as hedging rose for an eighth week to a record.

Upcoming Key Events:

• Fed policy makers on Wednesday are projected to raise the target range for their benchmark interest rate against a backdrop of continuing robust US economic conditions, a vibrant labour market and forecasts for inflation to pick up.
• The European Central Bank, the Bank of England and the Swiss National Bank set monetary policy at their respective meetings on Thursday.
• Among top US economic reports are consumer inflation on Wednesday and retail sales on Thursday.
• European lawmakers continue to debate Brexit and weigh moves on the next step, while North America Free Trade Agreement negotiators meet again.

Weekly Thematic News:

Cybersecurity:

A previously unknown ring of Russian-language hackers has stolen as much as $10 million from US and Russian banks in the last 18 months, according to a Moscow-based cyber-security firm that runs the largest computer forensics laboratory in Eastern Europe.

“Criminals have changed tactics and are now focusing on banks rather than their clients, as was standard operating procedure in the past,” Dmitry Volkov, the head of Group-IB’s cyber intelligence department, said by phone. Russia, considered a hotbed of government-backed information attacks, increasingly finds itself a victim of cybercrime.

Group-IB said the US banks were targeted by gaining access to their card-processing system and then opening accounts at the compromised institutions. The attackers removed limits on the legitimate bank cards and used mules to withdraw cash from ATMs. The virus was so stealthy that, in at least one instance, a bank was successfully robbed twice.

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Smart Real Estate Singapore:

A Bloomberg report last Wednesday stated that Singapore developers may extend their share rally into 2018 on a reviving home market, according to money managers and analysts, who say the central bank’s warning on a potential oversupply may not play out for years. After double-digit gains this year, Morgan Stanley sees a 42% jump in shares of CapitaLand Ltd., the nation’s largest developer, and a 24 percent increase in City Developments Ltd., the second-biggest, in the next 12 months. Property companies such as City Developments and UOL Group Ltd. are among the top performers in Singapore in 2017, with developers collectively on track for their best annual performance in 5 years.

Signs of a revival in Singapore’s property market include record prices paid for land deals, the first increase in home prices in four years, and the first gain in office rents in 2-1/2 years. The buoyant sentiment was tempered last week by the Monetary Authority of Singapore, which flagged the risk of rising vacancies amid slowing population growth.

Investors looking to invest in the local real estate sector can buy into the Smart Real Estate Singapore portfolio on iAdvisor, which has returned a healthy 25.6% from a year ago and provides a dividend yield of 5.1% as of last Friday.