The US dollar slipped below the 91 handle, while US 10yr Treasury yields consolidated above the 2.50% mark; 2yr yields topped 2.0% for the first time since the Financial Crisis. Gold gained to a 4-month on the back of a USD weakness. Crude maintained near recent highs but nears a key resistance at $65/bbl.
- The Dollar Index extended its number of weekly consecutive declines to four on Friday, closing at a fresh 3-year low of 90.974 and below its key support of 92.000.
- Despite ongoing expectations that the Fed will continue to hike 2-3 times in 2018, increased odds of faster tightening elsewhere, such as Europe, UK, Canada and Japan, have boosted other currencies against the US dollar, resulting in the recent downturn of the Dollar Index.
- As reflected in the chart, the neckline which has strongly supported the DXY since 2015 is currently in danger of being broken. The DXY may find some short-term respite around the psychological 90 handle, although a break below is likely to lead the correction lower towards the 85 mark.
- The benchmark 10yr Treasury yield last week broke strongly above 2.50%, on the back of continued solid US economic data and the prospect of a March rate-hike.
- 2yr yields topped 2% for the first time in a decade on Friday, although it pared gains backed below 2% at the close.
- Data Friday showing that the underlying pace of US inflation accelerated last month finally drove it above 2 percent, as traders priced in a growing likelihood that the Fed would follow through on its projection of three rate increases this year.
- Yields has risen across all tenors over the past month, as illustrated.
- Gold gained for the fifth straight week last Friday, extending its rise further beyond $1,300/Oz to a 4-month high.
- The precious metal is fast approaching the 2017-high at $1,357.61/Oz; though the long-term resistance remains rooted at $1,400/Oz. Gold has struggled to trade above the latter since the second half of 2013, as shown below; a new wave of selling and profit taking is likely to emerge around this level.
- Interestingly, since the Fed’s last rate-hike in December, gold has outperformed most major assets, as depicted in the chart from Bloomberg below.
- The metal’s sparkling performance in the face of tighter rates, though counter-intuitive, has become the norm. Gold prices have been turning higher soon after the Fed raises rates ever since the global financial crisis.
- Crude oil futures maintained near its highest close in more than 3 years on Monday, as Iraq reiterated a call by the UAE and other producers that the OPEC-led output cuts should continue, despite recent price gains.
- The curbs have contributed to stability in the market and the caps should remain, Iraqi Oil Minister Jabbar al-Luaibi said in Abu Dhabi on Saturday. In the US, drillers added 10 rigs to fields last week, the most in more than 6 months, according to data from Baker Hughes Friday.
- WTI futures gained for the fourth consecutive week last Friday, although it is fast approaching the 50% Fibonacci retracement pullback level of $65/bbl, following its massive drop from $90/bbl to $40/bbl between 2014 and 2016. Some will be expected to come in around here.
Upcoming Key Events:
- US markets are closed Monday for the Martin Luther King holiday.
- Industrial production in the US probably increased in December, a report may show Wednesday, completing a solid year for manufacturing. US housing starts probably slipped in December for the first time in 3 months as frigid winter weather impeded work, forecasts show ahead of Thursday’s release.
- The spending bill will be monitored ahead of a partial US government shutdown on Friday as the spending bill runs out. Deal making could get contentious, particularly after Trump remains at odds with the Democrats on funding.
- The Bank of Canada’s interest-rate decision comes Wednesday, and is expected to reveal a 25 basis point hike to 1.25%. The Monetary Policy Report, also due on the same day should reveal a still cautiously upbeat growth outlook that is consistent with a gradual normalization path.
- UK inflation and retail sales data are due on Tuesday and Friday respectively. Brexit talks between the UK and EU on a transition deal are due to start presently, although negotiations on a future trading relationship with the EU are not due to begin until March.
- China releases fourth quarter GDP, December industrial production and retail sales Thursday.
- Australian jobs report for December is due for release on Friday, and is expected to show 25,000 jobs were added last month.
Weekly Thematic News:
Australia, one of the world’s biggest users of rooftop solar panels, likely added the most new capacity on record last year as electricity users sought to ease escalating power bills.
A preliminary estimate by Australia’s Clean Energy Regulator of 1.05 gigawatts installed last year would be a record for the country, the government body said in an emailed statement last Friday. While subsidies and generous feed-in tariffs helped boost growth earlier this decade, last year’s gains were driven by users seeking to sidestep a surge in the cost of electricity and a push by vendors into the commercial sector, according to Bloomberg New Energy Finance.
The shift to solar may have quickened as power prices spiked last year on tight supplies of coal and gas, which fuel the bulk of generation capacity on the national electricity market. BNEF estimates the cost of solar systems for residential customers has declined 44% since 2012.
Investors looking to invest in the solar energy space can purchase the Solar Energy US portfolio on iAdvisor, which has outperformed all but one portfolio over the last year, returning 64.2% as of Friday.
Smart Real Estate Singapore:
Credit Suisse warned that gains for Singapore’s real estate investment trusts may be limited this year after a surge in prices in 2017 left valuations looking stretched. Kum Soek Ching, head of Southeast Asia research in the firm’s private banking operation, pointed to declines in the extra yield from the securities versus risk-free rates from Singapore government bonds. For this year, the REITs may return 3.4 percentage points over a 10-yr bond, less than the historical average of 3.7 percentage points, Kum wrote in a note.
The Straits Times REIT Index gave a 28% total return last year as funds flowed into Singapore and the outlook brightened for property. Though prospects remain good, with rents improving as demand recovers and supply eases, investors may want to wait for more attractive entry levels, the analyst said.
Investors looking to invest in the local real estate sector can buy into the Smart Real Estate Singapore portfolio on iAdvisor, which outperformed the Straits Times REIT Index to return 32.7% last year.