- The Dollar Index declined for the third consecutive week last Friday, ending the session below the 92 handle. The USD has begun 2018 on the defensive, after the DXY fell about 9.9% in 2017, its weakest performance since 2003.
- The gauge had initially, in Friday’s session, slipped after the smaller-than-forecast rise in payrolls, but later regained some of its composure.
- The Dollar Index has largely fluctuated around the 92 handle over the past couple of days, and seems to have taken a breather from its recent move down.
- The US dollar continues to display weakness, although the chart shows further downside should remain limited with the neckline support, which has propped the DXY up from 2015, coming into play around the 91 mark.
- Investors now turn their attention to this week’s inflation numbers and speeches from Fed officials for further clues on the timing of the next Fed hike.
- The benchmark 10yr Treasury yield remains supported above 2.40%, gaining 8bps last week to 2.48%.
- The 10yr yield has trended down steadily since the 1980s, as shown below, but the long bull run for US bonds is showing signs of nearing a turning point, with yields finding a base around the 1.40% mark over the past 6 years.
- Bond yields have risen since Trump’s plan to reduce taxes was passed by Congress last month, and could break what has been a steady downtrend if it goes back above 3.0%.
- Gold gained for the fourth straight week last Friday, extending its rise further beyond $1,300/Oz to a 3-1/2 month high.
- Spot gold pared gains earlier on Monday, following a firmer US dollar, and is likely to retest its $1,300/Oz support again this week.
- The long-term momentum remains to the upside for the yellow metal, after breaking out of its multi-year downtrend last August. Belief that the Fed will continue to gradually raise rates may continue to prop up gold prices.
- According to a recent Bloomberg report, the outlook for gold continues to remain positive. Reasons include:
- 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.
- 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.
- 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.
- 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.
- Crude oil futures came off recent highs Friday but managed to remain buoyed above its $61/bbl handle today on the back of a slight decline in the number of US rigs drilling for new production. Futures reached a new 3-year high last week.
- Oil prices have been boosted by production cuts led by OPEC and by Russia, which started in January last year and are set to last through 2018. Strong compliance with the output cut deal together with robust global demand has helped spur an oil market rally since the middle of 2017.
- Despite Friday’s weakness, WTI remain in a bullish trend, with the $59/bbl level potentially an area of support over the medium-term.
Upcoming Key Events:
- US inflation data (PPI on Wed, CPI on Thu) will probably show price pressures remain muted, giving hawks little reason to argue for faster tightening.
- San Francisco Fed President John Williams and head of the New York Fed Bill Dudley are among policy makers scheduled to speak in the week ahead.
- North Korea and South Korea are slated to hold talks Tuesday for the first time since 2015.
- China producer and consumer prices data is due Wednesday, while a reading on the country’s money supply is expected in coming days.
- A UK cabinet reshuffle is coming soon, Prime Minister Theresa May said on Sunday. Her comments coincided with newspaper reports that she is planning a major cull of senior figures as soon as Monday to promote fresher faces from a younger and more diverse generation of Conservatives.
Weekly Thematic News:
Smart Real Estate Singapore:
Singapore home prices rose for a second straight quarter, reinforcing signs the city-state’s property market is emerging from a 4-year slump. An index tracking private residential prices rose 0.7% in the 3 months ended Dec. 31, building on a 0.7% gain the previous quarter, according to preliminary data from the Urban Redevelopment Authority released last week. For 2017, prices rose 1% compared to a 3.1% decline in 2016, the data showed.
A jump in home sales and developers’ aggressive bids for land are stoking optimism the property market is making a comeback after prices fell for almost four years. Still, gains may be capped as the bulk of cooling measures rolled out since 2009 remain in place to avoid Hong Kong-style runaway price-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 31.4% from a year ago and provides a dividend yield of 4.8% as of Monday.