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2/12/2025
Weekly Edition
John Vojticek
Head and Chief Investment Officer of Liquid Real Assets
Justin Miller
Portfolio Specialist, Liquid Real Assets
Edward O'Donnell
Senior Product Specialist, Liquid Real Assets
Chart
Index definitions: Global Real Estate = FTSE EPRA/NAREIT Developed Index; Global Infrastructure = Dow Jones Brookfield Global Infrastructure Index; Natural Resource Equities = S&P Global Natural Resources Index; Commodity Futures = Bloomberg Commodity Index; TIPS = Barclays US TIPS Index; Global Equities = MSCI World Index; Real Assets Index = 30% FTSE EPRA/NAREIT Developed Index, 30% Dow Jones Brookfield Global Infrastructure Index; 15% S&P Global Natural Resources Index; 15% Bloomberg Commodity Index, 10% Barclays TIPS Index. Source: Bloomberg, DWS. Past performance is not indicative of future results. It is not possible to invest directly in an index.
Global equity market performance stalled in the week ending February 12 as gains in Technology and Consumer Staples stocks were offset by weakness in Healthcare and Financial stocks. Investors spent time digesting recent U.S. inflation data and the impact of tariff announcements by U.S. President Trump. The U.S. ordered 25% tariffs on all aluminum and steel imports with no exceptions, to begin on March 12. That levy was followed by an order to initiate reciprocal tariffs on every trading partner to start on April 1st. The reciprocal tariffs are aimed at addressing the actual cost levied by foreign countries, as well as an estimation of the barriers to entry for U.S. exports to enter that market. While the U.S. imports a large share of its steel, primarily from Canada and Mexico, net imports of aluminum represented 15% of consumption in 2024. In response, one large beverage producer stated they would switch to plastic bottles rather than absorb or pass on the higher cost of aluminum cans. The policy measures have contributed to commodity price gains but the medium to long-term impact on trade balances, the broader economy, and ultimate commodity demand remains unclear as this transactional trade approach plays out.[1]
Among other indicators we track, the VIX, an index of expected S&P volatility, was only marginally higher, up 0.8% (0.12) to 15.9. U.S. inflation breakeven yields rose 7 basis points (bps) for the 5-year segment, and 5bps for the 10-year segment. The U.S. dollar strengthened marginally, ending at 107.9 for the DXY index, an average of the dollar’s performance against major peers. Investment grade credit spreads tightened 2bps and high yield spreads tightened 4bps. Gold prices were also up, climbing ~ $37 to $2,904 as investors factored in potential tariff disruptions. Oil prices were roughly unchanged at $71.37/barrel.[1]
Against this backdrop, the Real Assets markets trailed Global Equities, which were flat for the week. Commodity Futures outpaced Global Equities with Energy and Industrial Metals leading the way. Within energy natural Gas outperformed due to forecasts for colder weather. Within Industrial Metals, Copper and Zinc outperformed as post-Chinese New Year, Asian buyers have returned to market. U.S. tariff implications contributed directly to the rise in metals prices. Additionally, relatively benign economic data from China, better manufacturing PMIs for both U.S. and China, and improved sentiment towards data center build out demand after the DeepSeek announcement, helped drive copper prices and improved sentiment across the complex. Natural Resource Equities outperformed the Real Assets Index on a relative basis on the strength of Metals & Mining names that could benefit from the higher prices of underlying commodities. Conversely, companies in the Agriculture segment underperformed, especially those in Ag Chemicals and Paper & Forestry. Global Infrastructure securities trailed the Real Asset Index as weakness in the U.S. Oil Storage & Transport and MLP (Master Limited Partnership, a legal structure used in the energy sector) segments offset strength in Latin America Airports and companies in Asia ex-Japan. Global Real Estate securities trailed as Asia ex-Japan (Hong Kong REIT and Developers) and Australia (Growth & Rental) led the way while Japan (Developers, REIT), Europe ex-UK (Nordics) and Canada lagged the most.[1]
Why it matters: Diverging central bank policies, potential trade wars, and new administrations should keep investors on their toes in the coming months. We believe that real assets should play a strategic role in investors’ portfolios, as they could potentially benefit from the risk/return profile in a variety of economic and market conditions.
Macro Dive: This week, we look at price data in the U.S. and updates from the recent global AI summit held in Europe.
Rotten Eggs: The Bureau of Labor Statistics reported that Consumer Price Inflation in the U.S. rose 0.5% MoM, and 3.0% YoY, in January. Both measures were ahead of expectations and an acceleration compared to December’s reading. The headline increase was primarily driven by household expenses and shelter, while core was pushed higher by car insurance, prescription drugs, and airfare prices. One illustration of the costs facing consumers was the 15% rise for the price of eggs as chicken flocks have been decimated by bird flu outbreaks. Seasonal factors, periodically adjusted, showed that goods disinflation was faster than reported in the second half of 2024. The market reduced rate cut expectations following the release; however, most participants already believed the Fed would be on hold through the first half of the year.[2]
Upstream Costs: The Bureau of Labor Statistics also released Producer Price (PPI) data for January, which showed a similar upside surprise to expectations seen in the CPI data. The PPI headline data for January rose 0.4%, versus expectations of 0.3%, while also rising 3.5% YoY vs. expectations of 3.3%. Components of PPI feed into the Fed’s preferred measure of inflation, the PCE, personal consumption expenditures price index. Those components were relatively tame, which could provide a better reading of core PCE than was expected following the surprising CPI report. The Labor Department also released jobless claims data for the week ending Feb. 8th that showed a drop in continuing claims, which fell to 1850k, down from 1886k, while initial claims were 213k, down from a revised figure of 220k.[3]
AI Eu(rope)phoria: This week in Paris, France hosted the AI Action Summit with approximately 100 countries attending the two-day event. The 'EU AI Champions Initiative,' consisting of 60 European start-ups and major companies, began collaborative work on boosting Europe's trailing position in the global AI innovation race. The initiative already has collected declarations from various investors like KKR and Lightspeed to invest roughly EUR 150bn in European AI systems. On the final day, President of the European Commission Ursula von der Leyen, announced InvestAI, an EUR 200bn initiative to drive AI development and draw further private investment in the sector. EUR 50bn of that has been flagged to finance AI gigafactories across Europe that will specialize in training AI models. Just prior to the summit, France pledged EUR 109bn in investments and is partnering with the UAE to build an AI campus, data centers, and funding infrastructure investments in Europe. Abu Dhabi's investment fund MGX is heading the initiative. These projects can be seen as Europe's answer to the U.S. USD 500bn 'Stargate' project announced earlier this year.[4]
Real Assets, Real Insights: This week we will look at apartment fundamentals, AI energy impacts, and the copper dislocations.
Looking forward (Real Estate): In the midst of earnings season, to date apartment REIT earnings guidance for 2025 have fallen short of consensus by a modest 1%. However, the stocks reporting have outperformed based on the expectations of a second half acceleration of revenue growth after supply deliveries (of properties) peaked in August/September of 2024. Job growth and household formation supported apartment fundamentals in 2024 as record new supply was absorbed. Continued stable labor markets will be key to the 2005 story but the structural driver remains the relatively higher cost to own a home versus renting.[5]
No quenching the thirst (Infrastructure): Everyone wants to be a tech bro it seems. The DeepSeek news hasn’t slowed the rollout of data centers. In his latest analyst call, Energy Transfer LP’s CEO Thomas Long noted the increased demand to connect its gas pipelines to power plants, as well as data centers, with whom they don’t currently have relationships. The company recently announced its first direct line connection to a data center that would provide a “behind-the-meter” access to power for the center. This theme was reinforced by comments from two of the biggest utilities in the U.S. noting their hyper scaler clients remain committed to, or have even accelerated plans, for data centers and power needs. Companies are assessing how the efficiency gains in AI could increase demand as new use cases are explored.[6]
Commoditized? (Commodities): One impact of potential tariffs can be seen in the copper market. While not included in the latest round of 25% levies on aluminum and steel, copper tariffs have been mentioned. Traders have fluctuated pricing in various levels of tariffs, between 10% and 25%. This can be measured by price differentials offered on the Comex (U.S.) market and the LME (London) market. The spread between Comex and LME copper has surpassed $1200 per ton and could equate to a 50% chance of tariffs at a level of 25%. This level exceeds the previous peak seen at the end of last year, stemming from a short squeeze. The market has already responded by pulling supplies to the U.S. from the rest of the world in anticipation.[1]
Source: Bloomberg, as of February 13, 2025
Sources: BLS, Bloomberg, as of February 12, 2025
Sources: Labor Department, Bloomberg, as of February 13, 2025
Sources: EU Commission, Elysee, Le Monde, as of February 10, 2025
Sources: DWS, Greenstreet, as of February 13th and January 27, 2025.
Source: 2025 Bloomberg, Energy Transfer LP press release, as of February 10, 2025
As of the date of this publication, DWS owns shares of Energy Transfer LP (ET). Any mentions of specific properties or securities are for illustrative purposes only and should not be considered a recommendation.
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R-070495-4 (7/25)
