Ten “Shocking Predictions” by Saxo Bank for 2016

Saxo Bank, a specialized bank for online trading and investment, today announced its annual list of “Shocking Predictions” for the upcoming year.

These are ten unexpected, yet perhaps underestimated, events that could significantly impact financial markets in 2016. The assumptions relate to various markets and countries, from the price of oil drastically rising to $100 per barrel to a Silicon Valley unicorn returning to the myth from which it originated. There are also claims that the Russian ruble will strengthen by 20 percent against the dollar/euro basket, the Olympic Games will turbocharge Brazil’s recovery, while corporate bonds will “melt away”.

– We are approaching the end of the paralysis of the paradigm that has dominated politics and formed the backbone of responses to the global financial crisis. Quantitative easing and other interventionist forms have failed. China is changing, and geopolitical tensions are stronger than ever. The marginal cost of money is rising, as is volatility and uncertainty. In such an environment, we have set our forecasts for the upcoming year, comments Steen Jakobsen, Chief Economist of Saxo Bank.

– Saxo Bank’s “Shocking Predictions” continue to be an attempt to find ten relatively controversial and unrelated ideas that could completely disrupt the investment world. We are pleased that the “Shocking Predictions” stimulate debate and the imagination of our investors, as discussion and reflection contrary to dominant trends is part of the tradition at Saxo Bank, so that together we can focus more on the elusive and incomprehensible.

1. Direction for the EURUSD currency pair? It is 1.23…

Europe has a huge current account surplus, and weaker inflation should, according to macroeconomic logic, mean a stronger currency, not a weaker one. The race to the bottom has made a full circle, meaning we are back to a weaker dollar as a direct consequence of interest rate policy in the U.S.

2. Russian ruble to rise by 20 percent by the end of 2016

By the end of 2016, an increase in demand for oil and the Fed’s interest rate hikes at an unreasonably slow pace will bring about a rise in the value of the Russian ruble by about 20 percent against the dollar/euro basket.

3. ‘Grounded’ unicorns from Silicon Valley

The upcoming year in Silicon Valley will resemble 2000, with more and more startups delaying monetization and realistic business models in a desire to reach new users and achieve critical mass.

4. The Olympic Games will be the ‘turbocharger’ for Brazil’s recovery, a leading emerging market

Stabilization, targeted investment, and consumption related to the Olympic Games, along with moderate reforms, will turn sentiment in Brazil, while cheaper local currencies will boost exports in emerging markets. This will result in an excellent year for stocks in those countries, which will perform better than bonds and stock markets in other countries.

5. Democrats retain the presidency in the U.S., take Congress in 2016.

Republicans have transformed from a strong group into weaklings as internal turmoil over the future of the party creates a deeper rift. Therefore, Democrats swept them in the elections, with a successful ‘get out the vote’ campaign aimed at Millennials who flocked to the polls, dissatisfied with the deadlocked political situation and poor labor market forecasts over the past eight years.

6. Turmoil among OPEC members brings oil back to $100 per barrel

The OPEC basket of crude oil has fallen to its lowest level since 2009, and there is increasing unrest among weaker, but also wealthier, cartel members regarding the ‘produce and dominate’ strategy. Finally, a long-awaited slowdown in production among non-OPEC members is in sight. Encouraged by such an environment, OPEC surprised the market by cutting production. The price of crude oil immediately recovered, with investors scrambling to re-enter the game with long positions, so a price of $100 per barrel is on the horizon.

7. Silver breaks the ‘golden shackles’ with a 33 percent recovery

Silver will become the main precious metal of trust in 2016. The industry will increase demand for this metal as political trends for reducing carbon dioxide emissions strengthen, especially due to the use of silver in solar cell production. As a result, silver will recover by a third, leaving other metals far behind.

8. Aggressive Fed leads global corporate bond market to collapse

The end of 2016 will bring a shift in Fed policy, and Janet Yellen will sharpen her rhetoric and begin a series of aggressive interest rate hikes, leading to rising yields and thus a serious sell-off in all major bond markets. As nearly all shares of banking and brokerage balances intended for trading bonds have disappeared, a key part for the functioning of the market has vanished. The market recognized the situation too late, and investors focused on buying are beginning to panic sell shares as their advanced risk models signal a warning bell.

9. El Nino triggers inflationary shock

In 2016, a record strong El Nino is expected, which will lead to moisture shortages in many areas of Southeast Asia along with drought in Australia. Low agricultural commodity yields will cut supply at a time of still rising demand due to global economic expansion. The result will be a shock of nearly 40 percent on the Bloomberg Agriculture Spot Index, with additional pressure on inflation.

10. Luxury goods sector collapses due to inequality

Faced with increasing inequality and an unemployment rate above ten percent, Europe is considering introducing a basic income to guarantee all citizens the fulfillment of essential living needs. In an egalitarian society that emphasizes entirely different values, the demand for luxury goods is in drastic decline, and the entire sector is collapsing.