2013: Saxo Bank releases latest ‘outrageous’ predictions
Denmark’s Saxo Bank is know for publishing “outrageous” predictions for the year ahead, and here are its latest ones.
1. DAX plunges 33% to 5,000
China’s economic slowdown continues, putting a halt to Germany’s industrial expansion. This causes large price declines in industrial stocks and low consumer confidence. Approval ratings for Angela Merkel plunge ahead of the German election, and in a weak economy combined with political uncertainty as Germany moves closer to signing up for further EU debt mutualisation, the DAX stock market index declines to 5,000, down 33% for the year.
2. Nationalisation of major Japanese electronics companies
Japan’s electronics industry, once the glory of the country, enters a terminal phase after being outmatched by South Korea. With combined annual losses of $30bn for Sharp, Panasonic and Sony alone, creditworthiness deteriorates greatly and the Japanese government nationalises key industry players, similar to the US government’s bailout of its automobile industry.
3. Soybeans to rise by 50%
Bad weather during 2012, which wreaked havoc on global crop production and saw a nine-year low in US soybean ending stocks, leaves the price of new crop soybeans exposed to any new weather disruptions, either in the US, South America or in China. Increased demand for biofuel will also play its part in exposing the price to spikes, and speculators will be ready to re-enter the market, pushing the price higher by as much as 50%. Food security becomes a buzz phrase.
4. Gold corrects to $1,200 per ounce
The strength of the US economic recovery in 2013 surprises the market and especially financial investors in gold. This and a lack of pick-up in physical demand for gold from China and India, both struggling with weak growth and rising unemployment, trigger a major round of gold liquidation. Gold slumps to $1,200 before central banks eventually step in to take advantage of lower prices.
5. WTI crude hits $50
US energy production continues to rise, primarily through advanced production techniques such as in the shale oil sector. US production of crude oil rises strongly, and with domestic inventory levels already at a 30-year high and export options limited, WTI benchmark crude oil prices come under renewed selling pressure and slump towards $50 per barrel.
6. $/JPY heads to 60.00
The Liberal Democratic Party comes back into power in Japan, with its supposedly JPY-punishing agenda. Only half-measures are introduced however, and at the same time the market has become over-positioned for JPY weakness and Japanese investors repatriate a portion of their trillions of USD invested abroad as risk appetite retrenches. The yen vaults to the fore as the world’s strongest currency, with USDJPY heading as low as 60.00 – ironically paving the way for the LDP government and the BoJ to reach for those more radical yen-weakening measures they promised in the first place.
7. €/CHF breaks peg, touches 0.9500
European Union tail risks are re-aggravated – perhaps by the Italian election – or over the nature of Greece’s exit from the European Monetary Union and the worry that Spain and Portugal will follow suit. This sends capital flows surging into Switzerland once again and the Swiss National Bank and Swiss Government decide it is better to abandon the Swiss franc’s peg to the euro for a time rather than push reserves past 100% of Switzerland’s GDP. As a consequence EURCHF touches a new all-time low below parity before Switzerland is forced to introduce capital controls to stem its strength.
8. Hong Kong unpegs HKD from $ – re-pegs to RMB
Hong Kong moves to unpeg its dollar from the US dollar, and repeg it to the Chinese renminbi. Other Asian countries show signs of wanting to follow suit. RMB volatility increases as China loosens its grip on the currency’s movements, and Hong Kong quickly grows to become a major world currency trading centre and the most important centre for trading the RMB.
9. Spain takes one step closer to default as interest rates rise to 10%
With social tensions in Spain already high, the public sector simply cannot cut its public outlays further. In 2013, Spanish sovereign debt is downgraded to junk and the social strain pushes Spain over the edge, seeing Spain reject the extend-and-pretend policies of EU officialdom. Yields rapidly increase after the downgrade and as an inevitable default is priced in.
10. 30-year US yield doubles in 2013
The Federal Reserve’s zero interest rate policy forces investors to leave fixed income. With no or even negative return, the substitution of bonds with stocks is appealing. The bond market is far larger than the equity market and a 10% reduction of funds allocated to bonds and reallocated to stocks would amplify equity fund inflows by around 30%. This could lead to higher US rates and also be the beginning of decade-long outperformance by stocks over bonds.