“Shocking predictions” Saxo Bank has predicted Russia’s successful 2016

“Shocking predictions” Saxo Bank has predicted Russia’s successful 2016


Moscow. December 16. Saxo Bank reported their “outrageous predictions” by 2016, putting them two nice Russian surprise (predictions for 2015 one possible scenario was the default of the Russian Federation). Bank’s chief economist Steen Jakobsen said that the “outrageous predictions” to a large extent can be called such only because they are contrary to commonly accepted market forecasts, although in reality, many do not seem to be “shocking”.

Published annually for 13 years “Shocking predictions” Saxo Bank attracted the attention of investors to the main trends, although they are counted, but unlikely events (the so-called “black swans”), which, however, could significantly change the picture of the world, if they become reality. These are the ten most controversial and unrelated ideas, any of which may revolutionize the world of investment on its head.

Traditionally, the Bank emphasizes that its “outrageous predictions” are not its baseline scenario or the official forecast, but any of these events, if it happens, will have a very significant impact on the financial landscape or world politics.

From last year’s assumptions were partially justified by only one thing – devaluation of the yuan. According to Jacobsen, typically within 24 months after the publication of “Shocking predictions” become a reality 2-2.5 scenario.

“The most intriguing speculation for 2016”, said Jacobsen at the meeting with journalists in Moscow, most likely, is a variant with falling sales Louis Vuitton 50% against the background of increasing stratification and decreasing demand for luxury goods.

Sanctions will be removed, the ruble will fly

Illustration: Chris Burke for Saxo Bank

The worsening geopolitical situation in the world has allowed Russia and the West to sit down at the negotiating table, thus providing a real opportunity to exit the confrontation because of which the price of Russian assets under pressure for over a year, said head of Saxo Bank strategies in the currency market, John hardy.

According to the analyst, the result of the geopolitical crisis would be the removal of Western sanctions against Russia, and the money of international investors and the repatriation of profits are re-flooded into the Russian economy.

In this case, the growth of demand for Russian assets will positively affect the Russian ruble and its exchange rate rises by 20% against the bi-currency basket by the end of 2016, says hardy. Jacobsen estimates the positive impact of the lifting of sanctions on the ruble plus 25% to the current rate and does not exclude the jump in the Russian currency by 50%.

In addition, support for the ruble exchange rate will have high interest rates in Russia and a recovery in oil prices. According to Jacobsen, the ruble will be one of the strongest rates of strengthening of global currencies next year, even if it is “shocking prediction” becomes a reality.

Meanwhile, market participants are currently awaiting the imminent lifting of Western sanctions against Russia. Moreover, according to most experts, if even Russia will be lifted sanctions from the European Union, until, until you removes the restrictions of the USA, the attitude of foreign investors towards Russia will not change. “The fact that the sanctions have significantly reduced the demand of foreign investors for Russian assets, it is visible to the naked eye. It is therefore clear that if sanctions will be removed, interest in Russia will resume,” said Jacobsen.

In the 2016 attracts expert on the foreign exchange market “three RS”: the ruble, Rand and real. The realization of the positive scenario for emerging markets after the rate hike the Federal reserve system (the fed) will create the most favourable conditions for currency of the Russian Federation, South Africa and Brazil, he said.

A barrel of oil will again cost $100

Illustration: Chris Burke for Saxo Bank

Even under the baseline forecast Saxo Bank analysts expect a recovery of oil in 2016 to $50 a barrel amid a further increase in demand and alignment with supply. One of the reasons is the anticipated slowdown or cessation of growth of oil production in the US due to financial problems in companies developing shale deposits, and the demand is strong enough.

However, according to “shocking predictions” heads of Department strategies Saxo Bank to trade commodities OLE Hansen, oil prices next year may well reach $100 per barrel.

The analyst supposes in the beginning of 2016, the oil market will remain under pressure due to high rates of overproduction, with the inevitable increase of exports from Iran will strengthen the downward trend. According to the predictions of Hansen, in the first quarter of 2016 price of Brent crude oil falls to lows because of the resistance by American manufacturers. Among the members of OPEC will begin to grow doubts in the correctness of the strategy “deliver-and-conquer”, as the economic consequences will affect all 12 countries. OPEC would catch the market off guard by the unexpected production decline. This step will stop the downward spiral, and prices will recover quickly, and investors will rush in to take “long” positions in the oil market.

Thus, in combination with the expected return premium for geopolitical risk, oil prices will soar to $100 a barrel. Then the oil will return in the range of $50-70 per barrel.

However, geopolitical tensions will provoke short-term rises in oil prices throughout 2016.

Realistic – and not “shocking” – forecast Saxo Bank provides for fluctuations in oil prices mainly range from $40 to $60 per barrel in the next 10 years.

The shares of emerging markets will grow by 25%

Illustration: Chris Burke for Saxo Bank

Another potential pleasant surprise for Russia inherent in the eccentric expectations of growth of stocks of emerging markets by 25% in 2016. As suggested by the head of Department of macroeconomic strategy, Saxo Bank’s Mads Koefoed, it is possible that the emerging markets are destined to a brilliant year and the victory over the bonds and other stock indices.

The upcoming fed rate hike provokes a different emotion in emerging markets, but many people forget that during the tightening cycle stocks in developing countries usually outperform not only other stocks, but markets and government bonds, notes Koefoed.

In this case, according to the analyst, currently the discount at which the shares of the emerging markets shares are traded relative to developed markets, unnecessarily high.

Parity will not be

Illustration: Chris Burke for Saxo Bank

The pair Euro/dollar will move in the direction of $1,23, not parity next year, suggests Jacobsen. In four of the last five cycles of tightening of monetary policy by the fed, the dollar reached a peak by the time of the first rate hike, emphasizing the inverse relationship of the dynamics of the exchange rate from the monetary policy of the Bank.

At the macroeconomic level, the dynamics of the dollar will be the only important factor that will determine the net return of all asset classes. According to Jacobsen, if the dollar starts to weaken, the world would likely be plunged into a deep recession, because a strong dollar increases the debt burden for developing countries with large obligations in the us currency reduces profits for large U.S. companies, amplifies the downward pressure on the price of commodities and lead to lower growth rates in emerging markets overall, which today are responsible for 50% of global economic growth.

In other words, the path of least resistance for finding a balance and strengthening growth is the decline of the dollar in that case, if the planned monetary and fiscal policy will bring the expected results.

Drought will increase the salary

Illustration: Chris Burke for Saxo Bank

According to weather forecasts, 2015 and 2016 will be the hottest in the entire history that lead to the spread of arid zones in the world. Moreover, as expected, the natural phenomenon El niño this year will be the most powerful for all history and will lead to moisture deficit in many areas of South-East Asia and drought in Australia. This will be detrimental to the global agriculture industry, said head of Saxo Bank stock market Peter Garne.

Low yield of agricultural products will lead to falling of demand in the market amid rising demand in terms of global economic expansion. As a result, the Spot index Bloomberg Agriculture will grow by 40%, providing long-awaited inflationary pressure.

As suggested by Garri, the rise in inflationary pressures will be happy with Central banks in the developed countries engaged in an unequal battle with the prevailing deflationary trends caused by bad demographics, a decline in private consumption and excessive productivity.

Eventually, under the influence of these factors will stop the stagnation of wages and low net investment, for so long had plagued developed economies.

Jacobsen notes that in the year after El niño, oil prices tend to increase on average by 15%, inflation increases by 2-3 percentage points, and the rise of global GDP accelerates. Thus, in the coming months, the weather may play a very important role not only for agriculture, but for global markets and the economy as a whole, the expert added.

The phenomenon of El niño is defined as the temperature anomalies of the surface layer of the Equatorial Pacific ocean lasting at least 5 months, expressed in deviation of the water temperature by at least 0.5 degrees Celsius above normal.

Luxury is pure economic loss

“Luxury is a manifestation of social inequality. Ostentatious consumption of luxuries is a way to demonstrate their belonging to the elite. The elite are willing to pay more for the privilege and opportunity to be different from the rest of society. We call it the snob effect,” writes Saxo Bank economist Christopher dembik Christopher.

However, in the face of rising economic inequality, even in countries where previously the income was distributed equally, the use of luxury has become a challenge to society. “Money spent on luxury cars, jewelry and clothing, could be used to improve infrastructure and education or for fighting poverty. In this sense, luxury is pure economic loss,” explains dembik Christopher.

With the onset of the global financial crisis, poverty in Europe has increased due to the economic downturn and fiscal restrictions. According to the International labour organization, 123 million people in EU at risk of being below the poverty line, and that a quarter of the population of Europe. In 2008 this number did not exceed 116 million.

Faced with rising inequality and unemployment above 10%, Europe plans to introduce a single basic income, which guarantees all people, regardless of work, ability to meet basic needs.

In addition, the falling demand in Europe and economic slowdown in developing countries, particularly in China, has already resulted in a collapse in the luxury segment.

Thus, among the “shocking predictions” for 2016 fall in sales world leader in the segment of luxury goods – LVMH – more than 50%.

Silver will break the Golden shackles

Traditionally, the price of silver is determined by the dynamics of prices for gold and industrial metals. As the head of the Department of policies on trade and the commodities market Saxo Bank OLE Hansen, the fall in 2015 – for the third consecutive year – was linked to concerns about demand (industrial metals), and tightening policy by the fed (gold).

However, at the end of the 2015 mining companies have started to respond to falling prices by reducing production of key metals such as zinc and copper.

Silver is often a by-product produced together with other metals, including copper, zinc and gold, the share of primary production accounted for a third of total output. Prices for zinc and copper at the end of 2015 fell to its lowest level in six years amid falling Chinese demand, so the only way to maintain prices is to cut production.

According to Hansen, in 2016 this process of reducing production, initiated by such major producers such as Glencore and BHP Billiton, will continue, reducing the supply of silver on the market. At the same time, the desire of politicians to reduce carbon emissions by supporting renewable energy supports industrial demand for silver, which is used to produce solar cells.

Thus, silver will rise in price by a third and leave the other metals behind.

According to the analyst, there is a chance that silver will outperform gold by 20%, and the ratio of gold/silver will return to the average value for 10 years at the level of 59.

The collapse of the bond market

Head of securities trading fixed income, Saxo Bank, Simon Fattal considering the scenario of the collapse of the corporate bond market with a full suspension of trading at some time.

According to him, at the end of 2016 amid signs of overheating in the labour markets, housing, stocks and bonds, the fed may conclude that he has no other choice but to aggressively raise interest rates.

Despite the fact that the increase in the cost of credit waiting for a long time, fast growth rates will trigger large-scale sell-off in all major bond markets, yields will go up, pulling the amount of the premium on risky assets.

In this situation, all buyers of corporate bonds can in a panic rush to the exit. In this case the market will never be a “safety cushion” in the form of purchasing power banks.

Trump destroys the Republican party

Illustration: Chris Burke for Saxo Bank

The final assumption is unlikely Saxo Bank by 2016 – a crushing victory of the U.S. Democratic party in the presidential elections and regaining control of both houses of Congress.

Donald trump, currently leading in the polls as the candidate of the Republicans could lead the party to collapse. To find a policy which would suit all the Republicans (and the party makeup and the kaleidoscope of opinions in recent years have become much more variegated than before) seems impracticable.

After the elections the dollar rate may initially fall because of the risks associated with the new democratic government, devoid of Republican influence as a deterrent.

However, towards the end of the year the mood will change dramatically: the realization that the political majority – a rare phenomenon in the U.S. is able to push through new fiscal stimulus to support economic growth, will cause a rapid rise in the dollar and asset markets in General.