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Bitcoin To Crash, Fed Loses Independence And South Africa Rises - Saxo's "Outrageous Predictions"

Tom Burroughes, Group Editor , 21 December 2017

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In its annual effort at going beyond a tame consensus, the firm sets out 10 bold guesses of what might happen in 2018, challenging investors to think about risks they might not yet have considered.

As the year winds down, an established feature of the financial scene is publication of those “outrageous” predictions from Denmark-headquartered investment firm and trading platform Saxo Bank. Its predictions include the loss of US Federal Reserve monetary policy independence; a “flash crash” in equities; new splits in the European Union, and a collapse to Bitcoin. But some of the predictions are also more positive – improved work conditions for women, and a take-off in South Africa’s economy. 

The bank said it likes to throw out bold guesses about what will happen in the world, not simply as a marketing gimmick but to frame debate about major developments in an arresting way. Sometimes its guesses pan out: last year, it predicted “huge gains” for Bitcoin, a view that has been amply borne out with massive gains in the virtual currency, prompting worries that it is unsustainable. Last year Saxo also predicted China’s GDP surging up by 8 per cent, which seems a bit far of the mark; it also predicted, among other things, that Italian bank shares rallied strongly in 2017. They have improved but not as much as the Saxo note of 2016 said.

Saxo Bank said the predictions don’t constitute Saxo’s official market forecasts for 2018 but they highlighted a “warning of a potential misallocation of risk among investors who typically see just a one per cent likelihood to these events materialising”.

“We have published Outrageous Predictions for more than 10 years and think this year’s list is one of the best we ever had, encouraging everyone to think outside the consensus box,” Steen Jakobsen, chief economist at Saxo Bank, said.

Head of FX Strategy, John J Hardy, said: "A year ago, many thought 2017 would prove a volatile year, given the seemingly impossible rise of Trump and the shock of Brexit. Instead, we got a year of outrageously smooth sailing that inflated risky assets the world around with nary a storm. But in 2018 we see the pendulum swinging back in favour of pronounced volatility risks as the irony of long periods of quiet and complacency in asset markets is that they sow the seeds for future volatility as investors underestimate tail risks and overleverage their bets on a continuation of the cycle.”

The ten “outrageous” predictions:

1, The Fed loses independence as the US Treasury takes charge; 

2, Bank of Japan forced to abandon yield curve control; 

3, China rolls out the Petro-Renminbi; 

4, Volatility spikes after flash crash in stock markets; 

5, US voters go hard left in 2018 election; 

6,  Austro-Hungarian empire threatens EU takeover
(Explanation: The divide between old core EU members and the more sceptical and newer members of the bloc will widen to an impassable chasm in 2018 and for the first time since 1951, Europe’s political centre of gravity will shift from the Franco-German couple to CEE. The EU’s institutional blockage does not take long to worry financial markets. After spiking to new highs versus the G10 and many EM currencies by late in 2018, the euro rapidly weakens towards parity with USD); 

7, Bitcoin is thrown to the wolves; 

8, Southern African Spring sees South Africa blossom; 

9, Tencent topples Apple as market cap king; and

10, It’s their time – women crash the glass ceiling.

 

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