Saxo Bank has released its ten 'Outrageous Predictions' for 2018. The predictions focus on a series of unlikely but underappreciated events which, if they were to occur, could send shockwaves across financial markets.
Check out this gallery to see what they are...
1. The Fed loses independence as the US Treasury takes charge
Both the Republicans and Democrats vie for an increased share of the populist vote as we head into 2018 mid-term elections, with budget discipline entirely absent and GOP tax cuts bringing a massive revenue shortfall, which will worsen as the US heads into recession.
The weak economy and higher interest rates and inflation will leave the Fed with no answer on monetary policy.
The Fed becomes a scapegoat for the economy’s weak performance, a bond market in turmoil and worsening inequality.
The Treasury takes on emergency powers and forces the central bank to cap US government yields to 2.5% on long bonds to prevent a bond market meltdown; a policy which was last in place in the immediate aftermath of World War II.
2. Bank of Japan forced to abandon yield curve control
The Bank of Japan's policy of yield curve control depends on soft global interest rates and low yields, and in 2018 this centre will simply not hold.
As inflation rises, yields too will spike, and the result will be a fantastical plunge in the yen.
Ultimately, the central bank will need to resort to QE-style measures, but not before USD-JPY hits 150, after which it rapidly devalues to 100.
3. China rolls out the 'petro-renminbi'
China is by far the largest oil importer, and many producer nations are already more than happy to transact in yuan terms.
With the US' global power and reach waning, and given the success of yuan-based commodity futures in general, the Shanghai International Energy Exchange's decision to launch a yuan-based crude oil future is a runaway success.
The introduction of the petro-yuan sees CNY appreciate more than 10% versus the dollar, taking the USD-CNY rate below 6.0 for the first time ever.
4. Volatility spikes after flash crash in stockmarkets
World markets are increasingly full of signs and wonders, and the collapse of volatility seen across asset classes in 2017 was no exception.
The historic lows in the VIX and MOVE indices are matched by record highs in stocks and real estate, and the result is a powder keg that is set to blow sky-high as the S&P 500 loses 25% of its value in a rapid, spectacular, one-off move reminiscent of 1987.
A whole swathe of short volatility funds are completely wiped out and a formerly unknown long volatility trader realises a 1,000% gain and instantly becomes a legend.
5. US voters go hard left in 2018 election
Changing demographics in the US, which already has the under-35 millennials in place as a larger cohort than the post-war baby boomers, will have a dramatic impact on politics in 2018.
The general revulsion of younger voters for Trump's persona, the widening inequality gap aggravated even further by the Republicans' cynical tax reform, and a new breed of Democratic candidates who are unafraid to tap into a Bernie Sanders-style populism from the left sees millennials turning out in droves at the polls in November. The Democrats pull the debate away from tax reform to spending stimulus for the masses.
True populism means breaking out the chequebook for the 90%, and that means fiscal stimulus, deficits be damned. US 30-year Treasury yields rip beyond 5%.
6. Austro-Hungarian empire threatens EU takeover
The divide between old core European Union (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 central and eastern Europe.
The EU's institutional blockage does not take long to worry financial markets. After spiking to new highs versus the G10 and many emerging market currencies by late in 2018, the euro rapidly weakens towards parity with the US dollar.
7. Bitcoin is thrown to the wolves
Bitcoin peaks in 2018 above $60,000 and, with a market capitalisation of more than $1trn as the advent of the Bitcoin futures contract in December 2017, leads to a groundswell of involvement by investors and funds that are more comfortable trading futures than tying up funds on cryptocurrency exchanges.
Before long, however, the Bitcoin phenomenon finds the rug torn out from under it as Russia and China move deftly to sideline and even prohibit non-sanctioned cryptocurrencies domestically. After its spectacular peak in 2018, Bitcoin crashes and limps into 2019 close to its fundamental 'production cost' of $1,000.
8. Southern African Spring sees South Africa blossom
In 2018, after a surprising turn of events, a wave of democratic transition spreads across sub-Saharan Africa.
The forced resignation of Zimbabwe's long-standing president Robert Mugabe at the end of 2017 triggers a wave of political change in other African countries.
South Africa's Jacob Zuma (pictured) is forced out of power and DR Congo's Joseph Kabila faces unprecedented demonstrations, pushing him to flee the country.
South Africa, however, is the main winner as the South African rand becomes the emerging market darling and returns 30% against the G3 currencies. It brings the world's strongest rates of growth in South Africa and satellite frontier economies of the region.
Photo: Eric Miller/World Economic Forum/Flickr/Creative Commons CC BY-NC-SA 2.0
9. Tencent topples Apple as market cap king
China, still the world's most populous country and one with a rapidly rising standard of living, is opening up its capital markets and its reform programmes are driving a rise in investor sentiment.
This is particularly evident in Chinese technology stocks with market leader Tencent's shares rocketing 120% in 2017.
In late 2017, the company moved into the global top five in market cap terms, nearing $500bn and even eclipsing Facebook at one point.
In 2018, though, Tencent leaves the other giants in the dust with its shares advancing another 100% despite the company's already enormous size, stealing the world market cap crown from Apple at well above $1trn.
Photo: Chris Yunker/Flickr/Creative Commons CC BY 2.0
10. It's their time – women crash the glass ceiling
Over the past generation, women have started achieving higher education levels than men, with US universities now graduating some 50% more women than men at the bachelor's degree level.
Women also now comprise nearly half of all business graduates. And yet in 2017, only 6.4% of the CEOs in the Fortune 500 list are women – though on average they earn more than their male peers.
Change is coming – not because it is "fair", but for the practical reason that women realising their desired potential is the last way left to grow the pie without growing the population in our low-productivity and aging developed economies.
In 2018, the chauvinist old boys' clubs are shaken to their core by shareholders and a woman occupies the top spot at more than 60 Fortune 500 companies by the end of the year.
Saxo Bank, the online multi-asset trading and investment specialist, has released its ten 'Outrageous Predictions' for 2018, which include a 25% correction for the S&P 500, Bitcoin crashing after soaring to above $60,000 and an Austro-Hungarian empire taking over the EU.
The predictions focus on a series of unlikely but underappreciated events which, if they were to occur, could send shockwaves across financial markets.
Commenting on this year's Outrageous Predictions, chief economist at Saxo Bank Steen Jakobsen said: "We have published Outrageous Predictions for more than ten years and think this year's list is one of the best we ever had, encouraging everyone to think outside the consensus box.
"It is important to underline the Outrageous Predictions should not be considered Saxo's official market outlook, it is instead the events and market moves deemed outliers with huge potentials for upsetting consensus views."
