Ten “outrageous” predictions for 2017

Saxo Bank, an online multi-asset trading and investment platform, has released a set of what it calls “outrageous” predictions for the year ahead, starting with a booming China GDP of 8%, and a surging Mexican peso.

Here they are in full:

1.  China GDP swells to 8% 
China’s transition to a consumer-led economy happens quicker than observers thought, which results in 8% growth in 2017, with the resurgence owing to the growth in the services sector. 

2.  Desperate Fed follows BoJ lead to fix ten-year treasuries at 1.5%
As US dollar and US interest rates rise in increasingly painful fashion in 2017, the fiscal policy of the new US president leads US ten-year yields to reach 3%, causing market panic. On the verge of disaster, the Federal Reserve copies the Bank of Japan’s Yield Curve Control, by fixing the ten-year government yield at 1.5%, but from a different angle, effectively introducing quantitative easing (QE) 4 or QE Endless. This in turn leads to the biggest gain for bond markets in seven years.

3.  High-yield default rate exceeds 25%
2017 sees default rates as high as 25%. As we reach the limits of central bank intervention, governments around the world move towards fiscal stimulus, leading to a rise in interest rates (ex-Japan), thus steepening the yield curve dramatically. As trillions of corporate bonds face a ‘world of hurt’, the problem is exacerbated by a rotation away from bond funds, widening spreads and making refinancing of low grade debt impossible.

4.  Brexit never happens as the UK Bremains
As negotiations progress, the EU makes key concessions on immigration and on passporting rights for UK-based financial services firms, and by the time Article 50 is triggered and put before Parliament, it is turned down in favour of the new deal. The UK is kept within the EU’s orbit, the Bank of England hikes the rate to 0.5% and euro/pound rate plummets to 0.7300.

5.  Doctor copper catches a cold
Copper was one of the clear commodity winners following the US election; however in 2017 the market begins to realise that the new president will struggle to deliver the promised investments and the expected increase in copper demand fails to materialise.

6.  Huge gains for Bitcoin as cryptocurrencies rise
Under President Donald Trump the US fiscal spending increases the US budget deficit from $600 billion to $1.2-1.8 trillion. This causes US growth and inflation to sky-rocket, forcing the Federal Reserve to accelerate the hike and the US dollar reaches new highs. This leads to an increased popularity of crypto-currency alternatives, with Bitcoin benefiting the most.

7.  US healthcare reform triggers sector panic
Healthcare expenditure is around 17% of GDP compared to the world average of 10% and an increasing share of US population cannot pay for their medical bills. The initial relief rally in healthcare stocks after Trump’s victory quickly fades into 2017 as investors realise that the administration will not go easy on healthcare but instead launches sweeping reforms of the unproductive and expensive US healthcare system. This ends the most spectacular bull market in US equities since the financial crisis.

8.  Despite Trump, Mexican peso soars especially against Canadian dollar
The market has drastically overestimated Donald Trump’s true intention or even ability to crack down on trade with Mexico, allowing the beaten-down peso to surge. The Canadian dollar underperforms as Canada enjoys far less of the US’ growth resurgence than it would have in the past because of the longstanding hollowing out of Canada’s manufacturing base transformed from globalisation and years of an excessively strong currency. The Canadian dollar to peso rate corrects as much as 30% from 2016 highs.

9.  Italian banks are the best performing equity asset
German banks are caught up in the spiral of negative interest rates and flat yield curves and can’t access the capital markets. In the EU framework, a German bank bailout inevitably means an EU bank bailout, and this comes not a moment too soon for the Italian banks which are saddled with non-performing loans and a stagnant local economy.

10.  EU stimulates growth through mutual euro bonds
The EU launches a stimulus six-year plan of €630 billion backed by EU Commission President Jean-Claude Juncker. However, to avoid dilution resulting from an increase in imports, the EU leaders announce the issuance of EU bonds, at first geared towards €1 trillion of infrastructure investment, reinforcing the integration of the region and prompting capital inflows into the EU.

©2016 funds europe

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