Saxo Bank (Switzerland) SA

Saxo Bank's 10 Outrageous Predictions for 2017

Copenhagen, Denmark (ots/PRNewswire) - Will this be the year when China exceeds growth expectations, Brexit turns into Bremain, the Mexican peso soars and Italian banks turn out to the best performing equity asset class?

Saxo Bank, the online multi-asset trading and investment specialist, has today released its annual set of 'Outrageous Predictions' for the year ahead.

Continuing in the tradition of making a selection of calls aimed at provoking conversation on what might surprise or shock the investment returns in the year ahead this year's predictions cover a range of scenarios, including a Chinese growth rebound, an Italian bank rally, Brexit giving way to Bremain and the EU's willingness to change in the face of populist backlash, among others. 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.

Steen Jakobsen, Chief Economist at Saxo Bank, commented: "After a year in which reality has managed to surpass even seemingly unlikely calls - with the Brexit surprise and the US election outcome - the common theme for our Outrageous Predictions for 2017 is that desperate times call for desperate actions.

"With change always happening in times of crisis, 2017 may be a wakeup call which sees a real departure from the 'business as usual', both in central bank expansionism and government austerity policies which have characterized the post-2009 crisis.

"As some of our past outrageous predictions have turned out to be far less outrageous that at first thought, it is important that investors are aware of the range of possibilities outside of the market consensus so that they can make informed decisions, even in seemingly unlikely market scenarios."

It is in this spirit that we release Saxo Bank's Outrageous Predictions for 2017:

 1. China GDP swells to 8% and the SHCOMP hits 5,000  China 
    understands that it has reached the end of the road of its 
    manufacturing and infrastructure growth phase and, through a 
    massive stimulus from fiscal and monetary policies, opens up 
    capital markets to successfully steer a transition to 
    consumption-led growth. This results in 8% growth in 2017, with 
    the resurgence owing to the growth in the services sector. 
    Euphoria over private consumption-driven growth sees the Shanghai
    Composite Index double from its 2016 level, surpassing 5,000. 
 2. Desperate Fed follows BoJ lead to fix 10-year Treasuries at 1.5%
    As US dollar and US interest rates rise in increasingly painful 
    fashion in 2017, the testosterone driven fiscal policy of the new
    US President leads US 10-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 10-year 
    Government yield at 1.5%, but from a different angle, effectively
    introducing QE4 or QE Endless. This in turn promptly stops the 
    selloff in global equity and bond markets, leading to the biggest
    gain for bond markets in seven years. Critical voices are lost in
    the roar of yet another central bank-infused rally. 
 3. High-yield default rate exceeds 25%  With  the long-term average 
    default rate for high yield bonds being 3.77%, jumping during the
    US recessions of 1990, 2000 and 2009 to 16%, 10% and 12% 
    respectively, 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 the world of hurt, the 
    problem is exacerbated by a rotation away from bond funds, 
    widening spreads and making refinancing of low grade debt 
    impossible. With default rates reaching 25%, inefficient 
    corporate actors are no longer viable allowing for a more 
    efficient allocation of capital. 
 4. Brexit never happens as the UK Bremains  The global populist 
    uprising, seen across both sides of the Atlantic, disciplines the
    EU leadership into a more cooperative stance towards the UK. 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 EURGBP plummets to 0.7300 - invoking the 
    symbolism of 1973, the year of UK's entry into the EEC. 
 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. Faced with growing discontent
    at home, President Trump turns up the volume on protectionism, 
    introducing trade barriers that will spell trouble for emerging 
    markets as well as Europe. Global growth starts weakening while 
    China's demand for industrial metals slows as it move towards a 
    consumption-led growth. Once HG Copper breaches a trend-line 
    support, going back all the way to 2002 at $2/lb, the floodgates 
    open and a wave of speculative selling helps send copper down to 
    the 2009 financial-crisis low at $1.25/lb. 
 6. Huge gains for Bitcoin as cryptocurrencies rise  Under President 
    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 
    creates a domino effect in emerging markets, and particularly 
    China, who start looking for alternatives to the fiat money 
    system dominated by the US dollar and its over-reliance on US 
    monetary policy. This leads to an increased popularity of 
    cryptocurrency alternatives, with Bitcoin benefiting the most. As
    the banking systems and the sovereigns of Russia and China move 
    to accept Bitcoin as a partial alternative to the USD, Bitcoin 
    triples in value, from the current $700 level to $2,100. 
 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. The Health Care Sector SPDF Fund 
    ETF plunges 50% to $35, ending the most spectacular bull market 
    in US equities since the financial crisis. 
 8. Despite Trump, Mexican peso soars especially against CAD  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. Meanwhile Canada suffers 
    as higher interest rates initiate a credit crunch in the housing 
    market. Canadian banks buckle under, forcing the Bank of Canada 
    into quantitative easing mode and injecting capital into the 
    financial system. Additionally, CAD 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. CADMXN 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. The new guarantee allows the banking system to 
    recapitalise and a European Bad Debt Bank is established to clean
    up the balance sheet of the eurozone and get the bank credit 
    mechanism to work again. Italian bank stocks rally more than 
    100%. 
10. EU stimulates growth through mutual euro bonds  Faced with the 
    success of populist parties in Europe, and with the dramatic 
    victory of Geert Wilders far-right party in the Netherlands, 
    traditional political parties begin moving away from austerity 
    policies and favouring instead Keynesian-style policies launched 
    by President Roosevelt post the 1929 crisis. The EU launches a 
    stimulus six-year plan of EUR 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 EUR1 trillion 
    of infrastructure investment, reinforcing the integration of the 
    region and prompting capital inflows into the EU. 
The whole publication "Outrageous Predictions for 2017" and more 
details can be found here: 
https://www.home.saxo/campaigns/publications/outrageous-predictions-2
017   

https://www.tradingfloor.com/publications/outrageous-predictions

About Saxo Bank

Saxo Bank Group (Saxo) (http://www.saxobank.com/?cmpid=press-release) is a leading multi-asset trading and investment specialist, offering a complete set of investment and trading technologies, tools and strategies.

For almost 25 years, Saxo's mission has been to enable individuals and institutions by facilitating their access to professional investing and trading through technology and expertise.

As a fully licensed and regulated bank, Saxo enables its private clients to trade multiple asset classes across global financial markets from one single margin account and across multiple devices. Additionally, Saxo provides institutional clients such as banks and brokers with multi-asset execution, prime brokerage services and trading technology.

Saxo's award winning trading platforms (http://www.saxobank.com/platform?cmpid=press-release) are available in more than 20 languages and form the technology backbone of more than 100 financial institutions worldwide.

Founded in 1992 (http://www.saxobank.com/about/?cmpid=press-release) and headquartered in Copenhagen, Saxo employs more than 1500 people in financial centres around the world including London, Singapore, Paris, Zurich, Dubai and Tokyo.

Contact:

Steffen Wegner Mortensen
Head of PR and Public Affairs
+45 3977 6343
press@saxobank.com



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