bnn.lv Latviski   bnn-news.com English   bnn-news.ru По-русски
Friday 27.04.2018 | Name days: Tāle, Raimonda, Raina, Klementīne

Ten most outrageous predictions that can potentially shock the finance environment

FaceBook
Twitter
Draugiem
print
(No Ratings Yet)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUCan the Chinese economy exceed expectations? Will Britain remain in the EU? Will the Mexican peso grow and will Italian banks become growth leaders?

Saxo Bank, a specialist in the area of complex online trade and investments in a wide range of assets, has published its annual list of outrageous predictions for next year.

This time, the bank’s predictions include a wide range of scenarios, including recovery in China, growth of Italian banks, Britain’s 180 turn and EU’s desire to change in response to populism risks. These predictions are not Saxo Bank’s official outlook on developing events. They are unlikely events and market movements that sharply contrast with consensus.

«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,» – said Steen Jakobsen, Chief Economist at Saxo Bank.

Changes always come after crises. In 2017, the world will wake up from its illusions only to realize it can no longer go back to the way things were. This applies to expansionism of central banks and fiscal consolidation of governments, which is typical for post-crisis periods.

«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,» – the economist added.

Here are ten outrageous predictions by Saxo Bank:

1.GDP growth rates in China will reach 8%; SHCOMP to hit 5,000

China knows full well there is nowhere left to develop manufacturing and infrastructure. It has reached the end. Through massive fiscal and monetary stimulation, China will open capital markets. This will allow the giant to switch to a consumption-focused growth model. This will help the economy’s growth rate reach 8% in 2017. Euphoria caused by private consumption stimulating the economy will result in Shanghai Composite growing twice as much in comparison with the level of 2016 and exceeding 5,000.

2.Desperate, the Federal Reserve to fixate 10-year bond yield at 1.5%

Dollar’s exchange and interest rates in USA will begin growing painfully quick in 2017. The new president’s fiscal policy will increase 10-year bond yield to 3%, causing panic on the market. Desperate, the U.S. Federal Reserve will follow the example of the Bank of Japan for curve control. But the Federal Reserve will fixate yield for 10-year bonds at 1.5%, thereby basically launching a new QE4 programme. Sales will cease on stock markets and developing markets. World markets, on the other hand, will demonstrate the most rapid week growth in the past seven years. Voices of critics will rally in one massive cry caused by central banks.

3.High-yield default rate to exceed 25%

With long-term average default rate for high-yield bonds reaching 3.77%, jumping during the US recessions of 1990, 2000 and 2009 to 16%, 10% and 12% respectively, its rate may reach 25% in 2017. Interventions of central banks are nearing their end, governments around the world are switching to other fiscal stimuli, which inadvertently leads to growth of interest rates (except for Japan), steeping the yield curve dramatically in the process. 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 will not happen; Britain will return

Rise of populism on both sides of the Atlantic will make European leaders more disciplined, forcing them to switch to a new and more constructive level and teach them to agree with one another. In the process of talks, the EU will agree on 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. Britain will remain in the EU, the Bank of England will raise the rate to 0.5%, EUR/GBP will drop to 0.7300, making a callback to 1973, when the country first entered EEC.

5.Doctor Copper to catch a cold

Copper benefited the most among raw materials after elections in USA. Nevertheless, the market will realize in 2017 that it will be difficult for the new president to realize his promised investment projects, and demand for copper will not grow at all. Facing growing discontent at home, Trump will increase protectionism and introduce trade barriers that will not be welcomed by developing European markets. World economy growth rates will continue to decline and Chinese demand for industrial metals will continue to decline as the country moves more towards consumption-focused 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.Bitcoin to benefit from the wave of cryptocurrencies rise

Fiscal expenditures in USA will grow tremendously under Trump. Budget deficit will rise from $600 billion to $1.2-1.8 billion. This will provoke 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.Healthcare reform to trigger panic in USA

Healthcare expenditures in USA reach 17% of GDP, when compared with 10% in the world. Meanwhile, medical services remain unaffordable for an increasing share of the country’s population. The initial relief rally in healthcare stocks after Trump’s victory will quickly fade after 2017. Investors will understand that the state administration has no plans to go easy on the healthcare sector and instead plans to launch massive reforms. 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.Mexican peso to grow in spite of Trump, especially against CAD

Markets have seriously overestimated Donald Trump’s true intentions and ability to deal with Mexico. Once they realize this, Mexican peso will grow tremendously. Canada will suffer, because higher interest rates will provoke a credit crunch on the housing market.  Canadian banks will buckle under, forcing the Bank of Canada into quantitative easing mode and injecting capital into the financial system. Additionally, CAD will start underperforming as Canada enjoys far less of the US’ growth resurgence than it would have in the past because of the lasting 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 to become stock market leaders

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 €1 trillion of infrastructure investment, reinforcing the integration of the region and prompting capital inflows into the EU.

Ref: 102.109.109.6878


Leave a reply

Lithuania: can alcolocks be a panacea to reckless booze-driven behaviour?

A horrible accident in which a 24-old girl sitting in a taxi was killed last weekend in Vilnius, when a rented City Bee car being driven by a DUI driver rammed into the cab, prompted a wave of new debates whether Lithuania, having waged war against alcohol-related maladies, ought to proceed with a law requiring to install ignition interlock devices in rental cars. And maybe not only in them.

Latvia’s Saeima supports starting school at the age of six

Latvia’s parliament supported in the first reading amendments to the General Education Law and Education Law that provide a flexible transition to compulsory primary education at the age of six, as confirmed by Saeima’s press-service.

April’s final week expected to be warm and rainy in Latvia

Warmer masses of air will flow into Latvia in the last days of April and the first days of May. It is possible that air temperature may reach +23° C. However, this warmth will pass with thunderstorms, as reported by State Environment, Geology and Meteorology Centre.

Economist: Latvia’s future depends on people’s patience; politicians mostly focus on near future

«People in Latvia currently live better than they ever have. Still, income level in Western Europe and elsewhere in the world will remain higher for some time.» Which predictions about banking sector’s operations have come true, and what is going on with ‘pained child’ – Latvia’s judicial system? Luminor Bank’s economist Pēteris Strautiņš explains in an interview to BNN.

FCMC chief: ABLV Bank’s closure was not the goal of FinCEN report

The report published in February by US Department of Treasury’s Financial Crimes Enforcement Network about ABLV Bank was not prepared with the goal in mind to close the bank, said chief of Latvia’s Finance and Capital Market Commission Pēters Putniņš at a public hearing organized by European Parliament’s TAX3 committee in Brussels.

Study: wages in Latvia grew more rapidly in 2017 than they did in previous years

As a result of economic growth and increasing labour force demand, remuneration level in Latvia in 2017 has reached the most rapid rate in the past several years. Average net wage in Latvia has increased by 6%, reaching EUR 894, according to results of a study performed by CV-Online Latvia.

Number of foreign travellers in Latvia up 53.2% in past seven years

In 2017, foreign travellers crossed the border of Latvia 7.7 million times, which is 13.7 % more than a year before. Last year, foreign travellers in Latvia spent EUR 691.9 million – EUR 46.7 million or 7.2 % more than in 2016.

Experts shocked about HIV patients’ reluctance to undergo treatment

The number of HIV patients that underwent treatment in Q1 2018 did not change in Latvia even though a considerable amount of funding was allocated from the state budget for HIV/AIDS treatment in 2018. This creates concerns about HIV patients’ use of healthcare services, according to Association HIV.LV.

Danske Bank to gradually cease servicing Baltic clients

In Baltic States, Danske Bank plans to focus solely on providing support to subsidiaries of Nordic clients, as well as global corporations with a considerable business portion in Nordic countries. Leaving private persons and local businesses servicing sector will be performed in a gradual manner, as reported by acting manager of Danske Bank’s Communication Office in Latvia Zane Strade.

Latvian Saeima establishes ban for banks to service shell companies

Banks registered in Latvia will no longer be allowed to work with shell companies and service their accounts. This is provided by amendments to the Law on the Prevention of Money Laundering and Terrorism Financing approved by the Saeima on Thursday, 26 April, as confirmed by the parliament’s press-service.

Ex-minister: Latvia’s biggest problem is the older generation of politicians

Older generation of politicians is Latvia’s largest problem. Some of those people are due for retirement. This is why the main objective for ‘Kustība Par!’ is involving a new generation of young and perspective politicians, says the party’s leader Daniels Pavļuts.

Danske Bank may announce its exit from Baltic States

Danske Bank Group’s office in Lithuania may announce on Thursday, 27 April, its plans to leave Lithuania and, possibly, the Baltic States, as BNS news agency’s Lithuanian branch was told by two sources.

«Oligarch talks» publication law put on hold; will fabricated «risks» impact UGF?

On Tuesday, 25 April, Saeima’s Legal Affairs Committee decided against putting up for a vote the legislative draft for the digitization and publication of the declassified portion of materials from the so-called oligarch talks criminal case.

OECD to perform independent audit of decisions made by Latvian supervisory services

Organisation for Economic Co-operation and Development plans to perform an independent audit of decisions made by the Finance Capital and Market Commission and Anti-money Laundering Service, as confirmed by Finance Minister Dana Reizniece-Ozola after a meeting of Finance Sector Development Council on 25 April.

Level of prices of agricultural products in Latvia grew 11.6% in 2017

The total price index of agricultural output in 2017 had increased by 11.6 %, which was mainly due to the rise in prices of livestock products of 25.8 %. The price index of crop products grew by 2.2 %.

51% of residents would not purchase goods production of which would pollute the environment

Environment-friendly lifestyle in Latvia, like elsewhere in the world, is becoming more popular every day. So-called green thinking also affects Latvian residents’ habits. 53% of Latvian residents prefer goods and services that help protect the environment, according to results of a study performed by AS Latvijas Zaļais punkts.

World Press Freedom index ranks Estonia highest among Baltic states

The French-based organisation Reporters Without Borders has published its 2018 World Press Freedom index, where Estonia has been ranked 12th and Latvia has been moved up by four positions to the 24th place.

Abu Meri: parliamentary investigative committee could help combat corruption in Riga City Council

«Nils Ušakovs’ policy in Riga is not only non-democratic but also allows for systematic corruption, which has become a tradition. If a week goes by with no scandal, it seems too long. Because of that, I consider forming a parliamentary investigative committee to study corruption in Riga City Council,» said Unity’s Saeima faction leader Hosams Abu Meri in an interview to BNN.

200 thousand Estonian e-mail passwords found leaked online

The global database of the illegally leaked passwords of tons of e-mail addresses contains passwords used by some 215 000 Estonian internet users.

Latvian EC Commissioner invites businesses to prepare for all Brexit scenarios

Businesses and supervisors should prepare for all possible Brexit scenarios, said Deputy Chairman of the European Commission on Financial Stability, Financial Services and Capital Market Union Valdis Dombrovskis participating in the ongoing finance forum City Week in the UK.

Latvia prepared to pay 4.8 million euros for participation in Expo 2020 in Dubai

Latvian government is prepared for participation in the international Expo 2020 in Dubai. Prime Minister Māris Kučinskis said after a meeting of the Cabinet of Ministers this Tuesday that it is planned to allocate EUR 4.8 million for this venture.

Spanish resort city to prohibit renting apartments to tourists

Palma, the Spanish resort city in the Mediterranean island of Majorca, has adopted a restriction that apartment will be not allowed to rent their apartments to travellers, becoming the first place in Spain to introduce such a ban.

Supreme Court of Justice views Kristovskis’ claim against Ventspils City Council

On 25 April, the Administrative Cases Department of the Supreme Court of Justice will be viewing two claims submitted by Ventspils City Council deputy Ģirts Valdis Kristovskis against the city council. «The fact that the case will be viewed verbally and that the defendants include Ventspils City Council, EPRDM and Association of Local Governments is considered unique and unprecedented in Latvia’s court practice,» says Kristovskis.

Messaging app Whatsapp not to be available to under-16s in EU

The smartphone messaging app Whatsapp plans to raise the minimum age limit to its European Union users from 13 to 16 years, as it is adjusting its rules of use to the upcoming EU data privacy regulations.

Saeima speaker in Tallinn: EU and NATO cooperation in defence should be enhanced

Close cooperation between European Union and NATO in defence is now more important than ever. This is especially true for cyber security and hybrid-thread prevention, said Latvian Saeima’s speaker Ināra Mūrniece during a meeting of EU member states parliaments in Tallinn on Tuesday, 24 April.