Adam Smith

Saxo Markets, the leading Fintech provider of multi-asset trading and investment services, today added Exchange Traded Options (ETO) over shares listed on the Australian Securities Exchange (ASX) to its online platform. This complements the existing 1,200+ international options that are already available on the Saxo platform.

“We are incredibly excited to be able to provide our clients with even more choice on the platform now via the addition of ASX listed single stock options, which complements our international stock options offering. With the current market volatility and general mood of uncertainty with the economy and society, we have not only seen an increased level of client activity as well as trading volumes, but also a demand for more content and choices to help them make more informed decisions. For traders and investors who are looking for enhanced risk management and equity portfolio strategies, ETOs serve as a powerful tool for hedging risk and generating income on ASX shares,” said Adam Smith, CEO, Saxo Markets Australia

Available on SaxoTraderGO and SaxoTraderPro now, ASX ETOs offer the following benefits for investors:

• Diversification: ETOs allow clients to build a diversified equity portfolio for a lower initial outlay than would be the case if they purchased the shares directly. Saxo is offering ETOs over stocks ranging from BHP to WOW, thereby providing a way for clients to diversify and complement their existing portfolios.
• Potential yield enhancement: Clients can elect to sell options to earn additional income over and above dividends.
• Risk management: Options provide opportunities to trade in bull or bear markets. ETOs are a powerful tool for equity portfolio protection. Options can be traded without the investor necessarily having to exercise them. Put options, for instance, allow clients to hedge or insure against a possible fall in the value of the shares they hold and can be sold prior to expiry in order to take a profit or limit a loss.
• Low cost of entry: Saxo offers competitive commissions on ASX ETOs from AUD 1 per lot. In addition, as options require lower initial outlay than the underlying assets themselves, clients can more efficiently deploy their investing capital.

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Eleanor Creagh

Saxo Bank, the online trading and investment specialist, has published its Q3 2019 Quarterly Outlook for global markets, including trading ideas covering equities, FX, currencies, commodities, and bonds, as well as a range of central macro themes impacting client portfolios.

“Central banks’ response to the looming economic slowdown and trade war has been panic cutting interest rates and signaling new extremes of easing, while politicians are warming to the idea of Modern Monetary Theory. Our model indicates that the low point in the economic cycles lies in the third quarter for China, and in the first to second quarter for the US, UK and Europe. Furthermore, we could be headed for a massive repeat of the 1970s global supply shock,” says Steen Jakobsen, Chief Economist and CIO, Saxo Bank.

“Companies globally are scrambling to make sense of the trade war, Brexit and the disintermediation of a multilateral system in a world where environmental costs are about to explode, driven by consumer concerns and a wave of Green politicians getting into the political driving seats.

“The credit impulses globally continue to indicate that the economic low point is ahead of us, not behind us. Our model indicates that it lies in the third quarter for China, and in the first to second quarter for the US, UK and Europe.

“Today globalisation has reached its maximum, even without the trade spat. China produces everything, so the “making things cheaper” process has run out of room. Add to that the potential trade war and massive focus on the environmental impact of all facets of consumption, from plastics to packaging, airline and sea transport pollution, and, with central banks wrongly focused on excessively low inflation, you get a perfect storm brewing that will turn the tide back toward inflationary outcomes. From anti-globalisation, higher unit cost of production due to environmental considerations, a fiscal push into infrastructure and shoring up injured global supply chains — all that creates a massive repeat of the 1970s global supply shock.

“The shock this time will come sometime after the global fiscal expansion set to arrive in the third and fourth quarter. In this situation, the markets that stand to benefit the most will be commodities and real resources, infrastructure plays, wages and gold. By the summer of 2020 – one year from now – we will have seen the end of any belief in monetary policy moving the needle, and will be witnessing extravagant spending driving inflation to levels beyond anyone’s expectations, just a couple of quarters after inflation, once again, has been pronounced dead.”

Against this uncertain backdrop, Saxo’s main trading ideas and themes for Q3 include:

Global equities show the biggest disconnect since 2007

Society has reached an important inflection point on several fronts which will have profound implications for global equities and investors. We have reached the end of globalization as we have known it since the early 1980s. Large imbalances can be seen across the environment, inequality, credit and the global supply chain.

Peter Garnry, Head of Equity Strategy, said “OECD’s leading indicators on the global economy is still declining with April’s number marking the 17th consecutive monthly decline. The global economy at its weakest point since July 2008 and the probability of a recession is still elevated and not fully reflected in equity valuations. South Korea, one of the world’s economies most tuned globalisation, is showing significant weakness with its leading indicators declining for 23 straight months in April and to levels not seen since early 2012. The South Korean economy has historically been one of the best indicators on the global economy, so we expect more pain to come in the second half of the year.”

“The recession probability is much higher than what global equities are currently reflecting with the yield curve and leading indicators sending the strongest warning signals to investors. But history has often showed a final bullish move in equities despite clear evidence of an incoming recession. This is exactly what we are witnessing today. The Fed put is used as an excuse to buy equities as it presumably increases the equity risk premium, but history shows that the first rate-cut is often a reliable signal that a recession is coming which reduces short-term cash flows and rises return expectations as investors get more risk-averse. The short-term is not correctly discounted in equities based on our forecast of the future, but it is the long-term expectations that we believe make the disconnect between equities and reality the biggest.”

It’s finally time for the USD to weaken

The US Federal Reserve is playing catch-up, and, if we see material signs of weakening in the third quarter, the Fed will axe rates to the effective zero bound instantly and could even restart quantitative easing before year-end. All this points to a weakening of the US dollar in the second half of 2019.

John Hardy, Head of FX Strategy, said: “The most remarkable development in currencies over the first several months of 2019 was the resilience of the US dollar despite the whiplash-inducing reversal in Fed expectations from hawkish in late to December to dovish and then more dovish with each subsequent Fed appearance in 2019.

“Given the risks of a growth slowdown in the US already baked into the cake, from the weak credit impulse to the rolling off of the impact of Trump’s tax reforms, we should expect clearer signs of a weaker US economy to emerge. For the second half of 2019 we will be looking for a transition to a weaker US dollar as the Fed is set to deliver strong easing.

“The collapsing rate outlook from the Fed and its willingness to bring back the policy punchbowl will make the rest of the world look less bad, though there are residual risks that any ugly episodes of general market deleveraging could drive bouts of USD strength against the most vulnerable currencies, the Turkish lira, for example. Elsewhere, the world doesn’t look great, but the lack of room to move further on the monetary policy front will encourage a more rapid transition to fiscal policy options.”

Commodities are set to benefit

The global fiscal panic, which is likely to result in governments spending money they don’t have, has the potential to drive a boom in commodities, not least gold as inflation looks likely to come roaring back. And a weaker US dollar could give gold and commodities overall the boost that has been lacking in recent years.

Ole Hansen, Head of Commodity Strategy, “Five years of range-bound gold trading look set to come to an end over the coming months as the yellow metal takes aim at $1,483/oz, the 50% reversal of the 2011 to 2015 sell-off. Driving the initial move higher are expectations that global central banks will cut rates to spur growth, which has proven increasingly difficult to achieve with trade wars disrupting global supply chains.  While US Federal Reserve easing cycles in the past have coincided with a strong dollar, we may already have seen the maximum potential for USD strength early in the Fed’s shift. On that basis, we ask if it is finally time for the USD to weaken? That would give gold and commodities in general the tailwind that has been missing in recent years.

“The biggest risk to our scenario of rising commodity prices is the potential for a major trade deal between the US and China reducing the markets’ expectations for how much US rates will have to fall.

”With silver trading at a 26-year low relative to gold, we see some additional upside, not least due to investors having preferred to trade silver from the short side for a while. In copper, we may already have seen the low point around $2.60/lb in high grade and $5,750/tonne in LME. Crude oil’s gyrations during the past six months look set to persist, with multiple drivers creating a very difficult market to navigate.

We expect that Opec and Russia will reaffirm their commitments to keeping oil production capped for the remainder of the year.

”Agriculture commodities will be keeping a close eye on the clouds – or lack of them – in the sky. The problems that farmers in Europe and the Black Sea region faced last year due to drought have moved to the US this past quarter. Torrential rain and flooding have sharply reduced the prospect for US corn production, while the quality of wheat has also been called into question. Soybeans, while also rallying, have struggled to gain momentum amid the trade war and the outbreak of African swine fewer reducing demand from China.”

Global policy panic to boost bonds

European government bonds have rallied powerfully since the end of 2018, with periphery issuers, such as Greece, benefiting the most. European sovereign debt valuations are likely to be well supported throughout the summer, and a further rally could be ahead if the unfolding economic slowdown triggers a new loosening of monetary policy.

Althea Spinozzi, Bonds Specialist, added: “We believe that European sovereign debt valuations will continue to be supported throughout the summer, and they may tighten a little further as monetary policies remain extremely dovish. European Central Bank president Mario Draghi’s last speech made clear that the ECB is ready to increase monetary stimulus if the economy does not improve. At this point, not only inflation is disappointing, but the data show weakness in the biggest EU economy, Germany, as economic sentiment plummeted in June, while uncertainty over US foreign policy is weighing on economic forecasts.

“The market is too dovish in pricing three US interest rate cuts this year, starting in July. The Federal Reserve just finished hiking rates four times last December, reaching a “comfortable” level at the moment.

“European and US corporate bonds have been rallying since the beginning of the year, reaching levels previously seen at the end of 2016, at a time when economic conditions were robust and well before the Fed and the ECB started to talk about raising interest rates. Now the economic backdrop is weaker amid slowing growth and escalation of trade war, so it is hard to justify low yields on corporate bonds.

“Since the resignation of British prime minister Theresa May last month, we have seen 10-year gilt yields inevitably fall below 1%, exactly as was seen in 2016 after the Brexit referendum. The message that the bond market is sending is clear: things are going to get worse before they get any better. This has serious implications for investors with sterling as a base currency as it means that they need to pay up for good-quality assets, but if they venture into the junk space, yields are so high that they may be irresistible.”

Fiscal policy to the rescue in the Eurozone

Growth in the Eurozone could be derailed in the coming quarters, and such a slowdown would trigger a new phase of expansionist fiscal policy. The size and the effectiveness of the next round of stimulus, however, remain uncertain, and some European governments will have little incentive to act.

Christopher Dembik, Head of Macroeconomic Analysis, said: “Interest rates are structurally extremely low. In other words, the cost of debt is low so it reduces the urgency to reduce debt. Recently, for the first time ever, the 10-year government bond interest rates of Austria, France and Sweden have fallen below zero. For some Eurozone countries, up to 88% of the total outstanding public debt is with negative yields for maturity up to 2032. This is the new normal in the Eurozone. Consequently, in major European countries, the cost of debt is totally manageable.

“There is little room left for monetary policy. The European Central Bank is confined to the zero lower bound, which means that lower rates have less positive effect than in the past, as they are already very low or negative. The ECB could resort to a new round of quantitative easing, in case of an economic downturn or de-anchoring of inflation expectations, as early as 2020, but to be effective, it will need to wield a more massive bazooka than in 2015, and the effects are still uncertain. What we know with more certainty is that QE tends to be associated with negative distributional effects (exacerbation of wealth inequality) that can only be mitigated by fiscal redistribution.”

Monetary madness in the ‘miracle’ economy

With the global economic outlook weakening and the Australian economy losing momentum, the Reserve Bank of Australia already in June began what is likely to be a series of cuts to its cash rate, which will probably land at 0.5% next year or even by year-end. Easier monetary policy will be required to deal with slackness in the labour market, weakness in the housing sector and falling consumption.

Eleanor Creagh, Market Strategist, commented: “Australia’s near 30-year recession-free run, the envy of central bankers around the globe, is now at risk as economic malaise grips. The “wonder, down under” that escaped zero interest-rate policy, negative interest-rate policy and quantitative easing has not managed to vanquish the business cycle and will not be so lucky this time around. Easier monetary policy will be required given the sizeable spare capacity remaining in the economy which continues to lose momentum and is running well below potential. The weakness is likely to lead to a further rise in unemployment and persistent disinflationary pressures, even before a potential global shock appears.

”In the current low-rate environment and for the foreseeable future, fiscal policy therefore has a far more active role to play. So, what is the bigger problem? Governments shirking their responsibilities to focus on infighting instead of policy reform. Monetary stimulus is ineffective for the challenges we face, and bureaucrats in Canberra must have realistic expectations about what central banks can achieve to stimulate the economy. Monetary policy will never replace sound economic policy. So, rather than relying on central bankers to clean up the mess, the government must deliver productivity-enhancing reforms, infrastructure spending and other fiscal measures to restore confidence and start a self-sustaining recovery in economic growth.

”Where there is a policy power vacuum, the RBA must be ready to step in and do the heavy lifting in case of an enduring threat to growth and employment. Although the RBA hopes it will not need to resort to unorthodox measures, once the conventional policy toolkit has been exhausted, the RBA would probably turn to quantitative easing if the economic outlook were to deteriorate further. Asset purchase programmes could take several forms, depending on the objective.”

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Qualified institutional clients in Australia and globally are now able to trade mainland China bonds through Saxo Bank. The connectivity is enabled via the Hong Kong based Bond Connect mechanism, which is a mutual bond access program launched in 2017, allowing overseas and Mainland China investors to trade in each other’s bond markets. The launch of mainland China bonds further strengthens Saxo Bank’s unparalleled global multi-asset trading and investment platforms – available in more than 20 languages – which also gives unique access to China A-shares listed on the Shanghai and Shenzhen stock exchanges.

Saxo Bank is the first in the market to offer full digital access to mainland China bonds through the Bond Connect gateway via a simple ‘click to trade’ functionality. With options to invest in for example Chinese onshore government bonds and central bank paper, institutional clients get simple, efficient automated access to a market that has historically been complicated and cumbersome for foreign investors to access. The Chinese bond market is among the largest in the world with a size of $12 trillion, and Chinese bonds are increasingly added to global indices which makes Chinese Bonds relevant for international investors looking to build diversified portfolios.

This means that Saxo Bank’s clients will be able to access a market that is destined to see activity increase drastically as international investors come to understand the importance of the Chinese bond market, and Chinese government bonds in particular. In compliance with People’s Bank of China’s regulations, qualified institutional investors will have access to 127 China bonds with CNH as a settlement currency.

Commenting on the news, Fan Xu, CEO of Greater China, Saxo Bank, said: “Chinese securities are an increasingly important part of an international investors’ portfolio, as demonstrated by record inflows into Chinese stocks in January this year, as well as strong international inflows into Chinese bonds in 2018. At the same time, Chinese government bonds emerged among the best-performing government bonds of 2018. We are therefore proud to be the first to deliver full digital access to Chinese bonds to help our clients build strong diversified investment portfolios.

“The addition of Chinese bonds to our platforms further cements our position as a gateway to China for international investors. As the importance of the Chinese economy to global capital markets continues to increase, we remain committed to providing clients with the broadest investment opportunities across asset classes.”

Saxo has a strong track record in the fixed income markets, having launched its digital bond trading solution in 2016, which is fully integrated into Saxo’s multi-asset trading and investment platforms. Saxo offers access to a universe of over 5,000 bonds, including more than 3,400 developed-market and over 1,600 emerging-market bonds. Each bond order is directed to an optimised dealer auction which is selected from up to 40 of the largest bond liquidity providers, ensuring higher speed of execution and tighter pricing.

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While these predictions do not constitute Saxo’s official market forecasts for 2018, they represent a warning of a potential misallocation of risk among investors who typically see just a one percent likelihood to these events materialising.

Commenting on this year’s Outrageous Predictions, Chief Economist at Saxo Bank, Steen Jakobsen said: “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. It is important to underline that 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.”

Head of FX Strategy, John J. Hardy, who lead the project this year, commented: “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.”

“That being said, our predictions this year aren’t just about market crash concerns. We wax outrageous on everything from major central banks losing their policy mojo and a new political crisis in the EU, to China eroding the US dollar’s reserve currency status and a new political spring welling up in southern Africa. We may or may not get any of these right but that isn’t the point. Rather, our task here is to stimulate debate and thought on what outrageous direction things may head at major inflection points like those that 2018 will inevitably bring. “

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 US heads into recession. The weak economy and the 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 USDJPY 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 CNY-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 USDCNY rate below 6.0 for the first time ever.

4. Volatility spikes after flash crash in stock markets

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 1000% 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 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 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

Bitcoin peaks in 2018 above $60,000 and with a market capitalisation of over $1 trillion 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-term president Robert Mugabe at the end of 2017 triggers a wave of political change in other African countries. South Africa’s Jacob Zuma is forced out of power and Congo’s Joseph Kabila faces unprecedented demonstrations pushing him to flee the country. South Africa, however, is the main winner as the ZAR becomes the EM 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.

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% higher in 2017. In late 2017, Tencent moved into the global top five in market cap terms, nearing $500 billion 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 $1 trillion.

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

Over the last 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.

Read the full publication of Outrageous Predictions for 2018.

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Saxo bank celebrates 25 years.

Saxo Bank celebrates its journey from an early online trading pioneer to a leading facilitator of global capital market access, servicing private and institutional clients in more than 170 countries

In September 1992, the small brokerage that was to become Saxo Bank was founded in the heart of Copenhagen. The bank’s founders, Lars Seier Christensen and Kim Fournais, quickly grasped the opportunities in using the internet and digital solutions to differentiate the business and offer clients better services, more products and lower prices. In 1998, Saxo launched its first online trading platform and became a fintech even before the term was created.

“Growing Saxo Bank from a small brokerage to a bank and technology company with more than 1500 employees is my life’s work and I am extremely proud of what we have accomplished together. None of this would be possible without our fantastic Saxonians who work hard every day to create win–win solutions with our clients. It makes me proud that we have such a talent base in Saxo Bank,” said Kim Fournais, Saxo Bank CEO and co-founder.

“Of course, 25 years is no age for a bank but it must be a record for a fintech. Our mission remains to democratise trading and investment by using technology to level the playing field in financial markets and provide both investors and traders with the same tools and market access as large institutions and fund managers.

“The way we trade has changed a lot since we launched our first online trading platforms. As a pioneer in the industry, we were among the first banks to move trading from land-line phones and paper spreadsheets to an online environment, with live price feeds, fast execution and increased transparency. In recent years we have expanded our offering to accommodate another behavioural shift; the transition to mobile trading. In August this year, mobile and tablet surpassed web as the most used front-end among our retail clients on SaxoTraderGO.”

Today, Saxo Bank services clients in more than 170 countries offering unparalleled access to global capital markets through its award-winning, multi-asset trading platforms. To be able to cheaply and efficiently trade the global markets in 28 languages, in any currency, from your choice of device is simply a breakthrough for democratizing investment and trading.

At the same time, Saxo Bank offers “Banking as a Service” to other financial institutions and Saxo’s trading infrastructure and model of collaboration is the technology backbone of more than 120 other financial institutions around the globe.

“I am confident that Saxo Bank will continue its expansion. A combination of client demand, technological advancement and regulation has created the perfect environment for the execution of our growth plans over the coming years,” Mr Fournais said.

“Saxo Bank has always been ahead of the curve in deploying technology to better support its clients in the financial sector but we are in no way resting on our laurels. Recent initiatives in robotics and AI will ensure that we are increasingly relevant to our clients and deliver a best in class digital client experience. Alongside this, we have also launched our digital asset management solution, SaxoSelect, and the market’s first fully digital trading solution for both corporate and government bonds.”

Saxo Bank presented H1 results in August showing a 45 % increase in profits compared to same period last year. Built on a consistent year-on-year increase, client collateral deposits surpassed DKK 100 billion (approx. EUR 13.5 billion euro) earlier this year.

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What does 2017 have in store?

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

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December 2015 saw a paradigm shift as the U.S. Federal Reserve finally delivered its first rate hike in more than nine years. Saxo’s outlook for Q1 therefore focuses on ‘minding the gap’ – examining the net change of how various asset classes react during rate hike cycles.

Steen Jakobsen, Saxo Bank’s Chief Economist, said: “Q1 will be a tough start to the year dominated by confusion, increased volatility and a lot of Fed second guessing. The bigger picture however is that we are transitioning towards a model of marginal cost of capital and that is good news.

“Fed hikes are a sign of healing not sickness and 2016 is set to offer great opportunities for investors who are looking to capture growth in their portfolios as the market resets itself.”

Against this backdrop, Saxo’s outlook for major asset classes in Q1 2016 is as follows:

Commodities

Q1 could be the worst in the cycle for beleaguered oil. The lifting of sanctions against Iran could boost exports, initially from oil held in floating storage and later by 500,000 barrels/day into an already oversupplied market. In the U.S., inventories tend to rise during the first four months and this could increase pressure on Cushing, the delivery hub for WTI crude oil futures.

The first quarter will also continue to pose a challenging environment for precious metals with investors’ most likely viewing higher rates in the U.S. and continued quantitative easing in Europe and China as a dollar-buying opportunity.

FX

More than ever, now that the Fed is actively adjusting interest-rate policy again, the outlook for global markets and all currencies, major and minor, hinges upon the Fed hikes to come and adjustments in the market’s anticipation of the pace of those hikes. A straightforward call is for the USD to rise as the Fed is now leading the pack in unwinding the exceptionally easy policy of the years since the global financial crisis.

Bonds

As we enter a new year, one topic will dominate the agenda and preoccupy investors the world over – the credit factor. And with interest rates lifting off from zero, the cost of credit will inform the performance environment both on a national as well as corporate level. In the event of any economic upside surprise during Q1, it makes sense to add a short bund position in a portfolio context.

Equities

If equity markets are shielded from energy and mining credit crunch spillover – which is our scenario – then 2016 will likely be a good year as investors face a flattening curve in USD yields, negative rates across European government bonds as far out as five-year maturities and in short-term Japanese government bonds.

Macro

The global economy will hold up in the face of the first U.S. rate-hike cycle in a decade, but the outlook is skewed towards the advanced economies and away from emerging markets. For now, however, the ramifications of the rising cost of capital will not be exclusively negative and global growth will inch higher.

Europe

Poland has enjoyed the reputation of a solid, recession-resistant and well-developed economy for some time now. Unfortunately, it remains highly vulnerable to higher capital costs – particularly insofar as the energy sector is concerned. Our view is that Polish growth will likely take a hit in 2016.

Asia-Pacific

Q1 marks the Chinese New Year of the Red Fire Monkey – a year that could be characterised by extra market mischief, ambition and yet more volatility. Dislocations and fragmentations will be even more strenuous in 2016, with geopolitical risk high on the agenda and the potential for a global economic slowdown in what is already a challenging environment.

Access the full list of trade ideas produced by Saxo Bank analysts which accompany the Essential Trades for Q1.

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Saxo Bank, parent company of Saxo Capital Markets, the online multi-asset trading and investment specialist, has today released its annual set of ‘Outrageous Predictions’ for the year ahead. These are 10 unlikely, yet perhaps underappreciated, events that could have significant consequences on the financial landscape as we venture into 2016.

As ever, the predictions span the length and breadth of markets and geographies; ranging from oil making a drastic return to $100 a barrel to Silicon Valley’s much vaunted unicorns returning to myth. Other claims include the Russian rouble rising 20% versus the US dollar/euro basket, the Olympics turbo-charging a Brazilian recovery and a meltdown in corporate bonds.

Steen Jakobsen, Chief Economist at Saxo Bank, commented: “We are nearing the end of the paradigm paralysis that has dominated the policy response to the global financial crisis. Quantitative easing and other forms of intervention have failed. China is transitioning, and geopolitical tensions are as complex as ever. The marginal cost of money is rising, and so is volatility and uncertainty. It is against this backdrop we have set this year’s predictions.”

“Saxo Bank’s Outrageous Predictions remain an exercise in finding ten relatively controversial and unrelated ideas which could turn your investment world upside down. It is rewarding to see how the outrageous predictions catch our clients’ imagination and fuel ongoing debate; it is this process of discussion and anti-herd thinking that is at the heart of Saxo’s now established tradition of attempting to draw attention to the unfathomable”.

See below for Saxo Bank’s Outrageous Predictions 2016

1. EURUSD direction? It’s 1.23…

Europe is running a massive current account surplus and its weaker inflation should, in macroeconomic logic, mean a stronger currency, not a weaker one. The race to the bottom has gone full circle, meaning we are back to a weaker US dollar again as the direct outcome of US interest rates policy.

2. Russia’s rouble rises 20% by end-2016

By the end of 2016, a surge in oil demand and the Fed raising rates at an inappropriately slow pace causes the Russian rouble to rise some 20% versus the US dollar/euro basket in 2016.

3. Silicon Valley’s unicorns brought back down to earth

2016 will resemble 2000 in Silicon Valley with more startups delaying monetisation and tangible business models in exchange for adding users and trying to achieve critical mass.

4. Olympics to turbo-charge EM’s Brazil-led recovery

Stabilisation, investment spending on the Olympics, and modest reforms will see sentiment rebound in Brazil, with EM exports helped by cheaper local currencies. The result: EM equities to have a great year – outperforming bonds and other equities.

5. Democrats retain presidency, retake Congress in 2016 landslide

The Republican Party goes from strength to dramatic weakness as the rifts from an internal struggle on its future direction play out. This leads to a landslide victory for the Democratic Party as they successfully execute a get-out-the-vote campaign with Millennials coming out in droves having been frustrated by the political stalemate and weak job prospects of the last eight years.

6. OPEC turmoil triggers brief return to $100/b oil

OPEC’s crude oil basket price drops to the lowest since 2009 and unease among weaker as well as wealthier members of the cartel over the supply-and-rule strategy continues to grow. The long awaited sign of an accelerated slowdown in non-OPEC production finally begins to flicker. Suitably buoyed, OPEC catches the market on the hop with a downward adjustment in output. The price mounts a quick recovery with investors scrambling to re-enter the market to the long side – once again bringing $100/barrel prices onto the horizon.

7. Silver breaks golden shackles to rally 33%

2016 will see a renewed confidence in silver. The political drive towards reducing carbon dioxide emissions by supporting renewable energy will add to increased industrial demand for the metal, given its use in solar cells. As such, silver will rally by a third, leaving other metals behind.

8. Aggressive Fed sees meltdown in global corporate bonds

Late 2016 will see Fed chief Janet Yellen embark down a hawkish path with a series of aggressive rate hikes, triggering a huge selloff in all major bond markets as yields start to rise. As the portions of bank and broker balance sheets allotted to bond trading and market making have almost disappeared, one of the vital parts of a functioning market is simply not there. This realisation sinks in too late and the entire buy-side flee into a panic selling one-way street, as highly advanced risk models lurch into a symmetric red alert.

9. El Niño sparks inflation surge

Next year’s El Niño will be the strongest on record and will cause moisture deficits in many areas of southeast Asia and droughts in Australia. Lower yields across agricultural commodities will curb supply at a time when demand is still increasing on the back of global economic expansion. The outcome will be a 40% surge in the Bloomberg Agriculture Spot Index, adding some much-needed inflationary pressure.

10. Inequality has last laugh on luxury

Faced with rising inequality and unemployment of over 10%, Europe is considering the introduction of a basic universal income to ensure that all citizens can afford to meet their basic needs. In a more egalitarian society where other values are promoted, demand for luxury goods decreases sharply – the sector collapses.

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Anthony Griffin

Saxo Capital Markets, Australian subsidiary of online trading specialist Saxo Bank, has revealed that 50% of its Asia Pacific region trading volume and revenue is now being generated by retail traders through its multi-device, multi-asset trading platform, SaxoTraderGO. Globally the intuitive platform contributes close to 40% of Saxo’s retail trading flows.

Launched in Australia in June 2015, SaxoTraderGO allows seamless access to the same account across laptop, mobile and tablet devices, with Saxo’s OpenAPI at its foundation. The OpenAPI offers functionality across the trade cycle – from pre-trade execution and post-trade services for ETFs, cash stocks, CFDs, futures, options and FX.

Anthony Griffin, CEO of Saxo Capital Markets Australia, said the ability to access more markets through one platform and one account was clearly resonating with both local and global traders.

”Over 20 per cent of our global revenue from our retail clients is from mobile and tablet devices, and we believe this figure will continue to grow. Three quarters of all our trades and orders come from traders who use multiple devices to trade.”

The recent 2015 Australia Investment Trends CFD Report highlighted trader appetite for multi-asset platforms. According to the report, an overwhelming proportion (42%) of active CFD traders looking to switch say access to direct equities from the same account would be very important. Among those who do not trade yet, but intend to start in the next 12 months (next wave traders), 61% say access to equities within their CFD trading platform is one of the most important features when selecting their future provider, ahead of price.

”We are one of the few providers to have CFDs and equities on the same platform. It really all comes down to being able to offer a streamlined experience as well as understanding the increasing professionalisation of the retail trader,” Mr Griffin said.

“We know that platform performance and functionality are crucial to trader satisfaction and performance. This drives us to constantly improve and evolve our technological capability and services backed by over 20 years of innovation and experience in trading infrastructure,” Mr Griffin said.

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Although deflationary winds will affect the country, Kay Van-Petersen, Asia Macro Strategist at Saxo Capital Markets, said the structural positives and closed nature of the economy make the country an ideal place to be in a “zero rates” world.

“This is not about reinventing the wheel but about taking out, say 15-20 per cent of bureaucratic red tape, corruption and dams that have clogged the river that is India. Such a move would unleash a huge flow of economic growth and prosperity,” Mr Van-Petersen said.

Mr Van-Petersen points to India’s new Modi government’s reform agenda and track record of delivering on economic prosperity, its enviable demographics with over half the population under 25 years old, and its capacity to benefit from low energy prices.

On a global level, the current cycle of doing nothing meaningful by policy makers and central bankers except buying time has so far protected the stock market through expanding price-earning multiples, QE, buybacks, falling inflation and a lack of alternatives. But this strategy is coming to an end, according to the bank’s Q2 2015 outlook, paving the way for asset repricing and a period of zero or even negative returns.

Predicting a rupture with the past, Steen Jakobsen, Chief Economist at Saxo Bank, said: “The global market is closer to the Soviet Union in 1989 in its political and economic structure than to a freely traded market. The inability to move money from paper into the real economy remains the central issue and solution to the economic dilemma. The ECB’s move into negative rates in 2014 could turn to be the catalyst for change, especially since 35% of all European government debt is now trading at negative yield.

”If you are a company, it is difficult to keep sales volumes going up when your consumers are not taking part in the recovery. The conclusion should be that an economic system which does not allocate capital to the highest marginal cost of capital, and which continues to support the one per cent versus the 99 per cent ultimately comes full cycle to a point where the expected return of everything is zero again.”

Against this backdrop, the bank publishes its outlook for the market:

Commodities

The collapse of the oil price in the last six months has stunned the global economy with the implications of a near 50% fall in the major benchmarks still unwinding says Ole Hansen, Saxo’s Head of Commodity Strategy. This environment has left the market open for some contango opportunities in Q2, expectations based on the premise that prices will rise in the future, especially in the US market. In Q2, focus will be on restoring a proper balance between supply and demand of the black stuff.

Saxo Bank expects the gold price will continue to depend on the dollar, the direction of US bond yields and the timing of the first US rate hike with no major positive impact expected.

Macro

The tailwind from lower energy prices, a weaker euro, and an overall less weak economy result in a meaningful upward revision to euro area growth to 1.5% in 2015. “In the US, I maintain the outlook for growth of around 3% while I remain below-consensus with a 6.7% forecast for China”, says Mads Koefoed, Saxo Bank’s Head of Macro Strategy.

”There are plenty of event risks in Q2 waiting to raise volatility in the markets. The Greeks may find themselves with their backs against the wall again in late June and in the US, the FOMC is preparing for the first rate hike since 2004 with June and September the most obvious candidates.” adds Koefoed.

FX

In currencies, Head of FX Strategy John Hardy is looking for potential mean reversion in the extremes of NZD strength and SEK weakness in Q2. Elsewhere, the USD rally looks set to continue in Q2, though the pace is likely to slow significantly after the incredible advance of the previous six months. And the JPY outlook is a big question mark, as USDJPY has remained in a technical limbo in late Q1, which is the end of Japan’s financial year. GBP may stay under pressure as the elections approach in May.

Equities

Peter Garnry, Saxo Bank’s Head of Equity Strategy expects capital to be flowing again into Europe, amid an improved economic outlook, with equities set for their best start since 1995 and are already up 14 per cent year-to-date. One of the assets that has already benefitted a lot from the current trajectory of monetary policies and improving macro conditions is real estate, which is up 20 per cent this year.

Tailwind is the word for the European equities in Q2 and 2015 could likely be a déjà vu of US equities in 2013 when they rose 32 per cent. This means that European equities could return an additional 15 per cent on top of their impressive start to the year.

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