https://www.marketwatch.com/story/this-outrageous-prediction-says-oil-will-hit-100-in-2016-2015-12-16?dist=lcountdown
How does oil rebounding to $100 a barrel in 2016 sound? Or the euro surging to $1.23? Or maybe even Brazil staging an Olympic Games-driven comeback out of recession?
Sound outrageous? Well, while most analysts keep their crystal-balling for next year in tight ranges, Saxo Bank has complied 10 unlikely events that could rattle the financial markets in 2016 if they were to happen. Of course, they aren’t Saxo Bank’s official calls for 2016.
The Copenhagen-based bank has made a tradition out of publishing outlandish outlooks each year, but chief economist Steen Jakobsen notes that the predictions this season particularly stand out for being, well, not outrageous enough.
“The irony in this year’s batch of outrageous predictions is that some of them are ‘outrageous’ merely because they run counter to overwhelming market consensus. In fact, many would not look particularly outrageous at all in more ‘normal times — if there even is such a thing,” he said in the release.
“In other words, it has become outrageous to suggest that emerging markets will outperform, that the Russian ruble will be the best-performing currency of 2016, and that the credit market will collapse under the weight of yet more issuance,” he added.
So will any of his outrageous predictions come true in 2016? Wait and see...
1. Oil briefly rebounds to $100
While oil prices CLF6, -2.17% are under a lot of pressure heading into 2016, they will soon rally and bring $100 a barrel back onto the horizon. This will happen as OPEC — after struggling with the economic pain of weak oil prices — decides to cut production and break the downward price spiral, triggering a quick recovery with investors rushing to re-enter the market.
2. Ruble climbs 20%
As oil prices stage a surprise rebound, Russia’s energy-driven economy experiences a boom. This means flows from international investors start finding their way back to Russia, lifting the ruble 20% against the dollar/euro quotes/zigman/15936782/realtime/sampled">USDRUB, +0.7682% basket.
3. Euro jumps to $1.23
The U.S. dollar has peaked around the first interest rate hike in four of the last five Federal Reserve hike cycles, indicating that the greenback is inversely correlated to the tightening cycle. That means that the dollar is likely to fall — not rise — in the new year, pushing the euro quotes/zigman/21683081/realtime/sampled">USDEUR, +0.8785% up to trade as high as $1.23. This will catch traders off guard, as consensus is for euro/dollar parity in only a matter of time.
4. Silicon unicorns come down to earth
With the Fed rate hikes getting priced into all asset classes in 2016, yields on alternative investments to venture-capital backed start-ups are likely to go up. That will spark nervousness across venture capitalists that are pushing for IPOs, ultimately resulting in slower growth in venture-capital funding and a sharp drop in value of some of the major unicorns.
5. Olympic Games spark turbo-charged recovery in Brazil
Brazil has been the poster child for everything that could go wrong in emerging markets, but that’s about to change in 2016, when the Olympic Games will lead the country out of its recession. Investment spending on the games and modest reforms will drive the turnaround, along with stronger exports on the back of a weak currency. Other emerging countries will follow the upswing, leading to a 25% jump in EM equities in 2016.
6. Democrats retake Congress in landslide victory
The Republicans fail to nominate a strong candidate after a long, self-destructive nomination process, leaving the voters demoralized. This leads to a landslide victory for the Democratic Party in Congress, which initially leads to a slump in the dollar and risk assets.
7. Silver soars 33%
After a sluggish 2015, mining companies are ramping up cutbacks in output of key metals such as copper and zinc, for which silver SIZ5, -2.34% is often mined as a by-product. As production slows, economic activity and demand in markets such as China, Europe and the U.S. improve, helping boost confidence in silver. The political will to go greener on energy will also favor the metal, given its use in solar cells.
8. Meltdown in corporate global bonds
The Fed in late 2016 will realize the U.S. economy is getting overheated, driving it down a hawkish path of aggressive interest-rate hikes. This leads to what you’d normally expect in a tightening scenario: A selloff in global bond markets, with yields rising consequently. But because banks and brokers have drastically reduced their bond-trading activities, a vital part of the market has disappeared. The buy side — pension funds, bond funds and insurance realize this too late and flee into panic selling.
9. El Nio sparks inflation jump
Next year’s El Nio weather pattern is expected to be the strongest on record, causing droughts and hitting global agricultural production. Food supply will decline, but demand will continue to increase on the back of global growth. This leads to a 40% jump in the Bloomberg Agriculture Spot Index, adding inflationary pressure.
10. Europe introduces ‘basic income’
Faced with rising inequality and unemployment above 10%, Europe considers introducing a universal income to secure all citizens a basic level of living standards. This means demand for luxury goods will fall sharply, as other values are promoted in the new egalitarian society.