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Saxo Bank’s 10 Outrageous Predictions For 2019

Outrageous Predictions

Saxo Financial institution on its 10 ‘Outrageous Predictions’ for 2019. The predictions give attention to a collection of unlikely however underappreciated occasions which, in the event that they have been to happen, might ship shockwaves throughout monetary markets.

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Whereas these predictions don’t represent Saxo’s official market forecasts for 2019, they symbolize a warning of a possible misallocation of danger amongst buyers who sometimes see only a one % probability to those occasions materialising. The Outrageous Predictions for 2019 are:

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  1. EU broadcasts a debt jubilee
  2. Prime Minister Corbyn sends GBPUSD to parity
  3. Trump tells Powell “you’re fired”
  4. Germany enters recession
  5. Apple “secures funding” for Tesla at $520/share
  6. Company credit score crunch pushes Netflix into GE’s vortex
  7. IMF and World Financial institution announce intent to cease measuring GDP, focus as an alternative on productiveness
  8. International Transportation Tax (GTT) enacted as local weather panic spreads
  9. X-Class photo voltaic flare creates chaos and inflicts $2 trillion of injury
  10. Australia launches “TARP Down Under” after nationalising the large 4 banks

Chief Economist at Saxo Financial institution, Steen Jakobsen thinks this yr’s version has a unifying theme of “enough is enough”. A world operating on empty should get up and begin creating reforms, not as a result of it needs to however as a result of it has to. The indicators are in all places. He believes that 2019 will mark a profound pivot away from this mentality as we’re reaching the top of the street in piling on new debt and subsequent yr will see us all starting to pay the piper for our errant methods. The good credit score cycle is already displaying indicators of pressure in late 2018 and can rip via developed markets subsequent yr as central banks are despatched again to the drafting board. In any case, their cash printing efforts since 2008 have solely dug a deeper debt gap, and it has now grown past their mandate to handle.


10 Outrageous Predictions for 2019

Will this be the yr when Germany enters recession, Apple “secures funding” for Tesla, Trump tells Powell “you’re fired” and Labour sweeps to a powerful victory and names Jeremy Corbyn as prime minister sending GBPUSD to parity?

Saxo Financial institution, the main Fintech specialist targeted on multi-asset buying and selling and funding, has at this time launched its 10 ‘Outrageous Predictions’ for 2019. The predictions give attention to a collection of unlikely however underappreciated occasions which, in the event that they have been to happen, might ship shockwaves throughout monetary markets.

Whereas these predictions don’t represent Saxo’s official market forecasts for 2019, they symbolize a warning of a possible misallocation of danger amongst buyers who sometimes see only a one % probability to those occasions materialising.

The Outrageous Predictions for 2019 are:

  1. EU proclaims a debt jubilee
  2. Apple “secures funding” for Tesla at $520/share
  3. Trump tells Powell “you’re fired”
  4. Prime Minister Corbyn sends GBPUSD to parity
  5. Company credit score crunch pushes Netflix into GE’s vortex
  6. Australian central financial institution launches QE on housing bust Down Beneath
  7. Germany enters recession
  8. X-Class photo voltaic flare creates chaos and inflicts $2 trillion of injury
  9. International Transportation Tax (GTT) enacted as local weather panic spreads
  10. IMF and World Financial institution announce intent to cease measuring GDP, focus as an alternative on productiveness

Commenting on the Outrageous Predictions, Chief Economist at Saxo Financial institution, Steen Jakobsen stated:

“We now have been publishing Outrageous Predictions for greater than a decade and assume this yr’s listing is each fascinating and surprising whereas encouraging buyers to assume outdoors the consensus field. It is very important underline that the Outrageous Predictions shouldn’t be thought-about Saxo’s official market outlook, it’s as an alternative the occasions and market strikes deemed outliers with big potential for upsetting consensus views.

“This yr’s version has a unifying theme of “enough is enough”. A world operating on empty should get up and begin creating reforms, not as a result of it needs to however as a result of it has to. The indicators are all over the place. We expect 2019 will mark a profound pivot away from this mentality as we’re reaching the top of the street in piling on new debt and subsequent yr will see us all starting to pay the piper for our errant methods. The good credit score cycle is already displaying indicators of pressure in late 2018 and can rip via developed markets subsequent yr as central banks are despatched again to the drafting board. In any case, their cash printing efforts since 2008 have solely dug a deeper debt gap, and it has now grown past their mandate to handle.

“If some of these outrageous predictions see the light of day, we might finally see a healthy shift toward a less leveraged society, with less focus on short-term gains and growth, and a new focus on productivity and new economic revolution back toward globalisation with a fairer playing field after the immediate moment of crisis. On the negative side, we could see considerable worsening of central bank independence, a credit crunch, and big losses in the asset where everyone is too long: real estate.”

The Outrageous Predictions 2019 publication is on the market right here and the complete record of Saxo Financial institution’s Outrageous Predictions for 2019 reads:

  1. EU broadcasts a debt jubilee

In 2019, the unsustainable degree of public debt, a populist revolt, rising rates of interest from European Central Financial institution tapering/decrease liquidity, and sluggish progress reopened the European debate on methods to get forward of a brand new disaster. Italian contagion sickens Europe’s banks because the EU lurches into recession. The ECB resorts to new TLTRO and ahead steerage to restrict the carnage, however it’s not sufficient and when contagion spreads to France, policymakers perceive that the EU faces the abyss. Germany and the remainder of core Europe, which refuses to let the Eurozone disintegrate, haven’t any different selection than to again monetisation. The Financial and Financial Union extends a debt monetisation mandate to the ECB for all debt ranges over 50% of GDP and ensures the remaining by way of a Eurobond scheme whereas shifting the controversial Progress and Stability goalposts. A brand new fiscal rule permitting the primary three% of GDP in deficits to be mutualised in 2020 is adopted by EMU nations, with every little thing past topic to a periodic evaluate by the European Fee linked to the state of the EU financial system.

  1. Apple “secures funding” for Tesla at $520/share

Apple realises that if it needs to deepen its attain into the lives of its consumer base, the subsequent frontier is the car as automobiles turn out to be extra digitally related. In any case, the late Steve Jobs confirmed that an organization must guess massive and guess wild to keep away from complacency and irrelevance. Acknowledging that Tesla wants extra monetary energy and Apple must increase its ecosystem to the automotive in a extra profound method than that represented by the present Apple CarPlay software program, Apple goes after Tesla. It secures funding for the deal at a 40% premium of $520 dollars a share – buying the corporate at $100/share greater than Elon Musk’s errant “funding secured” tweet.

  1. Trump tells Powell “you’re fired”

On the December 2018 Federal Open Market Committee assembly, Federal Reserve chair Jerome Powell indicators on with a slim majority of voters in favour of a fee hike – one too many and the US financial system and US equities promptly drop off a cliff in Q1 2019. By the summer time, with equities in a deep funk and the US yield curve having moved to outright inversion, an incensed President Trump fires Powell and appoints Minnesota Fed President Neel Kashkari in his stead. The formidable Kashkari was probably the most constant Fed dove and critic of tightening US financial coverage. He’s much less immune to the thought of the Fed serving on the authorities’s pleasure and is quickly dubbed ‘The Great Enabler’, setting President Trump up for a profitable run at a second time period in 2020 by promising a $5 trillion credit score line to purchase Treasury Secretary Mnuchin’s new zero-coupon perpetual bonds to fund Trump’s “beautiful” new infrastructure tasks and drive nominal US GDP again on the trail it misplaced after the Nice Monetary Disaster. Inflation reaches 6%, is reported at three%, and the Fed coverage is caught at 1%. That’s deleveraging you possibly can consider in by way of monetary repression to the good detriment of savers.

  1. Prime Minister Corbyn sends GBPUSD to parity

Labour sweeps to a powerful victory and names Jeremy Corbyn as prime minister on the promise of complete progressive reform and a second referendum on a “to-be defined” Brexit deal. With a well-liked mandate and powerful majority in Parliament, the Corbyn Labour authorities embarks on a mid-20th century-style socialist scorched earth marketing campaign to even out the UK’s gross inequalities. New tax income streams are tapped into as Corbyn brings the UK’s first steeply progressive property tax into being to soak the rich and calls for the Financial institution of England assist finance a brand new “People’s quantitative easing”, or common primary revenue. Utilities and the rail networks are re-nationalised and monetary enlargement sees deficits yawn wider to the tune of 5% of GDP. Inflation rises steeply, enterprise funding languishes, and non-domiciled overseas residents run for canopy, taking their huge wealth with them. Sterling is crushed on the double hassle of ugly twin deficits and lack of enterprise funding on the still-unresolved Brexit challenge. Cable goes from the 1.30 space the place it spent a lot of the second half of 2018 and all the best way right down to parity at 1.00, a transfer of over 20% – with one greenback being equal to at least one pound for the primary time ever.

  1. Company credit score crunch pushes Netflix into GE’s vortex

2019 proves the yr of credit score dominos toppling within the US company bond market. It begins with Basic Electrical dropping additional credibility in credit score markets, pushing the credit score default worth above 600 foundation factors as buyers panic over GE’s $100 billion in liabilities rolling over within the coming years concurrently the agency sees deteriorating money stream era. The carnage even spreads so far as Netflix the place buyers out of the blue fret the agency’s fearsome leverage, with a internet debt to EBIDTA after CAPEX ratio of three.four and over $10bn in debt on the stability sheet. Netflix’s funding prices double, slamming the brakes on content material progress and gutting the share worth. To make issues worse, Disney’s 2019 entrance into the video streaming business trims Netflix progress additional nonetheless. The adverse chain response in company bonds units off large uncertainty in high-yield bonds resulting in a Black Tuesday for exchange-traded funds monitoring the US high-yield bond market the place ETF market makers are unable to set significant spreads, forcing an entire withdrawal from the market throughout a tumultuous buying and selling session. The fallout within the ETF market turns into the primary warning shot of passive funding automobiles and their unfavorable influence on markets throughout turmoil.

  1. Australian central financial institution launches QE on housing bust Down Beneath

In 2019, the curtains shut on Australia’s property binge in a catastrophic shutdown pushed most prominently by plummeting credit score progress. Within the aftermath of the Royal Fee, all that’s left of the banks is a frozen lending enterprise and an overleveraged, overvalued mortgage-backed property ledger and banks are pressured to additional tighten the screws on lending. Australia falls into recession for the primary time in 27 years because the plunge in property costs destroys family wealth and shopper spending. The bust additionally contributes to a pointy decline in residential funding. GDP tumbles. The blowout in dangerous debt squeezes margins and craters income. The banks’ publicity is just too nice for them to cowl independently and bailout can be required from the RBA, maybe recapitalising and securitising mortgages onto the RBA’s stability sheet.

  1. Germany enters recession

A worldwide chief for many years, Germany is struggling to improve its leveraging of recent know-how. The crown jewel of the German financial system, representing a cool 14% of GDP, is its automotive business. The German automotive business was imagined to be a progress juggernaut, registering 100 million bought automobiles in 2018. In the long run, it solely managed to unload 81 million automobiles, a mere 2% greater than 2017 and nicely down from the 5-10% yearly progress charges from 2000s and ahead. By 2040, 55% of all new international automotive gross sales and 33% of the inventory can be EVs. However Germany is simply simply beginning the transformation to EV and is years behind, and stiffer US tariffs gained’t make issues any higher for German provide chains or exports. 2019 would be the peak of anti-globalisation sentiment and can create a laser-like give attention to prices, home markets and manufacturing, and the additional use of massive knowledge and decreased air pollution footprint – the precise reverse of the tendencies which have benefitted Germany because the 1980s. As such, we see a recession arriving as early as Q3 2019.

  1. X-Class photo voltaic flare creates chaos and inflicts $2 trillion of injury

All life on earth exists because of the secure bounty of power hurled our means by the solar, however Sol shouldn’t be all the time a serene and beneficent ball of burning hydrogen. As photo voltaic astronomers are nicely conscious, the solar can also be a seething cauldron of exercise able to producing unimaginable violence within the type of photo voltaic flares, the worst of which see the solar vomiting precise matter and radiation within the type of Coronal Mass Ejections, or CMEs. In 2019, as photo voltaic cycle 25 kicks into gear, the earth isn’t so fortunate and a photo voltaic storm strikes the Western hemisphere, taking down most satellites on the mistaken aspect of the earth on the time and unleashing untold chaos on GPS-reliant air and floor journey/logistics and electrical energy infrastructure. The invoice? Round $2 trillion, which is definitely some 20% lower than the worst-case state of affairs estimated by a Lloyds-sponsored research on the potential monetary dangers from photo voltaic storms again in 2013.

  1. International Transportation Tax (GTT) enacted as local weather panic spreads

The world suffers one other yr of untamed climate with Europe once more experiencing a particularly scorching summer time, setting off panic alarms in capitals around the globe. With the worldwide aviation and delivery business having fun with substantial tax privileges, they turn out to be the targets of a brand new International Transportation Tax (GTT) that introduces a worldwide ticket tax on aviation and a capital “tonnage” tax on delivery with the worth linked to carbon emission footprints. The brand new tax cost is about to $50/ton of CO2 emissions which is twice earlier proposed ranges and considerably above the 2018 common of €15/ton underneath the European Union’s Emissions Buying and selling System. The brand new GTT pushes up air journey ticket costs and maritime freight, growing the overall worth degree as the brand new tax is handed on to shoppers. The US and China have beforehand contested gasoline taxes on aviation, citing the 1944 Chicago Conference on Worldwide Civil Aviation, however China modifications its stance as a pure development of its battle towards air pollution. This forces the US to reluctantly be a part of forces in a worldwide transportation tax on aviation and delivery. Shares within the tourism, airline, and delivery industries plunge on elevated uncertainty and decrease progress.

  1. IMF and World Financial institution announce intent to cease measuring GDP, focus as an alternative on productiveness

In a shocking transfer on the Worldwide Financial Fund and World Financial institution spring conferences, chief economists Pinelopi Goldberg and Gita Gopinath announce their intent to cease measuring GDP. They argue that GDP has did not seize the actual impression of low-cost, technology-based providers and has been unable to account for environmental points, as attested by the ugly results from air pollution on human well being and the surroundings in India and elsewhere all over the world. Productiveness is definitely one of the crucial fashionable, and but least understood, phrases in economics. Merely outlined, it refers to output per hour labored. In the actual world, nevertheless, productiveness is a way more complicated notion. In truth, it may be thought-about as the best determinant of the usual of dwelling over time. If a rustic is trying to enhance individuals’s happiness and well being, it wants to supply extra per employee than it did up to now. This unprecedented determination by the IMF and the World Financial institution additionally symbolises the transition away from the central bank-dominated period that has been related to the collapse in international productiveness because the international monetary disaster.

To entry the complete publication of Outrageous Predictions for 2019 please go to the Saxo Financial institution web site: https://www.home.saxo/outrageous-predictions