‘Tis the season for market predictions for the year ahead, and while most analysts keep their crystal-balling within tight ranges, Saxo Bank has compiled 10 surprises that could rattle financial markets. How about a surprise selloff in gold to drive the yellow metal to $1,200 an ounce, for example? Or an unusually sharp oil-production rise to slam crude-oil prices back to $50 a barrel?
“These ten predictions are not Saxo Bank’s official forecasts for 2013. They could, however, prove far more relevant for investors because of the huge impact if any one of them sees the light of day in the New Year,” said Steen Jakobsen, chief economist at Saxo Bank.
“Before trading or investing, investors must know the worst case scenario — capital preservation is a must and portfolios need to be able to weather a perfect storm, or for that matter any storm,” he said.
Here are the 10 outrageous predictions for 2013:
- Germany’s DAX DX:DAX +0.68% plunges 33% to 5,000 –- China’s economic slowdown will continue and add pressure on Germany’s industrial expansion. Such a scenario will stoke low consumer confidence and large price declines in industrial stocks, which make up a large part of the German benchmark index.
- Nationalization of major Japanese electronics companies –- Japan’s electronics industry suffers after strong competition from South Korea, causing annual losses of $30 billion for Sharp Corp. JP:6753 +8.64% , Panasonic Corp. JP:6752 -1.42% and Sony Corp. JP:6758 -0.11% alone. Credit worthiness will deteriorate and the Japanese government feels obliged to nationalize key industry players –- similar to the U.S. government’s bailout of the auto industry.
- Soybeans rise by 50% — After a year of extremely poor harvests due to bad weather, new crop soybeans will be just as exposed to new weather disruptions in the U.S., South America and China. Increased demand for biofuel will also push prices higher and food security will become a buzz word.
- Gold GCG3 -0.25% drops to $1,200 an ounce — The strong U.S. economic recovery surprises the market and especially gold investors, which flee the traditional safe haven investment. Additionally, lack of pick up in physical demand from China and India trigger a round of gold liquidation, and the metal falls to $1,200 an ounce before central banks eventually start taking advantage of lower prices.
- Crude oil CLF3 +0.81% slumps to $50 a barrel –- U.S. crude-oil production continues to rise through advanced production techniques and with domestic inventory levels already at 30-year highs combined with limited exports options, oil prices come under renewed selling pressure.
- The dollar/yen USDJPY +0.13% falls to 60.00 -– Japan’s new leader Shinzo Abe has vowed to use aggressive easing measures to boost the economy, which has punished the yen. Not all measures are introduced, however, and the market becomes over-positioned to for yen weakness and risk appetite retrenches, prompting the dollar to drop 60.00 yen, as the Japanese currency emerges as the world’s strongest currency.
- Euro/Swiss francs EURCHF -0.04% relationship breaks peg, touches 0.9500 –- As European Union tail risks are aggravated –- maybe by the Italian election or a Greek exit of the euro zone –- capital flows surge into Switzerland once again, inspiring the Swiss National Bank and Swiss government do abandon the franc’s peg to the euro rather than push reserves past 100% of Switzerland’s gross domestic product. As a consequence, the euro/Swiss franc touches a new low.
- Hong Kong unpegs the Hong Kong dollar from the U.S. dollar USDHKD -.00% and re-pegs to the Chinese renminbi –- The renminbi’s volatility increases and Hong Kong becomes a major world currency centre.
- Spain steps closer to default as interest rates rise to 10% — With social tensions in the country, the public sector cannot cut costs further and Spain’s sovereign credit rating will be downgraded to junk. Yields ES:10YR_ESP -2.09% rapidly rise as an inevitable default is priced in.
- 30-year U.S. sovereign yield 30_YEAR +0.85% doubles in 2013 –- The Federal Reserve’s low-interest-rate policy forces investors to leave fixed income and substitute bonds with stocks. As the bond market is far larger than the equity market a 10% reallocation to stocks should amplify equity fund inflows by around 30%. This leaves to higher yields in the U.S. and marks the beginning of a decade-long outperformance by stocks over bonds.