Saxo Bank traditionally presents an economic forecast for the next 2015. As always, several crazy predictions come true every year. 10 shocking predictions for 2015.
Market stability has given investors a false sense of security, which could lead to huge disappointment in 2015. In the meantime, central banks have become the generals of an economic war in which their very last resort - aggressive currency devaluation - only exports problems abroad.
Britain's housing sector will collapse
The UK economy has more than commendably recovered from the global downturn, and this comparison is especially useful against the backdrop of continental Europe, where economic growth in the eurozone is still fraught with difficulties. At the same time, due to the growth in prices for residential real estate, the volume of production in the United Kingdom is 3.4% higher than the peak level in 2007.
However, the joy of homeowners in the United Kingdom may not last long. And it's not just that indices tied to residential property prices are already looking weaker than in the previous couple of years (including London, where the situation has traditionally been the best). There are other reasons to fear a collapse of the residential real estate market in the United Kingdom.
The Bank of England is approaching its first rate hike since 2007, which will affect the growth of mortgage rates, and this in turn will increase the costs of the population, already sufficiently weakened by the fall in wages. In addition, the rapid rise in residential property prices could trigger a wave of sales from ordinary homeowners who are still struggling to make ends meet (especially in the more expensive areas of London, where prices have not remained affordable after their sharp jump), against the background of high levels. debts of public and private organizations, which will limit the degree of maneuverability when prices fall.
Therefore, we predict a collapse of the residential property market in the United Kingdom in 2015 and a fall in prices by up to 25%.
Inflation in Japan will reach 5%
No one can match the experience of using various monetary stimulus schemes with the Bank of Japan, but despite several decades of almost complete absence of positive results, the Bank of Japan continues to buy assets like a drug addict waiting for a dose. And he, like a drug addict, needs more and more dose increases to obtain a similar effect. Under such conditions, it is quite expected that monetary efforts by Prime Minister Abe did not help revive the Japanese economy and growth forecasts for 2014-2016. were revised downwards, and inflation began to decrease again. At the same time, its decline will accelerate when the anniversary of the VAT hike in 2014 comes, the deteriorating demographic indicators will increase the pressure of deflationary forces, and real incomes of the population will collapse, despite a stable labor market.
Against the background of such a drop, next year we expect inflation in Japan to rise to at least 5%, and this is not taking into account the new increase in VAT. The continuous operation of the money machine by the increasingly peaceful Bank of Japan (which at its current rate will buy back up to 60% of any new government bonds, not to mention stocks and other assets) will lead to higher asset prices, which in turn will cause increased pressure on prices. The continued decline of the yen against other major currencies (especially against the US dollar and the euro) increases the prices of imported goods and services, which will also increase inflation in the coming quarters. And this decline is likely to only continue against the backdrop of the withdrawal of foreign funds from the Japanese market in anticipation of new monetary stimulus, which again increases the risk of inflation. In view of the above, we believe that next year inflation in Japan will exceed 5%.
China devalues the yuan by 20%
With the long-awaited contraction (or even bursting) of the credit bubble and the domestic bubble in the residential real estate market, China will seek to use any means to ease the excessive pressure of deflationary forces that characterize the declining part of the credit cycle. An additional incentive for China to act is nearly three years of producer price deflation due to huge overproduction. In such circumstances, the record level of the yuan (adjusted for inflation) does not make sense, especially against the background of the simultaneously record low level of the exchange rate of the yen in neighboring Japan (also adjusted for inflation in mid-November).
For this reason, China will rapidly and persistently devalue its currency during 2015, trying with Japan and other countries to fight inflation by importing it into other markets. This will lead to a chain reaction of devaluations in Asia and the risk of unfriendly trade and financial sanctions against Japan.
Draghi will leave the European Central Bank
Mario Draghi's tenure as president of the European Central Bank is far from over, but his time at the ECB may be drawing to a close if the recent influx of rumors and leaks becomes the norm for the central bank. Draghi may have reached the limit of what he was able to accomplish by simply "talking to the market." It is generally accepted that Europe's economy is so weak that an easing of monetary policy by the ECB is almost inevitable. But Draghi may have to leave the stage for this program to materialize.
Russia will default
Saxo Bank continues to believe in Russia's long-term potential, but its economy was in decline and widened its current account deficit even before the imposition of sanctions, a 25% drop in oil prices and the conflict with Ukraine. These problems have now become almost critical, and they are vividly confirmed by the fall of the ruble by 40% (against the US dollar) this year.
The Russian economy is facing a powerful storm, which could lead to the fact that either state-owned companies or the government itself will begin to selectively default. This may be partly due to the escalation of the conflict between Russia and the EU / US, or due to limited access to foreign funding.
In the period from 2014 to the end of 2015, Russian companies must pay $ 134 billion in external debt obligations. Yes, Russia's foreign exchange reserves amount to $ 400 billion, however, despite the fact that these reserves can help Russia buy some time, the "Rotenberg law" (compensation from the budget to Russian businessmen for their losses due to Western sanctions), intervention to maintain the ruble exchange rate, the coming current account deficits, large fiscal deficits (lack of tax and oil revenues) and almost complete restriction of access to external capital markets mean that this $ 400 billion may turn into an amount sufficient only to cover small expenses.
The Russian market is already characterized by a long-term discounted value in the field of energy, mining, as well as in relation to business and the population of the country. Therefore, trying to start from scratch (as it was in 1998) is probably exactly what the country needs for its future development, but it also needs a diplomatic settlement on the Ukrainian issue.
Hackers Will Disrupt Internet E-Commerce
Over the past few years, we have witnessed increasingly aggressive attacks by hackers on large corporations - from relatively harmless, albeit highly publicized, unauthorized access to celebrity photos in the Apple cloud (iCloud platform) to hacking and subsequent publication of credit databases on the network. customer cards from major retailers such as Target and Home Depot.
In 2015, new behind-the-scenes attacks on major e-commerce players will only intensify and become more frequent. Amazon.com, the largest e-commerce retailer and aggressive player in web-based services, will lose up to 50% in value due to already flagrantly overcapitalized and shifting user interests, as well as slowing business growth company, even if it does not become a victim of hackers.
The eruption of the volcano Bardarbunga
In 2015, the already active Icelandic volcano Bardarbunga is expected to erupt, which will lead to new unprecedented emissions of poisonous sulfur dioxide into the skies over Europe. The eruption will entail a change in weather conditions, which will lead to a decrease in cereal production worldwide and a doubling of prices for them. Fortunately, the spike in prices will only be partly due to actual declines in yields, and much of it will be driven by fears about this event as less grain-rich countries try to increase their stocks.
At the moment, the eruption is limited by a large long rift - a fissure that opened on Mount Hohluraun next to the Bardarbunga volcano itself and led to the creation of a lava lake with an area of about 70 square meters. km (mid-November). The eruption emits more sulfur dioxide into the atmosphere than all of Europe's industries combined. Meanwhile, scientists are constantly registering a series of earthquakes along the huge subglacial caldera of the Bardarbunga volcano itself, which covers an area of about 80 square meters. km (that is, almost equal in size to Manhattan). The caldera is sinking rapidly, and there is a risk of collapse as magma flows out of the volcano through a nearby fissure on Mount Hohluraun. The collapse could trigger a much more intense eruption, potentially leading to climate change across the planet in the coming year (and probably in the years to come).
Chocolate horror
The demand for chocolate is growing all over the world. At the same time, Western consumers 'preferences are shifting towards dark chocolate, and Asians' appetite for sweets grows with economic growth, as more and more people in Asian countries enter the middle income level.
The demand for chocolate among Chinese consumers continues to grow, but the average annual per capita consumption is still less than 5% of what a consumer eats in Western Europe, which clearly indicates that demand will continue to grow in the coming years.
The growing popularity of dark chocolate among traditional consumers in the US and Europe is also driving demand. Dark chocolate contains up to 70% cocoa, while the average milk chocolate does not exceed 10%.
We expect that in 2015 prices for monthly cocoa futures will reach the level of $ 5 thousand per tonne. Thus, a new record will be set, surpassing the level of $ 3,775 per tonne reached in March 2011, when the Ivory Coast civil war disrupted supplies.
Referendum on Britain's exit from the EU
The United Kingdom Independence Party will receive 25% of the vote in the UK general election on 7 May 2015 and will become the third largest party in parliament. However, under the United Kingdom's majoritarian rule, which requires a party to win a single-mandate constituency to win one parliamentary seat, the Independence Party will receive only a third of the total number of Conservative and Labor representatives in parliament.
High-quality securities yields will skyrocket as public opinion polls confirm that a majority of Britons are ready to vote for a full exit from the European Union. This is how we base our shocking prediction that the United Kingdom will leave the EU in 2017.
Corporate bond spreads will double
However, the high-yield lending party is drawing to a close as new measures by the ECB fail to generate growth as monetary policy cannot compensate for the lack of private sector growth.
The Markit iTraxx Europe Crossover Index, comprised of 75 equal weighted waiver swaps for the most liquid non-investment grade corporate issuers, ideally reflects the health of the European corporate bond market. For this reason, it is for us a criterion for assessing the development of European non-investment grade corporate bonds.
The index is now trading at 350 basis points and we predict it will soar to at least 700 basis points when investors "run to the exit."
