A gold-oil reversal in fortunes is one of this bank's ‘outrageous predictions’ for 2020

Saxo Bank reveals annual list of 10 events that are unlikely to happen, but would send shock waves across markets if they did

Steen Jakobsen, Saxo Bank’s Chief Investment Officer and Chief Economist .
(Photo: Reem Mohammed/The National)

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In the nearly two decades since Saxo Bank started its annual “outrageous predictions”, a few have actually come true, including Donald Trump winning the US presidency, Apple losing market value and Brexit.

This year’s list of 10 events that are unlikely to happen in 2020 — but would have a highly significant financial impact if they did — include Mr Trump announcing an “America First Tax”, Asia launching a digital reserve currency to take down the US dollar and the gold-to-oil ratio being cut in half from 2019 highs.

But the point is not to "be right", as these events are only "10 per cent likely to happen", Steen Jakobsen, Saxo Bank's chief investment officer, tells The National.

“We are not here to predict the future — because we can’t — but we’re here to create a conversation about what can go wrong and what can [go] right,” he says. “It’s about creating a conversation and a debate.”

As Mr Jakobsen says in the introduction to the report, the idea is “prepare for what lies ahead by considering the full possible range of economic and political outcomes”. It is events that are not foreseen that can cause the most damage.

Here are both the realities and the Danish investment bank’s 10 consensus-smashing forecasts for 2020:

Gold-to-oil price ratio cut in half


Gold has had a positive 2019, gaining about 15 per cent so far this year, mainly bolstered by the impact of the US-China trade war on the global economy. In August, gold prices climbed above the $1,500 mark to six-year highs as investors concerned about a possible global recession sought haven assets.

Oil prices, meanwhile, have suffered due to weakening demand growth and oversupply. If Opec+ fails to make deeper production cuts, the world oil market will be oversupplied by about 800,000 barrels per day during the first half of 2020, according to consulting firm Rystad Energy. The supply glut would result in a “significant oil price correction” into the low $40s, a plunge of about 30 per cent from current price levels.

Outrageous prediction:

“In outrageous terms, we’re quite bullish on the oil industry,” Mr Jakobsen says. “We see a massive reduction of the US production of oil over the next year …[and] we see Brent that can go to $90 in 2020.”

The timing of production cuts will coincide with the next round of Aramco’s IPO, which will ensure the desired valuation from investors outside Saudi Arabia.

The gold market rally will fizzle out “as global central banks ease off the gas on further policy, in a grand admission of the policy error of negative rates”, says the Saxo Bank report.

The gold ratio will be halved from its 2019 high of 30 down to 15, and WTI crude oil will return to $85 a barrel.

Stagflation rewards value stocks over growth


The so-called FAANG stocks — Facebook, Apple, Amazon, Netflix and Alphabet’s Google — are the market’s most popular and best-performing tech stocks.

Outrageous prediction:

Stagflation — when inflation and unemployment rates are high and the economic growth rate slows — will see the iShares MSCCI World Value Factor ETF outperform the FAANG stocks by 25 per cent.

As the US continues to run enormous and growing deficits, the US dollar will suffer “an intense devaluation as the market recognises that the Fed will only accelerate its balance sheet expansion while keeping its policy rate punitively low”, says Saxo Bank.

ECB folds and hikes rates


The European Central Bank has been decreasing rates further into negative territory in 2019.

Outrageous prediction:

In early January 2020, ECB President Christine Lagarde pivots from her previous endorsement of negative rates and declares that monetary policy has overreached its limits. The ECB will implement several rate hikes, taking the rate back to zero or even slightly positive before year-end. With European banks on the comeback trail, the EuroStoxx bank index will rise 30 per cent in 2020.

Oil and gas win against clean energy


The US shale gas revolution and increasing demand for renewable energy have “pushed the equity valuation on traditional energy companies to a 23 per cent discount to clean energy companies”, says Saxo Bank.

Outrageous prediction:

In 2020, the tables will turn as Opec extends production cuts, unprofitable US shale outfits slow output growth and demand rises from Asia. The oil and gas industry will be the surprise winner and the clean energy industry will “suffer a wake-up call”.

USD-ZAR rate rises from 15 to 20


The South African government projected that its budget next year will balloon to its worst in over a decade at 6.5 per cent of GDP, so that it can continue to bail out troubled utility Eskom.

Outrageous prediction:

The world will cut credit lines to South Africa and the rate of the US dollar to the South African rand will rise, as the country teeters towards default. “Debt can run too far when you don’t have an accountable plan,” says Mr Jakobsen.

Trump announces America First Tax


US President Donald Trump has endorsed protectionist policies since the start of his campaign with his “America First” slogan.

Outrageous prediction:

A new plan will cancel all existing tariffs with China and instead introduce a flat value-added tax of 25 per cent on all gross revenues in the US market that are sourced from foreign production.

Sweden quells anti-immigrant sentiment


Anti-immigration sentiment has grown to represent more than 25 per cent of Swedish voters.

Outrageous prediction:

The Swedish government decides to ignore that sentiment and work to better integrate its immigrants, driving a huge fiscal stimulus and steep rally in the Swedish krone.

Democrats win clean sweep in US 2020 election


Democratic candidate Hillary Clinton failed to win the presidency against Republican candidate Donald Trump in 2016.

Outrageous prediction:

The 2020 US election puts the Democrats in control of the presidency and both houses of Congress. Big healthcare and pharma stocks collapse 50 per cent. Millennials and women lead the vote.

Which Democratic candidate will win the presidency? Mr Jakobsen personally predicts Elizabeth Warren.

Hungary leaves the EU


Hungary has seen impressive economic success since it joined the European Union in 2004. But the EU has initiated an Article 7 procedure against it, alleging breaches of core EU values.

Outrageous prediction:

This tense relationship is an “unsustainable status quo” and Hungary will decide to pull the plug. The result: Hungary’s currency will weaken against the euro and EU companies will take their capital out of the country.

Asia launches digital reserve currency


The US Federal Reserve, the ECB and others have indicated that central bank digital currencies may be the future. China is aiming to be the first country in the world to launch a digital currency.

Outrageous prediction:

The Asian Infrastructure Investment Bank, a multilateral development bank with 74 members, creates a new digital reserve currency called the “Asian Drawing Right” (ADR). The ADR will be the world’s largest currency unit, with 1ADR equivalent to $2.

Local economies agree to conduct trade in the region in ADRs only. The new currency takes the US dollar index down by 20 per cent and tanks the US dollar 30 per cent versus gold.