Recession-is it worth believing bank forecasts
2022.12.06 14:23
Recession-is it worth believing bank forecasts
Budrigannews.com – The completely wild ride that bewildered everyone in 2022 suggests that, this time around, they should perhaps indeed be taken semi-seriously as some banks publish their semi-serious market predictions for the upcoming year.
Since double-digit inflation in the West, the most aggressive U.S. monetary policy tightening cycle in 40 years, Japanese FX intervention to buy yen, and the largest ever crash in government bonds were not unanimous predictions at this time last year.
However, Europe’s war changed everything. Standard economic and market models based on mean reversion and historical precedence have rarely been less useful, and the global macro, policy, and political mix dynamic has never been more uncertain.
Against this background, Standard Chartered and Saxo Bank (OTC:) have released their forecasts for “Outrageous Predictions” and “Market Surprises of 2023,” respectively, that are far from consensus.
These are “unlikely but underappreciated events” that, if they did occur, “would send shockwaves across the financial markets as well as political and popular cultures,” according to Saxo analysts.
Eric Robertsen, the global head of research for Standard Chartered, makes it clear: Each of these scenarios stands on its own. They are not meant to complement one another intellectually or economically.”
The ones at Standard Chartered lean more toward the market, while those at Saxo lean more toward politics.
However, the fact that many of them appear to be somewhat plausible is striking. The rising to $6.40 or the rising to $1.25 for the euro? The Nasdaq falling another half? The removal of President Biden from office, the establishment of a joint European military, or widespread price controls to limit official inflation?
None of these scenarios could be completely ruled out over the next 12 months, given the political, economic, and financial market turmoil of the past year.
Additionally, some of these two banks’ bold predictions have been realized. Although they only make up a small percentage, these are the low-probability, high-return wagers that can launch a trader or analyst’s career.
Let’s look at a few of these predictions, starting with the calls for the euro and yuan made by Standard Chartered.
Given that it decreased by 9% last year, the yuan would need to appreciate by approximately 9% to reach its current level of 6.40 USD. This is not particularly controversial. Additionally, just eight months ago, it was trading at 6.40/$.
Is that any less likely than Bill Ackman’s well-known wager that the Hong Kong dollar’s 39-year-old peg to the United States dollar will soon break? Most probably not.
Similarly, considering that the euro was at a 20-year low as recently as September and has already recovered 10% since then, an additional 20% rise to $1.25 seems reasonable.
You wouldn’t bet against peace in Ukraine coming as suddenly as war did, despite the fact that the economic, financial, and political foundations for that recovery may be more difficult to establish. ETR: Deutsche Bank even predicts that the growth of the euro zone will outpace that of the United States in 2023.
If, according to Saxo Bank, a “united Army of Europe” is established, even continued war and geopolitical tension could send the euro to $1.25. The reasoning is as follows: The new Armed Forces are financed by new bonds worth 10 trillion euros that are based on a member country’s share of the overall GDP. This provides a significant boost to investment and significantly deepens the integration of the EU’s sovereign debt market.
Who is to say that inflation won’t trouble many people next year, including central bankers? Recency bias suggests that spiraling inflation would be less of a shock for markets than the extreme forecasts of either rampant inflation or a sudden deflation.
If this is the case, it may be easy to understand why both banks see rising gold prices as one of their bold calls (considering the dubious inflation-hedging properties of gold for a moment).
Standard Chartered anticipates a 30% increase, while Saxo anticipates a 70% increase to reach $3,000 per ounce. In 1979, gold experienced a year-over-year increase of that magnitude. Again, it’s unlikely, but this year has many similarities to the late 1970s and early 1980s, so why not add another?
Saxo predicted Brexit in 2015 and bitcoin’s tripling in value in 2017, respectively, and Standard Chartered correctly predicted that a 100% rally in agricultural commodities would fuel a surge in food inflation last year.
At the end of the day, some of the mud you throw at the wall will stick. Which, if any, of the bold calls made by the banks for 2023 will stick?
SAXO:
The foundation of the EU Armed Forces; a country agreeing to ban all meat production by 2030; Britain holding an UnBrexit referendum; widespread price controls being introduced to cap official inflation; China, India, and OPEC+ leave the IMF and agree to trade with a new reserve asset; Japan pegging at 200 to “sort out” its financial system; a tax haven ban that kills private equity
– drops below $40 a barrel
– the euro rises to $1.25 on political stability and economic recovery
– the Fed cuts rates by 200 basis points in 2023
– the Nasdaq falls another 50% to 6000
– the dollar/yuan falls to 6.40
– the collapse of food prices
– the spread of the crypto and firm collapse
– gold rises 30%
– Republicans impeach U.S. President Joe Biden
