Oil rebounding to $100 a barrel by the end of 2016? A strong euro amid quantitative easing? These are just some of the "outrageous predictions" from Saxo Bank for 2016.
The Danish investment bank's 10 "unlikely, yet perhaps underappreciated" events that could have significant consequences on the financial landscape also include the Russian ruble rising 20 percent versus the US dollar/euro basket.
The bank also suggests a meltdown in global corporate bonds could be on the cards – a claim that is perhaps not so outlandish in light of the current scare in the U.S. junk bond market.
However, such a "meltdown" would only materialize if Federal Reserve Chair Janet Yellen opted for a series of aggressive rate hikes in late 2016, the report stresses. That could trigger a huge selloff in all major bond markets as yields start to rise. As it stands, the Fed is expected to very gradually increase interest rates.
Although tongue-in-cheek, the predictions have a serious message highlight events that could "turn your investment world upside down," Saxo Bank said.
Perhaps the most outlandish the bank's predictions is the suggestion that oil –currently trading below $40 a barrel– could rebound to $100 a barrel. Prices have fallen since June 2014, when a barrel fetched $114. LINK 103242311 Prices have fallen since June 2014, when a barrel fetched $114, in no small part due to OPEC's decision not to cut production, despite some poorer oil producers in the 12-member group asking for a cut to support prices.
Saxo Bank predicted oil could return to $100 in 2016 as "unease among weaker as well as wealthier members of the cartel over the supply-and-rule strategy continues to grow. The long-awaited sign of an accelerated slowdown in non-OPEC production finally begins to flicker. Suitably buoyed, OPEC catches the market on the hop with a downward adjustment in output. The price mounts a quick recovery with investors scrambling to re-enter the market to the long side - once again bringing $100/barrel prices onto the horizon."
Among Saxo Bank's "outrageous" currency calls, the investment bank predicted a strengthening, rather than weakening, euro despite the European Central Bank's ongoing 1 trillion euro stimulus program.
Steen Jakobsen, chief economist at Saxo Bank told CNBC Wednesday that the euro, currently trading at 1.09 against the dollar and having weakened against a backdrop of QE, could strengthen in 2016 to see one euro worth 1.23 dollars.
"Europe runs a current account surplus, they have a lower inflation differential than the U.S. that traditionally leads to a stronger currency, Jakobsen said. "I think Fed hikes lead to a weaker dollar – because the rest of the world has more U.S. dollars than the U.S. has. So when you increase the price of money, you have to take the price off the currency to create a new equilibrium. It's totally misunderstood and people don't get it right," Jakobsen said.
With a U.S. presidential election less than a year away, Saxo Bank predicted that the Democrats would retain the president and retake Congress in a 2016 "landslide."
"The Republican Party goes from strength to dramatic weakness as the rifts from an internal struggle on its future direction play out. This leads to a landslide victory for the Democratic Party as they successfully execute a get-out-the-vote campaign with millennials coming out in droves having been frustrated by the political stalemate and weak job prospects of the last eight years," Saxo Bank predicted.
The 2016 Olympics in Brazil could "turbo-charge" a recovery in emerging markets (EM) led by Brazil, the bank predicted.
"Stabilization, investment spending on the Olympics, and modest reforms will see sentiment rebound in Brazil, with EM exports helped by cheaper local currencies. The result: EM equities to have a great year - outperforming bonds and other equities."
Emerging markets have taken a beating this year as investors fled EM assets ahead of an anticipated rate rise in the U.S.
Other predictions listed by Saxo Bank were for a 20 percent rise in the Russian ruble against the dollar amid a surge in oil demand and "renewed confidence" in silver, predicting the metal to rally 33 percent.
Lastly, the bank predicted an inflation surge caused by the weather phenomenon known as El Nino and Europe introducing a "basic universal income to ensure that all citizens can afford to meet their basic needs."