As 2014 comes to an end and traders begin to prepare for the markets in 2015, we always see a litany of 2015 predication articles hit the internet. I always peruse the articles to see what the author’s position is on 2015 and their prediction. I am not necessarily interested in copying their predictions, but more about what other traders are looking at and where the major issues could arise in the next year. Some of the articles are rather boring and dry, containing only a few random stocks and a random Dow price target for the end of the year. However, then you have other reports such as Saxo Bank’s report on what they call “Outrageous Predictions” for 2015. The investment group certainly has some interesting ideas about next year, but certainly is a reminder that there is still a lot of risk out there that could unravel with a major event.
Saxo Bank: Russia will face default due to oil prices
Saxo Bank’s first prediction is that Russia will face default due to oil prices falling more than -25% and the Russian ruble crashing -40% on the year versus the US dollar. Additionally, with continued tough sanctions on Russia by Western countries are predicted to only make matters worse and will end in Russian government defaulting on their debt obligations and payments. Corporate Russia owns $134 billion in debt payments between now and the end of 2015. Currency reserves are stacked at $400 billion, however, the reserves could be depleted by the Rotenberg Law enforced in Russia. The Rotenberg Law says that the Russian government is to repay Russian corporations who have been affected by sanctions. As you can imagine, the sanction damage is widespread and suddenly that $400 billion looks smaller and smaller.
The next prediction is a major volcanic eruption of the Icelandic volcano range, Bardarbunga. The volcano has recently become more active, and has been “silently erupting” since August, and experts are predicting a major eruption is in the cards as a possibility. The volcano will destroy crops, driving prices up, and throw 14 cubic kilometers of lava and toxic sulfur dioxide emissions into the environment.
Saxo Bank sees inflation increasing in Japan
Saxo Bank sees Japanese inflation increasing to 5% after the country’s extensive monetary policy programs look to hopefully have a positive effect. While the preliminary readings of Prime Minister Abe’s monetary easing program appears to not be working out so well right now, it does take time for the effects to be realized. Saxo Bank sees a chance that the programs could work out and drive inflation up 5%.
Additionally, within the report, Saxo Bank predicts that Mario Draghi will end up leaving his role as president of the ECB next year, as the central bank is having a hard time energizing growth and getting inflation back on the rise. Draghi will likely wait to enact QE until it is too late and ECB will likely have to look for replacement. Additionally, European corporate bond spreads are forecast to double in 2015. Saxo Bank sees hackers continuing to place a disruptive role next year, particularly targeting online shoppers. China could be about to devalue their yuan currency 20% next year and cocoa appears to be on its way to $5000 a ton due to crops being hurt by Ebola crisis. Lastly, Saxo Bank sees the UK Independence Party taking 25% of the national vote in the election early next year and a higher chance that the UK could leave the EU by 2017. However, Saxo Bank is predicting a 25% crash in the UK housing market next year as well. Overall, it appears we have the potential to have a very busy and troublesome 2015, investors be ready.