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As usual, we roam the world and ride roughshod over consensus in sniffing out these supposedly highly unlikely events with underappreciated potential – events that could have tremendous implications if they come to pass. Enjoy!
Treasury enacts 2.5% yield cap after massive spike.
EURUSD to 1.00 after hitting new highs.
USDJPY @ 150 as yen collapses.
Bitcoin @ $1,000 (-90%).
Petro-renminbi surges, USDCNY below 6.0.
ZAR gains 30% versus EM currencies.
S&P 500 drops 25% in spectacular plunge.
Tencent shares gain 100%.
US 30-year Treasury yields rip beyond 5%.
Female CEOs at more than 60 Fortune 500 companies.
2017 was supposed to be the year of volatility. We entered the year with existential concerns in Europe ahead of key national elections, US policy concerns due to bull-in-the-china-shop President-elect Donald Trump, and Chinese policy concerns as markets eyed October’s 19th Party Congress. All in all, it seemed as if this would be the year we would see a more rambunctious monetary policy impulse, more dramatic gyrations in global markets, and a more turbulent climate for trading and investments in general.
Instead, the EU elections went off smoothly on balance while the European Central Bank’s supply of quantitative easing morphine kept Continental stock markets at a pleasant high despite a sharply stronger euro.
In the US, Trump floundered from one scandal and gaffe to the next, entirely failing to pull any policy levers that impacted markets even as he took personal responsibility for a stellar year in stock markets with record low volatility.
In Asia, China’s desire to keep everything orderly until at least the other side of the Party Congress kept forex traders’ fears of a renminbi devaluation on ice and the economy in reasonable shape even as the country’s dangerous credit bubble inflated further.
In short, with few exceptions, global risk assets enjoyed a very good year with very low volatility – the kind of trading year very few predicted and thus an outrageous one indeed, especially for bears and gold bugs. Who would have thought that, 12 months after the 2016 Election Day earthquake in the US, a classic fear indicator like gold would be near-precisely unchanged!
Our suspicion is that the complacency and low volatility in 2017 will not repeat and may indeed have stored energy for a spectacular and outrageous 2018. Thus, a number of our predictions point squarely at the risk that this accumulation of excess complacency may have blown a pent-up bubble of volatility.
But do keep in mind, as always, that these are not forecasts. Rather, they are a list of supposed “1% likelihood” events that should really be considered as 10% likely… or higher.
Besides our prediction of an ugly end to the complacency bubble, we place our European focus on the increasingly stark political faultline between “Austro-Hungarian Europe” and its feasible allies, and the traditional EU core. This could have major forex implications for the euro.
In China, we look at the potential for enormous gains in consumption-linked stocks as China transitions from an investment to a consumption-focused growth model. We wax outrageously bullish on sub-Saharan Africa and equally bearish on central banks, who risk having their independence taken away next year.
It’s safe to say that if any of our predictions see the light of day in 2018, the world will feel like a new place this time next year.