Saxo Group's Quarterly Outlook for Q1 2018

As a part of Saxo Group we're delighted to share the Strategy team's take on world markets for the first quarter of 2018. The strategists have taken a long look at the global economic outlook, the policy horizon, asset prices, and trends, and their conclusion is that the key concept to remember for Q1 is: the bubble. While bubbles may be difficult to time, they are certainly possible to identify, and this quarter could be crucial for many assets that have become overextended after a low-volatility 2017. Enjoy!

Equities

"This is the most important year for equities since 2008"

Forex

"We see clear factors directly ahead that are quite likely to disrupt the one-way complacency seen in 2017"

Bonds

"Take a look at the 10-year Treasury yield... Q1 is a time to be cautious"

Commodities

"Our trade idea for Q1 is to be long gold against WTI crude oil"

Cryptocurrencies

"Cryptocurrencies are behaving similarly to the dot-com stocks of the late 1990s"

Real estate

"Once the bubble inevitably bursts, it will lead to a huge loss of wealth for homeowners"

Saxo Group’s Quarterly Outlook is how the Group's team of strategists communicate their views for the coming quarter in macro, equities, forex, fixed income, commodities, cryptocurrencies, and more.


How to spot a bubble

Former Federal Reserve chair Alan Greenspan once stated that it’s “very difficult to definitively identify a bubble until after the fact”, but he was wrong. It is certainly possible to identify a bubble, even if it’s not so easy to time its burst.

A bubble is a specific mathematical formation in which super-exponential growth causes a departure from fundamentals. It is this departure that triggers the eventual sharp correction.

Saxo Group’s strategy team sees a great many bubbles in world markets right now. Some are fully formed and some are still forming, but all require investors to see them for what they are and maintain a good grasp on the fundamentals below.

It is time to talk about how bubbles form and not how they end. The continued contraction of the credit impulse as well as central bank policy normalisation, inflation expectations, fiscal deficit expansions, cross-asset correlations, and a lack of political reforms all point to a slowdown sometime in 2018.

The most successful investors will be those who see it coming.

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