Q1 2023 Outlook The Models are Broken

Q1 2023 Outlook The Models are Broken

Steen Jakobsen
Chief Investment Officer

Summary:  Models are used everywhere in the financial world. But what do you do when the models you use don't work anymore? That's what this Quarterly Outlook is all about.

An Executive Summary

In the introduction to this outlook for early 2023, Saxo CIO Steen Jakobsen argues that our economic models and our assumptions for how market cycles are supposed to work are simply broken. And so should they be, as why should we even want to return to the ‘model’ of central banks engaging in moral hazard and bailing out incumbent wealth, rentiers and risk takers, the rinse-and-repeat we have seen in every cycle since Fed Chair Greenspan bailed out LTCM in 1998? This new post-pandemic and post-Ukraine invasion era we find ourselves in has brought an entirely new set of imperatives beyond bailouts and reinflating asset prices. Instead, we need to brace for the impact of higher inflation for longer as we scramble for supply chain reshoring and redundancy, and as we transform our energy systems to reduce reliance on fossil fuels and reduce our impact on the climate. And it won’t be all pain for all assets. Quite the contrary; it will bring a refreshing return of productive investment and a brighter future for everyone. 

The return to more productive deployment of capital will have to mean investing more in the real, physical world to accomplish the new set of supply chain and resource access imperatives, not pouring money into digital platforms that capture excess profits by monopolising markets and user attention. On that note, our equity strategist Peter Garnry looks at whether the multiple decades of underperformance for equities dealing in tangible assets is ending, with intangibles and financials set to underperform after decades of excess financialisation. He also pokes into the geographies that look the most interesting as supply chains diversify. 

Our macro strategist Christopher Dembik notes that the worst outcomes for Europe in the wake of the EU shutting itself off from cheap Russian energy were thankfully not realised. Danger and opportunity lie ahead for Europe, which faces the steepest challenges in the new world order, but where the sense of crisis will bring the needed change the quickest. As well, Europe is set to benefit from China, its largest trading partner, coming back online this year. Our market strategist for Greater China, Redmond Wong, looks at where the most potential lies in Chinese equities after China executed a seeming total about-face in its zero-Covid tolerance and other policies that cracked down on the property and technology sectors and were presumed to be the hallmarks of rule under Xi Jinping. Charu Chanana, our market strategist in Singapore, picks up on the rest of Asia, weighing the relative value across several Asian markets. She argues that India and also the traditional exporters will benefit both from renewed demand from China and from investment by both China and OECD countries looking to leverage production – and supply chain diversification potential.

In commodities, Ole Hansen looks at the potential for the extension of a bull market in industrial metals as China, the world’s largest commodity consumer, returns in force from lockdowns and not least, as the metal-intensive investment in green energy deepens. The end of China’s lockdowns will also boost crude oil demand by the most in years as China normalises air travel levels. On the supply side, the avoidance of Russian crude and the end of risky, massive drawdowns of much of the US strategic reserves will weigh. Gold could be set to thrive with a turn lower in the USD, but also as a growing roster of countries looks for alternatives to the greenback for maintaining reserves and conduction trade outside the USD system. Our strategist in Australia, Jessica Amir, breaks down what Australia has to offer as a formidable exporter of resources and list of Australian resource companies involved in everything from the EV-battery supply chain to iron ore and gold.

With the return of solidly positive interest rates after the seeming endless years of ZIRP and NIRP, especially in Europe, Peter Siks of our CIO office looks at a far better expected return for the traditionally balanced portfolio. This is somewhat ironic, given that 2022 offered the worst nominal returns for traditionally ‘balanced’ stock and equity portfolios in modern memory.

FX strategist John Hardy looks at the potential for a turn lower in the USD this year and the likelihood of a much stronger JPY in the first half of the year, chiefly driven by its late-comer status to the central bank tightening party and the exit. Finally, crypto strategist Mads Eberhardt sees the risk of more challenges ahead for crypto, particularly the smaller cryptocurrencies as retail participation risks continuing to wither, even as the longer term prospects will brighten in line with the deepening institutional participation in the space in coming years.

We wish you a safe and prosperous 2023.  We strongly believe that markets and the global economy are entering a new era. It won’t be an easy transition, but all great transitions bring exciting new opportunities for those willing to walk away from the old assumptions and to look at how their investments and efforts can contribute to the new world taking shape before us. 


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.