- Significant changes to our JABA model’s long-term outlook
- Inopportune rise in gold and energy prices expected
- Commodities will outperform and yields will add another 100 bps
- Europe will suffer downturn and the US will flirt with recession in 2016
Gold is one of those items that should outperform over the longer term. Photo: iStock
Saxo Bank’s JABA model rarely makes significant changes to its long-term outlook, but this quarter is different. Not only do we expect a steep increase in yields but higher gold and energy prices too.
The dynamics at work are plenty: The model’s predictions are always based on the lead-lag of different economic factors. Think of each economic data point, each market price as having its own Sinus curve. Once in a while this multitude of Sinus curves moves in the one direction and this time it’s upwards in the second half of 2015.
The biggest “news” is that we are very close to the secular low in interest rates globally. This will have material impact on stocks, fixed income and asset allocation over the coming one to five years, and probably an “upside-down” return profile relative to performance since the financial crisis started. Commodities will outperform and yields will move up by another 100 bps beforeEurope once again slides to downturn and the US flirts with recession in early 2016.
The headlines for the next 6-7 months say:
- US, German and EU core government bonds will be 100 bps higher by and in Q4 before making its final new low in H1 2016. US 10-year yield will trade above 3.0% and Bunds above 1.25%
- Energy: WTI crude will hit US $70-80/barrel, setting up excellent energy returns.
- US dollar will weaken to EUR1.18/1.20 before retest of lows and then start multi-year weakness.
- Gold will be the best performer in commodity-led rally. We see 1425/35 by year-end.
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