A wage-price inflationary spiral, an EU climate ‘Superfund’ and a new cold war space race are some of the events that Saxo Bank outlined as unlikely, but underappreciated risks to financial markets in 2022.
Although these predictions do not constitute Saxo’s official market forecasts for 2022, the bank said it is useful to consider the full extent of what is possible, even if not necessarily probable.
Steen Jakobsen, Saxo Bank’s chief investment officer said revolution was a theme that underscores many of next year’s predictions.
“There is so much energy building up in our inequality-plagued society and economy,” he said. “Add to that the inability of the current system to address the issue and we need to look into the future with a fundamental view that it’s not a question of whether we get a revolution but a more a question of when and how.”
The plan to end fossil fuels gets a rain check
The first prediction is that policymakers postpone their climate targets to support fossil fuel investments to combat rising inflation from surging commodity prices, limiting the risk of social unrest while badging it as a bridge between the energy consuming present and projected low-carbon future.
Saxo’s head of commodity strategy Ole Hansen said: “Faced with rapidly rising commodity prices and an increasingly impossible road to carbon neutrality, policymakers make a surprise and controversial move in 2022 to temporarily relax environmental restrictions on new upstream crude oil and natural gas investments for five and ten years, respectively.”
Facebook faceplants on youth exodus
In this scenario, young people abandon Facebook’s (Meta) platforms in protest of the company’s use of their personal information for profit.
Peter Garnry, Saxo’s head of equity strategy, said: “Facebook has gone from being a vibrant hub of young people, to a platform for older ‘boomers’ as young people would say.”
He said as investors realise Meta is rapidly losing the young generation and thus its future profitability, the company makes a desperate billion-dollar acquisition to put into its “creepy Metaverse” only for the young generation to shun it.
The US mid-term election brings constitutional crisis
John Hardy, Saxo’s head of FX Strategy, outlines a scenario where a handful of key Senate and House election races come close and either one or both political parties move against certifying the vote to prevent the US Congress from forming and sitting on its first scheduled day.
“Joe Biden rules by decree and US democracy is suspended as even Democrats also dig in against the Supreme Court that was tilted heavily by Trump. Indeed, as 2023 gets underway the stand-off sees a full-blown constitutional crisis stretching over the horizon,” he said.
US inflation goes above 15% on wage-price spiral
This prediction has US CPI inflation reaching an annualised 15% as companies inadvertently bid up wages to find workers, triggering a wage-price spiral similar to the 1970s.
Christopher Dembik, Saxo’s head of macroeconomic research, said empowered workers could demand higher wages across all sectors, which – when coupled with inflationary pressures from the production side – results in unprecedented double-digit annualised wage increases by the end of the year.
This pushes US inflation to more than 15% before the start of 2023 and prompts the US central bank into a “too-little, too-late move” to tighten monetary policy in a desperate effort to tame inflation.
EU Superfund for climate, energy and defence announced, to be funded by private pensions
In this scenario, amidst rising populism and waning US security, the EU launches an “EU Superfund” that addresses its priorities of defence, climate and clean energy transition.
“Given the EU’s aging population and heavy tax burdens, policymakers know that it will be impossible to finance the Superfund with higher taxes on incomes or other traditional tax revenues,” Dembik said.
“Instead, France has a lightbulb moment as it seeks to overhaul its pension system and looks at Europe’s enormous pensions. It decides that all pensions for all workers above the age of 40 must allocate a progressively larger portion of their pension assets into Superfund bonds as they age.”
Women’s Reddit Army takes on the corporate patriarchy
Mimicking the meme stock Reddit Army tactics of 2020-21, Althea Spinozzi, a Saxo senior fixed income strategist, forecasts a group of women traders launch a coordinated assault on companies with weak records on gender equality, leading to huge swings in equity prices for targeted companies.
“In contrast to the often-nihilistic original Reddit Army, the Women’s Reddit Army will be more sophisticated, with women traders coordinating a long squeeze by shorting stocks of selected patriarch companies,” she said.
“At the same time, they will direct funds to companies with the best metrics on female representation in middle-management and among executives.”
India joins the Gulf Cooperation Council as a non-voting member
An alliance between India and the Arab States of the Gulf would reduce India’s energy insecurity and attract the Gulf Cooperation Council (GCC)’s excess savings, Jakobsen said.
“We see new alliances being formed globally, all with a view to avoiding too close a commitment to either China or the US,” he said.
“The alliance helps lay the groundwork for the GCC countries to plan for their future beyond oil and gas and for India to accelerate its development via huge new investments in infrastructure and improvements in agricultural productivity together with fossil fuel imports, bridging the way to a post-carbon longer-term future.”
Spotify disrupted due to NFT-based digital rights platform
Saxo Bank’s cryptocurrency analyst Mads Eberhardt sees a scenario where musicians use new smart-contract blockchain technology to distribute their music directly to listeners in the same way some illustrations have been sold using non-fungible tokens (NFT’s) by artists.
“In 2022, an NFT-based service takes hold and begins offering music from notable stars – perhaps the likes of Katy Perry, The Chainsmokers and Jason Derulo, all of whom have recently backed an effort to create a new blockchain-powered streaming platform,” he said.
New hypersonic tech drives space race and new cold war
In this prediction, Hardy sees a growing sense of insecurity around hypersonic missiles, rendering legacy conventional and nuclear military hardware obsolete and sparking a massive hypersonic arms race.
“Hypersonic capabilities represent a game-changing threat to the long-standing military strategic status quo, as the technology brings asymmetric new defensive and offensive capabilities that upset the two massive pillars of military strategy of recent decades,” he said.
“In 2022, it is clear from funding priorities that hypersonics and space are the heart of a new phase of the deepening rivalry between the US and China on all fronts—economic and military. Other major powers with advanced military tech join in as well, likely including Russia, India, Israel and the EU.”
Medical breakthrough extends average life expectancy 25 years
The final prediction from Saxo has a medical breakthrough enabling life expectancy to go up by 25 years which prompts ethical, environmental and fiscal crises of “epic proportions”.
“This is made possible by the prime editing of DNA approach, which doesn’t rely on new cells via division but actually rewrites existing cells,” Jakobsen said.
“The prospect of a massive leap in human quality of life and life expectancy are huge wins for mankind, but bring an enormous ethical and financial quandary. How would our value systems, political systems and planet cope?”