Saxo Bank

Saxo Bank: A stronger US Dollar and Fed policy may lead the world into recession in 2017

Saxo Bank chief economist says GCC nations’ focus in 2017 should be on balancing and diversifying their economies

The shifting focus of major central banks from quantitative easing (QE) programmes to fiscal policy through potential back-door helicopter money will have knock-on effects that could lead the world into recession next year, according to Steen Jakobsen, Chief Economist and CIO of Saxo Bank, the online trading and investment specialist.

The by-product risk of central banks increasingly looking to use indirect helicopter money to spark economic growth is the creationof strong economic currents which bring much higher volatility, risk and a stronger US dollar, believes Jakobsen.

Speaking from Saxo Bank’s office in Dubai International Financial Centre (DIFC), Jakobsen said: “A stronger US dollar combined with the US Federal Reserve’s intention to hike interest rates by December this year almost guarantees a dramatic increase in the probability of a recession in the US. This recession will be the real challenge to the policy makers and what’s unfortunate is that it comes during a period when there are several major political elections in Europe and the US.”

“Our #SaxoStrats forecast is that 2017 is going to see weakness in emerging markets, oil, gold and silver against the rising US dollar. Furthermore, the change in the US central bank’s policy from infinite monetary easing to indirect helicopter money will ultimately raise both inflation and growth, but only through a recession.”

A recession in the world’s largest economy would have a wide-reaching impact, particularly the risk of a poorly performing US economy dragging down global growth and potentially spawning a global recession.

Speaking about Middle East economies Jakobsen said: “There has been significant inflow into the Middle East bond market. Much of the investment is based on ‘yield pick-up’ – the additional interest rate an investor receives when selling a lower-yielding bond in exchange for a higher yielding bond – which could reverse if we start seeing higher and more attractive rates in the US.”

“Furthermore, the WTI Crude oil price should hit highs between US$50 and US$53 next year, which will continue to heap further pressure on oil-producing economies with budget deficits, such as Saudi Arabia. And, if my prediction of a US recession is shown to be correct, total demand for oil should also come under pressure.”

“Looking at all the external factors that will influence Middle East economies, my outlook is that 2017 will be a challenging year for the region. The focus locally should be to diversify and balance the economies better.”

Steen Jakobsen’s visit to Dubai comes after two new senior appointments have been made to support the Middle East business of Saxo Bank. Mario Camara has joined the company as Head of Saxo Dubai and Anwaar Ahmed has been appointed Head of Institutional Business Development MENA. Both appointments support Saxo Bank’s continuing growth in its retail and institutional functions across the Middle East, and underline the region’s importance as a growth hub for both Saxo’s retail and institutional business.

Being a fully licensed Danish bank, Saxo Bank offers investors access to 30,000 financial instruments including equities listed on over 36 global stock exchanges, 182 currency pairs, 9,000 CFDs, 3,100 ETFs and ETCs, Futures and more. These instruments are all available through Saxo Bank’s trading platforms.

About Saxo Bank

Saxo Bank Group (Saxo) is a leading multi-asset trading and investment specialist, offering a complete set of trading and investment technologies, tools and strategies. For almost 25 years, Saxo’s mission has been to enable individuals and institutions by facilitating their access to professional trading and investing through technology and expertise.
As a fully licensed and regulated bank, Saxo enables its private clients to trade multiple asset classes across global financial markets from one single margin account and across multiple devices. Additionally, Saxo provides institutional clients such as banks and brokers with multi-asset execution, prime brokerage services and trading technology.
Saxo’s award winning trading platforms are available in more than 20 languages and form the technology backbone of more than 100 financial institutions worldwide.
Founded in 1992 and headquartered in Copenhagen, Saxo employs more than 1500 people in financial centers around the world including London, Singapore, Paris, Zurich, Dubai and Tokyo.