How likely are Saxo’s Outrageous Predictions for 2025 to happen?

Saxo has released its annual list of Outrageous Predictions for 2025 where the SaxoStrats look at potential market-moving events investors and traders may not be expecting. In this analysis, we take a look at five of them below and give our opinion on how likely they are to come to fruition.

Facts are sometimes stranger than fiction.

Saxo Bank has form when trying to stir active debate with its annual ‘Outrageous Predictions’. Occasionally, some of the seemingly outrageous forecasts turned out to be close to reality. What was once unthinkable can, with the right conditions, morph into a fact. Most US polling stations, for example, projected a ‘tight presidential race‘ before November 4. We all know how out of shape these forecasts turned out to be.

This year, Saxo has issued eight non-consensus market predictions. Some of them are indeed intriguing.

1. Trump 2.0 blows up the US dollar
2. Nvidia balloons to twice the value of Apple
3. China unleashes CNY 50 trillion stimulus to reflate economy
4. First bio-printed human heart ushers in new era of longevity
5. Electrification boom ends OPEC
6. US imposes AI data centre tax as power prices run wild
7. A natural disaster bankrupts a large insurance company for the first time
8. Pound erases post-Brexit discounts versus the Euro

Here’s our take on whether or not some of them may come true:

The End of the US Dollar System

Will Trump 2.0 cause the mighty dollar to fall and collapse?

Just recently, President-elect Donald Trump tweeted that countries that undermine the USD will face retaliation in the form of trade tariffs (at triple-digit levels). This is, of course, a highly controversial policy. Economists dislike trade barriers. Any friction like this automatically gets a ‘thumbs down’. For example, the American Enterprise Institute (AEI) published soon after a gentle rebuttal essay entitled “Trump’s Tweet on the BRICS Is a Threat to the Dollar’s Global Dominance“.

To dislodge the Dollar from its current kingly status is hard. Many countries are entrusting their savings in the USD. Foreign central banks hold trillions in USD reserves. Unless the Fed and Donald Trump do something so foolish and outlandish that it creates a crisis of confidence among all the US holders, chances of the US dollar collapsing in 12 months are remote.

Look at the USD (as proxy by the Dollar Index) chart below. Are there more buyers or sellers of the dollar? To me it seems there are more buyers in the market. Of course, we have to come back in a year’s time to see if this view still hold true.

Nvidia to become twice as large as Apple

This scenario is actually not so far-fetched.

Currently, Nvidia’s market capitalisation is about $3.48 trillion (second largest in the world) whilst Apple’s market cap is at $3.67 trillion. But here’s a thought experiment. A 30 percent rise in the former and a similar magnitude fall in the latter will bring their market cap difference to more than 40 percent. In the tech world, a 30 percent move is actually quite normal. Nvidia corrected by more than that in the summer of 2024.

But will this prediction happen in the next four quarters though? AI is the dominant theme right now. A final “blow-off” rally for Nvidia is still possible in 2025. At some point in the following 12 months, I expect NVDA to top again the list of the World’s Most Valuable Companies. But to create a 100% market cap gap with Apple requires the latter to underperform persistently from here onwards. The gap may happen, but not as much Saxo predicts.

 

US imposes AI data centre tax

Frankly, I don’t see this prediction as outrageous as others.

Why? If you know AI and what it needs, you wouldn’t be surprised. The amount of electricity and water these data centres require are simply gargantuan. Generative AI, with Large Language Models (LLMs) at its heart, is expected to consume about 1.5 percent of the world’s electricity. Cloud service providers like Amazon’s AWS and Google’s Cloud are building more centres to house the better and sophisticated Nvidia chips. The new buzzword in the industry is hyperscalers. All this new investments will require more power to run machines – and water to cool them – in the near future.

Look at the spread of data centres around US (see below). More data centres are being constructed in the less populated areas to benefit from cheaper electricity and other resources. But these spreading out will reach its limit soon.

Understandably all these hyperscalers realise now that, unless they find alternative ways of electricity generation, they will, eventually, cause a power crisis. Hence, the recent pivot by tech groups into nuclear.

The US government may eventually tax data centre due to unaffordable power prices. Some states may even ban these data centres when the political heat increases.

Source: McKinsey

 

China to flood the economy with CNY50 trillion fiscal stimulus

The Chinese government is on this stimulus path already, with looser monetary policies starting this month.

But as the world’s second largest economy slows further, the government will be forced to act – sooner or later – to revive confidence. Have a quick glance at China’s 30-year bond yield recently: it dropped below that of Japan’s equivalent yield!

This latest crossover, in my opinion, is a market milestone. It signals a big – possibly lasting, change in the financial world. In other words, China’s days of high economic growth is over. A new economic era beckons.

But the real question is not so much of whether the Chinese government will fiscally resuscitate the economy. It will. But in what form, in how many phases, and before or after a market crisis. Saxo opines that the government will fiscally resuscitate the economy via e-CNY to boost consumer spending. Perhaps. Remember that Japan, in the years after bubble burst in 1990, enacted 12 fiscal packages. It was only after the Japanese banks and securities firm started to collapse like dominoes in 1997-98 that it panicked into doing something more. We may see a repeat of this cycle.

 

Source: Finance Times (paywall)

Electrification boom ends OPEC

Technology improves, and renders the current, less efficient method, obsolete. That’s the beauty of ‘creative destruction’.

The growing EV market is a case in point. The last decade or so saw a massive rise in EV vehicles on the road. Associated industries like battery manufacturing benefitted massively. Shares of new auto-makers like Tesla and BYD soared; while those manufacturers on older IC machines like Stellantis stagnated. The market has spoken.

Eventually, this will impact OPEC, as Saxo predicts. But will this happen in the near future, ie in 2025? That timeframe, I suspect, is a little tight.

OPEC+ is still important to the oil market. Its cuts and hikes in petroleum production can move the energy markets, especially oil prices. But as the world is transitioning to a net-zero one, OPEC’s impact will lessen.

But I see this process to be a multi-decade one. Oil prices are still trading north of $50, meaning it is a valuable commodity. Plus, many car owners are tightly holding on to their IC cars. Of course, Saxo could run this prediction every year and will be proven right at some point. But the clues will be amply reflected in oil prices long before this happens.