The black swan concept was popularized by finance professor Nassim Nicholas Taleb’s book “The Black Swan: The Impact of the Highly Improbable.” The book, noting that it was widely assumed all swans were white until the discovery of black swans, highlighted that outlier, or previously unthought-of, scenarios can some to pass with extreme economic impacts.
But Nomura pointed to what it called the black swan’s cousin, the grey swan.
“These are the unlikely but impactful events that, in our opinion, lie outside the usual base case and risk scenarios of the analyst community,” it said in a note Wednesday, noting it was avoiding the more usual, well-discussed outliers such as a euro-area breakup, a Donald Trump impeachment or a China implosion.
Potential shock 1: U.S. productivity might boom
Nomura noted that global productivity has been anaemic since the 2008 global financial crisis and its base case is for U.S. productivity to remain on the low side for years ahead.
But it noted that in the early 1990s, productivity was expected to remain low, but it quickly doubled during that decade’s tech boom.
“We know that low investment has been a key contributor to poor productivity. It certainly has been true that investment in buildings and equipment is at recessionary levels,” Nomura said. “But investment in intellectual property and R&D is running at close to post-crisis highs. The fact that this form of investment is less tangible makes it easy to miss. It could also provide the foundation for a surge in productivity.”
The market implications would be “far-reaching,” with likely stronger stock markets and more aggressive tightening from the U.S. Federal Reserve, Nomura said.
Potential shock 2: China might float its currency
Nomura said the chances of China letting its currency become completely market-determined anytime soon were “very low.” But it added, if China were to suddenly remove its 2 percent onshore trading band and stop intervening in the currency market, the yuan would depreciate sharply rapidly.
“The risk is that rapid renminbi (yuan) depreciation would lead to a sell-off in local markets and feed through to greater negative regional and global market contagion,” Nomura said.
Potential shock 3: The European Union (EU) could reform, leading the U.K. to re-join
“To suggest Brexit could reverse and become Bremain requires a series of improbable events that most would vehemently disagree with, including us,” Nomura said, but it added: “With politics, one cannot rule anything out.”
Nomura pointed to two potential, if unlikely, scenarios.
In one, the U.K. could unwind the Brexit decision through a general election, amid court cases over whether the U.K. needs Scottish and Welsh parliaments’ consent to exit the European Union. If Brexit runs into roadblocks, the conservatives may call an election in hopes of solidifying a mandate, Nomura said, noting that this could lead to opposition parties winning or a smaller conservative majority.
The second Brexit-reversal scenario would be EU-led, with the bloc offering the reforms that the U.K. has been seeking, such as redefining free movement of labor, Nomura said.
Potential shock 4: Japan inflation might surge
Nomura said the most plausible channel for a Japan inflation jump would be interplay between the dollar/yen pair and oil prices. Up until recently, the yen would weaken as oil prices were falling, Nomura noted. But if that correlation were to weaken or flip so that higher oil prices and a weaker yen coincided, Japan’s inflation could pick up sharply, it said.
If Japan’s inflation were to rise far enough or were to keep rising in an unstable fashion, the central bank would need to consider exit strategies from its easing programs, Nomura said.
Potential shock 5: The U.S. Federal Reserve could be muzzled
Nomura noted that some have viewed President-elect Donald Trump’s loud disapproval of the Fed as a potential attack on the central bank’s independence and potentially opening it up to political meddling.
There was an outside possibility of radical changes, potentially including altering the Fed’s mandate, such as changing the inflation-targeting basis, Nomura said.
More radically, Nomura noted that Trump has “expressed sympathy” for returning to a gold standard.
That would lead to higher policy rates than expected, Nomura said.
Potential shock 6: Russia may flex its muscles
Nomura noted that investors have increasingly asked about whether Russia might become militarily aggressive in Eastern Europe.
While Nomura said it wasn’t its baseline expectation, the risk could emerge amid the potential for changes in U.S. foreign policy, potential sanctions renewal and upcoming major European elections.
Nomura said the two most plausible scenarios for potential Russian aggression would be greater involvement in Ukraine, toward the border with Poland, and involvement in the Baltics, particularly Lithuania.
Potential shock 7: A clearing house may fail
“There’s been an assumption since 2008 that clearing financial contracts through a central counterparty (CCP) rather than bilaterally between banks (OTC) will reduce systemic risk,” Nomura noted. “The idea is that, if all banks face one institution, the CCP, then the failure of one bank could be contained as other banks would face the CCP not the failing bank.”
But it noted that the downside to that arrangement was that the CCP itself can become a systemic risk.
“Were it to fail, the fall-out could be worse than the failure of one or two large banks alone,” Nomura noted.
Potential shock 8: Japan Prime Minister Shinzo Abe loses power
Abe’s ruling coalition holds a super-majority in the lower house and opposition parties remain unpopular, Nomura noted, saying it boded well for political stability heading into general elections in 2017.
But Nomura noted a potential twist as the four main opposition parties considered nominating joint candidates for each electoral district, which reportedly could cost the ruling party as many as 60 seats, based on 2014 vote totals.
The most extreme outcome would be for Abe be weakened substantially and potentially resign immediately, Nomura said.
“Were this ‘grey swan’ to emerge, Abenomics trades would be unwound. Japanese equities would likely bear the brunt,” it said. “In addition, if Japan had an administration involving anti-establishment parties (such as the communist party), investors would likely become concerned about the anti-establishment movement reaching Japan. This would further increase political uncertainty and volatility globally.”
Potential shock 9: Emerging market capital controls may return
If “Trumpflation” causes higher U.S. yields and a stronger dollar, emerging markets could face even more pronounced outflows, Nomura noted.
“Countries with very high levels of foreign portfolio investment ownership, particularly volatile currencies, low rates and low foreign-exchange reserves would be at most risk from capital controls,” Nomura said. “They would also be the ones that markets would look to for more disorderly devaluations either before capital controls were tried or after if they failed.”
Potential shock 10: Paper money may disappear
“We are on the threshold when secure decentralised electronic money and payments systems could replace notes and coins in circulation,” Nomura said, noting that Sweden has already been discussing the prospect.
Nomura said policy makers in developed markets with negative monetary policy rates, such as Europe and Japan, may push in that direction.
In those regions, “people can simply withdraw their money and put it under their mattress to avoid incurring negative rates,” it said. But with “e-holdings,” negative-rate policies can be transmitted to “e-wallets,” encouraging increased consumption, Nomura said.
That could elicit a sharp negative reaction from the public, Nomura noted.
—By CNBC.Com’s Leslie Shaffer; Follow her on Twitter@LeslieShaffer1