Barclays Wealth Research Raises US Recession Risk, but Expects it to be Shortlived

Research published by Barclays Wealth suggested that the Bank of England was likely to cut rates this month, while the European Central Bank will sit on the sidelines. The study, February’s version of Barclays Wealth Signpost Monthly Investment Strategy Report series, suggests that the chance of a recession in the US has risen to close to 50:50. However, it is looking increasingly as if any slowdown will be short-lived – a V-shaped profile for GDP, rather than L- or U-shaped. The study argues that Europe cannot escape the effects of a US recession, if there is one. Consequently, the company expects pressure on the ECB to cut interest rates to build, as the US and global economy look set to perform poorly during the first half of this year. But it is judged as still too early for the ECB to cut rates this week. But it may well do so by the spring. In terms of foreign exchange markets, a ‘no-grow’ or ‘slow-grow’ environment for the US, accompanied by further Federal Reserve rate cuts, may well entail further downward pressure on the US dollar. Sterling still appears substantially overvalued and Barclays Wealth expect’s it to fall. The implication is that the European Central Bank (ECB) will be forced to cut interest rates, and that the Euro will therefore weaken. But, because of the markets’ expectations of further rate cuts, Barclays Wealth does not think there will be rebound in the US dollar in the short-term.


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