Rate Cuts ‘Likely to Be Too Little Too Late’: BCA

BCA Research has indicated that potential rate cuts may arrive too late to effectively mitigate an impending recession.

In a recent analysis, BCA noted that the impacts of monetary policy tend to lag behind, meaning the current economic landscape is still influenced by prior tightening measures. Consequently, while anticipated rate cuts are on the horizon, they may be “too little too late.”

The firm emphasizes that although markets have recently shifted towards a favorable outlook, believing in a soft landing, this optimism might be unfounded. BCA assigns a significant probability to the U.S. economy entering a recession within the next six to twelve months, even with rate reductions expected. Historically, easing cycles have often fallen short of preventing recessions.

In August, the market capitalization of leading technology companies declined due to increasing concerns regarding the rising costs of AI infrastructure and the growing risks of a recession, which could leave these stocks particularly vulnerable in a market downturn.

Additionally, BCA’s report highlights that global growth momentum remains inconsistent. It suggests that China is unlikely to compensate for a potential drop in U.S. demand due to its “timid and inadequate stimulus.” This scenario may present substantial challenges for the global economy, resulting in a muted outlook for Asian currencies and other pro-cyclical assets.

While BCA finds the outlook for China’s economy discouraging, it believes current valuations offer some downside protection. Therefore, the firm advises an overweight position in onshore stocks and a neutral approach to offshore stocks compared to other regions.

Furthermore, BCA expects oil prices to remain within a defined trading range in the short term due to various market dynamics. However, they project that weakening global demand will overshadow other factors over a longer time frame, likely leading to a decline in oil prices.