Rate cuts are 'likely to be too little too late': BCA

Investing.com – BCA Research suggests that upcoming rate cuts may arrive too late to counteract an impending recession.

In a recent note, BCA pointed out that the effects of monetary policy operate with a lag, and the current economic conditions reflect the impact of the previous tightening cycle. As a result, the expected rate cuts, while imminent, are “likely to be too little too late.”

The research firm highlights that while markets have recently embraced a risk-on, soft-landing narrative, this optimism may be premature.

BCA assigns “high odds to the US economy entering recession over a 6-to-12-month horizon,” even with rate cuts on the horizon. Historically, easing cycles have not been sufficient to prevent recessions.

The market values of major tech companies fell in August, driven by growing concerns over rising AI infrastructure costs and growing recession risks, which could leave these stocks especially exposed in the event of a market downturn.

Moreover, BCA's report points out that global growth momentum remains uneven.

It argues that China is unlikely to offset the potential decline in U.S. demand due to its “timid and inadequate stimulus.” As a result, the global economy may face significant headwinds, leading to a constrained outlook for Asian currencies and other pro-cyclical assets.

BCA says that the outlook for China’s economy remains uninspiring, however, the firm believes that current valuations provide some downside protection. As such, their strategists maintain an overweight position in onshore stocks and a neutral stance on offshore stocks relative to other markets.

BCA also expects oil prices to remain within a trading range in the short term due to various market forces, though they anticipate that weakening global demand will take precedence over a longer time horizon, with oil prices likely to trend lower as a result.