Watch out for US recession, zero interest rates in China next year: Citi
The outlook for the global economy next year is darkening, with a US recession and China becoming the first major emerging market to slash interest rates to zero both potential scenarios, according to Citi.
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London: The outlook for the global economy next year is darkening, with a US recession and China becoming the first major emerging market to slash interest rates to zero both potential scenarios, according to Citi.
"The cumulative probability of US recession reaches 65 percent next year," Citi's rates strategists wrote in their 2016 outlook published late on Tuesday. "Curve inversion will likely come more quickly than the consensus thinks."
Normally, short-dated yields such as two-year yields are lower than longer-dated ones like 10-year yields, as investors demand a premium for taking on risk several years into the future. The curve has inverted before each of the last five US recessions since the mid-1970s.
In China, deflationary pressures and downside risks to growth will force Beijing to loosen fiscal policy, let the yuan depreciate and perhaps become the first major emerging market economy to cut interest rates to zero, Citi said.