Barclays Wealth has issued forecasts of what it sees as key themes for 2008. On the macroeconomic front, the probability of a US recession is put at 40 per cent, with the European economy likely to be more badly hurt than predicted if this happens. On asset allocation, despite the market turmoil, Barclays Wealth see several reasons to be positive on equities against bonds. Price/earnings ratios are close to historic lows, and equities are cheap both relative to bonds and in absolute terms. Second, while analysts’ expectations for 2008 earnings will doubtless be revised down, this seems unlikely to cause too much of a shock. Third, risk aversion seems to have increased more than actual risk. And, fourth, unit labour costs look now to be trending down – and this will aid the corporate bottom line. There will be greater equities opportunities in the UK and Europe than in the US. Were there to be a recession, equities markets are seen as likely to rebound quickly; research also suggests that “value” stocks do well in the period leading up to a recession; the focus then turns to growth stocks – presenting some significant investment opportunities, for those prepared to move quickly enough. Banking sector stocks still look cheap, with more risk priced into share prices than justified, according to the research. Large-cap stocks remain favoured and a sharp fall in sterling is likely, possibly in 2009, with commercial property still appearing overvalued.