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Convenience Is Compelling
12 juni 2024 · 4 min
Our US Thematic Strategist explains the premium that consumers will pay for convenience, and what that means for sectors including online retail, dining and package delivery. Lees meer
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Welcome to Thoughts on the Market. I’m Michelle Weaver, Morgan Stanley’s US Thematic Strategist. Along with my colleagues bringing you a variety of perspectives, today I’ll talk about convenience and why it’s such an important factor for a number of industries.
It’s Wednesday, June 12, at 11am in New York.
The consumer has been weakening around the edges, and this is flowing through to companies' bottom line. Our Consumer Economist thinks that consumption is likely to continue to slow this year and even into 2025 as the labor market cools and that weighs on real disposable income, elevated rates continue to pressure debt service costs, and tighter lending standards limit credit availability.
And given this setup, companies have been focusing on their value offerings, and we saw a lot of commentary around this during first quarter earnings calls. Mentions of just the word value itself were elevated. But value isn't the whole story, and consumers aren’t always just choosing the cheapest option.
You and I are consumers. We are all consumers. Think about the last time you bought something. Did you pick one retailer over another because buying the item was easier? Did the company have a better website or a better mobile app? Did they offer faster shipping options or free shipping? Would the product itself save you time? And how much more were you willing to pay to make the more convenient choice?
Convenience is a valuable product and a key factor in consumer choice. In fact, our survey shows that 77 percent of US consumers rate it as important and base purchasing decisions on it.
Our work suggests three key conclusions. On average, consumers would be willing to pay about a 5 percent price premium for convenience. And there are two groups that place a particular emphas…
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Presidential Elections Aren’t the Only Important Ones
11 juni 2024 · 4 min
Our Global Chief Economist takes stock of recent elections in India, Mexico and South Africa -- and what they suggest about the market implications of the upcoming UK and US elections. Lees meer
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Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about recent elections and upcoming elections and what they mean for the economy.
It's Tuesday, June 11th at 10am in New York.
Markets usually prefer simple narratives, but this week it's shown us that simplicity can be elusive. In particular, for elections, legislative outcomes can be more complicated but are consequential. Here in the US, clients often ask about the economic implications of a Trump vs. Biden presidency -- but we immediately have to flag that the congressional outcome has to be a big part of the conversation.
Indeed, three important elections in the past weeks have emphasized the importance of a legislative focus. But the surprise was not in who won -- rather, in how big the legislative decisions were.
In India, Prime Minister Modi was re-elected, but his BJP party lost its outright majority. Exit polls on June 1st had predicted a resounding victory for the BJP, prompting a rally in the lead up to the final results.
The results surprised markets and caused a reversal. Markets have since recovered to roughly where they were before the exit polls,
We expect policy predictability with the continued focus on macro stability. This focus implies moderate inflation, smaller primary deficits, along with support for domestic manufacturing and infrastructure in upcoming years. Those have been the core of our view that the Indian economy is set for continued expansion.
The Mexican election was almost the reverse, where the winning candidate's party won far more votes than was expected. In response to the news, equity markets sold off and the Mexican peso …
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Investors Riding an Unpredictable Wave
10 juni 2024 · 4 min
Our CIO and Chief U.S. Equity Strategist explains why economic fluctuations have made it more difficult to project a possible soft or no landing outcome, and how investors can navigate this continuing market volatility. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the continued uncertainty in economic data and its impact on markets.
It's Monday, June 10th at 11:30am in New York.
So let’s get after it.
Over the past few months, the economic growth data has surprised to the downside with more data releases coming in below expectations than usual. Meanwhile, inflation surprises have skewed more to the upside. This is a challenging combination because it means the Fed can't cut rates yet even though it may make sense to keep the economic expansion going.
As we have been discussing for months, aggressive fiscal spending is keeping the headline economy looking good on the surface. The bad news is that inflation remains too high for the Fed which has to keep interest rate policy too tight for many economic participants. Some may disagree with that statement, but we think it's hard to argue with the yield curve which remains significantly inverted and a valid indicator of interest rate policy. When combined with high price levels for many goods and services, the end result is a crowding out of many parts of the economy and consumers. From our perspective, this is most evident in the persistent underperformance of small cap stocks. In fact, this past week, small cap equities relative performance fell to new cycle lows.
Even more concerning is that while small caps are showing greater interest rate sensitivity than large caps, it’s also asymmetric. While higher rates are an obvious headwind for small caps, we're skeptical that lower rates offer a comparable benefit. Last week was a good exampl…
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What Global Elections Mean for Markets
7 juni 2024 · 4 min
Our Global Head of Emerging Markets Sovereign Credit reviews key insights and strategies for investors following the recent elections in Mexico, South Africa and India. Lees meer
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Welcome to Thoughts on the Market. I’m Simon Waever, Morgan Stanley’s Global Head of EM Sovereign Credit and Latin America Fixed Income Strategy. Along with my colleagues bringing you a variety of perspectives, today I’ll discuss the far-reaching impact of emerging market elections on global markets.
It’s Friday, June 7, at 10am in New York.
Elections in 2024 will impact roughly 4 billion people around the globe – that’s the most in history. And within emerging markets, elections this year will impact nearly half the market cap of both hard and local currency debt indices and 60 percent of equities. With a dozen elections in the emerging markets sovereign credit universe already behind us, there are still almost another twenty more to go.
We find that elections in emerging markets matter for both credit spreads and fiscal balances. And a frequent investor question is how to trade positive and negative election outcomes. This can be defined in many ways, of course, but we focus on whether credit spreads widen – which is a negative – or tighten – which is a positive – in the week post-elections. And history suggests that buying into negative election surprises has been a profitable strategy. But on the other hand, positive elections, they’re priced in beforehand and should not be chased post-outcome.
So why is that, exactly? Well, for positive elections, markets tend to rally nearly continuously into the elections; but after the initial week of tightening, spreads then revert and end up trading only slightly tight to the levels prior to the elections.
And then for negative elections, there’s actually no real trend ahead of the elections, with spreads largely flat. But then, after the initial sell-off, credit spreads end up reversing the initial move wider, and three month…
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Inside Japan’s Economic Transformation
7 juni 2024 · 7 min
Our four-person panel explains Japan’s economic boom, from growing GDP to corporate sector vibrancy, and which upward trends will sustain. Lees meer
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Chetan Ahya: Welcome to Thoughts on the Market. I'm Chetan Ahya, Morgan Stanley's Chief Asia Economist.
Japan is undergoing a once in a generation transformation. A country once associated with its lost decades is now seeing multi-decade highs for nominal GDP growth and equity indices.
On this special episode of the podcast, we will discuss why we are so optimistic on Japan's trajectory from here. I'm joined by our Chief Japan Economist Takeshi Yamaguchi, our Chief Asia and EM Strategist Jonathan Garner, and our Japan Equity Strategist Sho Nakazawa.
This episode was recorded last Friday, May 31st at 9 am in Hong Kong.
Jonathan Garner: And 9 am in Singapore.
Takeshi Yamaguchi: And 10 am in Tokyo.
Chetan Ahya: Japan's nominal GDP growth reached a 32 year high in 2023. Equity markets have reached multi decade highs, and ROE and productivity growth have been on an improving trend. Corporate sector vibrancy is returning, and animal spirits are reviving. A new, stronger equilibrium is one of robust nominal GDP growth and a sustainable moderate inflation.
This new equilibrium of stronger normal GDP growth and low real interest rates will also be supportive of Japan's capex trends. With that backdrop, let me now turn to Yamaguchi san.
Yamaguchi-san, what makes us confident that this virtuous cycle of rising wages and prices will continue to play out?
Takeshi Yamaguchi: We think Japan's social norm of no price hike, no wage hike is changing, and a good feedback loop between wages and prices is emerging. Workers demand higher wages with higher inflation expectations and the corporate management accept their demand, as they also expect higher inflation. Japan's labor market remains structurally tight and aggregated corporate profits are now at a record high level. In addition to the pass-through from price…
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Special Encore: The Curious Connection Between Airlines and Fashion
6 juni 2024 · 10 min
Original release date April 29, 2024: Our analysts find that despite the obvious differences between retail fashion and airlines, struggling brands in both industries can use a similar playbook for a turnaround. Lees meer
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Ravi Shanker: Welcome to Thoughts on the Market. I'm Ravi Shanker, Morgan Stanley's North American Freight Transportation and Airlines Analyst.
Alex Straton: And I'm Alex Straton, Morgan Stanley's North America Softlines, Retail and Brands Analyst.
Ravi Shanker: On this episode of the podcast, we'll discuss some really surprising parallels between fashion, retail, and airlines.
It's Monday, April 29th at 10am in New York.
Now, you're probably wondering why we're talking about airlines and fashion retail in the same sentence. And that's because even though they may seem worlds apart, they actually have a lot in common. They're both highly cyclical industries driven by consumer spending, inventory pressure, and brand attrition over time.
And so, we would argue that what applies to one industry actually has relevance to the other industry as well. So, Alex, you've been observing some remarkable turnaround stories in your space recently. Can you paint a picture of what some fashion retail businesses have done to engineer a successful turnaround? Maybe go over some of the fundamentals first?
Alex Straton: What I'll lead with here is that in my North America apparel retail coverage, turnarounds are incredibly hard to come by, to the point where I'd argue I'm skeptical when any business tries to architect one. And part of that difficulty directly pertains to your question, Ravi -- the fundamental backdrop of the industry.
So, what are we working with here? Apparel is a low single digit growing category here in North America, where the average retailer operates at a mid single digit plus margin level. This is super meager compared to other more profitable industries that Ravi and I don't necessarily have the joy of covering. But part…
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Spirited Debates Around Our Midyear Outlooks
4 juni 2024 · 4 min
Our Chief Fixed Income Strategist takes listeners behind the curtain on Morgan Stanley’s expectations for markets over the next 12 months. Lees meer
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Welcome to Thoughts on the Market. I am Vishy Tirupathur, Morgan Stanley's Chief Fixed Income Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the key debates we engaged in during the mid-year outlook process.
It's Tuesday, June 4th at 1pm in New York.
Over the last few episodes, you've been hearing a lot about Morgan Stanley's midyear outlook, where our economists have forecasted a sunny macro environment of decelerating growth and inflation, and policy easing in most developed market economies, leading to a positive backdrop for risk assets in the base case, especially in the second half of the year.
But beyond the year end, many uncertainties -- uncertainties of outcomes and uncertainties of the consequences of those outcomes -- point to a wider range of outcomes, driving a wider than normal bull versus bear skew in our expectations for markets over the next 12 months.
As always, these outlooks are the culmination of a process involving much deliberation and spirited debate among economists and strategists across all the regions and asset classes we cover. I thought it might be useful to detail some of these debates that we've had during the process to shed a better light on the forecast in our outlook.
First, given the many changes to market pricing of Fed's rate cuts year to date, driven by higher-than-expected inflation, the path ahead for US inflation was heavily debated. Our economists argued that the acceleration in goods and financial services prices, which explains a substantial portion of the upside in the first quarter inflation data should decelerate from here. And also that leading indicators point to a weaker shelter inflation ahead. Their analysis also showed that residual seasonality contributed to the unexpected strength in f…
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Why an ‘Everything Rally’ Is Still Possible
3 juni 2024 · 4 min
Our Chief Cross-Asset Strategist explains why the high correlation between stocks and bonds could work in investors’ favor throughout the second half of this year. Lees meer
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Welcome to Thoughts on the Market. I’m Serena Tang, Morgan Stanley’s Chief Cross-Asset Strategist. Along with my colleagues bringing you a variety of perspectives, today I’ll discuss why we believe bonds and equities can both rally this year, with the still-elevated correlations between the two assets a boon rather than a bane to investors.
It’s Monday, June 3rd at 10am in New York.
In our mid-year outlook two weeks ago, we expressed our bullish view on both global equities and parts of fixed income space like agency mortgage-backed securities and leveraged loans, on the back of the benign economic backdrop our economists are forecasting for in the second half of 2024.
Now, this may be surprising to some. Received wisdom is that in an environment of rate cuts and falling yields, equities can't perform well because the former usually maps to growth slowdowns. When equities see double-digit upside – which is what we’re projecting for European equities – it’s unusual for bonds to also see strong and positive returns, which is what we’re projecting for German government bonds.
And I want to push back on this received wisdom that we can’t have an ‘everything rally’. When we look at the annual performance of global stocks and 10-year US Treasuries every year going back to 1988, in the 13 times when the Fed cut rates over the course of the year, bond yields were lower and equities were up 43 per cent of the time. And in those periods, stock returns averaged 18 per cent while yields fell over 1 percentage points. ‘Everything rallies’ happen often in this very macro backdrop of benign growth and Fed cuts we’re expecting, And when they do happen, everything indeed rallies – strongly.
Or to frame it another way – our expectations for both global equities and fixed income to see strong …
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Why TMT Bonds Are Underperforming
1 juni 2024 · 9 min
In a generally positive environment for corporate credit, the recent performance of high-yield bonds in the telecom, media and technology (TMT) sector offers a market contrast. Our Lead Analyst for High-Yield TMT joins our Head of Corporate Credit Research to explain the divergence. Lees meer
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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research for Morgan Stanley.
David Hamburger: And I'm David Hamburger, Head of US Sector Corporate Credit Research and Lead Analyst for the high yield telecom, media, and technology sectors.
Andrew Sheets: And today on the podcast we'll be discussing the contrast between strong overall markets in credit and a whole lot of volatility in the high yield TMT space.
It's Friday, May 31st at 10am in New York.
So, David, it's great to talk to you. You know, listeners have probably been hearing about our views on overall markets and credit markets for the 12 months ahead.
We have US growth at 2 percent. We have inflation coming down. We had the Fed lowering interest rates. But there’s needless to say; there's some pretty notable contrast between that sort of backdrop and the backdrop we've had for credit year to date, which has been pretty calm, pretty strong -- and what's been going on in your sector.
So maybe before we get into the why -- let's talk about the what and bring people up to speed on the saga that's been high yield TMT year.
David Hamburger: Yeah. I'm here today to disavow you of any notion that everything is fine and dandy in the market today. So, if you look at the high yield communications sector, it's trading about 325 basis points wide of the overall high yield index. And just to give you that magnitude of that -- the high yield index trading around 300 basis points -- we're talking about 625 basis points over. Now, the high yield communication sector as well is trading about 275 basis points, wider than the next widest sector in the index.
And so, it…
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European Economic Outlook: Decidedly More Optimistic
30 mei 2024 · 4 min
Our Chief Europe Economist explains why the region’s outlook over the next year is trending upward, including how higher growth will lead to lower interest rates this cycle. Lees meer
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Welcome to Thoughts on the Market. I’m Jens Eisenschmidt, Morgan Stanley’s Chief Europe Economist. Along with my colleagues bringing you a variety of perspectives, today I will discuss our outlook for Europe’s economy in the second half of 2024 and into next year.
It’s Thursday, May 30 at 10am in Frankfurt.
So, over the last year, we have had a relatively downbeat outlook for Europe's economy, but as we head into the second half of this year our view is decidedly more optimistic. After bottoming last year, euro area growth should reach 0.7 per cent annualized terms in 2024 and 1.2 per cent in 2025 on the back of stronger consumption and exports. Inflation is on its way to the European Central Bank’s target, paving the way for the ECB to start cutting rates in June with three cuts in 2024, for a total of 75 basis points, and four more cuts in 2025, for a total of 100 basis points.
What’s particularly notable, though, is the set-up of this growth rebound is highly unusual for several reasons.
Let's start with inflation. In a normal environment, higher growth leads to higher inflation and vice versa. This time is different. The euro area needs to grow faster to get inflation down. The reason is that faster growth should lead to better resource utilization in sectors characterized by labor hoarding or keeping a surplus of employees. This should keep unit labor costs – or how much a business pays its workers to produce one unit of output – in check. We’re expecting further wage increases, mostly driven by the catch-up with past inflation, and so higher productivity is a way to cushion the pass-through to prices.
So again, just to repeat, we are in a cycle where we need higher growth to get inflation down and not as usual, we have higher growth and that gets us more infl…
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Global Questions About the US Elections
29 mei 2024 · 2 min
Our Global Head of Fixed Income and Thematic Research reflects on Japanese investors’ interest in the outcome of the upcoming presidential vote in the US. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the upcoming US elections.
It's Wednesday, May 29th at 10:30am in New York.
I recently returned from Tokyo, having attended and presented at Morgan Stanley's inaugural Japan summit. And while I was asked to present on topics ranging from our fixed income markets outlook to the role of Japan in an increasingly multipolar world, my one-on-one conversations always tracked back to the same client question: who will win the US election.
Of course this is a matter of great importance globally. But the investor in Japan is particularly interested in whether possible election outcomes could disrupt their rosy economic outlook – either through new tariffs or increased geopolitical tensions between the US and China, and also North Korea. To that end, many were focused on polls showing former President Trump with sufficient support to win the election, asking how predictive this would be of the ultimate outcome.
Here our view remains, for all investors, that polls aren't giving a reliable signal yet. The election is still several months away. And Trump doesn't have leads beyond a normal polling error in sufficient states to win the presidency.
So, investors still need to consider the potential impacts of a variety of US electoral outcomes. That's perhaps not the most settling answer for investors, who strive to limit uncertainties. But we think it's the most honest one. And as we've been doing in this space all year, we'll continue to walk you through the outcomes, policy impacts, and resulting market effects you need to be aware of.
Thanks for listening. If you enjoy the podcast, p…
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Midyear European Equities Outlook: In the Sweet Spot
28 mei 2024 · 3 min
Our Chief Europe Equity Strategist explains why she is forecasting a 23 percent total return for European equities over the next year. Lees meer
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Welcome to Thoughts on the Market. I’m Marina Zavolock, Morgan Stanley’s Chief European Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I’ll discuss why our mid-year outlook extends our bullish view on European equities.
It’s Tuesday, May 28, at 10am in London.
We have recently updated our outlook for the year ahead, maintaining our bullish view on European equities as we fully incorporate and roll forward our mid-1990s “soft landing” playbook. Like today, the mid-1990's was a period where markets focused on rates, inflation, and related data above anything else. The US and Europe saw soft and “softish” landings, the Fed’s cutting cycle was slower than investors initially expected, and there was an undercurrent of technological innovation. European equities, in particular, are following the mid-1990s path closely, and that means both a mid-cycle extension and a strong market set-up.
We have high conviction in our constructive European equities view and have recently raised our one year forward MSCI Europe Index target to 2,500 – 18 percent potential upside. This brings potential total return upside – if we incorporate dividends and buybacks – to 23 percent.
So why do we remain bullish? Over the second half of this year in particular we anticipate European equities ongoing re-rating is likely to combine with an emerging European equities earnings recovery. We’ve just come out of one of the strongest earnings seasons Europe has had in several quarters and we anticipate this is only the beginning. Our earnings model projects 7.5 percent earnings growth by year end for MSCI Europe, which is almost double consensus estimates. On top of this, we think the market underappreciates a number of significant thematic tailwinds that benefit European equities. These include ri…
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Midyear Credit Outlook Favors Moderation
24 mei 2024 · 3 min
Our Head of Corporate Credit Research explains why moderate economic growth offers opportunities in credit markets – if investors choose carefully. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley, along with my colleagues, bring you a variety of perspectives Today, I'll be talking about our outlook for credit markets over the next 12 months.
It's Friday, May 24th, at 9 a. m. in New York. Morgan Stanley's global economic and strategy teams have recently published our mid year outlook. Twice a year, all of us get together to take a step back, debating what we think the outlook could look like over the 12 months ahead. For credit, we think that backdrop still looks pretty good.
Corporate credit, in representing lending to companies, is an asset class that loves moderation and hates extremes. An economy that's too weak raises the risk that companies fail, and has been consistently bad for returns. But an economy that's too strong also causes challenges, as companies take more risks, the rewards of which often go to stockholders, not their lenders.
The good news for credit is that Morgan Stanley's latest economic forecasts are absolutely full of moderation for economic growth. We see the U.S. growing at about 2 percent this year and next and Europe growing at about 1%. Right in that temperate zone, the credit usually finds optimal.
We see inflation falling, with core inflation back to 2 percent in the U. S. and Europe over the next 12 months. And monetary policy should also moderate, with the Federal Reserve, European Central Bank, and the Bank of England All lowering interest rates as this inflation comes down.
For credit, forecasts that expect moderate growth, moderating inflation, and moderating interest rates are exactly that down the fairway outcome that we think markets generally like. The challenge, of course, is that spreads have narrowed and lower risk premiums are discounti…
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Midyear Housing Outlook: Is Home Sale Activity Picking Up?
23 mei 2024 · 7 min
With cooling inflation and an expected drop for mortgage rates, will more affordable housing lead to a big spike in sales? Our Co-Heads of Securitized Product Research take stock of the US housing market. Lees meer
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Jay Bacow: Welcome to Thoughts on the Market. I'm Jay Bacow, co-head of Securitized Products Research at Morgan Stanley.
James Egan: And I'm Jim Egan, the other co-head of Securitized Products Research at Morgan Stanley.
Jay Bacow: And on this episode of the podcast, we'll discuss our outlook for mortgage rates and the housing market over the next 12 months.
It's Thursday, May 23rd, at 1pm in New York.
James Egan: Jay, I want to talk about mortgage rates. From November through January, mortgage rates decreased over 120 basis points. But then from February to May, they've given back more than half of that decline. Where are mortgage rates headed from here?
Jay Bacow: So, day to day, week to week, it's hard to have a lot of conviction, a lot of things can happen. But, over the next 12 months, we think mortgage rates are coming down. We estimate that by summer 2025, the 30-year fixed rate mortgage will be roughly 6.25 per cent.
James Egan: Alright, that is a significant amount lower than about 7 per cent where we are right now. And that's good news for affordability in the US housing market. What gets us there?
Jay Bacow: We think inflation is going to cool, and our economists are forecasting that the Fed is going to cut their policy rate by 75 basis points this year and 100 basis points next year. In fact, our economists are forecasting eight of the G10 central banks to cut rates next year.
Now, mortgage rates are 30 year fixed rate products, so they're based more on where the longer end of the treasury curve is than the front end. But our rate strategists think ten year notes are going to rally to 375 by next summer.
When you combine all of that with our expectation for secondary mortgage rates to tighten versus treasuries, that's …
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Midyear US Economic Outlook: Continued Resilience
22 mei 2024 · 4 min
Why is the US economy poised for a strong second half of the year, despite slowing GDP growth? Our Chief US Economist points to population growth, housing demand and anticipated Fed rate cuts. Lees meer
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Ellen Zentner: Welcome to Thoughts on the Market. I'm Ellen Zentner, Morgan Stanley's Chief US Economist. Along with my colleagues bringing you a variety of perspectives, today I'll discuss our mid-year outlook for the US economy.
As we near the midpoint of this year, we refresh our outlook for the second half of the year. In our base case, the US economy remains strong, but US GDP growth is slowing, and slowing from 3.1 percent on a fourth quarter over fourth quarter basis last year, to 2.1 percent this year and in 2025.
Okay, so what's behind the continued strength? Well, it's something we've been intensely following this year. Faster immigration and population growth will continue to expand the labor supply and support economic activity, and all without increasing inflationary pressures. So, whereas the mid-pandemic labor market was characterized by persistent shortage of labor, the supply of labor is now increasing, and we think will outstrip demand this year.
This will drive the unemployment rate higher, which we expect will end this year half a point above 2023 at 4.2 per cent and rise further to 4.5 per cent in 2025. And wage gains should moderate further as the unemployment rate rises. We think consumer activity will continue to slow this year and into 2025 as that cooling labor market weighs on growth in real disposable income and elevated interest rates keep borrowing costs high.
Tight lending standards also limit credit availability. That said, we do think lower rates are on the horizon, and this should spur a pickup in housing demand and goods spending around the middle of next year. In fact, after substantial reflation numbers in the first quarter of 2024, we expect lower inflation numbers ahead. We've already seen that in the April d…
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Midyear Cross-Asset Outlook: Bullish Possibilities
21 mei 2024 · 9 min
Our Global Cross-Asset Strategist and Global Chief Economist discuss the state of asset markets at the midway point of 2024, and why the current backdrop suggests positive directions for several key markets. Lees meer
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Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.
Serena Tang: And I'm Serena Tang, Morgan Stanley's Chief Global Cross Asset Strategist.
Seth Carpenter: And yesterday, Serena, you and I discussed Morgan Stanley's global economic mid-year outlook. And today, I'm going to turn the tables on you, and we'll talk about asset markets.
It's Tuesday, May 21st, at 10am in New York.
Okay, so yesterday we talked about all sorts of different parts of the macro environment. Disinflation, inflation, central bank policy, growth. But when you think about all of that -- that macro backdrop -- what does it mean to you for markets across the world?
Serena Tang: Right, I think the outlook laid out by your team of stable growth, disinflation, rate cuts. That is a great backdrop for risk assets, one of the reasons why we got overweight in global equities. Now, there will likely be low visibility and uncertainty beyond year end, and why we recommend investors should focus on the triple C's of cheap optionality, convexity, and carry.
That very benign backdrop suggests more bullish possibilities. Your team has noted several times now that the patterns we're seeing now and what we expect have parallels to what happened in the mid 1990s -- when the Fed cut in small increments, US growth was sustained at high levels, and the labor market was strong. And now I'm not suggesting that this is 1990s and we should party like it. But just that the last time we found ourselves in this kind of benign macro environment, risk assets -- actually most markets did really well.
Seth Carpenter: So, I will say the 1990s was a pretty good decade for me. However, you mentioned some uncertainty ahead, low visibilit…
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Midyear Economic Outlook: Reasons for Optimism
21 mei 2024 · 7 min
Our Global Chief Economist and Global Cross-Asset Strategist discuss the state of the global economy at the midpoint of 2024, including how the U.S. and Europe are on growth trajectories despite volatile economic data. Lees meer
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Serena Tang: Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's chief global cross-asset strategist.
Seth Carpenter: And I’m Seth Carpenter. Morgan Stanley's global chief economist.
Serena Tang: And on this two-part episode of the podcast, we'll discuss Morgan Stanley's global mid-year outlook. Today we'll focus on economics, and tomorrow we'll turn our attention to strategy.
It's Monday, May 20th, at 10am in New York.
So, Seth, we've seen a lot of volatile economic data since you published your 2024 year ahead outlook last November. The US has gone through a few months of downside inflation and upside growth surprises, followed by renewed inflationary pressures; and in China, real growth surprise to the upside, but deflation deepened. In contrast, India and Japan, your two strongest conviction bullish views, have played out so far.
So, with all this in mind, Seth, what is your outlook for the global economy and its growth trajectory for the second half of this year and into 2025?
Seth Carpenter: So, we're pretty optimistic. We see some mild deceleration in the US relative to last year's particularly strong growth but not collapsing. And I think that part is really important. The euro area growth, all the signs that we've had since we wrote the outlook in November, updating now it says that growth is actually bottomed out there and we're starting to see the initial recovery. Now, don't get carried away. It's not that it's gonna be this massive rebound. But there should be now a bottoming out gradual growth as inflation keeps coming down. That means that real wage growth is actually going to get stronger, and we think consumption starts to lead the way.
China though, there we've surprised the upside bu…
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Seeking Better Value in Emerging Market Debt
17 mei 2024 · 4 min
Our Head of Corporate Credit Research explains why the debt of high-rated EM countries is a viable alternative for investors looking for high yields with longer duration. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about why – for buyers of investment grade bonds – we see better value in Emerging Markets.
It's Friday May 17th at 2pm in London.
This is a good backdrop for corporate credit. The asset class loves moderation and our forecasts at Morgan Stanley see a US soft landing with growth about 2 percent comfortably above recession, but also not so strong that we think we need further rate increases from the Federal Reserve. Corporate balance sheets are in good shape, especially in the financial sector and the demand for investment grade corporate bonds remains high – thanks to yields, which hover around five and a half percent.
For all these reasons, even though the additional yield that you currently get on corporate bonds, relative to say government bonds is low, we think that spread can remain around current levels, given this unusually favorable backdrop. But we're less confident about longer maturity bonds. Here, credit spreads are much more extreme, near their lowest levels than 20 years. So, what can investors do if they're looking to get some of the advantages of this macro backdrop but still access higher risk premiums.
For investors who are looking for high rated yield with longer duration, we see a better alternative: the debt of high rated countries in the Emerging Markets, or EM. Adjusting for rating, high grade Emerging Market debt currently trades at a discount to corporate bonds. That is for bonds of similar ratings, the spreads on EM debt are generally higher. And this is even more pronounced when we're looking at those longer dated borrowings; the bonds with the maturit…
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Get Ready for a Summer Travel Boom
16 mei 2024 · 4 min
Our research shows travelers are willing to spend more this summer than last. U.S. Thematic Strategist Michelle Weaver explains how this will impact the airline, cruise and lodging industries. Lees meer
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Welcome to Thoughts on the Market. I’m Michelle Weaver, Morgan Stanley’s US Thematic Strategist. Along with my colleagues bringing you a variety of perspectives, today I’ll talk about the summer travel trends we’re expecting to see this year.
It’s Thursday, May 16th at 10am in New York.
With Memorial Day just around the corner, most of us are getting really excited about our summer vacation plans. We recently ran a survey, and our work shows that nearly 60 percent of US consumers are planning to travel this summer. This figure though skews significantly higher for upper income consumers. 75 percent of consumers making $75,000 to $150,000 are planning to travel and this figure rises to 78 percent for those who make more than $150,000.
And travel remains a key spending priority for higher-income consumers. They place travel as one of their top priorities when compared to other discretionary purchases. This picture reverses though when you look at lower-income consumers making less than $50,000 a year. Travel tends to be among their lowest priorities when they are thinking about their discretionary purchases.
What really matters for companies though is if consumers are going to spend more this year than they did last year. And consumers who are planning a vacation are inclined to spend more this year, with 49 percent expecting to spend more and 16 percent intending to spend less. So that yields a net plus-32 percent increase in spending intentions for summer travel.
And what does this mean for key players in the travel industry? For starters, let’s look at airlines, where demand no longer seems to be a market debate within the space. It’s remained very resilient so far in 2024, contrary to what many had feared when we were going into this year. Our …
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The Narrow Scope of US Tariffs on China
15 mei 2024 · 3 min
Our Global Head of Fixed Income and Thematic Research explains that the Biden administration’s new tariffs on Chinese imports are narrower than those of 2018 and 2019, but still send a signal about the economic relationship between the US and China. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the impact of newly announced tariffs by the United States.
It's Wednesday, May 15th at 10:30am in New York.
Yesterday, the Biden administration announced new tariffs on the import of certain goods from China. These include semiconductors, batteries, solar cells and critical minerals among other products. For investors, this might remind them of the tariff escalation in 2018 and 2019 that led to global economic concerns. But we’d caution investors not to arrive at similar conclusions from this latest action.
Consider that the scope of this action is far more muted than the tariffs actions from a few years ago. New tariffs will affect a projected $18 billion of imports, or only about 0.5 percent of all China’s exports. And as our chief Asia economist Chetan Ahya has explained in his recent work, the sectors in scope for this round are areas where China has substantial spare capacity. Said differently, the tariffs are narrowly scoped and appear to be targeted at areas where the US perceives specific risk of imbalanced trade and market conditions. That contrasts with tariffs on roughly $360 billion of imports from China in the 2018-2019 period – a much broader approach that was in part aimed at forcing broad trade concessions from China but carried greater economic consequences by crimping corporate’s capital spending globally as they re-evaluated their production strategies.
There is some signal for investors here though. While the scope of the Biden administration's efforts here ar…
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Lessons from Retail Success Stories
15 mei 2024 · 4 min
Our Retail Analyst discusses the key strategies that have propelled a select few companies in U.S. consumer retail amid a challenging demand backdrop. Lees meer
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Welcome to Thoughts on the Market. I’m Simeon Gutman, Morgan Stanley’s Hardlines, Broadlines & Food Retail Analyst. Along with my colleagues bringing you a variety of perspectives, today I’ll discuss how some retail businesses are responding to daunting consumer challenges.
It’s Tuesday, May 14th at 10am in New York.
There have been dramatic shifts within the consumer sector over the past three years. During the pandemic, we all had to redirect our spending away from services, such as travel and leisure, to various goods, which we were able to purchase online and have delivered at home. Consumer packaged goods, for example, experienced two years of outsized growth during the pandemic. But since 2022, consumption has been declining across the value chain.
For some categories, this dynamic may not be a temporary, post-COVID phenomenon, but rather a continuation of a longer-standing secular trend that had started prior to the pandemic. For example, non-durable goods – such as clothing, footwear and food at home – were already losing wallet share pre-COVID. Grocery spend was losing to dining out, as consumers placed more value on convenience. And although some sectors experienced unprecedented pricing power between 2020 and 2023, they’re now seeing this pricing power decline as inflation moderates.
Against this backdrop, Consumer Packaged Goods companies and retailers are attempting to find new growth levers in the face of stagnating – or even declining – sales and decreasing pricing power. A select few companies in US consumer retail, automotive, communication services and IT hardware have been able to navigate the current consumer environment of slowing growth. We believe there’s a powerful lesson in the combination of strategies these successful outliers have deployed to reposition themsel…
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Spring IMF Meetings Spark Cautious Optimism
13 mei 2024 · 7 min
Our experts highlight their biggest takeaways from the International Monetary Fund’s recent meetings, including which markets around the globe are on an upward trajectory. Lees meer
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Simon Waever: Welcome to Thoughts on the Market. I'm Simon Waever, Morgan Stanley's Global Head of Emerging Markets, Sovereign Credit and Latin America Fixed income strategy.
Neville Mandimika: And I'm Neville Mandimika from the Emerging Markets Credit Strategy team with a focus on Central and Eastern Europe, Middle East and Africa.
Simon Waever: And on this episode of Thoughts on the Market, we'll discuss what we believe investors should take away from the International Monetary Fund’s Spring Meetings in Washington, DC.
It's Monday, May 13th at 10am in New York.
Neville Mandimika: And it's 3 pm in London.
To give some context, every year, the Spring Meetings of the International Monetary Fund (IMF) and the World Bank provide a forum for country officials, private sector market participants and academics to discuss critical global economic issues. This time around, the meetings were held against a backdrop, as you might imagine, of rising geopolitical tensions, monetary policy pivots, and limited fiscal space.
Simon, we were both at the event, and I wanted to discuss what we took away from our own meetings, as well as discussions with other market participants. How would you describe the mood this time around compared to the annual meetings in October last year?
Simon Waever: So, I would say sentiment was cautiously optimistic. Of course, it did happen in the backdrop of inflation; the first quarter not being as well behaved as everyone had hoped for. So that really put the focus on central banks being more cautious in their easing paths, which is actually a point the IMF also made back in October.
But away from that, growth has held up better than expected. In the US for sure, but also more globally. So, I would say it could have been a lot worse.
Neville Mandim…
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How Mexico’s Elections Could Change Global Markets
10 mei 2024 · 3 min
Morgan Stanley’s Chief Latin America Strategist explains the importance of Mexico’s upcoming presidential election, laying out the possible investment implications of potential policy reforms. Lees meer
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Welcome to Thoughts on the Market. I’m Nik Lippman, Morgan Stanley’s Chief Latin America Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll talk about why Mexico’s upcoming election matters for markets.
It's Friday, May 10, at 10am in Sao Paulo.
Voters in Mexico will choose a new president in less than a month, on June 2. The two leading candidates – Claudia Sheinbaum and Xóchitl Gálvez – have presented strong campaigns amidst a tense political backdrop. And yet, asset prices have not yet begun to react to potential election outcomes.
There’s significant policy differences between Sheinbaum and Galvez – thus an important investment debate around each of them. However, polls suggest a strong lead for Sheinbaum, who is the candidate from the ruling party Morena. In fact, it seems that the key debate that markets are focused on right now is not so much who wins, but rather what type of president Sheinbaum would be, if she does get elected.
If she does indeed win, the expectation is for policy continuity post-election—particularly as it relates to Mexico’s nearshoring – or moving industrial supply chains from Asia to North America. This trend has been a major driver of the country’s economy and major asset classes.
And so the market seems to be focusing squarely on policy decisions that may be taken by the incoming administration. Mexico is in a strong position to benefit from its relationship with the United States and as well as the nearshoring opportunities. We see a positive skew for both equities and credit, and think the election can act as a catalyst for assets that have traded cheaply.
Yet, significant reforms are necessary to take full advantage of this setup. Indeed, we would argue that rapid and deep s…
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The Fed Sends a Clear Message
9 mei 2024 · 4 min
Our Chief Fixed Income Strategist explains why the Federal Reserve’s most recent meeting was so consequential, and the likeliest path ahead for interest rates. Lees meer
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Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. Along with my colleagues bringing you a variety of perspectives, I'll be talking about last week’s FOMC meeting and its impact on fixed income markets.
It's Thursday, May 9th at 1pm in New York.
Last week’s Fed meeting was consequential. It had a clear and unambiguous messaging about the path ahead for Fed’s monetary policy. Fed’s next move in policy rate is unlikely to be a hike. The Fed’s focus now is on how long the current target range for the fed funds rate will be maintained; and the next move, whenever it happens, is likely a cut. Importantly, the FOMC’s decision was unanimous and their statement maintained an overall easing bias.
In the aftermath of recent upside surprises to inflation and the reaction in the rates market, many market participants, yours truly included, were apprehensive that the FOMC’s tone might be overtly hawkish. Turns out, that was not the case. By setting a very high bar for the next move to be a hike, the Fed’s message has meaningfully narrowed the distribution of outcomes for policy rates, at least in 2024 As our economists led by Ellen Zentner note, the two likely policy outcomes now are keeping the rates on hold or cutting.
Given the prospect that policy rates may remain in the current target range, the negative carry of an inverted yield curve keeps us from pounding the table to move to outright long in duration, although the direction of travel does suggest that. We would note that Guneet Dhingra, our head of US interest rate strategy, sees better risk/reward in duration longs through 3 month 10 year receivers than in the very crowded curve steepener trade. In general, spread products in fixed income – agency MBS, corporate credit and secu…
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Can US Dollar Dominance Continue?
8 mei 2024 · 7 min
Our expert panel explains the U.S. dollar’s current status as the primary global reserve currency and whether the euro and renminbi, or even crypto currencies are positioned to take over that role. Lees meer
Digital assets, sometimes known as cryptocurrency, are a digital representation of a value that function as a medium of exchange, a unit of account, or a store of value, but generally do not have legal tender status. Digital assets have no intrinsic value and there is no investment underlying digital assets. The value of digital assets is derived by market forces of supply and demand, and is therefore more volatile than traditional currencies’ value. Investing in digital assets is risky, and transacting in digital assets carries various risks, including but not limited to fraud, theft, market volatility, market manipulation, and cybersecurity failures—such as the risk of hacking, theft, programming bugs, and accidental loss. Additionally, there is no guarantee that any entity that currently accepts digital assets as payment will do so in the future. The volatility and unpredictability of the price of digital assets may lead to significant and immediate losses. It may not be possible to liquidate a digital assets position in a timely manner at a reasonable price.
Regulation of digital assets continues to develop globally and, as such, federal, state, or foreign governments may restrict the use and exchange of any or all digital assets, further contributing to their volatility. Digital assets stored online are not insured and do not have the same protections or safeguards of bank deposits in the US or other jurisdictions. Digital assets can be exchanged for US dollars or other currencies, but are not generally backed nor supported by any government or central bank.
Before purchasing, investors should note that risks applicable to one digital asset may not be the same risks applicable to other forms of digital assets. Markets and exchanges for digital assets are not curr…
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Managing for Economic Uncertainty
8 mei 2024 · 4 min
As the U.S. economy continues to send mixed signals, our CIO and Chief US Equity Strategist explains how markets are likely to oscillate between “soft landing” and “no landing” outcomes. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the higher-than-normal uncertainty in economic data and its impact on markets.
It's Tuesday, May 7th at 1:30 pm in New York.
So let’s get after it.
In recent research, I’ve discussed how markets are likely to oscillate between the "soft landing" and “no landing" outcomes in today's late cycle environment. Continued mixed and unpredictable macro data should foster that back and forth, and last week was a microcosm in that respect. Tuesday's Employment Cost Index report came in stronger than expected, leading to a rise in the 10-year Treasury yield to nearly 4.7 per cent. Meanwhile, the Conference Board Consumer Confidence Index turned down, falling to its lowest level since July of 2022.
On Friday, the equity market rose sharply as bond yields fell on the back of a weaker labor report, while the ISM Services headline series fell to its lowest level since December of 2022.
In our view, this uncertain economic backdrop warrants an investment approach that can work as market pricing and sector/factor leadership bounces between these potential outcomes. As such, we recommend a barbell of quality cyclicals which should outperform in a "no landing" scenario and quality growth, the relative winner in a "soft landing.” One might even want to consider adding a bit of exposure to defensive sectors like Utilities and Staples in the event that growth slows further.
Meanwhile, last week's Fed meeting materialized largely as expected. Chair Powell expressed somewhat lower confidence on the timing of the first cut given recent inflation data, but he pushed back on the noti…
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What If Rates Are Higher for Longer?
7 mei 2024 · 9 min
Lisa Shalett is a member of Morgan Stanley’s Wealth Management Division and is not a member of Morgan Stanley’s Research Department. Unless otherwise indicated, her views are her own and may differ from the views of the Morgan Stanley Research Department and from the views of others within Morgan Stanley. Lees meer
Our CIO for Wealth Management, Lisa Shalett, and our Head of Corporate Credit Research continue their discussion of the impact of interest rates on different asset classes, the high concentration of value in equity markets and more.
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Welcome to Thoughts on the Market, and to part two of a conversation with Lisa Shalett, chief investment officer for Morgan Stanley wealth management.
I'm Andrew Sheets, head of corporate credit research at Morgan Stanley.
Today, we'll be continuing that conversation, focusing on how higher interest rates could impact asset classes, and also some recent work about the unusually high concentration of stocks within the equity market.
We begin with Lisa's very topical question about how higher interest rates might impact credit.
Lisa Shalett: So, Andrew, let me ask you this. From your perspective as the Global Head of Corporate Credit Research, what happens if we're, in fact, in this new regime of rates being higher for longer?
Andrew Sheets: Yeah, thanks, Lisa. It seems more topical by the day as we see yields continuing to march higher. So I think like a lot of things in the market, it kind of depends a little bit on what the fundamental backdrop is that's driving those interest rates higher. Because if I think about the modern era for credit, which I’ll define as maybe the last 40 years, the tightest that we've ever seen corporate credit spreads was not when the Fed or the European central bank was buying bonds. It was not when you had lots of leverage building up in the financial system prior to the financial crisis.
It was in the mid 90s when the economy was pretty good. The Fed had hiked rates a lot i…
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Separating the Cyclical from the Systemic
3 mei 2024 · 9 min
Lisa Shalett, our CIO for Wealth Management, and our Head of Corporate Credit Research discuss how to forecast expected returns over the long term, and whether historic cycles can help make sense of the market environment today. Lees meer
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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.
Lisa Shalett: And I'm Lisa Shalett, Chief Investment Officer for Morgan Stanley Wealth Management.
Andrew Sheets: And on part one of this special episode of the podcast, we'll be discussing long run expected returns across markets, how we think about cross asset correlations and portfolio construction, and what are the special considerations that investors might want to have in mind in the current environment.
It's Friday, May 3rd at 4pm in London.
Lisa Shalett: And it's 11am here in New York City.
Andrew Sheets: Lisa, you and I are both members of Morgan Stanley's Global Investment Committee, which brings together nine of our firm's market, economic, and portfolio management thought leaders to provide a strategic framework for advice that we give to clients.
Andrew Sheets: I wanted to touch on a unique aspect of that process because, you know, we're talking about estimating returns over different horizons for markets. And I think there's something that's kind of unique about that challenge. I mean, I think in most aspects of life, it's probably safe to say that the next decade is more uncertain than the next six months or next year. But when we're thinking about asset class returns, it's not quite as simple as that.
Lisa Shalett: Not at all. And very often this is where our understanding of history needs to play a big part. When we think about the future, what are the patterns that we think might be persistent? And therefore, encourage us to think about long run trends and mean reversion. And what dynamics might actually be disconnected, or one offs that are characteristic of maybe struct…
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Special Encore: Seth Carpenter: Looking Back for the Future
3 mei 2024 · 5 min
Original release date April 8, 2024: Our Global Chief Economist explains why the rapid hikes, pause and pivot of the current interest rate cycle are reminiscent of the 1990s. Lees meer
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Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the current interest rate cycle and the parallels we can draw from the 1990s.
It's Monday, April 8th, at 10am in New York.
Last year, we reiterated the view that the 1990s remain a useful cycle to consider for understanding the current cycle. Our European equity strategy colleagues shared our view, and they've used that episode to inform their ‘out of consensus, bullish initiation on European equities’ in January. No two cycles are identical, but as we move closer to a Fed cut, we reassess the key aspects of that comparison.
We had previously argued that the current interest rate cycle and the mid 90s cycle differ from the intervening cycles because the goal now is to bring inflation down, rather than preventing it from rising. Of course, inflation was already falling when the 1994 cycle started, in part, because of the recession in 1991.
This cycle -- because much of the inflation was driven by COVID-related shocks, like supply chains for consumer goods and shifts in housing for shelter inflation -- inflation started falling rapidly from its peak before the first hike could have possibly had any effect. In recent months, our economic growth forecasts have been regularly revised upward, even as we have largely hit our expected path for inflation.
A labor supply shock appears to be a contributing factor that accounts for some of that forecast deviation, although fiscal policy likely contributed to the real side's strength as well. Supply shocks to the labor market are an interesting point of comparison for the two cycles. In the 1990s, labor force growth was still benefiting from…
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Where Is the US Dollar Headed?
2 mei 2024 · 8 min
Our experts discuss U.S. dollar strength and its far-reaching impact on the global economy and the world’s stock markets. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income Research.
James Lord: I'm James Lord, Head of FX Strategy for Emerging Markets.
David Adams: And I'm Dave Adams, Head of G10 FX Strategy.
Michael Zezas: And on this episode of Thoughts on the Market, we'll discuss one of the most debated topics in world markets right now, the strength of the US dollar.
It's Wednesday, May 1st, at 3 pm in London.
Michael Zezas: Currencies around the world are falling as a strong US dollar continues its reign. This is an unusual situation. So much so that the finance ministers of Japan, South Korea, and the United States released a joint statement last month to address the effects being felt in Asia. The US dollar's dominance can have vast implications for the global economy and the world stock markets.
So, I wanted to sit down with my colleagues, James and David, who are Morgan Stanley's currency strategy experts for emerging markets and developed markets. James, just how dominant is the US dollar right now and what's driving the strength?
James Lord: So, we should distinguish between the role the US dollar plays as the world's dominant reserve currency and its value, which can go up and down for other reasons.
Right now, the dollar remains just as dominant in the international monetary system as it has been over the past several decades, whilst it also happens to be very strong in terms of its value, as you mentioned. That strength in its value is really being driven by the continued outperformance of the US economy and the ongoing rise in US interest rates, while growth in the rest of the world is more subdued.
The dollar's international role remains dominant simply because no other economy or market can match the depth of the US capital markets and the liquidity th…
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Decarbonizing Real Estate
1 mei 2024 · 10 min
Our analysts survey the hurdles, opportunities and investment trends in energy renovation. Lees meer
Please note that Laurel Durkay is not a member of Morgan Stanley’s Research department. Unless otherwise indicated, her views are her own and may differ from the views of the Morgan Stanley Research department and from the views of others within Morgan Stanley. We make no claim that Ms Durkay’s representations are accurate or complete.
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Cedar Ekblom: Welcome to Thoughts on the Market. I'm Cedar Ekblom, Equity Research Analyst, covering the European building and construction sector for Morgan Stanley Research.
Laurel Durkay: And I'm Laurel Durkay, head of the Global Listed Real Assets Team within Morgan Stanley Investment Management.
Cedar Ekblom: And on this special episode of Thoughts on the Market, we'll discuss the opportunities, risks, and latest investment trends when it comes to decarbonizing buildings.
It's Tuesday, April 30th, at 2pm in London.
Laurel Durkay: And 9am in New York.
Cedar Ekblom: So, let's take a step back. Picture the gleaming towers of New York, London, or Hong Kong. Now think about these buildings breathing out carbon dioxide. The built environment is responsible for about a third of all global energy consumption and CO2 emissions. And so, if we want to get to Net Zero by 2050, which means emitting as much CO2 into the atmosphere as we take out of it, decarbonizing the building stock is essential.
We've been doing a lot of work in Europe from the research side to try and understand how the investment trends are linked to this topic. But Laurel, I wanted to have you on the podcast because I wanted to understand how you're coming at it from the other side as a real estate investor and portfolio manager.
Laurel Durkay: Yeah, Cedar, so I've seen some of your notes and I actually wasn't too surprised by your conclusion that energy renovation is seeing rising investment momentum in Europe. And this is despite the high upfront…
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The Curious Connection Between Airlines and Fashion
29 april 2024 · 10 min
Our analysts find that despite the obvious differences between retail fashion and airlines, struggling brands in both industries can use a similar playbook for a turnaround. Lees meer
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Ravi Shanker: Welcome to Thoughts on the Market. I'm Ravi Shanker, Morgan Stanley's North American Freight Transportation and Airlines Analyst.
Alex Straton: And I'm Alex Straton, Morgan Stanley's North America Softlines, Retail and Brands Analyst.
Ravi Shanker: On this episode of the podcast, we'll discuss some really surprising parallels between fashion, retail, and airlines.
It's Monday, April 29th at 10am in New York.
Now, you're probably wondering why we're talking about airlines and fashion retail in the same sentence. And that's because even though they may seem worlds apart, they actually have a lot in common. They're both highly cyclical industries driven by consumer spending, inventory pressure, and brand attrition over time.
And so, we would argue that what applies to one industry actually has relevance to the other industry as well. So, Alex, you've been observing some remarkable turnaround stories in your space recently. Can you paint a picture of what some fashion retail businesses have done to engineer a successful turnaround? Maybe go over some of the fundamentals first?
Alex Straton: What I'll lead with here is that in my North America apparel retail coverage, turnarounds are incredibly hard to come by, to the point where I'd argue I'm skeptical when any business tries to architect one. And part of that difficulty directly pertains to your question, Ravi -- the fundamental backdrop of the industry.
So, what are we working with here? Apparel is a low single digit growing category here in North America, where the average retailer operates at a mid single digit plus margin level. This is super meager compared to other more profitable industries that Ravi and I don't necessarily have the joy of covering. But part of why my industry is characterized b…
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Can Technology Help Us Live Longer & Better?
26 april 2024 · 5 min
Our Head of Europe Thematic Research discusses revolutionary “Longshot” technologies that can potentially alter the course of human ageing, and which of them look most investible to the market. Lees meer
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Welcome to Thoughts on the Market. I’m Ed Stanley, Morgan Stanley’s Head of Thematic Research in London. Along with my colleagues bringing you a variety of perspectives, today I’ll discuss the promise of technology that might help us live longer and better lives.
It’s Friday, the 26th of April, at 2pm in London.
You may have heard me discuss Moonshots and Earthshots on this podcast before. Moonshots are ambitious solutions to seemingly insurmountable problems using disruptive technology, predominantly software; while Earthshots, by contrast, are radical planet-focused technologies to accelerate decarbonization and mitigate global warming, predominantly hardware challenges.
But today I want to address a third group of revolutionary solutions that I call Longshots. These are the most promising Longevity technologies. And in terms of the three big secular themes that Morgan Stanley is focused on – which are Decarbonization, Tech Diffusion, and Longevity – Longshots straddle the latter two.
Unlike software-based Moonshots or hardware-based Earthshots, these Longshots face some of the greatest challenges of all. First, we know remarkably little about the process of ageing. Second, these are both hardware and software problems. And third, the regulatory hurdles are far more stringent in healthcare, when compared to most other emerging technology fields.
We believe the success of Longshots depends on a deep understanding of Longevity. And loosely speaking, you can think of that as a question of whether someone's phenotype can outweigh their genotype. In other words, can their lifestyle, choices, environment trump the genetics that are written into their DNA.
Modern medicine, by focusing almost exclusively on treating disease rather than preventing it,…
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Meeting the Demand for Anti-Obesity Treatment
25 april 2024 · 4 min
With interest in anti-obesity medications growing significantly, the head of our European Pharmaceuticals Team examines just how large that market could become. Lees meer
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Welcome to Thoughts on the Market. I’m Mark Purcell, head of Morgan Stanley’s European Pharmaceuticals Team. Along with my colleagues bringing you a variety of perspectives, today I’ll talk about the enormous ripple effects of anti-obesity drugs across the global economy.
It’s Thursday, April the 25th, and it’s 2pm in London.
Obesity is one of the biggest health challenges of our time. More than a billion people are living with obesity worldwide today, with 54 per cent of adults expected to be either overweight or obese by 2035. Growing rates of obesity worldwide combined with rising longevity are putting a heavy burden on healthcare systems.
Our Global Pharma team has covered obesity extensively over the last 18 months. When we wrote our original report in the summer of 2022, the whole debate centered on establishing the patient-physician engagement. The historic precedent we looked at was the hypertension market in the 1980s when high blood pressure was considered a disease caused by stress rather than a chronic illness. And obesity was seen as the result of genetics or a lack of willpower.
But through the influence of social media and an increasingly weight-centric approach to treating diabetes, demand for anti-obesity medications skyrocketed. Back in July 2022, we saw obesity as a $55 billion market. And at that point the key question was if and when these drugs would be reimbursed.
If you fast-forward to July 2023, what we saw was reimbursement kicking in the U.S. much more quickly than we anticipated. There were almost 40 million people who had access to these medicines, and 80 percent of them were paying less than $25 out of pocket.
By the end of 2023 we had the first landmark obesity trial called SELECT, and that finally established that weight management saves lives i…
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European Markets React to Upcoming U.S. Election
25 april 2024 · 9 min
As the U.S. presidential election remains closely contested, our experts discuss what a change in administration could mean for European equities in terms of trade, China relations and other key issues. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research.
Marina Zavolock: And I'm Marina Zavolock, Chief European Equity Strategist.
Michael Zezas: And on this episode of Thoughts on the Market, we'll discuss how the U.S. election could impact European markets.
It's Wednesday, April 24th at 10am in New York.
Marina Zavolock: And 3pm in London.
Michael Zezas: As the U.S. presidential election gets closer and the outcome remains highly uncertain, we're exploring the impact of a potential departure from the current status quo of President Biden in the White House. Today, my colleague Marina and I want to discuss just what that would mean for European equity markets.
Marina, how closely is Europe following the election, and why?
Marina Zavolock: So, European equities derive about 25 percent of their market cap weighted revenues from the U.S. And the U.S. is the largest export market for European firms outside of Europe. So, of course, interest in U.S. elections here is very high; and this is in terms of the exposures of European stocks, sectors, asset classes, and economics as a whole. European investors, I would say that their peak interest in U.S. elections was around the Republican primaries, and it's stayed elevated ever since.
And Mike, I know you want to dig in specifically on how European markets would react in a change in status quo scenario. But first let's talk about your outlook on some of the key policies that may change if Biden loses the election. What are your thoughts on trade policy and tariffs?
Michael Zezas: Trump's been clear about his view that countries levying higher tariffs on U.S. imports than the US levies on their imports is unfair, and he's willin…
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US Economy: Bigger, But Not Tighter
23 april 2024 · 12 min
New data on both immigration and inflation defied predictions and may have shifted the Fed’s perspective. Our Chief U.S. Economist and Head of U.S. Rates Strategy share their updated outlooks. Lees meer
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Ellen Zentner: Welcome to Thoughts on the Market. I'm Ellen Zentner, Morgan Stanley's Chief US Economist.
Guneet Dhingra: And I'm Guneet Dhingra, Head of US Rates Strategy.
Ellen Zentner: And today on the podcast, we'll be discussing some significant changes to our US economic outlook and US rates outlook for the rest of this year.
It's Tuesday, April 23rd at 10am in New York.
Guneet Dhingra: So, Ellen, last week you put out an updated view on your outlook -- with some substantial forecast changes. Can you give us the headlines on GDP, inflation and the Fed forecast path? And what has really changed versus your last update?
Ellen Zentner: Sure Guneet. So, our last economic outlook update was in November last year. And since that time, really, the impetus for all of these changes came from immigration. So, we got new immigration data from the CBO, and just to give you a sense of the magnitude of upward revision, we thought we had an increase of 800,000 in 2023. It turns out it was 3.3 million. And so far, the flows of immigrants suggest that we're going to get about as many as last year, if not a little bit more. And so, what does that mean? Faster population growth, those are more mouths to feed. You've got a faster labor force growth. They can work. They are working. And data historically shows that their labor force participation rates are higher than native born Americans.
So, you've got to take all this into account. And it means that you've got this big positive supply side shock. And so, when the labor market has been about balance now between demand and supply, as Chair Powell's been noting, you're now going to have supply outrun demand this year.
And so, you basically got much more labor market slack. You've got -- and I'm going to stea…
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US Equities: No Landing in Sight
22 april 2024 · 4 min
Recent data indicates the economy may avoid either a soft or hard landing for now. Our Chief U.S. Equity Strategist explains why investors should seek out quality as the economy stays aloft. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the impact of better economic growth and stickier inflation on stocks.
It's Monday, April 22nd at 11:30am in New York.
So let’s get after it.
In our first note of the year, I cited three potential macro-outcomes for 2024 with similar probability of occurring.
First, a soft landing with slowing, below potential GDP growth and falling inflation toward the Fed's target of 2 per cent. Second, a no landing scenario under which GDP growth re-accelerated with stickier inflation. And third, a hard landing, or recession.
Of course, each scenario has very different implications for asset prices generally and equity leadership, specifically. Just a few months ago, the consensus view skewed heavily toward a soft landing. However, the macro data have started to support the no landing outcome with recent growth and inflation data exceeding most forecasters' expectations – including the Fed’s.
Over the past year, consensus views have gone from hard landing in the first quarter of 2023 to soft landing in the second quarter, back to hard landing in the third quarter to soft landing in the fourth quarter, and now to no landing currently. This shift has not been lost on markets with assets that benefit from higher inflation doing well over the past few months. However, while cyclically sensitive stocks and sectors have started to outperform, quality remains a key attribute for the leaders.
We think this combination of quality and cyclical factors makes sense in the context of what is still a later, rather than early cycle re acceleration in growth. If it was more the lat…
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Mixed Signals for Asia and Emerging Markets
19 april 2024 · 4 min
Japan and India are currently set to lead growth in these markets, but a higher-for-longer rate environment in the U.S. could favor China, Hong Kong and others, according to our analyst. Lees meer
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Daniel Blake: Welcome to Thoughts on the Market. I'm Daniel Blake from Morgan Stanley's Asia & Emerging Market Equity Strategy Team. Along with my colleagues bringing you a variety of perspectives, today I'll discuss whether U.S. macro resilience is too much of a good thing when it comes to its impact on Asia's equity markets.
It's Friday 19th of April at 10am in Singapore.
Our U.S. economics team has substantially lifted its forecast for 2024 and 2025 GDP growth following strong migration boosted activity and employment trends. Recent inflation readings have been bumpy, but our team still sees it moderating over the summer as core services and housing prices cool off. While the market has been focused on this silver lining of stronger global growth, the clouds are rolling in from expectations of a shallower and later easing of global monetary policy.
Our team now believes that the first Fed rate cut won't come until July but does see two additional cuts coming in November and December. We've made similar adjustments in our outlook for Asia-ex-China's monetary policy easing cycle, seeing it coming later and shallower. Meanwhile, in Japan, our economists now expect two further hikes from the Bank of Japan -- in July this year, and again in January next year -- taking policy rates up to 0.5 per cent.
But how does all this leave the Asia and EM equity outlook? In a word, mixed.
We see this driving more divergence within Asia and EM, depending on how exposed each market is to stronger global growth, a stronger U.S. dollar or impacted by higher interest rates. On the positive side, Taiwan, Japan, Mexico, and South Korea have the most direct North American revenue exposure. And for Japan, the strong US dollar is also positive through the translation of forei…
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A Central Piece of the GenAI Puzzle
19 april 2024 · 4 min
GenAI will likely drive the exponential growth of data centers. Listen as our Capital Goods Analyst shares key takeaways on the electrical equipment central to the data center market. Lees meer
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Welcome to Thoughts on the Market. I’m Max Yates from the European Capital Goods team. Along with my colleagues bringing you a variety of perspectives, today I'll focus on the critical element of the AI revolution.
It's Thursday, April 18, at 2pm in London.
Over the last few weeks, several of my colleagues have come on to the show to talk about the exponential growth of data centers and just what it will take to power the GenAI revolution. Stephen Byrd, Morgan Stanley's Head of Global Sustainability, forecasts that in 2027 data center power consumption just from GenAI will equal 80 percent of the consumption from all data centers in 2022.
This shows the sheer scale of necessary additions and upgrades. And it also makes clear that the AI push provides very significant opportunities for Electrical Equipment companies. It’s these businesses that are the picks and shovels of the AI revolution. These companies provide key solutions such as Data Center Infrastructure Management software, connected equipment, racks, switchgears, and last but not least, cooling.
Keep in mind that in this breakneck AI race, ever-increasing efficiency is essential. So, imagine we’re inside an actual data center. What you’d see is a huge number of racks, the steel frameworks that house the servers, cables, and other equipment. The power needed to run GenAI then creates a lot of heat.
Our recent work on the data center market suggests two key takeaways when it comes to the electrical equipment.
First, there’s a significant imbalance in supply-demand. Data center vacancy rates and rental prices all point to an intensifying capacity shortage. This explains why the top 10 cloud providers have increased their capital expenditures this year by 26 per cent. Equipment shortages and lead ti…
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The Repercussions of Rising Global Tensions
17 april 2024 · 3 min
As global conflicts escalate, our Global Head of Fixed Income and Thematic Research unpacks the possible market outcomes as companies and governments seek to bolster security. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about current geopolitical tensions and their impact on markets.
It's Wednesday, April 17th at 10:30 am in New York.
Continued tensions in Middle East kept geopolitics in focus with clients this week. But markets seem to be shrugging off the recent escalation in the conflict, with relative stability in oil prices and equities. This implies some faith in the idea that the involved parties benefit from no further escalation – and will design responses to one another that won’t lead to a broader conflict with bigger consequences.
But obviously, this tricky dynamic bears watching, which we’ll be doing. In the meantime, there’s a key market theme that’s underscored by these tensions. And that’s the idea of Security as a secular market theme.
This is a topic we’ve been collaborating with many research teams on, including Ed Stanley, our thematics analyst in Europe, and defense sector research teams globally. The idea here boils down to this. Russia’s invasion of Ukraine, the US’ increased rivalry with China, questions about the future of NATO, and of course the Middle East conflict, all reminds us that we’re in a transition phase to a multipolar world where security is more tenuous. That requires a lot of spending by companies and governments to cope with this reality. In fact, we estimate that supply chains, food and health systems, IT, and more will require about $1.5 trillion of investment across the US and EU to protect against rising geopolitical risks. This means a lot more demand for global tech and industrials.
And of course it means more demand for the de…
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How Will the GenAI Revolution Be Powered?
17 april 2024 · 11 min
Our Global Head of Sustainability Research and U.S. Utilities Analyst discuss the rapidly growing power needs of the GenAI enablers and how to meet them. Lees meer
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Stephen Byrd: Welcome to Thoughts on the Market. I'm Stephen Byrd, Morgan Stanley's Global Head of Sustainability Research.
David Arcaro: And I'm Dave Arcaro, Head of the US Power and Utilities team.
Stephen Byrd: And on this episode of the podcast, we'll discuss just what it would take to power the Gen AI revolution.
It's Tuesday, April 16th at 10am in New York.
Last summer, scientists used GenAI to find a new antibiotic for a nasty superbug. It took the AI system all of an hour and a half to analyze about 7,000 chemical compounds; something that human scientists would have toiled over for months, if not years. It's clear that GenAI can open up breathtaking possibilities, but you have to stop and think. What kind of compute power is needed for all of this?
A few weeks ago, our colleague Emmet Kelly, who covers European Telecom, discussed the exponential growth of European data centers on this podcast. And today, Dave and I want to continue the conversation about this critical moment of powering the GenAI revolution.
So, Dave, what is your current assessment of the global power demand from data centers?
David Arcaro: Yeah, Stephen, we're expecting rapid growth in the power demand coming from data centers across the world. We're currently estimating data centers consume about one and a half per cent of global electricity today. We're expecting that to grow to almost four percent in 2027. And in the US, data centers represent roughly three percent of total electricity consumption now, and we expect that to escalate to eight per cent of the total US by 2027.
And there will be even more dramatic impacts at the local and regional level. The data center landscape tends to be highly concentrated, and the next wave of GenAI data centers is likely to be much larger than the previous generat…
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A Sobering View on the Spirits Sector
16 april 2024 · 4 min
Markets are suggesting that spirits consumption will return to historical growth levels post-pandemic, but our Head of European Consumer Staples Research disagrees. Lees meer
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Welcome to Thoughts on the Market. I’m Sarah Simon, Head of the European Consumer Staples team. Along with my colleagues bringing you a variety of perspectives, today I'll talk about a surprising trend in the global spirits market.
It's Monday, April 15, at 2pm in London.
We all remember vividly the COVID-19 period when we spent much more on goods than services, particularly on goods that could be delivered to our homes. Not surprisingly, spirits consumption experienced a super-cycle during the pandemic. But as the world returned to normal, the demand for spirits has dropped off. The market believes that after a period of normalization, the US spirits market will return to mid-single-digit growth in line with history; but we think that’s too optimistic.
Changes in demographics and consumer behavior make it much more likely that the US market will grow only modestly from here. There are several key challenges to the volume of US alcohol consumption in the coming years. Sobriety and moderation of alcohol intake are two rising trends. In addition, there’s the increased use of GLP-1 anti-obesity drugs, which appear to quell users' appetite for alcoholic beverages. And finally, there’s stiffer regulation, including the lowering of alcohol limits for driving.
A slew of recent survey data points to consumer intention to reduce alcohol intake. A February 2023 IWSR survey reported that 50 per cent of US drinkers are moderating their consumption. Meanwhile, a January 2024 NCSolutions survey reported that 41 per cent of respondents are trying to drink less, an increase of 7 percentage points from the prior year. And importantly, this intention was most concentrated among younger drinkers, with 61 per cent of Gen Z planning to drink less in 2024, up from 40 per cent in the prior year's …
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Unpacking Correlation
12 april 2024 · 4 min
The math of ‘bond-equity correlation' is complicated. Our head of Corporate Credit Research breaks it down, along with the impact of bond rates on other asset classes. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about why the same factors can have different outcomes for interest rates and credit spreads.
It's Friday, April 12th at 2pm in London.
Most of 2024 remains to be written. But so far, the financial story has been a tale of two surprises. First, the US Economy continues to be much stronger and hotter than expected, with growth and job creation exceeding initial estimates. Then second, due in part to that strong economy, interest rates have risen materially, with the yield on the US 10-year government bond about half-a-percent higher since early January.
More specifically, market attention over the last week has refocused on whether these higher interest rates are a problem for other markets. In math terms, this is the great debate around bond-equity or bond-spread correlation, the extent to which assets move with bond yields, and a really important variable when it comes to thinking about overall portfolio diversification.
But this somewhat abstract mathematical idea of correlation can also be simplified. The factors that are driving yields higher might look very different for other asset classes, such as credit. That could argue for a different correlation. Let’s think about how.
Consider first why yields have been rising. Economic data has been good, with strong job growth and rising Purchasing Manager Indices or PMIs, conditions that are usually tough for government bonds. Supply has been heavy, with the issuance of Treasuries up substantially relative to last year. The so-called carry on government bonds is bad as the yield on government bond yields is generally lower, much low…
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US Energy: The Minerals and Materials at Risk
11 april 2024 · 4 min
With global temperatures rising and an increasing urgency to speed progress on the energy transition, our Head of Sustainability Equity Research examines the key materials needed—and the risks of disruption from US-China trade tensions. Lees meer
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Welcome to Thoughts on the Market. I’m Laura Sanchez, Head of Sustainability Equity Research in the Americas. Along with my colleagues bringing you a variety of perspectives, today I’ll discuss a highly topical issue: the impact of US-China trade tensions on the energy transition.
It is Thursday, April 11, at 12 pm in New York.
Last week, you may have heard my colleagues discuss the geopolitics at play around US-China trade tensions and the energy transition. Today I’m going to elaborate on that discussion, spearheaded by my team, with a deeper dive into the materials and minerals at risk and exactly what is at stake for several industries in the US.
When we talk about clean technologies such as electric vehicles, energy storage and solar, it is important to note that minerals such as rare earths, graphite, and lithium — just to name a few — are crucial to their performance.
At present, China is a dominant producer of many of those key minerals, whether at the mining level – which is the case with gallium, rare earths and natural graphite; at the refining level – the case for cobalt and lithium; or at the downstream level – that is, the final product, such as batteries and EVs.
If trade tensions between the US and China rise, we believe China could implement new or incremental export bans on some of these minerals that are key for western nations’ energy transition as well as for their broad economic and national security.
So, we have analyzed over 10 materials and found that the highest risks of disruption exist for rare earths and related equipment, as well as for graphite, gallium, and cobalt. Some minerals have already seen certain export bans but given the lack of diversification across the value …
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2024 US Elections: Inflation’s Possible Paths
11 april 2024 · 11 min
Our Global Chief Economist joins our Head of Fixed Income Research to review the most recent Consumer Price Index data, and they lay out potential outcomes in the upcoming U.S. elections that could impact the course of inflation’s trajectory. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research.
Seth Carpenter: And I'm Seth Carpenter, Global Chief Economist.
Michael Zezas: And on this special episode of Thoughts on the Market, we'll be taking a look at how the 2024 elections could impact the outlook for inflation.
It's Wednesday, April 10th at 4pm in New York.
Seth, earlier this morning, the US Bureau of Labor Statistics released the Consumer Price Index (CPI) data for March, and it's probably an understatement to say it's been a much-anticipated report -- because it gives us some signal into both the pace of inflation and any potential fed rate cut path for 2024. I want to get into the longer-term picture around what the upcoming US election could mean for inflation. But first, I'd love your immediate take on this morning's data.
Seth Carpenter: Absolutely, Mike. This morning's CPI data were absolutely critical. You are right. Much anticipated by markets. Everyone looking for a read through from those data to what it means for the Fed. I think there's no two ways about it. The market saw the stronger than expected inflation data as reducing the likelihood that the Fed would start cutting rates in June.
June was our baseline for when the Fed would start cutting rates. And I think we are going to have to sharpen our pencils and ask just how much is this going to make the Fed want to wait? I think over time, however, we still see inflation drifting down over the course of this year and into next year, and so we still think the Fed will get a few rate hikes in.
But you wanted to talk longer term, you wanted to talk about elections. And when I think about …
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What is Driving Big Moves in the Oil Market?
10 april 2024 · 3 min
Our Chief Fixed Income Strategist surveys the latest big swings in the oil market, which could lead to opportunities in equities and credit around the energy sector. Lees meer
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Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the implications of recent strong moves in oil markets.
It's Tuesday, April 9th at 3pm in New York.
A lot is going on in the commodity markets, particularly in the oil market. Oil prices have made a powerful move. What is driving these moves? And how should investors think about this in the context of adjacent markets in equities and credit?
Morgan Stanley's Global Commodity Strategist and Head of European Energy Research, Martijn Rats, raised crude oil price forecast for the third quarter to $94 per barrel. The rally in recent weeks is a result of positive fundamental news and rising geopolitical tensions.
On the fundamental side, we've had better than expected demand from China and steeper than forecast fall in US production. Further, oil prices have also found support from growing potential for supply uncertainty in the Middle East. Martijn thinks that the last few dollars of rally in oil prices should be interpreted as a premium for rising geopolitical risks. The revision to the third quarter forecast should therefore be seen to reflect these growing geopolitical risks.
Our US equity strategists, led by Mike Wilson, have recently upgraded the energy sector. The underlying rationale behind the upgrade is that the energy sector relative performance has really lagged crude oil prices; and unlike many other sectors within the US stock world, valuation in energy stocks is very compelling.
Furthermore, the relative earnings revisions in energy stocks are beginning to inflect higher and the sector is actually exhibiting best breadth of any sector across the US equity spectrum. Higher o…
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Looking Back for the Future
8 april 2024 · 5 min
Our Global Chief Economist explains why the rapid hikes, pause and pivot of the current interest rate cycle are reminiscent of the 1990s. Lees meer
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Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the current interest rate cycle and the parallels we can draw from the 1990s.
It's Monday, April 8th, at 10am in New York.
Last year, we reiterated the view that the 1990s remain a useful cycle to consider for understanding the current cycle. Our European equity strategy colleagues shared our view, and they've used that episode to inform their ‘out of consensus, bullish initiation on European equities’ in January. No two cycles are identical, but as we move closer to a Fed cut, we reassess the key aspects of that comparison.
We had previously argued that the current interest rate cycle and the mid 90s cycle differ from the intervening cycles because the goal now is to bring inflation down, rather than preventing it from rising. Of course, inflation was already falling when the 1994 cycle started, in part, because of the recession in 1991.
This cycle -- because much of the inflation was driven by COVID-related shocks, like supply chains for consumer goods and shifts in housing for shelter inflation -- inflation started falling rapidly from its peak before the first hike could have possibly had any effect. In recent months, our economic growth forecasts have been regularly revised upward, even as we have largely hit our expected path for inflation.
A labor supply shock appears to be a contributing factor that accounts for some of that forecast deviation, although fiscal policy likely contributed to the real side's strength as well. Supply shocks to the labor market are an interesting point of comparison for the two cycles. In the 1990s, labor force growth was still benefiting from this multi-decade rise in labor forc…
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A ‘Hot’ Summer for Oil?
5 april 2024 · 3 min
Oil demand has been higher than expected so far in 2024. Our Global Commodities Strategist explains what could drive oil to $95 per barrel by summer. Lees meer
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Welcome to Thoughts on the Market. I’m Martijn Rats, Morgan Stanley’s Global Commodities Strategist. Along with my colleagues bringing you a variety of perspectives, today I’ll discuss recent developments in the oil market. It is Friday, April the 5th at 4 PM in London.
At the start of the year, the outlook for the oil market looked somewhat unexciting. With the recovery from COVID largely behind us, growth in oil demand was slowing down. At the same time, supply from countries outside of OPEC (Organization for Petroleum Exporting Countries) had been growing strongly and we expected that this would continue in 2024. In fact, at the start of the year it looked likely that growth in non-OPEC supply would meet, or even exceed, all growth in global demand. When that occurs, room in the oil market for OPEC oil is static at best, which in turn means OPEC needs to keep restraining production to keep the balance in the market. Even if it does that, it results in a decline in market share and a build-up of spare capacity. History has often warned against such periods.
Still, by early February, the oil market started to look tighter than initially expected. Demand started to surprise positively – partly in jet fuel, as aviation was stronger than expected; partly in bunker fuel as the Suez Canal issues meant that ships needed to take longer routes; and partly in oil as petrochemical feedstock, as the global expansion of steam cracker capacity continues. At the same time, production in several non-OPEC countries had a weak start of the year, particularly in the United States where exceptionally cold weather in the middle of January caused widespread freeze offs at oil wells, putting stronger demand and weaker supply together, and the inventory builds that we expected in the early part of the year did no…
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The Threat to Clean Energy in the US
4 april 2024 · 5 min
Experts from our research team discuss how tensions with China could limit US access to essential technologies and minerals. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research.
Ariana Salvatore: And I'm Ariana Salvatore from the US Public Policy Research Team.
Michael Zezas: And on this episode of the podcast, we'll discuss how tensions in the US-China economic relationship could impact US attempts to transition to clean energy.
It's Thursday, April 4th at 10am in New York.
Ariana, in past episodes, I've talked about governments around the world really pushing for a transition to clean energy, putting resources into moving away from fossil fuels and moving towards more environmentally friendly alternatives. But this transition won't be easy. And I wanted to discuss with you one challenge in the US that perhaps isn't fully appreciated. This is the tension between US climate goals and the goal of reducing economic links with China. So, let's start there.
What's our outlook for tensions in the near term?
Ariana Salvatore: So, first off, to your point, the world needs over two times the current annual supply of several key minerals to meet global climate pledges by 2030. However, China is a dominant player in upstream, midstream, and downstream activities related to many of the required minerals.
So, obviously, as you mentioned, trade tensions play a major role in the US ability to acquire those materials. We think friction between the US and China has been relatively controlled in recent years; but we also think there are a couple factors that could possibly change that on the horizon.
First, China's over-invested in excess manufacturing capacity at a time when domestic demand is weak, driving the release of extra supply to the rest of the world at very low prices. That, of course, impacts the ability of non-Chinese players to compete. And second, obviously a large foc…
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The Growing Importance of Where Data Lives
3 april 2024 · 4 min
Consumers are increasingly sensitive about where their personal data is being processed and stored. The head of our European Telecom team explains the complexity around data sovereignty and why investors should care about the issue. Lees meer
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Welcome to Thoughts on the Market. I’m Emmet Kelly, Head of Morgan Stanley’s European Telecom team. Today I’ll be talking about data sovereignty.
It’s Wednesday, April 3rd, at 5pm in London.
It’s never been easier to manage your life with just a click of a button or tap on the screen. You can take a photo, upload it to social media, and share it with friends and family. You can pay your bills online – from utilities and groceries to that personal splurge. You can even renew your library card or driver’s license or access your emails from years and years ago.
But where is all this data stored? Our recent work shows that consumers are increasingly sensitive about this issue. Among European consumers, for example, more than 80 percent think it’s either very or somewhat important to know where their data is stored. And two-thirds of European consumers would like their data to be stored in their country of residence. A further 20 percent would be willing to pay more to store data locally, especially consumers in Spain and Germany.
These results suggest that in the future, processing and storage of European data is more likely to be near shored rather than be based abroad.
A few weeks ago, I came on this podcast to talk about our expectation that European data centers will grow five-fold over the next decade. Our research showed that key drivers would include increased cloudification, artificial intelligence and data sovereignty. We believe the most under-appreciated driver of this exponential growth is the question of where data is stored and processed. This is data sovereignty; and it’s a concern for European consumers.
Data sovereignty means having legal control and jurisdiction over the storage and processin…