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Mike Wilson: Will the Equity Market Rally Last?

6 november 2023 · 4 min
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Last week’s uptick in stock prices, driven by a pullback in bond yields and the Fed’s decision to hold rates steady, is likely to fizzle over the coming weeks. Lees meer

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Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, November 6th, at 10 a.m. in New York. So let's get after it.

With many stocks down more than 20% from the July highs, a dynamic punctuated by tax loss selling from institutional managers at the end of October, equity markets were primed for some kind of a bounce. However, last week's rally in equities was the largest that we've seen all year, and it was led by many of the year-to-date laggards. Furthermore, both market cap and equal weight versions of the S&P 500 index were up 5.9%, as breadth showed its first signs of life since June.

In our view, this move in equities was more about the strong rally in bonds than anything else. After an historic rise this past quarter, ten year Treasury yields reached an attractive level of 5% near the end of last month. Perhaps even more attractive for investors to ignore was that real ten year yields were at 2.5%. One factor driving bond yields lower last week was the Treasury's announcement of its planned longer term securities issuance that was below expectations. We also attribute the move to the weaker than expected economic data releases last week, more specifically, manufacturing and services purchasing manager surveys fell by much more than expected. The labor market data also showed further signs of cooling. Specifically, continuing jobless claims are now up more than 35% from the cycle trough, and the unemployment rate is now up 0.5% from the lows, both of these are important thresholds in past labor cycles. Finally, revisions to prior non-farm payroll data have…
Andrew Sheets: Upgrades and Downgrades in Corporate Credit

3 november 2023 · 3 min
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As the majority of the stress from higher rates falls on weaker borrowers, investors should consider moving up in quality. Lees meer

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Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Corporate Credit Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, November 3rd at 2 p.m. in London.

Downgrades in the loan market are moderating after a spike in 2022. That's good news overall, but still suggests an environment that will reward a higher quality bias in high yield investing.

After rising throughout last year, net downgrade activity for U.S. leveraged loans, which represent corporate loans to below investment grade borrowers, have declined about 50%. The most extreme downgrades where issuers fall to a triple C rating, have moderated the most, while triple C upgrades have become more frequent, as companies have successfully refinanced upcoming debt.

Fewer net downgrades, and especially less movement into this riskiest triple C cohort, is good news. And we think it's consistent with the idea that despite a near doubling of borrowing costs over the last two years, default rates will only rise to about average levels and not something higher and more alarming. But within this activity, we think there's also a message, the majority of the stress from those higher rates is falling on weaker borrowers. Investors should look to move up in quality.

Why do we think this? When interest rates rise, the impact on borrowers happens gradually, rather than all at once, since borrowers are still likely to have some debt outstanding that was taken out when rates were lower. That means that today's financial metrics and ratings may still not fully reflect the impact of the unusually fast rise in borrowing costs.

That still to come impact, could fall most heavily on loan issuers rated B3/B-, …
US Economy: What Generative AI Means for the Labor Market

2 november 2023 · 8 min
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Generative AI could transform the nature of work and boost productivity, but companies and governments will need to invest in reskilling. Lees meer

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Stephen Byrd: Welcome to Thoughts in the Market. I'm Stephen Byrd, Morgan Stanley's Global Head of Sustainability Research.

Seth Carpenter: And I'm Seth Carpenter, the Global Chief Economist.

Stephen Byrd: And on the special episode of the podcast, we'll discuss how generative A.I. could reshape the US economy and the labor market. It's Thursday, November 2nd at 10 a.m. in New York.

Stephen Byrd: If we think back to the early 90's, few could have predicted just how revolutionary the Internet would become. Creating entirely new professions and industries with a wide ranging impact on labor and global economies. And yet with generative A.I. here we are again on the cusp of a revolution. So, Seth, as our global chief economist, you've been assessing the overarching macro implications of the Gen A.I. phenomenon. And while it's still early days, I know you've been thinking about the range of impacts Gen A.I could have on the global economy. I wondered if you could walk us through the broad parameters of your thinking around macro impacts and maybe starting with the productivity and the labor market side of things?

Seth Carpenter: Absolutely, Stephen. And I agree with you, the possibilities here are immense. The hardest part of all of this is trying to gauge just how big the effects might be, when they might happen and how soon anyone is going to be able to pick up on the true changes and things. But let's talk a little bit about those two components, productivity and the labor market. They are very closely connected to each other. So one of the key things about generative A.I is it could make lots of types of processes, lots of types of jobs, things that are very knowledge base intensive. You could do the same amount of work with fewer people or, and I think this is an important thing to keep in mind, you …
Michael Zezas: What the New U.S. Speaker Means for Markets

1 november 2023 · 3 min
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Investors are questioning whether a new U.S. Speaker in the House of Representatives will push for fresh legislation, and whether a potential government shutdown is on the horizon. Lees meer

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Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the impact to markets from Congress's agenda. It's Wednesday, November 1st at 10 a.m. in New York.

Last week in D.C., following a few weeks of Republicans failing to coalesce around a nominee, the House of Representatives chose a speaker, Republican Mike Johnson. So, with a new speaker in place, does that mean investors need to rethink their expectations about legislation that could impact markets? Not exactly. At least not before the next presidential election. Here's three takeaways from us to keep in mind.

First, a new speaker doesn't mean new momentum for most of the legislation that investors tell us they care about. For example, fresh regulations for social media or cryptocurrency are no closer as a result of having a new speaker. Those are issues both parties are keen to tackle but are still working out exactly how they'd like to tackle them.

Second, a government shutdown still remains a possibility. Speaker Johnson has said avoiding a shutdown is a priority for him, stating he would allow a vote on another stopgap spending measure to give Congress more time to agree on longer term funding levels. But such a stopgap measure could also reflect that House Republicans haven't yet solved for their own internal disagreement on key funding measures, such as aid for Ukraine. If that's the case, then a shutdown later this year or early next year remains a possibility. And, while on its own, a brief shutdown wouldn’t meaningfully affect the economy, markets will reflect a higher probability of weaker growth on the horizon, particularly as failure to agree…
U.S. Housing: The Impact of High Mortgage Rates

31 oktober 2023 · 7 min
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With mortgage rates at their highest level in 20 years, housing affordability may deteriorate to levels not seen in decades. Lees meer

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Jim Egan: Welcome to Thoughts on the Market. I'm Jim Egan, Co-Head of Securitized Products Research here at Morgan Stanley.

Jay Bacow: And I'm Jay Bacow, the other Co-Head of Securitized Products Research.

Jim Egan: And on this episode of the podcast, we'll be discussing U.S. home prices. It's Tuesday, October 31st at 11 a.m. in New York. Happy Halloween.

Jay Bacow: Jim. Mortgage rates are close to 8%. They haven't been this high since the year 2000. Now, you've pointed out in this podcast before, home prices have been incredibly resilient. So what is this combination of mortgage rates being at the highs over the last 20 years versus resilient home prices mean for housing affordability?

Jim Egan: Well, not good. Now, one of the statements that you and I have made on prior episodes of this podcast is that affordability remains incredibly challenged. But at least throughout the first half of 2023, it really wasn't getting any worse. If mortgage rates stay at these levels, we can no longer make the second half of that statement. In fact, affordability deterioration would return to the most severe that we've seen in decades, 2022 experience notwithstanding.

Jay Bacow: Okay. But what does that mean for the housing market? You know, at first blush, it doesn't sound great, but we've done a lot of these podcasts, and the story that you're talking about sounds kind of similar to what we saw last year in 2022. Home sales and housing starts could fall, but home prices would remain protected as homeowners are effectively locked in to their current low mortgage rate and there's not a lot of for sellers.

Jim Egan: Those dynamics certainly continue to play a role in our thinking. But in our view, with mortgage rates at these levels, that requires us to think about both the short term impacts but also the longer term impacts if…
Mike Wilson: 2023 Stock Market Comes Full Circle

30 oktober 2023 · 4 min
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As we head into the end of the year, investors are again worrying about the impact that higher interest rates will have on growth. Lees meer

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Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 30th at 10 a.m. in New York. So let's get after it.

2023 has been a year of big swings for stock investors. Coming into the year, the consensus agreed that domestic growth is going to disappoint as recession risk appeared much higher than normal. The primary culprit was the record setting pace of tightening from the Federal Reserve and other central banks in 2022. In addition to this concern, earnings for the mega-cap leaders had disappointed expectations during the second half of 2022. As a result, sentiment was low and expectations about a recovery were pessimistic. Stocks had reflected some of that pessimism, even though they had rallied about 10% from the October '22 lows.

The other distinguishing feature of the consensus view at the beginning of the year is that the bullish pitch was predicated on a Fed pivot and China's long awaited reopening from its lengthy pandemic lockdowns. This meant that many investors were overweight banks, industrials and commodity oriented stocks like energy and materials and longer duration bonds rather than mega-cap growth stocks. Such positioning could not have been worse for what has transpired this year. Domestic economic growth and interest rates have surprised on the upside, keeping the Fed more hawkish on its rate policy while commodity prices have been weak due to disappointing global economic growth despite China's reopening.

The regional bank failures in March spurred a different kind of pivot from the Fed, as they decided to reverse a good portion of its balance sheet reduction when i…
Andrew Sheets: Optimism in Corporate Credit

27 oktober 2023 · 3 min
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Corporate credit continues to outperform other class assets, due in part to U.S. economic growth in the third quarter. Lees meer

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Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Corporate Credit Research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, October 27, at 2 p.m. in London.

Credit has a reputation of being the scouts of financial markets, sniffing out and detecting danger well ahead of others. In 2000, 2007 and 2011, to name a few, credit markets started to weaken well before other asset classes in flagging danger. The Federal Reserve used credit spreads as one of their most important measures of financial stress.

While we’d like to think that this is because credit investors are smarter than their peers, a more realistic answer lies in the nature of the asset class. Because credit offers a generally limited premium if things go right, relative to larger losses if things go wrong, credit investors are often incentivized to price in a rising probability of danger early.

And so it's notable that amidst the current market weakness, credit is pretty well behaved, with benchmark spreads on U.S. investment grade credit roughly unchanged since October 3rd. Credit is very much a passenger, not a driver, of the proverbial financial market bus that in recent weeks has been swaying back and forth.

We think credit continues to be a relative outperformer across assets, and for that to be true, two things need to continue.

First, credit is very sensitive to the likelihood of a deep recession. Recent data has been good, with the U.S. economy growing a whopping 4.9% in the third quarter. While our US economists expect slower growth in the fourth quarter, we think a generally stronger than expected U.S. economic story has, and should continue to be, helpful to corporate credit.

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Asia Equities: China’s Risk of a Debt Deflation Loop

26 oktober 2023 · 8 min
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With China at risk of falling into a debt deflation loop, lessons from Japan's deflation journey could provide some insight. Lees meer

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Daniel Blake: Welcome to Thoughts on the Market. I'm Daniel Blake from the Morgan Stanley Asia and Emerging Market Equity Strategy Team.

Laura Wang: And I'm Laura Wang, Chief China Equity Strategist.

Daniel Blake: And on this special episode of the podcast, we'll discuss what lessons Japan's deflation journey can offer for China. It's Thursday, October 26th at 10 a.m. in Singapore and Hong Kong.

Daniel Blake: So in the period from 1991 to 2001, known as Japan's lost decade, Japan suffered through a prolonged economic stagnation and price deflation. While the corporate sector stopped deleveraging in the early 2000’s. It wasn't until the Abenomics program, introduced under Prime Minister Shinzo Abe in 2013, that Japan emerged from deflation and started the process of a gradual recovery in corporate profitability. China's economic trajectory has been very different from Japan's over the last 30 years, but we now see some parallels emerging. Indeed, the risk of falling into a Japanese style stagnation is becoming more acute over the past year as a deep cyclical downturn in the property sector combines with the structural challenge that our economists call the 3D journey of debt, demographics and deflation. So, Laura, before we dig into the comparison between China and Japan's respective journeys to set the stage, can you give us a quick snapshot of where China's equity market is right now and what you expect for the rest of the year?

Laura Wang: Sure, Daniel. China market has been through a quite volatile ten months so far this year with a very exciting start given the post COVID reopening. However, the strong macro momentum didn't sustain. Property sales is still falling somewhere between 30 to 50% each month on a year over year basis. And challenges from local government debt issue and early signs of deflationary pr…
Vishy Tirupattur: Implications of the Treasury Market Selloff

25 oktober 2023 · 4 min
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The rise in Treasury yields, among other factors, has caused significantly tighter financial conditions. If these conditions slow growth in the fourth quarter, another rate hike this year seems unlikely. 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 will be talking about the implications of the continued selloff in the Treasury market. It's Wednesday, October 25th at 10 a.m. in New York.

The grueling selloff in U.S. treasuries that began in the summer continues, most notably in the longer end of the yield curve. The ten year Treasury yield breached 5% on Monday, a level not seen since 2007 and an increase of about 125 basis points since the trough in July. Almost all of this move higher in the ten year yield has occurred in real yields.

In our view, the Treasury market has honed its reaction to incoming data on the hawkish reaction function that the FOMC communicated in its September meeting, which was subsequently reiterated by multiple Fed speakers.

Over the last several weeks, the asymmetry in the market's reaction to incoming data has been noteworthy. Upside surprises growth have brought up sharp increases in long end yields, while downside surprises inflation have met with muted rallies. To us, this means that for market participants, upside surprises to growth fuel doubts whether the pace of deceleration inflation is sustainable. In this context, it is no surprise that upside growth surprises have mattered more to long in yields than downside inflation surprises.

We've indeed seen a spate of upside surprises. The 336,000 new jobs in the September employment report were nearly double the Bloomberg survey of economists. Month over month changes in retail sales at 0.7% were more than double the consensus expectation of about 0.3%, and triple if you exclude auto sales. We saw similar upside surprises in indus…
Matthew Hornbach: The Impact of Policy on Bond Markets

24 oktober 2023 · 4 min
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As the U.S. Federal Reserve keeps rates elevated, investors are selling off bonds in anticipation of new issues with higher yields, triggering a historic rout in the world's biggest bond markets. Lees meer

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Welcome to Thoughts on the Market. I'm Matthew Hornbach, Morgan Stanley's Global Head of Macro Strategy. Along with my colleagues, bringing you a variety of perspectives, today, I'll discuss the ongoing U.S. Treasury bond market route. It's Tuesday, October 24th, at 10 a.m. in New York.

The world's biggest bond markets are in the midst of a historic route, and an increasing number of experts are referring to this as the deepest bond bear market of all time. Simply put, it works like this. When the central bank policy rate increases, investors' expectations for yields on bonds go up. This prompts investors to sell the bonds they currently own in order to buy newly issued ones that promise higher yields.

So in this higher for longer interest rate environment, investors have been selling bonds, resulting in serious declines in bond prices and simultaneous surges in bond yields. In the U.S. Treasury market, which is considered the bedrock of the global financial system, the yield on the 30 year U.S. government bond recently hit 5% for the first time since 2007. German and Japanese bond yields are also reaching significantly elevated levels.

Why does the turmoil in the bond market matter so much for consumers? For one thing, the yields on local government bonds impacts how banks priced mortgages. In the U.S. Specifically, mortgage rates tend to track the yield on ten year treasuries. Government backed mortgage provider Freddie Mac recently announced that the average interest rate on the 30 year fixed rate mortgage hit 7.3% in the week ending September 28th. That's the highest level since 2000.

The ripple effects from the bond market route stretch further than mortgages. For instance, higher U.S. yields also means an even stronger U.S. dollar, which …
Mike Wilson: Are Earnings Expectations Too High?

23 oktober 2023 · 4 min
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As investor sentiment recovers this month in anticipation of a strong year end, it’s important to acknowledge the factors that make this year’s fundamentals different. Lees meer

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Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 23rd at 10 a.m. in New York. So let's get after it.

In our recent research, we’ve been arguing that the odds of a fourth quarter rally have fallen considerably. Our observations on narrowing breadth, cautious factor leadership, falling earnings revisions and fading consumer confidence tell a different story than the consensus view for a rally in the year end that's more centered on sentiment and seasonal tendencies. While we acknowledge that sentiment deteriorated in September, it's recovered this month on the expectation of seasonal strength in the year-end. In our view, the fundamental setup is different this year than normal, with earnings expectations likely too high for the fourth quarter and 2024. Meanwhile, both monetary and fiscal policy are unlikely to provide any relief and could tighten further. More specifically, while the Federal Reserve has not raised rates any further, it is likely far from cutting. Furthermore, the tightening the Fed has done over the past 18 months is just now starting to be felt across the economy.

To that end, the stock market has taken notice with some of the more economic and interest rate sensitive sectors like autos, banks, transportation stocks, semiconductors, real estate and consumer durables significantly underperforming over the past three months. More recently, many defensive sectors and stocks have started to outperform with energy, which supports our late cycle view that the barbell of defensive growth plus late cycle cyclicals we've been recomme…
Ellen Zentner: The Rise of the SHEconomy

20 oktober 2023 · 4 min
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Demographic changes are making women in the U.S. more powerful economic agents, driving spending and GDP. Lees meer

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Welcome to Thoughts on the Market. I'm Ellen Zentner, Morgan Stanley's Chief U.S. Economist. Along with my colleagues bringing you a variety of perspectives, today, I'll take a closer look at women's role in the economy and the impact they could have over the next decade. It's Friday, October 20th, at 10 a.m. in New York.

Last week, Harvard economist Claudia Goldin won the Nobel Prize for her work identifying the causes of wage and labor market inequality. Not only is her work notable for its subject matter, it is also because Claudia is the first woman to win the Nobel in economics by herself. In other words, all of the credit goes to her. Golden's body of work has included the role of contraception in helping women with family and career planning, something we studied as well. The rise of what we have dubbed the "SHEconomy" is a topic we at Morgan Stanley Research first covered in 2019 and continue to follow closely.

For some context. Today, women are having fewer children and earning more bachelor's degrees than men. The median marriage age for women has increased, as has the age at which we first start bearing children. These shifting lifestyle norms are enabling more women to work full time, which should continue to increase participation in the labor force among single females. In 2019, we estimated that the number of single women in the U.S. would grow 1.2% annually through 2030, and that compares with 0.8% for the overall population. Based on these calculations, by 2030, 45% of prime working age women will be single, the largest share in history. Now, data show that women outspend the average household and are the principal shoppers and more than 70% of households. So women are very powerful economic agents. They contribute an estimated $7 trillion to U.S. GDP per year. They are the breadwinners in nearly 30% of married househ…
Global Autos: Automotive’s Smartphone Moment

19 oktober 2023 · 8 min
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The automotive industry’s steady transition to “software-defined vehicles” could offer new entrants advantages against established incumbents. Lees meer

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Lee Simpson: Welcome to Thoughts on the Market. I'm Lee Simpson, Head of Morgan Stanley's European Technology Hardware Team.

Shaqeal Kirunda: And I'm Shaqeal Kirunda, from Morgan Stanley's European Autos Team.

Lee Simpson: On this special episode of the podcast, we will discuss the evolution of autos in the direction of software defined vehicles. It's Thursday, 19th October at 10 a.m. in London.

Lee Simpson: Cars are in the process of transforming from electromechanical terminals to intelligent mobile devices, and we think the emergence of software defined vehicles or SDVs, is a sign we're approaching the car smartphone moment. The migration to SDVs is part of a broader transformation in autos that could even redefine the economics of the car itself. The implications for this are deep and far reaching. So Shaqeal, what is an SDV and how is it different from most cars on the road today?

Shaqeal Kirunda: Thanks Lee, so most people are aware of one of the global megatrends in autos to transition to electric vehicles, was less well understood as a transition to the software defined vehicle. An SDV can be defined as any vehicle that manages its operations or adds new functionality, mainly through software. What that actually means to the consumer is a car that features an operating system which is upgradable over the air, not just for apps and infotainment of a whole software upgrades, safety improvements and new functions such as autonomous driving. So for a future SDV, the functions will be defined by the software and not the hardware. This dynamic mirrors how we use apps and software in phones today. Lee, how does this change the whole architecture of the car?

Lee Simpson: Yeah, I think computing needs to change. We've seen that in other devices before and here for the car, it's transitioning real…
Michael Zezas: The Impact of Geopolitical Tension

18 oktober 2023 · 3 min
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In the continuing transition to a multipolar world, geopolitical uncertainty is on the rise and new government policies could rewire global commerce. Lees meer

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Welcome the Thoughts on the Market. I'm Michael Zezas, Global head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the impact of recent geopolitical tensions. It's Wednesday at 8 a.m. in New York.

As tragedy continues to unfold in the Middle East, we continue, along with our clients, to care greatly about these events. And there's been no shortage of prognostication in the media about if the conflict escalates, how other countries might get involved, and what the effects would be on the global economy and markets. Not surprisingly, this has been the most common topic of discussion for me with clients this week. And as a strategist, who's practice relies on unraveling geopolitical complexities, what I can say with confidence is this: there's no obvious path from here, and so we need to be humble and flexible in our thinking.

While that might not be the clear guidance you're hoping for, let me suggest that accepting this uncertainty can itself be clarifying. As we've discussed many times in our work on the transition to a multipolar world, geopolitical uncertainty has been on the rise for some time. Governments are implementing policies that support economic and political security and in the process, rewiring global commerce to avoid empowering geopolitical rivals.

The situation is obviously complicated, but here's a couple conclusions we feel confident in today.

First, security spending is rising as an investment theme. We believe that U.S. and EU companies will spend up to one and a half trillion dollars to de-risk supply chains. Critical infrastructure stocks could be at the center of this.

Additionally, oil prices may rise, but investors should resist the assumption that this alone would lea…
Global Tech: Generative AI and Asset Management

17 oktober 2023 · 6 min
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The asset management and wealth management sectors could see AI boost efficiency in the short term and drive alpha in the medium to long term. Lees meer

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Mike Cyprys: Welcome to Thoughts on the Market. I'm Mike Cyprys, Morgan Stanley's Head of U.S. Brokers, Asset Managers and Exchanges Team.

Bruce Hamilton: And I'm Bruce Hamilton, Head of European Asset Management and Diversified Financials Research.

Mike Cyprys: And on this special episode of the podcast, we'll talk about what the Generative A.I Revolution might mean for asset and wealth managers. It's Tuesday, October 17th at 10 a.m. in New York.

Bruce Hamilton: And 3 p.m. in London.

Mike Cyprys: My colleagues and I believe that Generative A.I is a revolution rather than simply an evolution and one that is well underway. We think Gen A.I, which differs from traditional A.I in that it uses data to create new content, will fundamentally transform how we live and work. This is certainly the case for asset and wealth management, where leading firms have already started deploying it and extracting tangible benefits from Gen A.I across an array of use cases. Bruce, what has been the initial focus among firms that have successfully deployed Gen A.I so far? And, something that has been top of mind for most of us, is Gen A.I replacing human resources?

Bruce Hamilton: So Mike, clearly it's early days, but from our conversations with more than 20 firms managing over $20 trillion in assets, it seems clear that the immediate opportunities are mainly around efficiency gains rather than top-line improvements. However over time, as these evolve, we expect that this can drive opportunity for top-line also. All firms we spoke with see the importance of humans in the loop given risks, so A.I as copilot and freeing up resource for more value added activities rather than replacing humans.

Mike Cyprys: What are some of the top most priorities for firms already implementing Gen A.I? And in broad terms, how are they …
Seth Carpenter: Are Higher Rates Permanent?

16 oktober 2023 · 3 min
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The recent rise in long term yields and economic tightening raises the question of how restrictive U.S. financial conditions have become. Lees meer

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Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Chief Global Economist, and along with my colleagues bringing you a variety of perspectives. Today, I'll be talking about the tightening of financial conditions. It's Monday, October 16th at 10 a.m. in New York.

The net selloff in U.S. interest rates since May prompts the question of how restrictive financial conditions have become in the United States. Federal Reserve leaders highlighted the tightening in conditions in recent speeches, with emphasis on the recent rise in long term yields. One lens on this issue is the Financial Conditions index, and the Morgan Stanley version suggests that the recent rate move is the equivalent of just under two Fed hikes since the September FOMC meeting. Taken at face value, it sustained these tight conditions will restrain economic activity over time. Put differently, the market is doing additional tightening for the Fed.

Before the rally in rates this week, the Morgan Stanley Financial Conditions Index reached the highest level since November 2022, and the move was the equivalent of more than 2 25 basis point hikes since the September FOMC meeting. Of course, the mapping to Fed funds equivalence is just one approximation among many. When Fed staff tried to map QE effects into Fed funds equivalence, they would have assessed the 50 basis point move in term premiums we have seen as a 200 basis point move in hiking the Fed funds rate.

What does the FCI mean for inflation and growth? Well, Morgan Stanley forecasts have been fairly accurate on the inflation trend throughout 2023, although we have underestimated growth. We think that core PCE inflation gets below 3% by the first quarter of next year. For growth, the key question is whether the sell off is exogenous, that is if it's unrelated to the fu…
Vishy Tirupattur: Treasury Yields Move Higher

14 oktober 2023 · 3 min
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On the heels of a midsummer spike, long-end treasury yields have picked up further momentum, which has created complex implications for the Fed, the corporate credit market, and emerging market bonds. 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 our views on the back of moves higher in Treasury yields. It's Friday, October 13th at 3 pm. in New York.

The midsummer move higher in long-end treasury yields picked up further momentum in September, spiking to levels last seen over 15 years ago. Market narratives explaining these moves have revolved largely around upside surprises to growth and concerns about large federal fiscal deficits. The September employment report was unequivocally strong, perhaps too strong for policymakers to relax their tightening bias. While inflation has been decelerating faster than the Fed forecasts, continued strength in job gains could fuel doubts about the sustainability of the pace of deceleration.

On the other hand, the rise in long-end yields have led financial conditions tighter. By our economists’ measure, since the September FOMC meeting, financial conditions have tightened to the equivalent of about two 25 basis point hikes, bringing the degree of tightness more in line with the Fed's intent. Thus, our economists see no need for further hikes in the Fed's policy rates this year. In effect, the move higher in Treasury yields is doing the job of additional hikes.

It's worth highlighting that there has been a subtle shift in the tone of Fed speak in the past two weeks, indicating that the appetite for additional hike this year is waning. Given the moves in Treasury yields, we felt the need to reassess our Treasury yield forecasts and move them higher relative to our previous forecasts. Our interest rate strategists now expect ten-year Treasury yields to end yea…
Chetan Ahya: What Would Trigger Rate Hikes in Asia?

12 oktober 2023 · 2 min
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Although inflation is largely under control in Asian economies, central banks could be pushed to respond if high U.S. yields meet rising oil prices. Lees meer

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Welcome to Thoughts on the Market. Chetan Ahya, Morgan Stanley's Chief Economist. Along with my colleagues bringing you a variety of perspectives, today, I'll discuss how higher U.S. rates environment could affect Asia. It's Thursday, October 12th, at 9 a.m. in Hong Kong.

Real rates in the U.S. have risen rapidly since mid-May and remain at elevated levels. Against this backdrop, investors are asking if Asian central banks will have to restart their rate hiking cycles.

We think Asia should be less affected this time around, mainly because of the difference in inflation dynamics. As we've highlighted before on this show when compared to the U.S., Asia's inflation challenge is not as intense. In fact, for 80% of the economies in the region inflation is already back in the respective central bank's comfort zone. Real policy rates are already high and so against this backdrop, we believe central banks will not have to hike. However, we do think that the central banks will delay cutting rates.

Previously, we had expected that the first rate cut in the region could come in the fourth quarter of 2023, but now we believe that cuts will be delayed and only start in first quarter of 2024.

So what can trigger renewed rate hikes across Asia? We think that central banks will respond if high U.S. yields are accompanied by Brent crude oil prices rising in a sustained manner, above $110 per barrels versus $85 today. Under this scenario, the region's macro stability indicators of inflation and current account balances could become stretched and currencies may face further weakness.

In thinking about which central banks might face more pressures to hike, we consider three key factors, economies with lower yields at the starting point, economies running a current account deficit or just about a mile surplus …
Michael Zezas: Signals from the Speaker of the House Vacancy

11 oktober 2023 · 3 min
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With Congress still without a Speaker of the House, investors should keep an eye on the impact that another potential government shutdown would have on the markets. Lees meer

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Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the impact of Congress on financial markets. It's Wednesday, October 11th, at 10 a.m. in New York.

As of this recording, the U.S. House of Representatives still does not have a speaker following Representative McCarthy's ouster a little over a week ago. Republicans are scheduled to meet today to attempt to nominate the speaker, but until one is chosen, it's unclear that Congress can do any other business. But does that actually matter for investors? Here's two signals from these events that we think are important.

First, it signals that Congress is unlikely to deliver any substantial legislation between now and the 2024 election outside of funding bills. Republicans' difficulty choosing a speaker reflects their lack of consensus on many policy issues, including regulation, social spending and more. That further impedes the government's ability to legislate, which was already hampered by different parties controlling the White House and Congress. So for investors who have credited the rise in bond yields and stock prices to expanded fiscal support from the federal government in recent years, you shouldn't expect there to be more on the horizon. The exception to this could be an economic crisis that prompts a fiscal response. But for investors, that means you'd likely see bonds rally and stocks sell off before fiscal support would again become a stock market positive.

The second signal, which also cuts against the narrative of government policy support for markets, is that a government shutdown is still a distinct possibility. Congress recently avoided the government shu…
Keith Weiss: How Generative AI Could Affect Jobs

10 oktober 2023 · 4 min
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As companies integrate generative AI into enterprise software, a wide variety of jobs that depend on requesting or distributing data could be automated. Lees meer

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Welcome to Thoughts on the Market. I'm Keith Weiss, Head of Morgan Stanley's U.S. Software Team. Along with my colleagues bringing you a variety of perspectives, today I'll discuss the significant potential impact from generative A.I on enterprises. It's Tuesday, October 10th, at 10 a.m. in New York.

You may remember the generative A.I powered chat app that reached 1 million users in only five days after its launch late last year. While much of the early discussion on the use of generative A.I focused on the consumer opportunity, we see perhaps an even bigger opportunity in enterprise software.

The advantages from traditional A.I to generative A.I are rapidly broadening the scope of the types of work and business processes that enterprise software can automate, and this could ultimately have an impact on industries across the entire economy.

Of course, one of the biggest questions everyone seems to have is how will generative A.I impact jobs? We forecast 25% of labor could be impacted by generative A.I capabilities available today, likely rising to 44% of labor in three years. Further, by looking at the wages associated with those jobs, our analysis suggests generative and A.I technologies can impact the $2.1 trillion of labor costs attached to those jobs today, expanding to $4.1 trillion in three years in the U.S. alone. This drives an approximately $150 billion revenue opportunity for software companies in our view.

An important caveat here, we believe it's too early to make any definitive claims on the number of jobs that will be replaced by generative A.I. So we used the term impact to denote the potential for either an augmentation or further automation of these jobs on a go forward basis.

So what are the jobs we think are most likely to be impacted? Based on the current capabilit…
Michelle Weaver: The Priorities of the U.S. Consumer

9 oktober 2023 · 3 min
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While U.S. consumer sentiment is on the decline, there are some categories that have remained stable as purse strings tighten. Lees meer

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Welcome to Thoughts on the Market. I'm Michelle Weaver from the Morgan Stanley U.S. Equity Strategy Team. Along with my colleagues bringing you a variety of perspectives, today I'll give you an update on the U.S. consumer. It's Monday, October 9th at 10 a.m. in New York.

As we get into the fall season and close out the third quarter of this year, investors are paying attention to the state of the U.S. consumer. Our recent survey work reveals that inflation continues to be a primary concern for consumers and that the U.S. political environment is the second most significant concern. Furthermore, consumers continue to worry about their payment obligations, and 30% of people we surveyed expressed concern over their potential inability to repay debts. Low income consumers are generally more worried about their inability to pay rent, while upper income consumers are concerned about their investments, U.S. politics and geopolitics.

Overall, consumer confidence in the U.S. economy and household finances worsened modestly in September. More than half of U.S. consumers are expecting the economy to get worse in the next six months, while less than a quarter of consumers are expecting the economy to get better. This worsening sentiment is also consistent across different income cohorts.

Additionally, savings rates continue to trend lower versus earlier this year. Consumers report having an average savings reserve of 4.2 months, the average over the past few months has been trending lower compared to earlier in the year. Of course, savings reserves vary significantly by income though, with upper income consumers having on average around 6 to 7 months worth of expenses in savings compared to about 3 months for low income cohorts. Positively fewer consumers reported missing or being late on a loan or bill payment, with 34% mis…
U.S Equities: Credit Continues to Outperform

6 oktober 2023 · 9 min
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As bond yields continue to rise, credit has been more of a passenger than the driver of recent market volatility. Lees meer

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Andrew Sheets: Welcome to Thoughts in the Market. I'm Andrew Sheets, Morgan Stanley's Head of Corporate Credit Research.

Serena Tang: And I'm Serena Tang, Morgan Stanley's Chief Global Cross-Asset Strategist.

Andrew Sheets: And on the special episode of the podcast, we'll discuss Morgan Stanley's updated cross-asset and corporate credit views. It's Friday, October 6th at 3 p.m. in London.

Serena Tang: And 10 a.m. in New York.

Andrew Sheets: Before we get into our discussion, let me introduce Serena Tang as Morgan Stanley's new Global Cross-Asset Strategist. Serena has been working with me for the last 15 years and together we initiated our cross-asset effort nearly a decade ago. Serena was responsible for building the team's investment framework, specializing in multi asset allocation, portfolio optimization, and long run capital market assumptions. So I can confidently say that Morgan Stanley's cross-asset effort is in very capable hands. As for me, I'm now Morgan Stanley's Head of Corporate Credit Research, but I'll continue to host my colleagues as we look forward to bringing you key debates from across asset classes and regions. So, Serena, welcome and let's jump right into what's going on in markets. Over the last several weeks, as everybody in the U.S. has returned from summer, the debate among Morgan Stanley's economists and strategists is centered on two main issues, the outperformance of the U.S. economy and the underperformance of China's economy, as well as the spike of government bond yields, especially at the longer end of the curve. So where has this left our views across asset classes?

Serena Tang: Yeah, yields and real yields have indeed moved a lot higher in a very short amount of time, you know, on that narrative that rates will stay higher for longer. And I would say that, you know, while the market has be…
Todd Castagno: Rising Growth in Convertibles Bonds

5 oktober 2023 · 3 min
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Here’s why convertible bonds, an often overlooked asset class, are becoming more attractive as an alternative to common stock. Lees meer

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Welcome to Thoughts on the Market. I'm Todd Castagno, head of Morgan Stanley's Global Valuation Accounting Research Team. Along with my colleagues bringing you a variety of perspectives, today I'll be discussing the increasing attractiveness of the convertible debt market. It's Thursday, October 5th at 10 a.m. in New York.

Rising interest rates have increased borrowing costs for everybody, and that includes companies looking to raise or refinance debt. And that generates a renewed appetite for an oft overlooked asset class called convertible bonds. But what are convertible bonds?

To start, convertible bonds are what we call a hybrid instrument, combining the features of a traditional corporate debt and common equity. Similar to corporate bonds, convertibles offer guaranteed income via interest of the initial investment. The reason they are called "convertible" is because they offer investors the option to convert that bond to common stock when a company's share price hits a certain threshold. These hybrid features provide investors with downside protection and upside equity appreciation.

There are many reasons why companies choose to issue convertible debt. First, they offer a strategic financial flexibility for high growth in early stage companies, a quick time to market execution time. Second, convertible debt provides an alternative path for companies that would find it difficult to access straight debt in the market. Third, they offer a way to raise equity without issuing more stock directly through secondary offerings. And this is a big plus for corporates because investors often perceive a secondary offering as a negative signal. And finally, a lower cash coupon and lower interest expense is very attractive in a high-rate environment. Why is that?

Convertible bonds have lost market share from traditional c…
Vishy Tirupattur: Corporate Credit Divided by Quality

4 oktober 2023 · 3 min
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Fundamentals for investment-grade credit remain resilient and steady, while below-grade credit continues to deteriorate. 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 our views on corporate credit markets. It's Wednesday, October 4th at 10 a.m. in New York.

With the second quarter earnings now in the rearview mirror, we look at how credit fundamentals have evolved and what that means for credit investors. Quality based divergence in credit fundamental performance continues to bear out, reinforcing our preference for higher quality within the credit universe.

Investment grade credit fundamentals remain resilient. Overall, issuers have held up reasonably well despite moving past the peak in the strength of balance sheet metrics. While certain metrics have started to deteriorate, most notably interest coverage as a result of higher interest rates, leverage ratios have stayed well-contained despite the uptick in debt levels.

We are calling for wider spreads in investment grade credit, as the market might be overly discounting the odds of a recession, and we had already priced for a smooth soft landing. While current spread levels do not leave much room for further compression, current yield levels remain attractive at multi year highs. These levels present both a source of attractive income and potential price upside as growth and inflation cool, particularly heading into a Fed pause and potential rate cutting cycle, which our economists expect will start in March 2024.

While one could argue that with spreads at tight levels, the yield demand could simply shift to treasuries. However, with very low dollar prices on most investment grade bonds and the macro optimism around a soft landing, we think investment grade credit will remain well placed for some time to come. In-place fundamentals remain s…
U.S. Consumer: Opportunity in Online Grocery

3 oktober 2023 · 7 min
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With online grocery shopping growing in popularity, artificial intelligence can improve the customer experience while increasing efficiency. Lees meer

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Brian Nowak: Welcome to Thoughts on the Market. I'm Brian Nowak, Morgan Stanley's U.S. Internet Analyst.

Simeon Gutman: And I'm Simeon Gutman, Hard lines, Broad Lines and Food Retail Analyst.

Brian Nowak: On this special episode of Thoughts on the Market, we'll discuss the significant opportunities in online grocery. It's Tuesday, October 3rd at 10 a.m. in New York.

Brian Nowak: Simeon, our work suggests that online grocery is the largest remaining category of offline spend, which makes it the biggest opportunity in e-commerce. When we talk about online grocery, do you think of it as pure dot-com? Do you think of it as omnichannel? How do you define online grocery and how do you think about the growth outlook for the industry the next few years?

Simeon Gutman: To settle that debate we think of it as omnichannel. The online market includes both delivery and pickup, which we actually think is a 50/50 mix. The market today, we think, is about 11.5% penetrated. That equates to roughly $190 billion of online and pickup sales. It's growing low double digits and we think over time it reaches about the high teens by 2027.

Brian Nowak: So 11% adoption now heading to teens penetration a few years from now. That's quite a bit below a lot of other categories in the United States. So let me ask a sort of obvious question. What new types of technologies or innovations have you seen in online grocery that you think are going to really drive faster, more durable adoption going forward?

Simeon Gutman: It's likely in the micro and macro fulfillment. I mean, online grocery is complicated. There's a lot of SKUs to pick. There's labor involved. We're seeing better ways that grocers are able picking and packing the groceries. I think still getting it to the end user remains a challenge and that's what we're going to s…
Mike Wilson: Has the U.S. Government Hit a Fiscal Wall?

3 oktober 2023 · 3 min
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Although Congress agreed on a short-term deal to avoid a shutdown, the increase in the deficit and lack of fiscal discipline may concern investors in the long run. Lees meer

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Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 2nd at 11 a.m. in New York. So let's get after it.

This past weekend, Congress agreed to a last minute deal to keep the government open for the next six weeks. On one hand, avoiding a government shutdown is a net positive for the equity markets. However, on the other hand, the government is showing very little fiscal discipline will likely weigh on bond markets, which could then reverberate through stocks. This past August, I wrote a note and recorded a podcast asking if the U.S government may have hit a fiscal wall. One of the biggest surprises this year for investors has been the monumental increase in the fiscal deficit. More specifically, over the past 12 months, the fiscal deficit has increased by $1.3 trillion. This has supported better economic growth and may have kept the U.S. economy from entering a recession that many thought was unavoidable earlier this year.

But now the piper must be paid. With the U.S. Treasury expected to issue close to $2 trillion in new supply in the second half of the year, the bond market has taken notice. While front end interest rates have been generally stable over the past several months on the expectation the Fed is very close to ending its rate hikes, the longer end of the Treasury market continues to trade very poorly, with ten year yields reaching 4.7%. With inflation expectations relatively stable and economic growth showing signs of slowing, we think this move in ten year yields is directly related to an earlier question. Has the US government pushed a …
U.S. Economy: What AI Means for People Doing Multiple Jobs

29 september 2023 · 9 min
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The number of U.S. workers with multiple income streams is increasing steadily, with earnings of $200 billion today poised to double by 2030. Generative AI could help these “multi-earners” hold down their many jobs. Lees meer

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Ed Stanley: Welcome to Thoughts on the Market. I'm Ed Stanley, Morgan Stanley's Head of Thematic Research in Europe.

Ellen Zentner: And I'm Ellen Zentner, Morgan Stanley's Chief U.S. Economist.

Ed Stanley: And on this special episode of Thoughts on the Market, we'll discuss the impact of A.I. on the multi earning trend we've been observing over the last year. It's Friday, September 29th at 3 p.m. in London.

Ellen Zentner: And 10 a.m. in New York.

Ed Stanley: You'll remember that the pandemic created the conditions for many people to start pursuing multiple income streams, and post-COVID this need has shifted to an opportunity. And little over a year ago, we first wrote about the rise of multi earners, a large and growing class of workers who, we argued, whose marginal hour was better spent multi-earning than staying in a low paying traditional corporate role, for example. And not surprisingly, Gen Z, a group our economist team have studied in detail, is leading this paradigm shift, and that is clearly underway in our latest survey. Ellen, before we get into some of the current specifics on the fast moving multi-earner and A.I. Trends, can you set the stage for us by giving us a sense of where the US labor market is right now and how things have evolved since the great resignation that we heard so much about during COVID?

Ellen Zentner: Sure Ed. Participation in the workforce dropped like a rock around COVID and government subsidies helped folks take time away, and particularly those that work in high risk areas of services where face to face contact is a necessary work requirement. Now, at the same time, the percentage of employees that shifted to some amount of work from home arrangements soared from about 15% to over 50%,…
Jonathan Garner: Volatility in Asia and Emerging Markets

28 september 2023 · 3 min
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With volatility in Asia and emerging markets causing both upswings and downswings, certain markets will be critical as uncertainty continues. Lees meer

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Welcome to Thoughts on the Market. I'm Jonathan Garner, Morgan Stanley's Chief Asia and Emerging Market Equity Strategist. Along with my colleagues, bringing you a variety of perspectives, today I'll be discussing why we turned more cautious on our coverage recently. It's Thursday, September the 28th at 9 a.m. in Singapore.

We turned more cautious on our coverage in early August, downgrading Taiwan and China to equal weight and Australia to underweight, whilst raising India, which we view as defensive, to a major overweight.

For India, multi-polar world trends are supporting a surge in inward foreign direct investment in manufacturing, and portfolio flows into both bonds and equities. The country's reforms and macro stability agenda, particularly in fiscal policy, is underpinning a strong capital expenditure and profits outlook.

We also maintain Japan equities, currency hedged, as our top pick in global equity markets. Japan has strong nominal GDP growth, positive earnings per share revisions and valuations which remain reasonable in our view, at a little over 14x forward price to earnings.

However, the continued debate on China's growth slowdown and now a sudden further rise in US real yields are, in our view, likely to pressure markets lower generally, in what is seasonally a difficult period for our asset class.

Volatility is now and generally has been a feature of Asia and emerging equity markets. Hence the intense interest in market timing and hedging strategies in an asset class which has, with the recent exception of Japan, failed to deliver attractive, sustained compound returns for the US-dollar-based investor. Indeed, we've made the point before that on a risk adjusted basis, Asia and emerging equity markets are what is known as Sharpe ratio inefficient in a multi asset sense, that is r…
U.S. Policy: The Economic Impact of a Government Shutdown

27 september 2023 · 6 min
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If government funding expires next week, the shutdown combined with other economic issues could make for a weak fourth quarter. Global Head of Fixed Income and Thematic Research Michael Zezas and U.S. Public Policy Analyst Ariana Salvatore discuss. 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 for Morgan Stanley.

Ariana Salvatore: And I'm Ariana Salvatore from our U.S. Public Policy Research Team.

Michael Zezas: Along with our colleagues, bringing you a variety of perspectives, we'll be talking about the market and economic impacts of a potential government shutdown later this week. It's Wednesday, September 27th at 10 a.m. in New York.

Michael Zezas: So, Ariana, let's get right into it. Congress is up against a tight deadline with government funding set to expire on the first day of the next fiscal year, which is October 1st. What's the state of play?

Ariana Salvatore: So the first thing I'll say is that the situation is very fluid at the moment with lots of uncertainty between now and Sunday. Last night, the Senate voted to advance a bipartisan clean C.R. or continuing resolution, which could eventually serve as the legislative vehicle to avoid a lapse in appropriations. Clean, in this sense, means that the bill includes little to no funding for Ukraine aid or disaster relief, two items that Republicans had previously taken opposition to. Right now, the ball's in Speaker McCarthy's court. He can choose one of three options, first, to bring the Senate C.R. to the floor and rely on moderates, and perhaps even some Democrats, to cross the aisle and pass the bill. Second, he can ignore it and try to continue with the House-led funding process. Or third, he can take the C.R. out on some Republican policy items like border funding, for example, and send it back to the Senate where it's almost certainly dead on arrival. Options two and three, because of that, increase t…
Andrew Sheets: GDP, Inflation and a Possible Government Shutdown

26 september 2023 · 3 min
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Corporate credit is likely to continue outperforming, even if downward revisions to GDP, sticky inflation data and a potential government shutdown could mean a less restrictive approach from the Fed. Lees meer

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Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Corporate Credit Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Tuesday, September 26th at 2 p.m. in London.

September has seen widespread market weakness, with both stocks and bonds lower. Several of the big questions behind this move, however, could become much clearer by the end of this week.

One area of market concern remains central banks and the idea that they may continue to raise interest rates to tamp down on inflation. While the Federal Reserve decided not to raise rates at its meeting last week, the first time it's done so since 2022, investors nevertheless left that meeting worried the Fed may have more work to do.

We hold a different view and think that the Fed will not raise interest rates further. But we'll get an important data point to this view on Friday, with the release of PCE, or Personal Consumption Expenditure inflation. This is the inflation gauge that the Fed cares about most, and on Morgan Stanley's forecast, it will fall to just 2.3%, on a three month annualized basis. That's a large, encouraging step down that would show the Fed that inflation is headed in the right direction.

Another area of market concern, somewhat paradoxically, is that the U.S. economy has been quite strong, which in theory would encourage further rate hikes from the Fed. Not only has the US economy shown good GDP numbers so far this year, but unemployment remains near a 50 year low. Fed Chair Powell repeatedly referred to the strength of the economic data in last week's press conference, and some leading economic indica…
Mike Wilson: A Shift in Stock Personalities

25 september 2023 · 4 min
Afspelen

With the economy late in its current cycle, early-cycle performers such as consumer and housing stocks are underperforming while energy and industrials should continue to outperform. Lees meer

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Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, September 25th at 11am in New York. So let's get after it.

Since mid-July, stocks have taken on a different personality. As we've previously noted, second quarter earnings season proved to be a "sell the news event" with the day after reporting stock performance as poor as we've witnessed in over a decade. In retrospect, this makes sense given weakening earnings quality and negative year over year growth for many industry groups, coupled with the strong price run up in the mid-July which extended valuations. Those valuations continue to look elevated at 18-times earnings, especially given the recent further rise in interest rates and signs from the Fed that it may be adopting a higher for longer posture. On that score, the real rate equity return correlation has fallen further into negative territory, signaling that interest rates are an increasingly important determinant of equity performance. Furthermore, one could argue that the post-Fed-meeting response from equity markets was outsized for the rate move we experienced. One potential explanation for this dynamic is that the equity market is beginning to question the higher for longer backdrop in the context of a macro environment that looks more late-cycle than mid-cycle.

As discussed over the past several weeks, equity market internals have been supportive of the notion that we're in a late cycle backdrop with high quality balance sheet factors outperforming. Defensives have also resumed their outperformance, while cyclicals have un…
Andrew Sheets: The Rise of Corporate Bond Yields

22 september 2023 · 3 min
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September historically has been a big month for corporate bond issuance, but borrowing looks less attractive to companies due to the large rise in yields. Lees meer

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Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Corporate Credit Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, September 22nd at 2 p.m. in London.

Credit has outperformed equities recently, with spreads modestly tighter, even as stocks are modestly lower. We think that credit outperformance continues. Supply, demand and income are all part of the story.

September is usually a big month for corporate bond issuance as people return from the summer, and all that supply often means somewhat weaker credit performance. But so far, that supply is underwhelmed. While many factors may be at play, we think one is that borrowing is looking less attractive given the large rise of corporate bond yields.

Not only are investment grade bond yields at some of their highest non crisis levels in the last 20 years, they're unusually high relative to the earnings or dividend yield offered on company stock. Now, if a company views their equities attractive relative to debt, one way they can express this is to borrow more while buying back or retiring those shares in the market. But conversely, if companies start to view borrowing as expensive, relative to their shares, borrowing and buybacks should both slow. And year-to-date that's exactly what we've seen from non-financial investment grade companies.

Meanwhile, those same higher yields that are making companies more reluctant to borrow are keeping demand for bonds solid. And if both the Federal Reserve and the European Central Bank are now finished raising interest rates, as my colleagues in Morgan Stanley economics expect, it could mean that investors are even more will…
US Economy: Stronger Growth in the U.S. Economy

21 september 2023 · 7 min
Afspelen

Even with the possibility of a fourth-quarter slowdown in consumer spending, positive data across the board suggests the U.S. economy is still on track for a soft landing. Lees meer

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Ellen Zentner: Welcome to Thoughts on the Market. I'm Ellen Zentner, Morgan Stanley's Chief U.S. Economist.

Sarah Wolfe: And I'm Sarah Wolfe, also on Morgan Stanley's U.S. Economics Team.

Sarah Wolfe: And today on the podcast, we'll be discussing our updated U.S. economic outlook for the final quarter of 2023. It's Thursday, September 21, at 10 a.m. in New York.

Sarah Wolfe: Ellen, since early 2022, you and our team have had a conviction that the U.S. economy would slow without a crash and experienced a soft landing. We maintained that view in our mid-year outlook four months ago, but we've recently revised it with an expectation for even stronger growth in the U.S.. Can you highlight some of the main drivers behind our team's more upbeat outlook?

Ellen Zentner: Yes, so I think for me, the most exciting thing about the upward revisions we've made to GDP is that there's a real manufacturing renaissance going on in the U.S. and according to our equity analysts, it is durable and organic. So it's not just being driven by fiscal policy around the CHIPS Act and the IRA, but this is de-risking of supply chains, it's happening across semiconductors, our industrials teams have noted it, our construction teams and our LATAM teams around what's going on in terms of on-shoring, nearshoring with Mexico being the biggest beneficiary. So I think that's a really exciting development that is durable and then the consumer has been more resilient than expected. And I know that, Sara, you've been writing about Taylor Swift effect, Beyoncé effect, Barbenheime, you know, and it's just added to a very robust consumer this year than we had initially expected.

Sarah Wolfe: Ellen, and what about inflation? What role does inflation continue to play at this point? Is the disinflationary proce…
Michael Zezas: China’s Evolving Economy

20 september 2023 · 3 min
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A potential debt-deflation cycle in China could spell opportunity for U.S. Treasuries and Asia corporate bonds outside of China. Lees meer

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Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the impact of China's economy on fixed income markets. It's Wednesday, September 20th, at 10 a.m. in New York.

We spend a lot of time on this podcast talking about the market ramifications of the evolving US-China relationship, and understandably so, as they are the world's biggest economies. But today, I want to focus more on the evolving economy inside of China and how it has implications for global fixed income markets.

A few weeks ago on Thoughts on the Market, my colleague Morgan Stanley's Global Chief Economist Seth Carpenter, detailed how our Asia economics team is increasingly calling attention to what they term China's 3D challenge of debt, demographics and deflation. In short, there's a risk that servicing high levels of debt in China's economy could strain its weak demographic profile and dampen demand in the economy, all leading to a debt deflation cycle. While such an adverse outcome currently is in our economists base case, there's been material slowing in China's economic growth. So in either case, China, at least for the moment, is a weaker consumer on the global stage, meaning they may effectively export disinflation to developed market countries. And while our economists flag this weakness may not translate to substantial disinflation pressures, they also note directionally it may help already cooling inflation in places like the United States.

Understandably, our team in fixed income research across the globe is focused on many potential impacts from the spillover effects of China's 3D challenge. But there's two that stand out to me as most relevant to investors. First, for investors i…
Kickstarting the U.S. Mining Industry

19 september 2023 · 9 min
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A number of U.S. industries rely heavily on critical minerals that must be imported from other countries. Policymakers and business leaders are calling for investment and reshoring to manage that risk. U.S. Public Policy Research Team member Ariana Salvatore and Head of the Metals and Mining Team in North America Carlos De Alba discuss. Lees meer

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Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore from our U.S. Public Policy Research Team.

Carlos De Alba: And I am Carlos De Alba, Head of the Metals and Mining Team in North America.

Ariana Salvatore: On this special episode of the podcast, we'll discuss what we see as an inflection point for the U.S. metals and mining industry. It's Tuesday, September 19th, at 10 a.m. in New York.

Ariana Salvatore: Since 1990, the U.S. has seen a significant increase in both the variety of imported minerals and the level of dependance on these imports. As of right now, U.S. reliance on imported critical minerals has reached a 30 year high, and simultaneously, investment in the industry is near its lowest point in decades. But as we're seeing the world transition to a multipolar model where supply chains are more regional than global, it's becoming ever more obvious that the U.S. needs to turn to reshoring in order to satisfy its growing need for these critical minerals. So, Carlos, before we get too deep in the weeds, let's start off with something simple. Can you define critical minerals for our audience?

Carlos De Alba: Yeah. So the Energy Act of 2020 defined critical minerals as those which are essential to the economy and the national security of the United States. They also have a supply chain that is vulnerable to disruption and serve an essential function in the manufacturing of a product, the absence of which would have significant consequences for the economic and national security of the country. The Act also specified that critical minerals do not include fuel minerals, water, ice …
Seth Carpenter: The ECB, The Fed and Oil Prices

18 september 2023 · 4 min
Afspelen

While the ECB followed headline inflation with raised policy rates yet again last week, the Fed meeting this week may be more focused on core inflation and a hiking pause. Lees meer

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Welcome to Thoughts on the Market. I'm Seth Carpenter, Global Chief Economist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, today I'll be talking about the debate around oil price effects on inflation and growth, and what it means for central banks. It's Monday, September 18th at 10 a.m. in New York.

Last week, the European Central Bank raised its policy rate again. We had expected them to leave rates unchanged, but President Lagarde reiterated that inflation is too high and that the Governing Council is committed to returning inflation to target. She specifically referenced oil among rising commodity prices that pose an upside risk to inflation. From the summer lows of around $70 per barrel, the price of Brent oil has risen to over $93 a barrel. How much should oil prices figure in to the macro debate?

In previous research our economics team has tried to quantify the pass through of oil prices to inflation and different economies. Our takeaway is that for developed market economies, the pass through from oil prices to even headline inflation tends to be modest on average. In the quarter, following a 10% increase in oil prices, headline inflation rises about 20 basis points on average. For the euro area in particular, we have estimated that an increase like we have seen of $20 a barrel should result in about a 50 basis point increase in headline inflation. For core inflation the pass through tends to be less, about 35 basis points. Especially given the starting point though, such a rise is not negligible, but the effect should fade over time. Either the price of oil will retreat or over the next year the base effects will fall out.

But energy prices can also affect spending. Recent research from the Fed estimates the effects of o…
Thematic Research: How AI Can Transform Travel Booking

15 september 2023 · 9 min
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With more companies using artificial intelligence to enhance their travel websites, AI could become the industry norm. Lees meer

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Ed Stanley: Welcome to Thoughts on the Market. I'm Ed Stanley, Head of Thematic Research in Europe. And along with my colleagues bringing you a variety of perspectives, today we'll be taking deep dive into the ways A.I can revolutionize the travel and booking experience. It's Friday, September the 15th at 3 p.m. in London.

Ed Stanley: A.I and the company's most advantaged and likely disrupted have been the hot topic of 2023 for equity markets so far. However, the long term impacts and downstream winners and challenged companies remain fairly ambiguous for some sectors, and travel, hotels, OTAs certainly sit in that more hotly debated camp. We also have on the line our US gaming, lodging and leisure analyst Stephen Grambling with Brian Nowak, US head of Internet research. So Brian, if we could start with you to set the scene a little bit. Investors have been wondering about disrupting online travel for years. What does the hotel booking experience of the future look like, do you think? And what does that mean for travel agencies? And then, Stephen, if you want to follow up with your thoughts on the booking evolution and how that looks. So, Brian, first, please.

Brian Nowak: Yeah, artificial intelligence, I think, is going to really change the overall online travel experience. I think it's going to become a lot more conversational, interactive, personalized and visual, and probably even video based in nature. You know, I think that right now you think about the travel research process where you might be looking for a hotel in Miami the week of the holidays in December that will sleep four people that has access to a beach and a golf course. That experience, the search for that right now is pretty low quality and requires a lot of multiple searches and tabs and apps, and it takes a while. You know, with the way in which thes…
Martijn Rats: Why Energy Sector is Attractive Once Again

14 september 2023 · 4 min
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With the global demand of oil reaching a new high, the spillover in performance is changing the fortune for energy equities and oil markets. Lees meer

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Welcome to Thoughts on the Market. I'm Martijn Rats, Morgan Stanley's Global Commodity Strategist. Along with my colleagues bringing you a variety of perspectives, Today I'll discuss the recent changes in oil markets and why recently we turned bullish on energy equities once again. It's Thursday, September 14th at 2 p.m. in London.

Prices of both crude oil and refined product have risen substantially over the last two months. Brent crude oil is trading once again a little over $90 a barrel, up 20% since the middle of the year. Diesel prices have rallied even more, up 50% since the mid year point and recently surpassing the $1,000 per tonne mark again.

After a fairly lackluster first half, this begs the question what has brought about this sudden change in fortune.

For starters, oil demand is simply robust. In June, global oil demand reached 103 million barrels a day, a new all time high. But on top of that, the recent crude price rally has been supported by strong production cuts from OPEC, particularly Saudi Arabia. In April, Saudi Arabia still exported 7.4 million barrels per day of crude oil. By August, this had fallen to just 5.4 million barrels a day, that is an unusually sharp drop in a very short space time. On a 100 million barrel per day market, that may not look like much, but this is enough to drive the market into deficits, cause inventories to decline and prices to rise.

What has given refined product prices, like diesel, a further boost has been tightness in the global refining system. Capacity closures during COVID, logistical difficulties in replacing Russian crude in European refineries and an unexpectedly large number of unplanned outages, partly because of a hot summer, have effectively curtailed refining capacity. Like last year, it has been all hands on deck in global refining …
U.S Housing: The Impact of Raising Rates

13 september 2023 · 6 min
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Even though mortgage rates are up 100 points since the beginning of 2023, home prices are likely to stay flat or increase due to tight housing supply. Lees meer

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Jim Egan: Welcome to Thoughts on the Market. I'm Jim Egan, co-head of U.S. Securitized Products Research here at Morgan Stanley.

Jay Bacow: And I'm Jay Bacow, the other Co-Head of U.S. Securities Products Research.

Jim Egan: And on this episode of the podcast, we'll be discussing U.S. home prices. It's Wednesday, September 13th at 11 a.m. in New York.

Jay Bacow: Jim, mortgage rates are up over 100 basis points since the beginning of the year, but I hear you were turning more optimistic on home prices. What gives?

Jim Egan: Well, the first thing that I would say is that home price data is pretty lagged and that an increase in mortgage rates is not going to be felt immediately in the data. For instance, let's assume the last week of August ends up being the peak in mortgage rates for this cycle. When would you expect that rate to start showing up in actual purchase mortgages?

Jay Bacow: So, if the peak in mortgage rates is the end of August, we will get data on people applying for the mortgage the following week from the Mortgage Bankers Association. But it takes about seven weeks right now to close a mortgage. If the peak was at the end of August, the mortgages are probably closing towards the end of October, almost at Halloween. But if it closes in October, Jim, when will we actually get that data?

Jim Egan: Right. The home price data is even more lagged than that. The Case-Shiller prints that we forecast and that we've talked about on this podcast, those come out with a two month delay. So those October sales, we're not going to see until December. Again, for instance, the print we just got at the end of August, that was for home prices in June.

Jay Bacow: So in other words, we haven't seen the full impact of this increase in rates yet on the housing market and the data that we can se…
Vishy Tirupattur: U.S. and China on Divergent Paths

13 september 2023 · 3 min
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Economic growth data from the summer has bolstered belief in a possible soft landing in the U.S., while China has experienced a faster-than-expected deterioration in the macro environment. 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 our views on the markets as we head into the fall. It's Tuesday, September 12th at 10 a.m. in New York.

As many of us head back to school, Morgan Stanley Global economics and strategy teams look back on how the economy and the markets have evolved over the summer and look ahead to what changing narratives mean for the economic outlook and asset markets. Our debate centered on two key issues. One, the outperformance of the U.S. economy and the underperformance of China economy. And two, the recent spike in government bond yields at the longer end of the curve.

The U.S. economy has been outperforming our expectations and has led markets over the summer to push out the first expected cut into 2024. The concern is that a still hot economy means that the Fed can keep policy restrictive for longer. Acknowledging the strong incoming data, our economists have revised their 2023 growth expectations significantly higher for the U.S. from 0.4% to 1.7%, even as they maintain that the Fed is done hiking and will be on hold until first quarter of 2024.

On the other hand, in China, the trajectory of economic growth has been different. Over the summer, data have been pointing to a faster than expected deterioration in the macro environment. We have seen successive and incremental property and infrastructure easing measures, but market confidence has not returned and debates around earnings, spillover effects on global growth and the impact on commodities are growing. Noting the macro and policy challenges since the mid-year outlook, our China economists have revised their 2023 g…
Global Economy: Fall Outlook for Rates and the Economy

12 september 2023 · 9 min
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Heading into the end of the year, questions remain around Treasury yields and the neutral interest rate. Lees meer

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Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Chief Global Economist.

Guneet Dhingra: And I'm Guneet Dhingra, Morgan Stanley's Head of U.S. Trade Strategies.

Seth Carpenter: And today on the podcast, we'll be discussing our updated economic and rates outlook for the rest of the year and into 2024. It's Monday, September 11th, at 10 a.m. in New York.

Seth Carpenter: All right, Guneet. We are now about a week into September and we can take stock of what we've learned over the summer. For macroeconomists like me we care about growth, inflation, monetary policy, and I'll say this summer spending indicators came in strong, inflation continued to fall, and we had Jackson Hole, the sort of nerd temple for monetary policy. And I have to say we didn't learn quite as much as I hoped, but we kind of know the Fed has done hiking, or at least very close. But I have to say, in your domain, the Treasury yield is trading roughly 4.25%. On the last day of June, when summer began, it was around 380. Can we just attribute the higher rate to thin liquidity and move on?

Guneet Dhingra: You're right Seth, it's not just thin liquidity, but the conditions of August definitely played a meaningful part in sending yields higher. Typically, as investors look to go away for August, positive carry trades are the easiest trades to have on, and playing for higher yields has been positive carry. Which is why I think in August this year and even the last year, yields tended to go higher. But beyond August, seasonality, which might be the simplest explanation, investors have 4 major narratives out there that R-star, the so-called neutral rate of interest has increased, the end of yield curve control in Japan, more Treasury supply and more recently at the end of the summer, and increased supply of corporate debt.

Guneet Dhingr…
Andrew Sheets: A Murky Forecast for Equities and High-Yield Bonds

8 september 2023 · 3 min
Afspelen

Both equities and high-yield bonds could benefit from an end to ratings hikes, but may still face risks from company earnings revisions, a potential U.S. government shutdown and other events on the horizon. Lees meer

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Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Corporate Credit Research at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, September 8th at 2 p.m. in London.

The week after Labor Day is both a refreshing return to more normal market conditions, and a rush. As investors head back to school, so to speak, here are a few big issues that we think they should be focused on.

First and most importantly, we think the next few months will be about cementing the idea that both the Fed and the ECB are done raising interest rates for the foreseeable future. Given better than expected core inflation data in the U.S. and worse than expected growth data in Europe, we think neither central bank will raise rates at their meetings this month. And then further out, we think they stay on hold as lowered levels of bank loan growth, slower job growth and a continued decline in core inflation will reinforce the idea that central banks have raised rates enough.

For markets, the end of a central bank rate hiking cycle tends to be pretty good for high grade bonds. Indeed, going back over the last 40 years, the dates of the last Fed funds rate increase and the local high point for yields on the U.S. aggregate bond index, line up almost to the month. The logic in this relationship also feels intuitive. If the Fed is done raising rates, one of two things has probably happened. It stopped raising rates at the correct level to bring inflation down without a recession and bonds like that lower inflation and more certainty, or they stopped because they've raised rates too much, slowing growth in i…
Stephen Byrd: Watch Out for El Niño

7 september 2023 · 4 min
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A strong El Niño event in the coming months could have negative effects for food inflation, commodities markets and climate change. Lees meer

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Welcome to Thoughts on the Market. I'm Stephen Byrd, Morgan Stanley's Global Head of Sustainability Research. Along with my colleagues bringing you a variety of perspectives today, I'll discuss the global risks and impact from a potential El Niño event later this year. It's Thursday, September 7th at 10 a.m. in New York.

Over the last few months, as you've been doing your backyard grilling or taking a well-deserved summertime vacation, you may have heard a passing news reference to a climate pattern called El Niño. And although I'm an equity analyst and not a meteorologist, I'm going to talk about El Niño today because it could have some significant impacts for investors.

To explain, El Niño refers to a warming of the ocean surface or above average sea surface temperatures in the central and eastern tropical Pacific. It's the counterpart to La Niña, which refers to the cooling effect of the same ocean surfaces. Essentially, El Niño and La Niña represent opposite extremes in the El Niño Southern Oscillation or ENSO. ENSO follows cyclical patterns that repeat at a 2 to 7 year cadence and tend to peak in the November to February window. Current conditions imply about a 70% probability that we could be facing a moderate to strong El Niño event later this year with a range of potentially significant impacts across regions and industries.

First, although El Niño starts in the Pacific equator area, it has a significant impact on global weather. El Niño tends to peak around year end, impacting global rains and temperatures. El Niño driven seasonal patterns in the U.S., Argentina and the Andes tend to be wet, while those in Southeast Asia, Australia, Brazil, Colombia and Africa tend to be dry. This dynamic creates conditions that move wildfires and hurricanes from the Atlantic into the Pacific area.

El Niño events a…
Michael Zezas: Congressional Return Raises Questions for Markets

6 september 2023 · 3 min
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Investors anticipate new legislation on tech regulation, AI and defense, amid speculation about a potential government shutdown. Lees meer

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Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about Congress coming back in the session and its impact on markets. It's Wednesday, September 6th, at 10 a.m. in New York.

Congress returns from summer break this week with a full agenda. Expect to see tons of headlines on various policies that markets care about. Tech regulation, artificial intelligence regulation, defense spending, disaster relief aid and the risk of a government shutdown, are just some of the issues that should be tackled. It can be a bit overwhelming, so here's our cheat sheet for September in D.C. to help cut through the noise and understand why this could be a good set up for U.S bonds.

On tech regulation and A.I, don't expect any meaningful movement here. New versions of legislative proposals on data privacy and liability for spreading misinformation may come, but there's still no comprehensive bipartisan agreement that could turn proposals into law. So we continue to expect that this only becomes possible after the 2024 election delivers a new government makeup.

On defense spending, we expect that aid to Ukraine will continue and the Congress will approve overall defense spending levels in excess of the cap set by the agreement put in place alongside the hike of the debt ceiling. There's bipartisan agreement here, with the exception of House Republicans. Resolving issues with those holdouts will likely take brinkmanship over a government shutdown and perhaps even an actual government shutdown, but ultimately we see a deal that should be positive for a defense sector which has benefited recently by elevated spending by Western governments.

The biggest story to track, though, is that…
Mike Wilson: Are Stocks Beginning to Question Economic Resiliency?

5 september 2023 · 4 min
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While valuations may be on the rise, fears around the resiliency of the economy could return and leave unguarded investors on uneven footing. Lees meer

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Welcome to Thoughts on the Market. I'm Mike Wilson, Chief investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Tuesday, September 5th at 10 a.m. in New York. So let's get after it.

In a world of price momentum, opinions about the fundamentals are often driven by the direction of price. Some of this is due to the view that markets are all knowing and often the best leading indicator for the fundamentals. After all, stocks are discounting machines and tell us what's likely to happen in the future rather than what is happening today. The old adage "buy the rumor and sell the news", is another way to think about this relationship. Using this philosophy, the move higher in stocks this year has provided the confidence for many to turn fundamentally bullish from what was an overly bearish consensus backdrop in the first quarter. The entire move in the major U.S. equity averages this year has been the result of higher valuations. However, with forward price earnings multiples reaching 20 times on the S&P 500 last month, not only are stocks anticipating higher earnings and growth, but they now require it. The other reason price momentum works has little to do with the fundamental outlook. Instead, price momentum often leads investors to chase or sell that momentum. It's human nature to want to go with the trend both up and down.

Most were too negative on the economy at the beginning of the year, including us. The failure of a few large regional banks and negative price reaction in the stock market reinforced that view. However, when the recession didn't arrive, there was a fundamental reason to reverse that view. The price action in April and May suppo…
U.S. Consumer: How U.S. Consumers Are Shopping to Go Back to School

1 september 2023 · 7 min
Afspelen

Although back-to-school spending appears to be trending higher than in 2022, there are signs that U.S. consumers could feel pinched before the holiday season. Lees meer

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Sarah Wolfe: Welcome to Thoughts on the Market. I'm Sarah Wolfe from Morgan Stanley's U.S. Economics Team.

Simeon Gutman: And I'm Simeon Gutman, an Equity Analyst covering the U.S. Hard Lines, Broad Lines and Food Retail Industries.

Sarah Wolfe: And on this special episode of the podcast, we'll focus on back to school shopping trends and what they suggest for the U.S. consumer outlook for the rest of the year. It's Friday, September 1st at 10 a.m. in New York.

Simeon Gutman: Sarah, back to school shopping is in full swing as we go into the Labor Day weekend and end of the summer. As an economist who focuses on the U.S. consumer. I know you track it closely. Why is back to school shopping such an important indicator in general, and what is it suggesting about the overall health of the U.S. consumer?

Sarah Wolfe: Back to school is a large shopping event across July and August each year, which is an event that is only as strong as the strength of the U.S. household. If households feel good about job prospects and inflation is not eating away at their buying power, you should see that reflected in back to school sales. If we go back to summer 2022, headline inflation was 8% going into back to school shopping, and there were lingering concerns about COVID disrupting school. In 2023, certain headwinds to the consumer are risks to spend, these include higher debt service costs, tighter lending standards and a student loan moratorium expiring in October, but a still strong labor market and abating inflationary pressures that have supported a recovery in real wages should outweigh the downside risk and lead to a moderate back to school spending year. So what does this all mean for what we're seeing in the data? Our early read on July back to school shopping and in-store sales is that they'…
Daniel Blake: Japan’s Surge in GDP Growth

1 september 2023 · 4 min
Afspelen

While recent news of a potential debt deflation loop in China’s equity market is causing concern for investors, Japan’s equity market resilience may bring optimism. Lees meer

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Welcome to Thoughts on the Market. I'm Daniel Blake from Morgan Stanley's Asia and Emerging Markets Equity Strategy team. Along with my colleagues, bringing you a variety of perspectives, today I'll discuss the Japanese equity market vis-a-vis China. It's Thursday, August 31st at 9 a.m. in Singapore.

We recently did a three part series on this show focusing on our economic and market outlook for Japan. We discussed a bullish view on Japan equities, which is driven by three powerful drivers of outperformance coming together, namely macro, micro and the transition to a multipolar world.

Recently, however, there's been investor concern about the potential impact on Japan from a Chinese debt-deflation loop, that is a scenario where prices fall, debt rises and economic growth stagnates, and this is the risk that I will discuss today.

As a reminder, our economists came into 2023 flagging Japan as a standout developed market for growth momentum. In contrast to a U.S and European slowdown, as Japan continues to benefit from COVID reopening, ongoing stimulatory policy and a competitive currency. Since then, we have seen upside surprises, such as in wages and capital investments amid what we see as confirmation of a move into a structurally higher nominal GDP growth path.

Indeed, Japan's recent second quarter GDP figures confirmed that trend, with a surge in real and nominal GDP to 6% and 12% annualized respectively. Following this result, our economists have doubled their 2023 GDP forecast to 2.2%, and this stands in contrast to China's GDP growth trend, where our economists have been reducing forecasts and will see nominal GDP growth slow below that of Japan to 4.8% over the last year.

So the key exception to a generally bullish picture for Japan has been its linkages to China. Whi…
Energy: Are Europe’s Clean Energy Goals Realistic?

31 augustus 2023 · 9 min
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Although Europe has been the global leader when it comes to greening its economy, recent challenges may be a cause for concern. Lees meer

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Rob Pulleyn: Welcome to Thoughts on the Market. I'm Rob Pulleyn, Morgan Stanley's Head of Utilities of Clean Energy Research in Europe.

Jens Eisenschmidt: And I'm Jens Eisenschmidt, Morgan Stanley's Chief Europe Economist.

Rob Pulleyn: On this special episode of this podcast, we'll be discussing the future of Europe's energy transition, including whether its clean energy goals are realistic and the implications for investors and Europe's broader economy. It's the 30th of August, 10 a.m. in London.

Rob Pulleyn: Europe has long been a global leader when it comes to greening its economy. Strong societal and political support has bolstered the region's transition to clean sources of energy, with a European Green Deal and climate target plan aiming to reduce CO2 emissions by at least 55% by 2030 and achieve net zero by 2050. While substantial progress has been made over the previous decades, the region is now facing several challenges. Jens, can you give us the backdrop to Europe's energy transition and some of what's changed recently?

Jens Eisenschmidt: Yes Rob, I mean, you have explained it already. There are big change targets, climate change related targets to the energy transition that Europe has subscribed to. These targets were in place already before the 24th of February in 22, when we saw the Russian invasion in Ukraine that changed the European energy set up profoundly. Now, why is this important? It's important because these targets were done in sort of a plan that relied on a certain energy source that is no longer existing. So let me give you an example. Let's take Germany, which was anyway already quite progressed in its journey onto increasing the share of renewables in electricity production. If you take Germany, they have been turning their back on nuclear power generation, which is another source o…
Seth Carpenter: The Global Implications of China’s Deflation

29 augustus 2023 · 4 min
Afspelen

If China economic woes become a true debt deflation cycle, it could export some of that disinflation to the global economy. Lees meer

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Welcome to Thoughts on the Market. I'm Seth Carpenter, Global Chief Economist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, today, I'll be talking about the global implications of China's economic slowdown. It's Tuesday, August 29th, at 10 a.m. in New York.

China's economic woes continue to be center stage. Our Asia team has outlined the risks of a debt deflation cycle there and how policy is needed to avert the possibility of a lost decade. As always, big economic news from China will get global attention. That said, when we turned bullish on China's economic growth last year, we flagged that the typical positive spillovers from China were likely to be smaller this cycle than in the past.

We expected growth to be heavily skewed towards domestic consumption, especially of services, and thus the pull into China from the rest of the world would be smaller than usual. We also published empirical analysis on the importance of the manufacturing sector to these global spillovers, and the very strong Chinese growth and yet modest global effects that we saw in the first quarter of this year vindicated that view. Now the world has changed and Chinese growth has slumped, with no recovery apparent so far.

The global implications, however, are somewhat asymmetric here. Because we are seeing the weakness now show through to the industrial sector and especially CapEx spending, we cannot assume that the rest of the world will be as insulated as it was in the first quarter. Although we have recently marked down our view for Chinese economic growth, we still think a lost decade can be avoided. Nevertheless, with Chinese inflation turning negative, the prospect of China exporting disinflation is now getting discussed in markets.

Much of the discussion about China exporting this inflation start…
Vishy Tirupattur: Banking Regulations Could Reduce Available Credit

29 augustus 2023 · 4 min
Afspelen

Proposed regulations for smaller banks show that turmoil in the banking sector may still have an impact on the broader economy. 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 links between regulations and the real economy. It's Monday, August 28, at 11 a.m. in New York.

In the euphoria of buoyant equity markets over the last few months, the many challenges facing regional banks have receded into the background. While it certainly has not been our view, a narrative has clearly emerged that the issues in the sector that erupted in March are largely behind us. The ratings downgrades by both Moody's and Standard & Poor's of multiple U.S. banks in the last few weeks provide a reminder that the headwinds of increasing capital requirements, higher cost of funding and rising loan losses continue to challenge the business models of the regional banking sector.

The rating agency actions come on the heels of proposed rules to modify capital requirements for banks with total assets of 100 billion or more. Separately, the Fed has proposed a capital rule on implementing capital surcharge for the eight U.S. global systemically important banks. Further proposed regulations on new long term debt requirements for banks with assets of $100-700 billion are due to be announced tomorrow. It is early in the rulemaking process for all of these proposals. They may change after the comment period and the rules will be phased in over several years once they are finalized. Nevertheless, they outline the framework of the regulatory regime ahead of us.

While we won't go into the detailed discussion of thousands of pages of proposals here, suffice to say that the documents envisage significantly higher capital requirement for much of the U.S. banking sector, and extends several large bank requirements to much smaller ba…

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Andrew Sheets: Upgrades and Downgrades in Corporate Credit

US Economy: What Generative AI Means for the Labor Market

Michael Zezas: What the New U.S. Speaker Means for Markets

U.S. Housing: The Impact of High Mortgage Rates

Mike Wilson: 2023 Stock Market Comes Full Circle

Andrew Sheets: Optimism in Corporate Credit

Asia Equities: China’s Risk of a Debt Deflation Loop

Vishy Tirupattur: Implications of the Treasury Market Selloff

Matthew Hornbach: The Impact of Policy on Bond Markets

Mike Wilson: Are Earnings Expectations Too High?

Ellen Zentner: The Rise of the SHEconomy

Global Autos: Automotive’s Smartphone Moment

Michael Zezas: The Impact of Geopolitical Tension

Global Tech: Generative AI and Asset Management

Seth Carpenter: Are Higher Rates Permanent?

Vishy Tirupattur: Treasury Yields Move Higher

Chetan Ahya: What Would Trigger Rate Hikes in Asia?

Michael Zezas: Signals from the Speaker of the House Vacancy

Keith Weiss: How Generative AI Could Affect Jobs

Michelle Weaver: The Priorities of the U.S. Consumer

U.S Equities: Credit Continues to Outperform

Todd Castagno: Rising Growth in Convertibles Bonds

Vishy Tirupattur: Corporate Credit Divided by Quality

U.S. Consumer: Opportunity in Online Grocery

Mike Wilson: Has the U.S. Government Hit a Fiscal Wall?

U.S. Economy: What AI Means for People Doing Multiple Jobs

Jonathan Garner: Volatility in Asia and Emerging Markets

U.S. Policy: The Economic Impact of a Government Shutdown

Andrew Sheets: GDP, Inflation and a Possible Government Shutdown

Mike Wilson: A Shift in Stock Personalities

Andrew Sheets: The Rise of Corporate Bond Yields

US Economy: Stronger Growth in the U.S. Economy

Michael Zezas: China’s Evolving Economy

Kickstarting the U.S. Mining Industry

Seth Carpenter: The ECB, The Fed and Oil Prices

Thematic Research: How AI Can Transform Travel Booking

Martijn Rats: Why Energy Sector is Attractive Once Again

U.S Housing: The Impact of Raising Rates

Vishy Tirupattur: U.S. and China on Divergent Paths

Global Economy: Fall Outlook for Rates and the Economy

Andrew Sheets: A Murky Forecast for Equities and High-Yield Bonds

Stephen Byrd: Watch Out for El Niño

Michael Zezas: Congressional Return Raises Questions for Markets

Mike Wilson: Are Stocks Beginning to Question Economic Resiliency?

U.S. Consumer: How U.S. Consumers Are Shopping to Go Back to School

Daniel Blake: Japan’s Surge in GDP Growth

Energy: Are Europe’s Clean Energy Goals Realistic?

Seth Carpenter: The Global Implications of China’s Deflation

Vishy Tirupattur: Banking Regulations Could Reduce Available Credit