Thoughts on the Market

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1. Andrew Sheets: Will Markets Stay Resilient?

   14 juni 2023 · 3 min

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   While investors are feeling optimistic with the strong performance in markets despite some predicted challenges, it may be too soon to tell if these possible hurdles have been completely avoided. Lees meer

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   Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist 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 Wednesday, June 14th at 2 p.m. in London.

   It's hard to ignore a sense of relief and increased optimism that's starting to percolate among investors. After a hard 2022, there was widespread trepidation entering this year that slower growth, quantitative tightening and further rate hikes would continue to pressure markets. Yet year-to-date, performance has been pretty good. Is that evidence that these problems aren't really problems anymore?

   Markets have been strong. But in terms of that strength showing that markets have passed the test of slower growth or policy tightening, I think it's more accurate to say that it's too soon to tell.

   Let's start with the idea that markets have already weathered a period of weaker growth. While leading economic indicators of the economy are soft, so far, actual activity has held up pretty well. The U.S. economy grew 1.3% in the first quarter and has added 1.6 million new jobs year-to-date. It's the coming quarters, specifically the next 3 to 6 months, where our economists see the weakest stretch of economic activity.

   Next, how about market resilience suggesting that rate hikes don't matter, or at least don't matter very much? Here we think the question is to what extent rate increases hit with a lag. The optimistic case is that markets are forward looking, and thus have already discounted the full impact of very large recent rate increases by both the Fed and the European Central Bank.

   But there's also a school of thought that higher rat…

2. European Equities Outlook: Short-Term Pain, Long-Term Gain

   13 juni 2023 · 4 min

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   With the European economy losing momentum amidst a rally in growth stocks globally, the time of European equity outperformance may be in the past for now. Lees meer

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   Welcome to Thoughts on the Market. I'm Graham Secker, Head of Morgan Stanley's European Equity Strategy Team. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the outlook for European equities in the second half of this year. It's Tuesday, June 13th at 2 p.m. in London.

   After a record burst of outperformance between October and March, European equities have started to underperform their international peers over the last couple of months, and we think this is likely to continue over the summer for two reasons.

   Firstly, the European economy seems to be losing some momentum, with many of the region's leading economic indicators turning back down over the last month or so. Now, while the magnitude of their reversal is small so far in absolute terms, the European Economic Surprise Index, which tracks how the data comes in relative to expectations, has fallen much more sharply and is now close to a ten year low. We think this is an important development, as this index is often a good lead indicator for future earnings and hence is now pointing to downside risks ahead for corporate profitability in Europe.

   The second factor starting to drag on Europe's relative performance, is the strong rally in growth stocks that we are seeing globally. While Europe has its own fair share of such companies, its tech weight overall remains considerably below that of most other regions. For example, tech is at about 7% of the European equity market versus 13% for Asia and over 30% for the U.S.. Quite simply, the size of this differential makes it difficult for Europe to keep pace with other regions when growth stocks are outperforming more broadly, such as now.

   While these two factors are likely to weigh on Europe's relative performance in the near term, we also see dow…

3. Mike Wilson: A Historically Concentrated Market

   12 juni 2023 · 5 min

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   With AI gaining momentum among investors and the Fed potentially pausing on rate hikes, signs are now pointing towards the end of the bear market rally. 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, June 12th at 11 a.m. in New York. So let's get after it.

   At the beginning of the year, we noted that our view is much more in line with the consensus and we discussed that it might take some time for that to change. Suffice it to say, it has taken longer than we expected. At the end of January, sentiment and positioning had improved enough to put stocks in a vulnerable state, and sure enough, we had a 10% correction in the S&P 500 over the following six weeks, with the average stock down about 13%. Since then, the average stock has lagged the overall index by about 10%. We think this is mostly due to increased liquidity from the depositor bailouts, at the same time artificial intelligence began to gain momentum with investors. The combination of perceived safety and of newfound open ended growth story was too much for investors to resist. Hence, we have one of the most concentrated markets in history.

   For most of the past two months, sentiment has remained somewhat pessimistic, which is part of the reason why the average stock hasn't done very well. But sentiment has turned outright bullish in the past week. Furthermore, it's not just sentiment, as both retail and institutional flows have returned to the equity markets with technology and artificial intelligence the dominant themes.

   This past week there were several other warning signs that this bear market rally may have finally exhausted itself after eight months. First, several sell side strategists and market commentators have publicly stated the bear market i…

4. Mid-Year Strategy Outlook: Risk/Reward in Currency and Commodities

   9 juni 2023 · 10 min

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   While the forecast for global bonds remains strong for the latter half of 2023, other asset classes could see bifurcated results across regions. Lees meer

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

   Andrew Sheets: And I'm Andrew Sheets, Morgan Stanley's Chief Cross-Asset Strategist.

   Seth Carpenter: And on part two of the special two-part episodes of the podcast, we're going to focus on Morgan Stanley's year ahead strategy Outlook. It's Friday, June 9th at 10 a.m. in New York.

   Andrew Sheets: And 3 p.m. in London.

   Seth Carpenter: All right, Andrew, in the first part of this two part special, you were grilling me on the economic outlook. You were taking me to task on all of our views, pointing out the different ways in which our clients, investors around the world were pushing back at different parts of our story. And now, it's payback time. Let me ask you, basically, what are we thinking as a research house in terms of where the best trades are likely to be for markets? We're looking for a soft landing in the U.S., but that doesn't mean a good outcome. So very weak economic activity and policy rates that are still restrictive. So what is that type of backdrop going to mean for one of the most closely watched assets in the world, the U.S. dollar?

   Andrew Sheets: Sure. So we do think that this backdrop, despite the fact that on the surface it looks decent, you have the U.S. and Europe avoiding recession. You have stronger growth in Asia, but you have a lot of uncertainties that are front loaded, and you still have slowing growth, you still have tight monetary policy. And we think this is going to still lead to a somewhat more difficult backdrop for markets over the next three months. And so I think in that context, the U.S. dollar looks quite attractive. The US dollar pays investors to hold it, it's a so-called positive carry currency against most major currencies and it's a diversif…

5. Mid-Year Economic Outlook: A Dichotomy Worth Watching

   9 juni 2023 · 11 min

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   As we look toward the second half of 2023, the U.S. and Europe are likely to see very slow growth but avoid a recession, while Asia may be poised to become an engine of economic growth. Lees meer

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   Andrew Sheets: Welcome to Thoughts in the Market. I'm Andrew Sheets, Morgan Stanley's Chief Global Cross-Asset Strategist.

   Seth Carpenter: And I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.

   Andrew Sheets: And on this special two part episode of the podcast, we'll be discussing Morgan Stanley's global mid-year outlook. Today we'll focus on economics, and tomorrow we'll turn our attention to strategy. It's Thursday, June 8th at 3 p.m. in London.

   Seth Carpenter: And it's 10 a.m. in New York.

   Andrew Sheets: Seth, it's great to sit down with you. We've been talking over the last several weeks as Morgan Stanley's gone through this outlook process. And this is a big joint collaborative forecasting process across Morgan Stanley research, where the economists and the strategists get together and think about what the next 12 to 18 months might look like. And, you know, we're sitting down at this really fascinating time for markets. The U.S. labor market is at some of its strongest levels since the late 1960s. Core inflation is at levels that we really haven't seen since the 1980s. The Federal Reserve and the European Central Bank have been raising rates at a pace that hasn't really been seen in 30 or 40 years. So, as you step back from all of these quite unusual occurrences, Seth, how do you frame where the global economy is at the moment and where is it headed?

   Seth Carpenter: I'd say there's one major dichotomy that I'll first start with in the global economy. On the one hand, Asia as a region really poised to have the strongest economic growth. And in very sharp contrast, when I think about the rest of the world, the United States and the Euro area, we see those as being actually quite weak. Second, China, you can't get out of a discussion of the…

6. Michael Zezas: After the Debt Ceiling, What’s Next?

   7 juni 2023 · 2 min

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   On the heels of Congress’s raising the debt ceiling, markets are wondering: What’s next from D.C.? Here are three things we’re watching. 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 what we're watching in Washington, D.C.. It's Wednesday, June 7th at 3 p.m. in New York.

   Now that the debt ceiling has been raised and the risk of a U.S. default is behind us for quite some time, it begs the question, what could come next out of Washington, D.C. that markets need to care about? While there's nothing definitively impactful on the horizon from our perspective, here's three things we're watching.

   First, we continue to expect that, any day, the White House could announce new restrictions on outbound investments towards China. If this were to occur, its scope would matter greatly. Limited restrictions might not matter, but wide ranging restrictions could seriously interrupt foreign direct investment into China at a time when investors are asking questions about the sustainability of China's economic recovery in light of some recent weak data.

   Second, we have to keep an eye on the emerging discussion around AI regulation. To be clear, there don't yet appear to be any well-formed views by either party on how regulation should develop. So Congress is likely far from action. But the shape of any eventual action will likely determine which use cases for AI will be permitted. So paying attention to these emerging debates will be important.

   Finally, candidates for president in the 2024 U.S. election have started to emerge. This has stoked questions about potential looming changes in policies that matter to markets. This includes tax policy, where key corporate and personal tax changes are set to expire starting in 2025, making the outcome of the election potentially impactful to corporate …

7. Mid-Year U.S. Consumer Outlook: Spending, Savings and Travel

   7 juni 2023 · 8 min

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   Consumers in the U.S. are largely returning to pre-COVID spending levels, but new behaviors related to travel, credit availability and inflation have emerged. Lees meer

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   Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver from the Morgan Stanley U.S. Equity Strategy Team.

   Sarah Wolfe: And I'm Sarah Wolfe from the U.S. Economics Team.

   Michelle Weaver: On this special episode of the podcast, we're taking a look at the state of the U.S. consumer as we approach the midyear mark. It's Tuesday, June 6th at 10 a.m. in New York.

   Michelle Weaver: In order to talk about where the consumer is right now, let's take it back two and a half years. It's January 2021, and households are slowly emerging from their COVID hibernations, but we're still months away from the broad distribution of the vaccine. Consumers are allocating 5% more of their wallet share to goods than before COVID, driving record consumption of electronics, home furnishings, sporting goods and recreational vehicles. All the things you needed to make staying at home a little bit better. Our U.S. economists at Morgan Stanley made a high conviction call in early 2021 that vaccine distribution would flip the script and drive a surge in services spending and a payback in goods spending. Sara, to what extent has this reversion played out and where do you think the U.S. consumer is now?

   Sarah Wolfe: The reversion is definitely played out, but there's been some big surprises. Basically, the spending pie has just been greater overall than expected, and that's thanks to unprecedented fiscal stimulus, excess savings and significant supply shortages. So we've not only seen a shift away from goods and toward services, but a much larger spending pie overall. The result has been a 13% surge in goods inflation over nearly three years, an acceleration in services inflation, and a return to pre-COVID spending habits that's much greater in real spending terms than in nominal terms. So if we lo…

8. Mike Wilson: Earnings Cycle Still Running Short and Hot

   5 juni 2023 · 4 min

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   The recovery in 2024 and 2025 looks promising, but the worst of the earnings cycle is likely not over, even for technology stocks. 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 a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, June 5th at 11 a.m. in New York. So let's get after it.

   For the past several years, our overarching view on markets has been driven by our hotter but shorter cycle regime framework. More specifically, we wrote a report over two years ago that argued this cycle will run hotter, but shorter than what we've experienced over the past 50 years. We based this thesis in part on our comparison to the post-World War II time period, which looks quite similar to today in many respects. First and foremost, the excess savings buildup during World War II and the COVID lockdowns were released into the economy at a time when supply was constrained. The punch line is that both the fundamentals and asset prices returned to prior cycle highs at a historically fast pace. There's booming inflation in earnings in 2021, then led to the Fed tightening policy at the fastest pace in 40 years, a policy reaction that proved to be surprising to many investors. Now, we suspect many will be surprised again by the depth of their earnings decline in 2023, as well as the subsequent rebound in 2024 and ‘25.

   In a major deviation from the past 30 years, we think stocks are now positively correlated to the rate of change and inflation. We also believe this new inflationary cycle is better for stocks and bonds, at least over the secular time horizon of 7 to 10 years. However it will be volatile, with significant cyclical ups and downs that should be traded if one wants to fully capture the excess returns in this new regime. In short, the boom bust period that began in 2020 is cur…

9. Special Encore: Erik Woodring: Are PCs on the Rebound?

   2 juni 2023 · 4 min

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   Original Release on May 11th, 2023: While personal computer sales were on the decline before the pandemic, signs are pointing to an upcoming boost. Lees meer

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   Welcome to Thoughts on the Market. I'm Erik Woodring. Morgan Stanley's U.S. IT Hardware Analyst. Along with my colleagues, bringing you a variety of perspectives, today I'll discuss why we're getting bullish on the personal computer space. It's Thursday, May 11th, at 10 a.m. in New York.

   PC purchases soared during COVID, but PCs have since gone through a once in a three decades type of down cycle following the pandemic boom. Starting in the second half of 2021, record pandemic driven demand reversed, and this impacted both consumer and commercial PC shipments. Consequently, the PC total addressable market has contracted sharply, marking two consecutive double digit year-over-year declines for the first time since at least 1995.

   But after a challenging 18 months or so, we believe it's time to be more bullish on PCs. The light at the end of the tunnel seems to be getting brighter as it looks like the PC market bottomed in the first quarter of 2023.

   Before I get into our outlook, it's important to note that PCs have historically been a low growth or no growth category. In fact, if you go back to 2014, there was only one year before the pandemic when PCs actually grew year-over-year, and that was 2019, at just 3%. Despite PCs' low growth track record and the recent demand reversal, our analysis suggests the PC addressable market can be structurally higher post-COVID. So at face value, we're making a bit of a contrarian bullish call.

   This more structural call is based on two key points. First, we estimate that the PC installed base, or the number of pieces that are active today, is about 15% larger than pre-COVID, even excluding low end consumer devices that were added during the early days of the pandemic that are less likely to be upgraded going forward.

   Second, if you assume that users replac…

10. Adam Jonas: The Inconvenient Truths About EV Batteries

    1 juni 2023 · 4 min

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    With the rapid adoption of electric vehicles, onshoring the critical battery supply chain poses significant challenges and will drive sizable investments. Lees meer

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    Welcome to Thoughts on the Market. I'm Adam Jonas, Head of Morgan Stanley's Global Auto and Shared Mobility Team. Along with my colleagues bringing you a variety of perspectives, today we'll be talking about the global EV battery supply chain. It is Thursday, June 1st at 9 a.m. in New York.

    The rapid adoption of electric vehicles has brought to investor attention some rather inconvenient truths. We all know EVs require batteries, but today's battery supply chain involves some high environmental externalities, emissions, water usage, labor practices. And 70 to 90% of the upstream battery supply chain runs through the People's Republic of China. Re-architecting and on-shoring the EV battery supply chain is easier said than done.

    In our recent Global Insights report, we introduced a framework centered on two core variables. One, the rate of EV adoption, faster versus slower, and two EV supply chain sourcing, China dependent versus more diversified. At the crux of our analysis is the tradeoff between near-term EV penetration and on-shoring policies. Billions of taxpayer dollars are being thrown at an industry where the technology is still in its early stages of finding scalable industrial standards. Even as mineral extraction, refining and battery assembly all occurred on-shore, you still have to consider that battery manufacturing involves high carbon emissions and EVs require more energy intensive metals vis-à-vis internal combustion vehicles.

    We explore three scenarios across our framework. First, the China case, which entails rapid EV penetration, increasing the West's dependance on China. Second, the derisking case, which entails a more diversified supply chain with rapid even adoption requiring significant policy action. And third, the slow EV case, where the focus on on-shoring tran…

11. Michael Zezas: A Step Forward in the Debt-Ceiling Debate

    31 mei 2023 · 2 min

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    While an agreement on suspending the debt ceiling seems likely to make it through Congress, investors may want to monitor bank deposits for lingering risks. Lees meer

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    Welcome to 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 U.S. debt ceiling and its impact on markets. It's Wednesday, May 31st at 9 a.m. in New York.

    Today should bring a key step forward in resolving the debt ceiling dispute in Washington, D.C.. After the White House and Republican leadership reached an agreement over the weekend to pair a debt ceiling increase with a fiscal plan that caps spending growth for a time, the legislative plan advances to a vote in the House today. That vote is expected to succeed, with the only question being by how big a majority. After that, the deal moves to the Senate, which will likely have to work the weekend to enact the legislation before the June 5th X-date.

    So it seems then that we're closer to taking a key negative catalyst off the table for markets and the economy. As you might recall from our prior podcasts, without a debt ceiling resolution before the X-date, the White House may have had to choose from some less than ideal options to avoid default. For example, they could have prioritized payments to bondholders over other governmental obligations, but that could have interrupted up to 18% of personal income in the U.S., creating substantial economic risk.

    Further, the fiscal deal that enabled this raise of the debt ceiling doesn't appear to contain substantial enough spending cuts in the short term to hamper the economy. The Congressional Budget Office says it will cut deficits by about $70 billion in the first year, a very small number in the context of a roughly 26 and a half trillion dollar U.S. economy.

    But there's one lingering risk worth monitoring. When the debt ceiling is…

12. Seth Carpenter: Government Bonds and the Debt Ceiling

    30 mei 2023 · 3 min

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    As congress debates a debt ceiling deal, investors are proactively purchasing Treasury bills and thus causing a drain on the reserves which could amplify risks. Lees meer

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    Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the U.S. debt ceiling amid recent volatility in the banking sector. It's Tuesday, May 30th at 10 a.m. in New York.

    The looming deadline for the U.S. debt ceiling has been a significant concern for markets. In similar standoffs in both 2011 and 2013, the Congress raised the debt limit only at the last minute. The closer we got to the so-called "X-date", the more the Treasury ran down the amount of Treasury bills outstanding to stay under the limit. Bills maturing around the X-date were seen as less desirable and their prices fell a bit, but the scarcity of other bills made their price go up, and therefore, their yield fall. The bills market got dislocated, as we say, but the story did not end with the increase in the debt limit. To restock its account at the Fed, the Treasury issued a lot of Treasury bills, pulling in cash from the market.

    One lesson we can take from history is that there is short term volatility, but everything gets resolved in the end. But before we do that, it's worth considering what aspects of the world are different now than back in 2011 or 2013. Since February, the concerns about the banking sector's balance sheet have heightened financial stability questions. Although our baseline view is that the recent developments are more idiosyncratic than systemic, the uncertainty is substantial. That potential fragility is one key difference between now and then.

    Another key difference between now and previous episodes is the existence of the Fed's reverse repo facility, the RRP, which now stands at about two and a quarter trillion dollars. As short term interest rates have risen,…

13. Andrew Sheets: Unresolved Questions Create Market Uncertainty

    26 mei 2023 · 3 min

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    Optimistic investors have pushed stocks and bond yields to the high end of the recent range. But inflation, banks and the debt ceiling status are still raising questions that have gone unanswered. Lees meer

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    Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist 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, May 26th at 2 p.m. in London.

    A hot topic of conversation at the moment is that three big questions that have loitered over the market since January still look unresolved.

    The first of these is whether inflation is actually coming down. Surprisingly, high inflation was a dominant story last year and a major driver of the market's weakness. A number of low inflation readings in January gave a lot of hope that inflation would now start to fall rapidly, as supply chains normalized and the effect of central bank policy tightening took effect.

    Yet the data since then has been stubbornly mixed. Headline inflation is coming down, but core inflation, which excludes food and energy, has moderated a lot less. In the U.S., the annualized rate of core consumer price inflation over the last three, six and 12 months is all about 5%. Today's reading of Core PCE, the Fed's preferred inflation measure, came in above expectations. And in both the UK and the Eurozone, core inflation has also been coming in higher than expected.

    We still think inflation moderates as policy tightening hits and growth slows, but the improvement here has been slow. One reason our economists think that would take quite a bit of economic weakness to push the Fed, the European Central Bank or the Bank of England, to cut rates this year.

    That ties nicely into the second issue. Over the last two months, there's been a lot more excitement that the Federal Reserve may now be done raising interest rates, than…

14. Jonathan Garner: Japan’s Equities Continue to Rally

    25 mei 2023 · 3 min

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    While Japan's equities have continued to rally, a roster of sector leading companies and a weak Yen could signal this bullish story is only just beginning. Lees meer

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    Welcome to Thoughts on the Market. I'm Jonathan Garner, Chief Asia and Emerging Market Equity Strategist at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be sharing why Japan Equities could be a key part of the bullish story in Asia this year. It's Thursday, May the 25th at 10 a.m. in New York.

    Japan equities have rallied substantially during the current earnings season and we think further gains are increasingly likely. The theme of return on equity improvement, driven by productive CapEx and better balance sheet management, is clearly finding traction with a wide group of international investors. We first introduced this theme in our 2018 Blue Paper on Japan, where we described a journey from laggard to leader, which we felt was starting to take place due to a confluence of structural reforms such as the Corporate Governance Code and Institutional Investor Stewardship Code, as well as changes in company board composition and outside activist investor pressure.

    Japan has a formidable roster of world class firms, which we have identified as productivity and innovation leaders in areas such as semiconductor equipment, optical, healthcare, medtech, robotics and traditional heavy industrial automotive, agricultural and commodities trading, specialty chemicals. As well as more recent additions in Internet and E-commerce, many of which sell products far beyond Japan's borders.

    For the market overall, listed equities ROE has more than doubled in the last ten years, and it's now set to approach our medium term target of 11 to 12% by 2025. Company buybacks are analyzing at a record pace and total shareholder return, that is the sum of dividends and buybacks, is running at 3.6% of market capitalization.

    Yet Japan equities are still trading on only aroun…

15. Michael Zezas: The G7 Meeting and its Impact on Markets

    24 mei 2023 · 2 min

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    Discussions at the recent Group of Seven Nations meeting point to the continued development of a multipolar world, as supply chains become less global and more local. Investors should watch for opportunities in this disruption. Lees meer

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    Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the recent G7 meetings and its implications for markets. It's Wednesday, May 24th at 9 a.m. in New York.

    Over the weekend, President Biden traveled to Japan for a meeting of the Group of Seven Nations, or G7. G7 meetings typically involve countries discussing and seeking consensus on a wide range of economic and geopolitical issues. And the consensus they achieved on several principles underscores one of our big three secular investment themes for 2023, the transition to a multipolar world.

    Consider some of the following language from the G7 communique. First, there's discussion of efforts to make our supply chains more resilient, sustainable and reliable. Second, they discuss, quote, "Preventing the cutting edge technologies we develop from being used to further military capabilities that threaten international peace and security." Finally, there's also discussion of the, quote, "importance of cooperation on export controls, on critical and emerging technologies to address the misuse of such technologies by malicious actors and inappropriate transfers of such technologies."

    So that all may sound like the U.S. is drawing up hard barriers to commerce, particularly with places like China. But importantly, the communique also states an important nuance that's been core to our multipolar world thesis. They say, quote, "We are not decoupling or turning inwards. At the same time, we recognize that economic resilience requires de-risking and diversifying.".

    So to understand the practical implications of that nuance, we've bee…

16. U.S Housing: Is there Still Strength in the Housing Market?

    23 mei 2023 · 7 min

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    As the confidence level of homebuilders building new homes is increasing, will home sales go along with it? Jim Egan and Jay Bacow, Co-Heads of U.S. Securitized Products Research discuss. 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. Securitized Products Research.

    Jim Egan: And on this episode of the podcast, we'll be discussing the U.S. housing and mortgage markets. It's Tuesday, May 23rd at 2 p.m. in New York.

    Jay Bacow: It's been a while since we talked about the state of the U.S. housing market. And it seems like if I look at least some portions of the data, things are getting better. In particular, the NAHB confidence just showed for the fifth consecutive month that homebuilders are feeling better about building a house, and we're now finally at the point where they say it is a good time to build a house. When you take a step back and just look at the state of the housing market, do you agree?

    Jim Egan: I think it's a great question. Housing statistics are going in a whole number of different directions right now. So, yeah, let me take a step back. We've talked a lot about affordability on this podcast and it's still challenging. We've talked a lot about supply and it remains very tight, and all of this has really fueled that bifurcation narrative that we've talked about, protected home prices, weaker activity. But if we think about how the lock in effect and that's the fact that all of these current homeowners who have mortgages well below the prevailing mortgage rate just are not going to be incentivized to list their home for sale, then kind of a logical next step from a housing statistics perspective is that new home sales are probably going to increase as a percentage of total home sales. And that's exactly what we're seeing, new home sales in the first quarter of this year, they were rough…

17. Mike Wilson: Beware a False Market Breakout

    23 mei 2023 · 4 min

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    Though the current market narrative has turned bullish, it may not withstand a downturn in earnings. 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, May 22nd at 11a.m in New York. So let's get after it.

    For the past six months, the S&P 500 has been trading in a narrow range with strong rotations under the surface. When we turned tactically bullish on the index last October at 3500, we did so because the price had reached an attractive level and we believed rates and the dollar were topping. When we exited that trade at 4100 in early December, the price was no longer attractive, given our view that 2023 earnings estimates were materially too high. Fast forward to today and the index is showing some signs that it wants to break higher, even though our concerns remain. The primary difference from the early December highs is that we now have dramatically different leadership.

    Back then the leaders were energy, materials, financials and industrials, while technology was the big laggard. Small caps were also doing much better and market breadth was strong. The bullish narrative centered around China's reopening, which would put a floor in for global growth. Today, breadth is very weak. Technology, communication services and consumer discretionary are the only sectors up on the year, and even those sectors are exhibiting narrow breadth. Yet investors are more bullish than in early December, or at least far less bearish. The bullish narrative today focuses on technology, specifically on artificial intelligence. While we believe artificial intelligence is for real and will likely lead to some great efficiency to help fight inflation, it's unlikely to prevent the deep earnings recession we forecast for this year.

    Last we…

18. Ellen Zentner: Is a Soft Landing for the U.S. Still Possible?

    19 mei 2023 · 3 min

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    While the U.S. economy looks to be on track for a soft landing in 2023, even the smallest of setbacks could spell trouble for the end of the year. 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 discuss our view around the soft landing for the U.S. economy. It's Friday, May 19th, at 10 a.m. in New York.

    Last year, we presented our outlook that 2023 would see a soft landing for the U.S. economy. This out of consensus view continues to be our base case expectation. And we looked at several key data points as evidence to support it, including the U.S. housing cycle, income and spending dynamics, the labor market and inflation.

    To start, economists have long said, "As goes housing, so goes the business cycle." And housing is a very important factor in our outlook for a soft landing. While the decline in housing activity has been record breaking from a national perspective, Morgan Stanley's housing strategists believe the cycle is bottoming. In our forecast, the big drag on economic growth from the housing correction should turn neutral by the third quarter of 2023, providing some cushion against the growth slowdown elsewhere.

    Second, the incoming data on U.S. income and consumer spending also support our expectation that the economy is slowing but not falling off a cliff. On the one hand, discretionary consumer spending is softening. On the other hand, income is the predominant driver of consumer spending, and even as wage growth continues to slow, our forecasted path for inflation suggests that real wages will finally turn positive in the middle of this year.

    Third, we look to labor market dynamics, and the April U.S. employment report provides ample evidence that the labor market is slowing but is also not headed for a cliff. The steady decline in job postings with still low unemployment rates since the middle of last y…

19. Andrew Sheets: Is Market Volatility on the Decline?

    18 mei 2023 · 3 min

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    Although markets remain calm for now, incoming developments across the debt ceiling, inflation and monetary policy could quite quickly turn the tide. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist 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 Thursday, May 18th at 2 p.m. in London.

    A notable aspect of the current market is its serenity. Over the last 30 days, U.S. stocks have seen the least day-to-day volatility since December of 2021. It's a similar story for stocks in Europe or the movement of major currencies. Across key markets, things have been calm and investors have become more relaxed, with expectations of future volatility also in decline.

    But why is this happening? After all, major uncertainties around the path of inflation and central bank policy still exist. And the United States, the world's largest economy and most important borrower, still hasn't reached an agreement to keep borrowing by raising the debt ceiling, raising the risk, according to the U.S. Treasury secretary, of running out of money in less than a month. Well, we think a few things are going on.

    With the debt ceiling, we think this is a great example that real world investors genuinely struggle with pricing a binary, uncertain outcome. It's very challenging to put precise odds on what is ultimately a political decision and hard to quantify its impact. And further complicating matters, the conventional wisdom generally appears to be that any debt ceiling deal would only get done at the last possible moment.

    In short, investors are struggling, making big changes to their portfolio in the face of what is little better than a political guess and are finding it easier to wait, and hoping that more clarity emerges. I’d note we saw something very similar before the near-miss on the de…

20. Vishy Tirupattur: The Outlook for Lending

    17 mei 2023 · 4 min

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    According to the Federal Reserve’s latest Senior Loan Officer Opinion Survey, small businesses may be the most vulnerable to banks tightening their lending standards. Lees meer

    ----- Transcript -----

    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 takeaways from the Senior Loan Officer Opinion Survey. It's Wednesday, May 17th at 10 a.m. in New York.

    We've talked a lot about the effects of the turmoil in the regional banks on credit formation, on this podcast. We thought the ongoing liquidity pressures in the regional banking sector may lead to tighter lending standards, which will eventually translate into lower credit formation. The Senior Loan Officer Opinion Survey, conducted quarterly by the Federal Reserve, provides a window on bank lending practices, including the standards and terms for banks to make loans, as well as the demand for bank loans to businesses and households. The survey results published last week, reflect conditions during the first quarter of 2023 and provide a first glimpse on the effect of the regional banking turmoil on banks outlook for lending over the remainder of 2023.

    The survey showed that banks expect to tighten standards across all loan categories. Banks cited an expected deterioration in the credit quality of their loan portfolios, customer collateral values, a reduction in risk tolerance, concerns about bank funding costs, banks liquidity position and deposit outflows, as reasons for expecting to tighten lending standards over the rest of 2023.

    While standards for commercial and industrial, the so-called C&I loans, tightened only marginally, the demand for C&I loans fell to levels not seen since the great financial crisis. Even though lending standards only tightened marginally, the tightening came from some loan officers tightening standards considerably.

    Further, banks reported change…

21. Mike Wilson: Investors Face Uncertainty in Stock Performance

    16 mei 2023 · 5 min

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    As investors attempt to find opportunities in an uncertain stock market, earnings disappointments and an ongoing debt ceiling debate loom overhead. Lees meer

    ----- Transcript -----

    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, May 16th, at 1 p.m. in New York. So let's get after it.

    Having spent the last few weeks on the road engaging with clients from around the world, I figured it would be useful to share some thoughts from our meetings and to touch on the most often asked questions, concerns and pushback to our views.

    First, conviction levels are low, given broadly elevated valuations and a challenging macro backdrop. While many individual longs and shorts have worked well in the context of a buoyant S&P 500, the most favorite trades have largely played out and clients are having trouble finding the next opportunity. Small cap and low quality stocks have underperformed and we continue to see crowding into mega-cap tech and consumer staples stocks as safe havens in a deteriorating growth environment.

    Second, there isn't much interest in the S&P 500 as either a long or a short anymore. Most clients we speak with have given up on the idea of a big breakdown of the index level. Conversely, there are few who think the S&P 500 can trade much above 4200, which has proven to be a key resistance since the October lows. What has changed is that the floor has been raised, with the large majority of investors thinking 3800 is now unlikely to be broken to the downside. In short, the consensus believes the bear market ended in October, at least for the high quality S&P 500 and NASDAQ.

    Third, there is little appetite to dive back into the areas of the market that have significantly underperformed like regional banks, small caps and energy. Other deep cy…

22. Special Encore: Mark Purcell: The Evolution of Cancer Medicines

    16 mei 2023 · 4 min

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    Original Release on April 20th, 2023: "Smart chemotherapy" could change the way that cancer is treated, potentially opening up a $140 billion market over the next 15 years. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Mark Purcell, Head of Morgan Stanley's European Pharmaceuticals Team. Along with my colleagues bringing you a variety of perspectives, today I'll talk about the concept of Smart Chemotherapy. It's Thursday, the 20th of April at 2 p.m. in London.

    Cancer is still the second leading cause of death globally, accounting for approximately 10 million deaths worldwide in 2020. Despite recent advances in areas like immuno-oncology, we still rely heavily on chemotherapy as the mainstay in the treatment of many cancers.

    Chemotherapy originated in the early 1900s when German chemist Paul Ehrlich attempted to develop "Magic Bullets", these are chemicals that would kill cancer cells while sparing healthy tissues. The 1960s saw the development of chemotherapy based on Ehrlich's work, and this approach, now known as traditional chemotherapy, has been in wide use since then. Nowadays, it accounts for more than 37% of cancer prescriptions and more than half of patients with colorectal, pancreatic, ovarian and stomach cancers are still treated with traditional chemo.

    But traditional chemo has many drawbacks and some significant limitations. So here's where "Smart Chemotherapy" comes in. Targeted therapies including antibodies to treat cancer were first developed in the late 1990s. These innovative approaches offer a safer, more effective solution that can be used earlier in treatment and in combination with other cancer medicines. "Smart Chemo" uses antibodies as the guidance system to find the cancer, and once the target is reached, releases chemotherapy inside the cancer cells. Think of it as a marriage of biology and chemistry called an antibody drug conjugate, an ADC. It's essentially a biological missile that hones in on the cancer and avoids …

23. Sustainability: Tech Transformation in the Education Market

    13 mei 2023 · 10 min

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    With technology evolving rapidly in education, investors are taking a closer look at how it will financially impact the global education market. Stephen Byrd and Josh Baer discuss. Lees meer

    ----- Transcript -----

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

    Josh Baer: And I'm Josh Baer from the U.S. Software Team.

    Stephen Byrd: On the special episode of the podcast will discuss the global education market. It's Friday, May 12th at 10 a.m. in New York.

    Stephen Byrd: Education is one of the most fragmented sectors globally, and right now it's in the midst of significant tech disruption and transformation. Add to this, a number of dynamically shifting regulatory and policy regimes and you have a complex set up. I wanted to sit down with my colleague Josh to delve into the intersection of the EdTech and the sustainability side of this multi-layered story.

    Stephen Byrd: So, Josh, let's start by giving a snapshot of global education technology, particularly in this post-COVID and rather uncertain macro context we're dealing with. What are some of the biggest challenges and key debates that you're following?

    Josh Baer: Thanks, Stephen. One way that I think about the different EdTech players in the market is through the markets that they serve. So in the context of education, that means early learning, K-12, higher ed, corporate skilling and lifelong learning. The key debates here come down to what it usually comes down to for equities, growth and margins. So on the growth side, there's several conversations that we're constantly having with investors. Some business models are exposed to academic enrollments as a driver. To what extent would a weaker macro with higher unemployment lead to stronger enrollments given their historical countercyclical trends? And enrollments have been pressured as current or potential students were attracted to the job market. And on the margin side, some of the compa…

24. Erik Woodring: Are PCs on the Rebound?

    11 mei 2023 · 4 min

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    While personal computer sales were on the decline before the pandemic, signs are pointing to an upcoming boost. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Erik Woodring. Morgan Stanley's U.S. IT Hardware Analyst. Along with my colleagues, bringing you a variety of perspectives, today I'll discuss why we're getting bullish on the personal computer space. It's Thursday, May 11th, at 10 a.m. in New York.

    PC purchases soared during COVID, but PCs have since gone through a once in a three decades type of down cycle following the pandemic boom. Starting in the second half of 2021, record pandemic driven demand reversed, and this impacted both consumer and commercial PC shipments. Consequently, the PC total addressable market has contracted sharply, marking two consecutive double digit year-over-year declines for the first time since at least 1995.

    But after a challenging 18 months or so, we believe it's time to be more bullish on PCs. The light at the end of the tunnel seems to be getting brighter as it looks like the PC market bottomed in the first quarter of 2023.

    Before I get into our outlook, it's important to note that PCs have historically been a low growth or no growth category. In fact, if you go back to 2014, there was only one year before the pandemic when PCs actually grew year-over-year, and that was 2019, at just 3%. Despite PCs' low growth track record and the recent demand reversal, our analysis suggests the PC addressable market can be structurally higher post-COVID. So at face value, we're making a bit of a contrarian bullish call.

    This more structural call is based on two key points. First, we estimate that the PC installed base, or the number of pieces that are active today, is about 15% larger than pre-COVID, even excluding low end consumer devices that were added during the early days of the pandemic that are less likely to be upgraded going forward.

    Second, if you assume that users replace their PCs every four years, which …

25. Michael Zezas: Debt Ceiling Uncertainty and Financial Markets

    10 mei 2023 · 3 min

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    With the debt ceiling debate seemingly making little headway, it may be critical for investors to track market developments in the near future. Lees meer

    ----- Transcript -----

    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 debt ceiling and its impact on markets. It's Wednesday, May 10th at 10 a.m. in New York.

    Congressional leaders met at the White House on Tuesday to hammer out a deal to raise the debt ceiling and avoid a government bond default. Reports following the meeting suggest little progress was made. That news shouldn't necessarily be surprising or discouraging. Initial rounds of legislative negotiations are often just a venue for each side to state their position. It often takes the urgency of a nearby deadline to catalyze compromise.

    While this isn't the first debt ceiling challenge for markets, it may be the most critical one, at least since 2011. As we said before, investors need to take seriously the idea that we do something that hasn't been done before, cross the X-date, the date after which Treasury doesn't have enough cash on hand to meet all obligations as they come due. So it's useful to quickly revisit what that would mean. In short, it puts a bunch of options on the table, but most are not good options, suggesting some markets may have to price in greater downside, at least for a time.

    A benign and plausible outcome would be that if the X-date is crossed, the resulting concern among policymakers, voters and business leaders around missed debt, Social Security, infrastructure and other payments, creates enough pressure on Congress to quickly force a compromise. Other outcomes are less friendly. The White House could choose to avoid default by ignoring the debt ceiling, citing authority under the 14th Amendment, but that could just shift uncertainty from the legislative process to th…

26. Martijn Rats: A Change in the Global Oil Market

    9 mei 2023 · 4 min

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    As oil data in 2023 shows that second-half tightening is less likely, it may be time to alter the narrative around the expected market for the remainder of the year. Lees meer

    Important note regarding economic sanctions. This recording references country/ies which are generally the subject of selective sanctions programs administered or enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the European Union and/or by other countries and multi-national bodies. Any references in this recording to entities, debt or equity instruments, projects or persons that may be covered by such sanctions are strictly incidental to general coverage of the issuing entity/sector as germane to its overall financial outlook, and should not be read as recommending or advising as to any investment activities in relation to such entities, instruments or projects. Users of this recording are solely responsible for ensuring that their investment activities in relation to any sanctioned country/ies are carried out in compliance with applicable sanctions.

    ----- Transcription -----

    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 how the 2023 global oil market story is changing. It's Tuesday, May the 9th at 4 p.m. in London.

    Over the last several months, the dominant narrative in the oil market was one of expected tightening in the second half. Although supply outstripped demand in the first quarter, the assumption was that the market would start to tighten from the second quarter onwards and be in deficit once again by the second half, which would lead to a rise in price. At the start of the year, this was also our thesis for how 2023 would play out. However, as of early May, it seems this narrative needs to change.

    The expectation of second half tightness was largely based on two key assumptions. One, that China's reopening w…

27. Mike Wilson: Earnings, The Fed and Consumer Spending

    9 mei 2023 · 4 min

    Afspelen
    With all the volatility surrounding the banking sector, the Fed raising rates and the continued debt ceiling debate, are consumers finally pulling back on spending? Lees meer

    ----- Transcript -----

    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 a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, May 8th, at 11 a.m. in New York. So let's get after it.

    In this week's podcast, I will discuss three major topics on investors' minds. First quarter Earnings results, the Fed's decision to raise rates last week, and how the consumer is holding up in the face of a debt ceiling debate with no easy solutions.

    First, on earnings, the first quarter earnings per share beat consensus expectations by 6 to 7%. Furthermore, second quarter guidance is held up better than we expected coming into the quarter. That said, it's important to provide some context. First quarter estimates came down 16% over the past year, double the 20 year average decline over equivalent periods and a more manageable hurdle for companies to clear. Furthermore, the macro data improved in January and February as seasonal adjustments and easy comparisons, with the early 2022 break out of Omicron flattered the growth rate. Nevertheless, this improvement also helped earnings results on a year-over-year basis and provided a boost to company confidence about where we are in the cycle. Unfortunately, many of the leading macro data we track have fallen and are now pointing to a similar reacceleration in earnings per share growth that the consensus expects. Ironically, this comes as many companies position 2023 growth recoveries as being contingent on a solid macro backdrop. If one is to believe our leading indicators that point pointed downward trends in earnings per share surprise and margins over the coming months, stocks will likely follow that neg…

28. Andrew Sheets: The Prospect of a Pause in Rate Hikes

    5 mei 2023 · 3 min

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    The Federal Reserve pausing on hiking interest rates has historically been good for markets. But given current conditions, history may not repeat itself. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Assets Strategist 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, May 5th at 2 p.m. in London.

    The Federal Reserve raised interest rates 25 basis points this week and have now raised their benchmark policy rate 5% over the last 14 months. That's the fastest increase in over 40 years, and for now we think it's enough. Morgan Stanley's economist forecasts the Fed won't make additional rate hikes or cuts for the rest of this year. In market parlance, the Fed will now pause.

    The question, of course, is whether the so-called pause is good for markets. In 1985, 1995, 1997, 2006 and 2018, buying stocks once the Fed was done raising rates resulted in good returns over the following 6 to 12 months. And this result does make some intuitive sense. If the Fed is no longer increasing rates and actively tightening policy, isn't that one less challenge for the stock market?

    Our concern, however, is that current conditions look different to these past instances, where the last rate hike was a good time to be more optimistic. Today, current levels of industrial production and leading economic indicators are weaker, inflation is higher, bank credit is tighter, and the yield curve is more inverted than any of these prior instances since 1985, where a pause boosted markets.

    In short, current data suggest higher inflation and a sharper slowdown than past instances where the last Fed hike was a good time to buy. And for these reasons, we worry about lumping current conditions in with those prior examples.

    So far, I've focused on performance following a pause in Fed rate hikes from the pers…

29. Graham Secker: Will European Equity Resilience Continue?

    4 mei 2023 · 4 min

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    The banking sector appears stronger in Europe than it does in the U.S., but some other European sectors may be at risk of lower profitability. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Graham Secker, Head of Morgan Stanley's European Equity Strategy Team. Along with my colleagues bringing you a variety of perspectives, I'll be talking about our latest thoughts on European equities. It's Thursday, May the 4th at 3 p.m. in London.

    Over the last couple of months, we have seen global technology stocks significantly outperform global financial stocks, aided by lower bond yields and concerns around the health of the U.S. regional banking sector. Historically, when we have seen tech outperform financials in the past, it has usually been accompanied by material underperformance from European equities. However, this time the region has proved much more resilient. Part of this reflects the benefits of lower valuation and lower investor positioning. However, we also see two broader macro supports for Europe just here.

    First, we see less downside risk to the European economy than that of the U.S., where many of the traditional economic leading indicators are down at recessionary levels. In contrast, similar metrics for Europe, such as consumer confidence and purchasing managers indices, have actually been rising recently. In addition, a healthier and more resilient banking sector over here in Europe suggests there is potentially less risk of a credit crunch developing here than we see in the U.S..

    Second, we think Europe is also seen as an alternative way to get exposure to an economic recovery in China, given that the region has stronger economic ties and greater stock market exposure than most of its developed market peers. While this is not necessarily manifesting itself in overall aggregate inflows into European equity funds at this time, we can clearly see the theme benefiting certain sectors, such as luxury goods, which has arguably become one of…

30. Michael Zezas: Congress Contends with the Debt Ceiling

    3 mei 2023 · 3 min

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    Congress is finally set to begin debt ceiling negotiations. What are some possible outcomes and how might the negotiations affect economic growth? Lees meer

    ----- Transcript -----

    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 debt ceiling and its impact on markets. It's Wednesday, May 3rd at 9 a.m. in New York.

    Earlier this week, the Treasury Department informed Congress that at the start of June, it could run out of money to pay government obligations as they come due. This X-date appears much earlier than most forecasters expected, catching markets by surprise. Some investors even expressed to us disbelief, pushing the idea that the real X-date would be later, and Treasury is just trying to stir negotiations in Congress to raise the debt ceiling. Here's our take.

    The X-date is likely a moving target due the complex interplay of the timing of incoming tax receipts, government outlays and maturing debt securities. So, while it's possible the date ends up being sometime later this summer, the government might not be able to forecast that with a high degree of certainty. In that case, negotiations have to start now to avoid a situation where the X-date sneaks up on Congress, leaving little time to deliberate and risking default.

    And that seems to have prompted negotiations, with a May 9th meeting at the White House set to kick things off. But we emphasize that an early resolution remains uncertain. Both parties remain far apart on how they'd like to deal with the debt ceiling and in some ways haven't formed consensus within their own parties on the issue either. So the negotiating dynamic is likely to be tricky. That in turn means a range of policy solutions are plausible here, including a temporary suspension of the debt ceiling, unilateral measures by the administration to avoid default, a budget auster…

31. Global Economy: Global Challenges Drive Productivity Investment

    2 mei 2023 · 6 min

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    With the trend toward a multipolar world accelerating, companies are finding that investing in productivity may help protect margins. Ravi Shanker and Diego Anzoategui discuss. Lees meer

    ----- Transcript -----

    Ravi Shanker: Welcome to Thoughts on the Market. I'm Ravi Shanker, Morgan Stanley's North American Freight Transportation Analyst.

    Diego Anzoategui: And I'm Diego Anzoategui from the U.S. Economics Team.

    Ravi Shanker: And on this special episode of the podcast, we discuss what we see as The Great Productivity Race, that's poised to accelerate. It's Tuesday, May 2nd at 10 a.m. in New York.

    Ravi Shanker: The transition away from globalization to a decentralized multipolar world means companies' ability to source labor globally is contracting. This narrowing of geographical options for companies is making cheap labor, particularly for skilled manufacturing, harder to find. But there is a potential positive, a rebound in productivity which has been anemic for more than a decade.

    Ravi Shanker: So Diego, what's the connection that you see between the slowing or even reversal of globalization and productivity trends?

    Diego Anzoategui: If you think about it, the decision to upgrade technologies and increase productivity is like any other type of capital investment. Firms decide to improve their production technologies, either to deal with scarce factors of production or to meet increasing demand. COVID 19 was a negative shock to the labor supply in the U.S., and there is still a long road ahead to reach pre-pandemic levels. On top of that, we think that slowing globalization trends will likely limit labor supply further, causing real wages to increase, and keeping firms under pressure to improve productivity to protect margins. But we think firms will boost productivity investment in the medium term once business sentiment picks up again. And we are past the slowdown in economic activity that we expect in 2023 and into 2024. Expectations are key because the decision to …

32. Vishy Tirupattur: Liquidity, Regional Banks and Potential Regulation

    1 mei 2023 · 3 min

    Afspelen
    As the banking sector is in the news again, investors wonder about an increase in borrowing from the Fed and possible restrictions on the horizon. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm 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 ongoing tensions in the regional banking sector. It's Monday, May 1st at 2 p.m. in New York.

    At the outset, I would note that the news we woke up to this morning about JP Morgan's acquisition of First Republic is an important development. As Betsy Graseck, our large cap banks equity analyst noted, as part of this transaction JP Morgan will assume all $92 billion remaining deposits at First Republic, including the $30 billion of large bank deposits which will be repaid in full post consolidation. We believe that this is credit positive for the large cap bank group, as investors have been concerned that large banks would have to take losses against their $30 billion in deposits in the event First Republic was put into FDIC receivership.

    That said, we will be watching closely a key metric of demand for liquidity in the system, the borrowings from the Fed by the banks. The last two weeks saw consecutive increases in the borrowings from the Fed facilities by the banks, the discount window and the Bank Term Funding Program. That the banking system needed to continue to borrow at such high and increasing levels suggested that liquidity pressures remained and may have actually been increasing over the past two weeks. In light of the developments over the weekend, it will be useful to see how these borrowings from the Fed change when this week's data are released on Thursday.

    Last Friday, the Federal Reserve Board announced the results from the review of the supervision and regulation of the Silicon Valley Bank, led by Vice Chair for Supervision Michael Barr. The regulatory changes proposed are broadly in lin…

33. Ed Stanley: The Risky Path to a Multipolar World

    28 april 2023 · 3 min

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    With the world moving towards a more complex and decentralized multipolar structure, how will technology and infrastructure markets fare going forward? Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Ed Stanley, Morgan Stanley's Head of Thematic Research in Europe. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the complex issue of security in the multipolar world.

    For some time, the world has been trending away from a globalized, unipolar structure characterized by stability and mutual cooperation. And in its place, we've been moving towards a multipolar structure, more complex, more decentralized. And this theme is one that Morgan Stanley's Global Research Department has been exploring deeply over the last three years.

    And the time is right to revisit that theme now because it's accelerating. And we see two plausible outcomes from here, a de-risking or a decoupling, lie ahead for companies. Our base case is still for a gradual phased de-risking between regions and companies are already in the process of facing up to that new reality, by diversifying their highly concentrated supply chains. But the possibility of a full and disorderly decoupling scenario now warrants more serious consideration. It's no longer the tail risk it was when we first addressed the theme three years ago.

    What has acted as a more recent accelerant to this trend is the extent of top down policy measures we've witnessed over recent years. The number of such policies designed to restrict trade have increased fivefold in the last five years, as measured by the UN. And these restrictions have covered everything from rare earth battery minerals, to grain exports and solar panel imports, to specialist machinery for microchip production.

    Add to this the ever greater incentives to reshore supply chains and critical components back to the U.S. and Europe, in the form of the CHIPS Act, the U.S. IRA and Europe's response to it, and it b…

34. Matthew Hornbach: The Return of Government Bonds

    28 april 2023 · 3 min

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    While government bonds have been less than desirable investments for the past two years, the tide may be turning on bond returns. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Matthew Hornbach, Global Head of Macro Strategy for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about global macro trends and how investors can interpret these trends for rates and currency markets. It's Thursday, April 27th at 2 p.m. in New York.

    Over the past 2 years, government bonds have been less than desirable investments. This year, the inflation phenomena came out of hibernation and appears unwilling to go away anytime soon.

    In 2022, one of the worst years on record, U.S. Treasuries delivered a total return of -12.5%. Securities that offer fixed interest payments like government bonds tend to lose value when inflation rises, because the future purchasing power of those cash flows declines. But that doesn't always happen, of course, and certainly not to this degree.

    For most of the past 20 years, government bonds dealt reasonably well with positive inflation rates, even if those rates were rising. But last year was different, for two reasons primarily. First, inflation rose at a rate we haven't seen since the late 1970s. And second, central banks responded aggressively by tightening monetary policies.

    How have these factors changed so far this year? Well, inflation has started to moderate both in terms of consumer prices and wages. And in response, central banks have become less aggressive in their recent policy maneuvering. Investors have also benefited from the clarity on the speed with which central banks have moved and how fast they may move in the future. This would seem like good news for government bond returns, and so far it has been. However, at the same time, investor nerves remain frayed, even if less so than last year. But why?

    First, investors remain worried about inflation, but for different reas…

35. Michael Zezas: The Great Productivity Race

    26 april 2023 · 3 min

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    As multinational companies look towards a future of higher innovation costs and a shrinking labor pool, some corporate sectors may fare better than others in the multipolar world. Lees meer

    ----- Transcript -----

    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 great productivity race and the multipolar world. It's Wednesday, April 26th at 9 a.m. in New York.

    Client questions this week have focused on the U.S. debt ceiling, as Republicans in the House of Representatives work to pass their version of a debt ceiling raise. But we think this bill is just one step in a longer process, so we'll return to this topic when there's something more concrete to say about the ultimate resolution and its market implications.

    Stepping away from that topic gives us the opportunity to focus on a longer term trend impacting the markets, something our research team is calling the Great Productivity Race. It's the idea that U.S. multinational companies in particular will have to spend to develop and integrate new technologies, including artificial intelligence , into their production in order to keep up output. Why is that? In part, it has to do with one of our big three themes for 2023, the transition to a multipolar world.

    In a multipolar world, where the U.S. is looking to safeguard advantages and technologies and key areas of production, the labor pool for U.S. multinationals is contracting. Efforts to re-friend, and near-shore critical industries have strong political support. But this narrows the geographical options for companies making cheap labor, particularly for skilled manufacturing, harder to find. And that exacerbates a U.S. economic challenge already present for several reasons. That means companies are likely to invest in improving their own productivity through technology. And as our economists point out, the…

36. Andrew Sheets: The U.S. Dollar and Cross-Asset Portfolios

    25 april 2023 · 3 min

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    With many investors predicting the U.S. dollar to continue to weaken, its potential for diversification and high yields may indicate otherwise. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Assets Strategist 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, April 25th at 2 p.m. in London.

    The U.S. dollar has fallen about 11% from its highs last September. We think a majority of investors expect that weakness to continue, driven by factors ranging from expensive valuations to potential slowing of the U.S. economy, to the view that a more fragmented geopolitical backdrop will lead to less trade and transactions in U.S. dollars.

    In contrast, our foreign exchange strategists think it's more likely that the dollar strengthens. I want to discuss the idea of dollar strength from a larger lens and what it could mean for a cross-asset portfolio.

    For a multi-asset investor, the greatest appeal of the U.S. dollar comes from its diversification. At present, it is one of the few positive carry diversifiers, which is another way of saying that it's one of the few assets out there that pays you while also acting as a portfolio hedge, thanks to the dollar generally moving in the opposite direction of riskier assets like stocks or high yield bonds.

    Importantly, that diversification from the U.S. dollar makes a lot of intuitive sense to us. We think the dollar could do well if U.S. growth is very hot, as investors are drawn to even higher U.S. rates under that scenario, or if growth is very weak as investors seek out safety and liquidity. These extremes in growth, we think, represent two of the key risks, for riskier assets.

    In contrast, the dollar probably does weaken if growth is down the middle and a so-called soft landing for the economy. In this case, modest Fed easing without …

37. Sustainability: Decarbonization in the Steel Industry

    25 april 2023 · 8 min

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    The drive to reduce carbon emissions could trigger the biggest transformation of the steel industry in decades. Global Head of Sustainability Research, Stephen Byrd, Head of European Metals and Mining Research, Alain Gabriel, and Head of the Americas Basic Materials Team, Carlos De Alba, discuss. Lees meer

    ----- Transcript -----

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

    Alain Gabriel: And I’m Alain Gabriel, Head of Europe Metals and Mining Research.

    Carlos De Alba: I am Carlos De Alba, Head of the Americas Basic Materials Team.

    Stephen Byrd: On this special episode of the podcast, we'll discuss the implications of decarbonization in the steel industry. It's Monday, April 24th at 10 a.m. in New York.

    Alain Gabriel: And 3 p.m. in London.

    Stephen Byrd: Achieving net zero is a top priority as the world moves into a new phase of climate urgency, and global decarbonization is one of the three big themes for 2023 for Morgan Stanley research. Within this broader theme, we believe that decarbonizing steelmaking has the potential to trigger the biggest transformation of the steel industry in decades.

    Stephen Byrd: Alain to set the stage and just give our listeners a sense of the impact of steelmaking, just how much does steel contribute to global CO2 emissions?

    Alain Gabriel: Thank you, Stephen. In fact, the steel industry emits around 3.6 billion tonnes of CO2 per annum. And this enormous carbon footprint puts the industry at the heart of the climate debate, and public policy is rapidly evolving towards stricter emissions reductions targets, but also shorter implementation timelines. So for instance, in Europe, which is leading this transformation by simultaneously introducing a carbon border adjustment mechanism, which is otherwise known as CBAM and gradually reducing free CO2 allowances until their full removal by 2034.

    Stephen Byrd: So, Alain, given the size of Steel's contributions to emis…

38. Andrew Sheets: What is Behind Equity Market Strength?

    21 april 2023 · 3 min

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    With equity markets showing strength in the face of slowing growth, investors are left wondering how, or if, they can remain resilient. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross Assets Strategist 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, April 21st at 2 p.m. in London.

    Meeting with investors over the last several weeks, there's one question above all others that seems to be on people's mind. In the face of slowing growth, tightening policy, banking sector stresses and uninspiring valuations, why are markets, especially equity markets, so resilient?

    Like many things in the market, there is no one reason, and it's also impossible to know for sure. But we have some suspicions about what is and isn't behind the strength and what that means going forward.

    One trio of factors rolled out to explain this resiliency, is the idea that growth and earnings are holding up well, the Fed is once again injecting liquidity into the system, given recent banking sector challenges and investors are already so negative that the risks are well known. Yet each of these explanations seems to come up a little short.

    Global growth in the first quarter was better than expected, but markets should care more about the forward looking outlook, which looks set for deceleration, while estimates for corporate earnings have generally been falling throughout the year. While the Fed did provide extra liquidity given recent banking sector challenges, this looks very different from traditional quantitative easing, especially as the banks continue to tighten their lending activity. And while sentiment feels cautious, perhaps as evidenced by the popularity of this question, measures that try to quantify that fear have generally normalized quite a bit and look a lot closer to average than extrem…

39. Mark Purcell: The Evolution of Cancer Medicines

    20 april 2023 · 4 min

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    "Smart chemotherapy" could change the way that cancer is treated, potentially opening up a $140 billion market over the next 15 years. Lees meer

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    Welcome to Thoughts on the Market. I'm Mark Purcell, Head of Morgan Stanley's European Pharmaceuticals Team. Along with my colleagues bringing you a variety of perspectives, today I'll talk about the concept of Smart Chemotherapy. It's Thursday, the 20th of April at 2 p.m. in London.

    Cancer is still the second leading cause of death globally, accounting for approximately 10 million deaths worldwide in 2020. Despite recent advances in areas like immuno-oncology, we still rely heavily on chemotherapy as the mainstay in the treatment of many cancers.

    Chemotherapy originated in the early 1900s when German chemist Paul Ehrlich attempted to develop "Magic Bullets", these are chemicals that would kill cancer cells while sparing healthy tissues. The 1960s saw the development of chemotherapy based on Ehrlich's work, and this approach, now known as traditional chemotherapy, has been in wide use since then. Nowadays, it accounts for more than 37% of cancer prescriptions and more than half of patients with colorectal, pancreatic, ovarian and stomach cancers are still treated with traditional chemo.

    But traditional chemo has many drawbacks and some significant limitations. So here's where "Smart Chemotherapy" comes in. Targeted therapies including antibodies to treat cancer were first developed in the late 1990s. These innovative approaches offer a safer, more effective solution that can be used earlier in treatment and in combination with other cancer medicines. "Smart Chemo" uses antibodies as the guidance system to find the cancer, and once the target is reached, releases chemotherapy inside the cancer cells. Think of it as a marriage of biology and chemistry called an antibody drug conjugate, an ADC. It's essentially a biological missile that hones in on the cancer and avoids collateral damage to the healthy tissu…

40. Michael Zezas: The Costs of a Multipolar World

    19 april 2023 · 3 min

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    Recent interactions between China and Europe signal a continuing reorganization of global commerce around multiple power bases, bringing new and familiar challenges for companies. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income Research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the U.S.-China relationship and the shift to a multipolar world. It's Wednesday, April 19th, at 9 p.m. in New York.

    As listeners here already know, one of the big secular themes we've been tracking in recent years is the shift to a multipolar world, one where instead of having one major power base, the United States, you now have multiple power bases to organize global commerce around, including China and Europe. And recent interactions between China and Europe underscore this trend. For example, President Macron of France recently noted following a trip to China that Europe need not precisely follow the U.S. in how it approaches its relationship with China. While those comments have received pushback in other European capitals, it's fair to say that Europe, with its relatively more interconnected and trade-based economy, may have a more nuanced approach to China than its traditional ally in the U.S.. In any case, multiple power bases mean multiple challenges for companies doing business on a global scale.

    This trend is most noticeable to U.S. investors in large cap stocks, where multinationals continue to announce shifts in the geographic mix of their supply chains. While incremental, some of these changes seemed unfathomable just a few years ago. Take a recent Bloomberg News report about a major tech company that continues to shift, again incrementally, new production of some products out of China and into places like India. While the news report doesn't draw an explicit link between those moves and U.S. policy choices, we think such a story speaks to the influence…

41. Vishy Tirupattur: Tumult in the Banking Sector

    18 april 2023 · 4 min

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    As the U.S. banking sector faces oncoming regulatory changes, how will the smaller banks react to these new requirements and what will the impact be on markets? Lees meer

    ----- Transcript -----

    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 impact of potential regulatory changes on bank assets. It's Tuesday, April 18th at 11a.m in New York.

    In the wake of the tumult in the banking sector since early March, and the significant intervention by the authorities, it is likely that a regulatory response will follow, particularly focused on the regulation of regional banks. President Biden has already called on the federal banking agencies in consultation with the Treasury Department, to consider a set of reforms that will reduce the risk of future banking crises. A review led by Michael Barr, the Vice Chair for Supervision at the Federal Reserve Board, is set to be released by May 1st and will likely offer some indication as to where future bank regulation might be headed. In this context, it is worthwhile to examine potential changes to regional bank regulation, reflect on how banks would respond to such changes and consider their impact on markets.

    Across all banks, there are approximately 4.7 trillion of non-interest bearing deposits with the duration of about seven years. Banks will likely need to either review and re-justify or shorten such deposits. Our bank equity analysts expect two key regulatory changes TLAC, total loss absorbing capacity and LCR, liquidity coverage ratio, to be extended to smaller banks, about $100 billion in assets, though this process will likely not get fully implemented until 2027.

    From the perspective of rates markets, these changes make the case for steepening of the curve. Our rate strategists see bank demand for treasuries increasing relative to other assets with greater LCR requirements. Bot…

42. Mike Wilson: Credit Crunch in the U.S Equity Markets

    17 april 2023 · 4 min

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    While some investors may be cheering due to softer than expected inflation data, revenues may begin to disappoint in the face of a credit crunch brought on by recent banking stress. Lees meer

    ----- Transcript -----

    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, April 17th, at 11:30 a.m. in New York. So let's get after it.

    A month ago, when the banking stress first surfaced, my primary takeaway for U.S. equity markets was that it would lead to a credit crunch. Given our already well below consensus outlook for corporate earnings, it simply gave us more confidence in that view. Fast forward to today and the data suggests a credit crunch has started. More specifically, they show the biggest two week decline in lending by banks on record as they simultaneously sell mortgages and treasuries at a record pace to offset deposit flight. In fact, since the Fed began raising rates a year ago, almost $1 trillion in deposits have left the banking system. Throw in the already tight lending standards and it's no surprise credit growth is shrinking. If that isn't enough, last week, the latest small business survey showed that credit availability had its biggest drop in 20 years, while interest costs are at a 15-year high.

    There's a passage in Ernest Hemingway's The Sun Also Rises, in which a character is asked how he went bankrupt. "Two ways", he answers. "Gradually, then suddenly". This is a good description of recent bank failures. The losses from long duration Treasury holdings and concentrated deposit risk built up gradually over the past year and then suddenly accelerated, leading to the surprising failures of two large and seemingly safe banks. In hindsight, these failures seem predictable given the speed and magnitude of the Federal Reserve's rate hike…

43. Sustainability: The Risks and Benefits of A.I

    14 april 2023 · 8 min

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    Artificial Intelligence is clearly a powerful tool that could help a number of sustainability objectives, but are there risks attached to these potential benefits? Global Head of Sustainability Research Stephen Byrd and Global Sustainability Analyst Brenda Duverce discuss. Lees meer

    ----- Transcript -----

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

    Brenda Duverce: And I'm Brenda Duverce from the Global Sustainability Team.

    Stephen Byrd: On the special episode of the podcast, we'll discuss some key A.I. related opportunities and risks through the lens of sustainability. It's Friday, April 14th at 10 a.m. in New York.

    Stephen Byrd: Recent developments in A.I. make it clear it's a very powerful tool that can help achieve a great number of sustainability objectives. So, Brenda, can you maybe start by walking us through some of the potential benefits and opportunities from A.I. that can drive improved financial performance for companies?

    Brenda Duverce: Sure, we think A.I. can have tremendous benefits to our society and we are excited about the potential A.I. can have in reducing the harm to our environment and enhancing people's lives. To share a couple of examples from our research, we are excited on what A.I. can do in improving biodiversity protection and conservation. Specifically on how A.I. can improve the accuracy and efficiency of monitoring, helping us better understand biodiversity loss and support decision making and policy design. Overall, we think A.I. can help us more efficiently identify areas for urgent conservation and provide us with the tools to make more informed decisions. Another example is what we see A.I. can do in improving education outcomes, particularly in under-resourced areas. We think A.I. can help enhance teaching and learning outcomes, improve assessment practices, increase accessibility and make institutions more operationally efficient. Which then goes into fi…

44. Jonathan Garner: Asia Equities Rally Once More

    13 april 2023 · 3 min

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    After a correction that took place in recent months, Asia and emerging markets are once again rallying. But how have these regions sustained their ongoing bull markets? Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Jonathan Garner, Chief Asia and Emerging Market Equity Strategist at Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, today I'll be talking about the recent correction and ongoing bull market in Asia and emerging market equities. It's Thursday, April 13th, at 10 a.m. in London.

    Asia and emerging market equities underwent a six week correction in February and March, in what we think is an ongoing bull market. However, they've recently stabilized and begun to rally once more as we head into the new quarter.

    Importantly, the catalyst for the correction came from outside the asset class in the form of banking sector risks in both the U.S. and Europe. EM assets suffered some limited challenges, for example, at one point major EM currencies gave up most of that year to date gains against the U.S. dollar. However, as investors appraised the situation, they recognized that little had actually changed in the investment thesis for the EM asset class this year.

    At the core of this thesis is the ongoing recovery in China. After an initial surge in mobility indicators and services spending, there is now a broadening out of the recovery to include manufacturing production and even recent strength in property sales. Like the rest of Asia and EM these days, Chinese growth is self-funded in the main from domestic banking systems which are generally well capitalized and liquid. Indeed, just as question marks are now appearing over bank credit growth prospects in the U.S. in segments like commercial real estate lending, the opposite is taking place in China as the authorities encourage more bank lending.

    Elsewhere, we're also seeing an encouraging set of developments in the semiconductors and technology hardware cycles…

45. Chetan Ahya: Global Impacts on Asia's Growth

    12 april 2023 · 4 min

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    Given the recent developments in developed markets banking sectors, can Asia’s economic growth continue to outperform? Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Chetan Ahya, Morgan Stanley's Chief Asia Economist. Along with my colleagues bringing you a variety of perspectives, today I'll be discussing why Asia remains better placed despite recent global financial developments. It's Wednesday, April 12, at 9 a.m in Hong Kong.

    With the recent issues in the Developed Markets banking sector, investors are asking if Asia could face similar funding challenges and if Asia will still be able to outperform on growth.

    On the funding challenge, a key point to keep in mind is that interest rates have not risen as much in Asia compared to the U.S.. Asia's inflation was more cost-push driven, i.e commodity prices driven, and has already started to decelerate, and so central banks did not have to hike rates as much as the Fed. For instance, on July 21, policy rates rose by 4.75% in the U.S., but in Asia, it has risen only by one percentage point on an average. In a similar vein, prior to recent developments, 10 year bond yields rose by 2.8 percentage points in the U.S., but have only risen by just 0.9% in Asia. Another important distinguishing factor has to do with the setup of the banking sector. In Asia, liquidity coverage ratios are well above 100%, loans tend to be more floating rather than fixed, and deposit franchises are more diversified.

    Turning to the second question on whether Asia can still outperform. We think that recent developments will pose downside risks to both developed markets and Asia's growth but on net, Asia will still be able to outperform.

    In the case of a meaningful slowdown or a mild technical recession in the U.S., there will be three mitigating factors for Asia's growth outlook.

    First, the impact from weaker trade would be partially offset by easier financial conditions from lower market pricing of Fed's path, as well as low…

46. U.S Housing: The Future of Mortgage Markets

    12 april 2023 · 4 min

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    Banks and the Fed are winding down activity in the mortgage market amid recent funding challenges, signaling a potential new regime for the asset class. Co-Heads of Securitized Products Research Jim Egan and Jay Bacow discuss. Lees meer

    ----- Transcript -----

    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. Securitized Products Research.

    Jim Egan: And on this episode of the podcast, we'll be discussing mortgage markets. It's Tuesday, April 11th, at 11 a.m. in New York.

    Jim Egan: Now, Jay, there has been lots of news recently about bank funding challenges, and the FDIC put both Silicon Valley Bank and Signature Bank in receivership. They just announced last week that $114 billion of their securities will be sold, over time, with those securities being primarily agency MBS. Now, that sounds like a pretty big number, can you tell us what the impact of this is?

    Jay Bacow: Sure. So, I think it's important first to realize that the agency mortgage market is the second most liquid fixed income market in the world after treasuries, and so the market is pretty easily able to quickly reprice to digest this news. And as a reminder, agency mortgages don't have credit risk, given the agency guarantee. Now, that $114 billion is a big number and about $100 billion of them are mortgages, and putting that $100 billion in context, we're only expecting about $150 billion of net issuance this year. So this is two thirds of the net supply of the market is going to come just from these portfolio liquidations. That's a lot, and that's before we even get into the composition of what they own.

    Jim Egan: Isn't a mortgage a mortgage? What do you mean by the composition of what they own?

    Jay Bacow: Well, yes, a mortgage is a mortgage, but what banks can do is that they can structure the mortgages to better fit the profile of what they want. And based on publicl…

47. Diego Anzoategui: Goods, Services and the Shape of China’s Reopening

    11 april 2023 · 4 min

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    China’s growth is expected to be strong this year. However, it is being driven by services more than goods, meaning the news for other economies may not be as good as it initially appears. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Diego Anzoategui from the Global Economics Team. Along with my colleagues, bringing you a variety of perspectives, today I'll be talking about the global impact of China's reopening. It's Monday, April 10th, at 3 p.m. in New York.

    At the end of 2022, China scrapped all COVID zero policies and laid out a growth focused policy agenda for 2023. By mid-January, around 80% of the population had had COVID, but infections are now much lower, mobility is improving, and China's economy seems to be taking off. We estimate China's growth will reach 5.7% in 2023, primarily driven by a rebound in private consumption.

    This is the first time in four years that COVID, regulatory and economic policy are all pushing in the same direction. Since the Chinese Party Congress in October 2022, the administration has swung to a pro-business stance, and we expect fiscal and monetary support to continue. Furthermore, China's big tech regulation has entered an institutionalized and stable stage, and we don't expect new, aggressive measures any longer.

    Although China's growth is expected to be strong in 2023, it is off a low base and it will take time for private sentiment to come back. So we expect fiscal easing to continue at least through the first half of 2023. As for monetary policy, the People's Bank of China may continue to provide targeted support towards economic recovery while private demand gets on a surer footing. As growth becomes more self-sustaining in the second half of 2023, cyclical policy could start to normalize, but not turn to outright tightening.

    Against this macro backdrop, we believe that services such as tourism, transportation and food services will drive the recovery. During the pandemic, mobility restrictions and…

48. Ellen Zentner: The Lagging Effects of Loan Growth

    6 april 2023 · 3 min

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    While banking conditions seem to have stabilized for now, tighter credit conditions could still hit U.S. economic growth. Lees meer

    ----- Transcript -----

    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 discuss how recent developments in the banking sector could impact the U.S. economy. It's Thursday, April 6, at 10 a.m. in New York.

    Events over the past several weeks have led to disruptions in the financial system that we believe will leave a mark on the real economy. Our banking analysts here at Morgan Stanley Research see permanently higher funding costs for banks going forward, and that will likely lead to tighter credit conditions beyond what was already embedded in our previous baseline for the economy.

    At its March meeting, the Federal Open Market Committee explicitly added a reference to tightening credit conditions and the effects on growth and inflation. But in the press conference, Chair Powell also highlighted wide uncertainty around the magnitude of tightening. The lack of visibility into the extent and persistence of current bank funding pressures, as well as the banking systems response, are contributing to this uncertainty.

    Our banking analysts believe that higher operating costs should drive tougher standards for new loans and higher loan spreads. These drivers set the stage for an even sharper deceleration in credit growth over the course of this year. Put simply, when it's more difficult or expensive for businesses and consumers to borrow money, it creates challenges for economic growth.

    While our baseline forecast for the U.S. economy already included a meaningful slowdown in loan growth over the coming months, further tightening in lending standards and greater pullback in bank lending will weigh further on GDP. That said, our modeling shows the effects are likely to take some time to build, with a meaningful slowing starting in …

49. Michael Zezas: What the ‘X-Date’ Means for Investors

    5 april 2023 · 3 min

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    With the deadline to raise the debt ceiling looming closer, will recent banking challenges reduce Congress's willingness to take risks with the economy? Lees meer

    ----- Transcript -----

    Welcome to the Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the debt ceiling and financial markets. It's Wednesday, April 5th at 9 a.m. in New York.

    Markets have focused in recent weeks on key long term debates, such as sizing up the long term effects of Fed policy and bank liquidity challenges. But investors should be aware that there may be at least a temporary interruption for focus on the debt ceiling in the coming weeks. That's because tax receipts will soon start rolling in, which should give the government and markets a clearer assessment of the timing of the x-date, that's the date after which the Treasury no longer has cash on hand to pay all its bills as they come due. Said differently, it's the date that investors would focus on as a potential deadline for raising the debt ceiling in order to avoid a government bond default, or a messy workaround to such a default that could rattle markets.

    Some clients have suggested to us that there should be less concern about Congress raising the debt ceiling in a timely manner ahead of that x-date, the reason being that recent banking challenges and resulting economic fears may have reduced Congress's willingness to take risks with the economy. We disagree, and still expect Congress will at least take this negotiation down to the wire, perhaps even going past the x-date, which, to be clear, wouldn't necessarily cause a default, but it would up the risk meaningfully. So what's the basis for our argument?

    First, remember, Republicans have a very slim majority in the House, meaning only a handful of objectors to any legislation could potentially create gridlock. There was already public reticence by R…

50. Seth Carpenter: China’s Impact on Global Growth

    4 april 2023 · 4 min

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    As the economic growth spread between Asia and the rest of the world widens, China’s reopening is unlikely to spur growth that spills over globally. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist. Along with my colleagues, bringing you a variety of perspectives, today I'll be talking about the outlook for global economic growth. It's Tuesday, April 4th at 10 a.m. in New York.

    How is the outlook evolving after one quarter of 2023? The key trends in our year ahead outlook remain, but they're changing. The spread between Asian growth and the rest of the world is actually a bit wider now. And within developed market economies, downgrades to the U.S. forecast largely on the back of banking sector developments and upgrades to the euro area, largely on the back of stronger incoming data, now have Europe growing faster than the U.S. in 2023. In China, the data continue to reinforce our bullish call for about 5.7% GDP growth this year, and if anything, there are risks to the upside, despite the official growth target from Beijing coming in at about 5%.

    Had it not been for the banking sector dominating the market narrative, I suspect that China reopening would still be the most important story. But China's recovery has always had a critical caveat to it. We've always said that the rebound would be much more domestically focused than in the past and more weighted towards services than industry in the past. We don't think you can apply historical betas, that is the spillover from Chinese growth to the rest of the world, the way you could in the past.

    I want to highlight a recent piece that quantifies how China's global spillovers are different this time. Two main points deserve attention. First, the industrial economy never contracted as much as the services economy in China did, and that means that the rebound will be much bigger in services than it could be in the industrial economy. And second, we d…