Thoughts on the Market

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1. U.S. Media: Will Streaming Overtake Traditional Cable?

   8 november 2022 · 6 min

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   Increasingly, consumers are moving from traditional cable and satellite subscriptions to connected TV devices, so where do the advertisers go from here? U.S. Media Analyst Ben Swinburne and U.S. Internet Analyst Brian Nowak discuss. Lees meer

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   Ben Swinburne: Welcome to Thoughts on the Market. I'm Ben Swinburne, Morgan Stanley's U.S. Media Analyst.

   Brian Nowak: And I'm Brian Nowak, Morgan Stanley's U.S. Internet Analyst.

   Ben Swinburne: On this special episode of the podcast we'll focus on connected TV and the changing television space. It's Tuesday, November 8th, at 10 a.m. in New York.

   Ben Swinburne: Consumer behavior in the television space has been changing rapidly over the past decade, and the COVID pandemic further accelerated this trend. While most people still watch traditional linear TV through their cable and satellite subscription, consumers are shifting to streaming at a rapid pace. In fact, most of our listeners probably use some sort of connected TV, or CTV device at home that allows their television to support video content streaming. As our media analyst, I've watched how this has led to widespread "cord cutting", as an increasing number of customers cancel their traditional subscriptions in favor of only using these streaming or video on demand formats. So let's dig into the opportunities and challenges within the connected TV space and particularly interconnected TV advertising. Brian, let's start with some definitions. What is CTV advertising, what's so great about it?

   Brian Nowak: CTV advertising is nothing more than adding advertising to all that streaming engagement that you mentioned earlier. You talked about how people are increasingly watching connected television through streaming devices, through their televisions. The idea of showing ads around it is CTV advertising. As far as what's so great about it, for years traditional linear television has largely been driven by branded advertising to reach people. The hope with con…

2. Mike Wilson: Is the U.S. Equity Rally Over?

   7 november 2022 · 4 min

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   With the Fed continuing to focus on inflation and the upcoming midterm elections suggesting market volatility, investors may be wondering, is the U.S. equity market rally really over? Lees meer

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   Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, November 7th, at 11 a.m. in New York. So let's get after it.

   Last week's pullback in major U.S. stock indices was not a surprise as the Fed remained committed to its mandate of getting inflation under control. However, if our tactical rally in U.S. stocks is going to have legs, 10 year U.S. Treasury yields will need to come down from current levels. Otherwise, it will be difficult to see higher prices for the S&P 500, given how sensitive this large cap growth index is to interest rates. Furthermore, we remain of the view that 2023 earnings forecasts are as much as 20% too high, so it will be difficult for stocks to move higher without valuations expanding.

   Does this mean the U.S. equity rally is over? We don't think so, but it's going to remain very noisy in the near term. First, we have two more important events this week to contend with: the Consumer Price Index release on Thursday and the midterm elections on Tuesday. On the former, we aren't that focused on it because it tells us little about the trajectory of inflation going forward. Nevertheless, we appreciate that the bond market remains fixated on such data points and will trade it. Therefore, it's likely to keep interest rate volatility high through Thursday. If interest rate volatility falls with the passing of these data, equity valuations can then expand further.

   In terms of interest rate levels, we think next week's midterms could play a bigger role. Should the polls prove correct, the Republicans are likely to win at le…

3. Andrew Sheets: A Swing Towards Bonds?

   4 november 2022 · 3 min

   Afspelen
   As prices for bonds go down and yields go up, investors may be asking why the price is so low, and what this shift may do to the broader market and asset allocation. 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, November 4th, at 2 p.m. in London.

   The market is a funny thing. Relative to January 1st of this year, the U.S. 30 year Treasury bond is set to pay out all of the same coupons, and return the exact same amount of principal when it matures in 2052. But the market has decided that that same bond today is worth 36% less than at the start of the year.

   So what happened? Well, yields rose. That 30 year U.S. bond might be the exact same entity, but investors now need all of those future payments to yield 4.2% per year, not the 1.9% they needed on January 1st. It's another way of saying that there's been a major change in what's considered the minimal accepted return on safe assets. And that large jump in yields has led to the largest drop in bond prices that we've seen in recorded history.

   But the implications are broader. Many assets have bond-like characteristics, where you pay money today for a string of payments in the future. Whether it's an office building, a rental unit or a company with a future set of earnings, you can get very different current values for the exact same asset today by varying what sort of yield it's required to produce. And so if bonds are now priced lower to generate higher returns in the future, so should many other assets that have similar bond-like characteristics.

   For markets, we see a couple of implications. First, these rising yields have made bonds increasingly competitive relative to stocks. Currently, $100 of the S&P 500 is expected to yield about $6.25 of earning…

4. Labor: Are People Returning to Work?

   3 november 2022 · 5 min

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   As developed markets heal from the pandemic, labor force participation has recovered in some areas faster than others, so how will a return to work impact the broader economy in places like the U.K. and the U.S.? U.S. Economist Julian Richers and European Economist Markus Guetschow discuss. Lees meer

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   Julian Richers: Welcome to Thoughts on the Market. I'm Julian Richers from the Morgan Stanley U.S. Economics Team.

   Markus Guetschow: And I'm Markus Guetschow from the European Economics Team.

   Julian Richers: On this special episode of the podcast, we'll focus on the issue of labor force participation across developed markets and its broader economic implications. It's Thursday, November 3rd, at 10 a.m. in New York.

   Markus Guetschow: And 3 p.m. in London.

   Markus Guetschow: It's no secret that the COVID pandemic profoundly disrupted labor markets across the globe. Labor shortages, rather than unemployment, have now become the key challenge to economies everywhere, and the 'great resignation' has become a catchphrase. In the U.K. and U.S. in particular, are experiencing a slow recovery in labor participation post-COVID, which is adding to an already complex set of policy trade offs by the Fed and the Bank of England. At the same time, Europe looks like a bright spot. So Julian, 'nobody wants to work anymore' has become a punchline. What kind of picture do the data on labor supply really paint in the U.S.?

   Julian Richers: In the U.S. at least we have seen a massive decline in labor force participation at the onset of the pandemic and really an incomplete recovery so far. Less immigration and more retirements have been major contributors to that drop initially, but since then it also is that prime age workers, so workers age 25 to 54, have been slow to come back. Now in contrast to the U.S., I think your analysis shows that labor supply in the euro area has already fully recovered to pre-pandemic levels. What drove that faster rebound and what's your out…

5. Michael Zezas: Preparing for an Uncertain Election

   2 november 2022 · 3 min

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   This coming Tuesday is the midterm election in the U.S., so what should investors watch out for as the results roll in? And which outcomes might influence market moves? Lees meer

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   Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Global Thematic and Public Policy Research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between public policy and financial markets. It's Wednesday, November 2nd at 10 a.m. in New York.

   On Tuesday, Americans will cast their ballots for members of Congress. Well, most Americans will. Many will have already voted by mail. And that's important to know, because it means that, like in 2020, investors may have to wait days to reliably know who will control Congress. And that uncertainty could spell volatility in the bond markets, under the right conditions. Allow me to explain.

   Like in 2020, the increased use of vote by mail means that early vote counts reported may not be a good indicator of who's winning a particular race, especially in races expected to be close. Mailin ballots are typically cast more often by Democrats than Republicans, and in many jurisdictions are counted after in-person voting. That means that early reported results may look favorable to Republicans, but like in 2020, leads can vanish over time. And so we'll need to reserve judgment on which party seems poised to control Congress.

   While that uncertainty is playing out, it helps to know which outcomes would be market movers and which ones might have no immediate impact. For example, let's consider what it would mean if Republicans take back control of one or both houses of Congress, which polls and prediction markets are pointing to as the most likely outcome. We wouldn't anticipate this 'divided government' outcome being a market mover, at least not in the near term. That's because the most we can take away from this are some hypothetical concerns. A divided govern…

6. Private Markets: Uncertainty in the Golden Age

   1 november 2022 · 7 min

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   Over the last decade private markets have outperformed versus public markets, but given the recent public market volatility, will private markets continue to attract investors? Head of Brokers, Asset Managers, and the Exchanges Team Mike Cyprys and Head of European Asset Managers, Exchanges, and Diversified Financials Research Bruce Hamilton discuss. Lees meer

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

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

   Mike Cyprys: And on this special episode of the podcast, we'll talk about our outlook on the private markets industry against an uncertain macro backdrop and market upheaval. It's Tuesday, November 1st at noon in New York.

   Bruce Hamilton: And 4 p.m. in London.

   Mike Cyprys: We spend most of our time on this podcast talking about public markets, which are stocks and bonds traded on public exchanges like Nasdaq and Euronext. But today, we're going to talk a little bit about the private markets, which are equity and debt of privately owned companies. You probably know it as private equity, venture capital and private credit, but it also encompasses private real estate and infrastructure investments, all of this largely held in funds owned by institutions such as pension funds and endowments and increasingly high net worth investors. Today, there is nearly 10 trillion of assets held across these funds globally. But despite the different structure, private markets have been faced with the same macro challenges facing public markets here in 2022. So Bruce, before we get into some of the specifics, let's maybe set the context for our listeners. How have private markets fared vis a vis public markets over the last decade?

   Bruce Hamilton: So the industry has grown at around 12% per annum on average over the past decade in terms of asset growth an…

7. Mike Wilson: Has the Fed Gone Far Enough?

   31 oktober 2022 · 4 min

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   Despite companies beginning to report earnings misses and poor stock performance, the S&P 500 is on the rise, leading many to wonder how the Fed will react to this new data in their coming meeting. Lees meer

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   Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 31st at 11 a.m. in New York. So let's get after it.

   Two weeks ago, we turned tactically bullish on U.S. equities. Some clients felt this call came out of left field, given our well-established bearish view on the fundamentals. To be clear, this call is based almost entirely on technicals rather than the fundamentals which remain unsupportive of most equity prices and the S&P 500.

   Today, we will put some meat around the fundamental drivers for why this call can work for longer than most expect. Last week was the biggest one for third quarter earnings season in terms of market cap reporting. More specifically it included all of the mega-cap tech stocks that make up much of the S&P 500. On one hand, these companies did not disappoint the fundamental bears like us who've been expecting weaker earnings to finally emerge. In fact, several of these large tech stocks reported third quarter results that were even worse than we were expecting. Furthermore, the primary driver of the downside was due to negative operating leverage, which is a core part of our thesis on earnings as described in the fire and ice narrative. However, these large earnings misses and poor stock performance did not translate into negative price performance for the S&P 500 or even the NASDAQ 100.

   This price action is very much in line with our tactical bullish call a few weeks ago. In addition to the supportive tactical picture we discussed in prior notes, we fully expected third quarter results to…

8. U.K. Economy: Volatility's Impact Across Markets

   28 oktober 2022 · 9 min

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   As the U.K. grapples with structural, political, and economic issues, how are markets affected across assets, and what stories may look better for investors than others? Chief Cross-Asset Strategist Andrew Sheets and U.K. Economist Bruna Skarica discuss. Lees meer

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

   Bruna Skarica: And I'm Bruna Skarica, Morgan Stanley's U.K. Economist.

   Andrew Sheets: And on part two of this special two part edition of the podcast, we'll be talking about the market implications of the latest political, economic and market developments in the U.K. It's Friday, October. 28th at 2 p.m. in London.

   Bruna Skarica: So Andrew, we already discussed the economic outlook for the U.K., and today I'd like to turn our conversation to you and your cross asset views. Obviously the current economic and political situation in the U.K. has a very significant impact on both macro and micro markets. Let's start with one of the number one investor questions around the U.K., which is the mortgage market. Roughly one in four mortgages has a variable rate and current estimates suggest that more than a third of UK mortgage holders will see their rates rise from under two to over 6% over the next year. What is your outlook for the mortgage market and its impact on the U.K. consumer, especially amid what is already severe cost of living crisis?

   Andrew Sheets: Like the U.S. most household debt in the U.K. is held in the form of mortgages. Unlike t,vhe U.S., though, those mortgages tend to have a quite short period where the rate is fixed. The typical U.K. mortgage, the rate is only fixed for 2 to 5 years. Which means that if you bought a house in 2020 or 2021, a lot of those mortgages are coming due for a reset very soon. And that reset is large. The mortgage, when it was taken out in 2020, might have had a rate of 2%. The current rate that it will reset to is closer to 6%. So tha…

9. U.K. Economy: All Eyes on the U.K.

   28 oktober 2022 · 8 min

   Afspelen
   As the U.K. deals with a bout of market volatility, political transitions, and sticky inflation, how will policy makers and the Bank of England respond, and where might the U.K. economy be headed from here? Chief Cross-Asset Strategist Andrew Sheets and U.K. Economist Bruna Skarica discuss. Lees meer

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

   Bruna Skarica: And I'm Bruna Skarica, Morgan Stanley's U.K. Economist.

   Andrew Sheets: And on this special two part edition of the podcast, we'll be focused on the latest political, economic and market developments in the United Kingdom and how investors should think about the situation now and going forward. It's Thursday, October 27th at 2 p.m. in London.

   Andrew Sheets: So Bruna, the world's eyes have been on the U.K. over the last couple of months, not only because it's the world's sixth largest economy, but because it's been experiencing an unprecedented level of market volatility, and it also has had an unusually large amount of political volatility. So I think a good place to start this discussion is just taking a step back. How would you currently frame the economic challenges facing the U.K.?

   Bruna Skarica: Indeed, the level of volatility has truly been historic, both in the macro space, in the market and in politics. Now, in terms of what Prime Minister Sunak has on his tray coming into number 10, first let me mention the fiscal challenges. Chancellor Hunt, who's currently in number 11, has already reversed nearly all the measures from the mini budget, which was the catalyst of all this turbulence. Still, there is more to come. We think another £30 billion of fiscal tightening will be needed to stabilize debt to GDP ratio in the medium term. So more austerity, which of course, will be negative for growth. Now, this fiscal tightening, of course, comes in order to facilitate Bank of England's monetary tightening and help return in…

10. Seth Carpenter: The Next Steps for the Bank of England

    26 oktober 2022 · 4 min

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    As the U.K. attempts stabilize its debt to GDP ratio, as well as curb inflation, the question becomes, to what extent will the Bank of England continue to tighten monetary policy? Lees meer

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    Welcome to Thoughts on the Market. I'm Seth Carpenter, Global Chief Economist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about recent developments in the U.K. and what the implications might be for other economies. It's Wednesday, October 26th, at 10 a.m. in New York.

    The political environment in the U.K. is fluid, to say the least. For markets, the most important shift was the fiscal policy U-turn. The tax cuts proposed by former Chancellor Kwarteng have been withdrawn apart from two measures related to the National Health Service and property taxes. In total, the reversal of the mini budget tax cuts brings in £32 billion of revenue for the Treasury. Media reports suggested that Chancellor Hunt was told by the fiscal watchdog, the OBR, that medium term stability of the debt to GDP ratio would require about £72 billion of higher revenue. There's a gap of about £40 billion implying tighter fiscal policy to come.

    The clearest market impact came from the swings in gilt yields following the original fiscal announcement. The 80 basis point sell off in 30 year gilts prompted the Bank of England to announce an intervention to restore financial stability for a central bank about to start actively selling bonds to change course and begin buying anew was a delicate proposition. But so far, the needle appears to have been threaded.

    And yet, despite the recent calm, the majority of client conversations over the past month have included concern about other possible market disruptions. Part of the proposed fiscal plan was meant to address surging energy prices. Inflation in the UK is 10.1% of which only 6.5% is core inflation. The large share of inflation from food and energy prices works like a tax. From a household…

11. Michael Zezas: Policy Pressure from the U.S. to China

    25 oktober 2022 · 2 min

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    The Biden administration recently imposed new trade restrictions on exports to China, but what sectors will be impacted and will we continue to see more policy pressure from the U.S. to China? Lees meer

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    Welcome to Thoughts on the market. I'm Michael Zezas, Head of Global Thematic and Public Policy Research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Tuesday, October 25th, at 10 a.m. in New York.

    On October 7th, the Biden administration announced another round of controls on the export of advanced computing and semiconductor equipment to China. The stated goal is to protect U.S. national security and foreign policy interests by limiting China's ability to develop cutting edge chip and computing technology. This news drove volatility in equity markets in China recently, but we think it shouldn't come as a surprise to investors. In fact, we argue that investors should expect the U.S. to continue pressing forward with trade restrictions on China.

    It's all part of our slowbalization and multipolar world frameworks. In short, as China's economy grows into a legit challenger to U.S. hegemony, U.S. policy has changed to protect its economic and military advantages. Export controls are one of those policies springing from a law passed in 2018, one of the few pieces of legislation that received bipartisan support during the Trump administration. And this law gives broad authority to the executive branch to decide what's in scope for export restrictions. So as the competition between the U.S. and China grows and new technologies over time become old technologies, expect export controls and other non-tariff barriers to spread across multiple industries. Other policy barriers could arise, too. As we've stated in prior podcasts, we still see scope for Congress to create an outbound investment control function for the White House…

12. Mike Wilson: What is Causing the Market Rally?

    24 oktober 2022 · 3 min

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    As equities enjoy their best week since the summer highs in June, investors seem at the mercy of powerful market trends, so when might these trends take a turn to the downside? Lees meer

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    Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 24th, at 11:30 a.m. in New York. So let's get after it.

    Last week, we made a tactically bullish call for U.S. equities, and stocks did not disappoint us. The S&P 500 had its best week since June 24th, which was the beginning of the big summer rally. As a reminder, this is a tactical call based almost purely on technicals rather than fundamentals, which remain unsupportive of higher equity prices over the next 3 to 6 months. Furthermore, the price action of the markets has become more technical than normal, and investors are forced to do things they don't want to, both on the upside and the downside. Witness September, which resulted in the worst month for U.S. equities since the COVID lockdowns in March of 2020. The same price action can happen now on the upside, and one needs to respect that in the near term, in our view.

    As noted last week, the 200 week moving average is a powerful technical support level for stocks, particularly in the absence of an outright recession, which we don't have yet. While some may argue a recession is inevitable over the next 6 to 12 months, the market will not price it, in our view, until it's definitive. The typical signal required for that can only come from the jobs market. While nonfarm payrolls is a lagging indicator that gets revised later, the equity market tends to be focused on it. More specifically, it usually takes a negative payroll reading for the market to fully price a recession. Today, that number is a positive 265,000, and it's unlikel…

13. Andrew Sheets: The U.K.’s Struggle to Bring Down Inflation

    21 oktober 2022 · 3 min

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    The U.K.’s economy continues to face a host of challenges, including high inflation and a weak currency, and while these problems are not insurmountable, they may weigh significantly on the economic outlook. 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, October 21st at 2 p.m. in London.

    The eyes of the financial world remain on the United Kingdom, the world's 6th largest economy that is facing a complicated, interwoven set of challenges. We talked about the U.K. several weeks ago on this program, but I wanted to revisit it. It's a fascinating cross-asset story.

    First, among these challenges is inflation. High U.K. Inflation is partly due to global factors like commodity prices, but even excluding food and energy core inflation is about 6.5%. And since the U.K. runs a large current account deficit, importing much more than it exports, a weak currency is driving even higher costs through all those imported items. Meanwhile, Brexit continues to reduce the supply of labor and increase the costs of trade, further boosting inflation and reducing the benefit that a weaker currency would otherwise bring.

    The circularity here is unmissable; high inflation is driving currency weakness and vice versa. High inflation has depressed U.K. real interest rates, making the currency less attractive to hold. And high inflation relative to other countries undermines valuations. On an inflation adjusted basis, also known as purchasing power parity, the British pound hasn't fallen that much more than, say, the Swiss franc over the last year.

    If inflation is high, why doesn't the Bank of England simply raise rates to slow its pace? The bank is moving, but the Bank of England has raised rates by less than the market expected…

14. Graham Secker: Do European Earnings Have Further to Fall?

    20 oktober 2022 · 4 min

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    While European earnings have been remarkably resilient this year, and consensus estimates for earnings and corporate margins remain high, there may be reason to believe there’s further yet to fall. 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 earnings for the upcoming third quarter reporting season and beyond. It's Thursday, October the 20th, at 2 p.m. in London.

    Having been cautious on European equities for much of this year, we have recently started to flag the potential for more two-way price action in the near-term, reflecting a backdrop of low investor positioning, coupled with the potential for an inflection in U.S. inflation and interest rates over the next few months. To be clear, we haven't seen either of these two events occur yet, however we are conscious that each week that passes ultimately takes us closer to just such an outcome. Given that high inflation and rising interest rates have been the key drivers pushing equity valuations lower this year, any sign that these two metrics are peaking out would suggest that we are approaching a potential floor for equity PE ratios. However, while this is good news to a degree, history suggests that we need to be closer to a bottom in the economic and earnings cycle before equity markets put in their final price low.

    So far this year, European earnings have stood out for their remarkable resilience, with the region enjoying double digit upgrades on the back of currency weakness and a doubling of profitability for the energy sector. Looking into the third quarter reporting season, we expect this resilience to persist for a bit longer yet. Currency effects are arguably even more supportive this quarter than last, and the global and domestic economies have yet to show a more material slowdown that would be associa…

15. ESG: How will Evolving Regulations Affect Investment?

    19 oktober 2022 · 6 min

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    As the EU puts new regulations on sustainability funds, how will categorization of these funds be impacted, and how might that change investment strategies? Head of Global Thematic and Public Policy Research Michael Zezas and Head of Fixed Income and ESG Research Carolyn Campbell discuss. Lees meer

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    Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Head of Global Thematic and Public Policy Research.

    Carolyn Campbell: And I'm Carolyn Campbell, I lead our Fixed Income and ESG Research Team.

    Michael Zezas: And on this special episode of Thoughts on the Market, we'll focus on sustainability funds and their investment strategies within an evolving regulatory context. It's Wednesday, October 19th, at 10 a.m. in New York.

    Michael Zezas: There are just over 1400 dedicated fixed income sustainability funds with assets under management, around $475 billion off from a peak of $545 billion at the end of 2021. This is a sizable market, but as EU regulators weigh in on what these funds can and can't own, it begs the question what kinds of bonds might they start buying? So Carolyn, let's maybe start with the essentials behind the EU Sustainable Finance Disclosure Regulation, SFDR, and what it requires of financial market participants. Specifically, what are Article 8 and Article 9 products?

    Carolyn Campbell: So under the SFDR, fund managers are required to classify their funds in one of three ways. The first, Article 8, or what's known as a light green fund, is a sustainability fund that promotes environmental or social characteristics. The dark green funds, which are Article 9 funds, invest in sustainable investments and have an environmental or a social factor as an objective. They also, importantly, cannot do significant harm to other environmental or social objectives. And then lastly, we have the non sustainability funds which are Article 6.

    Michael Zezas: And despite the regulator's goal to increase transparency and acc…

16. Matthew Hornbach: Why U.S. Public Debt Matters

    18 oktober 2022 · 3 min

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    As U.S. Public Debt continues to break records, should investors be concerned by the amount debt has risen? Or are there other, more influential factors at play? Lees meer

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    Welcome to Thoughts on the Market. I'm Matthew Hornbach, Morgan Stanley's Global Head of Macro Strategy. Along with my colleagues, bringing you a variety of perspectives, today I'll be talking about how macro investors may want to view rising U.S. public debt. It's Tuesday, October 18th, at 10 a.m. in New York.

    U.S. public debt made breaking news headlines this month by rising above $31 trillion for the first time. In a decade, it's projected to hit $45 trillion, according to the Congressional Budget Office or CBO. By the time new hires today are ready to retire, U.S. debt to GDP could be at 185%.

    The CBO argues that high and rising debt could increase the likelihood of a fiscal crisis, because investors might lose confidence in the U.S. government's ability to service and repay its debt. They also believe that it could lead to higher inflation expectations, erode confidence in the U.S. dollar as a reserve currency, and constrain policymakers from using deficits in a countercyclical way.

    The government debt load in Japan has stood as a notable counterpoint to concerns of this nature for decades. With gross debt a whopping 263% of GDP, and no fiscal crisis that has occurred or appears to be on the horizon, Japan's situation should mitigate some of the CBO's concerns.

    Still, the amount of debt matters, especially to those invested in it. As both the level of debt and interest rates rise further, net interest income for U.S. households may contribute more to total income over time.

    Nevertheless, the level of government debt vis a vis the size of the economy and its contribution to societal income, are not the most pressing issues. The problem with debt has always been predicting the price at which it gets bought and the value it provides investors. The current size of the debt at…

17. Mike Wilson: Will Bond Markets Follow the Fed?

    17 oktober 2022 · 3 min

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    Last week's September inflation data brought a subsequent rally in stocks, but can this rally hold while the bond market continues to follow the Fed? Lees meer

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    Welcome to Thoughts on the Market. I'm Mike Wilson, Chief investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 17th, at 1 p.m. in New York. So, let's get after it.

    No rest for the weary as days feel like weeks and weeks feel like months in terms of price action in the financial markets. While there's always a lot going on and worth analyzing, it's fair to say last week was always going to be about the September inflation data one way or another.

    From our vantage point, inflation has peaked. While 8% is hardly a rate the Fed can live with, the seeds have been sown for lower prices in many goods and services. Housing is at a standstill, commodity prices have fallen substantially since April, and inventory is starting to balloon at many companies at a time when demand is falling. That means discounting should be pervasive this holiday shopping season. Finally, the comparisons get much more challenging next year, which should bring the rate of change on inflation down substantially on a year-over-year basis.

    At the end of last year, the bond market may have looked to be the most mispriced market in the world. That underpricing of inflation and rates was a direct result of Fed guidance. Recall that last December the Fed was suggesting they would only hike 50 basis points in 2022. More surprisingly, the bond market bought it and ten-year yields closed out the year at just 1.5%. Fast forward to today and we think the bond market is likely making the same mistake but on the other side.

    We think inflation is peaking, as I mentioned, and we think it falls sharply next year. Shouldn't the rates market begin to ignore Fed guidan…

18. Andrew Sheets: Overseas, Currency Matters

    14 oktober 2022 · 4 min

    Afspelen
    When investing in overseas markets, 'hedging' one's investment not only offers potential protection from the fluctuations of the local currency but potentially may also lead to higher returns. 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 Friday, October 14th, at 2 p.m. in London.

    How much is the Japanese stock market down this year? That seems like a pretty basic question and yet, it isn't. If you're a Japan-based investor who thinks about the world in Japanese yen, the market has dropped about 6% year-to-date, a pretty mild decline, all things considered. But if you're a U.S. investor, who thinks about the world in U.S. dollars, the market has fallen 26%.

    That's a big difference, and it's entirely linked to the fact that when investing overseas, your return is a function of both the changes in that foreign market and the changes in its currency's value versus your own. When a U.S. investor buys Japanese equities, the actual transaction will look something like this. The investor sells their dollars for yen and then uses those yen to buy Japanese stocks. When the investor eventually goes to sell their investment, they need to reverse those steps, selling yen and buying the dollars back. This means that the investor is ultimately exposed to fluctuations in the value of the yen.

    Given this, there's an increased focus on investing overseas but removing the impact of currency fluctuations, that is, 'hedging' the foreign exchange exposure. There are a few reasons that this can be an attractive strategy for U.S. based investors.

    First, it reduces a two-variable problem to a one-variable problem. We reckon that most stock market investors are more comfortable with stocks than they are with currencies. An unhedged …

19. ESG: A New Framework for Utilities

    13 oktober 2022 · 5 min

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    Increasing ESG pervasiveness has led to increasing confusion, in particular around how investors might apply these criteria to the utility sector. Head of Sustainability Research and Clean Energy Stephen Byrd and Equity Analyst for the Power and Utilities Industry Dave Arcaro discuss. Lees meer

    ----- Transcript -----

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

    Dave Arcaro And I'm Dave Arcaro, Equity Analyst for the Power and Utilities Industry.

    Stephen Byrd And on this special episode of the podcast, we'll be discussing a new framework for investors to approach ESG analysis within the utility space. It's Thursday, October 13th, at noon in New York.

    Stephen Byrd Our listeners are no doubt well aware that ESG criteria—that is environmental, social and governance criteria—have become an increasingly important part of the investment process. This growth has been spurred by a continual search for better long term financial returns, as well as a conscious pursuit of better alignment with values. Yet despite ESG's seeming pervasiveness within the financial ecosystem, there's been a genuine confusion and even controversy among investors about how to apply ESG metrics to the utility sector in particular. And so, in an effort to bring clarity to this key market debate, today we're going to share an innovative framework designed to drive both Alpha, which is the returns aspect, and impact, which is the societal benefit. So Dave, let's start with the problem. What causes this investor confusion and how does the new ESG framework address this problem?

    Dave Arcaro There are a few sources of confusion or debate that we're hearing from investors. The first seems to be centered on the lack of a clear distinction between ESG criteria that are likely to have a direct impact on stock performance, and then those that are more focused on achieving the maximum positive impact on ESG goals. Secondl…

20. U.S. Economy: Is Inventory Outpacing Sales?

    12 oktober 2022 · 4 min

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    As consumption of goods slows post COVID, companies are experiencing a build up in inventory that could have far reaching implications. Head of Global Thematic and Public Policy Research Michael Zezas and U.S. Equity Strategist Michelle Weaver discuss. Lees meer

    ----- Transcript -----

    Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Head of Global Thematic and Public Policy Research.

    Michelle Weaver: And I'm Michelle Weaver from the U.S. Equity Strategy Team.

    Michael Zezas: And on this special episode of Thoughts on the Market, we'll focus on what we see as an inventory problem with far reaching implications. It's Wednesday, October 12th, at 10 a.m. in New York.

    Michael Zezas: Michelle, can you start by taking us through some of the background on how we ended up with this problem of companies carrying high inventories, which could pressure them to discount prices leading to weaker earnings.

    Michelle Weaver: I'm sure listeners remember the COVID lockdowns when many of us overspent on a number of goods, especially things like furniture, tech products and leisure equipment. But now, with the recovery from COVID and supply chain bottlenecks easing, we're seeing a new challenge, inventory build coupled with slowing demand. Throughout 2022, we've been dealing with really high inflation, rising interest rates and declining consumer confidence. And while consumer confidence has rebounded from the all time lows that we saw this summer, it remains weak and we think consumers are still going to pare back spending in the face of macro concerns. We think inventory is one of the key problems that will weigh on S&P 500 earnings, and supports our negative call on earnings for the market.

    Michael Zezas: And how broad based is this problem? Which industries are most at risk?

    Michelle Weaver: This is a pretty broad problem for publicly traded companies. Inventory to sales for the median U.S. company have been on the rise since the financial crisis a…

21. Seth Carpenter: The Political Economy

    11 oktober 2022 · 5 min

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    All over the world elections are taking place that will have profound effects on both local and global economies, so where are policy moves being made and how might investors use these moves to anticipate economic shifts? Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Seth Carpenter, Global Chief Economist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about political economy and how elections have consequences. It's Tuesday, October 11th, at 8 a.m. in New York.

    Economics is a relatively new field, born in 1776 after the publication of Adam Smith's 'Wealth of Nations'. But until the 1900s, everyone called it political economy. Politics and economics are still hard to separate. Fiscal policy is only sometimes the result of economic events, but almost always a driver of economic outcomes. And because of its power, uncertainty about policy can be a drag all by itself.

    Brazil has a second round ballot on October 30th between the incumbent Bolsonaro and former President Lula. Both candidates are likely to change or scrap an existing fiscal rule that caps government spending, but most observers think that Lula is likely to have a looser fiscal stance of the two. And so while our LatAm team questions not whether fiscal deficits will increase, but by how much, last week's congressional elections could lead to a split government which is taken to mean a smaller size of any deficit widening. So our LatAm team is pointing to a different risk that a possible President Lula, and he currently leads in most polls, that there might be an unwinding of recent reforms for state owned enterprises, the public sector and labor markets that were meant to enhance Brazil's competitiveness. As is often the case, politics here is more about the medium term than the immediate.

    In the U.K., it wasn't exactly the same thing. The newly appointed UK Prime Minister, Liz Truss, announced an ambitious fiscal package, includin…

22. Mike Wilson: Earnings Begin to Guide Lower

    10 oktober 2022 · 4 min

    Afspelen
    Last week stocks rallied quickly but dropped just as fast as markets continue to hope for a more dovish Fed, but will this 2-way risk continue as evidence for a drop in earnings continues to accumulate? 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, October 10th, at 1:30 p.m. in New York. So let's get after it.

    Last week started with one of the biggest 2 day rallies in history, only to give most of it back by Friday's close. The culprit for this higher 2-way volatility is a combination of deteriorating fundamentals with oversold technicals. As noted last week, September was one of the worst months in what's been a difficult year, and the equity market was primed for a rally, especially with the S&P 500 closing right at its 200 week moving average on the prior Friday. Low quality stocks led the rally as further evidence the rebound was just bear market action rather than the beginning of a new bull. There is also still lingering hope for a Fed pivot, but the economic data that matters the most for such a pivot, jobs and inflation, continue to dash any hopes for a more dovish Fed.

    The sellout of momentum and retail, to some degree, does keep 2-way risk alive in the short term as it gets quiet for the next few weeks on the earnings front. Over the past month, there has been evidence that our call for lower earnings next year is coming to fruition. Large, important companies across a wide swath of industries have either reported or preannounced earnings and guided significantly lower for the fourth quarter. Some of these misses were as much as 30%, which is exactly what's needed for next year's estimates to finally take the step function lower, we think is necessary for the bear market to be over. The question is, …

23. Chetan Ahya: When Will China’s Economy Reopen?

    7 oktober 2022 · 3 min

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    While China’s policy objectives strive for common prosperity, the country’s strict COVID management poses risks to employment and income, so when might Chinese policymakers start to reopen and recover? Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Chetan Ahya, Chief Asia Economist at Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, today I'll be focusing on the expected reopening of China's economy. It's Friday, October 7th, at 8:30 a.m. in Hong Kong.

    When my colleagues and I discuss Asia's growth outlook with investors, one of the top questions we get is, when will China reopen and what the roadmap will look like. We believe a reopening will happen not because the rest of the world is now living with COVID, but because the effects of China's strict COVID management are now increasingly at odds with its policy objective of achieving common prosperity.

    The challenges of a sharp rise in youth unemployment and significantly lower income growth, especially for the low income segments of the population, have become more pronounced this year ever since the onset of Omicron. To put this in context, the youth unemployment rate is at 19% and our wage growth proxy has decelerated from around 9% pre-COVID, to just about 2.2% year on year.

    These issues are further exacerbated by the intensifying spillover effects from weaker exports and a continued drag from property sector. Over the next five quarters, growth in developed markets will likely remain below 2% year on year. The continued shift in DM consumer spending towards services will mean global goods demand will deflate further. And as exports weaken, manufacturing CapEx will also follow suit, which will further weigh on employment creation. As for the property market, the pace of resolution of funding issues and uncompleted projects are still relatively sluggish. With the outlook for the drivers of GDP growth weakening, we think the only meaningful policy lever is a sh…

24. U.S. Housing: Are Home Prices Decelerating?

    6 oktober 2022 · 7 min

    Afspelen
    As month over month data begins to show a downturn in home prices, will overall price growth and sales begin to fall steeper than expected? Co-Heads of U.S. 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 why home prices could turn negative in 2023. It's Thursday, October 6th, at 3 p.m. in New York.

    Jay Bacow: Jim, it seems like every month the housing data is getting worse when we look at the sales activity. But, now I think I just saw something about home prices falling? What's going on there? I thought we call it home price appreciation, now we're seeing home price depreciation?

    Jim Egan: There is a lot going on out there. There's a lot of volatility, things are moving fast, and yes, there are home price indices that are showing negative numbers. I would caveat that a lot of those negative numbers are month over month, not the year over year that we've typically talked about here. But that doesn't mean it isn't important.

    Jay Bacow: In the past we've talked about this bifurcation narrative where we were going to get a big drop in home sales and housing starts, which we've seen, but home prices were more protected. Do you still believe that?

    Jim Egan: We do still believe in the bifurcation narrative, but the levels of the forecasts have changed, and they've changed for a couple of reasons. I think one reason is that there have been a number of forecast changes, expectations for 2023 are different. Our U.S. economics team has raised their hiking forecast 25 basis points in each of the next three meetings, and our interest rate team on the back of that forecast change has moved up their expectations for the 10 year Treasury. What that move mean…

25. Michael Zezas: Shifting Global Supply Chains

    5 oktober 2022 · 3 min

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    As globalization slows and companies begin to nearshore their supply chains, investors may be wondering what the costs and benefits are of bringing manufacturing back home. Lees meer

    Important note regarding economic sanctions. This research references country/ies which are generally the subject of comprehensive or 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 report to entities, debt or equity instruments, projects or persons that may be covered by such sanctions are strictly informational, 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 report are solely responsible for ensuring that their investment activities in relation to any sanctioned country/ies are carried out in compliance with applicable sanctions.

    ----- Transcript -----

    Welcome the Thoughts on the Market. I'm Michael Zezas, Head of Global Thematic and Public Policy Research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Wednesday, October 5th, at 10 a.m. in New York.

    We speak often here about the themes of slowing globalization, or slowbalization, and the shift to a multipolar world. It's important to understand these megatrends, as they will likely impact global commerce for decades to come and in many ways we cannot yet anticipate. But one impact we have anticipated is multinational companies spending money to shift their supply chains. Whereas globalization meant companies could focus on lowering their labor and transportation costs through 'just in time' logistics, 'just in case' logistics are the watchword of the multipolar world. Companies will have to invest money to nearshore or frien…

26. Vishy Tirupattur: Can Corporate Credit Provide Shelter?

    4 oktober 2022 · 4 min

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    With investors becoming pervasively bearish on stocks and bonds in the face of a worsening growth outlook, can the U.S. investment grade credit market provide shelter from the storm? Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's Global Director of Fixed Income Research. Along with my colleagues, bringing you a variety of perspectives, today I'll share why corporate credit markets may be a sheltering opportunity amid current turbulence. It's Tuesday, October 4th, at 11 a.m. in New York.

    At a September meeting, the Federal Open Market Committee delivered a third consecutive 75 basis point rate hike, just as consensus had expected. The markets took this to mean a higher peak and a longer hiking cycle, resulting in sharp spikes in bond yields and a sell off in equities.

    At the moment, both 2 and 10 year Treasury yields stand at decade highs, thanks to pervasively bearish sentiment among investors across both stocks and bonds. As regular listeners may have heard on this podcast, Morgan Stanley's Chief Global Economist, Seth Carpenter, has said that the worst of the global slowdown is still likely ahead. And our Chief U.S. Equity Strategist, Mike Wilson, recently revised down his earnings expectations for U.S. equities.

    Navigating this choppy waters is a challenge in both risk free and risky assets due to duration risk in the former, and growth or earnings risks in the latter. Against this backdrop, we think the U.S. investment grade corporate bonds, IG, particularly at the front end of the curve, which is to say 1 to 5 year segment, could provide a safer alternative with lower downside for investors looking for income, especially on the back of much higher yields.

    But investors may wonder, wont credit fundamentals deteriorate if economy slows, or worse, enters the recession and company earnings decline. Here is where the starting point matters. After inching higher in Q1, median investment grade leverage improved…

27. Mike Wilson: The Problem with the U.S. Dollar

    3 oktober 2022 · 4 min

    Afspelen
    With rates and currency markets experiencing increasing volatility, the state of global U.S. dollar supply has begun to force central bank moves, leaving the question of when and how the Fed may react up for debate. 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, October 3rd, at 11 a.m. in New York. So let's get after it.

    The month of September followed its typical seasonal pattern as the worst month of the year, and given how bad this year has been, I don't say that lightly. But as bad as stocks have been, rates and currency markets have been even more volatile.

    With volatility this severe, some of the cavalry has been called in. The Bank of England's surprise move last week was arguably necessary to protect against a sharp fall in U.K. bonds. Some may argue the U.K. is in a unique situation, and so this doesn't portend other central banks doing the same thing. However, this is how it starts. In other words, investors can't be as adamant the Fed will choose or be able to follow through on its tough talk. Like it or not, the world is still dependent on U.S. dollars, which provide the oxygen for global economies and markets. Former U.S. Treasury Secretary John Connolly's famous quote that "the dollar is our currency, but it's your problem" continues to ring true. It's also one of the primary reasons why several countries have been working so hard to de-dollarise over the past decade.

    The U.S. dollar is very important for the direction of global financial markets, and this is why we track the growth of global dollar supply so closely. In fact, the primary reason for our mid-cycle transition call in March of 2021 was our observation that U.S. dollar money supply growth had peaked. Indeed, this is exactly when the m…

28. Global Macro: Intervention & Inflation

    30 september 2022 · 10 min

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    Amidst increased volatility across credit, equity and FX markets, many investors this week are wondering, what is the path ahead for Fed intervention? Chief Cross Asset Strategist Andrew Sheets, Global Chief Economist Seth Carpenter and Head of Thematic and Public Policy Research Michael Zezas discuss. Lees meer

    ----- Transcript -----

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

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

    Michael Zezas: And I'm Michael Zezas, Head of Global Thematic and Public Policy Research.

    Andrew Sheets: And on this special edition of the podcast, we'll be talking about intervention, inflation and what's ahead for markets. It's Friday, September 30th at 9 a.m. in San Francisco.

    Michael Zezas: So, Andrew, Seth, we've been on the road all week seeing clients and that's come amidst some very unusual moves in the markets and interventions by a couple of central banks. Andrew, can you put in a context for us what's happened and maybe why it's happened?

    Andrew Sheets: Thanks, Mike. So I think you have the intersection of three pretty interesting stories that have been happening over the last couple of weeks. The first, and probably most important, is that core inflation in the U.S. remains higher than the Federal Reserve would like, which has kept Fed policy hawkish, which has kept the dollar strong and U.S. yields moving higher. Now, one of the currencies that the dollar has been strongest against is the Japanese yen, which has fallen sharply in value this year. Now we saw Japan finally intervene into the currency markets to a limited extent to try to support the yen but that support was short lived and we saw the dollar continue to strengthen. The other story that we saw occurred in the U.K., a country we discussed on this podcast recently about some of its unique economic challenges. The U.K. has also seen a weak currency against the dollar. …

29. Jonathan Garner: An Unusual Cycle for Asia and EM Equities

    29 september 2022 · 3 min

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    Asia and EM equities are on the verge of the longest bear market in their history, so what is the likelihood that a sharp fall in prices follows soon after? 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 discussing the ongoing bear market in Asia and Emerging Market equities. It's Thursday, September the 29th at 8 a.m. in Singapore.

    We have repeatedly emphasized that patience may be rewarded during what will likely, by the end of this month, become the longest bear market in the history of Asia and Emerging Market equities. Indeed, we argued that the August Jackson Hole speech by Fed Chair Powell, and the mid-September upside surprise in U.S. CPI inflation likely accelerated a downward move towards our bear case targets near term. And in recent weeks, the MSCI Emerging Markets Index has indeed given back almost all of the gains it had recorded from the COVID recession lows. To our mind, this raises the likelihood that a classic capitulation trough, a sudden sharp fall in prices and high trading volumes, could be forming in a matter of weeks.

    Now, all cycles are not made alike, and this one is unusual in a number of key regards. Most notably, the dislocations in the supply side of the global economy caused by COVID and geopolitics. Moreover, China is not easing policy to the same extent as helped generate troughs in late 2008 and early 2016. Thus, caution is warranted in drawing too firm a set of conclusions from relationships that have held in the past.

    That said, by the end of this month, the current bear market will likely become the longest in the history of the asset class, overtaking in days duration that triggered by the dot com bust in the early 2000's. And after a more than 35% drawdown, the MSCI Emerging Markets Index is now trading close to prior trough valuations at only 1…

30. Ellen Zentner: The Narrowing Path for a Soft Landing

    28 september 2022 · 4 min

    Afspelen
    As the Fed continues to increase their peak rate of interest, the path for a soft landing narrows, so what deflationary indicators need to show up in the real economy to take the pressure off of policy tightening? 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 the narrowing path for a soft landing for the U.S. economy. It's Wednesday, September 28, at 10 a.m. in New York.

    Last week, we revised our outlook to reflect the expectation that the Fed will take its policy rate to a higher peak between 4.5% to 4.75% by early next year. And that's 75 basis points additional tightening than what we had envisioned previously. Tighter policy should push the real economy further below potential and substantially slow job gains. And while higher interest rates are needed to create that additional slack in the economy, this dynamic raises the risk of recession. There's still a path to a soft landing here, but it seems clear to us that path has narrowed.

    Now beyond directly interest sensitive sectors such as housing and durable goods, we've seen little evidence that the real economy is responding to the Fed's policy tightening. Just think about how strong monthly job gains remain in the range of 300,000. So in the absence of a broader slowdown, and facing persistent core inflation pressures such as a worrisome acceleration in rental prices, the Fed is on track to continue tightening at a faster pace than we had originally anticipated. Looking to the November meeting, we expect the Fed to hike rates by 75 basis points, and then begin to step down the pace of those rate hikes to 50 basis points in December and 25 basis points in January. We then expect the Fed to stay on hold until the first 25 basis point rate cut in December 2023.

    While inflation has remained stubborn, the growth environment has softened, and the lagged effe…

31. Martijn Rats: Will Oil Prices Continue to Fall?

    27 september 2022 · 4 min

    Afspelen
    While the global oil market has seen a decrease in demand, supply issues are still prevalent, leaving investors to question where oil prices are headed next. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Martijn Rats, Morgan Stanley's Global Commodity Strategist. Along with my colleagues, bringing you a variety of perspectives, today I'll discuss the current state of the global oil market. It's Tuesday, September 27th, at 2 p.m. in London.

    U.S. consumers have no doubt noticed and appreciated a welcome relief from the recent pain at the gas pump. Up until last week, U.S. gas prices had been sinking every day for more than three months, marking the second longest such streak on record going back to 2005. This gas price plunge in the U.S. was driven in part by the unprecedented releases of emergency oil by the White House. But what else is happening globally on the macro level?

    Looking at the telltale signs in the oil markets, they tell a clear story that physical tightness has waned. Spot prices have fallen, forward curves have flattened, physical differentials have come in and refining margins have weakened. A growth slowdown in all main economic blocks has pointed to weaker oil demand for some time, and this is now also visible in oil specific data. China has been a particularly important contributor to this.

    However, prices have also corrected substantially by now. Adjusted for inflation, Brent crude oil is back below its 15 year average price. In this context, the current price is not particularly high. Also, the Brent futures curve has in fact flattened to such an extent that current time spreads would have historically corresponded with much higher inventories expressed in days of demand. That means, in short, that the market structure is already discounting a significant inventory built and/or a large demand decline.

    Then there is still meaningful uncertainty over what will happen to oil supply from Russia once the EU import embargo kicks…

32. Mike Wilson: A Sudden Drop for Stocks and Bonds

    26 september 2022 · 4 min

    Afspelen
    After last week’s Fed meeting and another rate hike, both stocks and bonds dropped back to June lows. The question is, will this turn to the downside continue to accelerate? 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, September 26, at 11 a.m. in New York. So let's get after it.

    Last week's Fed meeting gave us the 75 basis point hike most investors were expecting, and similar messaging to what we heard at Jackson Hole a month ago. In short, the Fed means business with inflation and is willing to do whatever it takes to combat it. So why was there such a dramatic reaction in the bond and stock markets? Were investors still hoping the Fed would make a dovish pivot? Whatever the reason, both stocks and bonds are right back to their June lows, with many bellwether stocks and treasuries even lower. As we wrote a few weeks ago, we think investor hopes for a Fed pivot were misplaced, and Chair Powell has now made that crystal clear.

    Secondly, we noted last week that the only remaining hope for stocks would be if the bond market rallied at the back end on the view that the Fed was finally ahead of the curve and would win its fight against inflation, while slowing the economy materially. Instead, interest rates spiked higher, squelching any hopes for stocks. While 15.6x price earnings ratio is back to the June lows, that P/E still embeds what we think is a mispriced equity risk premium given the risk to earnings.

    Said another way, with a Fed pivot now off the table, the path on bond and equity prices will come down to growth - economic growth for bonds and earnings growth for stocks. On both counts we are pessimistic, particularly on the latter as supported by our recent cuts to earnings forecasts. We have been discu…

33. U.S. Economy: The Fed Continues to Fight Inflation

    23 september 2022 · 8 min

    Afspelen
    After another Fed meeting and another historically high rate hike, it’s clear that the Fed is committed to fighting inflation, but how and when will the real economy see the effects? Chief Cross-Asset Strategist Andrew Sheets and Global Chief Economist Seth Carpenter discuss. Lees meer

    ----- Transcript -----

    Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley Research.

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

    Andrew Sheets:] And on this special edition of the podcast, we'll be talking about the global economy and the challenges that central banks face. It's Friday, September 23rd at 2 p.m. in New York.

    Andrew Sheets: So, Seth, it's great to talk to you. It's great to talk to you face to face, in person, we're both sitting here in New York and we're sitting here on a week where there was an enormous amount of focus on the challenges that central banks are facing, particularly the Federal Reserve. So I think that's a good place to start. When you think about the predicament that the Federal Reserve is in, how would you describe it?

    Seth Carpenter: I think the Federal Reserve is in a such a challenging situation because they have inflation that they know, that everyone knows, is just simply too high. So they're trying to orchestrate what what is sometimes called a soft landing, that is slowing the economy enough so that the inflationary pressures go away, but not so much that the economy starts to contract and we lose millions of jobs. That's a tricky proposition.

    Andrew Sheets: So we had a Federal Reserve meeting this week where the Fed raised its target interest rate by 75 basis points, a relatively large move by the standards of the last 20 years. What did you take away from that meeting? And as you think about that from kind of a bigger picture perspective, what's the Fed trying to communicate?

    Seth Carpenter: So the Federal Reserve is clear, they are committed t…

34. Thematic Investing: Moonshots

    22 september 2022 · 8 min

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    With high returns in mind, investors may be looking to get in on the ground floor with the next ambitious and disruptive technology, but how are these ‘moonshots’ identified and which ones could make a near-term impact? Head of Thematic Research in Europe Ed Stanley and Head of the Global Autos and Shared Mobility Team Adam Jonas discuss. Lees meer

    ----- Transcript -----

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

    Adam Jonas: And I'm Adam Jonas, Head of the Global Autos and Shared Mobility Team.

    Ed Stanley: And on this special episode of the podcast, we'll be discussing the bold potential of moonshot technologies, and particularly in the face of deepening global recession fears. It's Thursday, the 22nd of September, at 4 p.m. in London.

    Adam Jonas: And 11 a.m. in New York.

    Adam Jonas: Let me start with an eye popping number. Since 2000, 1% of companies have generated roughly 40% of shareholder returns by developing moonshots, that is ambitious and radical solutions to seemingly insurmountable problems using disruptive technology. So here at Morgan Stanley Research, we naturally spend a lot of time wondering what are the potential moonshots of the next decade? What's the next light bulb, airplane, satellite, internet? What technologies are developing literally as I record this that we'll be focused on in 2032? So Ed, I know you really want to dig into the specifics of some of the sectors that are touched on in the Moonshot Technologies report you wrote, but first can you maybe explain the framework for identifying these moonshots?

    Ed Stanley: So this is a totally different horizon and way of thinking to what most investors are used to. Typically, when looking for investable themes or technologies in public markets, we focus on those that are at or have surpassed a 20% adoption rate, those essentially with the wind at their back already. But clearly, with moonshots, we're looking much, much e…

35. Michael Zezas: Why Isn’t Fed Hiking Impacting Inflation?

    21 september 2022 · 3 min

    Afspelen
    Though the Fed continues to raise interest rates, inflation is still high year over year, so why haven’t rate hikes begun to bring inflation down yet? Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Global Thematic and Public Policy Research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Wednesday, September 21st at 10 a.m. in New York.

    The Fed continues to hike interest rates, but inflation is still running hot in the U.S. as demonstrated by last week's 8.3% year over year growth in the Consumer Price Index. When and how the Fed will eventually succeed in dampening inflation is an important consideration for markets, but investors should also focus on another question. Why hasn't fed hiking worked to bring down inflation yet?

    Well, there's a strong case to be made that the U.S. economy is less sensitive to changes in interest rates today than it has been in the past. In total, about 90% of all household debt today is fixed rate, meaning that as the Fed hikes rates and market rates rise, consumers’ debts don't cost them more to service. If they did, then rising interest rates would dampen economic growth by dampening aggregate demand. Those higher rates would in theory crimp consumption, as households direct less of their money toward buying goods and services and more toward paying their debts. That, in turn, would ease inflation.

    Understanding this dynamic is important for investors in a few ways. Take the housing market, for example. After the housing crisis that touched off the global financial crisis in 2008 and 2009, adjustable rate mortgages only now make up a small fraction of all mortgages. Sure, higher mortgage rates means buying a new home is effectively more expensive, but with so many more mortgages in the U.S. carrying a fixed rate and issued to individuals with higher credit sco…

36. Robin Xing: Can China’s Economy Stabilize Global Growth?

    20 september 2022 · 4 min

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    As the global economic outlook turns toward a slowdown in growth, some investors may look to China for stability, but, when they do, what will they find? Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Robin Xing, Morgan Stanley's Chief China Economist. Along with my colleagues, bringing you a variety of perspectives, today I will discuss whether China can stabilize global growth amid recession fears. It's Tuesday, September 20th at 9 AM in Hong Kong.

    The global economic outlook is dimming, and my colleagues have already discussed their expectations for slowdown in developed market economies driven by surging prices and aggressive monetary policy tightening. In this context, investors are likely to turn their attention to China, perhaps hoping it can once again stabilize global growth as it did after the 2008 global financial crisis. China's economy, however, appears to be fragile. While it has bottomed after the contraction due to Shanghai lockdown in the second quarter, it is still modeling not yet through. And we forecast a below consensus 2.8% GDP growth this year, and only a modest rebound to slightly above 5% in 2023.

    To date, China has deployed the monetary policy easing and the infrastructure investment spending. But these steps have not got a lot of traction because of two key hurdles; continuing COVID restrictions and the trouble in its housing market. We see growth rebounding in next year, but that recovery depends heavily on policy addressing these two key hurdles. Hence, we look for a more concerted policy response in the housing market, and a clearer path towards reopening post the upcoming 20th Party Congress in October.

    First, to limit the fallout from the housing sector, Beijing will likely ramp up policy support. It is true that China's aging population has pushed the housing market into a structural downward trajectory, but the pace of the recent collapse vastly exceeds that trend. The choke point is homebuyers lack of confiden…

37. Seth Carpenter: Tracking the Coming Slowdown

    19 september 2022 · 4 min

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    From Europe, to China, to the U.S., global economies are facing unique challenges as the brewing storm of recession risks seem to still indicate a slowdown ahead. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Seth Carpenter, Global Chief Economist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the rising risks of global recession and what might be ahead. It's Thursday, September 22nd at 10 a.m. in New York.

    About a year ago, I wrote about the brewing storm of recession risks around the world. Some downbeat economics news has come in since then, but the worst of the global slowdown is ahead of us, not behind us. We have an outright recession as our baseline forecast in the euro area and the U.K. The Chinese economy is on the brink with such weak growth that whether we have a global recession or not might just turn out to be a semantic distinction.

    First, Europe. It's hardly out of consensus at this point to call for a recession there, but we have been forecasting a recession since the start of the summer. The energy crisis caused by the Russian invasion of Ukraine has created a cost shock that is now effectively locked into the outlook for the next couple of quarters. Consumer bills will stay high, sapping purchasing power, fiscal deficits will take a hit and industries are already rationing energy use.

    For the UK, leaving Europe has not left behind the energy crisis across the channel. And the UK is also suffering from structural changes to its labor supply and trade relationships, and that's dragging down growth beyond these cyclical movements. That said, new leadership in Parliament is pointing to a huge fiscal stimulus that will mitigate the pain to households and reduce the depth of the recession.

    Now turning to China, markets have looked at China as a possible buoy for global growth, but this time any such hope really needs to be tempered, China's economy is in a fragile positio…

38. Andrew Sheets: The Case for Credit

    16 september 2022 · 3 min

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    While credit and equities have both suffered this year, economic conditions in the U.S. and Emerging Markets may lead to credit having a bit more stability in the coming months. 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 Friday, September 16th, at 3 p.m. in London.

    Year-to-date, both credit and equities have suffered. Looking ahead, we think credit is better positioned in both the U.S. and emerging markets, given the outlook for growth, policy and relative valuations.

    Conventional wisdom can change quickly in markets. Two months ago, there was widespread concern that the United States was already in a recession, given weak readings of quarterly GDP and some of the lowest levels of consumer confidence since the 2009 financial crisis. That weakness drove hope over July and August. Maybe the Federal Reserve had raised interest rates enough. Maybe it was nearly done.

    But the data since points to an American economy that continues to trundle along. The labor market continues to look extremely healthy, with about 315,000 jobs added last month and over 3.5 million jobs added year-to-date. Manufacturing activity has expanded every month this year. And consumer spending remains solid, one of the reasons core inflation remains elevated.

    In short, if the U.S. economy is going to slow down, that risk lies ahead of us, not behind us. And as long as the data remains solid and core inflation remains elevated, the Federal Reserve will face pressure to air on the side of caution and keep raising rates to tamp down on inflationary pressure.

    For investors this backdrop, where economic activity is still solid but might slow in the future, where inflation is high and the central bank is hiking, and where the labor market is …

39. U.S. Public Policy: The Impact of Student Loan Forgiveness

    15 september 2022 · 7 min

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    The White House recently announced a student loan forgiveness program, prompting questions about implementation, economic implications, and whether the program will have an impact on consumer spending. Sarah Wolfe of the U.S. Economics team and Arianna Salvatore of the U.S. Public Policy team discuss. Lees meer

    ----- Transcript -----

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

    Ariana Salvatore: And I'm Ariana Salvatore from Morgan Stanley's U.S. Public Policy Research Team.

    Sarah Wolfe: And on this episode of the podcast, we'll focus on student loans, in particular the recent student loan forgiveness program, and we'll dig into the impact on consumers and the economy. It's Thursday, September 15th, at 12 p.m. in New York.

    Sarah Wolfe: So, Ariana, the White House recently announced plans to forgive individuals up to $20,000 in federal student loans and extend the moratorium on interest payments. However, there was some confusion earlier in the year as both President Biden and Speaker Pelosi expressed doubts about the president's authority to cancel student debt. So is this something that requires an act of Congress, or can the president really do it alone?

    Ariana Salvatore: As you mentioned, prior to the announcement, there was some unresolved questions out there surrounding the legality of canceling student debt. In revealing the program, the administration cited authority from a 2003 law called the 'Heroes Act' that gives the executive the power to reduce or eliminate student debt during a national emergency, “when significant actions with potentially far reaching consequences are often required”. That being said, don't expect it to go over quietly. Reporting indicates that some Republican attorneys general are looking to bring legal challenges to the plan, which could present a risk to execution. But let's put questions about implementation aside for a second. What does reduced student debt impact more, l…

40. Michael Zezas: Why the Midterm Elections Matter

    14 september 2022 · 3 min

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    With only 60 days to go until the U.S. midterm elections, investors will want to know how different outcomes could impact markets, both locally and globally. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Global Thematic and Public Policy Research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Wednesday, September 14th, at 10 a.m. in New York.

    We're less than 60 days from the U.S. midterm elections and investors should pay attention. A lot has changed since we published our midterm election guide earlier this year, so here's what you need to know now.

    First, there's still key policies in play. Sure, Democrats have had more legislative success in recent months than many expected. By enacting corporate tax increases, a prescription drug negotiation plan, a major appropriation to clean energy transformation, and the China competition bill, Democrats took off the table many of the policy variables whose outcomes would have relied on the outcome of the election. But some key policy variables remain that matter to markets. In particular tech regulation, crypto regulation and tougher China competition measures, such as outbound investment controls, become more possible if Democrats manage to keep control of Congress. That would give them a greater opportunity to enact policies that could otherwise be held up or watered down by partisan disagreement.

    Second, this means there's a lot at stake for some pockets of global markets. Tech regulation would be a fundamental challenge to the U.S. Internet sector. Crypto regulation could be a key support for financial services by putting the crypto industry on the same regulatory playing field as the banks. And outbound investment controls could be a clear challenge for China equities by putting a substantial amount of foreign direct investment at risk.

    Finall…

41. Daniel Blake: The Resilience of Japanese Equities

    13 september 2022 · 4 min

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    As various global markets contend with high inflation, recession risks, and monetary policy tightening, Japanese equities may provide some opportunities to diversify away from other developed markets. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Daniel Blake from Morgan Stanley's Asia and Emerging Markets Equity Strategy Team. Along with my colleagues, bringing you a variety of perspectives, today I'll discuss the resilience of Japanese equities in the face of an expected global downturn. It's Tuesday, September 13, at 8 a.m. in Singapore.

    As Morgan Stanley's Chief Global Economist Seth Carpenter noted in mid-August, the clouds of recession are gathering globally. In the U.S., the Fed is hiking rates and withdrawing liquidity. Europe is suffering from high inflation, looming recession and an energy shortage. And China is facing a rocky path to recovery. In this global context, the external risks for Japan are rising quickly. And yet, compared to the turbulence in the rest of the world, Japanese equities are enjoying rather calm domestic, macro and policy waters.

    In Japan, we see support for this cycle coming from three sources; domestic policy, the Japanese yen and capital discipline at the corporate sector. First, the monetary policy divergence between the Bank of Japan and global peers has been remarkable, and in our view justified by differences in inflation and growth backdrops. Japanese core inflation is just 1.4%, and if we strip out food and energy, inflation is a mere 0.4% year over year. And so we don't expect any tightening from the Bank of Japan or of fiscal policy over the next six months. Secondly, the Japanese yen is acting as a funding currency and a buffer for earnings, rather than the typical safe haven that historically tends to amplify earnings drawdowns in an economic downturn. And third, improving capital discipline is contributing to newfound earnings resilience and insulating the return on equity, with buybacks tracking a…

42. Graham Secker: European Equities Face Earnings Concerns

    12 september 2022 · 4 min

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    Even as the European equity market contends with inflation, a slowing economy and a climate of decreased earnings, there are positives to be found if you know where to look. 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 the outlook for European equity markets for the remainder of this year. It's Monday, September 12th, at 2 p.m. in London.

    After a brief rally in European equities earlier in the summer, reality has reasserted itself over the last month with markets unable to escape a tricky macro backdrop characterized by central banks speeding up rate hikes into what is a deepening economic slowdown. In the last couple of weeks alone, our economists have raised their forecasts for ECB rate hikes and cut their GDP numbers to signal a deeper upcoming recession.

    So let's dig into the investment implications of these challenges in a bit more detail. First on rates, over the last 20 years there has been a close relationship between interest rates and equity valuations, whereby higher rates lead to lower price to earnings ratios. Hence, the fact that central banks are still in the early stages of their hiking cycle suggests a high probability that PE ratios have further to fall. In addition to higher base rates, the pace of quantitative tightening is also speeding up, and our bond strategists forecast higher sovereign yields ahead. Here in Europe, they see ten year bond yields rising to 2% or more later this year, which will be consistent with a further fall in Europe's PE ratio to around 10x or so. That would imply 15% lower equity prices from here.

    Second, we expect the European economy to slow over the next couple of quarters and this should put pressure on corporate profits which have been resilient so far this year, thanks to strong commodity sector upgrades and a material boost from the wea…

43. Andrew Sheets: The Complex U.K. Economy

    9 september 2022 · 3 min

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    As the world turns to the U.K., the country faces a host of domestic and international economic challenges, but there may yet be some bright spots for investors. 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 Friday, September 9th at 2:00pm in London.

    Queen Elizabeth II passed away yesterday. She was the only monarch most in Britain have ever known, a steady constant over a period of enormous global change. She defined an era, and will be missed.

    The eyes of the world have now turned to the United Kingdom, and they do so at a time when the country is facing an unusually high level of uncertainty.

    The U.K. economy, which was recently surpassed in size by India, is still the worlds sixth largest. But it’s currently being buffeted by a host of economic challenges. Some are domestic, some are international, but combined they create one of the trickiest stories in the global economy.

    First among these challenges is inflation. Rising costs for energy have driven Consumer prices in the U.K. up 10% year-over-year, but even excluding volatile food and energy, U.K. core inflation is still over 6%. And elevated inflation is not expected to be fleeting. Market-based estimates of U.K. inflation, over the next 10 years, are the highest since 1996.

    Those elevated prices have driven U.K. interest rates higher, but even so, U.K. rates relative to inflation are still some of the lowest of any major economy, which makes holding the currency less attractive. That has weakened the British Pound, but since the U.K. runs a current account deficit, and imports more than it exports, imported things have become more expensive, creating even more inflationary pressure.

    The U.K’s decision to leave the European Union, its largest tradin…

44. Matthew Hornbach: How Markets Price in Quantitative Tightening

    8 september 2022 · 4 min

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    The impact of quantitative monetary policies is hard to understand, for investors and academics alike, but why are these impacts so complex and how might investors better understand the market implications? 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, September 8th, at 10 a.m. in New York.

    QT is the talk of the town. QT stands for quantitative tightening, which is meant to contrast it with QE, or quantitative easing. QT sounds intimidating, especially when respected investors mention the term and, at the same time, ring the fire alarm on financial news networks.

    Unfortunately, the exact workings of QT and QE and their ultimate impact on markets aren't well understood. And that's not just a comment about the general public's understanding. It even applies to investors who have long dealt with quantitative policies and for academics who have long studied them.

    There are four reasons why the impact of quantitative monetary policies, as the Fed has implemented them, is hard to understand. First, different institutions take the lead in determining the impact of QE versus QT. The Fed determines the first round impact of quantitative easing, while the U.S. Treasury and mortgage originators determine the first round impact of quantitative tightening.

    Second, as the phrase "first round impact" implies, there are second round impacts as well. In the case of quantitative easing, the first round occurs when the Fed buys a U.S. Treasury or Agency mortgage backed security, also known as an agency MBS, from an investor. The second round occurs when that investor uses the cash from the Fed to buy something else.

    In the case of quantitative tightening, the first round occurs when an investor sells…

45. U.S. Housing: Will Housing Prices Continue to Rise?

    7 september 2022 · 6 min

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    While home price appreciation appears to be slowing, and a rapid increase in supply is hitting the market, how will housing prices fare through the rest of the year and into 2023? Co-Heads of U.S. Securitized Products Research Jay Bacow and Jim Egan 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. Securities Products Research.

    Jim Egan: And on this episode of the podcast, we'll be discussing supply and demand in the U.S. housing market. It's Wednesday, September 7th, at 3 p.m. in New York.

    Jay Bacow: All right, Jim. Housing headlines have started to get a little more bleak. Home price appreciation slowed pretty materially with last week's print. Now, your call has been that activity is going to decrease, but home prices are going to keep growing. Where do we stand on that?

    Jim Egan: We would say that the bifurcation narrative still holds. We think housing activity metrics, and when we say housing activity we're specifically talking about home sales and housing starts, have some continued sharp declines in the months to come. But we do think that home prices are going to continue growing on a year over year basis, even despite a disappointing print that you mentioned from last week.

    Jay Bacow: But I have to askv, what are you looking at that gives you confidence in your home price call? Where could you be wrong given the slowdown we just saw?

    Jim Egan: We say a lot of fancy sounding things when we talk about the housing market, but ultimately they're just different ways of describing supply and demand. Demand is weakening. That's that drop in activity we're forecasting. But supply is also very tight and that contributes to our view that while home price growth needs to slow, it should remain positive on a year over year basis.

    Jay Bacow: All right, but haven't some metrics of supply been movin…

46. Mike Wilson: Preparing for an Icy Winter

    7 september 2022 · 4 min

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    While interest rates have already weighed on asset markets this year and growth continues to slow, the Fed seems poised to continue on its tightening path, meaning investors may need to prepare for part two of our Fire and Ice narrative. 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, September 6th, at 9 a.m. in New York. So let's get after it.

    At the risk of stating the obvious, 2022 has been a challenging year for stock investors of all stripes. The Russell 3000 is down approximately 18% year to date, and while growth stocks have underperformed significantly it's been no picnic for value investors either. As far as sectors only energy and utilities are up this year, and just 24% of all stocks in the Russell 3000 are in positive territory. To put that into context, in 2008, 48% of the Russell 3000 stocks were up on the year as we entered the month of September and then the bottom dropped out. Suffice it to say, this year has been historically bad for stocks. However, that is not a sufficient reason to be bullish in our view.

    As bad as has been for stocks, it's been even worse for bonds on a risk adjusted basis. More specifically, 20 year Treasury bonds are now down 24% year to date, and the Barclays AG Index is off by 11%. Finally, commodities have been a mixed bag too, with most commodities down on the year, despite heightened concerns about inflation. For example, the CRB RIND Index, which measures the spot prices of a wide range of commodities, is down 7% year to date. Cash, on the other hand, is no longer trash, especially if one has been able to take advantage of higher front end rates.

    So what's going on? In our view, asset markets are behaving right in line with the fire and ice narrative we laid out a y…

47. Andrew Sheets: The State of Play in Markets Globally

    2 september 2022 · 3 min

    Afspelen
    There has been a lot of market movement in recent months, so as we exit the summer, what are the market stories and valuations that investors should be aware of? 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 Friday, September 2nd at 3 p.m. in London.

    As summer draws to a close, there is quite a bit that investors are coming back to. Here's a state of play of our global economic story, and where cross-asset valuations sit today.

    The global economy faces challenges, but these challenges differ by region. The U.S. economy is seeing elevated inflation and still strong growth, as evidenced by today's report that the U.S. economy added another 315,000 new jobs last month. That makes it likely that the Federal Reserve will have to air on the side of raising rates more to bring inflation down, which would further invert the U.S. yield curve and, in our view, support the U.S. dollar.

    Europe also has high inflation, but of a different kind. Europe's inflation isn't nearly as pronounced in so-called core elements, and it isn't showing up in wages. Instead, Europe is in the midst of a major energy crunch, that in our base case will push the economy into a mild recession. Markets expect that the European Central Bank will raise rates significantly more than the U.S. Federal Reserve over the next 12 months, but given our risks to growth we disagree, a reason we forecast a weaker euro. The economic situation in the UK is also very challenged, leaving us cautious on gilts and the UK pound.

    China and Japan are very different and core inflation in both countries is less than 1%. China continues to face dual uncertainties from a weakening property market and zero-covid policy, factors that lead us to think it is still a bit too …

48. Chetan Ahya: Why are Asia’s Exports Deflating?

    1 september 2022 · 4 min

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    As consumers around the globe scale back on goods spending, how are Asian export markets impacted and where might opportunities lie? Lees meer

    -----Transcript-----

    Welcome to Thoughts on the Market. I'm Chetan Ahya, Morgan Stanly's Chief Asia Economist. Along with my colleagues, bringing you a variety of perspectives, today I'll be focusing on the challenging landscape for Asia's exports post-COVID. It's Thursday, September 1st, at 8:30 a.m. in Hong Kong.

    As listeners of the show are no doubt aware, the post-COVID recovery around the world has not been uniform, and each region is facing its own specific challenges. In Asia, one of those challenges is that the Asia export engine seems to be losing steam as goods demand continues to deflate. For instance, real export growth decelerated to just an average of 3% on a year on year basis in the past six months, as compared to a peak of 30% in April 2021.

    Whichever way you slice and dice Asia's exports, it is evident that the underlying trends are soft everywhere. Whether by destination or by product, there is simply pervasive weakness. Let's start with product: when we look at Asia exports by product across the different categories of consumer, capital and intermediate goods exports, we are seeing a synchronized slowdown. Commodities are the only product category which is holding up, supported by trailing elevated prices. But with industrial commodity prices falling by some 30% since their March peak, we think there is every chance that commodity exports will slow significantly too in the coming months.

    Now let's turn to destination. Demand is slowing in 70% of Asia's export destinations. While exports to the U.S. are still holding up, we expect that the slowing in the U.S. economy plus the continued normalization in goods spending, will weigh on exports to the U.S. too. Against this backdrop of weak aggregate demand, we see more downside for Asia's exports to the U.S. in the coming months.

    One of the reasons why Asia's expo…

49. Serena Tang: Global Cross-Asset Risk Premiums

    31 augustus 2022 · 4 min

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    While markets wrestle with high inflation and recession worries, investors will want to keep an eye on the rise in risk premiums and the outlook for long-run returns. Lees meer

    -----Transcript-----

    Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's Head of Cross-Asset Strategy for North America. Along with my colleagues, bringing you a variety of perspectives, today I'll focus on the current state of global cross-asset risk premiums. It's Wednesday, August 31st at 10 a.m. in New York.

    Markets in 2022 have been incredibly turbulent, and global cross-asset risk premiums have shifted dramatically year to date. Various markets have been buffeted by higher inflation and tighter policy, geopolitical risks and worries about recession. Some impacted much more than others. What this means is that there are segments of markets where risk premiums, that is the excess returns an investor can expect for taking on additional risk, and long-run expected returns look much more attractive than they were at the beginning of the year. And while expected returns and risk premiums have broadly risen, the improvements have been uneven across asset classes and regions. For example, we believe that compared to U.S. stocks, rest-of-world equities have seen equity risk premiums move much higher since December, and currently have an edge over U.S. equities in terms of risk reward, in line with our relative preferences.

    So let me put some actual numbers around some key regional disparities. Our framework, which incorporates expectations on income, inflation, real earnings growth and valuations, see U.S. equities returning about 7.5% annually over the next decade, compared to just 5.7% at the start of the year. However, a steep climb in U.S. Treasury yields from historical lows mean that from a risk premium perspective, U.S. equities is still below its 20 year historical average by nearly one percentage point. This is in contrast to other regions whose risk premiums have increased …

50. Seth Carpenter: Is a Global Recession Upon Us?

    30 augustus 2022 · 4 min

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    Amid global shocks across supply, commodities and the U.S. Dollar, central banks continue to fight hard against inflation, leading many to wonder if a global recession is imminent. Lees meer

    ----- Transcript -----

    Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's chief global economist, along with my colleagues, bringing you a variety of perspectives. Today, I'll be revisiting a topic that's front and center: concerns about a global recession. It's Tuesday, August 30th, at 2p.m. in New York.

    One key market narrative right now is that the clouds of recession have been gathering globally. And the question that I get from clients every day, 'is a global recession upon us?'

    A recession is our baseline scenario for the Euro area. The flow of natural gas from Russia has been restricted and energy prices, as a result, have surged. We expect a recession by the fourth quarter but, as is so often the case, the data will be noisy. A complete gas cutoff, which is our worst-case scenario. That's still possible. On the other hand, even if somehow we had a full normalization of the gas flows, the relief to the European economy would only be modest. Winter energy prices are already partly baked in, and we've got the ECB with an almost single-minded focus on inflation. There are going to be more interest rate hikes there until the hard data force them to stop.

    Now, I am slightly more optimistic about the U.S. The negative GDP prints in the first two quarters of this year clearly cast a pall but those readings are misleading because of some of the details. Now, bear with me, but a lot of the headline GDP data reflects inventories in international trade, not the underlying domestic economy. Household spending, which is the key driver of the U.S. economy, averaged about 1.5% at an annual rate in the first half and the July jobs report printed at a massive 520,000 jobs. Since the 1970s, the U.S. has never had a recession within a year of creating so many jobs. But the …