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Special Encore: The Fed - Learning From the Last Hiking Cycle
5 april 2022 · 6 min
Original Release on March 30th, 2022: As the Fed kicks off a new rate hiking cycle, investors are looking back at the previous hiking cycle to ease their concerns today. Head of Public Policy Research and Municipal Strategy Michael Zezas and Global Head of Macro Strategy Matthew Hornbach discuss. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley.
Matthew Hornbach: And I'm Matthew Hornbach, Global Head of Macro Strategy for Morgan Stanley.
Michael Zezas: And today on the podcast, we'll be discussing the last Fed hiking cycle and what it might mean for investors today. It's Wednesday, March 30th at 11:00 a.m. in New York.
Michael Zezas: Matt, we've recently entered a new Fed hiking cycle as the Fed deals with inflation. But it seems like clients have been focusing with you of late on the question of what drove the Fed during the last hiking cycle, where they paused their tightening and started to reverse course. Why is that something investors are focusing on right now?
Matthew Hornbach: Well, Mike, investors are looking for answers about this hiking cycle, and a good place to start is the last cycle. The past week saw U.S. Treasury yields reach new highs and the Treasury curve flattened even more. Markets are now pricing Fed policy to reach a neutral setting this year of around 2.5%. The market also prices Fed policy to reach 3% next year. For context, the Fed was only able to raise its policy rate to 2.5% in the last cycle. So the fact that markets now price a higher policy rate than in the last cycle, after which the Fed ended up cutting interest rates, has people nervous. It's worth noting, though, that a 3% policy rate is still some distance below policy rates in the mid 1990s and the mid 2000s.
Michael Zezas: Got it. So then, what do you think of the argument that the Fed may have over tightened in the last cycle?
Matthew Hornbach: Well, inst…
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Mike Wilson: Revisiting the 2022 Outlook
4 april 2022 · 4 min
With the end of the first financial quarter of 2022 the market has begun to price in some of the continuing risks to economic growth, forcing investors to reconsider the trajectory for the rest of the year. 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, April 4th, at 11:00 a.m. in New York. So let's get after it.
Given how bad first quarter returns were for both stocks and bonds, most investors were probably happy to see it end. Furthermore, the rally in the second half of March made it considerably better for stocks than it was looking just a few weeks ago. In the end, though, bond returns ranked worse than stocks from a historical perspective, with Treasuries posting the worst quarter in 50 years.
The tough first quarter was very much in line with our view coming into 2022. To recall, we didn't see many fat pitches given the Fed's resolve to fight the surge in inflation in the face of slowing growth. Whether it was for technical or fundamental reasons, bond and stock markets ignored this risk into year-end. Apparently, they required a more obvious signal, which appeared on January 5th with the minutes of the Fed's December meeting. From that moment, both stocks and bonds made a sharp U-turn and never really looked back for the entire first month of the year.
In short, headline indices for both stocks and bonds finally adjusted to the fire part of our narrative, a risk that started to price under the surface back in November. With inflation and the Fed the number one concern during the first quarter, it makes sense that bonds would be worse than equities. It also makes sense that stocks more vulnerable to higher interest rates underperformed. As an example, the Nasdaq performance was considerably worse than both…
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Andrew Sheets: Markets Look to the Yield Curve
1 april 2022 · 3 min
Investors are looking to the U.S. Treasury bond market as concerns rise around what the flattening, and potential inversion, of the yield curve might mean. 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, April 1st at 2:00 p.m. in London.
The so-called flattening and inversion of the U.S. yield curve is a dominant story in financial markets. As rates have risen, short term interest rates have risen more, meaning investors receive about the same yield on a 2 year U.S. Treasury as its 10 year version. This is unusual, and raises big questions for both bond investors and the economic outlook overall.
Unsurprisingly, investors are usually paid more for investing in longer term bonds because these are generally more volatile. When that's not the case, it often means the market thinks the economy is going to be good in the near term, keeping short term central bank rates high, but possibly weaker in the longer term, which would imply lower future central bank rates and more supportive policy further out.
And that feels like a pretty decent encapsulation of the current market debate. The U.S. economy is very strong at the moment, with the US unemployment rate recently falling to just 3.6%. But that strength is driving inflation and leading the Federal Reserve to raise interest rates more aggressively, rate increases that investors fear could weaken growth further out in the future.
With implications like this it's no wonder that a lot of other asset classes, from credit markets, to equity markets, to commodities, really care about what the bond market is doing. And for these investors, we think there are a number of interesting implications.
Let me start by saying that similar yields on 2 year and 10 year govern…
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Sheena Shah: Is Cryptocurrency Becoming Currency?
31 maart 2022 · 4 min
As interest in using cryptocurrencies for transactions continues to rise for both consumers and businesses, crypto has begun a cycle of increased stability and popularity - but the question is, can this cycle continue? Lees meer
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Welcome to Thoughts on the Market. I'm Sheena Shah, Lead Cryptocurrency Strategist for Morgan Stanley Research. Along with my colleagues bringing you a variety of perspectives, today I will be asking the question - are cryptocurrencies currency? It's Thursday, March 31st at 2:00 p.m. in London.
Did you really buy that house with crypto? Or did you just sell your crypto for dollars and use dollars to buy the house?
Crypto skeptics think that goods cannot be priced in cryptocurrencies like bitcoin, primarily because their price is too volatile. But at some point, if crypto begins to be used for enough purchases of everyday goods and services, prices may begin to stabilize. Increased stability will further entice consumers to use crypto, and the cycle will continue. The question has always been, will this virtuous cycle ever begin? The answer is now clear, it has already begun. Here are some examples.
Firstly, paying with cryptocurrency needs to be as easy as paying with a credit or debit card today. Over 50 crypto companies and exchanges have issued their own crypto cards, and these are attached to the Visa or MasterCard payments networks, meaning they're accepted all around the world. In the last quarter of 2021, Visa said its crypto related cards handled $2.5 billion worth of payments. Now that may sound small, at less than 1% of all Visa's transactions, but it is growing quickly. The difficulty in increasing crypto adoption is getting the merchant to accept crypto. It needs to be easy and cheap, which is something lots of new crypto companies and products are trying to achieve.
Secondly, many would argue that something can only be a currency if you can pay your taxes with it. Even that is changing today. Over the past year…
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The Fed: Learning From the Last Hiking Cycle
31 maart 2022 · 6 min
As the Fed kicks off a new rate hiking cycle, investors are looking back at the previous hiking cycle to ease their concerns today. Head of Public Policy Research and Municipal Strategy Michael Zezas and Global Head of Macro Strategy Matthew Hornbach discuss. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley.
Matthew Hornbach: And I'm Matthew Hornbach, Global Head of Macro Strategy for Morgan Stanley.
Michael Zezas: And today on the podcast, we'll be discussing the last Fed hiking cycle and what it might mean for investors today. It's Wednesday, March 30th at 11:00 a.m. in New York.
Michael Zezas: Matt, we've recently entered a new Fed hiking cycle as the Fed deals with inflation. But it seems like clients have been focusing with you of late on the question of what drove the Fed during the last hiking cycle, where they paused their tightening and started to reverse course. Why is that something investors are focusing on right now?
Matthew Hornbach: Well, Mike, investors are looking for answers about this hiking cycle, and a good place to start is the last cycle. The past week saw U.S. Treasury yields reach new highs and the Treasury curve flattened even more. Markets are now pricing Fed policy to reach a neutral setting this year of around 2.5%. The market also prices Fed policy to reach 3% next year. For context, the Fed was only able to raise its policy rate to 2.5% in the last cycle. So the fact that markets now price a higher policy rate than in the last cycle, after which the Fed ended up cutting interest rates, has people nervous. It's worth noting, though, that a 3% policy rate is still some distance below policy rates in the mid 1990s and the mid 2000s.
Michael Zezas: Got it. So then, what do you think of the argument that the Fed may have over tightened in the last cycle?
Matthew Hornbach: Well, instead of telling you what I think, let m…
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Energy: Oil, Gas and the Clean Energy Transition
29 maart 2022 · 11 min
As oil and gas prices rise, governments and investors must weigh investment in clean energy initiatives and new capacity in traditional energy commodities. Head of North American Power & Utilities and Clean Energy Research Stephen Byrd and Head of North American Oil and Gas Research Devin McDermott discuss. 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.
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Stephen Byrd: Welcome to Thoughts on the Market. I'm Stephen Byrd, Morgan Stanley's Head of North American Power and Utilities, and Clean Energy Research.
Devin McDermott: And I'm Devin McDermott, Head of Morgan Stanley's North American Oil and Gas Research.
Stephen Byrd: And today on the podcast, we'll be discussing the key debate around energy security and energy transition amid the Ukraine Russia conflict. It's Tuesday, March 29th, at 9 a.m. in New York.
Stephen Byrd: So, Devin, the Russia-Ukraine conflict has, among other concerns, really put a spotlight on energy supply and demand. I want to get into this perceived tension between energy security, that is making sure there's enough supply to meet demand, and the transition to clean energy. But first, maybe let's start with the backdrop. There's been a lot of discussion…
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Mike Wilson: Why Are Equity Risk Premiums So Low?
28 maart 2022 · 4 min
As the Fed continues down a hawkish road for 2022, investors must consider the impact of policy tightening on economic growth and equity risk premiums. 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, March 28th at 11:00 a.m. in New York. So let's get after it.
2022 has been a year of extraordinary hawkishness from the Fed, and it continues to surprise on the upside with both its formal guidance and informal communications. This has led to almost weekly revisions for more Fed rate hikes from just about everyone, including our economists who now expect 50 basis point interest rate hikes in both May and June, and then 25 basis points in every meeting thereafter. The bond market has definitely gotten the message, too, with one of the sharpest rises in short term interest rates ever witnessed. Longer term rates have also adjusted as the expected terminal rate for this cycle has risen to 2.9%. The questions for equity investors now is whether they believe the Fed will actually tighten this much and what will be the impact on the economy from a growth standpoint.
We have several takeaways from these recent moves. First, the Fed appears to be very committed to reducing inflation. Friday's University of Michigan Consumer Confidence Report for March confirmed that high prices are still the key reason this metric has plummeted to levels usually reserved for recessions.
Second, 10 year yields are now at a level that takes the equity risk premium to its lowest level since the Great Financial Crisis. As a reminder, equity risk premium is the return and investor receives above and beyond the yield on a Treasury bond. The higher the risk, the greater the equity risk premium. In our view, it makes little sense for the equity risk …
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U.S. Economy: Tracking Rate Hike Implications
25 maart 2022 · 11 min
The new Fed hiking cycle has begun and with it comes expectations for faster rate hikes and quantitative tightening to address inflation, as well as questions around how and when the U.S. economy will be affected. Chief U.S. Economist Ellen Zentner and Senior U.S. Economist Robert Rosener discuss. Lees meer
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Ellen Zentner: Welcome to Thoughts on the Market. I'm Ellen Zentner, Chief U.S. Economist for Morgan Stanley Research.
Robert Rosener: And I'm Robert Rosner, Morgan Stanley's Senior U.S. Economist.
Ellen Zentner: On this episode of the podcast, we'll be talking about the outlook for the U.S. economy as the Fed begins a new rate hike cycle. It's Friday, March 25th at 9:00 a.m. in New York.
Ellen Zentner: So Robert, last week the U.S. Federal Reserve raised the federal funds rate a quarter of a percentage point, which is notable because it's the first interest rate hike in more than two years, and it's likely to be the first of many. Chair Powell has told us that it's unlikely to be like any prior hiking cycle, so maybe you could share our view on the pace of hikes and where and when it might peak for the cycle.
Robert Rosener: Well, it certainly is starting off unlike any recent policy tightening cycle, and recent remarks from Fed policymakers have really doubled down on the message that policy tightening is likely to be front loaded. And we're now forecasting that we're likely to see an even steeper path for Fed policy tightening this year, and we think that as soon as the May meeting, we could see the Fed pick up the pace and hike interest rates by 50 basis points and follow that in June with yet another 50 basis point increase. We're expecting they'll revert back to a 25 basis point per meeting pace after that, but still that marks 225 basis points of policy tightening that we're expecting this year in our baseline outlook.
Ellen Zentner: So how does Jay Powell, the chair of the FOMC, fit into this? Do you think he's about in line with this v…
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Matthew Hornbach: Easing Yield Curve Concerns
24 maart 2022 · 4 min
While the possibility of a yield curve inversion in the U.S. has news outlets and investors wondering if a recession is on the way, there’s more to the story that should put minds at ease. Lees meer
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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, March 24th at noon in New York.
For most investors, most of the time, the general level of U.S. Treasury yields is more important than the differences between yields on shorter maturity bonds and those on longer maturity bonds. The most widely quoted Treasury yield is usually the one investors earn by lending their money to the government for 10 years.
But there are times when the difference between yields on, say, treasuries that mature in 2 years and those that mature in 10 years make the news. And this is one of those times. These yields are tracked over time on a visual representation we call the yield curve. And at some point soon, we expect the yields on 2 year treasuries to be higher than those on 10 year treasuries. This is what we call a 2s10s yield curve inversion.
The reason why yield curve inversion makes the news is because, in the past, yield curve inversion has preceded recessions in the U.S. economy.
Still, there are two points to make about the relationship between the yield curve and recessions, both of which should put investors' minds at ease. First, using history as a guide, inverted 2s10s yield curves preceded recessions by almost two years on average. While time flies, two years is plenty of time for people to prepare for harder times ahead.
Second, despite popular belief, yield curve inversions don't necessarily cause recessions, and neither does significantly tighter fed monetary policy - which also can cause yield curves to in…
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Michael Zezas: A Framework for ESG Growth in U.S.
23 maart 2022 · 2 min
While the demand for Environmental, Social, and Governance investing has been growing primarily in Europe, a potential new regulatory policy may drive new interest and opportunity for U.S. investors. Lees meer
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Welcome the Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy 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, March 23rd at 10 a.m. in New York.
Taking a break from specific market impacts for the moment, we want to focus on the growth of a new market for investors - the market for ESG investing, which a new regulatory policy may help nudge into the mainstream in the U.S.
As you may already know, ESG stands for Environmental, Social and Governance, three factors that represent a measurement of how socially conscious the investment is. The demand for this style of investing has grown substantially in recent years. For example, per our sustainability research team, there are about 2 trillion dollars of dedicated ESG assets under management globally. But about 85% of that is in Europe, showing how U.S. investors have been relatively slower to adopt such strategies.
Yet earlier this week, the SEC proposed a new rule that could create new incentives for U.S. investors to adopt ESG strategies. This rule would require companies to provide disclosures about their emissions, as well as governance and strategy for dealing with climate related risks. As our sustainability research team noted in a report this week, having a standard for disclosure can help build the ESG market by giving investors a common template for understanding ESG impacts. That differs from the current state of play, where many companies do disclose on climate related issues, but to different levels and by differing standards, making analytical comparisons difficult.
We should note, though, that t…
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Andrew Sheets: The Housing Inflation Puzzle
22 maart 2022 · 3 min
While the cost of shelter has risen quickly, the measure of housing inflation has been slow to catch up, creating challenges for renters, homeowners and the Fed. 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 Tuesday, March 22nd at 2:00 p.m. in London.
Our base case at Morgan Stanley is that the U.S. economy sees solid growth over the next two years, with inflation moderating but still being somewhat higher than the Federal Reserve would like. We think this means the Fed raises interest rates modestly more than the market expects, flattening the US yield curve.
But what are the risks to this view? Specifically, what could cause inflation to be much higher, for much longer, putting the Federal Reserve in a more pressing bind? I want to focus here on core inflation as central banks have more leeway to look through volatile food or energy prices. This is a story about shelter.
The cost of shelter represents about 1/3 of U.S. core consumer price inflation. That makes sense. For most Americans, where you live is your largest expense, whether you rent or pay a mortgage.
The CPI measure of inflation assumes that the cost of renting has risen 4.5% in the last year. Now, if that sounds low, you're not alone. At the publicly traded apartment companies covered by my colleague Richard Hill, a Morgan Stanley real estate analyst, rents have risen 10% or more year-over-year. There are reasons that the official CPI number is lower. For one, not everyone renews their lease at the same time. But with a strong labor market and limited supply, the case for higher rents going forward looks strong.
Owner occupied housing is even more interesting. Since 2016, U.S. home prices have risen about 56%. But the cost of a house that goes i…
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Mike Wilson: Late Cycle Signals
21 maart 2022 · 4 min
This year is validating our call for a shorter but hotter economic cycle. As the indicators begin to point to a late-cycle environment, here’s how investors can navigate the change. 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, March 21st at 1:00 p.m. in New York. So let's get after it.
A year ago, we published a joint note with our Economics and Cross Asset Strategy teams arguing this cycle would run hotter but shorter than the prior three. Our view was based on the speed and strength of the rebound from the 2020 recession, the return of inflation after a multi-decade absence and an earlier than expected pivot to a more hawkish Fed policy. Developments over the past year support this call - US GDP and earnings have surged past prior cycle peaks and are now decelerating sharply, inflation is running at a 40-year high and the Fed has executed the sharpest pivot in policy we've ever witnessed.
Meanwhile, just 22 months after the end of the last recession, our Cross Asset team's 'U.S. Cycle' model is already approaching prior peaks. This indicator aggregates key cyclical data to help signal where we are in the economic cycle and where headwinds or tailwinds exist for different parts of the market.
With regard to factors that affect U.S. equities the most, earnings, sales and margins have also surged past prior cycle highs. In fact, earnings recovered to the prior cycle peak in just 16 months, the fastest rebound going back 40 years. The early to mid-cycle benefits of positive operating leverage have come and gone, and U.S. corporates now face decelerating sales growth coupled with higher costs. As such, our leading earnings model is pointing to a steep deceleration in earnings growth over the coming months. These …
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Andrew Sheets: The Fed has More Work to Do
18 maart 2022 · 3 min
The U.S. Federal Reserve recently enacted its first interest rate hike in two years, but there is still more work to be done to counteract rising inflation and markets are watching closely. 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, March 18th at 2:00 p.m. in London.
On Wednesday, the U.S. Federal Reserve raised interest rates for the first time in two years. This is notable because of how much time has passed since the Fed last took action. It's notable because of how low interest rates still are, relative to inflation. And it's notable because rate increases, and decreases, by the Fed tend to lump together. Once the Fed starts raising or lowering rates, history says that it tends to keep doing so.
Now, one question looming over the Fed's action this week could be paraphrased as, "what took you so long?" Since the Fed cut rates to zero in March of 2020, the U.S. stock market is 77% higher, U.S. home prices are 35% higher, and the U.S. economy has added over 5.7 million new jobs. Core consumer price inflation, excluding volatile food and energy prices, has risen 6.4% in the last year, indicative of demand for goods outpacing the ability of the economy to supply them at current prices, exactly what a hot economy implies.
The reason the Fed waited was the genuine uncertainty around the impact of COVID on the economy, and the risk that new variants would evade vaccines or dash consumer confidence. But every decision has tradeoffs. Easy Fed policy has helped the U.S. economy recover unusually quickly, but that quick recovery now means the Fed has a lot more to do to catch up.
Specifically, we think the Fed will need to raise the upper band of its policy rate, currently at 0.5%, to about 2.75% by the end …
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James Lord: Will the U.S. Dollar Still Prevail?
17 maart 2022 · 4 min
The U.S. and its allies have frozen the Central Bank of Russia’s foreign currency reserves, leading to questions about the safety of FX assets more broadly and the centrality of the U.S. dollar to the international financial system. 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.
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Welcome to Thoughts on the Market. I'm James Lord, Head of FX and EM 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 currency markets. It's Thursday, March 17th at 3:00 p.m. in London.
Ever since the U.S. and its allies announced their intention to freeze the Central Bank of Russia's foreign exchange, or FX, reserves, market practitioners have been quick to argue that this would likely accelerate a shift away from a U.S. dollar based international financial system. It is easy to understand why. Other central banks may now worry that their FX reserves are not as safe as they once thought, and start to diversify away from the dollar.
Yet, despite frequent calls for the end of the dollar based international financial system over the last couple of decades, the dollar …
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Michael Zezas: A False Choice for Energy Policy
16 maart 2022 · 2 min
As oil prices rise across the globe, investors wonder if governments will continue to incentivize clean energy development or pivot to greater investment in traditional fossil fuels. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy 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, March 16th, at 10:00 a.m. in New York.
With the conflict in Ukraine ongoing, many investors continue to ask questions about the U.S. and European policy response to the rising price of oil. In particular, many ask if governments will continue down the path of incentivizing clean energy development, or pivot to greater exploration of traditional fossil fuels. But as my colleague Stephen Byrd, who heads North America Power Utilities and Clean Energy Research, pointed out in a recent report, this is a false choice, and it's one that many policymakers are likely to reject in favor of embracing an "all of the above" strategy.
It's important to understand that focusing only on traditional energy sources wouldn't solve the problem in the near term. For example, switching on any dormant U.S. oil production facilities would only replace a fraction of the oil that Russia produces, so fresh explorations ramp up production would be needed, and that could take a few years. The same could be said about natural gas. The U.S. Has the spare capacity to backfill with Europe imports from Russia, but Europe mostly doesn't have the facilities to accept liquefied natural gas shipped overseas from America. Germany has announced plans to build two liquefied natural gas terminals, but that could take years to complete. The point is, focusing on traditional energy sources alone is no quick fix for high energy prices and energy independence, and therefore there's little opportunity cost in also …
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Jonathan Garner: Commodities, Geopolitical Risk and Asia & EM Equities
15 maart 2022 · 4 min
As global markets face a rise in commodity prices due to geopolitical conflict, investors in Asia and EM equities will want to keep an eye on the divergence between commodity exporters and importers. 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.
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Welcome to Thoughts on the Market. I'm Jonathan Garner, Chief Asia and Emerging Market Equity Strategist for Morgan Stanley Research. Along with my colleagues bringing you a variety of perspectives, I'll be talking about geopolitical risk, commodity exposure, and how they affect our views on Asia and EM Equities. It's Tuesday, March the 15th at 8:00 p.m. in Hong Kong.
The Russia Ukraine conflict is having a profound impact on the investment world in multiple dimensions. In this episode we focus on just two, commodity prices and geopolitical alignment, and what they mean for investors in Asia and emerging market equities.
The major sanctions imposed by the U.S., U.K., European Union and their allies are focused not only on isolating Russia financially but depriving it, in some instances overnight and in others more gradually, of the ability to export its commodities. And Russia is a major producer of oil, natural gas, food and preci…
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Mike Wilson: Will Slowing Growth Alter the Fed’s Path?
15 maart 2022 · 4 min
This week the market turns to the Federal Reserve as it eyes challenges to growth while remaining committed to combating high inflation with its first rate hike of the tightening cycle. 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, March 14th at 11:00 a.m. in New York. So let's get after it.
With all eyes on the Russian invasion of Ukraine, markets are likely to turn back towards the Fed this week as it embarks upon the first tightening of the cycle and the first rate hike since 2018. This follows a period of perhaps the most accommodative monetary support ever provided by the Federal Reserve, an extraordinary statement unto itself given the Fed's actions over the past few decades.
When it comes to measuring how accommodative Fed policy is at the moment, we look at the Fed funds rate minus inflation, or the real short-term borrowing rate. Using this measure tells us that fed accommodation has been in a steady downtrend since the early 1980s. In fact, the real Fed funds rate has been in a remarkably well-defined channel for this entire period. Second, after reaching the low end of the channel in record time during the COVID recession, the real Fed funds rate has turned higher- albeit barely. That low was in November of last year, when Fed Chair Jerome Powell was renominated by President Biden, and he made it clear that the Fed was going to pivot hard on policy. It was no coincidence that this is exactly when expensive growth stocks topped and began what has been one of the largest and most persistent drawdowns in growth stocks ever witnessed. Finally, based on how low the Fed funds rate remains, the Fed has a lot of wood to chop to get this rate back to a more normal level. Furthermore, if Powell is truly committe…
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Special Episode: Sanctions, Bonds and Currency Markets
12 maart 2022 · 8 min
With multiple countries now imposing sanctions, investors in Russian government bonds and currencies will need to consider their options as the risk of default rises. 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.
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James Lord: Welcome to Thoughts on the Market. I'm James Lord, Head of FX and EM strategy.
Simon Waever: And I'm Simon Waever, Global Head of Sovereign Credit Strategy.
James Lord: And on this special episode of Thoughts on the Market, we'll be discussing the impact of recent sanctions on Russia for bonds and currency markets. It's Friday, March 11th at 1:00 p.m. in London.
Simon Waever: and 8:00 a.m. in New York.
James Lord: So, Simon, we've all been watching the recent events in Ukraine, which are truly tragic, and I think we've all been very saddened by everything that's happened. And it certainly feels a bit trite to be talking about the market implications of everything. But at the same time, there are huge economic and financial consequences from this invasion, and it has big implications for the whole world. So today, I think it would be great if we can provide a little bit of clarity on the impact for emerging markets. Simon, I want to start with Russia …
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Special Episode: Inflation, Energy and the U.S Consumer
10 maart 2022 · 8 min
As inflation remains a focal point for the U.S. consumer, higher energy costs will dampen discretionary spending for some. But not all are impacted equally and there may be good news in this year’s tax refunds and the labor market. Lees meer
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Ellen Zentner: Welcome to Thoughts on the Market. I'm Ellen Zentner, Morgan Stanley's Chief U.S. Economist.
Sarah Wolfe: And I'm Sarah Wolfe, also on Morgan Stanley's U.S. Economics Team.
Ellen Zentner: And today on the podcast, we'll be discussing the outlook for the U.S. consumer during this year's tax season and after, as inflation remains in the driver's seat and new geopolitical realities raise further concerns. It's Thursday, March 10th, at 9:00 a.m. in New York.
Sarah Wolfe: So, Ellen, I know you want to get into the U.S. consumer, but before we dig in, I think it would be useful to hear your view on the overall U.S. economy, especially given the new geopolitical challenges.
Ellen Zentner: So, I think it's helpful to think about a rule of thumb for the effects of oil on overall GDP. For every 10% sustained increase in oil prices, it shaves off about one tenth on GDP growth. And so when we take into account the rise in energy prices that we've seen thus far, we took down our growth forecast for GDP this year by three tenths and shaved off an additional tenth when looking further out into 2023. Now, one thing that I think is important for the U.S. outlook versus European and U.K. colleagues is that energy prices are a much bigger factor in an economy like Europe's, and the U.K.'s where they're much more reliant on outside sources, where in the US we've become much more energy independent over the past decade. But I think where I step into your world, Sarah, as we think about higher oil prices, then translate into higher gasoline prices, which hits consumers in their pocketbook. So Sarah, that's a great segue to you on the U.S. consumer because this has been one of your focuses on the team. Consumers don't …
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Michael Zezas: The Macro Impacts of Oil Prices
10 maart 2022 · 3 min
With the rising cost of oil comes concerns around economic growth, but the distinction between the impact in Europe and the US is important, presenting both challenges and opportunities for investors. 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.
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Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy 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, March 9th at 1:00 PM in New York.
This week, the United States closed its markets to imports of Russian oil as another measure in its response to the invasion of Ukraine. In anticipation of this announcement, the price of oil increased to as high as $129 per barrel, leading the average gas price in the United States to reach $4.25. Understandably, this has created a new burden for consumers and also has investors concerned about the macroeconomic impacts of higher fuel prices. Here’s the latest thinking from our economists.
We expect the downside to economic growth to be felt more in Europe than the United States. Unlike the US, Europe i…
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Graham Secker: Stagflation Pressure Meets Pricing Power
8 maart 2022 · 4 min
As European markets price in slowing growth, increased inflation and geopolitical tensions, pricing power is a potential focus for European investors looking to weather the storm. 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 impacts of recent geopolitical developments on European markets and why rising stagflation pressures point towards owning companies with good pricing power. It's Tuesday, March the 8th at 1:00 pm in London.
Since our last podcast on European equities, the backdrop has changed considerably, with an escalation in geopolitical tensions putting upward pressure on inflation, downward pressure on growth and generally raising European risk premia as uncertainty spikes. Last week my colleague Jens Eisenschmidt, our Chief European Economist, cut his forecasts for European GDP growth for this year and next, while also raising his projections for inflation on the back of higher energy costs. While Jens is not predicting a European recession at this time, investors are becoming incrementally more worried about this possibility as geopolitical tensions extend and oil and gas prices continue to rise.
Even if Europe does manage to avoid falling into an outright recession, the stagflationary conditions that are building in the region, namely slowing growth and rising inflation, have important implications for investors. Across the broader market it points to a more challenging backdrop for corporate profits as slowing top line momentum coincides with growing margin pressures from higher input costs. At the same time, heightened geopolitical uncertainty is putting downward pressure on equity valuations as investors rotate out of the region, thereby lowering the price to earnings ratio at the same time as profit expectations retrench.
After a near 20% decline from their January high…
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Mike Wilson: A More Bearish View for 2022
8 maart 2022 · 4 min
The year of the stock picker is in full swing as investors look towards a future of Fed tightening and geopolitical uncertainty, where some individual stocks will fare better than others. 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, March 7th at 11:00 a.m. in New York. So let's get after it.
Since publishing our 2022 outlook in November, we've taken a more bearish view of stocks for reasons that are now more appreciated, if not fully. First was the Fed's pivot last fall, something most suggested would be a small nuisance that stocks would easily navigate. Part of this complacency was understandable due to the fact that the Fed had never really administered tough medicine in the past 20 years. Furthermore, when things got rough in the markets, they often pivoted back - the proverbial Fed “Put”, or the safety net for markets. We argued this time was different, just like we argued back in April 2020 that this quantitative easing program was different than the one that followed the Great Financial Crisis, or GFC. In short, printing money after the GFC didn't lead to the inflation many predicted, because it was simply filling the holes created on bank and consumer balance sheets that were left over from the housing collapse. However, this time the money printing was used to massively expand the balance sheets of consumers and businesses, who would then spend it. We called it helicopter money at the time. In short, the primary difference between the post GFC Fed money printing and the one that followed the COVID lockdown, is that the money actually made it into the real economy this time and drove demand well above supply.
This imbalance is what triggered the Fed to pivot so aggressively on policy. In fact, Chair Powe…
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Andrew Sheets: A Different Story for Global Markets
4 maart 2022 · 3 min
While the U.S. continues to see high valuations, rising inflation, and slow policy tightening, the story is quite different for many markets outside the U.S. 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. 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.
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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, March 4th at 3 p.m. in London.
While Russia’s invasion of Ukraine has implications for financial markets, it has bigger implications for people. Hundreds of thousands have already been displaced, numbers which are likely to grow in the coming weeks. These refugees deserve our compassion, and support. To those impacted by this tragedy, you have our sympathies. And to those helping them, our admiration.
Our expertise, however, is in financial markets, and so that’s where we’ll be focusing today. For those that are most negative on the market right now, the refrain is pretty simple and pretty straightforward. Assets are still expensive relative to historical valuations. Inflation is still high and it's still rising. And central banks are still behind the curve, so to speak, with lots of interest rate increases needed to bring monetary policy back in line with the broader economy.
What I want to discuss today, however, was how different some of these concerns can look when you move be…
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Special Episode: How Fed Policy Impacts Housing
4 maart 2022 · 6 min
As the Fed continues to signal coming rate hikes this year, the housing market will face implications across home sales, mortgage rates, and fundamentals. Lees meer
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Jay Bacow: Welcome to Thoughts on the Market. I'm Jay Bacow, Co-Head of U.S. Securitized Products Research here at Morgan Stanley.
Jim Egan: And I'm Jim Egan, the other Co-Head of U.S. Securitized Products Research.
Jay Bacow: And on this edition of the podcast, we'll be talking about changes in the Fed policy and what the possible implications are for mortgages and the housing market more broadly. It's Thursday, March 3rd at 11:00 a.m. in New York.
Jim Egan: Okay, Jay, we've talked about affordability pressures as mortgage rates have moved higher a couple of other times in the past on this podcast, and we would encourage listeners to go back and listen to those prior podcasts for a deeper dive on affordability. But Jay Powell just testified this week that he'll support a 25 basis point hike in March. Furthermore, if inflation pressures are persistent, then he's gonna raise Fed funds by more than 25 basis points at later meetings. The markets priced in six hikes this year. What does that mean for mortgage rates going forward? When I think about affordability, am I gonna have to think of another 150 basis point increase in mortgage rates?
Jay Bacow: No. So you saying the market has priced in six hikes is really important, because mortgage rates are based on generally sort of the belly of the Treasury curve. And the belly of the Treasury curve is effectively a function of what the market's expecting the Fed to do, along with how much risk premium there is. And if the market's expecting the Fed to hike six times this year, then if the Fed hikes six times this year and there's no change in risk premium, then mortgage rates aren't really going to move very much from where they are right now. Now, Powell said that he's worried about inflation and so if inflation comes in higher than expected …
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Michael Zezas: Key Questions Amidst Geopolitical Tensions
3 maart 2022 · 3 min
The recent crisis in Ukraine has caused a great deal of uncertainty in the economy and markets. To cut through the noise, we take a look at the three key questions we are hearing from investors. 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.
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Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley. Along with my colleagues, bring you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Wednesday, March 2nd at 3pm in New York.
As an analyst focusing on the interaction between geopolitical events and financial markets, I'm accustomed to dealing with uncertainties evolving at a rapid pace. But even by those standards, nothing in my career compares to the events of the past two weeks: the Russian invasion of Ukraine and the sanctions response by the US, the UK and Europe. To help cut through the noise, here's answers to the three most frequently asked questions by our investor clients.
First, do sanctions mean higher energy costs? In the short term, the answer is likely yes. While sanctions on Russian banks currently permit payments for vario…
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Martijn Rats: Uncertainty for Oil and Gas
2 maart 2022 · 3 min
As the conflict between Russia and Ukraine continues to unfold, implications for the oil and gas sector in Europe are beginning to take shape. 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.
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Welcome to Thoughts on the Market. I'm Martijn Rats, Global Commodity Strategist and Head of the European Energy Research Team for Morgan Stanley. Along with my colleagues bringing you a global perspective, I'll be talking about developments in the oil and gas sector amidst geopolitical tensions. It's Tuesday, March 1st at 2:00 p.m. in London.
As the situation between Russia and the Ukraine continues to develop, implications for commodity markets are beginning to take shape. Russia is a major commodity producer, playing in an especially important role in providing energy for Europe through oil and natural gas imports. With a new round of sanctions announced over the weekend, the precise impact on prices remains to be seen, but we can begin to forecast the direction.
First, there is no sign at this stage that, at least at the aggregate level, the flow of commodities has been impacted yet. All of the pipeline and tanker tracking data that we've seen suggests that they continue to be shippe…
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Vishy Tirupattur: Corporate Credit Faces New Challenges
28 februari 2022 · 3 min
Like many markets, Corporate Credit has faced a rocky start to 2022. For investors, understanding the difference between default and duration risk will be key to positioning for the rest of the year. Lees meer
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Welcome to Thoughts on the Market. I am Vishy Tirupattur, Global Director of Fixed Income Research. Along with my colleagues bringing you a variety of perspectives, I'll be talking about corporate credit markets against the background of policy tightening and heightened geopolitical tensions. It's Monday, February 28th at 10 a.m. in New York.
It's been a rough start for the year for the markets. Central banks' hawkish shift towards removing policy accommodation, the significant flattening of yield curves that followed, rising geopolitical tensions, fading prospects for fiscal support, and growing concerns about stretched valuations have all combined to spawn jitters in financial markets. Corporate credit has been no exception. After two years of abundant inflows, the narrative has turned outflows from credit funds in conjunction with negative total returns. These outflows conjure up painful memories of 2018, the last time the credit markets had to deal with substantial policy tightening.
Let us focus on the source - sharply higher interest rates and duration versus credit quality and default concerns. Consider leverage loans, floating rate instruments that have credit ratings comparable to high yield bonds which are fixed rate instruments.
Since the beginning of the year, high yield bond spreads have widened almost three and half times more than leverage loan spreads. If you limit the comparison just to fixed rate bonds, the longer duration investment grade bonds have significantly underperformed the lower quality high yield bonds. Clearly, it is duration and not a fear of a spike in defaults that is at the heart of credit investor angst.
My credit strategy colleagues, Srikanth Sankaran and Taylor Twamley, have analyzed the impact of rate hik…
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Andrew Sheets: Geopolitics, Inflation and Central Banks
26 februari 2022 · 3 min
As markets react to the conflict between Russia and Ukraine, price moves for corn, wheat, oil and metals may mean new inflationary pressures for central banks to contend with in the coming months. 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. 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.
This recording references actual or potential sanctions, which may prohibit U.S. persons from buying certain securities, making certain investments and/or engaging in other activities in or pertaining to Russia.
The content of this recording is for informational purposes and does not represent Morgan Stanley’s view as to whether or not any of the Persons, instruments or investments discussed are or will become subject to sanctions. Any references in this presentation to entities, debt or equity instruments that may be covered by such sanctions should not be read as recommending or advising as to any investment activities in relation to such entities or instruments. Audience members are solely responsible for ensuring that their investment activities in relation to any sanctioned entities and/or securities are carried out in compliance with applicable sanctions.
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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, February 25th at 3 p.m. in London.
Russia's invasion of Ukraine has grabbed the h…
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Special Episode: Changing Tides - Water Scarcity
25 februari 2022 · 9 min
Water scarcity brings unique challenges in the path to a more sustainable future. Solving for them will mean both risk and opportunity for governments, corporates, and investors. Lees meer
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Jessica Alsford Obviously, everyone's minds today are rightly on news out of Europe. We will have an episode to cover this in the coming days, but today we are thinking more long term on sustainability.
Jessica Alsford Welcome to Thoughts on the Market. I'm Jessica Alsford, Global Head of Sustainability Research at Morgan Stanley,
Connor Lynagh And I'm Connor Lynagh, an equity analyst covering energy and industrials here at Morgan Stanley.
Jessica Alsford And on this episode of the podcast, we'll be discussing one of the leading sustainability challenges of the near future, water scarcity, as well as potential solutions that are likely to emerge. It's Thursday, February, the 24th at 3 p.m. in London,
Connor Lynagh and it's 10:00 am in New York.
Connor Lynagh So Jess, we recently collaborated on the report, 'Changing Tides, Investing for Future Water Access.' Maybe the best place to start here is the big picture. Can you walk us through the demand picture and how challenges are expected to change in the industry?
Jessica Alsford So the key issue really is that water is a critical but finite resource, and there's already huge inequality in access to water globally. So over the last century, we've seen water use rising about six fold, and yet there are still around 2 billion people without access to safely managed drinking water and around 3.6 billion without safely managed sanitation. Then add to this the fact that demand is likely to increase by around another 30% by 2050, about 70% of total demand comes from agriculture withdrawals, and clearly we need to increase the amount of food we're producing due to growing population, and there's also going to be incremental water needs from industry and municipalities. A third element to also think about is that this is…
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Mike Wilson: The Prospect of a Continued Correction
24 februari 2022 · 3 min
While geopolitical tensions currently weigh on markets, investors should look to the fundamentals in order to anticipate the depth and duration of the ongoing correction. 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. 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.
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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 Wednesday, February 23rd at 11 a.m. in New York. So let's get after it.
This past week tensions around Russia/Ukraine dominated the headlines. When unpredictable events like this occur, it's easy to simply throw up one's arms and blame all price action on it. However, we're not so sure that's a good idea, particularly in the current environment of Fed tightening and slowing growth.
From here, though, the depth and duration of the ongoing correction will be determined primarily by the magnitude of the slowdown in the first half of 2022. While the Russia/Ukraine situation obviously can make this slowdown even worse, ultimately, we think that preexisting fundamental risks we've been focused on for months will be the primary drivers, particularly as geopolitical concerns are now very much priced.
While most economic and earnings forecasts do reflect the slowdown from last year's torrid pace, we think there's a growing risk of greater disappointment in both. We've staked our case primaril…
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Special Episode, Pt. 2: Inflation Around the World
23 februari 2022 · 9 min
The challenges of inflation can be felt around the world, but understanding the regional differences is key to an effective 2022 for both central banks and investors. Lees meer
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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 Chief Global Economist.
Andrew Sheets And on part 2 of this special episode of Thoughts on the Market, we'll be continuing our discussion on central banks, inflation, and the outlook for markets. It's Tuesday, February 22nd at 1:00 p.m. in London.
Seth Carpenter And 8:00 a.m. in New York.
Andrew Sheets So Seth, you lay out the challenge that central banks face because they are being pulled in two directions. If they raise rates too quickly, the economy could slow too quickly. That means real people lose their jobs, real businesses have trouble getting loans. On the other hand, if they don't raise rates quickly enough, there's a risk that inflation would be higher and that has a real impact on the economy and people's lives. When it comes to, kind of, which side of caution to air on, how do you think central banks are thinking about that at the moment? And what would you be watching to indicate which side of that debate they're starting to come down on?
Seth Carpenter I think if we're looking at the developed market, central banks, the Fed, the ECB, the Bank of England right now, I think they have a high conviction that the current stance of policy is just too accommodative given the state of the real economy and where inflation is. So I think right now all of them believe they need to get going, that starting now is fine. That mindset I don't think though will last too terribly long because over time we will start to see some outright tightening. So for the Fed, where does that point change? I think once they start to run off their balance sheet, probably sometime around the middle of this yea…
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Special Episode, Pt. 1: Two Kinds of Inflation
18 februari 2022 · 8 min
Inflation has reached levels not seen in years, but there is an important distinction to be made between frictional and cyclical inflation, one that has big implications for central banks this year. Lees meer
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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 Chief Global Economist.
Andrew Sheets And on this episode of Thoughts on the Market, we'll be discussing inflation, central banks and the outlook for rate hikes ahead. It's Friday, February 18th at 1:00 p.m. in London
Seth Carpenter and 8:00 a.m. in New York.
Andrew Sheets So, Seth, it's safe to say there's focus on inflation at the moment in markets because we're seeing some of the highest inflation rates in 30 or 40 years. When we think about inflation, though, it's really two stories. There is inflation being driven by more temporary supply chain and COVID related disruptions. And then there is a different type of inflation, the more permanent stickier type of traditional inflation you get as the economy recovers and there's more demand than supply can meet. How important is this distinction at the moment and how do you see these two sides of inflation playing out?
Seth Carpenter Andrew, I think you've laid out that framework extraordinarily well, and I think the distinction between the two types of inflation is absolutely critical for central banks and for how the global economy is likely to evolve from here. My take is that for the US, for the Euro area, for the UK, most of the excess inflation that we're seeing is in fact, COVID-related and frictional. And so, what we can see in the data is that we have an easing now in supply chain disruptions. Supply chain disruptions are still at a very high level, but they're coming down and they're getting better. Similarly, in the US and to some degree in the UK, there have been some labor market frictions because of…
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Special Episode: All Eyes on Ukraine
17 februari 2022 · 9 min
The ongoing situation around Ukraine has captivated headlines and investors alike. While the resolution remains unclear, we can begin to predict how markets would react to possible outcomes. Lees meer
This presentation references actual or potential sanctions, which may prohibit U.S. persons from buying certain securities, making certain investments and/or engaging in other activities in or pertaining to Russia. The content of this presentation is for informational purposes and does not represent Morgan Stanley’s view as to whether or not any of the Persons, instruments or investments discussed are or will become subject to sanctions. Any references in this presentation to entities, debt or equity instruments that may be covered by such sanctions should not be read as recommending or advising as to any investment activities in relation to such entities or instruments. Audience members are solely responsible for ensuring that their investment activities in relation to any sanctioned entities and/or securities are carried out in compliance with applicable sanctions.
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Michael Zezas Welcome to Thoughts on the Market. I'm Michael Zezas Head of U.S. Public Policy Research and Municipal Strategy for Morgan Stanley.
Marina Zavolock And I'm Marina Zavalock, Head of Emerging Europe, Middle East, and Africa Equity Strategy at Morgan Stanley.
Michael Zezas And on this special edition of the podcast, we'll be discussing ongoing developments around Ukraine and how markets might react to various outcomes. It's Thursday, February 17th at 9:00 a.m. in New York.
Marina Zavolock And it's 2:00 p.m. in London.
Michael Zezas So, Marina, we've spent a lot of time in recent weeks tracking developments in the ongoing situation around Ukraine, on whose border Russia's amassed a substantial military presence and there are warnings of a potential invasion. This would be no small event, potentially the largest military action in Europe since World War Two, with great risk to…
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Special Encore: Consider the Muni Market
17 februari 2022 · 3 min
Original Release on February 2nd, 2022: The Federal Reserve continues to face a host of uncertainties, leading to volatility in the Treasuries market. This trend may lead some investors to reconsider the municipal bond market. Lees meer
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Welcome the Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy 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, February 2nd at 10 a.m. in New York.
A couple weeks back, we focused on the tough job ahead for the Federal Reserve. It's grappling with an uncertain inflation outlook driven by unprecedented circumstances, including the trajectory of the pandemic, and the still unanswered questions about whether supply chain bottlenecks and swelling demand by U.S. consumers for goods over services have become a persistent economic challenge. Against that backdrop, it's understandable that keeping open the possibility of continued revisions to monetary policy is part of the Fed's strategy. Not surprisingly, that uncertainty has translated to volatility in the Treasury market and, as expected, some fresh opportunity for bond investors.
For that, we looked in the market for municipal bonds, which are issued by state and local governments, as well as nonprofits. Credit quality is good for munis as the combination of substantial COVID aid to municipal entities and a strong economic recovery have likely locked in credit stability for 2022. But until recently, the price of munis was quite rich, in part reflecting this credit outlook, an expectation of higher taxes that would improve the benefit of munis tax exempt coupon, and a recent track record of low market volatility. But the bond market's reaction to the Fed undermined that last pillar, resulting in muni mutual fund outflows and, as a result, a move lower in relative prices for muni versu…
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Mike Wilson: Unpacking the Latest CPI
16 februari 2022 · 4 min
As the Fed grapples with new data from last week's Consumer Price Index report, markets are pricing a move away from the dovish policy of the past and investors should pay attention. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Tuesday, February 15th at 10 a.m. in New York. So let's get after it.
While there are many moving parts in any market environment, investors often become infatuated with one in particular. In our view, going into last Thursday's consumer price index report was one of those times. For the days leading into it every conversation with investors, traders, and the media obsessed over the report and whether markets were appropriately priced. For the inflation bulls the release did not disappoint, coming in significantly stronger than expected with the components of the report just as hot.
Immediately after its release, both short- and longer-term interest rates surged. Additional policy hawkishness was quickly priced too, as markets concluded the Fed was falling even further behind the curve. Market chatter of an emergency Fed meeting made the rounds, indicating the possibility of immediate cessation of quantitative easing or even an intra-meeting rate hike. By the end of the day on Thursday markets had priced in a 90% chance of a 50 basis point hike at the March meeting, and six to seven 25 basis points worth of hikes by the end of the year. Balance sheet runoff, or quantitative tightening, is also expected to begin by the middle of this year at the rate of $80 billion a month.
When we first started talking about ‘Fire and Ice’ last September, our view that the Fed would have to go faster than expected to fight the building inflationary pressure was met with quite a bit of skepticism, and for a go…
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Jonathan Garner: Welcome to the Year of the Tiger
15 februari 2022 · 3 min
As investors face the multitude of risks ahead, one may need to think like the Tiger and use the rotation towards value stocks, and away from growth, to leap over higher hurdle rates this year. Lees meer
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Welcome to Thoughts on the Market. I'm Jonathan Garner, Chief Asia and Emerging Market Equity Strategist for Morgan Stanley Research. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about Asia and emerging market equities in the year ahead. It's Monday, February the 14th at 8:30 p.m. in Hong Kong.
Welcome to the Year of the Tiger from the Morgan Stanley team in Asia. Ferocious, brave, and intelligent, the tiger inspires us to navigate the multitude of risks which confront investors today. For us in Asia, we're at first sight on the sidelines of the action as expectations build for a sea-change this year in monetary policy in the US and Europe.
Indeed, we have a degree of sympathy with the argument that the different phase of the monetary and fiscal cycle in China, in essence a moderate easing, is a key reason to be more constructive on Asian markets performance this year in both absolute and relative terms.
However, divergent policy cycles are only part of the story. North Asia has already benefited substantially from the major shift towards good spending and away from services, which has been such a unique feature of the COVID driven recession and recovery. Now, as that starts to reverse, given the reopening trend in the US and Europe, we may see earnings growth in markets like Korea and Taiwan slow. Moreover, significant challenges in relation to COVID management still beset the region, most notably in Hong Kong, which is experiencing its largest surge in cases since the pandemic began.
A key call that Morgan Stanley's equity strategy team made three months ago, in our year ahead outlook, was that investors on a worldwide basis should rotate away from growth stocks. That is, stocks with high expected earnings g…
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Andrew Sheets: Where is Inflation Headed?
12 februari 2022 · 4 min
Headlines today are focused on US Consumer Price Inflation rising 7.5% versus 1 year ago. The question on the minds of consumers and investors alike is, where will it go from here? 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, February 11th at 2 p.m. in London.
This week for the ninth month in the last 10, U.S. consumer price inflation was higher than expected, rising 7.5% Versus a year ago. Investors are currently having a very lively discussion around where inflation is headed, but also how much it matters. And I wanted to share a few of our thoughts.
One important thing about these rising prices is they aren't all rising for the same reason. COVID related disruptions are still impacting the production of everything from meat to automobiles. And say, with fewer new cars being built that means the cost of used cars has risen almost 50%. Now cars aren't a large share of the so-called inflation basket, the collection of goods and services that is used to determine how much overall prices are rising or falling. But if a small share of something rises 50%, the overall number can still rise quite a bit.
Then there are rising prices that we see today, but where the story has been building for some time. The assumed cost of shelter, for example, should be linked to the price of housing. But due to how this data is measured, there can be some pretty significant lags.
Consider the following. From the start of 2017, so about five years ago, U.S. home prices have risen 50%. But the assumed rise in the cost of shelter, that goes into the inflation calculation, suggests that the cost of shelter has risen just 16% over that same period. As this gap closes and shelter costs catch up to where home prices already are…
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Special Encore: Tax-Efficient Strategies
11 februari 2022 · 9 min
Original Release on January 25th, 2022: With inflation on the minds of consumers and the Fed reacting with a sharp turn towards tightening, 2022 may be a year for investors to focus on incorporating tax-efficient strategies into their portfolios. Morgan Stanley Wealth Management’s Chief Investment Officer Lisa Shalett and Chief Cross-Asset Strategist Andrew Sheets discuss. Lees meer
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Andrew Sheets Welcome to Thoughts on the Market. I'm Andrew Sheets, chief cross asset strategist for Morgan Stanley Research.
Lisa Shalett And I'm Lisa Shalett, chief investment officer for Morgan Stanley Wealth Management.
Andrew Sheets And today on the podcast, we'll be discussing the importance of tax efficiency as a pillar of portfolio construction. It's Tuesday, January 25th at three p.m. in London.
Lisa Shalett And it's 10:00 a.m. here in New York.
Andrew Sheets Lisa, welcome back to the podcast! Now, as members of Morgan Stanley Wealth Management's Global Investment Committee, we both agree that the current portfolio construction backdrop is increasingly complicated and constrained. But tax considerations are also important, and this is something you and your team have written a lot on recently. So I'd really like to talk to you about both of these issues, both the challenges of portfolio construction and some of the unique considerations around tax that can really make a difference to the bottom line of investment returns. So Lisa, let's start with that current environment. Can you highlight why we believe that standard stock bond portfolios face a number of challenges going forward?
Lisa Shalett We've been through an extraordinary period over the last 13 years where both stocks and bonds have benefited profoundly from Federal Reserve policy, just to put it bluntly, and, you know, the direction of overall interest rates. And so, our observation has been that, you know, over the last 13 years, U.S. stocks have compounded at close to 15% per year, U.S. bonds ha…
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Michael Zezas: Fiscal Policy Takes a Back Seat
9 februari 2022 · 3 min
Many investors are asking when Congress will withdraw its fiscal policy support. Our answer? It already has, and 2022 could be a year where fiscal policy becomes a non-factor in the economic outlook. Lees meer
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Welcome the Thoughts on the Market. I'm Michael Zezas as Head of Public Policy Research and Municipal Strategy 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, February 9th at 10 a.m. in New York.
As the Fed keeps signaling its intent to withdraw its extraordinary monetary support for the economy, a common question we're hearing is when will Congress do the same with fiscal policy support? Our answer is simple: it already has.
Now, we're usually getting this question from investors concerned that COVID relief aid is continuing to create inflation pressure in the economy. But the last tranche of aid was approved over a year ago, and direct aid to support households from that program have largely expired, including the child tax credit, supplemental unemployment benefits, and renter and mortgage protections.
But what about all those infrastructure and social spending plans President Biden proposed? Even here there's no sizable fiscal expansion in sight. The bipartisan infrastructure framework was mostly offset by new revenues. And on the Build Back Better plan, Senator Joe Manchin appears to have made deficit neutrality a condition for his support for it. So any legislative comeback for that plan likely won't result in more fiscal support for the economy.
For investors, this is a throwback to periods where fiscal policy was an afterthought. In many recent years, like 2018, 2020 and 2021, fiscal policy was a key variable to the U.S. economic outlook. This year, it looks like a non-factor. That syncs with our framework for forecasting U.S. fiscal policy outcomes, which currently points to the U.S. having …
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Graham Secker: Feeling Positive About UK Equities
9 februari 2022 · 4 min
Despite having been one of the worst performing stock markets over the last 5 years, the UK is seeing a dramatic turnaround reflected in the FTSE100 index. Investors may want to take a closer look. 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 our positive view on U.K. equities and why we think the FTSE 100 offers a compelling opportunity here. It's Tuesday, February the 8th at 3 p.m. in London.
Having been one of the worst performing stock markets over the last five years, the UK has seen a dramatic turnaround in 2022, with the headline FTSE 100 index, which is the UK equivalent of the S&P 500, outperforming the S&P by around 8% or so, so far, and posting the second-best return of any major global stock market after the Hang Seng in Hong Kong. Looking forward, we think the reversal of fortunes for UK equities can continue for three reasons.
First, we think the Footsie 100 index offers a good blend of offense and defense. On the latter, we note the defensive sectors account for 37% of UK market capitalization, which is higher than any other major country or region. Reflecting this, the UK index has outperformed the wider European market two thirds of the time during periods when global equities are falling.
When it comes to offense, we know that the UK market is a key relative beneficiary of rising real bond yields, to the extent that a move up in US real yields to our target of minus 10 basis points by year end would imply UK stocks outperforming the rest of the European market by as much as 12% this year. The reason behind the UK's positive correlation to real yields is again down to its sector mix. As well as being quite defensive, the index also has a significant weight in value stocks, such as commodities and financials. These are sectors that tend to perform best when real yields ar…
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Mike Wilson: Six More Weeks of Slow Growth
8 februari 2022 · 4 min
As we head towards the final weeks of winter, we are predicting a period of continued slow growth. As evidence we look not to our shadow but at earnings estimates and inventories. 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 colleague bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, February 7th at 11:30 a.m. in New York. So let's get after it.
In the United States, February 2nd is known as Groundhog Day. A 135-year-old tradition of taking a groundhog out of his cage to determine if he can see his shadow. In short, a sunny February 2nd means six more weeks of winter, while a cloudy day suggests an early spring. Well, last week the most famous groundhog, who lives in Pennsylvania, saw his shadow informing us to expect more cold weather for six more weeks.
While this tradition lives on, its track record is pretty spotty with a 50% hit rate. Flipping a coin sounds a lot easier. However, it does jive with our market forecast for at least six more weeks of winter, and ice, as growth slows further into the spring. Signs of weakness are starting to appear, and we think they go beyond Omicron. While we remain optimistic that this could be the final major wave of the pandemic, we're not so sure growth will rebound and accelerate as many others are suggesting.
First, fourth quarter earnings beat rates are back to 5%, which is the long-term average. However, this is well below the beat rates of 15-20% observed over the past 18 months, a period of over earning in our view. The key question now is whether we are going to return to normal, or will we experience a period of under earning first, or payback? We've long held the view that payback was coming in the first half of 2022 as the extraordinary fiscal stimulus faded, monetary policy tightened, and supply caught up with demand …
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Special Episode: The Improving Case for Commodities
5 februari 2022 · 10 min
For only the second time in the last decade, commodities outperformed equities in 2021. Looking ahead at 2022, what challenges and opportunities are on the horizon for this asset class? 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.
Martijn Rats And I'm Martijn Rats, Morgan Stanley's Global Commodity Strategist.
Andrew Sheets And today in the podcast we'll be talking about tailwinds driving commodities broadly, as well as the path ahead for global energy markets. It's Friday, February 4th at 3p.m. in London.
Andrew Sheets So, Martijn, there were a number of reasons why I wanted to talk to you today, but one of them was that, for only the second time in the last decade, commodities outperformed equities in 2021. There are a number of drivers behind this, and you and your team have done some good work recently talking about those drivers and how they might continue. But one of them has certainly been the focus on inflation, which has been a major investment topic at the end of last year and continues to be a major topic into this year. Why are commodities and the inflation debate so interlinked and why do you think they're important for commodity performance?
Martijn Rats Well, look, commodities tend to maintain their value in real terms. So when there is broad inflation, the cost of producing commodities tends to go up. And when that happens, then the price of commodities tends to follow that. So at the same time, if you have a rising inflation, then also ends up in having an impact on interest rates. Interest rates start to rise. That tends to be a headwind for a lot of financial assets. So when inflation expectations all of a sudden pick up, then then all of a sudden it weighs on the valuation of an awful lot of other things, whilst actually commodities are often somewhat insulated of that. There aren't that many sectors that that really benefit from inflation. So all…
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Matt Hornbach: What Moves Real Yields?
3 februari 2022 · 3 min
Yields on Treasury Inflation-Protected Securities, or TIPS, are set to rise but, beyond inflation, what other factors will drive moves in real yields for these bonds in the coming year? Lees meer
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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, February 3rd at noon in New York.
Last week, I talked about our expectation for the yields on Treasury Inflation-Protected Securities to keep rising. Those bonds are known as TIPS, and their yields are called real yields. Today, I want to tell you about what I think moves real yields up and down, and how the current macro environment influences our view on their next move.
First, let's suppose demand for TIPS increases because investors think inflation is going to rise. If nothing else changes in the market, then TIPS prices will rise and the real yields they offer will fall. But, more often than not, something else changes.
For example, the monetary policies of the Federal Reserve. An important part of the Fed's mandate is to stabilize prices. The Fed has defined this to be an average inflation rate of 2% over time.
So, when inflation is above 2% and on the rise, like today, the Fed's approach to monetary policy becomes more hawkish. That means the Fed is looking to tighten monetary conditions and, more broadly, financial conditions. This tends to put upward pressure on real yields. So, even if inflation is high and rising, the effect of a hawkish Fed tends to dominate.
But what if inflation is rising from a rate below 2%? In this case, the Fed might favor a more dovish policy stance because it wants to encourage inflation to return to its goal from below. Therefore, we would expect downward pressure on real yields.
Another important factor driving i…
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Michael Zezas: Consider the Muni Market
3 februari 2022 · 3 min
The Federal Reserve continues to face a host of uncertainties, leading to volatility in the Treasuries market. This trend may lead some investors to reconsider the municipal bond market. Lees meer
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Welcome the Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy 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, February 2nd at 10 a.m. in New York.
A couple weeks back, we focused on the tough job ahead for the Federal Reserve. It's grappling with an uncertain inflation outlook driven by unprecedented circumstances, including the trajectory of the pandemic, and the still unanswered questions about whether supply chain bottlenecks and swelling demand by U.S. consumers for goods over services have become a persistent economic challenge. Against that backdrop, it's understandable that keeping open the possibility of continued revisions to monetary policy is part of the Fed's strategy. Not surprisingly, that uncertainty has translated to volatility in the Treasury market and, as expected, some fresh opportunity for bond investors.
For that, we looked in the market for municipal bonds, which are issued by state and local governments, as well as nonprofits. Credit quality is good for munis as the combination of substantial COVID aid to municipal entities and a strong economic recovery have likely locked in credit stability for 2022. But until recently, the price of munis was quite rich, in part reflecting this credit outlook, an expectation of higher taxes that would improve the benefit of munis tax exempt coupon, and a recent track record of low market volatility. But the bond market's reaction to the Fed undermined that last pillar, resulting in muni mutual fund outflows and, as a result, a move lower in relative prices for muni versus other types of bonds.
While this adju…
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Reza Moghadam: Is The ECB Behind The Curve?
2 februari 2022 · 4 min
The European Central Bank has indicated it would not raise rates this year, but markets are not fully convinced as shifts in inflation, gas prices and labor could force the ECB to reconsider. Lees meer
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Welcome to Thoughts on the Market. I am Reza Moghadam, Morgan Stanley's chief economic adviser. Along with my colleagues, we bring you a variety of market perspectives. Today I'll be talking about the European Central Bank and whether it is likely to follow the Federal Reserve and the Bank of England in raising interest rates this year. It is Tuesday, February 1st at 2:00 p.m. in London.
The European Central Bank, or the ECB, has long said it would not raise interest rates until it has concluded its bond purchase program. Since the ECB only recently announced that its taper would take at least till the end of this year to complete, this in theory rules out rate increases in 2022. The ECB president, Madame Lagarde, has reiterated that rate increases this year are "highly unlikely."
However, the market is not fully convinced and is pricing some modest rate hikes. Many investors are also concerned that inflation could prove higher and more persistent than the ECB is projecting and could force it to follow the Fed and the Bank of England in tightening policy.
We should start by recognizing that euro area inflation is nowhere near as high as in the United States, and expectations of longer-term inflation are below 2% - unlike in the US. Labor market conditions are easier, with low and stable wage growth.
But even if the case for tightening is not as clear cut, this does not preclude a preemptive move by the ECB. Whether it does so will hinge on the continued viability of the ECB's inflation projections, which see inflation falling below its 2% target by the end of the year.
It is too early to conclude that this inflation path has become too optimistic. Certainly, the second-round effects of recent high inflation outcomes - on wages and long-term inflat…
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Andrew Sheets: Systematic vs. Subjective Investing
31 januari 2022 · 3 min
Investing strategies can be categorized into two broad categories: subjective and systematic. While some prefer one over the other, the best outcomes are realized when they are used together. 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 Monday, January 31st at 2:00 p.m. in London.
There are as many different approaches to investing as there are investors. These can generally be divided into two camps. In one, which I'll call ‘subjective,’ the investor ultimately uses their own judgment and expertise to decide what inputs to look at, and what those inputs mean.
Reasonable people often disagree, what variables matter and what they're telling us, which is why at this very moment you can find plenty of very smart, very experienced investors in complete disagreement over practically any investment debate you can think of.
A lot of the research that myself and my colleagues at Morgan Stanley do fall into this more subjective camp. We're constantly in the process of trying to decide which variables matter and what we think these mean. But there's another approach which I'll call ‘systematic.’ Systematic investing is about writing down very strict rules and then following them over and over again, no matter what, with no leeway. Think of it a bit like computer code, if A happens - I will do B.
The advantage of this systematic approach is that it isn't swayed by fear, or greed, or any other weaknesses in human psychology. The drawbacks are that very strict rules may not be flexible enough to adjust for genuine changes in the economy, in markets, or large, unforeseen shocks like a global pandemic. Think about it this way: Autopilot has been a great technological innovation in commercial aviation, but we all still fee…
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Special Episode: New Challenges for The US Consumer
29 januari 2022 · 10 min
Consumer prices reached an all-time high this past December, and a new year brings new challenges across inflation, wage growth and interest rates. Lees meer
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Ellen Zentner Welcome to Thoughts on the Market. I'm Ellen Zentner, Chief U.S. Economist for Morgan Stanley Research.
Sarah Wolfe And I'm Sarah Wolfe, also on Morgan Stanley's U.S. Economics team.
Ellen Zentner And on this episode of the podcast, we'll be talking about the outlook for consumer spending in the face of inflation, Omicron, rising interest rates and other headwinds. It's Friday, January 28th at 10:00 a.m. in New York.
Ellen Zentner So Sarah, as most listeners have observed since the Fall, inflation is on everyone's mind, with consumer prices reaching a 39-year high in December, and we're forecasting inflation to recede throughout this year from about 7% now down to 2.9% by the fourth quarter. But let's talk about right now.
Ellen Zentner So, you've got your finger on the pulse of the consumer. You're a consumer specialist on the team. And so, I want to ask, how quickly have consumers adjusted their spending over the past few months because of inflation? What evidence have we seen?
Sarah Wolfe The consumer buying power has been very resilient in the face of high inflation. This week we got the fourth quarter GDP data and we saw the real PCE expanded by 3.3%. So that is another very strong quarter for consumer spending. And that brings spending to nearly 8% year over year in 2021, so very elevated. However, we are beginning to see that consumers may be reaching the upper echelon of their price tolerance in December. We got the retail sales report a couple of weeks ago for December, and we saw a very large contraction in consumer spending declined by more than 3%, and the decline was pretty broad based across all categories that have seen very high inflation, and this is largely reflective of goods spending. So, this is a pretty clear signal to us that while Omicron may be weighin…
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Matt Hornbach: Getting Real on Yields for TIPS
28 januari 2022 · 4 min
Despite two good years for Treasury Inflation-Protected Securities, or TIPS, a dramatic rise in real yields may be cause for investors to reexamine their potential for 2022. Lees meer
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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, January 27th at noon in New York.
Today, I want to talk about the Treasury market, and I want to get real. Yields on Treasury notes and bonds have risen dramatically to start the year, but real yields have risen more. What are "real yields"? Let me start by assuring you that yields on regular Treasury notes and bonds aren't fake. They are very real, but not in the same way as yields on Treasury inflation-protected securities.
Those inflation-protected bonds, known as TIPS, offer investors an inflation-adjusted yield. You can think about an inflation-adjusted yield as having two parts. The first part is a yield without an inflation adjustment. That's what we call the real yield. And the second part is a yield that adjusts for inflation. So, if the rate of inflation is positive, you get more than just the real yield.
Last year, a lot of investors bought TIPS because inflation was high and rising. The news media covered the topic of inflation like never before in my career. So, buying a security that offered inflation protection would have made sense last year. Consumer prices rose 7% over the year, and the TIPS index returned almost 6%. So that investment strategy worked out.
But, did you know that TIPS returned almost 11% in 2020, when consumer prices only rose 1.4%? That's right. TIPS were a much better investment in 2020, when there was less inflation than there was in 2021. How could that be?
Well, remember the real yield that TIPS offer investors? That yield ca…
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Michael Zezas: U.S. & China - Unfinished Business
27 januari 2022 · 3 min
2022 is likely to bring fresh challenges for the U.S.-China dynamic. Investors can expect an increase in non-tariff barriers and continued commitment to re- and near-shoring of supply chains in the US. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy 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, January 26th at 10:00 a.m. in New York.
While the ongoing situation between the Ukraine and Russia remains an obvious geopolitical risk to pay attention to, we shouldn't lose sight of the ongoing developments in the relationship between the U.S. and China. There's plenty of reason to expect that, in 2022, the two countries’ economic relationship - perhaps the most consequential in the world - will face fresh challenges.
From the US's perspective, there's unfinished business. For example, the 'phase one' trade deal, signed back in January of 2020, expired at the end of 2021, and the results fell short of the agreement. Per data from the Peterson Institute, China only purchased 62% of the manufactured products, 76% of the agricultural products and 47% of the energy products it had committed to. These stats likely won't change the perception of the American voter, where issue polls show a bipartisan consensus that the U.S. relationship with China continues to be a problematic one. And since 2022 is a midterm election year, don't expect U.S. policymakers to stand pat on the issue.
So what can we expect? We've covered before how the U.S. has, and likely will continue, to raise non-tariff barriers with China - things like export controls around sensitive technologies and investment restrictions. These deployments will continue to make for a more challenging environment for U.S. companies seeking easy access to China's markets, either to sell or produce…
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Special Episode: Tax-Efficient Strategies
26 januari 2022 · 9 min
With inflation on the minds of consumers and the Fed reacting with a sharp turn towards tightening, 2022 may be a year for investors to focus on incorporating tax-efficient strategies into their portfolios. Morgan Stanley Wealth Management’s Chief Investment Officer Lisa Shalett and Chief Cross-Asset Strategist Andrew Sheets discuss. Lees meer
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Andrew Sheets Welcome to Thoughts on the Market. I'm Andrew Sheets, chief cross asset strategist for Morgan Stanley Research.
Lisa Shalett And I'm Lisa Shalett, chief investment officer for Morgan Stanley Wealth Management.
Andrew Sheets And today on the podcast, we'll be discussing the importance of tax efficiency as a pillar of portfolio construction. It's Tuesday, January 25th at three p.m. in London.
Lisa Shalett And it's 10:00 a.m. here in New York.
Andrew Sheets Lisa, welcome back to the podcast! Now, as members of Morgan Stanley Wealth Management's Global Investment Committee, we both agree that the current portfolio construction backdrop is increasingly complicated and constrained. But tax considerations are also important, and this is something you and your team have written a lot on recently. So I'd really like to talk to you about both of these issues, both the challenges of portfolio construction and some of the unique considerations around tax that can really make a difference to the bottom line of investment returns. So Lisa, let's start with that current environment. Can you highlight why we believe that standard stock bond portfolios face a number of challenges going forward?
Lisa Shalett We've been through an extraordinary period over the last 13 years where both stocks and bonds have benefited profoundly from Federal Reserve policy, just to put it bluntly, and, you know, the direction of overall interest rates. And so, our observation has been that, you know, over the last 13 years, U.S. stocks have compounded at close to 15% per year, U.S. bonds have compounded at 9% per year. Both of th…