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New Worries in the Credit Markets
28 maart 2025 · 4 min
As credit resilience weakens with a worsening fundamental backdrop, our Head of Corporate Credit Research Andrew Sheets suggests investors reconsider their portfolio quality. Lees meer
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----- Transcript -----
Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about why we think near term improvement may be temporary, and thus an opportunity to improve credit quality.
It's Friday March 28th at 2pm in London.
In volatile markets, it is always hard to parse how much is emotion, and how much is real change. As you would have heard earlier this week from my colleague Mike Wilson, Morgan Stanley’s Chief U.S. Equity Strategist, we see a window for short-term relief in U.S. stock markets, as a number of indicators suggest that markets may have been oversold.
But for credit, we think this relief will be temporary. Fundamentals around the medium-term story are on the wrong track, with both growth and inflation moving in the wrong direction. Credit investors should use this respite to improve portfolio quality.
Taking a step back, our original thinking entering 2025 was that the future presented a much wider range of economic scenarios, not a great outcome for credit per se, and some real slowing of U.S. growth into 2026, again not a particularly attractive outcome.
Yet we also thought it would take time for these risks to arrive. For the economy, it entered 2025 with some pretty decent momentum. We thought it would take time for any changes in policy to both materialize and change the real economic trajectory.
Meanwhile, credit had several tailwinds, including attractive yields, strong demand and stable balance sheet metrics. And so we initially thought that credit would remain quite resilient, even if other asset classes showed more volatility.
But our conviction in that resilience from credit is weakening as the fundamental backdrop is getting worse. Chang…
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New Tariffs, New Patterns of Trade
27 maart 2025 · 9 min
Our global economists Seth Carpenter and Rajeev Sibal discuss how global trade will need to realign in response to escalating U.S. tariff policy. Lees meer
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Is the Future of Food Fermented?
26 maart 2025 · 8 min
Our European Sustainability Strategists Rachel Fletcher and Arushi Agarwal discuss how fermentation presents a new opportunity to tap into the alternative proteins market, offering a solution to mounting food supply challenges. Lees meer
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Rachel Fletcher: Welcome to Thoughts on the Market. I'm Rachel Fletcher Morgan Stanley's, Head of EMEA Sustainability Research.
Arushi Agarwal: And I'm Arushi Agarwal European Sustainability Strategist, based in London.
Rachel Fletcher: From kombucha to kimchi, probiotic rich fermented foods have long been staples at health-focused grocers. On the show today, a deeper dive into the future of fermentation technology. Does it hold the key to meeting the world's growing nutrition needs as people live longer, healthier lives?
It's Wednesday, 26th of March, at 3 pm in London.
Many of you listening may remember hearing about longevity. It's one of our four long-term secular themes that we're following closely at Morgan Stanley; and this year we are looking even more closely at a sub-theme – affordable, healthy nutrition. Arushi, in your recent report, you highlight that traditional agriculture is facing many significant challenges. What are they and how urgent is this situation?
Arushi Agarwal: There are four key environmental and social issues that we highlight in the note. Now, the first two, which are related to emissions intensity and resource consumption are quite well known. So traditional agriculture is responsible for almost a third of global greenhouse gas emissions, and it also uses more than 50 percent of the world's land and freshwater resources. What we believe are issues that are less focused on – are related to current agricultural practices and climate change that could affect our ability to serve the rising demand for nutrition.
We highlight some studies in the note. One of them states that the produce that we have today has on average 40 percent less nutritio…
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European Banks Spark Rising Investor Interest
25 maart 2025 · 7 min
Our European Heads of Diversified Financials and Banks Research Bruce Hamilton and Alvaro Serrano discuss the biggest themes and debates from the recent Morgan Stanley European Financials Conference. Lees meer
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Bruce Hamilton: Welcome to Thoughts on the Market. I'm Bruce Hamilton, Head of European Diversified Financials.
Alvaro Serrano: And I'm Alvaro Serrano, Head of European Banks.
Bruce Hamilton: Today we'll discuss our key takeaways from Morgan Stanley's 21st European Financials Conference last week.
It's Tuesday, March 25th, 3pm, here in London.
We were both at the conference here in London where we had more than 550 registered clients and roughly a hundred corporates in attendance. Alvaro, once again, you were the conference chair, and I wondered if you could first talk about the title of the conference this year – Europe's moment. What inspired this and was it a clear theme at the conference?
Alvaro Serrano: European banks are probably one of the strongest performing sectors globally. That has been on the back of expectations and prospects of a Ukraine peace deal, expectations of high defense spending, and we were going to German elections. I think it's fair to say that post German elections, Germany has delivered above expectations on the fiscal package. And the announcement was a big boost, at a time where U.S. growth is starting to be questioned. I think it's turning the investment flows into Europe. It's Europe's moment to shine, and hence the title.
Bruce Hamilton: And what were some of the other sort of key themes and debates that emerge from company presentations and panels at the conference?
Alvaro Serrano: The German fiscal/financial package definitely dominated the debate. But it was how it fed through the PNL that was the more tangible discussion. First of all, on NII – Net Interest Income – definitely more optimism among banks. The yield curve has steepened more than 50 basis points si…
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Key Indicators of How Far Markets Could Rebound
24 maart 2025 · 4 min
Our CIO and Chief U.S. equity strategist Mike Wilson discusses investors’ outlook following last week’s Fed meeting, and lists the key signals to gauge whether stocks can fully rebound from the recent correction. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing the recent rally in stocks and why it can continue.
It's Monday, March 24th at 11:30am in New York.
So let’s get after it.
Last week's Fed meeting appeared to come as a relief to many market participants as Chair Powell seemed to downplay concerns about inflation, offering a bit more emphasis on the growth side of the Fed’s mandate. The Fed also made the decision to slow the pace of balance sheet runoff, a development that came sooner than some expected and indicated the Fed is ready to act, if necessary. Looking ahead, investors are now very focused on the April 2nd reciprocal tariff deadline. While this catalyst could offer some incremental clarity on tariff rates and countries and products in scope, we think it's more a starting point for tariff negotiations – as opposed to a clearing event. In short, a Fed put seems closer to being in the money than a Trump put though it probably would require material labor weakness or choppier credit and funding markets.
So far, DOGE firings have had little impact on data like jobless claims or the overall unemployment rate. There may also be a lag between when employees are laid off and when these individuals show up as unemployed, given that severance is offered to most. The more important question for labor markets is whether the recent decline in the stock market, fall in confidence and rise in economic trade uncertainty will lead to layoffs in the private economy. Our economists' base case assumes that these factors won't drive an unemployment cycle this year; but payrolls, claims, and the unemploym…
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Investors Look Beyond U.S. for Opportunities
21 maart 2025 · 9 min
Amid lower growth and inflation concerns in the US, investors have begun scouring international markets for other opportunities. Our analysts Andrew Sheets, Neville Mandimika and Anlin Zhang dig into one potential outperforming category. Lees meer
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Risks and Uncertainty in the Fed’s New Outlook
20 maart 2025 · 9 min
Our Global Head of Macro Strategy Matthew Hornbach and Chief U.S. Economist Michael Gapen discuss the outcome of the recent FOMC meeting, and the outlook for interest rates in 2025 and 2026. Lees meer
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Matthew Hornbach: Welcome to Thoughts on the Market. I'm Matthew Hornbach, Global Head of Macro Strategy.
Michael Gapen: And I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist.
Matthew Hornbach: Today we're talking about the March Federal Open Market Committee meeting and the path for rates from here.
It's Thursday, March 20th at 10am in New York.
Mike, the Fed released a new set of projections yesterday. What do these say and what did you learn from them?
Michael Gapen: Yeah, Matt, well, the Fed's forecast actually now look a lot like our outlook for the U.S. economy. So, they revised down their expectation of growth. They revised up their expectation for inflation. So, it has a bit of a stagflation, slower growth, stickier inflation outlook – which is very much what we were thinking coming into this year. The Fed also, though, highlighted high policy uncertainty. They wrote down a forecast, but I'm not all that convinced that they have a lot of confidence in how things will evolve.
So, I think for me, really, the bigger story were their updated perceptions about uncertainty and risks to the outlook. So, in December, if you remember, they told us; virtually everybody on the committee said, uncertainty around inflation is high and risk to inflation to the upside. They complemented that this week with the fact that uncertainty around growth in the labor market is high, but risk to growth is to the downside, the unemployment rate to the upside. So, you have kind of competing risks here around the Fed's dual mandate. They've got upside risk to inflation, downside risk to growth.
To me, that's kind of the really important message. It's hard to have a confidence in a forecast right now, but I think that r…
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Making a Bet on the Future of Betting
19 maart 2025 · 8 min
Our analysts Michael Cyprys and Stephen Grambling discuss prediction markets’ rising popularity and how they could disrupt the U.S. sports betting industry. Lees meer
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Michael Cyprys: Welcome to Thoughts on the Market. I'm Mike Cyprys, Morgan Stanley's head of U.S. Brokers, Asset Managers, and Exchanges Research.
Stephen Grambling: And I'm Stephen Grambling, head of U.S. Gaming, Lodging, and Leisure.
Michael Cyprys: Today, we'll talk about sports betting and how prediction markets can disrupt it.
It's Wednesday, March 19th at 10 am in New York.
Sports betting used to be against the law in most of America, outside of Nevada. That changed in 2018, when the U.S. Supreme Court declared a federal ban on sports betting to be unconstitutional. As a result, many American states legalized sports betting. Over the last seven years, it's become even more popular and profitable. The American sports betting industry posted a record [$]13.7 billion of revenues last year. That's up from 2023's record of [$]11 billion, according to the American Gaming Association.
Now, prediction markets are set to potentially disrupt this industry.
Stephen, to set the stage, how is the U.S. sports betting industry currently organized and regulated?
Stephen Grambling: Well, as you mentioned, Mike, with the overturning of the Professional and Amateur Sports Protection Act in 2018, legalization of sports betting turned to the states. The path to legislation varies by state with different constituents to consider – beyond even the local government. You know, Senate and Congress, but also tribal casinos, commercial casinos, sports teams, leagues, etc.
We now have 38 states plus D.C. and Puerto Rico offering legal sports betting in some format, collecting billions of dollars in taxes in aggregate. At this point, the big states that are remaining are really only Texas, Florida, Georgia, and California. Each state forms its own framework across taxes, what sports can or can't bet on…
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What Could Weaken Strong Credit
18 maart 2025 · 4 min
Our Chief Fixed Income Strategist Vishy Tirupattur explains why credit markets have held firm amid macro volatility, and the scenarios which could hurt its strong foundation. Lees meer
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Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. Today, I will talk about why credit markets have been resilient even as other markets have been volatile – and market implications going forward.
It's Tuesday, March 18th, at 11 am in New York.
Market sentiment has shifted quickly from post-election euphoria and animal spirits to increasingly growing concern about downside risks to the U.S. economy, driven by ongoing policy uncertainty and a spate of uninspiring soft data. However, signaling from different markets has not been uniform.
For example, after reaching an all-time high just a few weeks ago, the S&P 500 index has given up all of its gains since the election and then some. Treasury yields have also yo-yoed, from a 40-basis points selloff to a 60+ basis points rally. Yet in the middle of this volatility in equities and rates, credit markets have barely budged. In other words, credit has been a low beta asset class so far.
This resilience which resonates with our long-standing constructive view on credit has strong underpinnings. We had expected that many of the supporting factors from 2024 would continue – such as solid credit fundamentals, strong investor demand driven by elevated overall yields rather than the level of spreads. While we expected the economic growth in 2025 to slow somewhat, to about 2 per cent, we thought that would still be a robust level for credit investors. These expectations have largely played out until recently. While we maintain our overall positive stance on credit, some of the factors contributing to its resilience are changing, calling the persistence of credit’s low beta into question.
While we did anticipate that sequencing and severity of policy would be key drivers of …
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Is the Correction Over Yet?
17 maart 2025 · 6 min
Our CIO and Chief U.S. Equity Strategist Mike Wilson explains the stock market tumble and whether investors can hope for a rally. Lees meer
----- Transcript -----
Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing the recent Equity Market correction and what to look for next.
It's Monday, March 17th at 11:30am in New York.
So let’s get after it.
Major U.S. equity Indices are as oversold as they've been since 2022. Sentiment, positioning gauges are bearish, and seasonals improve in the second half of March for earnings revisions and price. Furthermore, recent dollar weakness should provide a tailwind to first quarter earnings season and second quarter guidance, particularly relative to the fourth quarter results; and the decline in rates should benefit economic surprises. In short, I stand by our view that 5,500 on the S&P 500 should provide support for a tradable rally led by lower quality, higher beta stocks that have sold off the most, and it looks like it may have started on Friday.
The more important question is whether such a rally is likely to extend into something more durable and mark the end of the volatility we’ve seen YTD? The short answer is – probably not.
First, from a technical standpoint there has been significant damage to the major indices—more than what we witnessed in recent 10 per cent corrections, like last summer. More specifically, the S&P 500, Nasdaq 100, Russell 1000 growth and value indices have all traded straight through their respective 200-day moving averages, making these levels now resistance, rather than support. Meanwhile, many stocks are closer to a 20 per cent correction with the lower quality Russell 2000 falling below its 200 week moving average for the first time since the 2022 bear market. At a minimum, this kind of technical damage will take time to repair, even if we don’t get additional price degradation at the index level.
In or…
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Credit Markets Remain Resilient, For Now
14 maart 2025 · 4 min
As equity markets gyrate in response to unpredictable U.S. policy, credit has taken longer to respond. Our Head of Corporate Credit Research, Andrew Sheets, suggests other indicators investors should have an eye on, including growth data. Lees meer
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Welcome to Thoughts on the Market. I’m Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.
Today on the podcast, I’ll be discussing how much comfort or concern equity and credit markets should be taking from each other’s recent moves.
It’s Friday, March 14th at 2pm in London.
Credit has weakened as markets have gyrated in the face of rising uncertainty around U.S. economic policy. But it has been a clear outperformer. The credit market has taken longer to react to recent headlines, and seen a far more modest response to them. While the U.S. stock market, measured as the S&P 500, is down about 10 per cent, the U.S. High Yield bond index, comprised of lower-rated corporate bonds, is down about just 1 per cent.
How much comfort should stock markets take from credit’s resilience? And what could cause Credit to now catch-down to that larger weakness in equities?
A good place to start with these questions is what we think are really three distinct stories behind the volatility and weakness that we’re seeing in markets.
First, the nature of U.S. policy towards tariffs, with plenty of on-again, off-again drama, has weakened business confidence and dealmaking; and that’s cut off a key source of corporate animal spirits and potential upside in the market.
Second and somewhat relatedly, that reduced upside has lowered enthusiasm for many of the stocks that had previously been doing the best. Many of these stocks were widely held, and that’s created vulnerability and forced selling as previously popular positions were cut.
And third, there have been growing concerns that this lower confidence from businesses and consumers will spill over into actual spending, and raise the odds of weaker growth…
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India’s Resurgence Should Weather Trade Tensions
13 maart 2025 · 3 min
Our Chief Asia Economist Chetan Ahya discusses the early indications of India’s economic recovery and why the country looks best-positioned in the region for growth. Lees meer
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Welcome to Thoughts on the Market. I’m Chetan Ahya, Morgan Stanley’s Chief Asia Economist.
Today I’ll be taking a look at the Indian economy amidst escalating trade tensions in Asia and around the globe.
It’s Thursday, March 13, at 2pm in Hong Kong.
Over the last few months, investors have been skeptical about India’s growth narrative. Investors – like us – have been caught off-guard by the surprising recent slowdown in India’s growth. With the benefit of hindsight, we can very clearly attribute the slowdown to an unexpected double tightening of fiscal and monetary policy.
But India seems to be on its way to recovery. Green shoots are already emerging in recent data. And we believe the recovery will continue to firm up over the coming months. What makes us so confident in our outlook for India?
We see several key factors behind this trend:
First, fiscal policy’s turning supportive for growth again. The government has been ramping up capital expenditure for infrastructure projects like roads and railways, with growth accelerating markedly in recent months. They have also cut income tax for households which will be effective from April 2025.
Second, monetary policy easing across rates, liquidity, and the regulatory front. With CPI inflation recently printing at just 3.6 per cent which is below target, we believe the central bank will continue to pursue easy monetary policy.
And third, moderation in food inflation will mean real household incomes will be lifted.
Finally, the strength in services exports. Services exports include IT services, and increasingly business services. In fact, post-COVID India’s had very strong growth in business services exports. And the key reason for that is, post-COVID, I think businesses have come to realize that if you can work from home, y…
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The Other Policy Choices That Matter
12 maart 2025 · 3 min
While tariffs continue to dominate headlines, our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas suggests investors should also focus on the sectoral impacts of additional U.S. policy choices. Lees meer
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Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today, we’ll be talking about U.S. policy impacts on the market that aren’t about tariffs.
It’s Wednesday, March 12th, at 10:30am in New York.
If tariffs are dominating your attention, we sympathize. Again this week we heard the U.S. commit to raising tariffs and work out a resolution, this time all within the span of a workday.
These twists and turns in the tariff path are likely to continue, but in the meantime it might make sense for investors to take some time to look away – instead focusing on some key sectoral impacts of U.S. policy choices that our Research colleagues have called out.
For example, Andrew Percoco, who leads our Clean Energy Equity Research team, calls out that clean Energy stocks may be pricing in too high a probability of an Inflation Reduction Act (IRA) repeal. He cites a letter signed by 18 Republicans urging the speaker of the house to protect some of the energy tax credits in the IRA. That’s a good call out, in our view. Republicans’ slim majority means only a handful need to oppose a legislative action in order to block its enactment.
Another example is around Managed Care companies. Erin Wright, who leads our Healthcare Services Research Effort, analyzed the impact to companies of cuts to the Medicaid program and found the impact to their sector’s bottom line to be manageable. So, keeping an in-line view for the sector. We think the sector won’t ultimately face this risk, as, like with the IRA, we do not expect there to be sufficient Republican votes to enact the cuts.
Finally, Patrick Wood, who leads the Medtech team, caught up with a former FDA direc…
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The AI Agents Are Here
11 maart 2025 · 12 min
Our analysts Adam Jonas and Michelle Weaver share a glimpse into the future from Morgan Stanley’s Annual Tech, Media, and Telecom (TMT) Conference, as agentic AI powers autonomous vehicles, humanoid robots and more.
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Why Uncertainty Won't Slow AI Hardware Investment
10 maart 2025 · 4 min
Our Head of U.S. IT Hardware Erik Woodring gives his key takeaways from Morgan Stanley’s Technology, Media and Telecom (TMT) conference, including why there appears to be a long runway ahead for AI infrastructure spending, despite macro uncertainty. Lees meer
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Welcome to Thoughts on the Market. I’m Erik Woodring, Morgan Stanley’s Head of U.S. IT Hardware Research.
Here are some reflections I recorded last week at Morgan Stanley’s Technology, Media, and Telecom Conference in San Francisco.
It’s Monday, March 10th at 9am in New York.
This was another year of record attendance at our TMT Conference. And what is clear from speaking to investors is that the demand for new, under-discovered or under-appreciated ideas is higher than ever. In a stock-pickers’ market – like the one we have now – investors are really digging into themes and single name ideas.
Big picture – uncertainty was a key theme this week. Whether it’s tariffs and the changing geopolitical landscape, market volatility, or government spending, the level of relative uncertainty is elevated. That said, we are not hearing about a material change in demand for PCs, smartphones, and other technology hardware.
On the enterprise side of my coverage, we are emerging from one of the most prolonged downcycles in the last 10-plus years, and what we heard from several enterprise hardware vendors and others is an expectation that most enterprise hardware markets – PCs , Servers, and Storage – return to growth this year given pent up refresh demand. This, despite the challenges of navigating the tariff situation, which is resulting in most companies raising prices to mitigate higher input costs.
On the consumer side of the world, the demand environment for more discretionary products like speakers, cameras, PCs and other endpoint devices looks a bit more challenged. The recent downtick in consumer sentiment is contributing to this environment given the close correlation between sentiment and discre…
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Rewiring Global Trade
7 maart 2025 · 4 min
While policy noise continues to dominate the headlines, our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas points out a key theme: a transition toward a multipolar world. Lees meer
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Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today we’ll be discussing what investors need to focus on amidst all the U.S. policy headlines.
It’s Friday, March 7th, at 12:30 pm in New York.
In recent weeks the news flow on tariffs, immigration, and geopolitics has been relentless, culminating in this week’s state of the union address by President Trump and, if headlines hold, a partial reversal in course on Mexico and Canada tariffs that were just levied earlier this week. Understandably, measures of policy uncertainty, such as the Baker, Bloom, and Davis index, have reached all time highs. And this tracks with the confusion expressed by investing and corporate clients.
In our view, this policy noise is going to continue. But, there is an important signal. These developments track with one of our four key themes of 2025. The transition toward a multipolar world. The tense White House meeting between Presidents Trump and Zelensky, played out live in front of the news cameras, was another reminder that the U.S. is evolving its role in driving international affairs. And tariffs on Mexico, Canada, and China are a reminder of the U.S.’s interest in rewiring global trade. The reasons behind this are myriad and complex, but in the near term it's about the U.S. looking more inward. Economic populism is, well, popular with voters in both parties.
There’s a few net takeaways for investors here. One is a positive for the European defense sector. The combination of tariffs and the evolving U.S. posture on global security has long been part of our thesis on why Europe would eventually chart a new path and step up to spend more on defense. The current situation i…
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Funding the Next Phase of AI Development
6 maart 2025 · 11 min
Recorded at our 2025 Technology, Media and Telecom (TMT) Conference, TMT Credit Research Analyst Lindsay Tyler joins Head of Investment Grade Debt Coverage Michelle Wang to discuss the how the industry is strategically raising capital to fund growth. Lees meer
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Lindsay Tyler: Welcome to Thoughts on the Market. I'm Lindsay Tyler, Morgan Stanley's Lead Investment Grade TMT Credit Research Analyst, and I'm here with Michelle Wang, Head of Investment Grade Debt Coverage in Global Capital Markets.
On this special episode, we're recording at the Morgan Stanley Technology, Media, and Telecom (TMT) Conference, and we will discuss the latest on the technology space from the fixed income perspective.
It's Thursday, March 6th at 12 pm in San Francisco.
What a week it's been. Last I heard, we had over 350 companies here in attendance.
To set the stage for our discussion, technology has grown from about 2 percent of the broader investment grade market – about two decades ago – to almost 10 percent now; though that is still relatively a small percentage, relative to the weightings in the equity market.
So, can you address two questions? First, why was tech historically such a small part of investment grade? And then second, what has driven the growth sense?
Michelle Wang: Technology is still a relatively young industry, right? I'm in my 40s and well over 90 percent of the companies that I cover were founded well within my lifetime. And if you add to that the fact that investment grade debt is, by definition, a later stage capital raising tool. When the business of these companies reaches sufficient scale and cash generation to be rated investment grade by the rating agencies, you wind up with just a small subset of the overall investment grade universe.
The second question on what has been driving the growth? Twofold. Number one the organic maturation of the tech industry results in an increasing number of scaled investment grade companies. And then secondly…
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Is There Too Much Focus on Fed’s Moves?
6 maart 2025 · 4 min
While central bank policy will always matter for markets, our Head of Corporate Credit Research Andrew Sheets explains why investors should not be worried about the number of Fed cuts in 2025. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about why the number of Fed rate cuts this year may matter less than you think.
It's Wednesday, March 5th, at 2pm in London.
Financial markets spend a lot of time discussing the Federal Reserve. And for good reason. The central bank of the world’s largest economy plays a central role in fighting inflation and setting interest rates. And what they’ll do this year is topical and shifting. At Morgan Stanley, our economists think that US Tariff and Immigration policy will lead the Fed to keep rates somewhat higher, for somewhat longer, than they did at the start of the year.
Yet we think there may be just a little bit too much focus on just how much the Fed changes policy over the course of the year. Indeed, we’d go as far as to say that given the choice, investors should be rooting for less change, not more.
To start, for all that’s happened in the world since the end of October of 2024, expectations for the Fed’s interest rate path have been remarkably stable. The US 2-year Treasury, which is a decent proxy of where the Fed’s rate will average over the next 24 months, has hovered in a very narrow range. It simply hasn’t been telling us very much; other factors have been moving markets.
There’s also a pretty reasonable rule of thumb from history: stability is good. A stable Fed funds rate, almost by definition, implies a stable equilibrium that doesn’t involve overly high inflation pushing rates further up, or overly weak growth pushing them further down. The best growth in recent history, in the mid-1990s, occurred after the Fed reduced interest rates less than one-percent, and then kept them stable, at a pretty elevate…
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What Will Tariffs Do to the U.S. Dollar?
4 maart 2025 · 10 min
Our U.S. Public Policy and Currency analysts, Ariana Salvatore and Andrew Watrous, discuss why the dollar fell at the beginning of the first Trump administration and whether it could happen again this year. Lees meer
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Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Morgan Stanley's U.S. Public Policy Strategist.
Andrew Watrous: And I'm Andrew Watrous, G10 FX Strategist here at Morgan Stanley.
Ariana Salvatore: Today, we'll focus on the U.S. dollar and how it might fare in global markets during the first year of the new Trump administration.
It's Tuesday, March 4th at 10am in New York.
So, Andrew, a few weeks ago, James Lord came on to talk about the foreign exchange volatility. Since then, tariffs and trade policy have been in the news. Last night at midnight, 25 percent tariffs on Mexico and Canada went into effect, in addition to 10 percent on China. So, let's set the scene for today's conversation. Is the dollar still dominant in global currency markets?
Andrew Watrous: Yes, it is. The U.S. dollar is used in about $7 trillion worth of daily FX transactions. And the dollar's share of all currency transactions has been pretty stable over the last few decades. And something like 80 percent of all trade finance is invoiced in dollars, and that share has been pretty stable too.
A big part of that dollar dominance is because of the depth and safety of the Treasury security market.
Ariana Salvatore: That makes sense. And the dollar fell in 2017, the first year of the Trump administration. Why did that happen?
Andrew Watrous: Yeah, so 2017 gets a lot of client attention because the Fed was hiking, there was a lot of uncertainty about would happen in NAFTA, and the U.S. passed a fiscally expansionary budget bill that year.
So, people have asked us, ‘Why the U.S. dollar went down despite all those factors?’ And I think there are three reasons. One is that even though the possibility that the U.S. could leave NAFTA was all o…
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Will GenAI Turn a Profit in 2025?
3 maart 2025 · 13 min
Our Semiconductors and Software analysts Joe Moore and Keith Weiss dive into the biggest market debate around AI and why it’s likely to shape conversations at Morgan Stanley’s Technology, Media and Telecom (TMT) Conference in San Francisco. Lees meer
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Joe Moore: Welcome to Thoughts on the Market. I'm Joe Moore, Morgan Stanley's Head of U.S. Semiconductors.
Keith Weiss: And I'm Keith Weiss, Head of U.S. Software.
Joe Moore: Today on the show, one of the biggest market debates in the tech sector has been around AI and the Return On Investment, or ROI. In fact, we think this will be the number one topic of conversation at Morgan Stanley's annual Technology, Media and Telecom (TMT) conference in San Francisco.
And that's precisely where we're bringing you this episode from.
It's Monday, March 3rd, 7am in San Francisco.
So, let's get right into it. ChatGPT was released November 2022. Since then, the biggest tech players have gained more than $9 trillion in combined market capitalization. They're up more than double the amount of the S&P 500 index. And there's a lot of investor expectation for a new technology cycle centered around AI. And that's what's driving a lot of this momentum.
You know, that said, there's also a significant investor concern around this topic of ROI, especially given the unprecedented level of investment that we've seen and sparse data points still on the returns.
So where are we now? Is 2025 going to be a year when the ROI and GenAI finally turns positive?
Keith Weiss: If we take a step back and think about the staging of how innovation cycles tend to play out, I think it's a helpful context.
And it starts with research. I would say the period up until When ChatGPT was released – up until that November 2022 – was a period of where the fundamental research was being done on the transformer models; utilizing, machine learning. And what fundamental research is, is trying to figure out if these fundamental capabilities are real…
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Searching for Signals in U.S. Policy Noise
28 februari 2025 · 4 min
Our Global Head of Fixed Income Research and Public Policy Strategy explains why conflicting news on tariffs and government spending may point to a case for bonds. Lees meer
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Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today we’ll be discussing recent U.S. public policy headline noise and the signal within that for investors.
It’s Friday, February 28th, at 12:30 pm in New York.
For investors paying attention to events in Washington, D.C., the past few weeks have been disorienting. Tariff announcements have continued, but with shifting details on timing and magnitude. And Congress passed a bill to enable substantial spending cuts, but subsequent media reports made clear the votes to actually enact these cuts later this year may not be there.
Our recent client conversations have revealed that investors’ confusion has reached new heights, and there’s little consensus, or conviction, about whether U.S. policy choices are set to help or hurt the economy and markets.
Net-net, it's a lot of policy noise, and very little signal. That said, here’s what we think investors can anchor to.
For all the headlines on potential new tariffs for China, Mexico, Canada and on products like copper, actual tariff actions have followed a graduated pace, in line with our base case of ‘fast announcement, slow implementation’ – where tariffs on China start and continue to climb, but tariffs on the rest of world move slowly and are more subject to negotiation. Tariffs on Mexico and Canada appear, in our view, likely to be pushed out once again given progress in negotiation on harmonizing trade policy and progress in reduced border crossings.
On the other hand, tariffs on China, already raised an incremental 10 percent a few weeks back, seem likely to step up again as there are much bigger disagreements that the two nations don’t appear close to resolving.
But even if tariffs move a…
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Shaky U.S. Consumer Confidence May Be a Leading Signal
27 februari 2025 · 4 min
Two recent surveys indicate that U.S. consumer confidence has shown a notable decline amid talks about inflation and potential tariff. Our Head of Corporate Credit Research Andrew Sheets discusses the market implications. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about the consumer side of the confidence debate.
It’s Thursday, February 27th at 2pm in London.
Two weeks ago on this program I discussed signs that uncertainty in U.S. government policy might be hitting corporate confidence, as evidenced by an unusually slow start to the year for dealmaking. That development is a mixed bag. Less confidence and more conservatism in companies holds back investment and reduces the odds of the type of animal spirits that can drive large gains. But it can be a good thing for lenders, who generally prefer companies to be more cautious and more risk-averse.
But this question of confidence is also relevant for consumers. And today, I want to discuss what some of the early surveys suggest and how it can impact our view.
To start with something that may sound obvious but is nonetheless important, Confidence is an extremely powerful psychological force in the economy and financial markets. If you feel good enough about the future, you’ll buy a stock or a car with little regard to the price or how the economy might feel at the moment. And if you’re worried, you won’t buy those same things, even if your current conditions are still ok, or if the prices are even cheaper. Confidence, you could say, can trump almost everything else.
And so this might help explain the market’s intense focus on two key surveys over the last week that suggested that US consumer confidence has been deteriorating sharply.
First, a monthly survey by the University of Michigan showed a drop in consumer confidence and a rise in expected inflation. And then a few days later, on Tuesday, a simil…
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The Impact of Shifting Immigration Policy
27 februari 2025 · 5 min
Our Chief U.S. Economist Michael Gapen discusses the possible economic implications of restrictive immigration policies in the U.S., highlighting their potential effect on growth, inflation and labor markets. Lees meer
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Welcome to Thoughts on the Market. I’m Michael Gapen, Morgan Stanley’s Chief U.S. Economist. Today I’ll talk about the way restrictive immigration policies could potentially slow U.S. economic growth, push up inflation, and impact labor markets.
It’s Wednesday, February 26th, at 2pm in New York.
Lately, investors have been focused on the twists and turns of Trump’s tariffs. Several of my colleagues have discussed the issue of tariffs from various angles on this show. But we think the new administration’s immigration policy deserves more attention.
Immigration is more than just the entry of foreign citizens into the U.S. for residency. It's a complex process with significant implications for our economy. According to the Bureau of Labor Statistics, as of June 2024, 19 per cent of the US workforce was made up of immigrants – which is over 32 million people. This is a significant increase from 1994, when only about 10 per cent of the workforce was foreign-born. Immigrants tend to be employed in sectors like agriculture, construction and manufacturing, but also in face-to-face services sectors like retail, restaurants, hotels and healthcare.
Immigration surged to about 3 million per year after the pandemic. In fact, immigration rates in 2022 to 2024 were more than twice the historical run rate. This surge helped the US economy to "soft land" following a period of high inflation. It boosted both the supply side and the demand side of the U.S. economy. Labor force growth outpaced employment, which helped to moderate wage and price pressures.
However, Trump’s policymakers are changing the rules rapidly and reversing the immigration narrative. Already by the second half of 2024, border flows were slowing significantly based on the lagged …
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Cruises Set Sail for Private Islands
25 februari 2025 · 4 min
A shift to private destinations for cruise lines could affect both operators and guests by 2030. Our Europe Leisure & Travel analyst Jamie Rollo explains. Lees meer
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Welcome to Thoughts on the Market. I’m Jamie Rollo, Morgan Stanley’s Europe Leisure & Travel Analyst. And today I’ll talk about an intriguing trend – the cruise lines’ accelerating expansion into private islands.
It’s Tuesday, February the 25th, at 2 PM in London.
Now the lure of a private island cruise is simple. You get almost exclusive access to a tropical retreat. You can lounge or snorkel on a pristine beach, you can enjoy a meal in a private cabana, you can even book a massage or a yoga class. The only other people around are fellow passengers on your vacation. So this isn't just the stuff of popular TV shows. It’s potentially the future of cruising.
Cruise lines have actually been offering private islands for more than a decade. So it’s hardly a new phenomenon. In fact, in 2019, we estimate the majority of Caribbean cruise passengers visited a private island.
As it happens, the Caribbean is the world's largest cruise destination. About saw 36 million cruise calls were there last year; that’s about 40 percent of global passenger capacity. And that’s surpassing the second largest region, the Mediterranean, at about 17 percent. Of course, the Caribbean’s proximity to North America and its year-round tropical climate make it a prime location for cruising. But despite these advantages, historically the Caribbean’s been seen as more of a lower-yielding market compared to regions like Europe or Alaska, which arguably have even more amazing scenery or historic sites.
Interestingly, recent trends suggest that reputation might be changing. And new private islands over the last few years have reinvigorated the Caribbean cruise market.
So what’s a private destinations or islands offer? For your guests, they get a seamless integration with the cruise experience. There’s no transfer requir…
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What’s Behind the Recent Stock Tumble?
24 februari 2025 · 4 min
Our CIO and Chief U.S. Equity Strategist Mike Wilson explains the challenges to growth for U.S. stocks and why some investors are looking to China and Europe. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing new headwinds for growth and what that means for equities.
It's Monday, Feb 24th at 11:30am in New York.
So let’s get after it.
Until this past Friday’s sharp sell off in stocks, the correlation between bond yields and stocks had been in negative territory since December. This inverse correlation strengthened further into year-end as the 10-year U.S. Treasury yield definitively breached 4.5 per cent on the upside for the first time since April of 2024. In November, we had identified this as an important yield threshold for stock valuations. This view was based on prior rate sensitivity equities showed in April of 2024 and the fall of 2023 as the 10-year yield pushed above this same level. In our view, the equity market has been signaling that yields above this point have a higher likelihood of weighing on growth. Supporting our view, interest rate sensitive companies like homebuilders have underperformed materially. This is why we have consistently recommended the quality factor and industries that are less vulnerable to these headwinds.
In our year ahead outlook, we suggested the first half of 2025 would be choppier for stocks than what we experienced last fall. We cited several reasons including the upside in yields and a stronger U.S. dollar. Since rates broke above 4.5 per cent in mid-December, the S&P 500 has made no progress. Specifically, the 6,100 resistance level that we identified in the fall has proven to be formidable for the time being. In addition to higher rates, softer growth prospects alongside a less dovish Fed are also holding back many stocks. As we have also discussed, falling rates won’t help if it’s accompanied by…
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How a Potential Ukraine Peace Deal Could Impact Airlines
21 februari 2025 · 4 min
Our Hong Kong/China Transportation & Infrastructure Analyst Qianlei Fan explores how a potential peace deal in Ukraine could reshape the global airline industry. Lees meer
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Welcome to Thoughts on the Market. I’m Qianlei Fan, Morgan Stanley’s Hong Kong/China Transportation Analyst. Today’s topic is how a potential peace deal in Ukraine could affect global airlines.
It’s Friday, February 21st, at 2pm in Hong Kong.
The situation remains fluid, but we believe a potential peace deal in Ukraine could have broad implications for the global airline industry. From the reopening of Russian airspace to potential changes in fuel prices and flight routes, there are many variables at play.
Russian airspace is currently off-limits due to the conflict, but a peace agreement could change that. The reopening of Russian airspace would be a significant catalyst for global airlines, reducing travel times and fuel consumption on routes between Europe, North America, and Asia.
Fuel prices account for 20-40 per cent of airlines' costs, so any changes can have a significant impact on their bottom line. We believe a peace deal could lead to a moderate fall in fuel prices, benefiting all airlines, but particularly those with high-cost exposure and low margins.
There could also be specific regional implications. The European air travel market could benefit significantly from an end to the Ukraine conflict. The reopening of Russian airspace would improve European airlines’ competitiveness on Asian routes, while a fall in fuel prices would reduce their operating costs. There would also be lower congestion in the intra-European market.
Asian airlines, particularly Chinese ones, could experience a mixed impact. On the one hand, they could see an increase in wide-body utilization and passenger numbers if more direct flights to the U.S. are introduced. On the other hand, losing their advantage over European airlines of flying through Russian airspace would be negative. But, at t…
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The Downside Risks of Reciprocal Tariffs
20 februari 2025 · 5 min
Our Global Chief Economist Seth Carpenter explains the potential domino effect that President Trump’s reciprocal tariffs could have on the U.S. and global economies. Lees meer
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Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist, and today I'm going to talk about downside risks to the U.S. economy, especially from tariffs.
It's Thursday, February 20th at 10am in New York.
Once again, tariffs are dominating headlines. The prospect of reciprocal tariffs is yet one more risk to our baseline forecast for the year. We have consistently said that the inflationary risk of tariffs gets its due attention in markets but the adverse growth implications that's an underappreciated risk.
But we, like many other forecasters, were surprised to the upside in 2023 and 2024. So maybe we should ask, are there some upside risks that we're missing?
The obvious upside risk to growth is a gain in productivity, and frequent readers of Morgan Stanley Research will know that we are bullish on AI. Indeed, the level of productivity is higher now than it was pre-COVID, and there is some tentative estimate that could point to faster growth for productivity as well.
Of course, a cyclically tight labor market probably contributes and there could be some measurement error. But gains from AI do appear to be happening faster than in prior tech cycles. So, we can't rule very much out. In our year ahead outlook, we penciled in about a-tenth percentage point of extra productivity growth this year from AI. And there is also a bit of a boost to GDP from AI CapEx spending.
Other upside risks, though, they're less clear. We don't have any boost in our GDP forecast from deregulation. And that view, I will say, is contrary to a lot of views in the market. Deregulation will likely boost profits for some sectors but probably will do very little to boost overall growth. Put differently, it helps the bottom line far more than it helps …
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A Rollercoaster Housing Market
19 februari 2025 · 7 min
Our co-heads of Securitized Products Research, James Egan and Jay Bacow, explain how the increase in home prices, a tight market supply and steady mortgage rates are affecting home sales. Lees meer
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James Egan: Welcome to Thoughts on the Market. I'm Jim Egan, co-head of Securitized Products Research at Morgan Stanley.
Jay Bacow: And I'm Jay Bacow, the other co-head of Securitized Products Research at Morgan Stanley.
Today, a look at the latest trends in the mortgage and housing market.
It's Wednesday, February 19th, at 11am in New York.
Now, Jim, there's been a lot of headlines to kick off the year. How is the housing market looking here? Mortgage rates are about 80 basis points higher than the local lows in September. That can't be helping affordability very much.
James Egan: No, it is not helping affordability. But let's zoom out a little bit here when talking about affordability. The monthly payment on the medium-priced home had fallen about $225 from the fourth quarter of 2023 to local troughs in September. About a 10 percent decrease. Since that low, the payment has increased about $150; so, it's given back most of its gains.
Importantly, affordability is a three-pronged equation. It's not just that payment. Home prices, mortgage rates, and incomes. And incomes are up about 5 percent over the past year. So, affordability has improved more than those numbers would suggest, but those improvements have certainly been muted as a result of this recent rate move.
Jay Bacow: Alright. Affordability is up, then it’s down. It’s wrong, then it’s right. It sounds like a Katy Perry song. So, how have home sales evolved through this rollercoaster?
James Egan: Well, you and I came on this podcast several times last year to talk about the fact that home sales volumes weren't really increasing despite the improvement in affordability. One point that we made over and over again was that it normally takes 9 to 12 months for sales volumes to increase when yo…
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Finding Opportunity in an Uncertain U.S. Equity Market
18 februari 2025 · 5 min
Our CIO and Chief U.S. Equity Strategy Mike Wilson suggests that stock, factor and sector selection remain key to portfolio performance. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Today on the podcast I’ll be discussing equities in the context of higher rates and weaker earnings revisions.
It's Tuesday, Feb 18th at 11:30am in New York.
So let’s get after it.
Since early December, the S&P 500 has made little headway. The almost unimpeded run from the summer was halted by a few things but none as important as the rise in 10-year Treasury yields, in my view. In December, we cited 4 to 4.5 percent as the sweet spot for equity multiples assuming growth and earnings remained on track. We viewed 4.5 percent as a key level for equity valuations. And sure enough, when the Fed leaned less dovish at its December meeting, yields crossed that 4.5 percent threshold; and correlations between stocks and yields settled firmly in negative territory, where they remain. In other words, yields are no longer supportive of higher valuations—a key driver of returns the past few years.
Instead, earnings are now the primary driver of returns and that is likely to remain the case for the foreseeable future. While the Fed was already increasingly less dovish, the uncertainty on tariffs and last week’s inflation data could further that shift with the bond market moving to just one cut for the rest of the year. Our official call is in line with that view with our economists now just looking for just one cut–in June. It depends on how the inflation and growth data roll in.
Our strategy has shifted, too. With the S&P 500 reaching our tactical target of 6100 in December and earnings revision breadth now rolling over for the index, we have been more focused on sectors and factors. In particular, we’ve favored areas of the market showing strong earnings revisions on an absolute or relative basis.
Financials,…
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Trump 2.0 and the Potential Economic Impact of Immigration Policy
14 februari 2025 · 9 min
Our Global Head of Fixed Income and Public Policy Research, Michael Zezas, joins our Chief U.S. Economist, Michael Gapen, to discuss the possible outcomes for President Trump’s immigration policies and their effect on the U.S. economy. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Public Policy Research.
Michael Gapen: And I'm Michael Gapen, Chief U.S. Economist for Morgan Stanley.
Michael Zezas: Our topic today: President Trump's immigration policy and its economic ramifications.
It's Friday, February 14th at 10am in New York.
Michael, migration has always been considered an important feature of the global economy. In fact, you believe that strong immigration flows were an important element in the supply side rebound that set the stage for a U.S. soft landing. If we think back to the time before President Trump took office almost a month ago, how would you categorize immigration trends then?
Michael Gapen: So, we saw a very sharp increase in immigration coming out of the pandemic. I would say, if you look at longer term averages, say the 20 years leading up to the pandemic, normally we'd get about a million and a half immigrants, per year into the United States. A lot of variation around that number, but that was the long-term average.
In 2022 through 2024, we saw immigration surge to about 3 million per year. So about twice as fast as we saw normally. And that happened at a very important time. It allowed for very significant and rapid growth in the labor force, just at a time when the economy was emerging from the pandemic and demand for labor was quite high.
So, it filled that labor demand. It allowed the economy to grow rapidly, while at the same time helping to keep wages lower and inflation starting to come down. So, I do think it was a major underpinning force in the ability of the U.S. economy to soft land after several years of above target inflation.
…
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How Do Tariffs Affect Currencies?
13 februari 2025 · 4 min
Our Head of Foreign Exchange & Emerging Markets Strategy James Lord discusses how much tariff-driven volatility investors can expect in currency markets this year. Lees meer
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Welcome to Thoughts on the Market. I’m James Lord, Morgan Stanley’s Head of Foreign Exchange & Emerging Markets Strategy.
Today – the implications of tariffs for volatility on foreign exchange markets.
It’s Thursday, February 13th, at 3pm in London.
Foreign exchange markets are following President Trump’s tariff proposals with bated breath. A little over a week ago investors faced significant uncertainty over proposed tariffs on Mexico, Canada, and China. In the end, the U.S. reached a deal with Canada and Mexico, but a 10 per cent tariff on Chinese imports went into effect. Currencies experienced heightened volatility during the negotiations, but the net impacts at the end of the negotiations were small. Announced tariffs on steel and aluminum have had a muted impact too, but the prospect of reciprocal tariffs are keeping investors on edge.
We believe there are three key lessons investors can take away from this recent period of tariff tension. First of all, we need to distinguish between two different types of tariffs. The first type is proposed with the intention to negotiate; to reach a deal with affected countries on key issues. The second type of tariff serves a broader purpose. Imposing them might reduce the U.S. trade deficit or protect key domestic industries.
There may also be examples where these two distinct approaches to tariffs meld, such as the reciprocal tariffs that President Trump has also discussed.
The market impacts of these different tariffs vary significantly. In cases where the ultimate objective is to make a deal on a separate issue, any currency volatility experienced during the tariff negotiations will very likely reverse – if a deal is made. However, if the tariffs are part of a broader economic strategy, then investors should consider more serio…
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The Credit Upside of Market Uncertainty
12 februari 2025 · 3 min
The down-to-the-deadline nature of Trump’s trade policy has created market uncertainty. Our Head of Corporate Credit Research Andrew Sheets points out a silver lining. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about a potential silver lining to the significant uptick in uncertainty around U.S. trade policy.
It's Wednesday, February 12th at 2pm in London.
One of the nuances of our market view is that we think credit spreads remain tight despite rising levels of corporate confidence and activity. We think these things can co-exist, at least temporarily, because the level of corporate activity is still so low, and so it could rise quite a bit and still only be in-line with the long-term trend. And so while more corporate activity and aggression is usually a negative for lenders and drives credit spreads wider, we don’t think it’s quite one yet.
But maybe there is even less tension in these views than we initially thought.
The first four weeks of the new U.S. Administration have seen a flurry of policy announcements on tariffs. This has meant a lot for investors to digest and discuss, but it’s meant a lot less to actual market prices. Since the inauguration, U.S. stocks and yields are roughly unchanged.
That muted reaction may be because investors assume that, in many cases, these policies will be delayed, reversed or modified. For example, announced tariffs on Mexico and Canada have been delayed. A key provision concerning smaller shipments from China has been paused. So far, this pattern actually looks very consistent with the framework laid out by my colleagues Michael Zezas and Ariana Salvatore from the Morgan Stanley Public Policy team: fast announcements of action, but then much slower ultimate implementation.
Yet while markets may be dismissing these headlines for now, there are signs that businesses are taking them more seriously. Per news rep…
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The Rising Risk of Trade Tensions in Asia
11 februari 2025 · 4 min
Our Chief Asia Economist Chetan Ahya discusses the potential impact of reciprocal U.S. tariffs on Asian economies, highlighting the key markets at risk. Lees meer
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Welcome to Thoughts on the Market. I’m Chetan Ahya, Morgan Stanley’s Chief Asia Economist. Today: the possibilities of reciprocal tariffs between the U.S. and Asian economies.
It’s Tuesday, February 11, at 2pm in Singapore.
President Trump’s recent tariff actions have already been far more aggressive than in 2018 and 2019. And this time around, multiple trade partners are simultaneously facing broad-based tariffs, and tariffs are coming at a much faster pace. The risk of trade tensions escalating has risen, and the latest developments may have kicked that risk up another notch.
The U.S. president is pushing a sweeping tariff of 25 per cent on all foreign steel and aluminum products. Trump has also indicated that he would propose reciprocal tariffs on multiple countries – to match the tariffs levied by each country on U.S. imports. This potential reciprocal tariff proposal suggests that Asia ex China may be more exposed to possible tariff hikes. As of now, Asia’s tariffs on US imports are, for the most part, slightly higher than US tariffs on Asian imports. And based on [the] latest available data, six economies in Asia do impose [a] higher weighted average tariff on the U.S. than the U.S. does on individual Asia economies.
The tariff differentials are most pronounced for India, Thailand, and Korea. These three economies may face a risk of a hike in tariffs by 4 to 6 percentage points on a weighted average basis, if the U.S. imposes reciprocal tariffs. Individual products may yet face higher tariffs rates but we think [the] overall impact from steel, aluminum and reciprocal tariffs will be manageable.
But look, trade tensions may still rise further given that 7 out of 10 economies with the largest trade surplus with the U.S. are in Asia. Against this backdrop, policy makers may have to …
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Who Might Benefit From Trump’s Tax Policy Proposals?
10 februari 2025 · 7 min
Global Head of Fixed Income and Public Policy Research Michael Zezas and Head of Global Evaluation, Accounting and Tax Todd Castagno discuss the market and economic implications of proposed tax extensions and tax cuts. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income Research and Public Policy Strategy.
Todd Castagno: And I'm Todd Castagno, Head of Global Evaluation, Accounting and Tax.
Michael Zezas: Today, we'll focus on taxes under the new Trump administration.
It's Monday, February 10th, at 10am in New York.
Recently, at the annual meeting of the World Economic Forum in Davos, President Trump stated his administration will pass the largest tax cut in American history, including substantial tax cuts for workers and families. He was short on the details, but tax policies were a significant focus of his election campaign.
Todd, can you give us a better sense of the tax cuts that Trump's been vocal about so far?
Todd Castagno: Well, there's tax cuts and tax extensions. So, I think that's an important place to set the baseline. The Tax Cuts and Jobs Act (TCJA), under his first administration, starts to expire in 2025. And so, what we view is, the most likelihood is, an extension of those policies going forward. However, there's some new ideas, some new contours as well. So, for instance, a lower corporate rate that gets you in the 15 per cent ballpark can be through domestic tax credits, new incentives.
I think there's other items on the individual side of the code that could be explored as well. But we also have to kind of step back and creating new policy is very challenging. So again, that baseline is an extension of kind of the tax world we live in today.
So, Michael, looking at the broader macro picture and from conversations with our economist, how would these tax cuts impact GDP and macro in general?
Michael Zezas: Well, if you're talking about extension of curr…
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The Disruption in the AI Market
8 februari 2025 · 4 min
Our Chief Fixed Income Strategist Vishy Tirupattur thinks that efficiency gains from Chinese AI startup DeepSeek may drive incremental demand for AI. Lees meer
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Welcome to Thoughts on the Market. I’m Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. Today I’ll be talking about the macro implications of the DeepSeek development.
It's Friday February 7th at 9 am, and I’m on the road in Riyadh, Saudi Arabia.
Recently we learned that DeepSeek, a Chinese AI startup, has developed two open-source large language models – LLMs – that can perform at levels comparable to models from American counterparts at a substantially lower cost. This news set off shockwaves in the equity markets that wiped out nearly a trillion dollars in the market cap of listed US technology companies on January 27. While the market has recouped some of these losses, their magnitude raises questions for investors about AI. My equity research colleagues have addressed a range of stock-specific issues in their work. Today we step back and consider the broader implications for the economy in terms of productivity growth and investment spending on AI infrastructure.
First thing. While this is an important milestone and a significant development in the evolution of LLMs, it doesn’t come entirely as a shock. The history of computing is replete with examples of dramatic efficiency gains. The DeepSeek development is precisely that – a dramatic efficiency improvement which, in our view, drives incremental demand for AI. Rapid declines in the cost of computing during the 1990s provide a useful parallel to what we are seeing now. As Michael Gapen, our US chief economist, has noted, the investment boom during the 1990s was really driven by the pace at which firms replaced depreciated capital and a sharp and persistent decline in the price of computing capital relative to the price of output. If efficiency gains from DeepSeek reflect a similar phenomenon, we may be seeing early si…
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Chinese Airlines Breaking Through Turbulence
6 februari 2025 · 5 min
Our Hong Kong/China Transportation & Infrastructure Analyst Qianlei Fan explains why a resurgence in air travel is leading China’s emergence from deflation. Lees meer
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Welcome to Thoughts on the Market. I’m Qianlei Fan, Morgan Stanley’s Hong Kong/China Transportation Analyst. Chinese airlines are at a once-in-a-decade inflection point, and today I’ll break down the elements of this turnaround story.
It’s Thursday, Feb 6th at 10am in Hong Kong.
Last week, hundreds of millions of people across Asia gathered to celebrate the lunar new year with their families. I was one of them and took a flight back to my hometown Nanjing. Airports were jam-packed for days, with air travel expected to exceed 90 million trips.
It’s all indicative of Chinese airlines making a comeback after a seven-year run of underperformance. In fact, we believe Airlines will be one of the first industries to emerge from China's deflationary pressures this year. And this has implications for the country's broader economy.
Although COVID impacted Airlines globally, other regions have since recovered. In China, the earnings recovery is just beginning. Since 2018, Chinese Airlines have experienced demand hits from the trade tension, currency depreciation, COVID-19, and post-COVID macro headwinds.
It’s been two years since Chinese borders lifted restrictions and air travelers are returning in force. Excess capacity has now been digested. Slower deliveries of aircrafts continue to limit supply, and it is more difficult for airlines to get new aircraft and increase their available seats. Passenger load factors will continue to strengthen this year, which means the airlines are running close to full capacity. This will increase Airlines' pricing power within the next 6 to 12 months, feeding through to earnings.
If we put that in a global context, China’s airlines industry handled around 700 million passengers in 2024, 8 per cent of global air passengers; but that 700 million passengers o…
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Trump 2.0 and the Latest on Tariffs
5 februari 2025 · 3 min
Our Global Head of Fixed Income Research & Public Policy Strategy Michael Zezas discusses the potential economic outcomes of a shifting North American trade policy. Lees meer
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Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today – the latest on tariffs and potential outcomes of a shifting North American trade policy.
It’s Wednesday, February 5, at 10am in New York.
In a series of last-minute phone calls on Monday, President Trump reached a deal with Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau. President Trump agreed to delay the announced 25 percent tariffs on Mexico and Canada for a month – citing their intention to do more on their borders against migration and drug trafficking. But President Trump’s 10 percent tariffs on all Chinese products went into effect yesterday morning. China responded promptly with its own countermeasures, which are not expected to take effect until Monday, February 10, leaving room for potential negotiations.
These developments don’t come as a surprise. We had been assuming – one – that Canada and Mexico could avoid tariffs by making border concessions, which they did. And – two – that the US would craft a tariff policy related to China independent from its considerations around Mexico and Canada. If the underlying goal is to transform its trade relationship with China, then the US has an interest in preserving an alignment with Canada and Mexico.
Given all of that, our base case of “fast announcements, slow implementation” looks intact. We expect tariffs on China and some products from Europe to ramp up through the end of the year, putting downward pressure on economic growth into 2026.
If tariffs on Mexico and Canada are avoided or delayed further, there would be no change to our broader economic outlook. The U.S. dollar could weaken as it prices out some tariff risk. Within U.S. equities, cons…
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Trump 2.0 and the Future of Energy
4 februari 2025 · 12 min
Our analysts Ariana Salvatore, Stephen Byrd and Devin McDermott discuss President Trump’s four executive orders around energy policy and how they could reshape the sector. Lees meer
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Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Morgan Stanley's U.S. Public Policy Strategist.
Stephen Byrd: And I'm Stephen Byrd, Morgan Stanley's Head of Research Product for the Americas and Global Head of Sustainability Research.
Devin McDermott: And I'm Devin McDermott, Head of North American Energy Research.
Ariana Salvatore: Our topic today looms large in investors minds. We'll be digging into how the new policies proposed under President Trump's administration will fundamentally reshape energy markets.
It's Tuesday, February 4th at 10am in New York.
On his first day in office, President Trump declared a national energy emergency. He issued four key executive orders, setting out a sweeping plan to maximize oil and gas production. All of this on top of stepping back in tangible ways from the Biden administration's clean energy plans. We think these orders can have a significant impact on the future of energy, one of Morgan Stanley's four key themes for 2025.
So, Stephen, let's start there. One of the biggest questions is which segments of the power and AI theme stand to benefit the most, and which ones will be the most challenged?
Stephen Byrd: Yeah, Ariana, I'd say the two biggest beneficiaries will be natural gas and nuclear, probably in that order. And in terms of challenges, I do think, wind, especially offshore wind, will be quite challenged. So, when I think about natural gas, it's very clear that we have an administration that's very pro natural gas.
And natural gas is also going to need to be part of the power mix for data centers. It's flexible. It could be built relatively quickly. There are a lot of locational options that are perfect here. So, I do think natural gas is a winner.
On nuclear, we do think Republicans bro…
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Tariffs and Tech Challenge Stocks
3 februari 2025 · 4 min
Our CIO and Chief U.S. Equity Strategist Mike Wilson explains why U.S. stocks took a hit that is likely to sustain through the first half of 2025. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing tariffs, recent developments in AI and what it means for stocks.
It's Monday, Feb 3rd at 11:30am in New York.
So, let’s get after it.
While 2024 was a strong year for many stocks, it was mostly a second half story. With recession fears peaking last summer and a Fed that remained on hold due to still elevated inflation, markets were essentially flat year-to-date in early August.
But then everything changed. The Fed surprised markets with a 50 basis points cut to show its commitment to keeping the economy out of recession. This was followed by better labor data and two more 25 basis points cuts from the Fed. Investors took this as a green light to add more equity to portfolios—the riskier the better.
It also became clear to markets and many observers that President Trump was likely going to win the election, with a rising chance of a Republican sweep in Congress. Given the more pro-growth agenda proposed by candidate Trump and his track record during his first term as President, he made investors even more bullish. Finally, given all the concern about a hung election, the fact that we got such definitive results on election night only added fuel to the equation. Hedges were swiftly removed and even reversed to long positions as both asset managers and retail investors chased performance for fear of falling behind, or missing out.
In October, I suggested the S&P 500 would likely trade to 6100 on a clean election outcome. After promptly hitting that level in early December, stocks had a very weak month to finish the year with deteriorating breadth. The S&P 500 started the year soft before rallying sharply into inauguration day, essentially re-testing…
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Big Debates: Who Will Be the Trade Winners Under Trump?
31 januari 2025 · 10 min
Morgan Stanley Research analysts Michelle Weaver, Chris Snyder and Nik Lippmann discuss U.S.-Mexico trade and the future of reshoring and near-shoring under the Trump administration. Lees meer
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Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, U.S. Thematic and Equity Strategist at Morgan Stanley.
Christopher Snyder: I’m Chris Snyder, US Multi-Industry Analyst.
Nikolaj Lippmann: And I'm Nik Lippmann, Chief Latin America Equity Strategist.
Michelle Weaver: On this episode of our special mini-series covering Big Debates, we'll talk about the U.S.-Mexico trade relationship and the key issues around reshoring and nearshoring.
It's Friday, January 31st at 10am in New York.
The imposition of tariffs back in 2018 under the first Trump administration and the COVID pandemic put a severe strain on global supply chains and catalyzed reshoring and nearshoring in North America. But with inflation and supply chain concerns no longer front and center, investors are questioning whether the U.S. reshoring momentum can continue.
Chris, what's your view here?
Christopher Snyder: I think it's in the very early innings. You know, if you look at the history of U.S. manufacturing, the country really started ceding share in about 2000 when China joined the World Trade Organization. So, it's been going on for 25 years; we've been giving share back to the world. I think the process of taking share back is probably slower and ultimately is a multi-decade opportunity.
But you're absolutely right. The supply chain concerns are no longer like they were three to four years ago. But what I think has persevered since the pandemic is this heightened focus on operational durability and resiliency; and really shortening supply chains and getting closer to the end user, which I'm sure we'll hear more from Nick about, on the Mexico side.
But, you know, if you kind of look back at global supply chains and manufacturing, it's really been a chase to find low-c…
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Managing Fiscal Policy Uncertainty Under Trump 2.0
31 januari 2025 · 9 min
Our Global Head of Fixed Income and Public Policy Research, Michael Zezas, and Global Head of Macro Strategy, Matt Hornbach, discuss how the Trump administration’s fiscal policies could impact Treasuries markets. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Public Policy Research.
Matthew Hornbach: And I'm Matthew Hornbach, Global Head of Macro Strategy.
Michael Zezas: Today, we'll talk about U.S. fiscal policy expectations under the new Trump administration and the path for U.S. Treasury yields.
It's Thursday, January 30th at 10am in New York.
Fiscal policy is one of the four key channels that have a major impact on markets. And I want to get into the outlook for the broader path for fiscal policy under the new administration. But Matt, let's start with your initial take on this week's FOMC meeting.
Matthew Hornbach: So, investors came into the FOMC meeting this week with a view that they were going to hear a message from Chair Powell that sounded very similar to the message they heard from him in December. And I think that was largely the outcome. In other words, investors got what they expected out of this FOMC meeting. What did it say about the chance the Fed would lower interest rates again as soon as the March FOMC meeting? I think in that respect investors walked away with the message that the Fed’s baseline view for the path of monetary policy probably did not include a reduction of the policy rate at the March FOMC meeting. But that there was a lot of data to take on board between now and that meeting. And, of course, the Fed as ever remains data dependent.
All of that said, the year ahead for markets will rely on more than just Fed policy. Fiscal policy may feature just as prominently. But during the first week of Trump's presidency, we didn't get much signaling around the president's fiscal policy intentions. There are plenty of key issues to discuss a…
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A Mixed Bag for Retail and Consumer Sectors
29 januari 2025 · 11 min
Our Head of Corporate Credit Research and Head of Retail Consumer Credit discuss what choppy demand and tariff risk could mean for sectors that depend on consumer spending. Lees meer
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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.
Jenna Gianelli: I’m Jenna Gianelli, Head of Retail Consumer Credit, here at Morgan Stanley.
Andrew Sheets: And today on this episode, we're going to discuss the outlook for the retail and consumer sectors.
It’s Wednesday, Jan 29th at 9 am in New York.
So, Jenna, it's great to talk with you, and it's really great to talk about the retail and consumer sectors heading into 2025, because it's such an important part of the investor debate. On the one hand, a lot of economic data in the U.S. seems strong, including a very low unemployment rate. And yet, we’re also hearing a lot about cost-of-living pressures on consumers, lower consumer confidence, and investor concern that the consumer is just not going to be able to hold up in this higher rate environment. And then you can layer on uncertainty from the new administration. Will we see tariffs? How large will they be? And how will retailers, which often import a lot of their goods, handle those changes?
So, maybe just kind of starting off at a 40, 000-foot view, how are you thinking about consumer dynamics going into 2025?
Jenna Gianelli: Of course. So, I think that that choppy consumer demand environment is actually one of the strongest pillars of our more cautious view, going into next year. How the sector, performed last year was not in tandem with kind of what the macro headlines suggested. The macro headlines were quite positive, and the consumer was, you know, seemingly strong. But there was a lot going on under the hood when you looked at different dichotomies, right? So, if you looked at the high-end versus the low-end, if you looked at goods versus services. And then within, you know, certain…
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Will Trump’s Tariffs Reshape Asian Economies?
28 januari 2025 · 7 min
Our Global Head of Fixed Income and Public Policy Research Michael Zezas and Chief Asia Economist Chetan Ahya discuss the potential impact of U.S. tariffs in China and beyond. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Public Policy Research.
Chetan Ahya: And I'm Chetan Ahya, Morgan Stanley's Chief Asia Economist.
Michael Zezas: Today, we'll talk about what U.S. tariffs would mean for Asia's economy.
It's Tuesday, January 28th at 8am in New York.
Chetan Ahya: And 9pm in Hong Kong.
Michael Zezas: Chetan, a week into the new Trump administration, I'm eager to talk tariffs with you. You and I came on the show before the U.S. election to discuss the potential impact of new tariff policies on China's economy in particular. And now that President Trump has taken office, he's been vocal about levying tariffs in a lot of places, including on China. The policy underpinning all of that appears to be a tariff review under the America First Trade Policy. That suggests to us that he's developing options to impose tariffs with China as a focus, but there's still time before implementation -- as these legal options are developed. That's in line with our base case; but investors have been talking a lot about the idea that maybe these tariffs never go on.
What's your view here? And why do you think ultimately we are headed to a place where tariffs go higher?
Chetan Ahya: Well, I think if you just look at the press comments that the president has made at the same time, if you read through this America First document, we sort of think that there are five avenues under which tariffs can go up on China.
Number one is the recommendation from the America First policy document that the agencies in the U.S. will have to study how the large trade partners, which are running trade surpluses with the U.S. are managing their trade practices. Number two, a para in the America First docume…
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Europe’s Defense Dilemma
27 januari 2025 · 7 min
Morgan Stanley Research looks at how the European defense industry might respond to military spending pressure from the Trump administration. Lees meer
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Paul Walsh: Welcome to Thoughts on the Market. I'm Paul Walsh, Morgan Stanley's Head of Europe Product.
Ross Law: And I'm Ross Law, Head of the European Aerospace and Defense Team.
Paul Walsh: Today, we're discussing the outlook for European defense amid renewed pressure for more military spending from the Trump administration.
It's Monday, the 27th of January, at 9.30am in London.
Now Ross, the new Trump administration is now in place, and shifting NATO's defense burden to Europe is a top priority for President Trump. In fact, President Trump has made several comments throughout his campaign and after taking office. He has suggested that Europe should increase defense spending to 5 per cent of GDP. And just for reference, right now, many European countries are at or above NATO's target of spending 2 per cent of GDP on defense.
What's your reaction? Are President Trump's demands of 5 percent realistic?
Ross Law: In short, we don't think so. In a perfect world, yes, 5 per cent is exactly where Europe should be, to make up for the huge underspend that we've seen over the past three decades since the end of the Cold War, which we've calculated at around the $2 trillion mark. There's also a desire in Europe to reduce its reliance on the US, particularly under a Trump presidency. But we see the 5 per cent spending level as unrealistic on multiple fronts.
Firstly, from an economic perspective, given the lack of fiscal headroom in Europe; and for reference, 5 per cent would require an additional $600 billion of spend annually. Secondly, from a political perspective, given multiple pockets of uncertainty, and the fact that a rise in defense spending may mean a cut to spending elsewhere. And lastly, from an industry perspective, given the multi-decade underspend I mentioned, we don't think the industry …
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Have Markets Hit Peak Optimism?
24 januari 2025 · 4 min
Our Head of Corporate Credit Research Andrew Sheets argues that while investor hopes are running high, corporate confidence isn’t. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about optimism, how we measure it, whether it’s overly excessive and what lies ahead.
It's Friday January 24th at 2pm in London.
A central tenet of investing, including credit investing, is to be on the lookout for excessive optimism. By definition, the highest prices in a market cycle will happen when people are the most convinced that only great things lie ahead. The lowest prices, when you’d love to buy, happen when investors have given up all hope.
But identifying peak optimism, in real time, is tricky. It’s tricky because there is no generally agreed definition; and it's tricky because, sometimes, things just are good. Investors have been excited about the US Technology sector for more than a decade now. And yet this sector has managed to deliver extraordinary profit growth over this time – and extraordinarily good returns.
Yet this debate does feel relevant. The US equity market has soared over 50 per cent in the last two years. Equity valuations are historically high, both outright and relative to bonds. Credit risk premiums are near 20-year lows. Speculative investor activity is increasing. And so, have we finally hit peak optimism, a level from which we can go no further?
Our answer, for better or worse, is no. While we think investor optimism is elevated, corporate optimism is not. And corporations are really important in this debate, enjoying enormous financial resources that can invest in the economy or other companies. While we do think corporate confidence will pick up, it is going to take some time.
One of our favorite measures of corporate confidence is merger and acquisition activity. Buying another company is one of the riskiest things management can do, makin…
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Big Debates: How Will M&A and IPOs Drive Markets in 2025?
23 januari 2025 · 11 min
Morgan Stanley Research analysts Michelle Weaver, Michael Cyprys and Ryan Kenny discuss the resurgence in capital markets activity and how sponsors might deploy the $4 trillion that has been sitting on the sidelines. Lees meer
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Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, U.S. Thematic and Equity strategist at Morgan Stanley.
Michael Cyprys: I'm Mike Cyprys, Head of U.S. Brokers, Asset Managers and Exchanges Research.
Ryan Kenny: And I'm Ryan Kenney, U.S. Mid-Cap Advisors Analyst at Morgan Stanley.
Michelle Weaver: In this episode of our special miniseries covering Big Debates, we'll focus on the improving M&A and IPO landscape and whether retail investing can sustain in 2025.
It's Thursday, January 23rd at 10am in New York.
2023 saw the lowest level of global M&A activity in at least 30 years. But we've started to see activity pick up in 2024. Mike, what have been the key drivers behind this resurgence, and where are we now?
Michael Cyprys: Look, I think it's been a combination of factors in the context of a lot of pent-up activity and a growing urge to transact after a very subdued period of, you know, call it four- to six quarters of quite limited activity. Key drivers as we see it ranging from equity markets that have expanded across much of the world, low levels of equity volatility. broad financing, availability with meaningful issuance as you look across investment grade and high yield bond markets, tight credit spreads, interest rates stabilizing in [20]24, and then the Fed began to cut.
So, liquidity pretty robust, all of that helping reduce bid-ask spreads. In terms of where we are now, post election, think there's just a lot of excitement here around a new administration; where we could see some changes around the antitrust environment that can be helpful, as we think about unlocking greater M&A activity across sponsors as well as strategics, and helping improve corporate confidence.
But look, the recent …
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Potential Economic Consequences of Trump’s Executive Orders
22 januari 2025 · 3 min
On his first day in office, President Trump issued a series of executive orders, signaling his intent to deliver on campaign promises. Our Global Head of Fixed Income and Public Strategy Michael Zezas takes a closer look at economic impacts of Trump’s proposed policy path. Lees meer
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Welcome to Thoughts on the Market. I’m Michael Zezas, Global Head of Fixed Income and Public Policy Strategy. On this episode of the podcast, we’ll discuss how trade policy uncertainty is creating volatility in markets.
It’s Wednesday, January 22nd, at 10am in New York.
Earlier this week, Donald Trump was again inaugurated as President of the United States. In the days that have followed, we’ve fielded tons of questions from investors, who are trying to parse the meaning of myriad executive orders and answers to press questions – looking through that noise for signals about the if, when, and how of policy changes around tariffs, taxes, and more. This effort is understandable because – as we’ve discussed here many times – the US public policy path will have substantial effects on the outlook for the global economy and markets.
And while we’ve spent some time here explaining our assumptions for the US policy path, it's important for investors to understand this. Even if you correctly forecast the timing and severity of changes to trade, tax, immigration, and other policies, you shouldn’t expect markets to consistently track this path along the way. That’s because there’s bound to be a fair amount of confusion among investors, as President Trump and his political allies publicly speculate on their policy tactics and make a wide variety of outcomes seem plausible.
Take tariff policy for example. On Monday, the President announced an America First Trade Policy, where the whole of government was instructed to come up with policy solutions to reduce goods trade deficits and related economic and national security concerns. Tariffs were cited as a tool to be used in furtheranc…
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Asia Outlook 2025: Three Critical Themes
21 januari 2025 · 4 min
Our Chief Asia Economist Chetan Ahya discusses how tariffs, the power of the U.S. dollar, and the strength of domestic demand will determine Asia’s economic growth in 2025. Lees meer
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Welcome to Thoughts on the Market. I’m Chetan Ahya, Morgan Stanley’s Chief Asia Economist. Today on the podcast: three critical themes that will shape Asia’s economy in 2025.
It’s Tuesday, January 21, at 2 PM in Hong Kong.
Let's start with the big picture: We foresee Asia's growth decelerating from 4.5 per cent last year to 4.1 per cent in 2025. The whole region faces a number of challenges and opportunities that could sway these numbers significantly. We highlight [the] following three key factors.
First up, tariffs. They are our single biggest concern this year. The pace, scale and affected geographies will determine the magnitude of the growth drag. In our base case, within Asia, we expect tariffs to be imposed on China in a phased manner from the first half of 2025. As Mike Zezas, our Head of US Public Policy states, this will be about fast announcements and slow implementation.
Given tariffs and trade tensions are not new, we think this means corporate confidence may not be as badly affected as it was in 2018-19. But the key risk is if trade tensions escalate. For instance, into more aggressive bilateral disputes outside of US-China or if [the] US imposes universal tariffs on all imports. Asia will be most affected, considering that seven out of [the] top ten economies that run large trade surpluses with the US are in Asia. If either of these risk scenarios materialize, it could bring a repeat of [the] 2018-19 growth shock.
Next, let's consider the Fed and the US dollar. Asian central banks find themselves in a bind with the US Federal Reserve's hawkish shift – which we think will result in only two rate cuts in 2025. The Fed is taking a cautious approach, driven by worries over inflation concerns, which could be exacerbated by changes in trade and fiscal polic…
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The Surge in Bond Yields Likely Doesn’t Present Risk – Yet
17 januari 2025 · 4 min
Government bond yields in the U.S. and Europe have risen sharply. Our Head of Corporate Credit Research Andrew Sheets explains why this surprising trend is not yet cause for concern. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley.
With bond yields rising substantially over the last month, I’m going to discuss why we’ve been somewhat more relaxed about this development and what could change our mind.
It's Friday January 17th at 2pm in London.
We thought credit would have a good first half of this year as growth held up, inflation came down, and the Federal Reserve, the European Central Bank and the Bank of England all cut rates. That mix looked appealing, even if corporate activity increased and the range of longer-term economic outcomes widened with a new U.S. administration. We forecast spreads across regions to stay near cycle tights through the first half of this year, before a modest softening in the second half.
Since publishing that outlook in November of last year, some of it still feels very much intact. Growth – especially in the U.S. – has been good. Core inflation in the U.S. and in Europe has continued to moderate. And the Federal Reserve and the European Central Bank did lower interest rates back in December.
But the move in government bond yields in the U.S. and Europe has been a surprise. They've risen sharply, meaning higher borrowing cost for governments, mortgages and companies. How much does our story change if yields are going to be higher for longer, and if the Fed is going to reduce interest rates less?
One way to address this debate, which we’re mindful is currently dominating financial market headlines, is what world do these new bond yields describe? Focusing on the U.S., we see the following pattern.
There’s been strong U.S. data, with Morgan Stanley tracking the U.S. economy to have grown to about 2.5 per cent in the fourth quarter of last year. Rat…
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Should Drop in Fed Reserves Concern Investors?
16 januari 2025 · 6 min
The Federal Reserve’s shrinking balance sheet could have far-reaching implications for the banking sector, money markets and monetary policy. Global Head of Macro Strategy Matthew Hornbach and Martin Tobias from the U.S. Interest Rate Strategy Team discuss. Lees meer
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Matthew Hornbach: Welcome to Thoughts on the Market. I'm Matthew Hornbach, Global Head of Macro Strategy.
Martin Tobias: And I'm Martin Tobias from the U.S. Interest Rate Strategy Team.
Matthew Hornbach: Today, we're going to talk about the widespread concerns around the dip in reserve levels at the Fed and what it means for banking, money markets, and beyond.
It's Thursday, January 16th at 10am in New York.
The Fed has been shrinking its balance sheet since June 2022, when it embarked on quantitative tightening in order to combat inflation. Reserves held at the Fed recently dipped below [$]3 trillion at year end, their lowest level since 2020. This has raised a lot of questions among investors, and we want to address some of them.
Marty, you've been following these developments closely, so let's start with the basics. What are Fed reserves and why are they important?
Martin Tobias: Reserves are one of the key line items on the liability side of the Fed balance sheet. Like any balance sheet, even your household budget, you have liabilities, which are debts and financial obligations, and you have assets. For the Fed, its assets primarily consist of U.S. Treasury notes and bonds, and then you have liabilities like U.S. currency in circulation and bank reserves held at the Fed.
These reserves consist of electronic deposits that commercial banks, savings and loan institutions, and credit unions hold at Federal Reserve banks. And these depository institutions earn interest from the Fed on these reserve balances.
There are other Fed balance sheet liabilities like the Treasury General Account and the Overnight Reversed Repo Facility. But, to save us from some complexity, I won't go into…