Thoughts on the Market

In the continuing transition to a multipolar world, geopolitical uncertainty is on the rise and new government policies could rewire global commerce.----- Transcript -----Welcome the Thoughts on the Market. I'm Michael Zezas, Global head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the impact of recent geopolitical tensions. It's Wednesday at 8 a.m. in New York. As tragedy continues to unfold in the Middle East, we continue, along with our clients, to care greatly about these events. And there's been no shortage of prognostication in the media about if the conflict escalates, how other countries might get involved, and what the effects would be on the global economy and markets. Not surprisingly, this has been the most common topic of discussion for me with clients this week. And as a strategist, who's practice relies on unraveling geopolitical complexities, what I can say with confidence is this: there's no obvious path from here, and so we need to be humble and flexible in our thinking. While that might not be the clear guidance you're hoping for, let me suggest that accepting this uncertainty can itself be clarifying. As we've discussed many times in our work on the transition to a multipolar world, geopolitical uncertainty has been on the rise for some time. Governments are implementing policies that support economic and political security and in the process, rewiring global commerce to avoid empowering geopolitical rivals. The situation is obviously complicated, but here's a couple conclusions we feel confident in today. First, security spending is rising as an investment theme. We believe that U.S. and EU companies will spend up to one and a half trillion dollars to de-risk supply chains. Critical infrastructure stocks could be at the center of this. Additionally, oil prices may rise, but investors should resist the assumption that this alone would lead rates higher. An oil supply shock from security disruptions in the region could be possible after several more steps of escalation. But as our economists have noted, higher oil prices, while they clearly mean higher gasoline prices, the effects may be more muted and temporary across goods and services broadly. In prior oil supply shocks, a 10% jump in price on average added 0.35% to headline U.S. CPI for three months, but just 0.03% to core CPI. Further, higher gasoline prices can meaningfully crimp lower income consumers behavior, weakening demand in the economy and mitigating overall inflationary pressures. Then one shouldn't assume higher oil prices translate to a more hawkish central bank posture. So the situation overall is obviously evolving and complex. We'll keep tracking it and keep you informed. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague or leave us a review on Apple Podcasts. It helps more people find the show.

The asset management and wealth management sectors could see AI boost efficiency in the short term and drive alpha in the medium to long term.----- Transcript -----Mike Cyprys: Welcome to Thoughts on the Market. I'm Mike Cyprys, Morgan Stanley's Head of U.S. Brokers, Asset Managers and Exchanges Team. Bruce Hamilton: And I'm Bruce Hamilton, Head of European Asset Management and Diversified Financials Research. Mike Cyprys: And on this special episode of the podcast, we'll talk about what the Generative A.I Revolution might mean for asset and wealth managers. It's Tuesday, October 17th at 10 a.m. in New York. Bruce Hamilton: And 3 p.m. in London. Mike Cyprys: My colleagues and I believe that Generative A.I is a revolution rather than simply an evolution and one that is well underway. We think Gen A.I, which differs from traditional A.I in that it uses data to create new content, will fundamentally transform how we live and work. This is certainly the case for asset and wealth management, where leading firms have already started deploying it and extracting tangible benefits from Gen A.I across an array of use cases. Bruce, what has been the initial focus among firms that have successfully deployed Gen A.I so far? And, something that has been top of mind for most of us, is Gen A.I replacing human resources? Bruce Hamilton: So Mike, clearly it's early days, but from our conversations with more than 20 firms managing over $20 trillion in assets, it seems clear that the immediate opportunities are mainly around efficiency gains rather than top-line improvements. However over time, as these evolve, we expect that this can drive opportunity for top-line also. All firms we spoke with see the importance of humans in the loop given risks, so A.I as copilot and freeing up resource for more value added activities rather than replacing humans. Mike Cyprys: What are some of the top most priorities for firms already implementing Gen A.I? And in broad terms, how are they thinking about integrating Gen A.I within their business models? Bruce Hamilton: So opportunities are seen across the value chain in sales and client service, product development, investment in research and middle and back office. Initial efficiency use cases would include drafting customized pitch or RFP reports and sales, synthesis of research and extraction of data in research, and coding in I.T.. Now Mike, specifically within the asset management space, there are two primary ways Gen A.I is disrupting. One is through efficiencies and two revenue opportunities. Can you speak to the latter? How would Gen A.I change or improve asset management? And do you believe it will truly transform the industry? Mike Cyprys: Absolutely. I think it can transform the industry because what's going to change how we live, how we work, and that will have implications across business models and the competitive landscape. I believe we're now at a A.I tipping point, just in terms of its ability to be deployed on a widespread basis across asset managers. The initial focus is overwhelmingly on driving efficiency gains and at the moment there's skepticism if Gen A.I can drive product alpha, but it should help with some of the maintenance tax around collecting and summarizing information and cleaning data. This should help release PM's of time to focus more on higher value idea generation and testing their ideas, which should help performance generation. I don't think it hurts. All in, we think this could result in up to 30% productivity gains across the investment functions. Bruce Hamilton: We've talked about how Gen A.I affects asset management. Do you think it can transform how financial advisers do their job and what kind of productivity gains are you expecting to see? Mike Cyprys: Financial advisors stand to benefit the most from Gen A.I because it should help liberate advisors time spent on routine or administrative tasks and allow them to focus more of their time on building deeper connections with clients and allowing them to service more clients with the same resources. And so that's how you get the revenue opportunity, by serving more clients and more assets. It's more of a copilot or tool that enhances human capabilities as opposed to replacing the human advisor. So on the wealth side, we do see more of a revenue opportunity for Gen A.I than we do on the asset management side in the near-to-medium-term. Use cases include collecting client information and interactive ways and summarizing those insights as well as proposing the next best actions and drafting engagement plans and talking points. All in, Gen A.I should help drive productivity improvements between 30 to 40% in the wealth sleeve. Bruce Hamilton: So Mike, what's your outlook for the next 3 to 5 years when it comes to the impact of Gen A.I on asset management? Mike Cyprys: It's really an expense efficiency play in the near to medium term for asset mana

The recent rise in long term yields and economic tightening raises the question of how restrictive U.S. financial conditions have become.----- Transcript -----Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Chief Global Economist, and along with my colleagues bringing you a variety of perspectives. Today, I'll be talking about the tightening of financial conditions. It's Monday, October 16th at 10 a.m. in New York. The net selloff in U.S. interest rates since May prompts the question of how restrictive financial conditions have become in the United States. Federal Reserve leaders highlighted the tightening in conditions in recent speeches, with emphasis on the recent rise in long term yields. One lens on this issue is the Financial Conditions index, and the Morgan Stanley version suggests that the recent rate move is the equivalent of just under two Fed hikes since the September FOMC meeting. Taken at face value, it sustained these tight conditions will restrain economic activity over time. Put differently, the market is doing additional tightening for the Fed. Before the rally in rates this week, the Morgan Stanley Financial Conditions Index reached the highest level since November 2022, and the move was the equivalent of more than 2 25 basis point hikes since the September FOMC meeting. Of course, the mapping to Fed funds equivalence is just one approximation among many. When Fed staff tried to map QE effects into Fed funds equivalence, they would have assessed the 50 basis point move in term premiums we have seen as a 200 basis point move in hiking the Fed funds rate. What does the FCI mean for inflation and growth? Well, Morgan Stanley forecasts have been fairly accurate on the inflation trend throughout 2023, although we have underestimated growth. We think that core PCE inflation gets below 3% by the first quarter of next year. For growth, the key question is whether the sell off is exogenous, that is if it's unrelated to the fundamentals of the economy and whether it persists. A persistent exogenous rise in rates should slow the economy, and over time the Fed would need to adjust the path of policy lower in order to offset that drag. The more drag that comes from markets, the less drag the Fed would do with policy. But if instead the sell off is endogenous, that is, the higher rates reflect just a fundamentally stronger economy, either because of more fiscal policy or higher productivity growth or both, the growth need not slow at all and rates can stay high forever. Well, what does the FCI mean then, for the Fed? Bond yields have contributed about 2/3's of the rise in the Financial conditions index, and the Fed seems to have taken note. In a panel moderated by our own Ellen Zentner last Monday, Vice Chair Jefferson was a key voice suggesting that the rate move could forestall another hike. The Fed, however, must confront the same two questions. Is the tightening endogenous or exogenous, and will it persist? If rates continued their rally over the next several weeks and offset the tightening, then there's no material effect. But the second question of exogeneity is also critical. If the selloff was exogenous, then the tightening should hurt growth and the Fed will have to adjust policy in response. If instead the higher rates are an endogenous reaction, then there may be more underlying strength in the economy than our models imply and the shift higher in rates could be permanent. Thanks for listening. If you enjoy the show, please leave a review on Apple Podcasts or share Thoughts on the Market with a friend or colleague today. 

On the heels of a midsummer spike, long-end treasury yields have picked up further momentum, which has created complex implications for the Fed, the corporate credit market, and emerging market bonds.----- Transcript -----Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about our views on the back of moves higher in Treasury yields. It's Friday, October 13th at 3 pm. in New York. The midsummer move higher in long-end treasury yields picked up further momentum in September, spiking to levels last seen over 15 years ago. Market narratives explaining these moves have revolved largely around upside surprises to growth and concerns about large federal fiscal deficits. The September employment report was unequivocally strong, perhaps too strong for policymakers to relax their tightening bias. While inflation has been decelerating faster than the Fed forecasts, continued strength in job gains could fuel doubts about the sustainability of the pace of deceleration. On the other hand, the rise in long-end yields have led financial conditions tighter. By our economists’ measure, since the September FOMC meeting, financial conditions have tightened to the equivalent of about two 25 basis point hikes, bringing the degree of tightness more in line with the Fed's intent. Thus, our economists see no need for further hikes in the Fed's policy rates this year. In effect, the move higher in Treasury yields is doing the job of additional hikes. It's worth highlighting that there has been a subtle shift in the tone of Fed speak in the past two weeks, indicating that the appetite for additional hike this year is waning. Given the moves in Treasury yields, we felt the need to reassess our Treasury yield forecasts and move them higher relative to our previous forecasts. Our interest rate strategists now expect ten-year Treasury yields to end year 2023 at 4.3% and mid-2024 at 3.9%. The effects of higher treasury yields are different in the corporate credit market. Unlike the Treasury market, the concentration of yield buyers in investment grade corporate credit bonds is much higher, especially at the back end of the curve. These yield buyers offer an important counterbalance. In fact, for longer duration buyers, there are not that many competing alternatives to IG corporate credit. While spreads look low relative to Treasury yields, growth optimism is likely to keep demand skewed towards credit over government bonds. Insurance companies and pension funds may have room to add corporate credit exposure, although stability in yields is certainly important. Higher treasury yields have implications to other markets as well, notably on emerging market bonds. Considering the move in U.S. Treasury yields, we think EM credit bonds cannot absorb any further move higher. In a higher for longer scenario, we expect EM high yield bonds to struggle. Therefore, we no longer think that EM high-yield credit will outperform EM investment grade credit. Thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

Although inflation is largely under control in Asian economies, central banks could be pushed to respond if high U.S. yields meet rising oil prices.----- Transcript -----Welcome to Thoughts on the Market. Chetan Ahya, Morgan Stanley's Chief Economist. Along with my colleagues bringing you a variety of perspectives, today, I'll discuss how higher U.S. rates environment could affect Asia. It's Thursday, October 12th, at 9 a.m. in Hong Kong. Real rates in the U.S. have risen rapidly since mid-May and remain at elevated levels. Against this backdrop, investors are asking if Asian central banks will have to restart their rate hiking cycles. We think Asia should be less affected this time around, mainly because of the difference in inflation dynamics. As we've highlighted before on this show when compared to the U.S., Asia's inflation challenge is not as intense. In fact, for 80% of the economies in the region inflation is already back in the respective central bank's comfort zone. Real policy rates are already high and so against this backdrop, we believe central banks will not have to hike. However, we do think that the central banks will delay cutting rates. Previously, we had expected that the first rate cut in the region could come in the fourth quarter of 2023, but now we believe that cuts will be delayed and only start in first quarter of 2024. So what can trigger renewed rate hikes across Asia? We think that central banks will respond if high U.S. yields are accompanied by Brent crude oil prices rising in a sustained manner, above $110 per barrels versus $85 today. Under this scenario, the region's macro stability indicators of inflation and current account balances could become stretched and currencies may face further weakness. In thinking about which central banks might face more pressures to hike, we consider three key factors, economies with lower yields at the starting point, economies running a current account deficit or just about a mile surplus and the oil trade deficit. This suggests that economies like India, Korea, Philippines and Thailand, may be more exposed and so this means that the central banks in these countries may be prompted to begin raising rates. In contrast, the economies of China and Taiwan are less exposed, and so their central banks would be able to stay put.  Thanks for listening, and if you enjoy  the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today. 

With Congress still without a Speaker of the House, investors should keep an eye on the impact that another potential government shutdown would have on the markets.----- Transcript -----Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the impact of Congress on financial markets. It's Wednesday, October 11th, at 10 a.m. in New York. As of this recording, the U.S. House of Representatives still does not have a speaker following Representative McCarthy's ouster a little over a week ago. Republicans are scheduled to meet today to attempt to nominate the speaker, but until one is chosen, it's unclear that Congress can do any other business. But does that actually matter for investors? Here's two signals from these events that we think are important. First, it signals that Congress is unlikely to deliver any substantial legislation between now and the 2024 election outside of funding bills. Republicans' difficulty choosing a speaker reflects their lack of consensus on many policy issues, including regulation, social spending and more. That further impedes the government's ability to legislate, which was already hampered by different parties controlling the White House and Congress. So for investors who have credited the rise in bond yields and stock prices to expanded fiscal support from the federal government in recent years, you shouldn't expect there to be more on the horizon. The exception to this could be an economic crisis that prompts a fiscal response. But for investors, that means you'd likely see bonds rally and stocks sell off before fiscal support would again become a stock market positive. The second signal, which also cuts against the narrative of government policy support for markets, is that a government shutdown is still a distinct possibility. Congress recently avoided the government shutdown at the beginning of the month by passing a temporary extension of funding into November. But that move only delayed the resolution of key policy disagreements within the House Republican caucus that nearly led to the shutdown in the first place. With the clock ticking toward another shutdown deadline, Republicans are spending precious time selecting a new speaker, and it's not clear they're any closer to resolving their disagreements on key issues such as funding aid to Ukraine. Without that resolution, the risk remains that the House could fail to consider funding bills in time to avoid another shutdown. Now, to put it in context, our economists expect that downward growth pressures from a shutdown event should be modest, and so there are more meaningful factors to consider for markets out there, but certainly this condition doesn't help investors' confidence in the U.S. growth trajectory. And generally speaking, a Congress stunted in its ability to legislate has the potential to become a bigger challenge, particularly if geopolitical events create greater global growth risks. So bottom line, this situation is worth keeping tabs on, but isn't yet something we think should principally drive investors decision making. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague or leave us a review on Apple Podcasts. It helps more people find the show.

As companies integrate generative AI into enterprise software, a wide variety of jobs that depend on requesting or distributing data could be automated.----- Transcript -----Welcome to Thoughts on the Market. I'm Keith Weiss, Head of Morgan Stanley's U.S. Software Team. Along with my colleagues bringing you a variety of perspectives, today I'll discuss the significant potential impact from generative A.I on enterprises. It's Tuesday, October 10th, at 10 a.m. in New York. You may remember the generative A.I powered chat app that reached 1 million users in only five days after its launch late last year. While much of the early discussion on the use of generative A.I focused on the consumer opportunity, we see perhaps an even bigger opportunity in enterprise software. The advantages from traditional A.I to generative A.I are rapidly broadening the scope of the types of work and business processes that enterprise software can automate, and this could ultimately have an impact on industries across the entire economy. Of course, one of the biggest questions everyone seems to have is how will generative A.I impact jobs? We forecast 25% of labor could be impacted by generative A.I capabilities available today, likely rising to 44% of labor in three years. Further, by looking at the wages associated with those jobs, our analysis suggests generative and A.I technologies can impact the $2.1 trillion of labor costs attached to those jobs today, expanding to $4.1 trillion in three years in the U.S. alone. This drives an approximately $150 billion revenue opportunity for software companies in our view. An important caveat here, we believe it's too early to make any definitive claims on the number of jobs that will be replaced by generative A.I. So we used the term impact to denote the potential for either an augmentation or further automation of these jobs on a go forward basis. So what are the jobs we think are most likely to be impacted? Based on the current capabilities of generative A.I technologies like large language models, we believe the common characteristics are skills amongst the jobs most impacted are the need to retrieve or distribute information. For example, billing clerks, proofreaders, switchboard operators, general office workers and brokerage clerks. On the other side of the equation, jobs that are least impacted today are those that require some aspect of physical labor, including ophthalmologists, extraction workers, choreographers, firefighters and manufactured building and mobile home installers. Over the next three years, as this more generalized A.I. technology focuses in on more specific use cases, we believe the impact of generative A.I will shift into more specialized jobs, such as general and operations managers, as well as registered nurses, software developers, accountants and auditors, and customer service reps. Of these, the General and Operations Manager jobs could experience the highest potential cumulative wage impact. In fact, our analysis suggests a $83 billion impact amongst general and operations managers today. The magnitude of the enterprise impact marks only one side of the equation, as the timing of the realizable opportunity becomes increasingly important for investors to navigate this evolving technology cycle. To be clear, the rapid adoption of these consumer technologies are not going to be indicative of the pace of adoption we're likely to see amongst the enterprise. There are several notable frictions to enterprise adoption related to items such as finding a good return on investment, enabling good data protection, the skill sets necessary to run and operate these new technologies and legal and regulatory considerations, all which necessitate significantly longer adoption cycles for the enterprise. For this reason, we think generative A.I remains in the early stages of the opportunity. Thank you for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

While U.S. consumer sentiment is on the decline, there are some categories that have remained stable as purse strings tighten.----- Transcript -----Welcome to Thoughts on the Market. I'm Michelle Weaver from the Morgan Stanley U.S. Equity Strategy Team. Along with my colleagues bringing you a variety of perspectives, today I'll give you an update on the U.S. consumer. It's Monday, October 9th at 10 a.m. in New York. As we get into the fall season and close out the third quarter of this year, investors are paying attention to the state of the U.S. consumer. Our recent survey work reveals that inflation continues to be a primary concern for consumers and that the U.S. political environment is the second most significant concern. Furthermore, consumers continue to worry about their payment obligations, and 30% of people we surveyed expressed concern over their potential inability to repay debts. Low income consumers are generally more worried about their inability to pay rent, while upper income consumers are concerned about their investments, U.S. politics and geopolitics. Overall, consumer confidence in the U.S. economy and household finances worsened modestly in September. More than half of U.S. consumers are expecting the economy to get worse in the next six months, while less than a quarter of consumers are expecting the economy to get better. This worsening sentiment is also consistent across different income cohorts. Additionally, savings rates continue to trend lower versus earlier this year. Consumers report having an average savings reserve of 4.2 months, the average over the past few months has been trending lower compared to earlier in the year. Of course, savings reserves vary significantly by income though, with upper income consumers having on average around 6 to 7 months worth of expenses in savings compared to about 3 months for low income cohorts. Positively fewer consumers reported missing or being late on a loan or bill payment, with 34% missing a payment last month versus 38% in August. Low income consumers are more likely to have missed or been late on payments versus middle and high income consumers. Consumer spending intentions across income cohorts for the next month are similar to last month, with 31% of consumers expecting to spend more next month and 19% expecting to spend less. Consumers continue to prioritize essential categories like groceries and household items, but plan to spend less on more discretionary products like electronics, leisure and entertainment, small appliances and food away from home. Interesting to note, cell phone bills continue to be a clear priority for consumers. Travel intentions have also remained relatively stable. Over half of consumers are planning to travel over the next six months, mostly to visit friends and family, which is slightly up from last year. Not surprisingly, travel spending is higher for high income consumers than for low and middle income ones. However, we have seen plans for international travel start to decline. Thank you for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

As bond yields continue to rise, credit has been more of a passenger than the driver of recent market volatility.-----Transcript -----Andrew Sheets: Welcome to Thoughts in the Market. I'm Andrew Sheets, Morgan Stanley's Head of Corporate Credit Research. Serena Tang: And I'm Serena Tang, Morgan Stanley's Chief Global Cross-Asset Strategist. Andrew Sheets: And on the special episode of the podcast, we'll discuss Morgan Stanley's updated cross-asset and corporate credit views. It's Friday, October 6th at 3 p.m. in London. Serena Tang: And 10 a.m. in New York. Andrew Sheets: Before we get into our discussion, let me introduce Serena Tang as Morgan Stanley's new Global Cross-Asset Strategist. Serena has been working with me for the last 15 years and together we initiated our cross-asset effort nearly a decade ago. Serena was responsible for building the team's investment framework, specializing in multi asset allocation, portfolio optimization, and long run capital market assumptions. So I can confidently say that Morgan Stanley's cross-asset effort is in very capable hands. As for me, I'm now Morgan Stanley's Head of Corporate Credit Research, but I'll continue to host my colleagues as we look forward to bringing you key debates from across asset classes and regions. So, Serena, welcome and let's jump right into what's going on in markets. Over the last several weeks, as everybody in the U.S. has returned from summer, the debate among Morgan Stanley's economists and strategists is centered on two main issues, the outperformance of the U.S. economy and the underperformance of China's economy, as well as the spike of government bond yields, especially at the longer end of the curve. So where has this left our views across asset classes? Serena Tang: Yeah, yields and real yields have indeed moved a lot higher in a very short amount of time, you know, on that narrative that rates will stay higher for longer. And I would say that, you know, while the market has been going against our current call for government bond yields to fall over the next 6 to 9 months or so, we’re steadfast on our preference for high quality fixed income over risk assets like global equities, like high yield corporate bonds. And the reason really comes down to how higher real yields mean the discount rate for equities is also higher, leading to lower stock prices. And we've kind of seen this over the past few weeks or so. I think this is especially true in today's environment where the rise in yields and the rise in real yields isn't really driven by a rise in growth expectations, which you know traditionally have been great for equities thinking about future growth. But rather today's move in yields is really much a function of what the markets think the Fed would do over the coming few months. And all this largely explains the nearly 9% selloff we've seen in global equities since the start of August. But Andrew, you know, such dynamics must also be very similar in the credit world. In your view, how do rising government bond yields affect your outlook for global credit? Andrew Sheets: So I think credit finds itself in a pretty interesting place as bond yields have risen. You know, I would safely say that I think credit as a passenger in recent market volatility, it's not the driver. And, you know, if I think very simply about why bond yields have been selling off and there are a lot of different theories of why that's been happening, maybe a simple explanation would be that bond yields offer pretty poor so-called carry, a government bond, a ten year government bond yields less than just holding cash. They offer poor momentum, they're moving in the wrong direction and they have difficult technicals, i.e., there's a lot of supply of government bonds forecast over the coming years. And across a lot of those metrics, I do think credit looks somewhat better. Credit yields are higher, that carry is better. Credit compensates you more for taking on a longer maturity corporate bond, which is the opposite of what you see in the government bond market. And as yields have risen, companies have looked at those higher yields and done, I think, a very understandable thing, they are borrowing less money because it's more expensive to borrow that money. So we've seen less supply of corporate bonds into the market, which means there's less supply that needs to be absorbed and bought by investors. So credit can't ignore what's going on in this environment and we're broadly forecasting this to be worse for weaker companies, as the effect of potentially slower growth and higher rates we think will weigh more heavily on the more levered type of capital structure. But overall, I think within this kind of challenging environment, I think credit has been an outperformer and I think it can remain an outperformer given it has some advantages on these key metrics. Serena Tang: So you touched on lower quality companies. One of the v

Here’s why convertible bonds, an often overlooked asset class, are becoming more attractive as an alternative to common stock.----- Transcript -----Welcome to Thoughts on the Market. I'm Todd Castagno, head of Morgan Stanley's Global Valuation Accounting Research Team. Along with my colleagues bringing you a variety of perspectives, today I'll be discussing the increasing attractiveness of the convertible debt market. It's Thursday, October 5th at 10 a.m. in New York. Rising interest rates have increased borrowing costs for everybody, and that includes companies looking to raise or refinance debt. And that generates a renewed appetite for an oft overlooked asset class called convertible bonds. But what are convertible bonds? To start, convertible bonds are what we call a hybrid instrument, combining the features of a traditional corporate debt and common equity. Similar to corporate bonds, convertibles offer guaranteed income via interest of the initial investment. The reason they are called "convertible" is because they offer investors the option to convert that bond to common stock when a company's share price hits a certain threshold. These hybrid features provide investors with downside protection and upside equity appreciation. There are many reasons why companies choose to issue convertible debt. First, they offer a strategic financial flexibility for high growth in early stage companies, a quick time to market execution time. Second, convertible debt provides an alternative path for companies that would find it difficult to access straight debt in the market. Third, they offer a way to raise equity without issuing more stock directly through secondary offerings. And this is a big plus for corporates because investors often perceive a secondary offering as a negative signal. And finally, a lower cash coupon and lower interest expense is very attractive in a high-rate environment. Why is that? Convertible bonds have lost market share from traditional corporate debt over the last 15 years. The convertibles market size has remained largely unchanged, while the traditional corporate debt market in the U.S. has roughly doubled. Convertibles are relatively less attractive at lower interest rates and accommodating capital markets for traditional alternatives. As it stands, 2023 is on track to double last year's issuance, as likely to be the highest post global financial crisis issuance outside of COVID. Important to note, the nature of issuance this year is different from recent history. In the last decade or so, issuance has been led by smaller market cap and growth companies, who don't have established debt markets or ratings and thus don't have easy access to straight debt capital. However, this year, 65% of issuers have had a credit rating and thus have had easy access to the straight debt market. They're coming to the convertibles market, not as a necessity, but are instead actively choosing to issue converts because of the favorable economics, through interest expense savings, and a last wrinkle, new favorable accounting. Accounting rules recently changed that reduce complexity for both issuers and investors. While accounting typically does not drive economics, on the margin, the recent change improves transparency and reduces cost to issue. Utilities have been especially large convertible issuers this year in the market. 75% of convertible offerings in 2023 year-to-date have been refinancing, which are likely to be one of the areas primed for growth in the capital markets. Looking ahead, we believe the convertibles market is poised for growth. We will likely see more convertible issuances, given a higher interest rate environment, tighter capital markets and a wall maturities, that is coming due in the next 2 to 3 years. Convertibles are a particularly suitable instrument in this context as they offer defensive income enhanced alternative to investing in the underlying common stock. Thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

Fundamentals for investment-grade credit remain resilient and steady, while below-grade credit continues to deteriorate. ----- Transcript -----Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist. Along with my colleagues bringing you a variety of perspectives, I'll be talking about our views on corporate credit markets. It's Wednesday, October 4th at 10 a.m. in New York. With the second quarter earnings now in the rearview mirror, we look at how credit fundamentals have evolved and what that means for credit investors. Quality based divergence in credit fundamental performance continues to bear out, reinforcing our preference for higher quality within the credit universe. Investment grade credit fundamentals remain resilient. Overall, issuers have held up reasonably well despite moving past the peak in the strength of balance sheet metrics. While certain metrics have started to deteriorate, most notably interest coverage as a result of higher interest rates, leverage ratios have stayed well-contained despite the uptick in debt levels. We are calling for wider spreads in investment grade credit, as the market might be overly discounting the odds of a recession, and we had already priced for a smooth soft landing. While current spread levels do not leave much room for further compression, current yield levels remain attractive at multi year highs. These levels present both a source of attractive income and potential price upside as growth and inflation cool, particularly heading into a Fed pause and potential rate cutting cycle, which our economists expect will start in March 2024. While one could argue that with spreads at tight levels, the yield demand could simply shift to treasuries. However, with very low dollar prices on most investment grade bonds and the macro optimism around a soft landing, we think investment grade credit will remain well placed for some time to come. In-place fundamentals remain strong and thus far are not flashing signs of alarm to argue for long-duration buyers of credit to shift into treasuries. On the other end of the grade spectrum, in the below investment grade segment, fundamentals have continued to deteriorate. Earnings growth turned negative, coverage metrics fell, cash to debt ratios declined, and leverage rose. The weakness was widespread across sectors, with materials and consumer discretionary sectors seeing the largest year-over-year increase in leverage. Within our high yield fundamental sample, median interest coverage dropped for a third consecutive quarter, now more than a turn below its peak in 2022. The trend was similar for loans as well, while surging interest costs were the primary driver, weaker earnings were also at play. The concentration of "tail" cohorts is rising. In high yield, the vulnerable cohort, that is companies with low coverage and low cash debt ratios, reached 5% in size, which is record high post global financial crisis. In loans, the coverage tail inflected higher for the first time in two years. Clearly, quality based divergence continues to play out in credit fundamentals, which aligns with our recommendation to be defensive and stay invested in the higher quality segments of the credit markets. Thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

With online grocery shopping growing in popularity, artificial intelligence can improve the customer experience while increasing efficiency.----- Transcript -----Brian Nowak: Welcome to Thoughts on the Market. I'm Brian Nowak, Morgan Stanley's U.S. Internet Analyst. Simeon Gutman: And I'm Simeon Gutman, Hard lines, Broad Lines and Food Retail Analyst. Brian Nowak: On this special episode of Thoughts on the Market, we'll discuss the significant opportunities in online grocery. It's Tuesday, October 3rd at 10 a.m. in New York. Brian Nowak: Simeon, our work suggests that online grocery is the largest remaining category of offline spend, which makes it the biggest opportunity in e-commerce. When we talk about online grocery, do you think of it as pure dot-com? Do you think of it as omnichannel? How do you define online grocery and how do you think about the growth outlook for the industry the next few years? Simeon Gutman: To settle that debate we think of it as omnichannel. The online market includes both delivery and pickup, which we actually think is a 50/50 mix. The market today, we think, is about 11.5% penetrated. That equates to roughly $190 billion of online and pickup sales. It's growing low double digits and we think over time it reaches about the high teens by 2027. Brian Nowak: So 11% adoption now heading to teens penetration a few years from now. That's quite a bit below a lot of other categories in the United States. So let me ask a sort of obvious question. What new types of technologies or innovations have you seen in online grocery that you think are going to really drive faster, more durable adoption going forward? Simeon Gutman: It's likely in the micro and macro fulfillment. I mean, online grocery is complicated. There's a lot of SKUs to pick. There's labor involved. We're seeing better ways that grocers are able picking and packing the groceries. I think still getting it to the end user remains a challenge and that's what we're going to see probably evolve over the next, call it, decade. Brian Nowak: That's helpful. What are some of the other key debates in the online grocery space and what aspects do you think the market is missing or underappreciated right now? Simeon Gutman: I think two key debates are the path to profitability, and if online grocery can reach that profitability threshold and two whether an online only player will encroach on the traditional share and disrupt the market. As for the path to profitability, we think eventually we'll see it. We don't have a lot of examples because we don't think we're there with scale today. But over time we think these models will show some level of profitability. It may not be a fully online model. It'll still be a holistic omni channel model. And then the second piece is we do think there is going to be an encroachment from e-tail or e-commerce only players. The market's big. It's one piece of the market that online only hasn't conquered, but it's such a big TAM, we think everyone has their attention on it. What are some of the most significant advertising opportunities when it comes to online grocery Brian?Brian Nowak: To your point on profitability within online grocery, we think advertising is likely to be a key lever to drive profitability across the space. Historically, we have seen traditional grocers and retailers benefit from trade spend, advertising dollars spent essentially for NCAP placements, shelf space and really in-store marketing. As consumer wallets move online with an online grocery, we expect those dollars to shift toward the online players. And given the high incremental margin of advertising dollars compared to traditional grocery spend. We think that the advertising business is likely to be an important lever in online grocers, both traditional players moving online as well as e-commerce first players growing their business and their ability to build profitable long term ecommerce businesses. Now Simeon online grocery, to your point earlier, is an industry where the unit economics are quite tight and margins are thin. With that as a backdrop, what in your mind are the keys to driving long term durable profitability beyond advertising? Simeon Gutman: Two things. First scale and then second capability. In terms of scale, the more densely populated or the more densely penetrated a grocer can be in a market, the more money we think they can make. And we think the same is true with online grocery. You have to have a high market share in a concentrated place, and that's happening slowly. And some companies are stronger in certain markets than others, but that needs to happen more broadly. Second is the capabilities. And as I mentioned earlier, we're starting to see the emergence of newer technologies, macro fulfillment methodologies, meaning automation in a large scale, micro fulfillment, automation at the local level. And these type of technologies remove the human element, the

Although Congress agreed on a short-term deal to avoid a shutdown, the increase in the deficit and lack of fiscal discipline may concern investors in the long run.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 2nd at 11 a.m. in New York. So let's get after it. This past weekend, Congress agreed to a last minute deal to keep the government open for the next six weeks. On one hand, avoiding a government shutdown is a net positive for the equity markets. However, on the other hand, the government is showing very little fiscal discipline will likely weigh on bond markets, which could then reverberate through stocks. This past August, I wrote a note and recorded a podcast asking if the U.S government may have hit a fiscal wall. One of the biggest surprises this year for investors has been the monumental increase in the fiscal deficit. More specifically, over the past 12 months, the fiscal deficit has increased by $1.3 trillion. This has supported better economic growth and may have kept the U.S. economy from entering a recession that many thought was unavoidable earlier this year. But now the piper must be paid. With the U.S. Treasury expected to issue close to $2 trillion in new supply in the second half of the year, the bond market has taken notice. While front end interest rates have been generally stable over the past several months on the expectation the Fed is very close to ending its rate hikes, the longer end of the Treasury market continues to trade very poorly, with ten year yields reaching 4.7%. With inflation expectations relatively stable and economic growth showing signs of slowing, we think this move in ten year yields is directly related to an earlier question. Has the US government pushed a limit of its ability to spend without proper long term fiscal discipline and funding in place? I think it's a reasonable question to ask even though we all know the Fed will likely provide the money necessary for the government to meet its obligations, especially in the short term. But now there is some growing doubt on the sustainability of such programs. The bond term premium has been suppressed over the past decade through quantitative easing and insatiable demand from foreigners looking to store their savings in a reliable place. But with the Fed no longer doing QE and even shrinking its balance sheet, banks unable to step up and buy and foreigners starting to diversify away from the US dollar, it's unclear who will be the natural buyer of this significant new supply. Lack of funding is a risk that markets have not had to think about when budget deficits get a bit out of control. In fact, the last time this happened was 1994, when ten year Treasury yields increased to 8%. The result was one of the biggest belt tightening exercises enacted in a bipartisan manner. Congress really had no choice at that time but to acquiesce to the demands of the bond markets. Could we be looking at a similar response this time? Like many Americans and investors, I have my doubts any real fiscal discipline will be enacted proactively. This just means the bond market may have to push back even harder to get legislators attention. Of course, that would not be good for already elevated equity valuations. The alternative is that Congress gets ahead of it and cuts spending, raises taxes or both, which would arguably be bad for growth. Bottom line, this conflict between markets and policy is nothing new, but this time it's centered around fiscal rather than monetary policy. More importantly, both potential outcomes, higher rates or smaller budget deficits, are likely bad news for stocks in the short term. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcasts app. It helps more people to find the show.

The number of U.S. workers with multiple income streams is increasing steadily, with earnings of $200 billion today poised to double by 2030. Generative AI could help these “multi-earners” hold down their many jobs.----- Transcript -----Ed Stanley: Welcome to Thoughts on the Market. I'm Ed Stanley, Morgan Stanley's Head of Thematic Research in Europe. Ellen Zentner: And I'm Ellen Zentner, Morgan Stanley's Chief U.S. Economist. Ed Stanley: And on this special episode of Thoughts on the Market, we'll discuss the impact of A.I. on the multi earning trend we've been observing over the last year. It's Friday, September 29th at 3 p.m. in London. Ellen Zentner: And 10 a.m. in New York. Ed Stanley: You'll remember that the pandemic created the conditions for many people to start pursuing multiple income streams, and post-COVID this need has shifted to an opportunity. And little over a year ago, we first wrote about the rise of multi earners, a large and growing class of workers who, we argued, whose marginal hour was better spent multi-earning than staying in a low paying traditional corporate role, for example. And not surprisingly, Gen Z, a group our economist team have studied in detail, is leading this paradigm shift, and that is clearly underway in our latest survey. Ellen, before we get into some of the current specifics on the fast moving multi-earner and A.I. Trends, can you set the stage for us by giving us a sense of where the US labor market is right now and how things have evolved since the great resignation that we heard so much about during COVID? Ellen Zentner: Sure Ed. Participation in the workforce dropped like a rock around COVID and government subsidies helped folks take time away, and particularly those that work in high risk areas of services where face to face contact is a necessary work requirement. Now, at the same time, the percentage of employees that shifted to some amount of work from home arrangements soared from about 15% to over 50%, and it's remained pretty sticky even as COVID has moved further into the rearview mirror. So while prime age labor force participation has fully recovered and continues to climb, the share of workers with some amount of work from home has remained elevated, as well as those that the Bureau of Labor Statistics here in the US has identified as holding multiple part time jobs. So it turns out it skews toward younger workers. In other words, Generation Z, as you noted, which is a growing share of the prime age workforce. And for many workers, COVID was a wake up call, a call to action, if you will, that multi-earning might better balance a sense of freedom and flexibility while still earning a living wage. Ed Stanley: To expand our lens even more in order to understand the economic backdrop of multi-earning, can you give us a quick overview of the rise of the so-called worker economy over the last two decades? Ellen Zentner: So here's a brief history lesson. Wage growth, when adjusted for inflation, has been falling for decades in the U.S. and is a reflection of factors such as waning presence of unions, the rise of mega companies and the like that reduced worker bargaining power over time. Wage growth should have kept up with gains in productivity, and it just didn't. And as a result, the labor share of corporate profits has been falling. COVID created the labor scarcity needed to reverse that secular decline in labor income by raising bargaining power. In a sense, it galvanized the demand for higher wages that we think is durable. Now Ed, as you mentioned, you first started publishing on the Multi-Earner Trend a year ago, and this trend has been developing by leaps and bounds, it seems, especially when you overlay the fast and furious development of generative A.I. So can you tell us what you're observing and how your thesis is evolving? Ed Stanley: Yeah. So there are three ways that we keep track of to triangulate how this thesis is evolving. The first is official data, and you touched on this. The BLS shows a modest 1 in 20 multi-earners as a portion of the US population, for example, and growing pro-cyclically. So that is one data set we look at. The second is Google Trends. So it's a less well-captured metric in official data, but we can see less about how many people are doing it and more about the growth rate, which we can see is about 18% compound and actually growing counter cyclically. When life gets more challenging from a macro unemployment perspective, people seem to turn to these earnings streams, which inherently make sense. And then the third is to look at our Alphawise survey, the second of which we have that just came out, which shows multi-earning growing 8% year on year and as much as over 15% for Gen Z, which we talked about. So in essence, we don't rely on one dataset to estimate the size or growth of the market. The real addition this year is around generative A.I., where we showed, for those peo

With volatility in Asia and emerging markets causing both upswings and downswings, certain markets will be critical as uncertainty continues.----- Transcript -----Welcome to Thoughts on the Market. I'm Jonathan Garner, Morgan Stanley's Chief Asia and Emerging Market Equity Strategist. Along with my colleagues, bringing you a variety of perspectives, today I'll be discussing why we turned more cautious on our coverage recently. It's Thursday, September the 28th at 9 a.m. in Singapore. We turned more cautious on our coverage in early August, downgrading Taiwan and China to equal weight and Australia to underweight, whilst raising India, which we view as defensive, to a major overweight. For India, multi-polar world trends are supporting a surge in inward foreign direct investment in manufacturing, and portfolio flows into both bonds and equities. The country's reforms and macro stability agenda, particularly in fiscal policy, is underpinning a strong capital expenditure and profits outlook. We also maintain Japan equities, currency hedged, as our top pick in global equity markets. Japan has strong nominal GDP growth, positive earnings per share revisions and valuations which remain reasonable in our view, at a little over 14x forward price to earnings. However, the continued debate on China's growth slowdown and now a sudden further rise in US real yields are, in our view, likely to pressure markets lower generally, in what is seasonally a difficult period for our asset class. Volatility is now and generally has been a feature of Asia and emerging equity markets. Hence the intense interest in market timing and hedging strategies in an asset class which has, with the recent exception of Japan, failed to deliver attractive, sustained compound returns for the US-dollar-based investor. Indeed, we've made the point before that on a risk adjusted basis, Asia and emerging equity markets are what is known as Sharpe ratio inefficient in a multi asset sense, that is returns have not compensated for volatility compared to other benchmarks.All of our coverage markets have higher volatility than the S&P 500, and in many cases significantly so. In particular, China A shares, the Hang Seng China Enterprise Index and until recently, the India benchmark Sensex. In terms of why this is the case it probably has to do with the following characteristics. Firstly, more volatility in earnings cycles. Secondly, less developed domestic institutional investor bases than in many developed markets. And thirdly, greater reliance on foreign flows, which are inherently less sticky than domestic flows. However, this is changing now for the India market. Combining data allows us to develop a simple scoring framework to assess complacency versus fear in relation to drawdown risk. It suggests a somewhat complacent mode in general, but particularly for China A, Australian equities, that's the ASX 200, and the overall MSCI EM benchmark, much less so for Topix, Nikkei and the Hang Seng Index. And this reinforces our view that Japan equities are a key holding to maintain currently. Thanks for listening. If you enjoyed the show, please leave us a review on Apple Podcasts, and share Thoughts on the Market with a friend or colleague today.

If government funding expires next week, the shutdown combined with other economic issues could make for a weak fourth quarter. Global Head of Fixed Income and Thematic Research Michael Zezas and U.S. Public Policy Analyst Ariana Salvatore discuss.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Ariana Salvatore: And I'm Ariana Salvatore from our U.S. Public Policy Research Team. Michael Zezas: Along with our colleagues, bringing you a variety of perspectives, we'll be talking about the market and economic impacts of a potential government shutdown later this week. It's Wednesday, September 27th at 10 a.m. in New York. Michael Zezas: So, Ariana, let's get right into it. Congress is up against a tight deadline with government funding set to expire on the first day of the next fiscal year, which is October 1st. What's the state of play? Ariana Salvatore: So the first thing I'll say is that the situation is very fluid at the moment with lots of uncertainty between now and Sunday. Last night, the Senate voted to advance a bipartisan clean C.R. or continuing resolution, which could eventually serve as the legislative vehicle to avoid a lapse in appropriations. Clean, in this sense, means that the bill includes little to no funding for Ukraine aid or disaster relief, two items that Republicans had previously taken opposition to. Right now, the ball's in Speaker McCarthy's court. He can choose one of three options, first, to bring the Senate C.R. to the floor and rely on moderates, and perhaps even some Democrats, to cross the aisle and pass the bill. Second, he can ignore it and try to continue with the House-led funding process. Or third, he can take the C.R. out on some Republican policy items like border funding, for example, and send it back to the Senate where it's almost certainly dead on arrival. Options two and three, because of that, increase the likelihood of a shutdown. But option number one really doesn't solve the problem either, as it would just punt the issue until later in the Fall, and in our view, increase the chances of McCarthy facing a motion to vacate the chair or a motion to oust him as speaker. So all of this is to say that a shutdown seems pretty likely at the time we're recording this. The question is, of course, how long it could last. Michael, how are you thinking about the possible duration of a shutdown, assuming we do, in fact, get to Sunday without significant progress being made here? Michael Zezas: So there's a few scenarios to consider here. One is a pretty brief shutdown, one that lasts for less than a week and ultimately ends with a continuing resolution. Perhaps Speaker McCarthy agrees to put the Senate pass continuing resolution on the floor for a vote. Another scenario is one that lasts for a few weeks. And here you might have a situation where House Republicans continue to oppose any continuing resolution. And after enduring a shutdown for enough time, federal employees' paychecks begin to lapse, economic pressure begins to build and all of a sudden there's just more acceptance around the idea of a continuing resolution to allow more time for negotiation. And then another scenario would be something that lasts quite a bit longer, several weeks. And here, you clearly have a breakdown in negotiation positions, members of the Republican caucus perhaps refusing to vote for any type of continuing resolution, there being major roadblocks on the issues you spoke about already, Ariana. And the potential way to fix this would have to be through something like a discharge petition where members of the House of Representatives work around Speaker McCarthy using procedural rules. But that's something that takes a long time to play out and could take several weeks to play out. So given all this uncertainty, sometimes it helps to look back at history as a guide. Ariana, what can we learn from similarities or differences between this and prior shutdown episodes? Ariana Salvatore: Well, for starters, while shutdowns are not necessarily routine, they're also not without precedent. There have been about 20 in total in U.S. history, but more recent ones have lasted longer. For example, the most recent in 2019 under President Trump, was also the longest clocking in at just over a month. However, that case was also unique to what we're seeing today because it was a partial shutdown, meaning that there were some agencies that had already received full-year funding. We've actually never had a full shutdown last more than about a week like we're seeing right now. This time around, because no agencies have received funding, we think there could be a broader based impact relative to the last shutdown that we saw. Michael, given that your focus is across all of fixed income, how are you thinking about the impact of a shutdown across our strategists market

Corporate credit is likely to continue outperforming, even if downward revisions to GDP, sticky inflation data and a potential government shutdown could mean a less restrictive approach from the Fed.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Corporate Credit Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Tuesday, September 26th at 2 p.m. in London. September has seen widespread market weakness, with both stocks and bonds lower. Several of the big questions behind this move, however, could become much clearer by the end of this week. One area of market concern remains central banks and the idea that they may continue to raise interest rates to tamp down on inflation. While the Federal Reserve decided not to raise rates at its meeting last week, the first time it's done so since 2022, investors nevertheless left that meeting worried the Fed may have more work to do. We hold a different view and think that the Fed will not raise interest rates further. But we'll get an important data point to this view on Friday, with the release of PCE, or Personal Consumption Expenditure inflation. This is the inflation gauge that the Fed cares about most, and on Morgan Stanley's forecast, it will fall to just 2.3%, on a three month annualized basis. That's a large, encouraging step down that would show the Fed that inflation is headed in the right direction. Another area of market concern, somewhat paradoxically, is that the U.S. economy has been quite strong, which in theory would encourage further rate hikes from the Fed. Not only has the US economy shown good GDP numbers so far this year, but unemployment remains near a 50 year low. Fed Chair Powell repeatedly referred to the strength of the economic data in last week's press conference, and some leading economic indicators of industrial activity have actually started to look marginally better. But two other events this week might change that perception. Thursday will see regular revisions to measurements of U.S. economic growth, and Morgan Stanley's economists think U.S. GDP is more likely to be revised downwards, perhaps significantly. A few days later, the US government faces a shutdown as key appropriations bills have failed to clear the U.S. House of Representatives. That shutdown will act as a drag on the economy, potentially to the tune of about 0.2% of GDP per week. Both nominal and real yields have risen as the market remains concerned that the Fed will keep policy restrictive for a longer period of time, given still elevated inflation and robust U.S. economic growth. But it's possible, the GDP revisions, inflation data and a government shutdown all this week could change that perception. For credit, it's worth noting that corporate credit has been a relative outperformer during this rough September. As we discussed on this program last week, higher yields are also meaning fewer bonds are being issued for investors to buy as companies balk at the higher yields they're now being charged to borrow. And in a world where government bonds and equities all yield less than cash does, a so-called negative carry asset, credit again has a marginal advantage. It's a tough backdrop, but we think the credit will continue to be a relative outperformer. Thanks for listening. Subscribe to Thoughts on the Market on Apple Podcasts, or wherever you listen, and leave us a review. We'd love to hear from you.

With the economy late in its current cycle, early-cycle performers such as consumer and housing stocks are underperforming while energy and industrials should continue to outperform.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, September 25th at 11am in New York. So let's get after it. Since mid-July, stocks have taken on a different personality. As we've previously noted, second quarter earnings season proved to be a "sell the news event" with the day after reporting stock performance as poor as we've witnessed in over a decade. In retrospect, this makes sense given weakening earnings quality and negative year over year growth for many industry groups, coupled with the strong price run up in the mid-July which extended valuations. Those valuations continue to look elevated at 18-times earnings, especially given the recent further rise in interest rates and signs from the Fed that it may be adopting a higher for longer posture. On that score, the real rate equity return correlation has fallen further into negative territory, signaling that interest rates are an increasingly important determinant of equity performance. Furthermore, one could argue that the post-Fed-meeting response from equity markets was outsized for the rate move we experienced. One potential explanation for this dynamic is that the equity market is beginning to question the higher for longer backdrop in the context of a macro environment that looks more late-cycle than mid-cycle. As discussed over the past several weeks, equity market internals have been supportive of the notion that we're in a late cycle backdrop with high quality balance sheet factors outperforming. Defensives have also resumed their outperformance, while cyclicals have underperformed. The value factor has been further aided by strong performance from the energy sector, while growth has underperformed recently due to higher interest rates. Given our relative preference for defensives, we looked at valuations across these sectors. In terms of absolute multiples, utilities trade the cheapest at 16 times earnings, while staples trade the richest at 19 times. That said, relative to the market in history, utilities and staples still look the cheapest, both are at the bottom quartile of the historical relative valuation levels, while health care relative valuation is a bit more elevated, but still in the bottom 50% of historical relative valuation levels. Overall valuations remain undemanding for defensive sectors in stocks, which is why we like them. To the contrary, the technicals and breadth for consumer discretionary stocks look particularly challenged right now. We believe this price action is reflecting slower consumer spending trends, student loan payments resuming, rising delinquencies in certain household cohorts, higher gas prices and weakening demand and data in the housing sector. Our economists who avoided making the recession call earlier this year when it was a consensus view see a weakening consumer spending backdrop from here. Specifically, they forecast negative real personal consumption expenditure growth in the fourth quarter and a muted recovery thereafter. Meanwhile, travel and leisure has been a bright spot for consumption, but that dynamic may now be changing to some extent. As evidence, our most recent AlphaWise survey shows that consumers want to keep traveling and 58% of respondents are planning to travel over the next six months. However, net spending plans for international travel declined from 0% last month to -8% this month, indicating consumers are planning fewer overseas trips. Domestic travel plans without a flight move higher. This indicates that consumers want to keep traveling, but are increasingly looking to taking cheaper trips and are choosing destinations to which they can either drive or take a train, rather than fly which is more expensive. All these dynamics fit well with our late cycle playbook. In our view, investors may want to avoid rotating into early cycle winners like consumer cyclicals, housing related and interest rate sensitive sectors and small caps. Instead, a barbell of large cap defensive growth with late cycle cyclical winners like energy and industrials should continue to outperform as it has for the past month. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcast app. It helps for people to find the show.

September historically has been a big month for corporate bond issuance, but borrowing looks less attractive to companies due to the large rise in yields.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Corporate Credit Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, September 22nd at 2 p.m. in London. Credit has outperformed equities recently, with spreads modestly tighter, even as stocks are modestly lower. We think that credit outperformance continues. Supply, demand and income are all part of the story. September is usually a big month for corporate bond issuance as people return from the summer, and all that supply often means somewhat weaker credit performance. But so far, that supply is underwhelmed. While many factors may be at play, we think one is that borrowing is looking less attractive given the large rise of corporate bond yields. Not only are investment grade bond yields at some of their highest non crisis levels in the last 20 years, they're unusually high relative to the earnings or dividend yield offered on company stock. Now, if a company views their equities attractive relative to debt, one way they can express this is to borrow more while buying back or retiring those shares in the market. But conversely, if companies start to view borrowing as expensive, relative to their shares, borrowing and buybacks should both slow. And year-to-date that's exactly what we've seen from non-financial investment grade companies. Meanwhile, those same higher yields that are making companies more reluctant to borrow are keeping demand for bonds solid. And if both the Federal Reserve and the European Central Bank are now finished raising interest rates, as my colleagues in Morgan Stanley economics expect, it could mean that investors are even more willing to allocate to these high grade bonds, while simultaneously encouraging companies to display even more patience with borrowing now that rates are no longer rising. But there's another even more mechanical advantage that credit enjoys. The significant rate hikes from the Fed, and the European Central Bank have meant very high yields on safe short term cash. That, in turn, has made the cost of holding almost any asset more expensive by comparison. Due to these very high cash yields and the fact that short term interest rates are higher than long term interest rates, owning equities or government bonds in the U.S. and Europe is a so-called negative carry position, costing money to halt. The passage of time if nothing changes, is currently working against many of these asset classes. But this isn't the case in credit, where both the level of spreads and the shape of the credit curve mean that the passage of time works in favor of the holder. And it's worth noting that two other assets that have this so-called positive carry property, the U.S. dollar and oil, are also currently being well supported by the market. We think the Federal Reserve and the European Central Bank are now done raising interest rates for the foreseeable future. We think this could modestly discourage borrowing by investment grade companies as they wait for more favorable rates and encourage buying as investors hope to now lock in these higher yields. Moreover, we think that this pause by central banks could help reduce overall bond market volatility, working to the relative advantage of assets that pay investors to hold them like corporate credit does. Thanks for listening. Subscribe to Thoughts of the Market on Apple Podcasts, or wherever you listen, and leave us a review. We'd love to hear from you.

Even with the possibility of a fourth-quarter slowdown in consumer spending, positive data across the board suggests the U.S. economy is still on track for a soft landing.----- Transcripts -----Ellen Zentner: Welcome to Thoughts on the Market. I'm Ellen Zentner, Morgan Stanley's Chief U.S. Economist. Sarah Wolfe: And I'm Sarah Wolfe, also on Morgan Stanley's U.S. Economics Team. Sarah Wolfe: And today on the podcast, we'll be discussing our updated U.S. economic outlook for the final quarter of 2023. It's Thursday, September 21, at 10 a.m. in New York. Sarah Wolfe: Ellen, since early 2022, you and our team have had a conviction that the U.S. economy would slow without a crash and experienced a soft landing. We maintained that view in our mid-year outlook four months ago, but we've recently revised it with an expectation for even stronger growth in the U.S.. Can you highlight some of the main drivers behind our team's more upbeat outlook? Ellen Zentner: Yes, so I think for me, the most exciting thing about the upward revisions we've made to GDP is that there's a real manufacturing renaissance going on in the U.S. and according to our equity analysts, it is durable and organic. So it's not just being driven by fiscal policy around the CHIPS Act and the IRA, but this is de-risking of supply chains, it's happening across semiconductors, our industrials teams have noted it, our construction teams and our LATAM teams around what's going on in terms of on-shoring, nearshoring with Mexico being the biggest beneficiary. So I think that's a really exciting development that is durable and then the consumer has been more resilient than expected. And I know that, Sara, you've been writing about Taylor Swift effect, Beyoncé effect, Barbenheime, you know, and it's just added to a very robust consumer this year than we had initially expected. Sarah Wolfe: Ellen, and what about inflation? What role does inflation continue to play at this point? Is the disinflationary process still underway and what are our expectations for the rest of this year and next? Ellen Zentner: Yes, So I think the disinflationary process has actually played out faster than expected. Well, let me say it's coming in line with our forecast, but much faster than, say, the Fed had expected. And we do expect that to continue. I think some of the concerns have been that the economy has been so strong this year and so would that interrupt that disinflationary process? And we don't think that's the case. The upward revisions that we've taken to GDP that reflect things like the manufacturing renaissance also come with stronger productivity, and they're not necessarily inflationary. But Sara, since your focus is on the U.S. consumer, let me turn it to you and ask you about oil prices. So oil prices have rallied here, you've spent a good deal of time looking at the impact that rising prices might have on real consumer spending, so how do you go about analyzing that? Sarah Wolfe: You're correct. Energy prices do impact consumer spending and in particular, when the price jumps are driven by supply side factor. So supply coming offline, that acts like a tax on households and we see a decline in real spending. We in particular see real spending impacted in the durable goods sector and in autos in particular. We have seen quite a rally recently in oil prices. It's definitely not to the extent of what we saw last year, but what we're going to be watching is how sustained the rally in oil prices are. The higher prices stay for longer, the more it impacts real consumer spending. Ellen Zentner: So retail sales have been strong, when are they going to be slowing? I mean we're going into the fourth quarter here, all on the consumer it looks like it's been stronger than expected. And I know this is sort of a maybe too broad of a question, but are consumers still in good health? Sarah Wolfe: As you mentioned earlier, consumer spending has been more resilient than expected. In part, it's been due to the fact that we've seen a full rebound in discretionary services spending, but it was not paired with a one for one payback in discretionary goods, which we've seen in the retail sales report, have held up better. And so while the consumer remains fairly healthy, we do expect to still see that pretty notable spending slowdown in the fourth quarter and part of that is being driven by the fundamentals. We have a cooling labor market, a rising savings rate, higher debt service obligations. But then as you also mentioned earlier, we had the roll off of some of these one off lifts like Barbenheimer, Beyoncé and Taylor Swift. Ellen Zentner: So why doesn't the consumer just fall off a cliff then? Sarah Wolfe: Because part of our big call for the soft landing is that the labor market is going to be relatively resilient. We do have jobs slowing, but we do not have a substantial rise in the unemployment rate because we think

A potential debt-deflation cycle in China could spell opportunity for U.S. Treasuries and Asia corporate bonds outside of China.----- Transcript -----Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the impact of China's economy on fixed income markets. It's Wednesday, September 20th, at 10 a.m. in New York. We spend a lot of time on this podcast talking about the market ramifications of the evolving US-China relationship, and understandably so, as they are the world's biggest economies. But today, I want to focus more on the evolving economy inside of China and how it has implications for global fixed income markets. A few weeks ago on Thoughts on the Market, my colleague Morgan Stanley's Global Chief Economist Seth Carpenter, detailed how our Asia economics team is increasingly calling attention to what they term China's 3D challenge of debt, demographics and deflation. In short, there's a risk that servicing high levels of debt in China's economy could strain its weak demographic profile and dampen demand in the economy, all leading to a debt deflation cycle. While such an adverse outcome currently is in our economists base case, there's been material slowing in China's economic growth. So in either case, China, at least for the moment, is a weaker consumer on the global stage, meaning they may effectively export disinflation to developed market countries. And while our economists flag this weakness may not translate to substantial disinflation pressures, they also note directionally it may help already cooling inflation in places like the United States. Understandably, our team in fixed income research across the globe is focused on many potential impacts from the spillover effects of China's 3D challenge. But there's two that stand out to me as most relevant to investors. First, for investors in U.S. Treasury bonds, this disinflation pressure, even if modest, could help push yields lower in line with our preference for owning bonds over equities. That disinflation pressure could add to other more meaningful pressures in the U.S. in the fourth quarter, as student loan repayments start in the absence of major entertainment events that were a one time shot to consumption this past summer. Second, if you're an investor in corporate bonds, our Asia corporate credit team sees opportunities to diversify away from China Credit, which has been struggling to deliver solid risk adjusted returns and remains concentrated in the property sector, with our team seeing opportunities in Japan, Australia and New Zealand in particular. Credit markets in these countries not only provide geographical diversification but also diversification into sectors like financials and materials. This is a developing story that's sure to impact the global outlook for the foreseeable future, and you can be sure we'll keep you updated on how it will influence markets. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague, or leave us a review on Apple Podcasts. It helps more people find the show.

A number of U.S. industries rely heavily on critical minerals that must be imported from other countries. Policymakers and business leaders are calling for investment and reshoring to manage that risk. U.S. Public Policy Research Team member Ariana Salvatore and Head of the Metals and Mining Team in North America Carlos De Alba discuss.----- Transcript -----Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore from our U.S. Public Policy Research Team. Carlos De Alba: And I am Carlos De Alba, Head of the Metals and Mining Team in North America. Ariana Salvatore: On this special episode of the podcast, we'll discuss what we see as an inflection point for the U.S. metals and mining industry. It's Tuesday, September 19th, at 10 a.m. in New York. Ariana Salvatore: Since 1990, the U.S. has seen a significant increase in both the variety of imported minerals and the level of dependance on these imports. As of right now, U.S. reliance on imported critical minerals has reached a 30 year high, and simultaneously, investment in the industry is near its lowest point in decades. But as we're seeing the world transition to a multipolar model where supply chains are more regional than global, it's becoming ever more obvious that the U.S. needs to turn to reshoring in order to satisfy its growing need for these critical minerals. So, Carlos, before we get too deep in the weeds, let's start off with something simple. Can you define critical minerals for our audience? Carlos De Alba: Yeah. So the Energy Act of 2020 defined critical minerals as those which are essential to the economy and the national security of the United States. They also have a supply chain that is vulnerable to disruption and serve an essential function in the manufacturing of a product, the absence of which would have significant consequences for the economic and national security of the country. The Act also specified that critical minerals do not include fuel minerals, water, ice or snow, or common varieties of sand, gravel, stone and clay. The U.S. Geological Survey, or USGS, is a government agency in charge of creating the official list of critical minerals that are meet that criteria that I just mentioned. Ariana Salvatore: So given the importance of these critical minerals, what are some of the factors that led to this prolonged underinvestment in the metals and mining industry? And who have been the major exporters of critical minerals to the U.S. over the last three decades? Carlos De Alba: It is quite a complex issue, but the bottom line is that the US has scaled back its mineral extraction, processing and refining capabilities since the 1950s, because of environmental concerns and economic considerations like higher labor costs and lower economies of scale. As mining activities decline in the U.S., the country has increasingly relied on imports from China, Brazil, Mexico, South Africa, Indonesia, Canada and Australia, among others. Ariana Salvatore: So it's obvious that China is clearly in a powerful position to influence the global mineral markets. It's the first one on the list that you just mentioned. What is China to doing right now with respect to its exports of minerals and what is your outlook when you're thinking about the future? Carlos De Alba: Well, over the last 4 to 5 decades, China gradually took over the industry by heavily investing in exploration, mineral extraction, and more importantly, refining and processing capabilities. China's dominance over the world minerals processing supply chains has created, as you would expect, geopolitical and economic uncertainties can cause supply disruptions to crucial end markets such as green technologies and national security. A recent example of export curbs took place in July of this year, when China imposed export restrictions on two chipmaking minerals, gallium and uranium, citing national security concerns. The move was widely interpreted as a retaliation against the US and its allies for having imposed restrictions that caught China's access to Chipmaking technologies. Now this move by China was particularly relevant because the country produces over 80% of the world's gallium supply and 60% of germanium, and it is the primary supplier to the US representing more than 50% of these two minerals imports to the United States. But since we're on this topic Ariana, how are the US policymakers trying to help the strengthening of domestic supply chains? Ariana Salvatore: Right. So most things that involve building up the domestic sphere in order to kind of build resiliency or counter China's influence are quite popular bipartisan priorities. So we're seeing policymakers on both sides of the aisle indicating support for reshoring the critical mineral supply chain. That's mainly accomplished through legislation that targets things like tax incentives, or subsidies for corporates. On the regulatory front, it really comes down to

While the ECB followed headline inflation with raised policy rates yet again last week, the Fed meeting this week may be more focused on core inflation and a hiking pause.----- Transcript -----Welcome to Thoughts on the Market. I'm Seth Carpenter, Global Chief Economist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, today I'll be talking about the debate around oil price effects on inflation and growth, and what it means for central banks. It's Monday, September 18th at 10 a.m. in New York. Last week, the European Central Bank raised its policy rate again. We had expected them to leave rates unchanged, but President Lagarde reiterated that inflation is too high and that the Governing Council is committed to returning inflation to target. She specifically referenced oil among rising commodity prices that pose an upside risk to inflation. From the summer lows of around $70 per barrel, the price of Brent oil has risen to over $93 a barrel. How much should oil prices figure in to the macro debate? In previous research our economics team has tried to quantify the pass through of oil prices to inflation and different economies. Our takeaway is that for developed market economies, the pass through from oil prices to even headline inflation tends to be modest on average. In the quarter, following a 10% increase in oil prices, headline inflation rises about 20 basis points on average. For the euro area in particular, we have estimated that an increase like we have seen of $20 a barrel should result in about a 50 basis point increase in headline inflation. For core inflation the pass through tends to be less, about 35 basis points. Especially given the starting point though, such a rise is not negligible, but the effect should fade over time. Either the price of oil will retreat or over the next year the base effects will fall out. But energy prices can also affect spending. Recent research from the Fed estimates the effects of oil prices on consumption and GDP across countries. They estimate that a 10% increase in oil prices depresses consumption spending in the euro area by about 23 basis points. What's the mechanism through which oil price shocks affect consumption? Consumer demand for energy tends to be somewhat inelastic. That is, it's harder to substitute away from buying energy than other categories of spending. So back to the ECB, we had not expected them to hike rates, but we did think it was a close call. Core inflation had started to come down, and when it became clear that core services inflation that peaked and was drifting lower against a backdrop of signs pointing to a weaker euro area economy, we revised our call to no hike. So from our perspective, the ECB has increased the risk of hiking perhaps too much based on headline inflation. The ECB statement last week noted that inflation "is still expected to remain high for too long", but because it seems that they are now done hiking, the debate is going to turn to the duration of this so-called "higher for longer" with the policy rate. With the effects of inflation passing over time, but the drag of GDP showing up over the next few quarters, we get more comfortable expecting rate cuts there as early as June next year. The Fed is meeting this week and the last US CPI print showed headline inflation boosted by higher gasoline prices. Sound familiar? Well, our colleagues in the U.S. team have stressed that the Fed will likely look through the non core inflation. And, as in Europe, the increases in oil prices should lower purchasing power for consumers in the near term, further limiting economic activity and that is part of the objective of higher policy rates right now. With the Fed's focus on core rather than headline inflation, the last data print gives more reason to think the Fed is done hiking. Taking the last CPI print and combining it with last week's data from the Producer Price Index, you can infer a monthly rate of 0.14% for core PCE inflation in August. When the Federal Open Market Committee revisits its June economic projections, they will essentially be forced to revise down their forecasts for core inflation for this year. Thanks for listening and if you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

With more companies using artificial intelligence to enhance their travel websites, AI could become the industry norm.----- Transcript -----Ed Stanley: Welcome to Thoughts on the Market. I'm Ed Stanley, Head of Thematic Research in Europe. And along with my colleagues bringing you a variety of perspectives, today we'll be taking deep dive into the ways A.I can revolutionize the travel and booking experience. It's Friday, September the 15th at 3 p.m. in London. Ed Stanley: A.I and the company's most advantaged and likely disrupted have been the hot topic of 2023 for equity markets so far. However, the long term impacts and downstream winners and challenged companies remain fairly ambiguous for some sectors, and travel, hotels, OTAs certainly sit in that more hotly debated camp. We also have on the line our US gaming, lodging and leisure analyst Stephen Grambling with Brian Nowak, US head of Internet research. So Brian, if we could start with you to set the scene a little bit. Investors have been wondering about disrupting online travel for years. What does the hotel booking experience of the future look like, do you think? And what does that mean for travel agencies? And then, Stephen, if you want to follow up with your thoughts on the booking evolution and how that looks. So, Brian, first, please. Brian Nowak: Yeah, artificial intelligence, I think, is going to really change the overall online travel experience. I think it's going to become a lot more conversational, interactive, personalized and visual, and probably even video based in nature. You know, I think that right now you think about the travel research process where you might be looking for a hotel in Miami the week of the holidays in December that will sleep four people that has access to a beach and a golf course. That experience, the search for that right now is pretty low quality and requires a lot of multiple searches and tabs and apps, and it takes a while. You know, with the way in which these large language models and applications on top of these large language models can search through unstructured data, I think that these online travel agencies and other emerging A.I travel apps are going to really leverage these capabilities and actually just make the entire travel research process much faster, more interactive and more comprehensive. The other thing I would say on the interactive point is I think we are going to move toward having A.I powered online travel agents. Where if I am looking for that one example of a place to stay in Miami the week of the holidays today, but there are no hotels that fit my criteria, two weeks from now and inventory becomes available I may have an A.I travel agent say, Brian, are you still looking to travel in December? Look at the inventory that popped up. So I would just expect the overall travel research and booking process to become much more conversational, efficient and just high quality for all users, which should drive conversion higher and pull a larger share of wallets from offline to online. I don't know, Stephen, how do you think about the potential impacts on the brands from that? Stephen Grambling: I think to set the stage there, the most sizable place consumers start their booking process has been historically by researching hotels across price, amenities, location, etc. From the brand's perspective, the key was how do you get a consumer to book with you direct, even if the research was done via another channel? And that is what bore out the stop clicking around campaigns that started in 2016. The brands all launched marketing to tell consumers to stop price comparison all over and leverage loyalty to get the cheapest rate plus certain benefits that they could only get if they booked direct. So what happened? In some ways, the jury is still out due to the pandemic. Where do we go from here? I think, as you described, A.I has the ability to perhaps magnify some of the unique aspects of these brand loyalty programs that were so important to that direct booking campaign, that they can harness both business and consumer travel data that tends to have higher frequency, even if they have lower breadth relative to the OTAs. And as we look right now at the current landscape, when you do these queries that Brian was describing, booking channels are still effectively leveraging whatever the output was from search engine optimization, SEO. And so I think that the opportunity there is if you can train these large language models, either from the consumer dictating it via their preferences, whether it's for loyalty, the amenities they want, the experience they want, or the brands can train them by using the data that they have that's differentiated across both business and leisure. That's where they have an opportunity to actually move a little bit up in the funnel. Ed Stanley: Perfect. And you touched on marketing there, you gave some great color on the booking process of the future. Wh

With the global demand of oil reaching a new high, the spillover in performance is changing the fortune for energy equities and oil markets.----- Transcript -----Welcome to Thoughts on the Market. I'm Martijn Rats, Morgan Stanley's Global Commodity Strategist. Along with my colleagues bringing you a variety of perspectives, Today I'll discuss the recent changes in oil markets and why recently we turned bullish on energy equities once again. It's Thursday, September 14th at 2 p.m. in London. Prices of both crude oil and refined product have risen substantially over the last two months. Brent crude oil is trading once again a little over $90 a barrel, up 20% since the middle of the year. Diesel prices have rallied even more, up 50% since the mid year point and recently surpassing the $1,000 per tonne mark again. After a fairly lackluster first half, this begs the question what has brought about this sudden change in fortune. For starters, oil demand is simply robust. In June, global oil demand reached 103 million barrels a day, a new all time high. But on top of that, the recent crude price rally has been supported by strong production cuts from OPEC, particularly Saudi Arabia. In April, Saudi Arabia still exported 7.4 million barrels per day of crude oil. By August, this had fallen to just 5.4 million barrels a day, that is an unusually sharp drop in a very short space time. On a 100 million barrel per day market, that may not look like much, but this is enough to drive the market into deficits, cause inventories to decline and prices to rise. What has given refined product prices, like diesel, a further boost has been tightness in the global refining system. Capacity closures during COVID, logistical difficulties in replacing Russian crude in European refineries and an unexpectedly large number of unplanned outages, partly because of a hot summer, have effectively curtailed refining capacity. Like last year, it has been all hands on deck in global refining this summer. Whether oil prices and refining margins will still rally a lot further is hard to know, but prices seem well underpinned at current levels. As long as Saudi Arabia and the rest of OPEC continue their current oil policy, the oil market is simply tight and the current cuts have all the hallmarks of lasting well into next year. On top, we think it will take some time before the current constraints in refining are resolved. Margins may decline somewhat from their current very elevated levels, but we would expect them to remain high by historical standards for some time to come. Then we would also argue that risks to natural gas prices in Europe are once again skewed higher. Prices have fallen substantially this year, and of course, they could fall somewhat further. However, if some tightness returns, they can rally a lot more, skewing that price outlook higher too. Putting this all together creates a favorable outlook for energy equities and that is where our true conviction lies. At the start of the year, we argued that earnings expectations for the energy sector were high and that market sentiment was already bullish and that valuations were stretched. After two years of rating the sector attractive, we downgraded our sector view back in January. However, pretty much all these factors have changed once again. Consensus earnings forecasts have fallen, but given our commodity outlook, we would now expect upgrades to consensus estimates to start coming through once again, making energy possibly the only sector for which this argument can be made. With strong free cash flow ahead, we expect robust dividend growth, strong share buybacks and declining net debt. Combining that with market sentiment that is no longer so buoyant for energy and valuations that have corrected quite a lot, we think energy is once again an attractive sector. Especially for those seeking high income and protection against inflation, against an uncertain geopolitical backdrop. Thanks for listening. If you enjoyed the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

Even though mortgage rates are up 100 points since the beginning of 2023, home prices are likely to stay flat or increase due to tight housing supply.----- Transcript -----Jim Egan: Welcome to Thoughts on the Market. I'm Jim Egan, co-head of U.S. Securitized Products Research here at Morgan Stanley. Jay Bacow: And I'm Jay Bacow, the other Co-Head of U.S. Securities Products Research. Jim Egan: And on this episode of the podcast, we'll be discussing U.S. home prices. It's Wednesday, September 13th at 11 a.m. in New York. Jay Bacow: Jim, mortgage rates are up over 100 basis points since the beginning of the year, but I hear you were turning more optimistic on home prices. What gives? Jim Egan: Well, the first thing that I would say is that home price data is pretty lagged and that an increase in mortgage rates is not going to be felt immediately in the data. For instance, let's assume the last week of August ends up being the peak in mortgage rates for this cycle. When would you expect that rate to start showing up in actual purchase mortgages? Jay Bacow: So, if the peak in mortgage rates is the end of August, we will get data on people applying for the mortgage the following week from the Mortgage Bankers Association. But it takes about seven weeks right now to close a mortgage. If the peak was at the end of August, the mortgages are probably closing towards the end of October, almost at Halloween. But if it closes in October, Jim, when will we actually get that data? Jim Egan: Right. The home price data is even more lagged than that. The Case-Shiller prints that we forecast and that we've talked about on this podcast, those come out with a two month delay. So those October sales, we're not going to see until December. Again, for instance, the print we just got at the end of August, that was for home prices in June. Jay Bacow: So in other words, we haven't seen the full impact of this increase in rates yet on the housing market and the data that we can see. But when we do, what's the impact going to be on home prices? Jim Egan: Well, we think the immediate impact is going to be on a few other aspects of the housing market, and then those aspects are going to potentially impact home prices. The most straightforward level here is affordability, right? That's an equation that includes prices, mortgage rates, as well as incomes, and so we're talking about the mortgage rate component. Now, one thing that you and I have said on this podcast before, Jay, is that affordability in the U.S. housing market, it's still challenged, but at least so far this year it really hasn't been getting any worse. That's not the case anymore. Affordability is still very challenged and now it's started to get worse again. By our calculations, the monthly payment on the median priced home is up 18% over the past year, and that's the first time that deterioration has accelerated since October of 2022. Three month and six month changes in affordability have also resumed deteriorating after those were actually improving earlier this year. Jay Bacow: So if homes are getting less affordable, presumably home sales should fall? Jim Egan: We think that would be kind of the probable impact there and it is something that we're seeing. To be clear, affordability is not deteriorating anywhere near as rapidly as it did in 2022, and we don't expect the same sharp declines in home sales. But this really does give us further confidence in our L-shaped forecast, and if anything it could provide a little more pressure on existing home sales. But we're also seeing the impact on the supply side of the equation. Jay Bacow: But wasn't the supply side already incredibly low? For instance, our truly refinanceable index calculates what percent of the universe has at least 25 basis points of incentive to refinance. It's at less than 1% right now. The average outstanding mortgage rate for the agency market is 3.68%. Are we really expecting the supply to fall further? Jim Egan: So that wasn't part of our original forecast and we had been seeing existing inventories really start to climb off of recorded lows. For context, our data there goes back about 40 years, but that's taken an abrupt about face in recent months. The 13% year-over-year decrease in inventory that we just saw this past month, that's the sharpest drop since June 2021, with a contraction coming through both new and existing listings. As affordability has resumed its deterioration with this increase in mortgage rates, homebuilder confidence actually fell month over month for the first time this year. Now, tight supply should continue to provide support to home prices, even as affordability has become more challenged. Jay Bacow: And so what does that support for home prices end up looking like? Jim Egan: The short answer, we expect a return to year-over-year growth with the next print that we're going to get here at the end of Sep

Economic growth data from the summer has bolstered belief in a possible soft landing in the U.S., while China has experienced a faster-than-expected deterioration in the macro environment.----- Transcript -----Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist. Along with my colleagues bringing you a variety of perspectives, I'll be talking about our views on the markets as we head into the fall. It's Tuesday, September 12th at 10 a.m. in New York. As many of us head back to school, Morgan Stanley Global economics and strategy teams look back on how the economy and the markets have evolved over the summer and look ahead to what changing narratives mean for the economic outlook and asset markets. Our debate centered on two key issues. One, the outperformance of the U.S. economy and the underperformance of China economy. And two, the recent spike in government bond yields at the longer end of the curve. The U.S. economy has been outperforming our expectations and has led markets over the summer to push out the first expected cut into 2024. The concern is that a still hot economy means that the Fed can keep policy restrictive for longer. Acknowledging the strong incoming data, our economists have revised their 2023 growth expectations significantly higher for the U.S. from 0.4% to 1.7%, even as they maintain that the Fed is done hiking and will be on hold until first quarter of 2024. On the other hand, in China, the trajectory of economic growth has been different. Over the summer, data have been pointing to a faster than expected deterioration in the macro environment. We have seen successive and incremental property and infrastructure easing measures, but market confidence has not returned and debates around earnings, spillover effects on global growth and the impact on commodities are growing. Noting the macro and policy challenges since the mid-year outlook, our China economists have revised their 2023 growth expectations lower for China from 5.7% to 4.7% for 2023. And our emerging market equity strategists have moved to equal weight on China and revise down their MSCI Emerging Market Index target. What about our call to be long duration? Ten year Treasury yields have sold off by about 65 basis points since our mid-year outlook on better than expected U.S. growth data, among other factors. Can this continue? Our strategists make modest changes to their rates forecast, but still see a path for low yields, countering the market narrative of growth reacceleration or a higher treasury supply technical. Thus, we reaffirm our conviction to be long duration, despite the rates  market moving away from us. Overall, our conviction on a U.S. soft landing has strengthened. But with monetary policy remaining restrictive, late cycle risks, growth, earnings and defaults remain. We maintain a defensive stance. We prefer bonds over equities and equal-weight stocks, overweight fixed income, underweight commodities, and equal weight cash. Combined with rich valuations, this makes us stay equal-weight equities, with a preference for rest of the world stocks over US stocks. In all, high carry and late cycle environment favor an overweight in fixed income. Thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

Heading into the end of the year, questions remain around Treasury yields and the neutral interest rate.----- Transcript -----Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Chief Global Economist. Guneet Dhingra: And I'm Guneet Dhingra, Morgan Stanley's Head of U.S. Trade Strategies. Seth Carpenter: And today on the podcast, we'll be discussing our updated economic and rates outlook for the rest of the year and into 2024. It's Monday, September 11th, at 10 a.m. in New York. Seth Carpenter: All right, Guneet. We are now about a week into September and we can take stock of what we've learned over the summer. For macroeconomists like me we care about growth, inflation, monetary policy, and I'll say this summer spending indicators came in strong, inflation continued to fall, and we had Jackson Hole, the sort of nerd temple for monetary policy. And I have to say we didn't learn quite as much as I hoped, but we kind of know the Fed has done hiking, or at least very close. But I have to say, in your domain, the Treasury yield is trading roughly 4.25%. On the last day of June, when summer began, it was around 380. Can we just attribute the higher rate to thin liquidity and move on? Guneet Dhingra: You're right Seth, it's not just thin liquidity, but the conditions of August definitely played a meaningful part in sending yields higher. Typically, as investors look to go away for August, positive carry trades are the easiest trades to have on, and playing for higher yields has been positive carry. Which is why I think in August this year and even the last year, yields tended to go higher. But beyond August, seasonality, which might be the simplest explanation, investors have 4 major narratives out there that R-star, the so-called neutral rate of interest has increased, the end of yield curve control in Japan, more Treasury supply and more recently at the end of the summer, and increased supply of corporate debt. Guneet Dhingra: So before we go there Seth, you mentioned Jackson Hole at the end of the summer. The idea that some investors have that because the economy has held up so well, despite the Fed's rate hikes, that the underlying neutral rate or R-star must be higher and so will have higher interest rates not just now, but into the future. What is your take on this whole R* debate and what have you learned from Jackson Hole? Seth Carpenter: Absolutely. So I have to say Jackson Hole was very interesting, but this time there were a lot of very academic minded papers there that were very important to talk about. I can see how they can spur debate, but I'm not sure they provide that much that's actionable in the near term for the Fed or even for markets. And when it comes specifically to R-star, color me a bit skeptical and I say that for a few reasons. One, alternate explanations just abound. We could have got stronger spending because there's more residual impetus from the fiscal policy that's already in the pipeline. And in particular, if we look at where we missed our GDP forecast, a really big part of that was nonresidential structures investment. So that could go a long way to explain it. Second, if R-star really was higher, I think that would mean that the Fed would have to raise the peak rate during this hiking cycle even higher, not just rates off in the future. And so what does that mean? That means that I at least would have expected a parallel shift higher in rates, not just along in selling off. And in fact, you might even see a steeper inversion of the curve as the rate goes higher in the near term, but then has to come down later. So take all of that together, and I guess I'm just really not convinced that there's enough evidence to conclude that R-star is higher. Guneet Dhingra: Yeah, makes a lot of sense, Seth. And listening to you about the growth and economic picture, I'm even more convinced that this R-star story doesn't quite hold water. Seth Carpenter: All right, so then there is the yield curve control story. And I will say, at the risk of patting myself on the back, our Japan team had been expecting a tweak to yield curve control in Japan, and we got it. But I know that you're skeptical that that's really the story here. Why do you push back? Guneet Dhingra: Yeah, I think one of the ways you can actually verify the impact of the yield curve control on the U.S Treasury market, is just break down the price action into different time zones. And what you saw is in the Tokyo time zone, where you would expect a lot of the so-called repatriation flows to play out, we haven't really seen much of a movement in U.S Treasury yields ever since the YCC change announcement. So I would say based on the time zone analysis, it doesn't look like YCC changes are really impacting Treasury yields. Seth Carpenter: Okay Guneet, I get it. So it wasn't from trading happening in Tokyo, but these sort of markets are global. There

Both equities and high-yield bonds could benefit from an end to ratings hikes, but may still face risks from company earnings revisions, a potential U.S. government shutdown and other events on the horizon.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Corporate Credit Research at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, September 8th at 2 p.m. in London. The week after Labor Day is both a refreshing return to more normal market conditions, and a rush. As investors head back to school, so to speak, here are a few big issues that we think they should be focused on. First and most importantly, we think the next few months will be about cementing the idea that both the Fed and the ECB are done raising interest rates for the foreseeable future. Given better than expected core inflation data in the U.S. and worse than expected growth data in Europe, we think neither central bank will raise rates at their meetings this month. And then further out, we think they stay on hold as lowered levels of bank loan growth, slower job growth and a continued decline in core inflation will reinforce the idea that central banks have raised rates enough. For markets, the end of a central bank rate hiking cycle tends to be pretty good for high grade bonds. Indeed, going back over the last 40 years, the dates of the last Fed funds rate increase and the local high point for yields on the U.S. aggregate bond index, line up almost to the month. The logic in this relationship also feels intuitive. If the Fed is done raising rates, one of two things has probably happened. It stopped raising rates at the correct level to bring inflation down without a recession and bonds like that lower inflation and more certainty, or they stopped because they've raised rates too much, slowing growth in inflation much more, a scenario where investors like the safety of bonds. But in riskier markets, the picture greeting investors in September is more murky. Like August, September also tends to see below average returns and above average volatility, and that seasonality doesn't turn helpful until mid-October. Company earnings revisions tend to be weak around this time of year, something our equity strategists believe could repeat. Investors got a lot more optimistic over the summer, raising the hurdle for good news. And there are some specific risk events on the near-term horizon, from a potential shutdown of the US government to a strike in the auto industry. For equities and high yield bonds, we therefore think investors should exercise more patience. A third issue investors will be watching is supply. September is historically one of the heaviest months of the year for corporate bond issuance, but with corporate bond yields now at some of their highest levels in nearly 20 years, will that reduce the incentive for companies to borrow? And meanwhile, one of the reasons assigned to the recent rise in US government bond yields has been the high levels of government borrowing. The next few weeks will give a much better idea of the true impact of that potential supply. Thanks for listening. Subscribe to Thoughts on the Market on Apple Podcasts, or wherever you listen, and leave us a review. We'd love to hear from you.

A strong El Niño event in the coming months could have negative effects for food inflation, commodities markets and climate change.----- Transcript -----Welcome to Thoughts on the Market. I'm Stephen Byrd, Morgan Stanley's Global Head of Sustainability Research. Along with my colleagues bringing you a variety of perspectives today, I'll discuss the global risks and impact from a potential El Niño event later this year. It's Thursday, September 7th at 10 a.m. in New York. Over the last few months, as you've been doing your backyard grilling or taking a well-deserved summertime vacation, you may have heard a passing news reference to a climate pattern called El Niño. And although I'm an equity analyst and not a meteorologist, I'm going to talk about El Niño today because it could have some significant impacts for investors. To explain, El Niño refers to a warming of the ocean surface or above average sea surface temperatures in the central and eastern tropical Pacific. It's the counterpart to La Niña, which refers to the cooling effect of the same ocean surfaces. Essentially, El Niño and La Niña represent opposite extremes in the El Niño Southern Oscillation or ENSO. ENSO follows cyclical patterns that repeat at a 2 to 7 year cadence and tend to peak in the November to February window. Current conditions imply about a 70% probability that we could be facing a moderate to strong El Niño event later this year with a range of potentially significant impacts across regions and industries. First, although El Niño starts in the Pacific equator area, it has a significant impact on global weather. El Niño tends to peak around year end, impacting global rains and temperatures. El Niño driven seasonal patterns in the U.S., Argentina and the Andes tend to be wet, while those in Southeast Asia, Australia, Brazil, Colombia and Africa tend to be dry. This dynamic creates conditions that move wildfires and hurricanes from the Atlantic into the Pacific area. El Niño events also impact the global economy and the environmental, social and governance, or ESG, factors for businesses worldwide. More specifically, a moderate to strong El Niño in combination with the Russia-Ukraine war could impact food inflation, raising questions about the emerging markets central banks easing cycles. It could also impact trade and GDP in agro-related economies such as Argentina, India, Australia, Brazil and Colombia, among others. It may also impact several commodities, including sugar, grains, animal meal, proteins, electricity, lithium, copper, iron ore, aluminum and coal. El Niño’s effects can be positive or negative for different sectors and regions. For example, El Niño tends to be a negative in emerging markets. In Latin America, given the size of the agricultural sector and the spillover effect of agriculture into other industries, growth could be affected significantly. The recession we expect in Argentina this year is partially driven by La Niña, which generated an unprecedented drought. We expect El Niño to help grain yields in Argentina and to provide significant positive base effects to GDP in 2024. Finally, when it comes to ESG, El Niño can exacerbate climate change impacts and increase concentrations of greenhouse gasses. Since this is a global issue and impacts all sectors to various degrees, we believe investors should pay close attention. Furthermore, the humanitarian impact of El Niño lasts long after the phenomenon itself, be it through impacts on food security and malnutrition, disease outbreaks, disrupted basic services and sanitation or significant impacts on livelihoods around the world. Typically, extreme weather events hit the poorest communities the hardest. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcasts app. It helps more people to find the show.

Investors anticipate new legislation on tech regulation, AI and defense, amid speculation about a potential government shutdown.-----Transcription -----Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about Congress coming back in the session and its impact on markets. It's Wednesday, September 6th, at 10 a.m. in New York. Congress returns from summer break this week with a full agenda. Expect to see tons of headlines on various policies that markets care about. Tech regulation, artificial intelligence regulation, defense spending, disaster relief aid and the risk of a government shutdown, are just some of the issues that should be tackled. It can be a bit overwhelming, so here's our cheat sheet for September in D.C. to help cut through the noise and understand why this could be a good set up for U.S bonds. On tech regulation and A.I, don't expect any meaningful movement here. New versions of legislative proposals on data privacy and liability for spreading misinformation may come, but there's still no comprehensive bipartisan agreement that could turn proposals into law. So we continue to expect that this only becomes possible after the 2024 election delivers a new government makeup. On defense spending, we expect that aid to Ukraine will continue and the Congress will approve overall defense spending levels in excess of the cap set by the agreement put in place alongside the hike of the debt ceiling. There's bipartisan agreement here, with the exception of House Republicans. Resolving issues with those holdouts will likely take brinkmanship over a government shutdown and perhaps even an actual government shutdown, but ultimately we see a deal that should be positive for a defense sector which has benefited recently by elevated spending by Western governments. The biggest story to track, though, is that risk of a government shutdown. As we previously discussed on this podcast, a shutdown is a real risk because House Republicans are not in sync with the rest of the House of Representatives and Senate on spending levels for fiscal 2024. Further, there's the sense that both sides may rightly or wrongly perceive political value in a shutdown. So there's both motive and opportunity here. And while a shutdown on its own is not sufficient to ruin our economists' expectation of a soft landing for the U.S. economy, it does add some fresh downside risk to growth in the 4th quarter, which economists already expect would be challenged. Major entertainment events in the U.S. boosted consumption above expectations this summer, and those effects should start to wane at the same time that the student loan moratorium rolls off, meaning many households will again have to direct some level of their income away from consumption toward servicing loans come October 1st. Put it all together, and it's a strong rationale for our view that high grade bonds have value here. U.S. government bond yields should be near their peak, with the market moving beyond the notion that the Fed may have to hike substantially more this economic cycle. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague, or leave us a review on Apple Podcasts. It helps more people find the show.

While valuations may be on the rise, fears around the resiliency of the economy could return and leave unguarded investors on uneven footing.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Chief investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Tuesday,  September 5th at 10 a.m. in New York. So let's get after it. In a world of price momentum, opinions about the fundamentals are often driven by the direction of price. Some of this is due to the view that markets are all knowing and often the best leading indicator for the fundamentals. After all, stocks are discounting machines and tell us what's likely to happen in the future rather than what is happening today. The old adage "buy the rumor and sell the news", is another way to think about this relationship. Using this philosophy, the move higher in stocks this year has provided the confidence for many to turn fundamentally bullish from what was an overly bearish consensus backdrop in the first quarter. The entire move in the major U.S. equity averages this year has been the result of higher valuations. However, with forward price earnings multiples reaching 20 times on the S&P 500 last month, not only are stocks anticipating higher earnings and growth, but they now require it. The other reason price momentum works has little to do with the fundamental outlook. Instead, price momentum often leads investors to chase or sell that momentum. It's human nature to want to go with the trend both up and down. Most were too negative on the economy at the beginning of the year, including us. The failure of a few large regional banks and negative price reaction in the stock market reinforced that view. However, when the recession didn't arrive, there was a fundamental reason to reverse that view. The price action in April and May supported that pivot, further feeding the bullish narrative. However, the move in price was very narrow, led by just a handful of Mega-cap growth stocks. In June, breadth improved, dragging investor confidence toward the optimistic fundamental outcome. But since then, breath has rolled over again and remains weak. We recommend maintaining a late cycle mindset, which means a barbell of growth stocks and defensive, not cyclicals or smaller stocks. Going into the second quarter earnings season we suggested it would be a "sell the news event", mainly because stocks had rallied in the mid-July, which was a change from the past several quarters where stocks trended weaker into results. Now that earnings season is over, we know that the price reaction post reporting was some of the weakest we've witnessed in the past decade. We think stocks may be starting to question the sustainability of the economic resiliency we experienced in the first half of the year. Defensives and growth stocks have done better than cyclicals. As an aside, the earnings results have not kept pace with the economy this year outside of a few areas which have been driven mostly by cost cutting rather than top line growth which furthers the idea we are still late cycle, not early or mid. This past week, equity prices have rebounded sharply, led once again by growth stocks. With softer economic data weighing on Treasury yields, stock market participants seem willing to bid valuations back up on the view the late cycle environment is being extended once again. With inadequate evidence to affirm or contradict that view, price continues to be the governing factor for many investors' conclusions about where we are in the cycle. Bottom line price momentum is a key driver of sentiment, especially in a late cycle environment when uncertainty about the outcome is high. We continue to recommend a more defensive growth posture in one's portfolio given that the fears of recession or financial distress could return at any moment in the late cycle environment in which we find ourselves, particularly as we enter September. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcast app. It help's more people to find the show.

Although back-to-school spending appears to be trending higher than in 2022, there are signs that U.S. consumers could feel pinched before the holiday season.----- Transcript -----Sarah Wolfe: Welcome to Thoughts on the Market. I'm Sarah Wolfe from Morgan Stanley's U.S. Economics Team. Simeon Gutman: And I'm Simeon Gutman, an Equity Analyst covering the U.S. Hard Lines, Broad Lines and Food Retail Industries. Sarah Wolfe: And on this special episode of the podcast, we'll focus on back to school shopping trends and what they suggest for the U.S. consumer outlook for the rest of the year. It's Friday, September 1st at 10 a.m. in New York. Simeon Gutman: Sarah, back to school shopping is in full swing as we go into the Labor Day weekend and end of the summer. As an economist who focuses on the U.S. consumer. I know you track it closely. Why is back to school shopping such an important indicator in general, and what is it suggesting about the overall health of the U.S. consumer? Sarah Wolfe: Back to school is a large shopping event across July and August each year, which is an event that is only as strong as the strength of the U.S. household. If households feel good about job prospects and inflation is not eating away at their buying power, you should see that reflected in back to school sales. If we go back to summer 2022, headline inflation was 8% going into back to school shopping, and there were lingering concerns about COVID disrupting school. In 2023, certain headwinds to the consumer are risks to spend, these include higher debt service costs, tighter lending standards and a student loan moratorium expiring in October, but a still strong labor market and abating inflationary pressures that have supported a recovery in real wages should outweigh the downside risk and lead to a moderate back to school spending year. So what does this all mean for what we're seeing in the data? Our early read on July back to school shopping and in-store sales is that they're going to be weaker than the historical average, however, August matters most. If we see August sales in line with the historical average, then back to school sales for 2023 on a year-over-year basis would be quite a bit stronger than 2022 still, but roughly in line with the historical run rate from 2011 to 2019. This jives with our early readings from our AlphaWise Consumer Poll survey that this year back to school shopping is looking stronger than last year, but it is not a blowout. Simeon Gutman: And how about end of year holiday spending? Is back to school a predictor of holiday spending trends? Sarah Wolfe: Back to school shopping is indeed a predictor of holiday shopping trends. However, the early read through to holiday shopping points to a holiday season that's actually weaker than 2022, but in line with the historical run rate as well. Total retail sales on a non seasonally adjusted basis across November and December have been 8% year-over-year from 2011 to 2019 in 2021, the growth was 33% and 2022 was 12%. This was due to stronger than usual demand for goods as a result of COVID and stimulus. So while the consumer remains relatively healthy and is spending more on back to school shopping than last year, it'll be tough to beat 2022 holiday shopping growth. The preliminary forecast for holiday shopping is to see growth in line with the historical run rate, but weaker than next year. We still get a couple more retail sales reports that are going to help us fine tune our holiday shopping forecast. Simeon, turning it over to you, what specific trends are you observing during this back to school shopping season? Simeon Gutman: So far, it's mixed. On the surface, it looks like the consumer is healthy. If we look at durable goods spending the last couple of months, we have June and now July, low 2% range. That's decent. But under the surface, it's a bit of a different story. If you look at the Q2 comps across the coverage universe, they were roughly flat. That's not a great indicator of spending. And we see a shift towards consumables and supplies and must haves. Consumers are not prioritizing discretionary items. Big ticket items are under pressure. The companies that are growing and doing well, they look like they're taking market share, there's a shift towards value, so discount stores, dollar stores, off price stores, and it looks like it's a story of product categories, beauty and auto parts. What we've seen specifically for back to school, July was a strong month, but there was potentially some pull forward from earlier in the season. August seems to be good, but may have slowed a little and we'll see about September. But consumers are definitely shopping more on occasion and it's been a little bit choppy. Sarah Wolfe: These are great insights, Simeon, on how consumer behavior is slowly evolving as the macro backdrop becomes a little bit tougher. You've also highlighted electronics as one particular area t

While recent news of a potential debt deflation loop in China’s equity market is causing concern for investors, Japan’s equity market resilience may bring optimism.----- Transcript -----Welcome to Thoughts on the Market. I'm Daniel Blake from Morgan Stanley's Asia and Emerging Markets Equity Strategy team. Along with my colleagues, bringing you a variety of perspectives, today I'll discuss the Japanese equity market vis-a-vis China. It's Thursday, August 31st at 9 a.m. in Singapore. We recently did a three part series on this show focusing on our economic and market outlook for Japan. We discussed a bullish view on Japan equities, which is driven by three powerful drivers of outperformance coming together, namely macro, micro and the transition to a multipolar world. Recently, however, there's been investor concern about the potential impact on Japan from a Chinese debt-deflation loop, that is a scenario where prices fall, debt rises and economic growth stagnates, and this is the risk that I will discuss today. As a reminder, our economists came into 2023 flagging Japan as a standout developed market for growth momentum. In contrast to a U.S and European slowdown, as Japan continues to benefit from COVID reopening, ongoing stimulatory policy and a competitive currency. Since then, we have seen upside surprises, such as in wages and capital investments amid what we see as confirmation of a move into a structurally higher nominal GDP growth path. Indeed, Japan's recent second quarter GDP figures confirmed that trend, with a surge in real and nominal GDP to 6% and 12% annualized respectively. Following this result, our economists have doubled their 2023 GDP forecast to 2.2%, and this stands in contrast to China's GDP growth trend, where our economists have been reducing forecasts and will see nominal GDP growth slow below that of Japan to 4.8% over the last year. So the key exception to a generally bullish picture for Japan has been its linkages to China. While this may appear to be a legitimate investor concern for the market as a whole, it's important to note that Japanese revenues are driven much more by the U.S and Europe, which together make up a quarter of total sales. Instead, China makes up just 5% less than many assume, and far lower than that of Singapore, Taiwan, Australia or South Korea. However, there are some pockets of China exposure that we note, including in semis and semi-cap equipment, electronic components and factory automation. Another reason for our optimism about Japan's equity market resilience amid the slowdown in China is that China exposed Stocks in Japan have almost fully unwound the outperformance seen during the early COVID zero and post-COVID reopening phases. In contrast, Asia-Pacific ex-Japan companies with high exposures to China, many of them in the technology or resources sector, stand close to their relative highs. So while we do see from here less upside to the aggregate MSCI Emerging Markets Index and the Tokyo Stock Price Index, known as TOPIX, after the post October rally, we do see good reason for Japanese equities to continue to outperform. Valuations on a 12 month forward basis are in line or slightly below their ten year historical averages, and we expect 10% earnings growth in 2023 and 2024 as that nominal GDP growth recovery and corporate reform rolls through the market. The key downside risk will, of course, be not just the Chinese debt deflation loop, but adding on top a US recession, which ironically would be similar to what happened in the 1990s, when in Japan, imbalances, excess leverage and insufficient policy stimulus tipped the economy into structural deflation and stagnation. So while that risk is more relevant for China and Japan is in a completely different situation now, we are closely monitoring the risks of this bear case scenario and what that would mean for parts of the Asia and emerging markets universe. So thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

Although Europe has been the global leader when it comes to greening its economy, recent challenges may be a cause for concern.----- Transcript -----Rob Pulleyn: Welcome to Thoughts on the Market. I'm Rob Pulleyn, Morgan Stanley's Head of Utilities of Clean Energy Research in Europe. Jens Eisenschmidt: And I'm Jens Eisenschmidt, Morgan Stanley's Chief Europe Economist. Rob Pulleyn: On this special episode of this podcast, we'll be discussing the future of Europe's energy transition, including whether its clean energy goals are realistic and the implications for investors and Europe's broader economy. It's the 30th of August, 10 a.m. in London. Rob Pulleyn: Europe has long been a global leader when it comes to greening its economy. Strong societal and political support has bolstered the region's transition to clean sources of energy, with a European Green Deal and climate target plan aiming to reduce CO2 emissions by at least 55% by 2030 and achieve net zero by 2050. While substantial progress has been made over the previous decades, the region is now facing several challenges. Jens, can you give us the backdrop to Europe's energy transition and some of what's changed recently? Jens Eisenschmidt: Yes Rob, I mean, you have explained it already. There are big change targets, climate change related targets to the energy transition that Europe has subscribed to. These targets were in place already before the 24th of February in 22, when we saw the Russian invasion in Ukraine that changed the European energy set up profoundly. Now, why is this important? It's important because these targets were done in sort of a plan that relied on a certain energy source that is no longer existing. So let me give you an example. Let's take Germany, which was anyway already quite progressed in its journey onto increasing the share of renewables in electricity production. If you take Germany, they have been turning their back on nuclear power generation, which is another source of emission free power generation, and have embraced as a flex load provider, so as a provider of electricity when renewables are unavailable to natural gas. Now this natural gas supply from Russia is no longer available, as we all know, and of course, that implies that the Germans and other member states of the European Union as well have to change the plan by which they transit to a carbon free economy. And, you know, this is very complicated because it's not only switching one energy source for the other or exchanging one for the other. You also have to look about the infrastructure, you have to see what is essentially giving your energy mix the stability, as I said before, when we don't have sun shining and wind blowing, you need to have a source that's about the question about storage technologies, that's not entirely independent of the energy sources that you have available. And so the last year provided a profound challenge to the way Europe had planned its energy transition, so they have to replan it, and the complexity of that is huge. Essentially, it's something you want to ideally plan at the European level in order to harness all the comparative advantages all the countries have, given example, you have a lot of sun hours in Spain, less so in Germany, so ideally you want to put solar for Europe somewhere south and not so much somewhere north. But that of course means something for the grid, you have to deploy around it. So all that complexity is huge, all the coordination needs are huge and so this is the new situation we are in. Rob Pulleyn: Yeah, that new situation clearly puts increased pressure on Europe, if electricity prices remain elevated, Europe's large industrial base and you mentioned Germany would continue to shoulder this burden. You know margins, pricing, competitiveness would all suffer and the region's place in the global value chain might be at risk. Now, renewables are increasingly cost competitive, but even when the solar power is still very intermittent and that requires either a  stable baseload or at least flexible generation. And as you mentioned, this previously was facilitated partly by Russian gas. Now, with all that in mind Jens, how much investment is needed to fund the transition and is there economic risk associated with this? Jens Eisenschmidt: So the numbers are huge. We have said that number could be around $5 trillion, other sources estimate this to be slightly higher, but more or less the ballpark is the same. We also know that already $1.4 trillion is earmarked from public funds, so EU budget, meaning that $3.6 are left for the private sector to deploy or for member states to come up from national budgets. So the figure itself boiling down to somewhere between $5 to $600 billion a year until at least 2030 and maybe beyond, these figures are not in itself the problem. The problem is how do you, according to which plan, do you deploy this and what is the sort of economic backd

If China economic woes become a true debt deflation cycle, it could export some of that disinflation to the global economy.----- Transcript -----Welcome to Thoughts on the Market. I'm Seth Carpenter, Global Chief Economist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, today, I'll be talking about the global implications of China's economic slowdown. It's Tuesday, August 29th, at 10 a.m. in New York. China's economic woes continue to be center stage. Our Asia team has outlined the risks of a debt deflation cycle there and how policy is needed to avert the possibility of a lost decade. As always, big economic news from China will get global attention. That said, when we turned bullish on China's economic growth last year, we flagged that the typical positive spillovers from China were likely to be smaller this cycle than in the past. We expected growth to be heavily skewed towards domestic consumption, especially of services, and thus the pull into China from the rest of the world would be smaller than usual. We also published empirical analysis on the importance of the manufacturing sector to these global spillovers, and the very strong Chinese growth and yet modest global effects that we saw in the first quarter of this year vindicated that view. Now the world has changed and Chinese growth has slumped, with no recovery apparent so far. The global implications, however, are somewhat asymmetric here. Because we are seeing the weakness now show through to the industrial sector and especially CapEx spending, we cannot assume that the rest of the world will be as insulated as it was in the first quarter. Although we have recently marked down our view for Chinese economic growth, we still think a lost decade can be avoided. Nevertheless, with Chinese inflation turning negative, the prospect of China exporting disinflation is now getting discussed in markets. Much of the discussion about China exporting this inflation started when China's CPI went into deflation in the past couple of months. Although the connection is intuitive, it is not obvious that domestic consumer price numbers translate into the pricing that, say, U.S. consumers will eventually see. Indeed, even before China's prices turned negative, U.S. goods inflation had already turned to deflation because supply chains had healed and consumer spending patterns were starting to normalize. For China to export meaningful disinflation, they will likely have to come through one of three channels. Reduced Chinese demand for commodities that leads to a retreat in global commodities prices, currency depreciation or exporters cutting their prices. On the first, oil prices are actually at the same levels roughly that they were in the first quarter after Chinese goods surged. And they're well off the lows for this year. And despite the slump in economic activity, transportation metrics for China remain healthy, so to date, that first channel is far from clear. The renminbi is much weaker than it was at the beginning of the year. But recent policy announcements from the People's Bank of China imply that they are not eager to see a substantial further depreciation from here, limiting the extent of further disinflation through that channel. So that leaves exporters cutting prices, which could happen, but again, it need not be directly connected to the broader domestic prices within China coming down. So all of that said, the direction of the effect on the rest of the world is clear. Even if the magnitude is not huge, there is a disinflationary force from China to the rest of the world. For the Fed and ECB, other developed market central bankers, such an impulse may be almost welcome. Central banks have tightened policy intentionally to slow their economies and pulled down inflation. Despite progress to date, we are nowhere near done with this hiking cycle. If we're wrong about China, however, should we start to worry about a global slump? Probably not. The Fed is currently trying to restrain growth in the US with high interest rates. If the drag comes more from China, well then the Fed will make less of the drag come from monetary policy. Thanks for listening and if you enjoy the show, please leave us a review on Apple Podcasts, and share Thoughts on the Market with a friend or colleague today.

Proposed regulations for smaller banks show that turmoil in the banking sector may still have an impact on the broader economy.----- Transcript -----Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the links between regulations and the real economy. It's Monday, August 28, at 11 a.m. in New York. In the euphoria of buoyant equity markets over the last few months, the many challenges facing regional banks have receded into the background. While it certainly has not been our view, a narrative has clearly emerged that the issues in the sector that erupted in March are largely behind us. The ratings downgrades by both Moody's and Standard & Poor's of multiple U.S. banks in the last few weeks provide a reminder that the headwinds of increasing capital requirements, higher cost of funding and rising loan losses continue to challenge the business models of the regional banking sector. The rating agency actions come on the heels of proposed rules to modify capital requirements for banks with total assets of 100 billion or more. Separately, the Fed has proposed a capital rule on implementing capital surcharge for the eight U.S. global systemically important banks. Further proposed regulations on new long term debt requirements for banks with assets of $100-700 billion are due to be announced tomorrow. It is early in the rulemaking process for all of these proposals. They may change after the comment period and the rules will be phased in over several years once they are finalized. Nevertheless, they outline the framework of the regulatory regime ahead of us. While we won't go into the detailed discussion of thousands of pages of proposals here, suffice to say that the documents envisage significantly higher capital requirement for much of the U.S. banking sector, and extends several large bank requirements to much smaller banks. One such requirement pertains to the impact on capital of unrealized losses in available for sale securities. Currently, this provision applies only to Category one and Category two banks, that is banks with greater than $700 billion in total assets. But the proposal now expands it to Category three and Category four banks, that is banks with greater than $100 billion in total assets. A recent paper from the San Francisco Fed shows how the regulatory framework of the banking system affects the real economy. Specifically, the paper demonstrates that banks, which experienced larger market value losses on their securities during the 2022 monetary tightening cycle extended less credit to firms. Given the experience of the last 18 months across fixed income markets, extending the impact of such mark-to-market losses to smaller banks, as is being proposed now, would exasperate the potential challenges to credit formation. Against this background, we look at the near term prospects for bank lending. In the latest Senior Loan Officer Opinion survey, reflecting 2Q23 lending conditions, lending standards tightened across nearly all categories for the fourth consecutive quarter. Banks expect to tighten lending standards further across all categories through the year end, with the most tightening coming in commercial real estate, followed by credit card and commercial and industrial loans to small firms. The survey also asked banks to describe current lending standards relative to the midpoint of the standards since 2005. Most banks indicated the lending standards are tighter than the historical midpoint for all categories of commercial real estate and commercial and industrial loans to small firms. The bottom line is that more tightening lies ahead for the broader economy. This survey shows how the evolution of regulatory policy can weigh on credit formation and overall economic growth. Given the disproportionate exposure of the regional banks to commercial real estate debt that needs to be refinanced, commercial real estate is likely to be the arena where pressure has become most evident, another reason why we are skeptical that the turmoil in the regional banking sector is behind us. While the proposed regulatory changes can open doors for non-bank lenders, such as private credit, it is important to note that such lending will likely come at higher cost. Thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

As the Fed meets this weekend for their annual summit at Jackson Hole, investors are most focused on whether rate hikes will continue and the state of the neutral interest rate.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Corporate Credit Research at Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, August 25th at 2 p.m. in London. The eyes of the market will be on Wyoming this weekend, where the Federal Reserve is holding its annual summit at Jackson Hole. While many topics will be discussed, investors are particularly focused on two: is the Fed done raising interest rates? And is the so-called neutral rate of interest higher than initially thought? The Federal Reserve has been raising interest rates at the fastest pace in 40 years to try to get rates to a level where economic activity starts to slow, easing inflationary pressure. But the level of interest rate that achieves this is genuinely uncertain, even to the experts at the Fed. We believe that they'll feel increasingly comfortable that rates have now hit this level. And in turn, Morgan Stanley's economists do not expect further rate hikes in this cycle. A few things drive our thinking. First, those inflationary pressures are easing. Two key measures of underlying inflation, core PCE and core CPI, slowed sharply in the most recent reading. Leading indicators for car prices and rental costs, which have been big drivers of high inflation last year, now point in the opposite direction. Bank loan growth is slowing and the torrid pace of U.S. job growth is also moderating, two other signs that interest rates are already restrictive. Historically, the Fed being done raising interest rates has been supportive for markets. But the relationship with high grade bonds is especially notable. Since 1984, there have been five times where the Fed has ended interest rate hiking cycles after multiple increases. Each time the yield on the U.S. aggregate bond index peaked within a month of this last hike. In short, the Fed being done has been good for the U.S. Agg Bond Index. And we can see the logic to this. If the Fed has stopped raising interest rates, one of two things may very well be true. First, it stopped at the correct level to support growth while also reducing inflation, and that stability with less inflation is liked by the bond market. Or it has stopped because rates are actually too high and set to slow growth and inflation much more sharply. In the second scenario, investors like the safety of bonds. But behind this question of whether the Fed will pause is another, larger issue. What is the so-called neutral rate of interest that neither slows nor boosts the U.S. economy? During the decade of stagnation that followed the global financial crisis, weak growth led people to believe that this balancing interest rate was extremely low. There are signs this thinking persists, when the Fed surveys its members about where they see the Fed funds rate over the long run, which is a proxy for where this neutral interest rate might be, the median is just 2.5%. In 2012, the Fed thought this same rate was over 4%. So that will be another focus at Jackson Hole, and beyond. The strength of the U.S. economy in the face of higher rates has been a surprising story. Does that mean that the balancing interest rate is much higher, and will the Fed raise their long run estimates of this rate to reflect this? Or is recent U.S. strength still temporary and not yet fully reflecting the effect of higher interest rates? Expect this debate to continue in the months ahead. Thanks for listening. Subscribe to Thoughts on the Market on Apple Podcasts, or wherever you listen, and leave us a review. We'd love to hear from you.

Inspiring change through informed and inclusive innovation. On Access & Opportunity, host Carla Harris, Senior Client Advisor at Morgan Stanley, explores the lived experiences of the people who face systemic inequities and sits down with founders, investors, developers, activists, and educators who are building a more equitable future today.

As debate season begins among Republican presidential candidates, can investors hope to glean market insights for 2025 and beyond?----- Transcript -----Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the impact of presidential debates on markets. It's Wednesday, August 23rd at 10 a.m. in New York. Several candidates seeking the Republican Party's nomination for president take the stage in the debate tonight. Coverage of the event in traditional and financial media has escalated in anticipation of the debate. And while it's a good idea for voters looking to understand the candidates better and make an informed choice to tune in to the debate, for those tuning in looking for something that might guide their perception of how the 2024 election might impact financial markets, our guidance is this: lower your expectations. This debate, the first among many, is likely to tell us a lot less about who the nominee will be than traditional polls. Those polls show former President Trump with solid support that surpasses his main rivals. And while, of course, there's plenty of time for that to change, debates this early in the process haven't historically been reliable indicators of changes in support that may follow. This may be even more true this time around, since President Trump is not attending this debate. And so it will be more difficult to get a read as to which candidates might be better suited than others to make a more persuasive argument to Republican voters than the former president. Additionally, debates this early in the process generally tell us little about potential policy changes that could result from any one of these candidates ultimately being elected in 2024. Stock and corporate bond investors, in theory, might be very interested in what these candidates have to say about a variety of pending corporate tax code changes starting in 2025. But one shouldn't expect candidates to get into that level of detail on the debate stage. General comments about making sure the tax code doesn't work against the economy are far more likely. Further, the ability of any candidate to execute on their policy vision is going to be a function of the makeup of Congress, which again, this debate is unlikely to give us much information about. Bottom line, the 2024 election will be consequential to the markets, but tune in to the debate to inform yourself as a voter. As we've said in previous podcasts, it's too early to expect to learn anything that will help you as an investor.Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague, or leave us a review on Apple Podcasts. It helps more people find the show. 

Original Release on August, 1st 2023: While the U.S. economy appears on track to avoid a recession, investors should still consider the implications of an upcoming wave of maturities in corporate credit.----- Transcript -----Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist. Along with my colleagues bringing you a variety of perspectives, I will be talking about potential risk to the economy. It's Tuesday, August 1st at 10 a.m. in New York. Another FOMC meeting came and went. To nobody's surprise the Fed hiked the target Fed funds rate by 25 basis points. Beyond the hike, the July FOMC statement had nearly no changes. While data on inflation and jobs are moving in the right direction, the Fed remains far from its 2% inflation goal. That said, Fed Chair Powell stressed that the Fed is closer to its destination, that monetary policies is in restrictive territory and is likely to stay there for some time. Broadly, the outcome of the market was in line with our economists expectation that the federal funds rate has peaked, will remain unchanged for an extended period, and the first 25 basis point cut will be delivered in March 2024. Powell sounded more confident in a soft landing, citing the gradual adjustment in the labor market and noting that despite 525 basis point policy tightening, the unemployment rate remains at the same level it was pre-COVID. The fact that the Fed has been able to bring inflation down without a meaningful rise in unemployment, he described as quote unquote "blessing". He noted that the Fed staff are no longer forecasting a recession, given the resilience in the economy. This specter of soft landing, meaning a recession is not imminent, is something our economists have been calling for some time. This has now become more broadly accepted across market participants, albeit somewhat reluctantly. The obvious question, therefore, is what are the risks ahead and what are the paths for such risks to materialize? One such potential risk emanates from the rising wave of credit maturities from the corporate credit markets. While company balance sheets, by and large, are in a good shape now, given how far interest rates have risen and how quickly they have done so, as that debt begins to mature and needs to be refinanced, it will happen at sharply higher rates. From now through the end of 2024, almost a trillion of corporate debt will mature. Sim ply by holding rates constant, that refinancing will represent a tightening of financial conditions. Fortunately, a high proportion of the debt comes from investment grade borrowers and does not appear to be particularly challenging. However, below investment grade debt has a tougher path ahead for refinancing. As we continue through 2024 and get into 2025, more and more high yield bonds and leveraged loans will need to be refinanced. All else equal, the default rates in high yield bonds and leveraged loans currently  hovering around 2.5% may double to over 5% in the next 12 months. The forecasts of our economists point to a further slowdown in the economy from here, as the rest of the standard lags of policy are felt. We continue to think that such a slowing could necessitate a re-examination of the lower end of the credit spectrum. The ongoing challenges in the regional banking sector only add to this problem. In our view, in the list of risks to the U.S. economy, the rising wave of maturities in the corporate debt markets is notable. Thanks for listening. If you enjoyed the show, please leave us a review on Apple Podcasts, and share Thoughts on the Market with a friend or colleague today.

Original Release on July, 27th 2023: With higher quality and lower costs, China’s electric vehicles could lead a shift in the global auto industry.----- Transcript -----Adam Jonas: Welcome to Thoughts on the Market. I'm Adam Jonas, Head of Morgan Stanley's Global Autos and Share Mobility Team. Tim Hsaio: And Tim Hsaio Greater China Auto Analyst. Adam Jonas: And on this special episode of Thoughts on the Market, we're going to discuss how China Electric vehicles are reshaping the global auto market. It's Thursday, July 27th at 8 a.m. in New York. Tim Hsaio: And 8 p.m in Hong Kong. Adam Jonas: For decades, global autos have been dominated by established, developed market brands with little focus on electric vehicles or EVs, particularly for the mass market. As things stand today, affordable EVs are few and far between, and this undersupply presents a major global challenge. At Morgan Stanley Equity Research, we think the auto industry will undergo a major reshuffling in the next decade as affordable EVs from emerging markets capture significant global market share. Tim, you believe China made EVs will be at the center of this upcoming shakeup of the global auto industry, are we at an inflection point and how did we get here? Tim Hsaio: Thanks, Adam. Yeah, we are definitely at a very critical inflection point at the moment. Firstly, since last year, as you may notice that China has outsized Germany car export and soon surpassed Japan in the first half of this year as the world's largest auto exporter. So now we believe China made EVs infiltrating the West, challenging their global peers, backed by not just cheaper prices but the improving variety and quality. And separately, we believe that affordability remains the key mitigating factors to global EV adoption, as Rastan brands have been slow to advance their EV strategy for their mass market. A lack of affordable models actually challenged global adoption, but we believe that that creates a great opportunity to EV from China where a lot of affordable EVs will soon fill in the vacuum and effectively meet the need for cheaper EV. So we believe that we are definitely at an inflection point. Adam Jonas: So Tim, it's safe to say that the expansionary strategy of China EVs is not just a fad, but real solid trend here? Tim Hsaio: Totally agree. We think it's going to be a long lasting trend because you think about what's happened over the past ten years. China has been a major growth engine to curb auto demands, contributing more than 300% of a sales increment. And now we believe China will transport itself into the key supply driver to the world, they initially by exporting cheaper EV and over time shifting course to transplant and foreign production just similar to Japan and Korea autos back to 1970 to 1990. And we believe China EVs are making inroads into more than 40 countries globally. Just a few years ago, the products made by China were poorly designed, but today they surpass rival foreign models on affordability, quality and even detector event user experience. So Adam, essentially, we are trying to forecast the future of EVs in China and the rest of the world, and this topic sits right at the heart of all three big things Morgan Stanley Research is exploring this year, the multipolar world, decarbonization and technology diffusion. So if we take a step back to look at the broader picture of what happens to supply chain, what potential scenarios for an auto industry realignment do you foresee? And which regions other than China stand to benefit or be negatively impacted? Adam Jonas: So, Tim, look, I think there's certainly room to diversify and rebalance at the margin away from China, which has such a dominant position in electric vehicles today, and it was their strategy to fulfill that. But you also got to make room for them. Okay. And there's precedent here because, you know, we saw with the Japanese auto manufacturers in the 1970s and 1980s, a lot of people doubted them and they became dominant in foreign markets. Then you had the Korean auto companies in the 1990s and 2000s. So, again, China's lead is going to be long lasting, but room for on-shoring and near-shoring, friend shoring. And we would look to regions like ASEAN, Vietnam, Thailand, Indonesia, Malaysia, also the Middle East, such as Morocco, which has an FTA agreement with the U.S. and Saudi, parts of Scandinavia and Central Europe, and of course our trade partners in North America, Mexico and Canada. So, we’ re witnessing an historic re-industrialization of some parts of the world that where we thought we lost some of our heavy industry. Tim Hsaio: So in a context of a multipolar trends, we are discussing Adam, how do you think a global original equipment manufacturers or OEM or the car makers and the policymakers will react to China's growing importance in the auto industry? Adam Jonas: So I think the challenge is how do you re-architect supp

Bond yields have seen a surprising increase as a result of real interest rates, which could mean both good and bad news for other asset types.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, a Senior Fixed Income Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, August 18th at 2 p.m. in London. August is a month in financial markets that is often all or nothing. Sometimes it's quiet, a self-reinforcing state where investors desire to recharge and enjoy the nicer weather means fewer deals and lower activity, reinforcing the desire to enjoy the nicer weather. But there's a flip side. The fact that so many investors' are away in August can also amplify market moves, especially if worries mount, and we see that in the historical data. August has seen the largest average rise in stock market volatility of any month, if we go back to 2010, where it's seen higher volatility in 10 out of the last 14 years. So far, this August is off to another volatile start. The culprits are plenty. Equity markets have been having a great run based almost entirely on expanding valuations, an unusual occurrence, as Lisa Shalett, the CIO of Morgan Stanley Wealth Management and I discussed on this program last week. Data in China has been weaker than expected and across the U.S., Europe and Japan, bond yields have been rising significantly. The bond move is especially notable given how it's been happening. Yields aren't rising because of inflation, as last week's U.S. consumer price inflation reading was a little better than expected, and longer run expectations of U.S. inflation are actually lower on the month. The market also has increased its expectation of further rate hikes from the Federal Reserve or the ECB, although it has added another expected hike for the Bank of England. Rather, the increase in yields this month has been almost entirely due to the so-called real interest rate, that is the yield on bonds over and above expected inflation. In the U.S., ten year real rates are now about 1.9% above expected inflation, which is a similar level to what we saw from 2003 to 2005. There's both bad and good news here. The bad news is that if investors can get a higher guaranteed return over inflation from government bonds, other assets are going to look less attractive by comparison. We continue to hold a more cautious view on U.S. equity markets as well as commodities. But there's also some good news. Higher real rates have made TIPS or Treasury inflation-protected securities more attractive and my colleagues in interest rate strategy like them. The recent volatility in bond markets has cheapend mortgage backed securities, where my colleague Jay Bacow, Morgan Stanley's co-head of securitized products research, has recently moved back to a positive view. And higher yields are improving the funding ratio for many pension funds, encouraging them to buy safer, longer term investment grade bonds. More broadly, higher long term real rates could be a sign that the market is more confident about the long term outlook for the U.S. economy. If we think back to the 1990s, it was a period of higher expected potential growth and higher rates relative to expected inflation. If we think about the sluggish 2010s, it was the opposite with very low rates relative to inflation as the market worried that growth could not achieve escape velocity. It will take years to know if the bond market is really endorsing a stronger long run economic view, but as we hope to emphasize, higher rates aren't necessarily all bad. Thanks for listening. Subscribe to Thoughts on the Market on Apple Podcasts, or wherever you listen and leave us a review. We'd love to hear from you.

Although China’s economy faces challenges in terms of debt, demographics and deflation, the right policy approach could ward off a debt deflation loop.----- Transcript -----Welcome to Thoughts on the Market. I'm Chetan Ahya, Morgan Stanley's Chief Asia Economist. Along with my colleagues, bringing you a variety of perspectives, today I'll be discussing the journey ahead for China as it faces the triple challenge of debt, demographics and deflation. It's Thursday, August 17, at 9 a.m. in Hong Kong. Before we get into China, I want to take you back to the oft-told tale from the 1990s when Japan experienced what we now refer to as the ‘Lost Decade.’ During this period, the combination of economic stagnation and price deflation transformed a bustling economy in the 1980s, into an economy that grew at a little more than 1% annually over a decade. Fast forward to today, where China is confronted with the triple challenge of debt, demographics and deflation, what we are calling the 3Ds. As a result, many investors are now concerned that China will be stuck in a debt deflation loop, just like Japan was in the 1990s. But is China better placed to manage these headwinds even though the risks of falling into debt deflation loop remain high? We think at the starting point, the answer is yes, but with a few historical lessons that I'll get into in a moment. For context, China compares better with the Japan of the 1990s in the following four aspects. First, asset prices in China have not run up as much. Second, per capita incomes are still lower in China, implying a higher potential growth runway. Third, unlike Japan, China has not experienced a big currency appreciation shock. And finally, perhaps the most crucial difference is policy setting. Back in the 90s, the Bank of Japan kept real interest rates higher than real GDP growth between 1991 and 1995. But in contrast to Japan, China's real rates are below real GDP growth currently. To explain, historically, when economies are seeking to stabilize or reduce debt, the key element is to ensure that there is adequate gap between real interest rates and real GDP growth. In Japan's case, real interest rates were maintained about real GDP growth for the first four years. A similar situation occurred in the US post the 1929 stock market crash. As real rates were kept high, it laid the ground for the beginnings of the Great Depression. From both of these examples, the historical track shows two policy missteps. First, policymakers' concern about reigniting misallocation leads them to gravitate towards a hawkish bias. Second, policymakers tend to turn hawkish too quickly at the first signs of a recovery. During the Great Depression, easing of policies had led to recovery from 1933 onwards, but a premature tightening of policies in 1936 led to the double dip in 1937/38. Contrast this with the US after 2008, when the Fed was quick to bring rates to zero and embark on successive rounds of quantitative easing while fiscal policy was deployed in tandem. Sustaining real interest rates 2 percentage points below real GDP growth is key to deleveraging. Why? Because if you think about it, deleveraging will not be possible if the interest rate on your debt is growing faster than the increase in your income. In this context, while China's real interest rates are below real GDP growth currently, we still see the risk that policymakers will not take up reflationary policies to sustain the rates minus growth gap, which keeps the risk of China falling into debt deflation loop alive. So what is the potential outcome? China's policymakers will need to act forcefully. If they don't, the economy could fall into debt deflation loop, persistent deflation would take hold, debt to GDP would keep rising, and GDP per capita in USD terms would stagnate, just as it happened in Japan in the 1990s. But, as history has shown us, that doesn't have to be the outcome. Thanks for listening. If you enjoyed the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or a colleague today.

Although Congress has avoided previous shutdowns with last-minute resolutions, investors shouldn’t get complacent in assuming the same outcome again in the fall.----- Transcript -----Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about what investors need to know about the risk of the U.S. government shutdown. It's Wednesday, August 16th at 10 a.m. in New York. Congress is in recess until September. When they return, they'll have just a few weeks to pass several funding bills in order to avoid a government shutdown. And while it certainly seems like dramatic deadlines and last minute resolutions are all too common in D.C. these days, investors shouldn't get complacent on this one. Let's start with why investors should take seriously the risk of a government shutdown, which happens when Congress fails to authorize spending to keep most government functions open. When that happens, there are both direct economic impacts, such as government workers and contractors not getting paid on time and indirect impacts, such as the economic activity of those workers and contractors being crimped given that they're going without pay. In the 2019 shutdown, for example, 800,000 government workers were affected by this disruption. Our economists estimate that for every week the government is shut down, we should expect a 0.05% point reduction in GDP, with that impact compounding and increasing over time. While that's not a huge number, in the context of an already softening economic growth and profit outlook for stocks, it doesn't help. So if a shutdown presents economic downside, why is that even a possibility? Here's four reasons why. First, Congress faces several challenging negotiations in September, which elevates the complexity of the legislative process ahead of the shutdown deadline. Second, there are disagreements within the Republican Party on what the right level of funding is for the government, meaning one of the two parties has yet to firm up its position to get negotiations going in earnest. Third, there's also disagreement within the Republican Party on aid levels for Ukraine. Finally, there appears to be greater willingness on the part of lawmakers to engage in policy standoffs, as evidenced by the recent debt ceiling negotiation. While history shows that approval ratings for both parties fared poorly following a shutdown, shutdowns happen nonetheless, and quotes from key members of both parties suggest little concern with the political impact of such an event. So what's an investor to do from here? For the moment, not much. We're not expecting much news on this or market reaction until September. Until then, we'll, of course, keep you updated on anything relevant. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague, or leave us a review on Apple Podcasts. It helps more people find the show.

With the rupee appreciating, manufacturing and services in a consistent rally and demographic trends on an upswing, India may be better poised for a long-term boom than other markets in Asia.----- Transcript -----Welcome to Thoughts on the Market. I'm Jonathan Garner, Chief Asia and Emerging Market Equity Strategist at Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, today I'll be talking about why India is now our preferred market in Asian equities. It's Tuesday, August 15th at 8am in Singapore. Before we dive into the details of some important changes in view that we've recently published, let's take a step back and set the scene for today's changes in a broader thematic context. Firstly, a reminder that we think we began a new bull market in Asia and EM last October. And from the trough in late October, the MSCI Emerging Markets Index is up around 25%. So the changes we're making are about identifying leadership at the market level as we transition towards a midcycle environment. Secondly, we continue to prefer Japan within our coverage, which remains Morgan Stanley's top pick in global equities but is a developed market. In terms of the changes that we've made on the downgrades side, for Taiwan, it has led the way off the bottom, rising almost 40% since last October. It's a market dominated by technology and export earnings, where the structural trend in return on equity has been positive in recent years as those firms have succeeded globally. Our upgrade last October was a simple cyclical story of distressed valuations at a time of depressed sentiment about underlying demand trends in semiconductors. The situation is very different today. Valuations are back to mid-cycle levels, and while demand remains weak in key areas such as smartphones and conventional cloud, a path to recovery is becoming more evident. Moreover, as has been the case in many prior cycles, a new end use category AI service is generating significant excitement. Our China downgrade, which is linked to our Australia downgrade via the Australian mining stocks, has a different structural set up. The China market, unlike Taiwan, is overwhelmingly dominated by domestic demand stocks and its domestic demand which has failed to recover convincingly in the post-COVID environment. Indeed, the current investor debate is centered on whether China's demographic transition, high domestic debt to GDP ratio and over-investment in property and infrastructure are starting to generate a balance sheet recession. Core inflation is stuck close to zero, with evidence of high unemployment in the young population and weak wages, with households and private firms no longer willing to lever up. Now, recent statements from the Politburo have begun to acknowledge the need to reverse some of the measures that have pressured the property market. But there is no easy way out of the intertwined property and local government financing debt burdens that have built up in the years when the growth model did not transition fast enough. And at the same time, China faces the new challenge of coping with multi-polar world pressures from the US in particular, which is generating new restrictions on inward technology transfers. All that said, we do not rule out moving back to a more positive stance on China, should policy implementation be more aggressive than hitherto. For India, the situation is in stark contrast to that in China, as was borne out to me by a recent visit in June to the Morgan Stanley annual Investment Summit in Mumbai. With GDP per capita, only $2,500 versus $13,000 for China and positive demographic trends, India is arguably at the start of a long wave boom at the same time as China may be ending one. Manufacturing and services PMIs have rallied consistently since the end of COVID restrictions, in contrast to the rapid fade seen in China. Also, real estate transaction volumes in construction have broken out to the upside. Moreover, India's ability to leverage multi-polar world dynamics is a significant advantage. Simply put, India's future looks to a significant extent like China's past, and in this context, it's particularly relevant to note long run trends in exchange rates now show the Indian rupee more stable and actually appreciating whilst the renminbi is depreciating. So considering Indian equities and Chinese equities as a pair in dollar terms, we appear to be at the beginning of a new era of Indian outperformance compared to China. From early 2021, India has broken out dramatically to the upside in performance. And whilst reversion to the mean is often a powerful force in finance, we think this represents a structural break in India's favor. Thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and recommend Thoughts on the Market to a friend or colleague today.

While the Fed fights generationally high inflation, the U.S. economy continues to grow, supported by high levels of spending. This has affected both the bond and equity markets.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, August 14, at 11 a.m. in New York. So let's get after it. At the trough of the pandemic recession in April 2020, we first introduced our thesis that the health care emergency would usher in a new era of fiscal policy. The result would be higher inflation than monetary policy was able to attain on its own over the prior decade. In the first phase of this new policy regime, we referred to it as helicopter money, as described by Milton Friedman in the early 1970s and then highlighted by Ben Bernanke after the tech bubble as a policy that could always be employed to avoid a deflationary bust. Handing out checks to people is a fairly radical policy, however, the COVID pandemic was the perfect emergency to try it. The policy shift worked so well to keep the economy afloat during the lockdowns that the government decided to double down on the strategy by doing an additional $3 trillion of direct fiscal spending in the first quarter of 2021. This excessive fiscal policy is why money supply growth increased to a record level at 25% year-over-year in early 2021, and why we finally got the inflation central banks had been trying so hard to achieve post the great financial crisis. After the financial crisis, the velocity of money collapsed, while the Fed's balance sheet ballooned to levels never seen before. The reason we didn't get inflation in that initial episode of quantitative easing is because the money created remained trapped in bank reserves rather than in a real economy where it could drive excess demand in higher prices, a dynamic that's been obviously very different this time. Fortunately, the Fed is responding to this generationally high inflation with the most aggressive tightening of monetary policy in 40 years. But this is the definition of fiscal dominance, monetary policy is beholden to the whims of fiscal policy. First, it had to be overly supportive and fund the record deficits in 2020 and 21, and then it had to react with historically tighter policy once inflation got out of control. Back in 2020, we turned very bullish on equities on this shift of fiscal dominance and also subsequently indicated it would lead to a period of hotter but shorter economic earning cycles, mainly because the Fed would not have the same flexibility to proactively try to extend economic expansions. We also argued that catching these cycles on both the upside and downside would be critical for equity investors to outperform. From 2020 to 2022, we found ourselves on the right side of that dynamic both up and down, this year, not so much. Part of the reason we found ourselves offsides this year is due to the very large fiscal impulse restarting last year and remaining quite strong in 2023. In fact, we have rarely ever seen such large deficits when the unemployment rate is so low and inflation well above target. If fiscal policy is showing little constraint in good times, what happens to the deficit when the next recession arrives? The main takeaway for the equity market this year is that fiscal policy has allowed the economy to grow faster than forecasted and has given rise to the consensus view that the risk of recession has faded considerably. Furthermore, with the recent lifting of the debt ceiling until 2025, this aggressive fiscal spending could continue. However, the sustainability of such fiscal policy is the primary reason why Fitch recently downgraded the U.S. Treasury debt. Combined with the substantial increase in the supply of Treasury notes and bonds expected to fund these government expenditures, bond markets have sold off considerably this past month. This should start to call into question the valuations of equities, which were already high even before this recent rise in yields. Furthermore, if fiscal spending must be curtailed due to either higher political or funding costs, the unfinished earnings decline that began last year is more likely to resume as our forecast is still predicting. Equity markets seem to have noticed, with many of the best performing stocks correcting by 10% or more. Even if one is bullish on stocks, such a correction was necessary to reset investor exuberance. The challenge will come this fall if growth fails to materialize as now expected. In that case, a healthy 5 to 10% pullback may turn into the much more significant correction we were expecting to occur in the first half of this year. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us

While the Fed navigates a soft landing for the U.S. economy and stock valuations remain high, how can investors navigate the risks and rewards of a surprisingly strong equity market? Lisa Shalett is Morgan Stanley Wealth Management’s Chief Investment Officer. She is not a member of Morgan Stanley Research.----- Transcript -----Andrew Sheets: Welcome to Thoughts in the Market. I'm Andrew Sheets, Fixed Income Strategist at Morgan Stanley. Lisa Shalett: And I'm Lisa Shalett, Chief Investment Officer for Morgan Stanley Wealth Management. Andrew Sheets: And today on the podcast, we'll be discussing what's been happening year to date in markets and what might lie ahead. It's Friday, August 11th at 1 p.m. in London. Lisa Shalett: And it's 8am here in New York City. Andrew Sheets: So, Lisa, it's great to have you here. I think it's safe to say that as a strategy group, we at Morgan Stanley have been cautious on this year. But I also think this is a pretty remarkable year. As you look back at your experience with investing, can you kind of help put 2023 in context of just how unusual and maybe surprising this year has been? Lisa Shalett: You know, I think one of the the key attributes of 2023 is, quite frankly, not only the extraordinarily low odds that history would put on the United States Federal Reserve being able to, quote unquote, thread the needle and deliver what appears to be an economic soft landing where the vast and most rapid increase in rates alongside quantitative tightening has exacted essentially no toll on the unemployment rate in the United States or, quite frankly, average economic vigor. United States GDP in the second quarter of this year looked to accelerate from the first quarter and came in at a real rate of 2.4%, which most folks would probably describe as average to slightly above average in terms of the long run real growth of the US economy over the last decade. So, you know, in many ways this was such a low odds event just from the jump. I think the second thing that has been perplexing is for folks that are deeply steeped in, kind of, traditional analytic frameworks and long run correlative and predictive variables, the degree to which the number of models have failed is, quite frankly,  the most profound in my career. So we've seen some real differences between how the S&P 500 has been valued, the multiple expansion that we have seen and things like real rates, real rates have traditionally pushed overall valuation multiples down. And that has not been the case. And, you know, I think markets always do, quote unquote climb the wall of worry. But I think as we, you know, get some distance from this period, I think we're also going to understand the unique backdrop against which this cycle is playing out and, you know, perhaps gaining a little bit more of an understanding around how did the crisis and the economic shocks of COVID change the labor markets perhaps permanently. How did the degree to which stimulus came into the system create a sequencing, if you will, between the manufacturing side of the economy and the services side of the economy that has created what we might call rolling slowdowns or rolling recessions, that when mathematically summed together obscure some of those trends and absorb them and kind of create a flat, flattish, or soft landing as we've experienced. Andrew Sheets: How are you thinking about the valuation picture in the market right now? And then I kind of want to get your thoughts about how you think valuations should determine strategy going forward. Lisa Shalett: So this is a fantastic question because, you know, very often I'm sitting in front of clients who are, you know, very anxious about the next quarter, the next year. And while I think you and I can agree that there certainly are these anomalous periods where valuations do appear to be disconnecting from both interest rates and even earnings trends, they don't tend to be persistent states. And so when we look at current valuations just in the United States, if you said you're looking at a market that is trading at 20x earnings the implication is that the earnings yield or your earnings return from that investment is estimated at roughly 5%. In a world where fixed income instruments and credit instruments are delivering that plus at historic volatilities that are potentially half or even a third of what equities are, you can kind of make the argument that on a sharp ratio basis, stocks don't look great. Now, that's not all stocks. Clearly, all stocks are not selling at 20x forward multiples. But the point is we do have to think about valuation because in the long run, it does matter. Andrew Sheets: I guess looking ahead, as you think about the more highly valued parts of the market, where do you think that thinking might most likely apply, as in the current valuation, even if it looks expensive, might be more defendable? And where would you be most c

A recent landmark study around weight-loss medicine could spark near-term growth opportunities in pharmaceuticals.----- Transcript -----Mark Purcell: Welcome to Thoughts on the Market. I'm Mark Purcell, Head of Morgan Stanley's European Pharmaceuticals Team. Terence Flynn: And I'm Terence Flynn, Head of the U.S. Biopharma Team. Mark Purcell: And on this special episode of Thoughts on the Market, we'll give you an update on the global obesity challenge. It's Thursday, the 10th of August, and it's 1 p.m. in London. Terence Flynn: And 8 a.m. in New York. Terence Flynn: Now, a year ago, we came on the show to discuss our views on the global obesity challenge, and the problem has since received significant media attention. We believe that the narrative around obesity has indeed changed, with a more empathetic media tone, exponential social media growth and increased recognition across health care professionals and policymakers. Mark, what exactly happened over the last year? Mark Purcell: Well, Terence I mean the uptake of obesity medicines in the US has been much stronger than we anticipated. In fact, obesity drug demand has outstripped supply, as you said, driven by social media activity, but also a rapid expansion in reimbursement. When we look back, about 12 million individuals suffering with obesity were covered by insurance and employee opt-ins for the first generation of these appetite suppressing medicines. For newer, higher efficacy GLP-1 medicines, about 40 million lives are covered, and that is more than the estimated number of individuals living with diabetes in the US, which is projected to be about 37 million. Terence Flynn: Great. Thanks, Mark. Now the greater focus on weight management has spilled over into an increasingly weight centric approach to treating diabetes. What changes are you seeing and how are they impacting the industry? Mark Purcell: Terence you're absolutely right. Look, for many years, treatment guidelines for diabetes focused on blood sugar control only. Just before the pandemic, there was an increasing focus on controlling cardiovascular risks as w ell, such as preventing heart attacks. In the past 12 months, there's been increased focus on weight management for diabetes, which can help prevent the progression of diabetes and potentially reverse the course of the disease if you catch it early enough. It's estimated about 40% of GLP-1 prescriptions in the US are for patients early in the course of their disease. These dynamics have driven a profound acceleration in the uptake of GLP-1 medicines in diabetes, and we now project GLP-1 sales in diabetes alone to exceed $56 billion in 2030. Terence Flynn: Mark, I know this SELECT trial has been a focus and this was the first large randomized trial to test whether long term treatment with a weight loss drug can meaningfully improve patients cardiovascular health. Now, this trial appears just to be the tip of the iceberg when it comes to market expansion. Maybe you could walk us through your thoughts on the recent data. Mark Purcell: Yeah, thanks Terence. I mean, SELECT is a really important obesity landmark study. It addresses the question does weight management save lives? The trial was designed to show a 17% reduction in the risk of heart attacks and strokes and cardiovascular deaths in non-diabetic individuals suffering from obesity who are treated with GLP-1 medicines. And we just got the data top line the other day, and in fact, these medicines are showing a 20% reduction in heart attacks, strokes and cardiovascular death. As you said, I mean, this is just the tip of the iceberg when it comes to new growth opportunities for weight loss medicines, with positive data to be presented at the American Heart Association meeting in November, the SELECT data and also data in heart failure, and then next year we get exciting data in obstructive sleep apnea, in chronic kidney disease and also in peripheral arterial disease. Back to you, Terence. What is your outlook for the size of the obesity market in the US and globally over the next 5 to 10 years? Terence Flynn: Thanks, Mark. As you mentioned earlier, the uptake of obesity medicines in the US over the last year has been stronger than we anticipated. There have been some supply chain shortages that have capped an acceleration uptake in the US, and delayed the rollout of these medicines outside of the US. But a number of companies are making significant manufacturing investments today which will help improve supply on a global basis, but also create barriers to entry in the future. We're projecting that sales of the new obesity medicines in the US would have exceeded $7 billion this year, if the supply challenges had not been an issue. But if we extrapolate these strong early dynamics in the US, we project the global obesity market could reach over $70 billion in 2030. Our prior estimate was over $50 billion. Mark Purcell: And Teren

Forthcoming U.S. restrictions on some tech investments in China may present new opportunities as companies adapt to these constraints.----- Transcript -----Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about developments in the US-China economic relationship. It's Wednesday, August 9th at 10 a.m. in New York. News this week broke that the U.S. government is close to finalizing rules that would limit U.S. investment into China related to cutting edge tech sectors, such as quantum computing and artificial intelligence. The long awaited move, which we've discussed many times on this podcast, is yet another sign that the rewiring of the global economic system continues, transitioning from one of globalization to that of a multipolar world. But when news breaks like this, it's helpful to remember that the headlines can sound worse than the reality. Yes, it's likely that the global economy, and therefore markets, would be better off if the U.S. and China could find a way to deepen their economic ties, but the fraying of those ties need not be a substantial negative either. And these new outbound investment restrictions are a great example of that point. The proposed rule will, reportedly, restrict investment in companies who derive more than half their revenue from the sensitive technologies in question. Effectively, that means the U.S. will mostly be concerned with U.S. investors not funding development of new technology through startups. It could potentially leave the door open for more traditional forms of U.S. investment into China, namely through working with larger companies on market access and supply chain solutions. So while many companies are still likely to seek diversification away from China for their supply chains, they still have the ability to do this over time, as opposed to an abrupt decoupling that investors would likely see as carrying much greater risk to the global economy and markets. So, this gives investors a better chance to identify the opportunities that emerge as companies and governments spend money to adopt to these new constraints. Security as an investment theme is something we see potential in, with the defense sector and many industrial subsectors as beneficiaries. Geographically, we see Mexico, India and broader Asia as best positioned to capture investment and jobs from supply chain realignment, given their labor costs and proximity to key end markets. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague, or leave us a review on Apple Podcasts. It helps more people find the show.