Thoughts on the Market

Our analysts Betsy Graseck, Manan Gosalia and Ryan Kenny discuss the major discussions they expect to highlight Morgan Stanley’s upcoming U.S. Financials conference.Read more insights from Morgan Stanley.----- Transcript -----Betsy Graseck: Welcome to Thoughts on the Market. I'm Betsy Graseck, Morgan Stanley's U.S. Large Cap Bank Analyst and Morgan Stanley's Global Head of Banks and Diversified Finance Research. Today we take a look at the key debates in the U.S. financials industry. It’s Monday, June 9th at 10:30am in New York.Tomorrow Morgan Stanley kicks off its annual U.S. Financials Conference right here in New York City. We wanted to give you a glimpse into some of the most significant themes that we expect will be addressed at the conference. And so, I'm here with two of my colleagues, Manan Gosalia, U.S. Midcap Banks Analyst, and Ryan Kenny, U.S. Midcaps Advisor Analyst.Investors are grappling with navigating economic uncertainty from new tariff policies, inflation concerns, and immigration challenges – all of which impacts financial growth and credit quality. On the positive side, they are also looking closely at regulatory shifts under the Trump administration, which could ease banking rules for the first time since the Great Financial Crisis.Let's hear what our experts are expecting. Manan, ahead of the conference, what key themes do you expect mid-cap banks will highlight?Manan Gosalia: So, there are three key themes that we've been focused on for the mid-cap banks: loan growth, net interest margins, and capital. So, first on loan growth. Loan growth for the regional banks has been fairly tepid at about 2 to 3 percent year-on-year, and the tone from bank management teams has been fairly mixed in the April earning season that followed the tariff announcements on April 2nd. Some banks were starting to see the uncertainty weigh on corporate decision making and borrowing activity, while others were only seeing a slow down in some parts of their portfolio, with a pickup in other parts. Now that we've had two months to digest the announcements and several more positive developments on tariff negotiations, we expect that the tone from bank management teams will be more positive. Now, we don't expect them to say growth is accelerating, but we do expect that they will say loan growth is holding up with strong pipelines. On the second topic, net interest margins, we expect to hear that there is still room for margin expansion as we go through this year. And that's coming in two places, particularly as bank term deposits continue to reprice lower. And then the back book of fixed rate loans and securities, essentially assets that were put on the books four to five years ago when rates were a lot lower, are now rolling over at today's higher rates. Betsy Graseck: So, is the long end of the curve going up a good thing?Manan Gosalia: Yes, for net interest margins. But on the flip side, the tenure going up is slightly negative for bank capital. So that brings me to my third theme. The regional banks are overall in a much better place on capital than they were two years ago. Balance sheets have improved. Capital levels remain solid across the sector. But the recent increase in the long end of the curve is marginally negative for capital, given that there will be a higher negative mark on securities that banks hold. But we believe that higher capital levels that regional banks have accumulated over the past couple of years will help cushion some of these negative marks, and we don't expect the recent shift in the tenure will have a meaningful impact on bank capital plans.Betsy Graseck: So, the increase in the 10-year pulls down capital a little bit, but not enough to trip any regulatory minimums?Manan Gosalia: Correct.Betsy Graseck: So, all in the 10-year yield going up is a good thing?Manan Gosalia: It's slightly negative, but I would expect it does not impact bank growth plans. Betsy Graseck: Okay. All in, what's the message from mid-cap banks?Manan Gosalia: All in, I would expect the tone to be a little more positive than the banks had at April earnings.Betsy Graseck: Excellent. Thanks so much, Manan. Ryan, what about you? What are you expecting mid-cap advisors will say?Ryan Kenny: So, I think we'll hear a lot about the trends in M&A. And when we last heard from investment bank management teams during April earnings, the messaging was more cautious. We heard about M&A deals being paused as companies processed the Liberation Day tariffs, and a small number of deals being pulled. Tomorrow at our conference, expect to hear a measured but slightly improved tone. Look, there's still a lot of uncertainty out there, but what's changed since April is the fact that the U.S. administration is flexing in response to markets. So that should help shore up more confidence needed to do deals, and there's tremendous pent-up demand for corporate activity. Over the last

Morgan Stanley’s midyear outlook defied the conventional view in a number of ways. Our analysts Serena Tang and Vishy Tirupattur push back on the pushback to their conclusions, explaining the thought process behind their research.  Read more insights from Morgan Stanley.----- Transcript -----Serena Tang: Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's Chief Cross-Asset StrategistVishy Tirupattur: And I'm Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist.Serena Tang: Today's topic, pushback to our outlook.It's Friday, June 6th at 10am in New York.Morgan Stanley Research published our mid-year outlook about two weeks ago, a collaborative effort across the department, bringing together our economist views with our strategist high conviction ideas. Right now, we're recommending investors to be overweight in U.S. equities, overweight in core fixed income like U.S. treasuries, like U.S. IG corporate credit. But some of our views are out of consensus.So, I want to talk to you, Vishy, about pushback that you've been getting and how we pushback on the pushback.Vishy Tirupattur: Right. So, the biggest pushback I've gotten is a bit of a dissonance between our economics narrative and our markets narrative. Our economics narrative, as you know, calls for a significant weakening of economic growth. From about – for the U.S. – 2.5 percent growth in 2024 goes into 1 percent in 2025 and in 2026. And Fed doesn't cut rates in 2025, and cuts seven times in 2026.And if you look at a somewhat uninspiring outlook for the U.S. economy from our economists – reconciling an uninspiring economic outlook on the U.S. economy with the constructive view we have on U.S. assets, equities, credit, treasuries – that's been a source of contention. So how do we reconcile this? So, my pushback to the pushback is the following; that they are different plot lines across different asset classes. So, our economists have slowing of the economy – but not an outright recession. Our economists don't have rate cuts in 2025 but have seven rate cuts in 2026.So, if you look at the total number of rate cuts that are being priced in by the markets today, roughly about two rate cuts in [20]25, and about between two and three rate cuts in 2026, we expect greater policy easing than what's currently priced in the markets. So that makes sense for our constructive view on interest rates, and in government bonds and in duration that makes sense.From a credit point of view, we enter this point with a much better credit fundamentals in leverage and coverage terms. We have the emergence of a total yield-based buyer base, which we think will be largely intact at our expectations, and you layer on top of that – the idea that growth slows but doesn't fall into recession is also constructive for higher quality credit. So that explains our credit view.From an equities view, the drawdowns that we experienced in April, our equity strategists think marks the worst outcomes from a policy point of view that we could have had. That has already happened. So looking forward, they look for EPS growth over the course of the next 12 months. They look for benefits of deregulation to kick in. So, along with that seven rate cuts, get them to be comfortable in being constructive about their views on equities. So all of that ties together.Serena Tang: And I think what you mentioned around macro not being the markets is important here. Because when we did some analysis on historical periods where you had low growth and low inflation, actually in that kind of a scenario equities did fine. And corporate credit did fine. But also, in an environment where you have rather unencouraging growth, that tends to map onto a slightly risk-off scenario. And historically that's also a kind of backdrop where you see the dollar strengthen.This time out, we have a very out of consensus view; not that the dollar will weaken, that seems quite consensus. But the degree of magnitude of dollar weakening. Where have you been getting the most pushback on our expectations for the dollar to depreciate by around 9 percent from here?Vishy Tirupattur: So, the dollar weakness in itself is not out of consensus, largely driven by narrowing of free differentials; growth differentials. I think some of the difference between the extent of weakness that we are projecting comes from the assessment on the policy and certainty. So, the policy uncertainty adds a greater degree of risk premia for taking on U.S. assets.So, in our forecast, we take into account not only the differentials in rates and growth, but also in the policy uncertainty and the risk premia that the investors would demand in the face of that kind of policy uncertainty. And that really explains why we are probably more negative on the outcome for U.S. dollar than perhaps our competition.Serena Tang: The risk premium part, I think bring us to one of the biggest debates

The global market for obesity drugs is expanding. Our U.S. Pharma and Biotech Analyst Terrence Flynn discusses what’s driving the next stage of global growth for GLP-1 medicines.Read more insights from Morgan Stanley.----- Transcript -----Terrence Flynn: Welcome to Thoughts on the Market. I'm Terrence Flynn, Morgan Stanley's U.S. Pharma and Biotech Analyst. The market for obesity medicines is at an inflection point, and today I'll focus on what's driving the next stage of global growth.It's Thursday, June 5th at 2pm in New York.GLP-1 medicines have been viewed by many stakeholders as one of the most transformative medications in the market today. They've exploded in popularity over the last few years and become game changers for many people who take them. These drugs have large cap biopharma companies racing to innovate. They've had ripple effects on food, fitness, and fashion. They truly are a major market force. And now we're on the cusp of a significant broadening of use of these medicines.Currently the U.S. is the largest consumer in the world of GLP-1s. But new versions of these medicines suggest that this market will extend beyond the U.S. to significantly larger numbers of patients globally. On our estimate, the Total Addressable Market or TAM for obesity medications should reach $150 billion globally by 2035, with approximately [$]80 billion from the U.S. and [$]70 billion from international markets.Now this marks a meaningful increase from our 2024 forecast of [$]105 billion and reflects a greater appreciation of opportunities outside of the U.S. We think obesity drug adoption will likely accelerate as patients and providers become more familiar with the new products and as manufacturers address hurdles in production, distribution, and access.Current adoption rates of GLP-1 treatments within the eligible obesity population are about 2 to 3 percent. This is in the U.S., and roughly 1 percent in the rest of the world. Now, when we look out further, we anticipate these figures to surge to 20 percent and 10 percent respectively, really driven by five things.First, after a period of shortages, supply constraints have improved, and the drug makers are investing aggressively to increase production. Second new data show that obesity drugs have broader clinical applications. They can be used to treat coronary heart disease, stroke, hypertension, kidney disease, or even sleep apnea. They could also potentially fight Alzheimer's disease, neuropsychiatric conditions, and even cancer.Third, we think coverage will expand as obesity drugs are approved to treat diseases beyond obesity. Public healthcare coverage through Medicare should also broaden based on these expected approvals. Fourth, some drug makers are successfully developing obesity drugs, in pill form instead of injectables. Pills are of course easier to administer and can reach global scale quickly. And finally, drug makers are also developing next gen medications with even higher efficacy, new mechanisms of action, and more convenient, less frequent dosing.All in all, we think that over the next decade, broader GLP-1 adoption will extend well beyond biopharma. We expect significant impacts on medical technology, healthcare services, and consumer sectors like food, beverages, and fashion, where changes in patient diets could reshape market dynamics.Thanks so much for listening. If you enjoy the show, please leave us a review wherever you listen. And share Thoughts on the Market with a friend or colleague today.

Our analysts Andrew Sheets and Vishwas Patkar take stock of the U.S. credit market, noting which segments are on firm footing going into a period of slower growth.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts On the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.Vishwas Patkar: And I'm Vishwas Patkar, Head of U.S. Credit Strategy at Morgan Stanley.Andrew Sheets: Today on the program, we're going to have the first in a series of conversations covering our outlook for credit around the world.It's Wednesday, June 4th at 2pm in London.Vishwas Patkar: And 9am in New York.Andrew Sheets: Vishwas, along with many of our colleagues at Morgan Stanley, we recently updated our 12-month outlook for credit markets around the world. Focusing on your specialty, the U.S., how do you read the economic backdrop and what do you think it means for credit at a high level?Vishwas Patkar: So, our central scenario of slowing growth, somewhat firm inflation and no rate cuts from the Fed until the first quarter of 2026 – when I put all of that together, I view that as somewhat mixed for credit. It's good for certain segments of the market, not as good for others.I think the positive on the one side is that with the recent de-escalation in trade tensions, recession risks have gone lower. And that's reflected in our economists' view as well. I think for an asset class like credit, avoiding that drill downside tail I think is important. The other positive in the market today is that the level of all in yields you can get across the credit spectrum is very compelling on many different measures.The negative is that we are still looking at a fair bit of slowing in economic activity, and that's a big downshift from what we've been used to in the past few years. So, I would say we're certainly not in the Goldilocks environment that we saw for credit through the second half of last year. And it's important here for investors to be selective around what they invest in within the credit market.Andrew Sheets: So, Vishwas, you kind of alluded to this, but you know, 2025 has been a year that so far has been dominated by a lot of these large kind of macro questions around, you know, what's going to happen with tariffs. Big moves in interest rates, big moves in the U.S. dollar. But credit is an asset class that's, you know, ultimately about lending to companies. And so how do you see the credit worthiness of U.S. corporates? And how much of a risk is there that with interest rates staying higher for longer than we expected at the start of the year – that becomes a bigger problem?Vishwas Patkar: Yeah, sure. I think it's a very important question Andrew because I think taking a call on markets based on the gyrations in headlines is very hard. But in some ways, I think this question of the credit worthiness of U.S. companies is more important and I think it really helps us filter the signal from the noise that we've seen in markets so far this year.I would say broadly, the health of corporate balance sheets is pretty good and, in some ways, I think it's maybe a more distinguishing feature of this cycle where corporate credit overall is on a firmer footing going into a period of slower growth – than what we may have seen in prior instances. And you can sort of look at this balance sheet health along a few different lines.In aggregate, we haven't really seen credit markets grow a lot in the last few years. M&A activity, which is usually a harbinger of corporate aggression, has also been fairly muted in absolute terms. Corporate balance sheet leverage has not grown. And I think we've been in this high-interest rate environment, which has kept some of these animal spirits at bay. Now what this means is, that the level of sensitivity of credit markets to a slow down in the economy is somewhat lower.It does not mean that credit markets can remain immune no matter what happens to the economy. I think it's clear if we get a recession, spread should be a fair bit wider. But I think in our central scenario, it makes us more confident than otherwise that credit overall can hold up okay.Now your question around the risk of rates staying higher. This I think goes back to my point about where in the credit market you're looking. I think up the quality spectrum, I think there are actually – there's a lot of demand tailwinds for credit given the pickup in sponsorship we've seen from insurance companies and pension funds in this cycle.At the other end of the quality spectrum, if you're looking at highly levered capital structures, that's where I think the risk of interest rates being high can lead to defaults being sort of around average levels and higher than they would otherwise be.Andrew Sheets: So, Vishwas, kind of sticking with that central scenario, kind of briefly, what would be a segment of U.S. credit that you t

Our Thematics and U.S. Economics analysts Michelle Weaver and Arunima Sinha discuss how American consumers are planning to spend as they consider tariffs, inflation and potential new tax policies. Read more insights from Morgan Stanley.----- Transcript -----Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, U.S. Thematic and Equity strategist.Arunima Sinha: And I'm Arunima Sinha from the Global and U.S. Economics Teams.Michelle Weaver: Today – an encouraging update on the U.S. consumer.It's Tuesday, June 3rd at 10am in New York.Arunima, the last couple of months have been challenging not only for global markets, but also for everyday people and for individual households; and we heard pretty mixed information on the consumer throughout earning season. Quite a few different companies highlighted consumers being more choiceful, being more value oriented. All this to say is we're getting a little bit of a mixed message.In your opinion, how healthy is the U.S. consumer right now?Arunima Sinha: So, Michelle, I'm glad we're starting with the sort of up upbeat part of the consumer. The macro data on the consumer has been holding up pretty well so far. In the first quarter of [20]25, consumer spending has actually been running at a similar pace as the first quarter of [20]24. Nominal consumption spending grew 5.5 percent on a year-on-year basis. Goods were up almost 4 percent. Services were up more than 6 percent.So, all of that was good. What our takeaway was that we had a lot of strength in good spending, and that did probably reflect some of the pull forward on the back of tariff news. But that pace of growth suggests that there is an aggregate consumer. They have healthy balance sheets, and they're willing to spend.And then what's driving that consumption growth from our point of view. We think that labor market compensation has been running at a pretty steady pace so far. So more than 5.5 percent quarterly analyzed. PCE inflation has been running at just over 3 percent. And so even though equity markets did see some greater volatility, they didn't seem to impact the consumer at least in the first quarter of data. And so, we've had that consumer in a pretty good shape.But with all of this in the background, we know, tariffs have been in the news, and tariff fears have weighed heavily on consumer sentiment. But then tariff headlines have also become more positive lately, and consumers might be feeling more optimistic. What's your data showing?Michelle Weaver: So that really depends on what data you're looking at. We saw a pretty big rebound in consumer sentiment if you look at the Conference Board survey. But then we saw flat sentiment, when you look at the University of Michigan survey. These two surveys have some different questions in them, different subcomponents.But my favorite way to track consumer sentiment is our own proprietary consumer survey, which did show a pretty big pickup in sentiment towards the economy last month. And we saw sentiment rebound significantly for both conservatives and liberals.So, this wasn't just a matter of one political party, you know, having a change of opinion. Both sides did see an improvement in sentiment. Although consumer sentiment for conservatives improved off a much higher base. The percent of people reporting being very concerned about tariffs also fell this month. We saw that move from 43 percent to 38 percent after the reduction in tariffs on China. So, people are, you know, concerned a little bit less there. And that's been a really big thing people are watching.Arunima Sinha: Feeling better about the news is great. Are they actually planning to spend more?Michelle Weaver: So encouragingly we did also see a big rebound in consumers short term spending outlooks in the survey. 33 percent of consumers expect to spend more next month and 17 percent expect to spend less.So that gives us a net of positive 16 percent. This is in line with the five-year average level we saw there, and up really substantially from last month's reading of 5 percent. So, 5 percent to 16 percent. That's a pretty big improvement.We also saw spending plans rise across all income groups. though we did see the biggest pickup for higher income consumers and that figure moved from 12 percent to 31 percent. Additionally, we saw longer term spending plans – so what people are planning to spend over the next six months – also improve across all the categories we look at.Arunima Sinha: And were there any specific changes about how the consumers were responding to the tariff headlines?Michelle Weaver: Yeah, so people reported pulling forward some purchases, due to fear of tariff driven price increases. So, people were planning for this, similarly to what we saw with companies. They were doing a little bit of stockpiling. Consumers were doing this as well. So, our survey showed that over half of people said t

Our CIO and Chief U.S. Equity Strategist Mike Wilson explains how his outlook on earnings and valuations give him a constructive view on U.S. equities for the next 12 months.Read more insights from Morgan Stanley.----- Transcript -----Mike Wilson: Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll discuss where there is the most push back to our Mid-year outlook and why I remain convicted in our generally constructive view on U.S. equities for the next 12 months.It's Monday, June 2nd at 11:30am in New York.So, let’s get after it.To briefly summarize our outlook, we have maintained our 6500 12-month price target for the S&P 500 this year despite what has been a very volatile first five months – both in terms of news flow and price action. Part of the reason we didn’t change this view stems from the fact that we expected the first half to be challenging for U.S. stocks but to be followed by a more favorable second half. Much of this was related to our view that the new administration would pursue the growth negative part of their policy agenda first. This played out -- with their focus on immigration enforcement, spending cutbacks and tariffs. In addition to these policy adjustments, we also expected AI capex to decelerate in the first half after such fast growth last year. All of these factors conspired to weigh on both economic growth and earnings revisions.Second, the way in which tariffs were rolled out on Liberation Day was a shock to most market participants, including us, and served as the perfect catalyst for what can only be described as capitulation selling by many institutional investors. That capitulation has set the stage for the very reflexive snap back in equity prices that is also supported by a positive rate of change on policy, earnings revisions breadth, financial conditions and a weaker U.S. dollar.The main push back to our views centers on our constructive earnings outlook for high single digit growth both this year and next and our view that valuations can remain elevated at 21.5x forward Earnings. On the earnings front, our calendar year earnings estimates already incorporate a  mid-single-digit percent hit to bottoms-up consensus forecasts. Second, our Leading Earnings Indicator  which projects Earnings Per Share growth 12 months out is suggesting a sideways consolidation in growth in the high single-digit range over the next year.Third, a weaker dollar, elements of the tax bill and AI-driven productivity should be incremental tailwinds for earnings that are not in our model. Fourth, we have  experienced rolling recessions for many sectors of the private economy for the last 3 years, which makes  growth comparisons easier. Finally, and most importantly, the rate of change on earnings revisions breadth has inflected higher from a very low level after a year-long downturn. On valuation, our work shows that if earnings growth is above the long-term median of 7 percent and if the fed funds rate is down on a year-over-year basis, it's very rare to see multiple compression. In fact, Price Earnings multiples have expanded 90 percent of the time under these conditions to the tune of 9 percent over a 12- month period. Therefore, in some ways we’re being conservative with our forecast for the S&P 500's  price earnings ratio to remain flat at current levels over the next year.With respect to our favorite  valuation metric, the equity risk premium, it’s interesting to note that in the week following Liberation Day, the Equity Risk Premium reached the same level we witnessed in the aftermath of the 9-11 shock in 2001 and even exceeded the risk premium reached during the Long-Term Capital Management crisis in 1998. Both episodes resulted in 20 percent corrections to the S&P 500 much like we experienced this year only to be followed by very strong equity markets over the next year.The bottom line is that I remain convicted in both our earnings forecast for high single digit earnings growth for this year and next; and my view that valuations can remain elevated in this classic late cycle expansion of slower economic growth that typically elicits interest rate cuts from the Fed.Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review; and if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

Our Head of Corporate Credit Research explains why the legal confusion over U.S. tariffs plus the pending U.S. budget bill equals a revived focus on interest rates for investors.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.Today I'm going to revisit a theme that was topical in January and has become so again. How much of a problem are higher interest rates?It's Friday, May 30th at 2pm in London.If it wasn't so serious, it might be a little funny. This year, markets fell quickly as the U.S. imposed tariffs. And then markets rose quickly as many of those same tariffs were paused or reversed. So, what's next?Many tariffs are technically just paused and so are scheduled to resume; and overall tariff rates, even after recent reductions towards China, are still historically high. The economic data that would really reflect the impact of recent events, well, it simply hasn't been reported yet. In short, there is still significant uncertainty around the near-term path for U.S. growth. But for all of our tariff weary listeners, let's pretend for a moment that tariffs are now on the back burner. And if that's the case, interest rates are coming back into focus.First, lower tariffs could mean stronger growth and thus higher interest rates, all else equal. But also importantly, current budget proposals in the U.S. Congress significantly increase government borrowing, which could also raise interest rates. If current proposals were to become permanent. for example, they could add an additional [$]15 trillion to the national debt over the next 30 years, over and above what was expected to happen per analysis from Yale University.Recall that prior to tariffs dominating the market conversation, it was this issue of interest rates and government borrowing that had the market's attention in January. And then, as today, it's this 30-year perspective that is under the most scrutiny. U.S. 30-year government bond yields briefly touched 5 percent on January 14th and returned there quite recently.This represents some of the highest yields for long-term U.S. borrowing seen in the last two decades. Those higher yields represent higher costs that must ultimately be borne by the U.S. government, but they also represent a yardstick against which all other investments are measured. If you can earn 5 percent per year long term in a safe U.S. government bond, how does that impact the return you require to invest in something riskier over that long run – from equities to an office building.I think some numbers here are also quite useful. Investing $10,000 today at 5 percent would leave you with about $43,000 in 30 years. And so that is the hurdle rate against which all long-term investments or now being measured.Of course, many other factors can impact the performance of those other assets. U.S. stocks, in fairness, have returned well over 5 percent over a long period of time. But one winner in our view will be intermediate and longer-term investment grade bonds. With high yields on these instruments, we think there will be healthy demand. At the same time, those same high yields representing higher costs for companies to borrow over the long term may mean we see less supply.Thank you as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And tell a friend or colleague about us today.

After the federal court’s ruling against Trump’s reciprocal tariffs, and an appeals court’s temporary stay of that ruling, our analysts Michael Zezas and Michael Gapen discuss how the administration could retain the tariffs and what this means for the U.S. economy.Read more insights from Morgan Stanley.----- Transcript -----Michael Zezas: Welcome to the Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income Research and Public Policy Strategy.Michael Gapen: And I'm Michael Gapen, Chief U.S. Economist.Today, the latest on President Trump's tariffs.It's Thursday, May 29th at 5pm  in New York.So, Mike, on Wednesday night, the U.S. Court of International Trade struck down President Trump's reciprocal tariffs. This ruling certainly seems like a fresh roadblock for the administration.Michael Zezas: Yeah, that's right. But a quick word of caution. That doesn't mean we're supposed to conclude that the recent tariff hikes are a thing of the past. I think investors need to be aware that there's many plausible paths to keeping these tariffs exactly where they are right now.Michael Zezas: First, while the administration is appealing this decision, the tariffs can stay in place. But even if courts ultimately rule against the Trump administration, there are other types of legal authorities that they can bring to bear to make sure that the tariff levels that are currently applied endure. So, what the court said the administration had done improperly was levy tariffs under the International Emergency Economic Powers Act (IEEPA).And there's been active debate all along amongst legal scholars about if this was the right law to justify those tariff levies. And so, there's always the possibility of court challenges. But what the administration could do, if the courts continue to uphold the lower court's ruling, is basically leverage other legal authorities to continue these tariffs.They could use Section 122 as a temporary authority to levy the 10 percent tariffs that were part of this kind of global tariff, following the reciprocal trade announcement. They also could use the existing Section 301 authority that was used to create tariffs on China in 2018 and 2019, and extend that across of all China imports; and therefore, fill in the gap that would be lost by not being able to use the International Emergency Economic Powers Act to tariff some of China's imports.So bottom line, there's lots of different legal paths to keep tariffs where they are across the set of goods that they're already applied to.Michael Gapen: So, I think that makes a lot of sense. And with all that said, where do you think we stand right now with tariffs?Michael Zezas: So, if the court ruling were to stand then the 10 percent tariffs on all imports that the U.S. is currently levying, that would have to go away. The 30 percent tariffs on roughly half of China imports, that would've to go away. And the 25 percent tariffs on Canada and Mexico around fentanyl, that would have to go away as well.What you'd be left with effectively is anything levied under section 232 or 301. So that's basically steel, aluminum, automobile tariffs. And tariffs on the roughly half of China imports that were started in 2018 and 2019. But as we said earlier, there's lots of different ways that the authority can be brought to bear to make sure that that 10 percent import tariff globally is continued as well as the incremental tariffs on China.But Michael, turning to you on the U.S. economy, what’s your reaction to the court's ruling? It seems like we're just going to have a continuation of existing tariff policy, but is there something else that investors need to consider here?Michael Gapen: Well, I'm not a trade lawyer. I'm not entirely surprised by the ruling. It did seem to exceed what I'll call the general parameters of the law, and it wasn't what we – as a research group and a research team – were thinking was the most likely path for tariffs coming into the year, as you mentioned. And as we, as a group wrote, we thought that they would rely mainly on section 301 and 232 authority, which would mean tariffs would ramp up much more slowly. And that's what we had put into our original outlook coming into the year.We didn't have the effective tariff rate reaching 8 to 9 percent until around the middle of 2026. So, it reflected the fact that it would take effort and time for the administration to put its plans on tariffs in into place. So, I think this decision kind of shifts our views back in that direction. And by that I mean, we originally thought most of 2025 would be about getting the tariff structure in place. And therefore, the effects of tariffs would be hitting the economy mainly in 2026.We obviously revise things where tariffs would weigh on activity in 2025 and postpone Fed cuts into 2026. So, I think what it does for the moment is maybe tilts risks back in the other direction. But a

Our Global Head of Fixed Income Research & Public Policy Strategy, Michael Zezas, shares the answers to clients’ top U.S. policy questions from Morgan Stanley’s Japan Investor Summit.Read more insights from Morgan Stanley.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research & Public Policy Strategy. Today, takeaways from our Japan Investor Summit. It’s Wednesday, May 28th at 10:30am in New York. Last week, I attended our Japan Investor Summit in Tokyo: Two full days of panels on key investment themes and one-on-one meetings with clients from all parts of the Morgan Stanley franchise. During the meeting, Morgan Stanley Research launched its mid year economics and market strategy outlooks. So needless to say there was a healthy dialogue on investment strategy over those 48 hours. And I want to share what were the most frequent questions I received and, of course, our answers to those questions.  As you could guess, U.S. tariff policy was a key focus. Could tariffs re-escalate? Or was the worst behind us; and if so, could investors set aside their concerns about the U.S. economy? It’s a complicated issue so accordingly our answer is nuanced. On the one hand, the current state of play is mostly aligned where we thought tariff policy would be by end of year. It’s just arrived much earlier. Higher overall U.S. tariffs with a skew toward higher tariffs on China relative to the rest of world, as the U.S. has less common ground with them and thus greater challenges in reaching a trade agreement with China in a timely manner. So that might imply we’ve arrived at the end point. But we think that’s too simple of a way for investors to think about it. First there’s plenty of potential for escalation from current levels as part of ongoing negotiations. And even if it’s only temporary it could affect markets. Second, and perhaps more importantly, even though the U.S. cutting tariffs on China from very high levels recently brought down the effective tariff rate, it’s still considerably higher than where we started the year. So one’s market outlook will still have to account for the pressures of tariffs, which our economists translate into slower growth and higher recession risk this year.  Another key concern – U.S. fiscal policy, and whether the U.S. would be embarking on a path to smaller deficits, in line with campaign promises. Or if the tax and spending bill making its way through Congress would keep that from happening. For investors we think it’s most important to focus on the next year, because what happens beyond that is highly speculative. And we do not expect deficits to come down in the next year. Extending expiring tax cuts, and extending some new ones, albeit with some spending offsets, should modestly expand the deficit next year in our estimates; and some further deficit expansion should come from other factors baked into the budget, like higher interest payments.  It's understandable these two questions came up, because we do think the answers are key to the outlook for markets. In particular, they inform some of the stronger views in our markets’ outlook. For example, slower relative U.S. growth and the related potential for foreign investors to increasingly prefer their portfolios reflect their local currency should keep the U.S. dollar weakening – a key call our team started this year with and now continues. Another example, the shape of the U.S. Treasury yield curve. Higher deficits and the uncertainty about inflation caused by tariffs should make for a steeper yield curve. So while we expect U.S. Treasury yields to fall, making for good returns for high grade bonds including corporate credit, the better returns might be in shorter maturities.  Thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen. And if you like what you hear, tell a friend or a colleague about us today.

Live from the Morgan Stanley Luxury Conference in Paris, our analysts Arunima Sinha and Eduoard Aubin discuss the economic and consumer trends shaping demand for luxury goods.Read more insights from Morgan Stanley.----- Transcript -----Arunima Sinha: Welcome to Thoughts on the Market. I'm Arunima Sinha from Morgan Stanley's Global and U.S. Economics teams.Eduoard Aubin: And I'm Eduoard Aubin, Head of the Luxury Goods team.Arunima Sinha: This episode was recorded last week when we were at the annual Morgan Stanley Luxury Conference in Paris. In it, we bring you an overview of what we heard from companies and investors about the hottest trends in the luxury industry.It's Tuesday, May 27th at 8am in Paris.For several years now, the luxury industry has been riding a post pandemic boom. And the top luxury brands experience 80 percent or greater sales growth between 2019 and [20]24. So Ed, is this trend going to continue or has it started to moderate and why?Eduoard Aubin: No, it has already started to moderate clearly last year. So, the growth rates of some of the leading luxury good brands, you know, over the past, four or five years, was clearly double digit CAGR growth.What we've seen in 2024 – is the market, luxury goods market worldwide has already started to contract. It was very moderate, about 2-3 percent. But it's very unusual because over the past 30 years, the market has contracted only once or twice. So, it started last year already. But we think it's going to, you know, accelerate; the decline could be even a bit more significant this year to low to mid single digit.And there are a number as to – of reasons as to why the market has luxury goods market has moderated. First of all, there's been post-COVID; post pandemic. There's been a wallet shift away from ownership of goods to more spend on experiences such as travel, restaurants, dining out, et cetera.The other thing is that you had a lot of, you know, closets, which were full post the pandemic. People were at home, disposable income was high and there were certainly a lot of, you know, purchase, which was done during the pandemic. And then, and we'll talk about it in a second, there is also this view that maybe luxury good companies have increased prices maybe a bit touch excessively during the pandemic; and potentially pricing out the middle income consumer.Arunima Sinha: This is an incredible conference and we've been talking to a lot of corporates and we've been talking to a lot of investors. What are some of the key debates that you've been hearing about?Eduoard Aubin: So I mean, front and center, it's what's going on in terms of the – from a macro standpoint – in terms of the key, two key markets for the luxury good sector, which are China and the U.S., to put things in perspective, and we look at it on a nationality standpoint here rather than a geographic standpoint.The reason is that there is a lot of cross-border shopping, which is done when it comes to luxury. The Chinese nationals account for about a third of total demand, total spend on the luxury goods market, 32-33 percent. So, they are the number one nationality today, clearly. The number two is the Americans, which account for, who account for about 21-22 percent of the spend.So, combined that's more than 50 percent of the spend and certainly more than supposedly 50 percent of the growth over the next three to five years. So clearly a lot of focus on these two nationalities. What's going on in terms of the wealth effect in China and in the U.S.? What's going on in terms of the health of the middle-income consumer in China and in the U.S.?The other debate related to that is what's going on in terms of international travel? What we've heard from companies during the conference is that there are certainly less Americans now coming to Europe, in this quarter, in the second quarter, and this had been a key driver of the spend over the past few months partially related to the currency.There is also; there are also less Chinese going to Japan, which was also a key – a factor of growth for the industry. Chinese spend about 30 percent of their total spend outside of China, and Japan was the number one market in terms of spend for them in recent years ahead of Europe.And what we've seen and what we heard from the companies attending the conference is that these two nationalities are spending less abroad, which is why we think, the second quarter sales could be a bit under pressure more than in the first quarter.The other debate is about, you know, the middle-income consumers we talked about. Luxury brands have raised prices quite a bit. For some of them they doubled the sales price of the items during the pandemic. And again, there is a debate about the fact that they might have been pricing out the middle-income consumer. And obviously that has come at the time where the discretionary spend of the middle-income consumer, you know, the aspirational cu

Global trade tensions have eased after a steadying in U.S. policy shifts, leading our CIO and Chief U.S. Equity Strategist Mike Wilson to make a more bullish case for the second half of 2025.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast, I will discuss recent developments on tariffs and interest rates, and how it affects our 12 month view for U.S. Equities.It's Friday, May 23rd at 9am in New York.So, let’s get after it.The reduction in the headline tariff rate on China from 145 percent to 30 percent extended the rally in stocks last week and should help to support both corporate and consumer confidence. More importantly, the 90-day détente came at a critical juncture, in my view, as a few more weeks of what was essentially a trade embargo would have likely led to a recession.Equity market volatility also subsided considerably amid the decline in trade policy uncertainty. In fact, both measures peaked well before the deal with China came together and are now back below where they were pre-Liberation Day. To me, this means trade headwinds have likely peaked in rate of change terms and are unlikely to return to such levels again. This would fit with the capitulatory price action we saw in early April with the average stock in the S&P 500 experiencing a 30 percent drawdown. In short, while the lagging hard data is likely to come in softer over the next coming months, the equity market already priced it in April. In the event of a recession that still arrives, we think the April lows will still hold, assuming it's a mild one with manageable risk to credit and funding markets.As further support for stocks, earnings revisions breadth appears to have bottomed. This indicator has leading properties in terms of the direction of earnings forecasts and is an important gauge of corporate confidence, in our view. The combination of upside momentum in revision breadth and last week's deal with China has placed the S&P 500 firmly back in our original pre-Liberation Day first half range of 5500-6100. Having said that, we think continued upward progress in earnings revisions breadth into positive territory will be necessary to break through 6100 in the near term, given the stickiness of 10-year Treasury yields.Amidst these developments, we released our mid -year outlook earlier this week and updated our base, bear and bull case targets for the S&P 500. In short, we effectively pushed out the timing of our original 6500 price target for the end of this year to 12 months from today. This is mainly due to a less dovish Fed and therefore higher 10-year Treasury yields than our economists and rates strategists expected at the end of last year. We also trimmed our EPS forecasts modestly to adjust for higher than expected tariff rates, at least for now.Looking ahead, we are more bullish today than we were at the end of last year given the growth negative policy announcements are now behind us and the Fed’s next move is likely to be multiple cuts. In short, the rate of change on earnings revisions breadth, interest rates and policy changes from the administration are all now pointing in a positive direction, the opposite of six months ago and why I was not bullish on the first half of this year.The near-term risk for U.S. equities remains very overbought conditions and interest rates. With the Fed on hold due to lingering inflation concerns and Moody’s downgrade of U.S. Treasury debt last Friday, 10-year Treasury yields are back above 4.5 percent; the level where the correlation between equities and rates tends to move back into negative territory. Ultimately, we think the Treasury and Fed have tools they can and will use to manage this risk. However, in the short term, this is a potential catalyst for the S&P 500 to take a break and even lead to a 5 percent correction. We would look to add equity risk into such a correction should it materialize given our bullish 6-12-month view.Thanks for tuning in. I hope you found it informative and useful. Let us know what you think by leaving us a review; and if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

Our analysts Serena Tang and Seth Carpenter discuss Morgan Stanley’s out-of-consensus view on U.S. exceptionalism, and how investors should position their portfolios given the current market uncertainty.Read more insights from Morgan Stanley.----- Transcript -----Seth: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.Serena: And I'm Serena Tang, Morgan Stanley's, Chief Global Cross-Asset Strategist.Seth: Today, we're going to pick up the conversation where we left it off, talking about our mid-year outlook; but this time I get to ask Serena the questions.It's Thursday, May 22nd at 10am in New York.Serena, we're back for part two of this podcast. Let's jump in where we left off. We've seen a lot of policy surprise in the last six months. We've had a big sell off in the beginning of April, in part inspired by all of this uncertainty.What are you telling clients? What do you think investors should be doing? How should they be positioning their portfolios in the current circumstances?Serena: So, we are recommending going overweight in U.S. equities and going overweight in core fixed income like U.S. treasuries and like investment grade corporate credit. And we have a very strong preference for U.S. over rest of the world assets, except the dollar. Now I think for us, the main message is that you have global growth slowing, which is what you talked about yesterday.But you know, risky assets can look past the low growth and do well, while treasuries can look forward to the many Fed cuts you guys are expecting in 2026 and rally. But if I look at valuations that does suggest equities and credit have completely, almost priced out, growth slowdown odds. Meaning that I think there is still some downside and we'd recommend quality across the board.Seth: In your judgment then, looking around the world at all the different asset classes, how well, or perhaps how poorly, are those asset classes priced for the sort of macro views that we were just discussing?Serena: So I think the market that’s probably least priced for the slowing economy that you and your team have been forecasting is really in the government bond space. I think the prospect of a lot more Fed cuts than what is currently priced into the market will lower government bond yields, particularly starting in 2026.As you know, our rates team has a target of 3.45 percent for U.S. Treasury 10-year yields, and 2.6 percent for U.S. Treasury two-year yields. Meaning that we also get a steeper curve by this time next year. And this translates to more than 10 percent of total returns for U.S. Treasuries – very attractive; in large part because the markets aren't priced for the Fed scenario that you and your team are forecasting.Seth: Let me, then push a little bit on one of the things that I've been talking to clients about, or at least been asked about, which is the dollar. The role of the dollar? U.S. exceptionalism? Is it real?Serena: Yeah that's a great question because I think this is where we are the most out of consensus. If you've noticed, all of our views right now really line up as us being pretty constructive on U.S. dollar assets. Like at a time when everyone's still really debating the end of U.S. exceptionalism. And we really push back against the idea that foreign investors would or should abandon U.S. assets significantly.There are very few alternatives to U.S. dollar assets right now. I mean, like if you look at investible stock market cap, U.S. is nearly five times the size of the next biggest market, which is Europe. And in the fixed income side of things, more than half of liquid high grade fixed income paper is in U.S. dollars.Now, even if there were significant outflows from U.S. dollar assets, there are very few places that money can find a haven, safe or otherwise. This is not to say there won't ever be any other alternatives to U.S. dollar assets in the future. But that shift in market size takes time, which means that TINA -- there is no alternative -- remains a theme for now.Seth: That view on the dollar weakening from here, it's baked into my team's economic forecast. It's baked into the strategy team's forecast across research. So then let me take it one step forward. What does all this mean about portfolio preferences, your recommendation for clients when when they're investing in assets that are not U.S. dollar denominated.Serena: You are right. I mean, if there's one U.S. asset that we just like, it's the U.S. dollar. So, you know, over the next 12 months we expect key factors, which drove the dollar strength. You know, positive growth, yield differentials relative to other G10 economies. Those factors will fade substantially. And we also think because of the political uncertainty in the U.S. currency hedging ratios on exposure to U.S. assets may increase, which could further pressure the U.S.

Our analysts Seth Carpenter and Serena Tang discuss why they believe the global economy is set to slow meaningfully in the second half of 2025.Read more insights from Morgan Stanley.----- Transcript -----Serena: Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's, Chief Global Cross-Asset Strategist.Seth: And I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.Serena: Today we'll discuss Morgan Stanley's midyear outlook for the global economy and markets.It's Wednesday, May 21st at 10am in New York.Seth, you published a year ahead outlook last November. Since President Trump took office back in January, there's been pretty significant policy and economic uncertainty and quite a few surprises. With this in mind, what is your current outlook for the global economy for the second half of this year and into 2026.Seth: So, we titled the outlook Skewed to the Downside because we really do think the U.S. economy, the global economy, is set to slow meaningfully from where we were coming into this year. Let's start with the U.S.As you said, policy changes came in a lot this year since the new administration took over. I would say the two key ones from a macro perspective so far have been trade policy and immigration policy.Tariffs have gone up, tariffs have gone down, tariffs have been suspended. Right now, what we think is going to ultimately take place is that we will see persistent, notable tariffs on China, lower tariffs on the rest of the world, and then we'll have to see how things evolve. What does that mean? Well, it means for the U.S. higher inflation and lower growth. In addition, immigration reform means that growth is going to slow because the growth rate of the labor force is going to slow.Now around the rest of the world, the tariff shock matters as well. When the U.S. puts in tariffs on its imports from other countries, that's negative demand for those other countries. So, we're looking for pretty weak growth in the euro area. Now, I will note, lots of people were excited about possible expansionary fiscal policy in Germany, and we think that's still there. We just don't think it's enough to give the euro area robust growth.In Asia, China's a main driver of the economy. China is a big recipient of these tariffs. We think the deflation cycle that we expected in China keeps going on. This reduction in demand from the U.S. is not going to help, but there'll probably be a little bit at the margin offsetting fiscal policy.So, what does that mean put together? Lackluster growth in China. Call it 4 percent slow growth for yet another year. Overall, the global economy should step down. Will it be a recession? That's one of the key questions that we hear from clients, but we don't think so. Not quite. Just a meaningful step downSerena: Interesting. Any particular regions that seem to be bright spots or surprises -- or perhaps have seen the biggest shift in your outlook?Seth: I guess I'd flag two potential bright spots around the world. The first is India. India has been, for us, a favorite. It will have the highest growth rate of any economy that we have in our coverage area. And because it's such a big economy, that's part of why the global economy can't lose that much steam. India has lots going for it. There are cyclical factors boosting growth in the near term. But there are also longer-term structural policy driven reasons to think that Indian growth will stay solid for the foreseeable future.I guess I'd also throw in Japan. Now its growth rate isn't going to be anywhere near the kind of growth in number terms that we're going to see from India. But this has to be taken in the context of 25 years of essentially zero growth of nominal GDP. The reflationary cycle that we think started a couple years ago remains intact, even with the tariff shock. And so, we're pretty optimistic still that Japanese reflation will continue.Serena: And to what extent are U.S. tariffs contributing to global inflationary pressures? I mean, how do you expect the Fed and other central banks to respond?Seth: The tariffs are imposed by the United States on most of the imports coming into the country, whereas other countries, maybe they have some retaliatory tariffs just against the U.S., but definitely not as broad as the U.S. That means for the U.S. tariffs are going to drive up inflation domestically and drive down growth, whereas for the rest of the world, it's mostly just a negative demand shock. So, they will be disinflationary for the rest of the world and pushing down growth.What does that mean for central banks? Well, outside of the U.S., central banks are going to see this as slowing aggregate demand, and so it's pretty clear what it is that they want to do. If they were hiking, they can stop hiking. If they were going to hold steady, they can lower rates a little bit. And if they were already lowering interest rates like the Euro

Live from the Morgan Stanley Japan Summit, our analysts Chiwoong Lee and Sho Nakazawa discuss their outlook for the Japanese economy and stock market in light of the country’s evolving trade partnerships with the U.S. and China.Read more insights from Morgan Stanley.----- Transcript -----Lee-san: Welcome to Thoughts on the Market. I’m Chiwoong Lee, Principal Global Economist at Morgan Stanley MUFG Securities.Nakazawa-san: And I’m Sho Nakazawa, Japan Equity Strategist at Morgan Stanley MUFG Securities.Lee-san: Today we’re coming to you live from the Morgan Stanley Japan Summit in Tokyo. And we’ll be sharing our views on Japan in the context of global economic growth. We will also focus on Japan’s position vis-à-vis its two largest trading partners, the U.S. and China.It’s Tuesday, May 20, at 3pm in Tokyo.Lee-san: Nakazawa-san, you and I both have been talking with a large number of clients here at the summit. Based on your conversations, what issues are most top of mind right now?Nakazawa-san: There are many inquiries about how to position because of the uncertainty of U.S. trade policy and the investment strategy for governance reform. These are both catalysts for Japan. And in Japan, there are multiple governance investment angles, with increasing interest in the removal of parent-child listings, which is when a parent company and a subsidiary company are both listed on an exchange. This reform [would] remove the subsidiaries. So, clients are very focused on who will be the next candidate for the removal of a parent-child listing.And what are you hearing from clients on your side, Lee-san?Lee-san: I would say the most frequent questions we received were regarding the Trump administration's policies, of course. While the reciprocal tariffs have been somewhat relaxed compared to the initial announcements, they still remain very high; and there was a strong focus on their negative impact on the U.S. economy and the global economy, including Japan. Of course, external demand is critical for Japanese economy, but when we pointed out the resilience of domestic demand, many investors seemed to agree with that view.Nakazawa-san: How do investors’ views square with your outlook for the global economy over the rest of the year?Lee-san: Well, there was broad consensus that tariffs and policy uncertainty are negatively affecting trade and investment activities across countries. In particular, there is concern about the impact on investment. As Former Fed Chair Ben Bernanke wrote in his papers in [the] 1980s, uncertainty tends to delay investment decisions. However, I got the impression that views varied on just how sensitive investment behavior is to this uncertainty.Nakazawa-san: How significant are U.S. tariffs on global economy including Japan both near-term and longer-term?Lee-san: The negative effects on the global economy through trade and investment are certainly important, but the most critical issue is the impact on the U.S. economy. Tariffs essentially act as a tax burden on U.S. consumers and businesses.For example, in 2018, there was some impact on prices, but the more significant effect was on business production and employment. Now, with even higher tariff rates, the impact on inflation and economic activity is expected to be even greater. Given the inflationary pressures from tariffs, we believe the Fed will find it difficult to cut rates in 2025. On the other hand, once it becomes feasible, likely in 2026, we anticipate the Fed will need to implement substantial rate cuts.Lee-san: So, Nakazawa-san, how has the Japanese stock market reacted to U.S. tariffs?Nakazawa-san: Investors positioning have skewed sharply to domestic-oriented non-manufacturing sectors since the U.S. government’s announcement of reciprocal tariffs on April 2nd. Tariff talks with some nations have achieved some progress at this stage, spurring buybacks of export-oriented manufacturer shares. However, the screening by our analysts of the cumulative surplus returns against Japan’s TOPIX index for around 500 stocks in their coverage universe, divided into stocks relatively vulnerable to tariff effects and those less impacted, finds a continued poor performance at the former. We believe it is important to enhance the portfolio’s robustness by revising sector skews in accordance with any progress in the trade talks and adjusting long/short positioning with the sectors in line with the impact of the tariffs.Lee-san: I see. You recently revised your Topix index target, right. Can you quickly walk us through your call?Nakazawa-san：Yes, of course. We recently revised down our base case TOPIX target for end-2025 from 3,000 to 2,600. This revision was considered by several key factors: So first, our Japan economics team revised down its Japanese nominal growth forecast from 3.7% to 3.3%, reflecting implementation of

Markets have reacted positively to the U.S.-China détente in tariffs. Our Chief Fixed Income Strategist, Vishy Tirupattur, digs into the rallies to better understand potential longer-term outcomes.Read more insights from Morgan Stanley.----- Transcript -----Vishy Tirupattur: Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist. Today I'll talk about the impact of last week's 90-day pause in the reciprocal tariffs between the U.S. and China, and the impact on the economy and markets.It's Monday, May 19th at 11am in New York.Market response to last Monday's announcement has been resoundingly positive. The S&P 500 was up 4.5 percent in the first four days since the announcement and the year-to-date returns are back in the black after Liberation Day drove steep declines in April.Credit markets have also rallied, notably with the investment grade spreads tightening by over 10 basis points and high yield spreads by over 50 basis points. And the Treasury market took out 50 basis points of rate cuts in 2025, leaving market implied rate cuts by the end of 2026 at around 100 basis points.While these moves across markets are significant, it is really important to put them into perspective and tease out what this detente in trade tensions implies. And more importantly, what it does not imply.On the positive side, we think that the de-escalation reduces the risk of a sudden stop in trade volumes and a sharp rise in unemployment rate. While this is clearly just a truce and we don't know exactly where the tariffs between the two largest economies in the world will end up, it seems reasonable to infer that tariffs in the vicinity of 125 percent or 145 percent are substantially less likely now. Overall, the probability of a U.S. recession, therefore, has fallen on the margin.To be clear, a recession during 2025 was never really our base case. But the de-escalation shifts risks in the direction of a little more growth, a little less inflation, and keeps unemployment rate at near current levels. If the world before Liberation Day was bimodal and close to a coin toss; it is still bimodal, but skewed towards an expansion, not contraction. Since we were in the expansion mode to begin with, this detente gives us greater comfort in our baseline outlook and strengthens our conviction that the Fed will remain on hold for rest of the year.The positive vibes from Geneva not withstanding, we would stress that it is far from clear that the 90-day pause is an uncertainty clearing event. Trade tensions are likely to remain elevated. The administration is still investigating tariffs on pharmaceuticals, semiconductors, copper, and other products. It is also unclear if the template of negotiations between the U.S. and China can work for other regions, especially Europe. Even if U.S. tariffs on imports from China and the rest of the world end up roughly around the current levels, they would still be about four times higher than the levels at the start of the year.This means inflation should continue to move higher into year end, with the surge that peaks in the third quarter. While the impulse inflation from tariffs is likely to be smaller, it still is coming. Likewise, higher tariffs will dampen growth even though recession will continue to be avoided.For risk markets, we think that the detente has reduced the risk of substantial drawdowns. While policy uncertainty about the ultimate level of tariff remains, a return to last month’s mind-boggling volatility driven by trade policy is probably behind us. So, it's unlikely that we will see markets revisiting the lows of April in the near term.For credit markets, a lower likelihood of recession is indeed welcome news, especially considering the current strong credit fundamentals. With the market taking out a couple of rate cuts, the all in yields for credit remain in the range to sustain the demand for yield buyers such as insurance companies.Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

As market uncertainty continues around the Trump administration’s trade policy, our Head of Corporate Credit Research Andrew Sheets reflects on the key takeaways that investors may learn from the ongoing volatility.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I'm going to discuss what we think we can actually learn from all of the back and forth in markets.It's Friday, May 16th at 2pm in London.One of the dominant questions of 2025 has been and continues to be: What exactly is the strategy behind U.S. tariff policy. Are these tariffs simply a negotiating tactic, designed to bring countries to the table in order to strike quick deals. Or are they something very, very different. An attempt to fundamentally reduce U.S. trade deficits, raise significant revenue, and bring production back to American shores.At a recent conference with some of our largest investors, we asked them which of these explanations they thought best applied. Well, about a quarter thought it was a negotiating tactic; another quarter thought it was that fundamental shift. And the remaining half simply weren't sure yet.Now, it's possible that this ambiguity is actually the point designed to keep trade partners guessing in order to secure better terms. It's also possible that very different views on trade exist within the administration, and we're seeing them vie for influence – perhaps almost in real time. So, amidst all this uncertainty and back and forth, it's useful for investors to try to take a step back and think what, if anything, we've learned.First, we think we've learned that markets have a pretty clear view on tariffs. Credit and equities sold off aggressively as tariffs were ramped up. They have rallied back almost as quickly as these same policies were paused or reversed. Second, this back and forth does complicate the economic data and makes it more likely that the Federal Reserve will leave interest rates unchanged, waiting for more clarity. At Morgan Stanley, we continue to think that the Fed makes no interest rate cuts this year.Third, even with the Fed doing nothing and interest rates moving around, bonds did diversify portfolios. Over the last 90 days, a portfolio of high-grade bonds, like the U.S. aggregate bond index has had just one-fifth of the volatility of the S&P 500, while at the same time delivering a higher total return. Yes, we think there is absolutely still a case for bonds to diversify within portfolios.Fourth and finally, the shock of the initial tariff announcement has passed. But there is still very real uncertainty about the economic impact, as even with the recent pauses, U.S. tariffs remain relatively high versus recent history.The next two months should start to give us the true picture of this impact – or the lack thereof – on both activity and prices. That will tell us whether the storm has truly passed through or whether we're simply in the eye of it.Thanks for listening. Let us know what you think about our thoughts in the market. You can leave us a review wherever you get this podcast. And if you like what you hear, share Thoughts on the Market with a friend or colleague today.

Our analysts Adam Jonas and Sheng Zhong discuss the rapidly evolving humanoid technologies and investment opportunities that could lead to a $5 trillion market by 2050. Read more insights from Morgan Stanley.----- Transcript -----Adam Jonas: Welcome to Thoughts on the Market. I'm Adam Jonas Morgan Stanley's Global Head of Autos and Shared Mobility.Sheng Zhong: And I'm Sheng Zhong, Head of China Industrials.Adam Jonas: Today we're talking about humanoid robots and the $5 trillion global market opportunity we see by 2050.It's Thursday, May 15th at 9am in New York.If you're a Gen Xer or a boomer, you probably grew up with the idea of Rosie, the robot from the Jetsons. Rosie was a mechanical butler who cooked, cleaned, and did the laundry while dishing out a side of sarcasm.Today's idea of a humanoid robot for the home is much more evolved. We want robots that can adapt to unpredictable environments, and not just clean up a messy kitchen but also provide care for an elderly relative. This is really the next frontier in the development of AI. In other words, AI must become more human-like or humanoid, and this is happening.So, Sheng, let's start with setting some expectations. What do humanoid robots look like today and how close are we to seeing one in every home?Sheng Zhong: The humanoid is like a young child, in my opinion, although their abilities are different. A robot is born with a developed brain that is Large Language Model, and its body function develops fast.Less than three years ago, a robot barely can walk, but now they can jump, they can run. And just in last week, Beijing had a humanoid half marathon. While robot may lack on connecting its brain to its body action for work execution; sometimes they fail a lot of things. Maybe they break cups, glasses, and even they may fall down.So, you definitely don't want a robot at home like that, until they are safe enough and can help on something. To achieve that a lot of training and practice are needed on how to do things at a high success rate. And it takes time, maybe five years, 10. But in the long term, to have a Rosie at every family is a goal.So, Adam, our U.S. team has argued that the global humanoid Total Adjustable Market will reach $5 trillion USD by 2050. What is the current size of this market and how do we get to that eye-popping number in next 25 years?Adam Jonas: So, the current size of the market, because it's in development phase, is extremely low. I won't put it a zero but call it a black zero – when you look back in time at where we came from. The startups, or the public companies working on this are maybe generating single digit million type dollar revenues. In order to get to that number of $5 trillion by 2050 – that would imply roughly 1 billion humanoids in service, by that year. And that is the amount of the replacement value of actual units sold into that population of 1 billion humanoid robots on our global TAM model.The more interesting way to think about the TAM though is the substitution of labor. There are currently, for example, 4 billion people in the global labor market at $10,000 per person. That's $40 trillion. You know, we're talking 30 or 40 per cent of global GDP. And so, imagining it that way, not just in terms of the unit times price, but the value that these humanoids, can represent is, we think, a more accurate way of thinking about the true economic potential of this adjustable market.Sheng Zhong: So, with all these humanoids in use by 2050, could you paint us a picture in broad strokes of what the economy might look like in terms of labor market and economic growth?Adam Jonas: We can only work through a scenario analysis and there's certainly a lot of false precision that could be dangerous here. But, you know, there's no limit to the imagination to think about what happens to a world where you actually produce your labor; what it means for dependency ratios, retirement age, the whole concept of a GDP could change.I don't think it's an exaggeration to contemplate these technologies being comparable to that of electric light or the wheel or movable type or paper. Things that just completely transform an economy and don't just increase it by five or 10 per cent but could increase it by five or 10 times or more. And so, there are all sorts of moral and ethical and legal issues that are also brought up.The response to which; our response to which will also dictate the end state. And then the question of national security issues and what this means for nation states and, we've seen in our tumultuous human history that when there are changes of technologies – even if they seem to be innocent at first, and for the benefit of mankind – can often be  uh, used to, grow power and to create conflict. So Sheng, how should investors approach the humanoid theme and is it investible right now?Sheng Zhong: Yes, it's not too early to invest in this mega trend. Humanoid will be a huge market in the future, like

Our strategists Michael Zezas and Ariana Salvatore provide context around U.S. House Republicans’ proposed tax bill and how investors should view its potential market impact.Read more insights from Morgan Stanley.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income Research and Public Policy Strategy.Ariana Salvatore: And I'm Ariana Salvatore, Public Policy Strategist.Michael Zezas: Today, we'll dig into Congress's deliberations on taxes and fiscal spending.It's Wednesday, May 14th at 10am in New York.Michael Zezas: So, Ariana, there's been a lot of news around the tax and spending plans that Congress is pursuing; this fiscal package – and clients are really, really focused on it. You're having a lot of those conversations right now. Why are clients so focused on all of this?Ariana Salvatore: So, clients have reasons to focus on this tax policy bill across equities, fixed income, and for macroeconomic impacts.Starting with equities, there's a lot of the 2017 tax cut bill that's coming up for expiration towards the end of this year. So, this bill is Congress's chance to extend the expiring TCJA. And add on some incremental tax cuts that President Trump floated on the campaign trail. So, there's some really important sector impacts on the specific legislation side. And then as far as the deficit goes, that matters a lot for the economic ramifications next year and for bond yields.But Mike, to pivot this back to you, where do you think investor expectations are for the outcome of this package?Michael Zezas: So there's a lot of moving pieces in this fiscal policy package, and I think what's happening here is that investors can project a lot onto this. They can project a lot of positivity and constructive outcomes for markets; and a lot of negativity and negative outcomes for markets.So, for example, if you are really focused on the deficit impact of cutting taxes and whether or not there's enough spending cuts to offset those tax extensions, then you could look at the array of possible outcomes here and expect a major deficit expansion. And that might make you less constructive on bonds because you would expect yields to go higher as there was greater supply of Treasuries needed to borrow that much to finance the tax cuts. Again, not necessarily fully offset by spending cuts.So, you could look at this and say, well, this will ultimately be something where economic growth helps tax revenues. And you might be looking at the benefits for companies and the feed through to the equity markets and think really positively about it.And we think the truth is probably somewhere in between. You’re not going to get policy that really justifies either your highest hopes or your greatest fears here.Ariana Salvatore: So, it's really like a Rorschach test for investors. When we think about our base case, how do you think that's going to materialize? What on the policy front are we watching for?Michael Zezas: Yeah, so we have to consider the starting point here, which is Congress is trying to address a series of tax cuts that are set to expire at the end of the year. And if they extend all of those tax cuts, then on a year-over-year basis, you didn't really change any policy. So that just on its own might not mean a meaningful deficit increase.Now, if Congress is able to extend greater tax cuts on top of that; but it's going to offset those greater tax cuts with spending cuts in revenue raises elsewhere, then again you might end up with a net effect close to zero on a deficit basis.And the way our economists look at this mix is that you might end up with an effect from a stimulus perspective on the economy that's something close to neutral as well. So, there's a lot of policy changes happening beneath the surface. But in the aggregate, it might not mean a heck of a lot for the economic outlook for next year.Now, that doesn't mean that there would be zero deficit increase in the aggregate next year because this is just one policy that is part of a larger set of government policies that make up the total spending posture of the government. There's already something in the range of $200-250 billion of deficit increase that was already going to happen next year. Because of weaker revenue growth on slower economic growth this year, and some spending that would automatically have happened because of inflation cost adjustments and higher interest on the debt. So, long story short, the policy that's happening right now that we think is going to be the endpoint for congressional deliberations isn't something our economists see as meaningfully uplifting growth for next year, and it probably increases the deficit – at least somewhat next year.Now we're thinking very short term here about what happens in 2026. But I think investors need to think around that timeline because if you're thinking about what this means for getting deficits smaller, multiple years ah

Our analysts Vishy Tirupattur and Joyce Jiang discuss the health of private credit as default pressures are building for borrowers amid weaker growth, fewer rate cuts and policy uncertainty.Read more insights from Morgan Stanley.----- Transcript -----Vishy Tirupattur: Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist.Joyce Jiang: And I'm Joyce Jiang, U.S. Leverage Finance Strategist.Vishy Tirupattur: Today we'll take a look at private credit markets. Will it stay resilient in the current macro conditions? Or a reckoning is ahead of us.It's Tuesday, May 13th at 10am in New York.Tariffs and policy uncertainty are on the top of mind for people with an eye on the economy and markets. Certainly, a frequent topic of discussion for us on this podcast. In this environment, there has been growing concern about the health of corporate credit – and within corporate credit direct lending or middle market segments, where companies tend to be smaller in size and have weaker fundamentals are of particular concern. The business models of these companies are sensitive to slower growth.Joyce, can you map out the risks associated with private credit companies?Joyce Jiang: To your point, risks are rising in private credit, but I think these risks would be measured given the still resilient fundamental backdrop. Looking at fundamental trends, there is no clear sign of leverage building up in the system yet, and multiple data sources actually show that the leverage ratios among direct lending companies have either improved or remained flat. And that's very different from the previous cycles where excessive corporate leverage set the stage for the eventual downturn.So, this time around credit, including both public credit and private credit, is not the source of the problem. But, of course, these direct lending companies would be impacted by higher tariffs. So, Vishy what's your view on the tariff impact?Vishy Tirupattur: So, the direct impact of tariffs, Joyce, we think is likely to be muted. It's quite hard to quantify this exposure, but if you look at a number of different data sources, we find that the direct lending loans are more skewed towards defensive and service-oriented sectors.For example, sectors such as a technology, business services and healthcare account for over half of the loans in typical BDC portfolios or Business Development Company portfolios of direct lending loans. But that said, even though the direct impact could be somewhat limited, there could be second order effects because there is higher uncertainty and weaker confidence, and that could weigh on demand. There could be a tail cohort that could be developing.So, some data from Lincoln International, for example, shows that about 15 per cent of direct lending companies have EBITDA interest coverage ratio below 1x. Another way of looking at tail cohort is by looking at companies generating negative free operating cash flow. According to S&P data, that's about 40 per cent. These tail cohorts are stretched and are weakly positioned to weather macro challenges ahead.So, Joyce, another thing that comes up frequently when we talk about private credit is Payment In Kind interest or the so-called PIK interest. Can you walk us through what is a PIK and why is it a concern?Joyce Jiang: So, Payment In Kind interest – it occurs when the company stops paying interest in cash, but instead the interest is accrued and added to the principal balance. It is quite common for companies under liquidity stress to switch to PIKs for cash preservation, But in many cases, PIKs don't really clean up the company's balance sheet, and the companies may still end up in a conventional default. So, PIK is generally considered as a leading indicator of default by market participants.And to be clear, not all PIK loans are bad. PIK toggles are actually a key feature that distinguishes direct lending loans from syndicated loans because it provides non-distressed companies the flexibility to reallocate cash for other business needs. So, PIKs do not necessarily signal higher defaults. And in fact, data showed that BDCs or Business Development Companies with a higher PIK income don't always see a greater increase in nonaccruals. So, in other words, the relationship between PIK income and defaults is not persistently strong.Vishy Tirupattur: So, to summarize, overall fundamentals are on a relatively strong footing, but risks in private credit are rising, especially if we have a potential economic slowdown ahead. On the other hand, there are a few structural features with the private credit loans that could potentially help mitigate some of the vulnerabilities we've just talked about.First thing, direct lending loans are not marked to market by design, so they have lower volatility and are relatively immune from daily price moves. And really related to that, redemption risk of private

Equity markets saw big rallies after trade tensions eased over the weekend. Our CIO and Chief U.S. Equity Strategist Mike Wilson explains why he’s optimistic that the worst of the market trough is over.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing how to think about the recent tariff negotiations for equity markets. It's Monday, May 12th at 11:30am in New York.  So, let’s get after it. Over the weekend, U.S.-China trade negotiations made better than expected progress with both sides agreeing to a détente in the trade war that began just one short month ago. The main question I’m getting from investors is whether they should trust this initial agreement, and if it will eventually lead to something more sustainable? From my perspective, this misses the more important point for equity investors. To remind listeners, equity markets trade in the future.  Therefore, the question to ask yourself is do you think things will be more or less uncertain in six months and will they be better or worse? The other thing to consider is that stocks trade on the second derivative, or rate of change, in growth. On that score, I believe it is likely we saw the trough rate of change in variables that tend to correlate with stock prices the most.  More specifically, earnings revisions breadth showed a meaningful uptick last week for the first time this year. Some of this was driven by a pull forward in demand during the first quarter ahead of the tariff announcements that led to better than feared earnings. In addition, several leading companies posted better than expected results thanks to a weaker dollar. Importantly, the translation benefit for U.S. multinational earnings is likely to be a big earnings tailwind for the next six months.  Many of the growth negative things we were worried about five months ago have played out now with Liberation Day marking the point of maximum negative sentiment and positioning. There is an adage that equity markets bottom on bad news, and I can’t think of a better example of that than Liberation Day last month. Similarly, markets tend to top on good news and this weekend’s better than expected outcome on trade negotiations with China could very well lead to a pause in the rally. Therefore, we would buy dips rather than chase stocks on days like today. Markets can look forward to the possibility of growth positive policy changes that still may be in front of us. Things like tax cut extensions, de-regulation and resolution of the debt ceiling and budget appropriations for the next year.  Finally, with the threat of further escalation of tariff rates now diminished, the Fed can also come back into the picture with rate cuts sooner than perhaps what the Fed told us last week. While we don’t know exactly how much the tariffs will impact inflation over the next year, it is likely to be front-end loaded. In fact, there is a case to be made that tariffs may hurt demand and end up being disinflationary. The Fed is likely to determine this outcome over the summer and could begin to at least signal rate cuts. Such a move will potentially lead to a more sustainable rotation towards lower quality, cyclical stocks and drive animal spirits in a way that many investors were expecting six months ago but simply jumped the gun. Bottom line, I feel more confident in our original outlook for this year for a tough first half, followed by a strong second one. This outlook was based on our view that AI capex growth was bound to decelerate this year, while policy changes were likely to be growth negative to start. Now, we can look forward to growth positive policy changes and productivity benefits from the spending on AI that has already taken place. After such a strong rally, pullbacks are inevitable but unlikely to be anything like we saw last month. So, buy the dips.  Thank you for choosing to listen. Leave us a review, and let us know what you think about the podcast. If you enjoy listening to Thoughts on the Market, tell a friend or colleague about us today.

The initial shock of the U.S. administration’s tariff announcements is over, but Andrew Sheets, our Head of Corporate Credit Research, suggests the current calm could still give way to headwinds for the markets.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today we're going to discuss whether the worst is over for markets – or whether it's just the eye of the storm.It's Friday, May 9th at 2pm in London.After extreme recent volatility, markets have bounced back, generally unwinding their losses since April 2nd. So was that it? The shock of tariff announcements and positioning adjustments may have now passed through, but the impact on the real economy is still to come. In meteorological terms, we think this may be just the eye of the storm.There are several specific bouts of potentially bad weather that we're looking at, driven by tariffs that may be about to pass through.First is the Federal Reserve. Our economists still see no cuts from the Fed this year as tariffs keep inflation elevated on our forecast. The markets in contrast are expecting more action. A scenario where credit markets face both weaker growth and a lack of central bank support remains one of our top concerns.Second is the data. So far in 2025, measures of consumer and company expectations have generally been weak, while readings of activity have tended to be stronger. Now, we think there's a good historical case that it's the expectations that tend to leave and are thus concerned that actual activity could start to soften – as it starts to be measured in a post tariff period.To this end, we're keenly watching measures like shipping and trucking activity, which could give us a better picture of the real impact. Again, a core driver of our concern, despite the economic data holding up so far, is that the impact of tariffs usually takes more time. As our economists note, tariffs historically have pushed up prices after a couple of months and pushed down growth after a couple of quarters. In short, the full storm of that impact may be yet to pass through.That thinking also lies behind our inflation views. Those more optimistic on inflation, and thus expecting more interest rate cuts from the Fed, note that the latest core inflation readings were generally fine. But in contrast, our economists remain more concerned that tariff price impacts simply haven't yet arrived in the official data, noting little change in the core inflation readings for things like goods that in theory should see the largest tariff impact. This, in our view, suggests that the impact on the underlying numbers that the Fed is looking at is still to come.The initial surprise of the U.S. tariff announcements is behind us. Things feel calmer. And the recent economic data has been relatively resilient. One scenario is this simply speaks to how resilient the U.S. economy is. But another explanation is that there's a gap between the surprise of those tariffs and their ultimate economic impact. And our concern remains that those impacts are real, driving forecast at Morgan Stanley for weaker growth, higher inflation, and later interest rate cuts by the Federal Reserve than the market consensus.With credit spreads below average, we'd recommend patience. Those forecasts at these spreads could still drive turbulence.Thank you, as always, for your time. If you find Thoughts in the Market useful, let us know by leaving a review wherever you listen; and also tell a friend or colleague about us today.

Investors were caught off guard last week when the Taiwanese dollar surged to a multi-year high. Our strategists Michael Zezas and James Lord look at what was behind this unexpected rally.Read more insights from Morgan Stanley.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income Research and Public Policy Strategy.James Lord: And I'm James Lord Morgan Stanley's, Global Head of FX and EM Strategy.Michael Zezas: Today, we'll focus on some extreme moves in the currency markets and give you a sense of what's driving them, and why investors should pay close attention.It's Thursday, May 8th at 10am in New York.James Lord: And 3pm in London.Michael Zezas: So, James, coming into the year, the consensus was that the U.S. dollar might strengthen quite a bit because the U.S. was going to institute tariffs amongst other things. That's actually not what's happened. So, can you explain why the dollar's been weakening and why you expect this trend to continue?James Lord: I think a big factor for the weakening in the dollar, at least in the initial part of the year before the April tariff announcements came through, was a concern that the U.S. economy was going to be slowing down this year. I mean, this was against some of the consensus expectations at the beginning of the year.In our year ahead outlook, we made this call that the dollar would be weakening because of the potential weakness in the U.S. economy, driven by slow down in immigration, limited action on fiscal policy. And whatever tariffs did come through would be kind of damaging for the U.S. economy.And this would all sort of lead to a big slowdown and a kind of end to the U.S. exceptionalism trade that people now talk about all the time. And I think since April 1st or April 2nd tariff announcements came, the tariffs were so large that it raised real concerns about the damage that was potentially going to happen to the U.S. economy.The sort of methodology in which the tariff formulas were created raised a bit of concern about the credibility of the announcements. And then we had this constant on again, off again, on again, off again tariffs. That just created a lot of uncertainty. And in the context of a 15-year bull market of the dollar where it had sucked enormous amounts of capital inflows into the U.S. economy. You know, investors just felt that maybe it was worth taking a few chips off the table and unwinding a little bit of that dollar risk. And we've seen that play out quite notably over the last month. So, I think it's been, yeah, really that those concerns about growth but also this sort of uncertainty about policy in general in the context of, you know, a big bull run for the dollar; and fairly heavy valuations and positioning. Those have been the main issues, I think.Michael Zezas: Right, so we've got here this dynamic where there are economic fundamental reasons the dollar could keep weakening. But also concerns from investors overseas, whether they're ultimately founded or not, that they just might have less demand for owning U.S. dollar denominated assets because of the U.S. trade dynamic. Now it seems to me, and correct me if I'm wrong, that there was a major market move in the past week around the Taiwanese dollar, which reflected these concerns and created an unusually large move in that currency. Can you explain that dynamic?James Lord:  Yeah, so we've seen really significant moves in the Taiwan dollar. In fact, on May 2nd, the currency saw its largest one-day rally since the 1980s, and over two days gained over 6.5 percent, which for a Taiwan dollar, which is pretty low volatility currency usually, these are really big moves. So in our view, the rally in the Taiwan dollar, and it was remarkably big. We think it's been mostly driven by Taiwanese exporters selling some of their dollar assets with a little bit of foreign equity inflow helping as well. And this is linked back to the sort of trade negotiations as well.I mean, as you know, like one of the things that the U.S. administration has been focused on currency valuations. Historically, many people in the U.S. administration believe the dollar is very strong. And so there has been this sort of issue of currency valuations hanging over the trade negotiations between the U.S. and various Asian countries. And local media in Taiwan have been talking about the possibility that as part of a trade negotiation or trade deal, there could be a currency aspect to that – where the U.S. government would ask the Taiwanese authorities to try to push Taiwan dollar stronger.And you know, I think this sort of media reporting created a little bit of a -- well, not just a little, a significant shift from Taiwanese exporters where they suddenly rush to sell their dollar deposits in to get ahead of any possible effort from the Taiwanese authorities to stren

The traditional correlations between some asset classes went haywire in April. Our analysts Serena Tang and Vishy Tirupattur discuss whether, in this environment, investors still consider U.S. Treasuries and the U.S. dollar to be reliable ports in a storm. Read more insights from Morgan Stanley.----- Transcript -----Serena Tang: Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's Chief Cross Asset Strategist.Vishy Tirupattur: And I'm Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist.Serena Tang: Today's topic, how investors' perceptions of safe havens are evolving, the impact on correlation between asset classes, and what all this means for your portfolio.It's Wednesday, May 7th at 10am in New York.April was a really challenging month, and some market moves were highly unusual. There was also a lot of investor concern whether U.S. Treasuries would continue to be a safe haven. In fact, this became one of the biggest market debates over the last few weeks.Vishy, let's start here. Prior to this recent sell off, foreign investors looked at U.S. assets as a safe haven. Why is that? And is it still the case now after this turbulent month?Vishy Tirupattur: So, Serena, if you just step back and look at it, U.S. enjoyed positive growth differentials and positive yield differentials with developed markets in the rest of the world. On top of that, there was a consistent policy – not necessarily infallible policy – but there's a consistent policy with a clear sense of demarcation between the executive and the central bank.All of this meant U.S. was a very attractive destination for foreign investor flows. Not only during periods of normalcy where U.S. equities really attracted inflows and performed really well, but also during the periods of economic stress; where even periods where the stress was coming from the U.S. itself, such as the Global Financial Crisis. This correlation between bonds and stocks held and U.S. Treasuries were the safe haven asset as the single largest and most liquid, and highly negatively correlated asset with risk assets. So that really worked.What we are now seeing is that growth differential I talked about may no longer be holding. You know, for these [20]25 and [20]26 U.S. and euro area growth basically will converge – and if our economists’ expectations are right, in 2026, euro area will be growing at a faster pace than the U.S.So, growth differential argument is fading. And there are some questions about the continued Fed independence. So put all these things together. Some investors are beginning to question whether U.S. assets will continue to be safe haven assets.So let me come back to you Serena. There've been some recent market moves that have been extremely unusual. That's what created all this debate. In some of – a few days in April, during the periods of sell off, we had both stocks and bonds selling off. And it felt like cross-asset correlations have gone totally haywire.So, can you talk a little bit about which correlations have changed? Which correlations have held up in these sell off?Serena Tang: What was highly unusual, and I think reflects part of the debate on U.S. as a safe haven, is the correlation between U.S. equities and the dollar. It is very high at the moment, about sort of two standard deviation above the five-year average. While it's not unheard of for FX stocks correlation to be high, it is usually more associated with EM or emerging markets rather than DM or developed markets. As a means, investors now require higher risk premium for holding the equities, which is a risk asset; but also holding the dollar, which again, traditionally is not thought of as a risk asset.Vishy Tirupattur: So, Serena, how did the correlation between bonds and stocks hold up in this period?Serena Tang: Surprisingly, the correlation have really, really held up. Stocks and bond return correlation turned very negative during the sell off that we saw, which means that equity losses were actually offset by bond returns. Now, this isn't entirely true across the curve. You saw 2 Year Treasuries being a much effective diversifier than say the 30 Year Treasury. But all in all, I think it means bonds still work as a diversifier.Now on this point Vishy, how do you think policy will impact asset correlations we've been talking about, as well as the perception of U.S. assets as a safe haven.Vishy Tirupattur: So, as I said before, positive growth differentials fade, and we have negative growth differential. And if there are continued questions about the Fed's independence, so some of the attraction of U.S. assets, particularly U.S. Treasuries as a safe haven asset, will be challenged. But that challenge hits the practical reality of the size and the scale of the safe haven assets.So, if you look around, if you add the comparably rated European government bond market and compare that to the U.S. government bond m

With the May FOMC meeting in progress, our analysts Matt Hornbach and Michael Gapen offer perspective on U.S. economic projections and whether markets are aligned.Read more insights from Morgan Stanley.----- Transcript -----Matthew Hornbach: Welcome to Thoughts on the Market. I'm Matthew Hornbach, Global Head of Macro Strategy.Michael Gapen: And I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist.Matthew Hornbach: Today we're talking about the Federal Open Market Committee Meeting underway, and the path for rates from here.It's Tuesday, May 6th at 10am in New York.Mike, before we talk about your expectations for the FOMC meeting itself, I wanted to get your take on the U.S. economy heading into the meeting. How are you seeing things today? And in particular, how do you think what happened on April 2nd, so-called Liberation Day, affects the outlook?Michael Gapen: Yeah, I think right now, Matt, I would say the economy's still on relatively solid footing, and by that I mean the economy had been moderating. Yes, the first quarter GDP print was negative. But that was mainly because firms were frontloading a lot of inventories through imports. So imports were up over 40 percent at an annualized pace in the quarter. A lot of that went into inventories and into business spending. That was just a mechanical drag on activity.And the April employment report, I think, showed the same thing. We're now averaging about 145,000 jobs per month this year. That's down from about 170,000 per month in the second half of last year. So the hiring rate is slowing down, but no signs of a sudden stop. No signs in layoffs picking up. So I'd say the economy is on fairly solid footing, and the labor market is also on fairly solid footing – as we enter the period now when we think tariffs will have a greater effect on the outlook. So you asked, you know, Liberation Day. How does that affect the outlook? Right now we'd say it puts a lot of uncertainty in front of us. on pretty solid footing now. But Matt, looking forward, we have a lot of concerns about where things may go and we expect activity to slow and inflation to rise.Matthew Hornbach: That's great background, Mike, for what I want to ask you about next, which is of course the FOMC meeting this week. We won't get a new set of economic projections from the committee. But if we did, what do you think they would do with them and how would you assess the reaction function one might be able to tease out of those economic projections?Michael Gapen: You're right, we don't get a new set of projections, but New York Fed President John Williams did provide some indication about how he adjusted his forecast, and John tends to be one of the – kind of a median participant.He tends to be centrist in his thinking and his projection. So I do think that that gives us an indication of what the Fed is thinking; and he said he expects GDP growth to slow to somewhat below 1 percent in 2025. He expects inflation to rise to 3.5 to 4 percent this year, and he said the unemployment rates likely to move between 4.5 and 5 percent over the next year. And those phrases are really key. That's the same thing, Matt, as you know, we are expecting for the U.S. economy and I do think the Fed is thinking of it the same way.Matthew Hornbach: So one final question for you, Mike. In terms of this meeting itself, what are you expecting the Fed to deliver this week? And what are the risks you see being around that expectation; you know, that might catch investors off guard?Michael Gapen:I think the Fed's main message this week will be that they're prepared to wait, that they think policy's in a good spot right now. They think inflation will be rising sharply, that the tariff shock is a lot larger than they had anticipated earlier this year. And they will need time to assess whether that inflation impulse is transitory, or whether it creates more persistent inflation. So I think what they will say is we're in a good position to wait and we need clarity on the outlook before we can act.In this case, we think acting means doing nothing. But acting could also mean cutting if the labor market weakens. So I think there'll be worried about inflation today, a weak labor market tomorrow. And so I think risks around this meeting really are tilted in the direction of a more hawkish message than markets are expecting at least vis-a-vis current pricing. I think the market wants to hear the Fed will be ready to support the economy. Of course, we think they will, but I think the Fed's also going to be worried about inflation pressures in the near term. So that, I think, might catch investors off guard.So Matt, what I think might catch investors off guard may be a little mispl

Morgan Stanley Research analyst Mark Schmidt and Investment Management’s Craig Brandon discuss the heightened uncertainty in the U.S. municipal bonds market.Read more insights from Morgan Stanley.For a full list of episode disclosures click here.----- Transcript -----Mark Schmidt: Welcome to Thoughts on the Market. I'm Mark Schmidt, Morgan Stanley's Head of Municipal Strategy.Craig Brandon: I'm Craig Brandon, Co-Director of Municipal Investments at Morgan Stanley Investment Management.Mark Schmidt: Today, let's talk about the biggest market you hardly ever hear about – municipal bonds, a $4 trillion asset class.It's Monday, May 5th at 10am in Boston.Mark Schmidt: If you've driven, flown, gone to school or turned on a tap, chances are munis made it happen. Although munis are late cycle haven, they were not immune to the latest bout of market volatility. Craig, why was April so tough?Craig Brandon: So, what we say in April, it was sort of the trifecta of things that happened that were a little different than other asset classes. The first thing that happened is we saw a significant increase in treasury rates – and munis are generally correlated to treasuries. We're a very high-quality asset class, that's viewed as a duration asset class. So, one thing we saw were rates going up. When we see rates going up, you generally see money coming out of the market, right? So, I think investors were a little bit impacted by the higher rates, the correlation to treasuries, the duration, and saw some flows out of the market.Secondly, what we saw is conversation about the tax exemption in Washington D.C. What that did is it caused muni issuers to pull their issuance forward. So, if you're an infrastructure issuer, you are issuing bonds in the next year to year and a half; you're going to pull that forward because if there's any risk of loss of the tax exemption, you want to get these bonds issued today. So that's basically what drives technicals. It's supply and demand. So, what we saw was a decrease in demand because of higher rates; an increase in supply because of issuance being pulled forward.And the third part of the trifecta we refer to is the conversations about the economy. So, I would put that, it's sort of a distant third, but there's still conversations about maybe credit weakness driven by a slowing economy.Mark Schmidt: Craig, your team has been through a lot of tough market cycles. Given your experience, how did the most recent selloff compare? And why was it not like 2008?Craig Brandon: I started my career back in 1998 during the long-term capital management crisis. I lived through 2008. I lived through the COVID crisis, and you know, really when I look at the crisis in 2008 – no banks went out of business three weeks ago, right? In 2008 we were really sitting on a trading desk wondering where this was going to end.You know, we had a number of meetings with our staff, over the last couple weeks explaining to them why it was different and how. Yes, there was some volatility here, but you could see that there was going to be an end to this, and this was not going to be a permanent restructuring of the market. So, I think we felt comfortable. It was very different than 2008 and it really felt different than COVID.Mark Schmidt: That's reassuring. But with economic growth set to slow sharply, how does your credit team think the fiscal health of America's state and local governments will hold up?Craig Brandon: Well, remember state and local governments, and when we're talking about munis, we're also talking about other infrastructure asset classes like water and sewer bonds. Like, you know, transportation, bonds, airports. We're talking about toll roads.They went into this with a very strong balance sheet, right? Remember, there was a lot of infrastructure money spent by the federal government during COVID to give issuers money to make it through COVID. There's still a lot of money on balance sheets. So, what we do is we're going into this crisis with a lot of cash on balance sheets, allowing issuers to be able to withstand some weakness in the economy and get through to the other side of this.Mark Schmidt: Not only do state and local governments have a lot of cash, but they're just not that impacted by tariffs, right? So why did muni yields perform worse than U.S. treasuries over the past couple of weeks?Craig Brandon: Right. It really… We're technically driven, right? The U.S. muni market is more retail driven than some other asset classes. Remember – investment grade corporates, treasury bonds, there's a lot of institutional buyers in those markets. In the municipal market, it's primarily retail driven.So, when you know, individual retail investors get nervous, they tend to pull money out of the market. So, what we saw was money coming out of the market. At the same time, we saw an individual increase in more bonds, which just led to very weak technicals, which when we see that it eventually reve

Despite news that the UK economy is set to slow due to uncertainty around US trade policy, our analysts Andrew Sheets and Bruna Skarica explain why they have a more optimistic outlook.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.Bruna Skarica: And I'm Bruna Skarica, Chief UK Economist at Morgan Stanley.Andrew Sheets: Today we're going to talk about the United Kingdom and why, despite a downbeat outlook by many in the market, we remain more optimistic.It's Friday, May 2nd at 2pm in London.Bruna, it's great to talk to you again about the UK and not just because this is an unusual day in London where it's sunny and warm, and at the moment warmer than Los Angeles. You know, when discussing the UK, I do think you kind of need to take a step back. This is a country and an economy that's had a tough number of years where growth has been sub-trend, inflation's been higher, and a lot of assets have traded at a discount.So maybe just to give some context, talk to us a little bit about the last couple of years in the UK and the challenges the economy has faced.Bruna Skarica: Indeed, Andrew, I do think it's important to take a step back to appreciate just the amount of supply side shocks the UK has seen in recent years. First, between 2016 and 2020, of course, the country had to navigate Brexit negotiations. The elevated uncertainty kept a lid on business CapEx. In 2020, of course, as the rest of the world, we saw the lockdown and the pandemic. What followed were supply chain disruptions, and then, the European energy shock in 2022. I do want to zoom in on this final point because in its scale, the natural gas price surge in the UK was twice more of a hit to growth compared to the 1970s oil price shock.We've also seen a fair share of volatile market moves, most notably around the mini budget in the autumn of 2022. On top of all of this, the Bank of England into these supply side shocks had to hike interest rates to cap the inflation surge. And they went to above 5 per cent and have recently been relatively slower in reducing policy restrictiveness than most of its peers.So, when you tally all these factors up, it's really no surprise that the UK has seen an exceptionally weak post COVID recovery.Andrew Sheets: And that's continued right into this year. You know, I remember a lot of conversations with global investors heading into 2025, and again, the sentiment around the UK was kind of downbeat. Growth was pretty soft. Inflation was still high. Because inflation was high, interest rates here were still quite high. And so, you really had this, you know, unattractive mix of weak growth, high inflation, tight monetary policy. And then you could throw onto that, this uncertainty around the U.S. and trade. And you had a Trump administration that was adopting a more adversarial policy towards trade and towards Europe, which the UK was getting caught up in.So, you know – again, did I miss any of the challenges that the UK was facing, entering this year?Bruna Skarica: No, I think that's a great summary. First, at the end of last year, of course, the government faced some pretty tough decisions in the October budget, and they hiked a tax – a payroll tax really – in order to balance the books, which created somewhat subdued sentiment around the labor market this year.Now the labor market has been soft in the UK at the start of this year, but it did hold up a little bit better perhaps than the expectations from the end of last year. At the start of the year, we also saw the energy inflation forecast rise. So, that led to a more cautious tone by the Bank of England in February and March, as you mentioned. And now on the trade front, although we have a small manufacturing sector, we are a small open economy, we're a big beta to global growth dynamics.I would just like to mention here that one of the real bright spots of the UK economy in recent years have been services exports to the U.S., the kind of high-value-added white-collar services exports, which rose between 2019 and 2023 by 50 per cent. Now with the growth in the U.S. slowing and obviously the Euro area as well, UK growth will be affected too this year. We actually took our growth forecast down by around 30 basis points in our latest GDP revisions.Andrew Sheets: But Bruna, we're here to talk about the future and you know, I do think it's fair to say that going forward we think this picture is starting to look better. So, let's jump right into that. Across a number of specific points. Why do we think the UK story could look better as you look ahead?Bruna Skarica: Absolutely. I mean, the last point that I mentioned, I do think I want to put it in context. The trade related revisions in the UK are still less than what our colleagues in the eu

Our Chief Korea and Taiwan Economist Kathleen Oh discusses Korea's recent pension reform and its implications for the country's rapidly aging population.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I’m Kathleen Oh, Morgan Stanley’s Chief Korea and Taiwan Economist. Today I’ll revisit Korea's demographic emergency and how the recent pension reform is trying to address it.It's Thursday, May 1st, at 4pm in Hong Kong.Some of you may remember that I came on the show last fall to talk about the crisis-level demographic challenges in Korea. Korea officially became a super-aged society at the end of 2024. This means that more than 20 per cent of the population is 65 or older.In the face of its rapidly aging population and a fertility rate that has hit rock bottom, Korea is taking decisive action finally. The national assembly recently passed a landmark pension reform bill to amend the National Pension Act. This measure marks the first major change to its pension system in 18 years. And it’s supposed to improve the pension fund's financial sustainability to prepare for a rapidly aging population that will only accelerate from here.The amendments include raising pension contribution rates and adjusting the income replacement ratio to 43 per cent. These changes aim to delay the depletion of the fund to 2064 to 2071, in an upside scenario. Without this reform, the fund would have been depleted by 2055, just 30 years later.This reform avoids having to sell the fund's financial assets by delaying depletion. It also assures pension-holders of the stability of future pension assets. And, last but not least, it increases the pension fund's capacity for financial investments, which could lead to higher returns.This is the first step towards making legislative, and therefore more structural changes to respond to the reality of a super-aged society. Moreover, it kicks off a sweeping reform agenda that includes the pension program, labor market, education system, and capital markets.It’s also notable because the center-left Democratic Party of Korea and the conservative People Power Party were able to show bipartisan support and a public consensus to reach a deal, especially during the recent tumultuous political events that took place in Korea.That said, the reform also has some potentially negative economic impacts. Higher pension contributions could squeeze households' disposable income, putting mild but additional downward pressure on aggregate consumption and savings. Especially considering that as people age, they tend to consume less – and this can lead to a structural slowdown in private consumption.Despite Korea's challenges with an aging population, we're cautiously optimistic about its future – especially because [of] the recent rebound in the country's fertility rate. After marking a drop every year since 2015, it rebounded to 0.75 in 2024. While still far below the ideal replacement ratio of 2.1, this rebound is a small but certainly a positive sign.Looking ahead, Korea's working population is expected to decrease by 50 per cent in the next 40 years unless the country ensures a dramatic rebound in the fertility rate to 1.0 or higher by 2030. In the meantime, we expect further adjustments to the pension reform bill, we expect further discussions around lifting of retirement age, along with the labor market reform next in line on the economic front. The Korean government will continue to execute on its demographic policy agenda.Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our analysts Michael Zezas and Rajeev Sibal unpack the significance of a little-discussed clause in the Trump administration’s tariff policy, which suggests investors should think less about countries and more about products.Read more insights from Morgan Stanley.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income Research and Public Policy Strategy.Rajeev Sibal: And I am Rajeev Sibal, Senior Global Economist.Michael Zezas: Today we look through the potential escalation and de-escalation of tariff rates and discuss what the lasting impact of higher tariffs will be for companies and the economy.It's Wednesday, April 30th at 11am in New York.Rajeev Sibal: And 4pm in London.Michael Zezas: Last week during a White House News conference, President Trump announced that tariffs on goods from China will come down substantially, but it won't be zero. And this was after U.S. Treasury Secretary Scott Bessent made comments about high tariffs against China being unsustainable, according to some news reports.Now, some of this has been walked back, and there's further discussion of challenging negotiations with China and potential escalations if those negotiations don't go well. Meanwhile, Canadian voters elected a Liberal government, led by Mark Carney yesterday. That federal election played out against the backdrop of the U.S. proposing higher tariffs on its northern neighbors. So, Rajeev, amidst all this noise, what seems clear is that tariff levels will end up higher than where we started before President Trump took office. Though we don't exactly know how high they will be. What is it that investors need to understand about the economic impacts of higher tariffs just generically?Rajeev Sibal: So yeah, we do view that tariffs are going to structurally be higher than they were before the Trump administration. This has been a baseline of our outlook since last year. Now I think the challenge is figuring out where they're going to settle as you've highlighted. We do think that peak tariff was probably a couple weeks ago, when we were at the max pain threshold, vis-a-vis China and the rest of the world. We've since seen the reciprocal tariffs move to 10 per cent for everyone but China.China's clearly higher than 60 per cent today, but we do think that over time the implied rate to China will start to graduate and come down. If you look at the electronics exemption for example, that's a big step in getting the average tariff rate out of China lower. So, we think we're on a journey. We think we were past peak tariff pain in terms of level. But over the next few months, it's going to take some time and negotiation to figure out where we settle. And we are still looking to kind of our baseline outlook, that had been defined some time ago of a 10 per cent baseline with an elevated level on China, if you will.Michael Zezas: So, I think this is an important point, that there's a lot of back and forth about tariff levels, which countries are going to be levied on, to what degree, and to what products. But at the end of the day, we think there'll be more tariffs than where we started.Rajeev, you have a view on where investors should focus, in terms of what tariffs are durable. And maybe at the end of the day it'll be less about countries and more about products. Can you talk us through that?Rajeev Sibal: You know, on April 2nd when the Trump administration released the fact sheet about tariffs and reciprocal tariffs, there was a small clause in there that I think the market did not pay enough attention to, and which is becoming front and center now.And in that clause, they identified that a number of tariffs related to Section 232 would be exempted from reciprocal tariffs. And the notion is that country tariffs would evolve or shift into sector tariffs over time. And in the note that we recently published, we highlighted some of the legal mechanisms that may be at play here. There's still a lot of uncertainty as to how things will settle down, but what we do know is that legally speaking, country tariffs are coming through IEEPA, which is the International Emergency Economic Powers Act; whereas section and sector tariffs are coming through Section 232; and some of the other section structures that exist in U.S. trade law.And so, the experience of 2018 leaned a lot more to these sections than it did to IEEPA. And that was a guiding, I guess, mechanism for us, as we thought about what was happening in the current tariff structure. And the fact that the White House included this carve out, if you will, for Section 232 tariffs in their April 2nd fact sheet was a big lead indicator for us that, over time, there would be an increased shift towards sectors.And, so for us, we think the market should be focusing more in that direction. As we think about how this evolves over time, now that we've not completely de-escalated, but brought a mate

Our Global Commodities Strategist Martijn Rats discusses the ongoing volatility in the oil market and potential macroeconomic scenarios for the rest of this year.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I’m Martijn Rats, Morgan Stanley’s Global Commodities Strategist. Today on the podcast – the uncertainty in the oil market and how it can play out for the rest of the year.It’s Tuesday, April 29th, at 3pm in London.Now, notwithstanding the energy transition, the cornerstone of the world’s energy system is still the oil market; and in that market, the most important price is the one for Brent crude oil. Therefore, fluctuations in oil prices can have powerful ripple effects on various industries and sectors, as well as on the average consumer who, of course, pays attention to gasoline prices at the pump. Now with that in mind, we are asking the question: what's been happening in the global oil market recently?Earlier this month, Brent crude oil prices dropped sharply, falling 12.5 per cent over just two trading sessions, from around 75 dollars a barrel to close to 65 dollar a barrel. That was primarily driven by two factors: first, worries about the impact of trade wars on the global economy and therefore on oil demand, after the Trump administration’s announcement of reciprocal tariffs.Secondly, was OPEC’s announcement that, notwithstanding all the demand uncertainty that this created, it would still accelerate supply growth, progressing not only with the planned production increases for May; but bring forward the planned production increases for June and July as well. Now you can imagine, when OPEC releases extra production whilst the GDP outlook is weakening, understandably, this weighs on the price of oil.Now to put things into context, two-day declines of 12.5 per cent are rare. The Brent futures market was created in 1988, and since then this has only happened 24 times, and 22 of those instances coincided with recessions. So therefore, some commentators have taken the recent drop as a potential sign of an impending recession.Now while Brent prices have recovered slightly from the recent lows, they’re still very volatile as they continue to reflect the ongoing trade concerns, the economic outlook, and also a strong outlook for supply growth from OPEC and non-OPEC countries alike. The last few weeks have already seen unusually large speculator selling. So with that in mind, we suspect that oil prices will hold up in the near-term. However, we still see potential for further headwinds later in the year.In our base case scenario, we expect that demand growth will slow down to approximately 0.5 million barrels a day year-on-year by the second half of 2025, and that is down from an an initial estimate earlier in the year when were still forecasting about a million barrel a day growth over the same period. Now this slowdown – coupled with an increase in non-OPEC and OPEC supply – could result in an oversupply of the market of about a million barrels a day over the remainder of 2025. Now with that outlook, we believe that Brent prices could eventually drop further down into the low-$60s.That said, let's also consider a more bearish scenario. Oil demand has never grown continuously during recessions. So if tariffs and counter-tariffs tip the economy into recession, oil demand growth could also fall to zero. In such a situation, the surplus we're currently modeling could be substantially larger, possibly north of 1.5 million barrels a day. Now that would require non-OPEC production to slow down more severely to balance the market. In that scenario, we estimate that Brent prices may need to fall into the mid-$50s to create the necessary supply slowdown.On the flip side, there's also a bullish scenario where we and the market are all overestimating the demand impact. If oil demand doesn't slow down as much as we currently expect and OPEC were to revert quite quickly back to managing the supply side again, then inventories would still build but only slowly. Now in that case, Brent could actually return into the low-$70s as well.All in all, we would suspect that the twin headwinds of higher-than-expected trade tariffs and faster-than-expected OPEC+ quota increases will continue to weigh on oil prices in the months ahead. And so we have lowered our demand forecast for the second half of the year to just 0.5 million barrels a day, year-on-year. And we’ve also lowered our prices forecasts for 2026; we’re now calling for $65 a barrel – that’s $5 a barrel lower than we were forecasting before.Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our CIO and Chief U.S. Equity Strategist Mike Wilson discusses how market volatility over the last month will affect equity markets as earnings season begins.Read more insights from Morgan Stanley.  ----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today, I will discuss what to expect from Equity markets as we enter the heart of earnings season.  It's Monday, April 28th at 11:30am in New York. So, let’s get after it. The S&P 500 tested both the lower and upper ends of our 5000-5500 range last week, reinforcing the notion that we remain in a volatile trading environment. Incrementally positive news on a potential tariff deal with China and hope for a more dovish Fed lifted stocks into the end of the week, and the S&P 500 closed slightly above the upper end of our range. While a modest overshoot of 5500 can persist very short-term, a sustainable break above this level is dependent on developments that have yet to come to fruition. Those include a tariff deal with China that brings down the effective rate materially; a more dovish Fed; 10-year Treasury yields falling below 4 percent without recessionary risks increasing; and a clear rebound in earnings revisions. Bottom line, until we see clear positive shift in one or more of these factors, range trading is likely to continue with risks to the downside given that we are now at the top end of the range. A frequent question we're getting from clients is does the soft data matter for equities or is the market waiting for the hard data to make up its mind in terms of an upside or downside breakout above or below this range? Our view has been consistent that the most important macro data at this stage is from the labor market while the most important micro data are earnings revisions. Equities have already priced a meaningful slowdown in growth relative to expectations.  What's not priced is a labor cycle or recession. While this risk has been reduced to some extent given the recent, more dovish tone shift on tariffs from the administration, it's far from extinguished. Until we see clear evidence over multiple months that the labor market remains solid, a recession will likely remain a coin toss. One soft data point to pay attention to this week that could move the market is the April ISM Manufacturing data on May 1st. Recall this series accelerated the August 2024 selloff ahead of a soft July payroll report. The most important takeaway from an equity strategy perspective is to stay up the quality curve. No matter what the hard data says, we remain in a late cycle backdrop where both quality and large cap relative outperformance should continue. While uncertainty remains higher than usual, defensives should continue to do well. However, given their relative outperformance over the past year, it also makes sense to pick spots in high quality cyclicals that have already discounted a material slowdown in both macro conditions and earnings.  To be clear, this is not a blanket call on cyclicals; it's a selective, stock-specific one. More specifically, look for quality, cyclical stocks that are more de-risked based on what the stocks are pricing from a forward earnings growth standpoint. See our written research for stock screens. And from a global standpoint, we recommend favoring U.S. over international equities at this point as a weaker dollar should benefit U.S. relative earnings revisions, particularly versus Europe and Japan. Furthermore, less volatile earnings growth and a higher quality bias should benefit the U.S. on a relative basis in today's late cycle backdrop. Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our U.S. and Asia economists Michael Gapen and Chetan Ahya discuss how tariff uncertainty is shaping their expectations for these economies over the second half of 2025.Read more insights from Morgan Stanley.  ----- Transcript -----Michael Gapen: Welcome to Thoughts on the Market. I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist.Chetan Ahya: And I'm Chetan Ahya, Chief Asia Economist.Michael Gapen: Today we'll discuss some significant changes to our Asia growth forecast on the heels of tariffs. As well as how the U.S. economy is reacting to the changes in the global trading environment.It's Friday, April 25th at 8am in New York.Chetan Ahya: And 8pm in Hong Kong.Michael Gapen: So, Chetan, since the last time we were both on the show, it appears that we are headed towards at least some de-escalation of trade tensions. Just last week, you wrote in your report that the tariffs on China are too prohibitive for any trade to take place – and that you expected some dialing down of the escalatory action. And this week the administration started to talk about easing tariffs on China significantly.Considering all the events since April 2nd – and it's felt like a lot of events since April 2nd –where does it leave you in terms of how you are thinking about the outlook?Chetan Ahya: So, Mike, that's right. You know what we thought was that the current level of tariffs that the U.S. has on China and what China has on the U.S. means that effectively there are no transactions possibleBut look, even after those tariff rates are going down, we are still expecting it to be in the range of around 60 per cent. And that would still be relatively high level of tariffs. If I were just to translate this into what it means for the whole region? So, for the whole region, the weighted average tariff will still be around 32 per cent. And remember this number was close to 5 per cent in early January.So, we are talking about a huge amount of uncertainty related to this tariff path and the tariff level itself is going to remain somewhat high.And so, with that concern on uncertainty, we are expecting a region's investment growth to be affected significantly, taking down region's growth lower.Michael Gapen: So, Chetan, I was looking over your growth forecast and noticed that you have a sharp step down in growth from the second quarter of 2025 on. Can you walk us through these revisions in particular?Chetan Ahya: So yes, we have changed our forecast and what we are now seeing is in terms of growth path is that Asia's overall GDP growth will slow from 4.8 per cent that we saw in fourth quarter of last year, to around 3.6 per cent by fourth quarter of this year.And for comparable time period, China's growth will slow from 5.4 to 3.7 [per cent]. So that's another meaningful step down for ChinaMichael Gapen: What do you think Asian economies can do to counteract the impact from tariffs at this point?Chetan Ahya: So, we expect the policy makers in the region to take up both monetary and fiscal policy easing. But, you know, despite that policy easing effort, you will still see that meaningful growth drag. So, for China, we think it'll be the fiscal policy that will do the heavy lifting. Whereas for Asia ex-China is going to be more monetary policy that will do the heavy lifting.And in terms of the exact magnitude, we're expecting 50 to 150 basis points depending upon the economy in the region in form of rate cuts. And specifically on China; on the fiscal policy, we expect them to take up about 2.5 per cent of GDP increase in fiscal deficit in form of investment in infrastructure, as well as some programs for supporting consumption spending.Michael Gapen: So Chetan, it sounds like a lot of monetary and fiscal policy easing and support is coming from the Asian economies. But I guess the bottom line is that you don't think it would be sufficient to fully counteract the impact from tariffs. Is that right?Chetan Ahya: That's right Mike. And let me come to you now and get your thoughts on how you see the development of the tariffs, et cetera, affecting the U.S. economy. You've already recently characterized your view on the U.S. economy as still living on the edge. What's driving this view?Michael Gapen: It's a way that we were trying to communicate that, you know, we don't see the economy at the moment, falling into a recession, but we think it's close. If we thought that the effective tariff rate was going to stay where it was -- or where it is -- roughly around 18 per cent, then we would have a much more negative view on the outlook. And we do expect the effective tariff rate to come down for all the reasons that you suggested there. And there's openings for that, to happen. And that's where the conversation has been going in recent days.And so, I think there's a tension between how much

Our Co-Heads of Securitized Products Research Jay Bacow and James Egan explain how mortgage rates, tariffs and stock market volatility are affecting the U.S. housing market.Read more insights from Morgan Stanley.  ----- Transcript -----Jay Bacow: Welcome to Thoughts on the Market. I'm Jay Bacow, co-head of Securitized Products Research at Morgan Stanley.James Egan: And I'm Jim Egan, the other co-head of Securitized Products Research at Morgan Stanley. And today we're here to talk about all of the headlines that we've been seeing and how they impact the U.S. housing market.It's Thursday, April 24th at 9am in New York.Jay Bacow: Jim, there are a lot of headlines right now. Mortgage rates have decreased about 60 basis points from the highs that we saw in January through the beginning of April. But since the tariff announcements, they've retraced about half of that move. Now, speaking of the tariffs, I would imagine that's going to increase the cost of building homes.So, what does all of this mean for the U.S. housing market?James Egan: On top of everything you just mentioned, the stock market is down over 15 per cent from recent peaks, so there is a lot going on these days. We think it all has implications for the U.S. housing market. Where do you want me to start?Jay Bacow: I think it's hard to have a conversation these days without talking about tariffs, so let's start there.James Egan: So, we worked on the impacts of tariffs on the U.S. housing market with our colleagues in economics research, and we did share some of the preliminary findings on another episode of this podcast a couple weeks ago. Since then, we have new estimates on tariffs, and that does raise our baseline expectation from about a 4 to 5 per cent increase in the cost of materials used to build a home to closer to 8 per cent right now.Jay Bacow: Now I assume at least some of that 8 per cent is going to get pushed through into home prices, which presumably is then going to put more pressure on affordability. And given the – I don't know – couple hundred conversations that you and I have had over the past few years, I am pretty sure affordability's already under a lot of pressure.James Egan: It is indeed. And this is also coming at a time when new home sales are playing their largest role in the U.S. housing market in decades. New home sales, as a percent of total, make up their largest share since 2006. New homes for sale – so now talking about the inventory piece of this – they’re making up their largest share of the homes that are listed for sale every month in the history of our data. And that's going back to the early 1980s.Jay Bacow: And since presumably the cost of construction is much higher on a new home sale than an existing home sale, that's going to have an even bigger impact now than it has when we look to the history where new home sales were making up a much smaller portion of housing activity.James Egan: Right, and we're already seeing this impact come through on the home builder side of this, specifically weighing on home builder sentiment and single unit building volumes. Through the first quarter of this year, single unit housing starts are down 6 per cent versus the first quarter of 2024.Jay Bacow: All right. And we're experiencing a housing shortage already; but if building volumes are going to come down, then presumably that puts upward pressure on home prices. Now, Jim, you mentioned home builder sentiment. But there's got to be home buyer sentiment right now. And that can't feel very good given the sell off in equity markets and what that does with home buyer's ability to afford to put down money for down payment. So how does that all affect the housing market?James Egan: Now that's a question that we've been getting a lot over the past couple weeks. And to answer it, we took a look at all of the times that the stock market has fallen by at least 20 per cent over the past few decades.Jay Bacow: I assume when you looked at that, the answers weren't very good.James Egan: You know, it depends on the question. We identified 10 instances of at least a 20 per cent drawdown in equity markets over the past few decades. For eight of them, we have sufficient home price data. Outside of the Global Financial Crisis (GFC), which you could argue was a housing led global recession, every other instance saw home prices actually climb during the equity market correction.Jay Bacow: So, people were buying homes during a drawdown in the equity market?James Egan: No home prices were climbing. But in every instance, and here we can go back a little bit further, sales declined during the drawdown. Now, once stock markets officially bottomed, sales climbed sharply in the following 12 months. But while stock prices were falling, so were sales.And Jay, at the top of this podcast, you mentioned mortgage rate volatility. That matters a lot here…Jay

Morgan Stanley’s Head of European Consumer Staples, Sarah Simon, discusses why aging populations, wellness trends and Gen Z’s moderation are putting pressure on the long-term outlook for alcoholic beverages.Read more insights from Morgan Stanley.  ----- Transcript -----Welcome to Thoughts on the Market. I’m Sarah Simon, Head of the European Consumer Staples team. Today’s topic: Is America sobering up? Recent trends point to a national decline in alcohol use.It's Wednesday, April 23rd, at 2pm in London.Picture this: It's Friday night, and you're at a bar with friends. The drinks menu offers many options. A cold beer or glass of wine, sure. But how about a Phony Negroni. And your friends nod approvingly.This isn't just a passing trend – we believe it's a structural shift that's set to reshape the beverage industry. Overall alcohol consumption in volume terms has been relatively flat over the last decade in the U.S. - with spirits growing mid single digits in value terms and beer growing low single digits. But both categories are currently declining. The big debate is whether it’s cyclical or structural. We acknowledge that the consumer is under pressure right now, but we equally see long term structural pressures that are starting to play out. There are three key factors behind this trend: increased moderation by younger drinkers, an ageing population, and then broader health and wellness trends. So let’s talk first about Gen Z – those born between 1997 and 2012. They're drinking notably less than previous generations of the same age. In fact, today’s 18-34 year-olds drink 30 per cent less than the same age group 20 years ago. And we think it’s pretty unlikely they will catch up as they get older. This isn't a temporary blip caused by the after-effects of COVID-19 lockdowns or economic pressures. It's a long-term trend that predates both of these factors. And importantly this isn’t the case of abstinence – as in the case of tobacco – but moderation. Younger generations are simply drinking less alcohol and allocating more of their beverage spending towards soft drinks. Secondly, developed market populations are ageing. If we look at population data, we see it’s today’s 45-55 year old age group that drinks the most alcohol; and has exhibited the highest growth in consumption and spending over the last 20 years. However, over the next 20 years, this cohort is likely to cut back on drinking due to physiological reasons as they age. The body simply becomes less able to metabolize alcohol, and there’s much higher usage of prescription medication in the over 65 age group. And in just the same way that this cohort was growing faster than the population overall over the last 20 years – because of the higher birth rate in the late 60s and 70s – in future, the aging of these GenX-ers will drive outsized growth in the number of people aged over 75, who consume much less alcohol. And so, the result is a disproportionate impact on overall alcohol consumption. And on top of this, there’s increased adoption of GLP-1 weight loss drugs that we’ve talked about previously. And increasingly negative perceptions of the health implications of alcohol – as the broader health and wellness trend takes hold. On the flip side, there's also a growing acceptance of non-alcoholic beverages, driven by better products and broader distribution. We expect low- and zero-alcohol alternatives to gain a larger share of the market as a result. And we think beer looks particularly well-positioned; it already accounts for about 85 per cent of the non-alcoholic market overall. And this year in the U.S., non-alcoholic beer has nearly doubled its share of U.S. beer retail sales, compared to where it was in 2021. Now it’s still small, but the growth rate in the well over 20 per cent range, suggests that share gain will continue. Meanwhile, we’re seeing more mocktails on menus and zero-alcohol beer on draft in pubs. All of this is further contributing to less stigma associated with not drinking alcohol. And all these trends add up to one conclusion, we think: earnings pressures on alcohol makers are not simply cyclical but structural. They have been underway even prior to COVID. And looking to the future, we think they’re here to stay. So now, many more people can say cheers to that. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us wherever you listen to podcasts. And tell your friends about us too.

Our Chief Cross-Asset Strategist Serena Tang discusses the market’s shifting perception of risk and what’s behind some unusual patterns in fund flows among asset classes.Read more insights from Morgan Stanley. No investment recommendation is made with respect to any of the ETFs or mutual funds referenced herein. Investors should not rely on the information included in making investment decisions with respect to those funds. ----- Transcript -----Welcome to Thoughts on the Market. I’m Serena Tang, Morgan Stanley’s Chief Cross-Asset Strategist. Today I want to look at how investors are playing defense amid elevated macro uncertainty.It’s Tuesday, April 22, at 10am in New York.So, the last three weeks have brought intense volatility to global markets, and investors have had to reexamine their relationship with risk. Typically, in times like these, mutual fund and ETF flows from stocks into bonds serve as a clear gauge of investor defensiveness. But this pattern hasn’t really been informative this time around.Instead, flows to gold – rather than bonds – have been the clearest evidence of flight-to-quality most recently. Between April 3rd and 11th almost US$5 billion went into gold ETFs globally, one of the strongest seven-day net flow stretches ever. There's been US$22 billion of net inflows to gold ETFs with assets under management totaling about US$250 billion year-to-date. Of the 10 days of the highest net inflows to gold ETFs over the last 20 years, three occurred in the last month.Cash also benefited from the dash to defensives, with over US$100bn flowing into money market funds year-to-date. And we expect that reallocating to cash will be a theme for the rest of the year for many reasons. For one, our U.S. economists expect no Fed cuts in 2025 and back-loaded cuts in 2026 following a projected surge in core PCE inflation from tariffs. This means that money market fund yields should stay higher for longer. And with investors seeing the wild gyrations in safe government bonds in recent weeks, money market funds’ low volatility offer a strong risk/reward argument over holding Treasuries. For another, let's say our economists' base case is incorrect, and we do get steep cuts from the Fed sooner rather than later. That probably means we're on the brink of a recession; and in that situation, cash is king.You know what's been particularly surprising in the middle of this recent flight to quality? Outflows from high-grade US fixed income. These outflows are notable because U.S. Treasuries, Agency mortgages, and investment grade credit are usually seen as low-beta and defensives. But U.S. high-grade bonds saw net outflows of approximately US$1.4bn during the week of April 7th. These are the largest outflows since the pandemic; and we think that this trend can continue.So we need to ask ourselves if this is the end of American exceptionalism. And are we seeing a rotation from U.S. assets into rest-of-the-world?The answer may surprise you, but despite the outflows in U.S. bonds, there hasn’t really been a persistent rotation out of U.S. risk assets and into rest-of-world markets. At least not a lot of evidence in the data yet. U.S. equity investors still have a strong home bias, and we've seen continued net buying from Japanese and euro area investors of foreign equities – at least some of which are U.S. equities. We think investors should stay defensive amid the current uncertainty. But figuring out what's actually defensive has been challenging. This recent turmoil in the global markets suggests that the investors’ shifting idea of what's risky is a risk in itself. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Can the U.S. equity market break out of its expected range? Our CIO and Chief U.S. Equity Strategist Mike Wilson looks at whether the Trump administration’s shifting tariff policy and Fed uncertainty will continue weighing down stocks.Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today, I will discuss what it will take for the US equity market to break out of the 5000-5500 range. It's Monday, April 21st at 11:30am in New York.So, let’s get after it.Last week, we focused on our view that the S&P 500 was likely to remain in a 5000-5500 range in the near term given the constraints on both the upside and the downside. First, on the upside, we think it will be challenging for the index to break through prior support of 5500 given the recent acceleration lower in earnings revisions, uncertainty on how tariff negotiations will progress and the notion that the Fed appears to be on hold until it has more clarity on the inflationary and growth impacts of tariffs and other factors. At the same time, we also believe the equity market has been contemplating all of these challenges for much longer than the consensus acknowledges. Nowhere is this evidence clearer than in the ratio of Cyclical versus Defensive stocks as discussed on this podcast many times. In fact, the ratio peaked a year ago and is now down more than 40 per cent.Coming into the year, we had a more skeptical view on growth than the consensus for the first half due to expectations that appeared too rosy in the context of policy sequencing that was likely to be mostly growth negative to start. Things like immigration enforcement, DOGE, and tariffs. Based on our industry analysts' forecasts, we were also expecting AI Capex growth to decelerate, particularly in the first half of the year when growth rate comparisons are most challenging. Recall the Deep Seek announcement in January that further heightened investor concerns on this factor. And given the importance of AI Capex to the overall growth expectations of the economy, this dynamic remains a major consideration for investors. A key point of today’s episode is that just as many were overly optimistic on growth coming into the year, they may be getting too pessimistic now, especially at the stock level. As the breakdown in cyclical stocks indicate, this correction is well advanced both in price and time, having started nearly a year ago. Now, with the S&P 500 closing last week very close to the middle of our range, the index appears to be struggling with the uncertainty of how this will all play out.Equities trade in the future as they try to discount what will be happening in six months, not today. Predicting the future path is very difficult in any environment and that is arguably more difficult today than usual, which explains the high volatility in equity prices. The good news is that stocks have discounted quite a bit of slowing at this point. It’s worth remembering the factors that many were optimistic about four-to-give months ago—things like de-regulation, lower interest rates, AI productivity and a more efficient government—are still on the table as potential future positive catalysts. And markets have a way of discounting them before it's obvious.However, there is also a greater risk of a recession now, which is a different kind of slowdown that has not been fully priced at the index level, in our view. So as long as that risk remains elevated, we need to remain balanced with our short-term views even if we believe the odds of a positive outcome for growth and equities are more likely than consensus does over the intermediate term. Hence, we will continue to range trade.Further clouding the picture is the fact that companies face more uncertainty than they have since the early days of the pandemic. As a result, earnings revisions breadth is now at levels rarely witnessed and approaching downside extremes assuming we avoid a recession. Keep in mind that these revisions peaked almost a year ago, well before the S&P 500 topped, further supporting our view that this correction is much more advanced than acknowledged by the consensus. This is why we are now more interested in looking at stocks and sectors that may have already discounted a mild recession even if the broader index has not. Bottom line, if a recession is averted, markets likely made their lows two weeks ago. If not, the S&P 500 will likely take those lows out. There are other factors that could take us below 4800 in a bear case outcome, too. For example, the Fed decides to raise rates due to tariff-driven inflation; or the term premium blows out, taking 10-year Treasury yields above 5 per cent without any growth improvement.Nevertheless, we think recession

Our analysts Michael Zezas and Erik Woodring discuss the ways tariffs are rewiring the tech hardware industry and how companies can mitigate the impact of the new U.S. trade policy.Read more insights from Morgan Stanley. ----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Public Policy Research.Erik Woodring: And I'm Erik Woodring, Head of the U.S. IT Hardware team.Michael Zezas: Today, we continue our tariff coverage with a closer look at the impact on tech hardware. Products such as your smartphone, computers, and other personal devices.It's Thursday, April 17th at 10am in New York.President Trump's reciprocal tariffs announcements, followed by a 90 day pause and exemptions have created a lot of turmoil in the tech hardware space. People started panic buying smartphones, worried about rising costs, only to find out that smartphones may or may not be exempted.As I pointed out on this podcast before, these tariffs are also significantly accelerating the transition to a multipolar world. This process was already well underway before President Trump's second term, but it's gathering steam as trade pressures escalate. Which is why I wanted to talk to you, Erik, given your expertise.In the multipolar world, IT hardware has followed a China+1 strategy. What is the strategy, and does it help mitigate the impact from tariffs?Erik Woodring: Historically, most IT hardware products have been manufactured in China. Starting in 2018, during the first Trump administration, there was an effort by my universe to diversify production outside of China to countries friendly with China – including Vietnam, Indonesia, Malaysia, India, and Thailand. This has ultimately helped to protect from some tariffs, but this does not make really any of these countries immune from tariffs given what was announced on April 2nd.Michael Zezas: And what do the current tariffs – recognizing, of course, that they could change – what do those current tariffs mean for device costs and the underlying stocks that you cover?Erik Woodring: In short, device costs are going up, and as it relates to my stocks, there's plenty of uncertainty. If I maybe dig one level deeper, when the first round of tariffs were announced on April 2nd, the cumulative cost that my companies were facing from tariffs was over $50 billion. The weighted average tariff rate was about 25 per cent. Today, after some incremental announcements and some exemptions, the ultimate cumulative tariff cost that my universe faces is about $7 billion. That is equivalent to an average tariff rate of about 7 per cent. And what that means is that device costs on average will go up about 5 per cent.Of course, there are some that won't be raised at all. There are some device costs that might go up by 20 to 30 per cent. But ultimately, we do expect prices to go up and as a result, that creates a lot of uncertainties with IT hardware stocks.Michael Zezas: Okay, so let's make this real for our listeners. Suppose they're buying a new device, a smartphone, or maybe a new laptop. How would these new tariffs affect the consumer price?Erik Woodring: Sure. Let's use the example of a smartphone. $1000 smartphone typically will be imported for a cost of maybe $500. In this current tariff regime, that would mean cost would go up about $50. So, $1000 smartphone would be $1,050.You could use the same equivalent for a laptop; and then on the enterprise side, you could use the equivalent of a server, an AI server, or storage – much more expensive. Meaning while the percentage increase in the cost will be the same, the ultimate dollar expense will go up significantly more.Michael Zezas: And so, what are some of the mitigation strategies that companies might be able to use to lessen the impact of tariffs?Erik Woodring: If we start in the short term, there's two primary mitigation strategies. One is pulling forward inventory and imports ahead of the tariff deadline to ultimately mitigate those tariff costs. The second one would be to share in the cost of these tariffs with your suppliers. For IT hardware, there's hundreds of suppliers and ultimately billions of dollars of incremental tariff costs can be somewhat shared amongst these hundreds of companies.Longer term, there are a few other mitigation strategies. First moving your production out of China or out of even some of these China+1 countries to more favorable tariff locations, perhaps such as Mexico. Many products which come from Mexico in my universe are exempted because of the USMCA compliance. So that is a kind of a medium-term strategy that my companies can use.Ultimately, the medium-term strategy that's going to be most popular is raising prices, as we talked about. But some of my companies will also leverage affordability tools to make the cost ultimately borne out over a longer period of time. Meaning today, if you buy a smartphone over two-year of an

The ever-evolving nature of the U.S. administration’s trade policy has triggered market uncertainty, impacting corporate and consumer confidence. But our Head of Corporate Credit Research Andrew Sheets explains why he believes this volatility could present a silver lining for credit investors.Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about how high uncertainty can be a risk for credit, and also an opportunity.It's Wednesday, April 16th at 9am in New York.Markets year-to-date have been dominated by questions of U.S. trade policy. At the center of this debate is a puzzle: What, exactly, the goal of this policy is?Currently, there are two competing theories of what the U.S. administration is trying to achieve. In one, aggressive tariffs are a negotiating tactic, an aggressive opening move designed to be bargained down into something much, much lower for an ultimate deal.And in the other interpretation, aggressive tariffs are a new industrial policy. Large tariffs, for a long period of time, are necessary to encourage manufacturers to relocate operations to the U.S. over the long term.Both of these theories are plausible. Both have been discussed by senior U.S. administration officials. But they are also mutually exclusive. They can’t both prevail.The uncertainty of which of these camps wins out is not new. Market strength back in early February could be linked to optimism that tariffs would be more of that first negotiating tool. Weakness in March and April was linked to signs that they would be more permanent. And the more recent bounce, including an almost 10 percent one-day rally last week, were linked to hopes that the pendulum was once again swinging back.This back and forth is uncertain. But in some sense, it gives investors a rubric: signs of more aggressive tariffs would be more challenging to the market, signs of more flexibility more positive. But is it that simple? Do signs of a more lasting tariff pause solve the story?The important question, we think, is whether all of that back and forth has done lasting damage to corporate and consumer confidence. Even if all of the tariffs were paused, would companies and consumers believe it? Would they be willing to invest and spend over the coming quarters at similar levels to before – given all of the recent volatility?This question is more than hypothetical. Across a wide range of surveys, the so-called soft data, U.S. corporate and consumer confidence has plunged. Merger activity has slowed sharply. We expect intense investor focus on these measures of confidence over the coming months.For credit, lower confidence is a doubled edged sword. To some extent, it is good, keeping companies more conservative and better able to service their debt. But if it weakens the overall economy – and historically, weaker confidence surveys like we’ve seen recently have indicated much weaker growth in the future; that’s a risk. With overall spread levels about average, we do not see valuations as clearly attractive enough to be outright positive, yet.But maybe there is one silver lining. Long term Investment grade corporate debt now yields over 6 percent. As corporate confidence has soured, and these yields have risen, we think companies will find it unattractive to lock in high costs for long-term borrowing. Fewer bonds for sale, and attractive all-in yields for investors could help this part of the market outperform, in our view.Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

As gold prices reach new all-time highs, Metals & Mining Commodity Strategist Amy Gower discusses whether the rally is sustainable.Read more insights from Morgan Stanley. ---- Transcript -----Welcome to Thoughts on the Market. I’m Amy Gower, Morgan Stanley’s Metals & Mining Commodity Strategist. Today I’m going to talk about the steady rise we’ve had in gold prices in recent months and whether or not this rally can continue. It’s Tuesday, April 15th, at 2pm in London.So gold breached $3000/oz for the first time ever on 17th of March this year, and has continued to rise since then; but we would argue it still has room to run. First of all, let’s look back at how we got here. So, gold already rallied 25 percent in 2024, which was driven largely by strong central bank demand as well as the start of the US Fed rate cutting cycle, and strong demand for bars and coins as geopolitical risk remained elevated. And arguably, these trends have continued in 2025, with gold up another 22 percent, and now rising tariff uncertainty also contributing. This comes in two ways – first, demand for gold as a safe haven asset against this current macro uncertainty. And second as an inflation hedge. Gold has historically been viewed by investors as a hedge against the impact of inflation. So, with the U.S. tariffs raising inflation risks, gold is seeing additional demand here too. But, of course, the question is: can this gold rally keep going? We think the answer is yes, but would caveat that in big market moves -- like the ones we have seen in recent weeks -- gold can also initially fall alongside other asset classes, as it is often used to provide liquidity. But this is often short-lived and already gold has been rebounding. We would expect this to continue with the price of gold to rise further to around $3500/oz by the third quarter of this year. There are three key drivers behind this projection: First, we see still strong physical demand for gold, both from central banks and from the return of exchange-traded funds or ETFs. Central banks saw what looks like a structural shift in their gold purchases in 2022, which has continued now for three consecutive years. And ETF inflows are returning after four years of outflows, adding a significant amount year-to-date, but still well below their 2020 highs, suggesting there’s arguably much more room to go here. Second, macro drivers are also contributing to this gold price outlook. A falling U.S. dollar is usually a tailwind for commodities in general, as it makes them cheaper for non-dollar holders; while a stagflation scenario, where growth expectations are skewed down and inflation risks are skewed up, would also be a set-up where gold would perform well. And third, continued demand for gold as a safe-haven asset amid rising inflation and growth risks is also likely to keep that bar and coin segment well supported.  And what would be the bullish risks to this gold outlook? Well, as prices rise, you tend to start ask questions about demand destruction. And this is no different for gold, particularly in the jewelry segment where consumers would go with usually a budget in mind, rather than a quantity of gold. And so demand can be quite price sensitive. Annual jewelry demand is roughly twice the size of that central bank buying and we already saw this fall around 11 percent year-on-year in 2024. So, we would expect a bit of weakness here. But offset by the other factors that I mentioned. So, all in all, a combination of physical buying, macro factors and uncertainty should be driving safe haven demand for gold, keeping prices on a rising trajectory from here. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our CIO and Chief U.S. Equity Strategist Mike Wilson probes whether market confidence can return soon as long as tariff policy remains in a state of flux.Read more insights from Morgan Stanley. ---- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing last week’s volatility and what to expect going forward.It's Monday, April 14th at 11:30am in New York.So, let’s get after it.What a month for equity markets, and it's only halfway done! Entering April, we were much  more focused on growth risks than inflation risks given the headwinds from AI Capex growth  deceleration, fiscal slowing, DOGE and immigration enforcement. Tariffs were the final  headwind to face, and while most investors' confidence was low about how Liberation Day  would play out, positioning skewed more toward potential relief than disappointment.That combination proved to be problematic when the details of the reciprocal tariffs were  announced on April 2nd. From that afternoon's highs, S&P 500 futures plunged by 16.5 per cent into Monday morning. Remarkably, no circuit breakers were triggered, and markets functioned very well during this extreme stress. However, we did observe some forced selling as Treasuries, gold and defensive stocks were all down last Monday. In my view, Monday was a classic capitulation day on heavy volume. In fact, I would go as far  as to say that Monday will likely prove to be the momentum low for this correction that began back in December for most stocks; and as far back as a year ago for many cyclicals. This also means that we likely retest or break last week's price lows for the major indices even if some individual stocks have bottomed. We suspect a more durable low will come as early as next month or over the summer as earnings are adjusted lower, and multiples remain volatile with a downward bias given the Fed's apprehension to cut rates – or provide additional liquidity unless credit or funding markets become unstable. As discussed last week, markets are now contemplating a much higher risk of recession than  normal – with tariffs acting as another blow to an economy that was already weakening from the numerous headwinds; not to mention the fact that most of the private economy has been  struggling for the better part of two years. In my view, there have been three factors supporting headline GDP growth and labor markets: government spending, consumer services and AI Capex – and all three are now slowing.The tricky thing here is that the tariff impact is a moving target. The question is whether the  damage to confidence can recover. As already noted, markets moved ahead of the  fundamentals; and markets have once again done a better job than the consensus in predicting the slowdown that is now appearing in the data.  While everyone can see the deterioration in the S&P 500 and other popular indices, the  internals of the equity market have been even clearer. First, small caps versus large caps have  been in a distinct downtrend for the past four years. This is the quality trade in a nutshell which  has worked so well for reasons we have been citing for years — things like the k-economy and crowding out by government spending that has kept the headline economic statistics higher than they would have been otherwise. This strength has encouraged the Fed to maintain interest rates higher than the weaker cohorts of the economy need to recover.  Therefore, until interest rates come down, this bifurcated economy and equity markets are likely to persist. This also explains why we had a brief, yet powerful rally last fall in low quality  cyclicals when the Fed was cutting rates, and why it quickly failed when the Fed paused in  December. The dramatic correction in cyclical stocks and small caps is well advanced not only in  price, but also in time. While many have only recently become concerned about the growth  slowdown, the market began pricing it a year ago.Looking at the drawdown of stocks more broadly also paints a picture that suggests the market  correction is well advanced, but probably not complete if we end up in a recession or the fear  of one gets more fully priced. This remains the key question for stock investors, in my view, and  why the S&P 500 is likely to remain in a range of 5000-5500 and volatile – until we have a more  definitive answer to this specific question around recession, or the Fed decides to circumvent the growth risks  more aggressively, like last fall.With the Fed saying it is constrained by inflation risks, it appears likely to err on the side of remaining on hold de

Our Head of Corporate Credit Research analyzes the market response to President Trump’s tariff reversal and explains why rallies do not always indicate an improvement in the overall environment.Read more insights from Morgan Stanley. ---- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about the historic gains we saw this week in markets, and what they may or may not tell us. It's Friday April 11th at 2pm in London. Wednesday saw the S&P 500 gain 9.5 percent. It was the 10th best day for the U.S. equity market in the last century. Which raises a reasonable question: Is that a good thing? Do large one-day gains suggest further strength ahead – or something else? This is the type of Research question we love digging into. Pulling together the data, it’s pretty straightforward to sort through those other banner days in stock market history going back to 1925. And what they show is notable. I’m now going to read to you when those large gains occurred, in order of the gains themselves. The best day in market history, March 15th 1933, when stocks soared over 16 per cent? It happened during the Great Depression. The 2nd best day, Oct 30th 1929. During the Great Depression. The 3rd best day – Great Depression. The fourth best – the first trading day after Germany invaded Poland in 1939 and World War 2 began. The 5th best day – Great Depression. The 6th Best – October 2008, during the Financial Crisis. The 7th Best – also during the Financial Crisis. The 8th best. The Great Depression again. The 9th best – The Great Depression. And 10th best? Well, that was Wednesday. We are in interesting company, to say the least. Incidentally, we stop here in the interest of brevity; this is a podcast known for being sharp and to the point. But if we kept moving further down the list, the next best 20 days in history all happen during either COVID, the 1987 Crash, a Recession, or a Depression. So why would that be? Why, factually, have some of the best days in market history occurred during some of the very worst of possible backdrops. In some cases, it really was a sign of a buying opportunity. As terrible as the Great Depression was – and as the grandson of a South Dakota farmer I heard the tales – stocks were very cheap at this time, and there were some very large rallies in 1932, 1933, or even 1929. During COVID, the gains on March 24th of 2020, which were associated with major stimulus, represented the major market low. But it can also be the case that during difficult environments, investors are cautious. And they are ultimately right to be cautious. But because of that fear, any good news – any spark of hope – can cause an outsized reaction. But it also sometimes doesn't change that overall challenging picture. And then reverses. Those two large rallies that happened in October of 2008 during the Global Financial Crisis, well they both happened around hopes of government and central bank support. And that temporarily lifted the market – but it didn’t shift the overall picture. What does this mean for investors? On average, markets are roughly unchanged in the three months following some of these largest historical gains. But the range of what happens next is very wide. It is a sign, we think, that these are not normal times, and that the range of outcomes, unfortunately, has become larger. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our analysts Vishy Tirupattur and Martin Tobias explain how the announcement of new tariffs and the subsequent pause in their implementation affected the bond market.Read more insights from Morgan Stanley. ---- Transcript -----Vishy Tirupattur: Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's, Chief Fixed Income Strategist.Martin Tobias: And I'm Martin Tobias, from the U.S. Interest Rate Strategy Team.Vishy Tirupattur: Yesterday the U.S. stock market shot up quite dramatically after President Trump paused most tariffs for 90 days. But before that, there were some stresses in the funding markets. So today we will dig into what those stresses were, and what transpired, and what investors can expect going forward.It's Thursday, April 10th at 11:30am in New York.President Trump's Liberation Day tariff announcements led to a steep sell off in the global stock markets. Marty, before we dig into that, can you give us some Funding Markets 101? We hear a lot about terms like SOFR, effective fed funds rate, the spread between the two. What are these things and why should we care about this?Martin Tobias: For starters, SOFR is the secured overnight financing rate, and the effective fed funds rate – EFFR – are both at the heart of funding markets.Let's start with what our listeners are most likely familiar with – the effective fed funds rate. It's the main policy rate of the Federal Reserve. It's calculated as a volume weighted median of overnight unsecured loans in the Fed funds market. But volume in the Fed funds market has only averaged [$]95 billion per day over the past year.SOFR is the most important reference rate for market participants. It's a broad measure of the cost to borrow cash overnight, collateralized by Treasury securities. It's calculated as a volume weighted median that covers three segments of the repo market. Now SOFR volumes have averaged 2.2 trillion per day over the past year.Vishy Tirupattur: So, what you're telling me, Marty, is that the, the difference between these two rates really reflects how much liquidity stress is there, or the expectations of the uncertainty of funding uncertainty that exists in the market. Is that fair?Martin Tobias: That's correct. And to do this, investors look at futures contracts on fed funds and SOFR.Now fed funds futures reflect market expectations for the Fed's policy rate, SOFR futures reflect market expectations for the Fed policy rate, and market expectations for funding conditions. So, the difference or basis between the two contracts, isolates market expectations for funding conditions.Vishy Tirupattur: So, this basis that you just described. What is the normal sense of this? Where [or] how many basis points is the typical basis? Is it positive? Is it negative?Martin Tobias: In a normal environment over the past three years when reserves were in Abundancy, the three-month SOFR Fed funds Futures basis was positive 2 basis points. This reflected SOFR to set 2 basis points below fed funds on average over the next three months.Vishy Tirupattur: So, what happened earlier this week is – SOFR was setting above effective hedge advance rate, implying…Martin Tobias: Implying tighter funding conditions.Vishy Tirupattur: So, Marty, what actually changed yesterday? How bad did it get and why did it get so bad?Martin Tobias: So, three months SOR Fed funds tightened all the way to -4 basis points. And we think this was a reflection of investors’ increased demand for cash; whether it was lending more securities outright in repo to raise cash, or selling securities outright, or even not lending excess cash in repo. This caused dealer balance sheets [to] become more congested and contributed to higher SOFR rates.Vishy Tirupattur: So, let's give some context to our listeners. So, this is clearly not the first time we've experienced stress in the funding markets. So, in previous episodes – how far did it get and gimme some context.Martin Tobias: Funding conditions did indeed tighten this week, but the environment was far from true funding stress like in 2019 and certain periods in 2020. Now, in 2019 when funding markets seized, and the Fed had to intervene and inject liquidity, three months SOFR fed funds basis averaged -9 basis points. And that compares to -4 basis points during the peak macro uncertainty this week.Vishy Tirupattur: So, Marty, what is your assessment of the state of the funding markets right now?Martin Tobias: Right. Funding conditions have tightened, but I think the environment is far from true funding stress. Thus far, the repricing has occurred because of a higher floor for funding rates and not a scarcity of reserves in the banking system.Vishy Tirupattur: So, to summarize, so the funding stress has been quite a bit earlier this week. Not as bad as the worst conditions we saw say in 2019 or during the peak COVID periods in 2020.

Earlier today, President Trump announced a pause on reciprocal tariffs for 90 days. Our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas looks at the fallout.----- Transcript ----- Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today – possible outcomes of President Trump's sudden pause on reciprocal tariffs.It’s Wednesday, April 9th, at 10pm in New York. We’d actually planned a different episode for release today where my colleague Global Chief Economist Seth Carpenter and I laid out developments in the market thus far and looked at different sets of potential outcomes. Needless to say, all of that changed after President Trump announced a 90-day pause on most tariffs that were set to rise. And so, we needed to update our thinking.It's been a truly unprecedented week for financial markets. The volatility started on April 2, with President Trump’s announcement that new, reciprocal tariffs would take effect on April 9. When added to already announced tariffs, and later adding even more tariffs in for China, it all added up to a promise by the US to raise its average tariffs to levels not seen in 100 years. Understandably, equity markets sold off in a volatile fashion, reflecting investor concerns that the US was committed to retrenching from global trade – inviting recession and an economic future with less potential growth. The bond market also showed signs of considerable strain. Instead of yields falling to reflect growth concerns, they started rising and market liquidity weakened. The exact rationale is still hard to pin down, but needless to say the combined equity and bond market behavior was not a healthy situation.Then, a reprieve. President Trump announced he would delay the implementation of most new tariffs by 90 days to allow negotiations to progress. And though he would keep China tariffs at levels over 100 per cent, the announcement was enough to boost equity markets, with S&P gaining around 9 per cent on the day.So, what does it all mean? We’re still sorting it out for ourselves, but here’s some initial takeaways and questions we think will be important to answer in the coming days.First, there's still plenty of lingering uncertainties to deal with, and so investors can’t put US policy risk behind them. Will this 90 day reprieve hold? Or just delay inevitable tariff escalation? And even if the reprieve holds, do markets still need to price in slower economic growth and higher recession risk? After all, US tariff levels are still considerably higher than they were a week ago. And the experience of this market selloff and rapid shifts in economic policy may have impacted consumer and business confidence. In my travels this week I spent considerable time with corporate leaders who were struggling to figure out how to make strategic decisions amidst this uncertainty. So we’ll need to watch measures of confidence carefully in the coming weeks. One signal amidst the noise is about China, specifically that the US’ desire to improve supply chain security and reduce goods trade deficit would make for difficult negotiation with China and, ultimately, higher tariffs that would stay on for longer relative to other countries. That appears to be playing out here, albeit faster and more severely than we anticipated. So even if tariff relief is durable for the rest of the world, the trade relationship with China should be strained. And that will continue to weigh on markets, where costs to rewire supply chains around this situation could weigh on key sectors like tech hardware and consumer goods. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our CIO and Chief U.S. Equity Strategist explains why the new tariffs added momentum to a correction that was already underway, and what could ease the fallout in equity markets.Read more insights from Morgan Stanley. ---- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing equity market reactions to the tariffs and what to expect from here. It's Tuesday, April 8th at 11:30am in New York.So, let's get after it. From our perspective, last week's Liberation Day was more like the cherry on top for a market that had been dealing with multiple headwinds to growth all year, rather than the beginning. While the magnitude of the tariffs turned out to be worse than our public policy team's base line expectations, the price reaction appears capitulatory to us given that many stocks were already down 30 to 40 percent before the announcement on Wednesday. As discussed in last week’s podcast, our 5500 first half support level on the S&P 500 quickly gave way given this worse than expected outcome for tariffs. The price action since then has forced us to consider new technical support levels which could be as low as the 200-week moving average. And that would be 4700 on the S&P 500. I think it’s worth highlighting that cyclical stocks started underperforming in April of last year and are now down more than 40 percent relative to defensive stocks. In other words, markets have been telling us for almost a year that growth was going to slow, and since January, it's been telling us it's going to slow significantly. In fact, cyclicals have underperformed defensives to a degree only seen during a recession, not prior to them. This fits very nicely with our long-standing view that most of the private economy has been much weaker than the headline numbers suggest – thanks to unprecedented fiscal spending, AI capex and wealthy consumers spending their gains from asset prices. With the exceptional fourth quarter surge in U.S. fiscal spending likely to decline even without  DOGE's efforts, global growth impulses will suffer too. Hence, foreign stocks are unlikely to provide much of a safe haven if the U.S. goes on a diet or detox from fiscal spending. Markets began to contemplate such an outcome with last week’s announcements. Therefore, I remain of the view we discussed two weeks ago that U.S. equities should trade better than foreign ones going forward. That is especially the case with China, Europe and Japan all which run big current account surpluses and are more vulnerable to weaker trade.Meanwhile, the headline numbers on employment and GDP have been flattered by government related jobs and the hiring of immigrants at below market wages. This is one reason the Fed has kept rates higher than many businesses and consumers need and why we remain in an economy of haves and have-nots. Our long standing thesis is that the government has been crowding out much of the economy since COVID, and arguably since the Great Financial Crisis. It's also why large cap quality has been such a consistent outperformer since the end of 2021 and why we have continued to have high conviction and our recommendation are overweight these factors despite short periods of outperformance by low quality cyclicals or small caps – like last fall when the Fed was cutting rates and we pivoted briefly to a more pro-cyclical recommendation. Bottom line, equity markets are discounting machines and they trade six months in advance of the headlines. With most stocks topping in December of last year and cyclicals’ relative performance peaking almost a year ago, this correction is well advanced, and this is not the time to be selling. However, it's fair to say that the tariff announcements last week have taken us to an area with greater tail risk that includes a recession or financial contagion that must be taken into consideration when thinking about levels and adding risk.I see three specific scenarios that could put in a durable floor more quickly:1. President Trump delays the effective date for the implementation of the additional tariffs beyond the initial 10 percent that went into effect this weekend2. The Fed offers support for markets, either explicitly or verbally3. A number of nations come to the table and negotiate on favorable terms to the United States.In short, get ready for another bumpy week and remember markets are looking much further ahead than today’s headline. I remain optimistic that the second half will be better than the first as these growth negative policies morph into growth positive ones via de-regulation, a better fiscal trajectory, lower interest rates and taxes and maybe even higher wages for the American consumer.Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share Thoughts

As market turmoil continues, our global economists give their view on the ramifications of the Trump administration’s tariffs, and how central banks across key regions might react.Read more insights from Morgan Stanley. ---- Transcript -----Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's, Global Chief Economist, and today we're going to be talking tariffs and what they mean for the global economy.It's Monday, April 7th at 10am in New York.Jens Eisenschmidt: It's 4pm in Frankfurt. Chetan Ahya: And it's 10pm in Hong Kong. Seth Carpenter: And so, I'm here with our global economists from around the world: Mike Gapen, Chief U.S. Economist, Chetan Ahya, our Chief Asia Economist, and Jens Eisenschmidt, our Chief Europe Economist. So, let's jump into it. Let me go around first and ask each of you, what is the top question that you are getting from investors around the world?Chetan?Chetan Ahya: Tariffs.Seth Carpenter: Jens?Jens Eisenschmidt: Tariffs.Seth Carpenter: Mike?Michael Gapen: Tariffs.Seth Carpenter: All right. Well, that seems clear. Before we get into the likely effects of the tariffs, maybe each of you could just sketch for me where you were before tariffs were announced. Chetan, let me start with you. What was your outlook for the Chinese economy before the latest round of tariff announcements?Chetan Ahya: Well Seth, working with our U.S. public policy team, we were already assuming a 15-percentage point increase on tariffs on imports from China. And China also was going through some domestic challenges in terms of high levels of debt, excess capacities, and deflation. And so, combining both the factors, we were assuming China's growth will slow on Q4 by Q4 basis last year – from 5.4 percent to close to 4 percent this year.Jens, what about Europe? Before these broad-based tariffs, how were you thinking about the European economy?Jens Eisenschmidt: We had penciled in a slight recovery, not really getting us much beyond 1 percent. Backdrop here, still rising real wages. We had some tariffs in here, on steel, aluminum; in cars, much again a bit more of a beefed-up version if you want, of the 18 tariffs – but not much more than that. And then, of course, we had the German fiscal expansion that helped our outlook to sustain this positive growth rates into 2026.Seth Carpenter: Mike, for you. You also had thought that there were going to be some tariffs at some point before this last round of tariffs. Maybe you can tell us what you had in mind before last week's announcements.Michael Gapen: Yeah, Seth. We had a lot of tariffs on China. The effective rate rising to say 35 to 40 percent. But as Jens just mentioned, outside of that, we had some on steel and aluminum, and autos with Europe, but not much beyond that. So, an effective tariff rate for the U.S. that reached maybe 8 to 9 percent.We thought that would gradually weigh on the economy. We had growth at around 1.5 percent this year and 1 percent next year. And the disinflation process stopping – meaning inflation finishes the year at around 2.8 core PCE, roughly where it is now. So, a gradual slowdown from tariff implementation.Seth Carpenter: Alright, so a little bit built in. You knew there was going to be something, but boy, I guess I have to say, judging from market reactions, the world was surprised at the magnitude of things. So, what's changed in your mind? It seems like tariffs have got to push down the outlook for growth and up the out outlook for inflation. Is that about right? And can you sketch for us how this new news is going to affect the outlook?Michael Gapen: Sure. So instead of effective tariff rates of 8 to 9 percent, we're looking at effective tariff rates, maybe as high as 22 percent.Seth Carpenter: Oh, that's a lot.Michael Gapen: Yeah. So more than twice what we were expecting. Obviously, some of that may get negotiated down. Seth Carpenter: And would you say that's the highest tariff rate we've seen in a while?Michael Gapen: At least a century. If we were to a 1.5 percent on growth before, it's pretty easy to revise that down, maybe even a full percentage point, right?So you’re, it's a tax on consumption and a tariff rate that high is going to pull down consumer spending. It's also going to lead to even much higher inflation than we were expecting. So rather than 2.8 for core PCE year-on-year, I wouldn't be surprised if we get something even in the high threes or perhaps even low fours.So, it pushes the economy, we would say, at least closer to a recession. If not, you're getting closer to the proverbial coin toss because there are the potential for a lot of indirect effects on business confidence. Do they spend less and hire less? And obviously we're seeing asset markets melt down. I think it's fair to describe it that way. And you could have negative wealth effects on the uppe

As markets continue reacting to the Trump administration’s tariffs, Michael Zezas, our Global Head of Fixed Income Research and Public Policy Strategy, lists the expected impacts for investors across equity sectors and asset classes.Read more insights from Morgan Stanley. ---- Transcript -----Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today we’ll be talking about the market impacts of the recently announced tariff increases.It’s Friday, April 4th, at 1pm in New York.This week, as planned, President Trump unveiled tariff increases. These reciprocal tariffs were hiked with the stated goal of reducing the U.S.’s goods trade deficit with other countries. We’ve long anticipated that higher tariffs on a broad range of imports would be a fixture of U.S. policy in a second Trump term. And that whatever you thought of the goals tariffs were driving towards, their enactment would come at an economic cost along the way. That cost is what helped drive our team’s preference for fixed income over more economically-sensitive equities. But this week’s announcement underscored that we actually underestimated the speed and severity of implementation. Following this week’s reciprocal tariff announcement, tariffs on imports from China are approaching 60 per cent, a level we didn’t anticipate would be reached until 2026. And while we expected a number of product-specific tariffs would be levied, we did not anticipate the broad-based import tariffs announced this week. All totaled, the U.S. effective tariff rate is now around 22 per cent, having started the year at 3 per cent. So what’s next? Our colleagues across Morgan Stanley Research have detailed their expected impacts across equity sectors and asset classes and here are some key takeaways to keep in mind. First, we do think there’s a possibility that negotiation will lower some of these tariffs, particularly for traditional U.S. allies like Japan and Europe, giving some relief to markets and the economic outlook. However, successful negotiation may not arrive quickly, as it's not yet clear what the U.S. would deem sufficient concessions from its trading partners. Lower tariff levels and higher asset purchases might be part of the mix, but we’re still in discovery mode on this. And even if tariff reductions succeed, it's still likely that tariff levels would be meaningfully higher than previously anticipated. So for investors, we think that means there’s more room to go for markets to price in a weaker U.S. growth outlook. In U.S. equities, for example, our strategists argue that first-order impacts of higher tariffs may be mostly priced at this point, but second-order effects – such as knock-on effects of further hits to consumer and corporate confidence – could push the S&P 500 below the 5000 level. In credit markets, weakness has been, and may continue to be, more acute in key sectors where tariff costs are substantial; and may not be able to pass on to price, such as the consumer retail sector. These are companies whose costs are driven by overseas imports. So what happens from here? Are there positive catalysts to watch for? It's going to depend on market valuations. If we get to a point where a recession is more clearly in the price, then U.S. policy catalysts might help the stock market. That could include negotiations that result in smaller tariff increases than those just announced or a fiscal policy response, such as bigger than anticipated tax cuts. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our Thematics and Public Policy analysts Michelle Weaver and Ariana Salvatore discuss the top five strategies for companies to mitigate the effects of U.S. tariffs. Read more insights from Morgan Stanley. 

Our analysts Paul Walsh, Mike Wilson and Marina Zavolock debate the relative merits of U.S. and European stocks in this very dynamic market moment.Read more insights from Morgan Stanley. 

Our analysts Arunima Sinha, Heather Berger and James Egan discuss the resilience of U.S. consumer spending, credit use and homeownership in light of the Trump administration’s policies.Read more insights from Morgan Stanley. 

Policy questions and growth risks are likely to persist in the aftermath of the Trump administration’s upcoming tariffs. Our CIO and Chief U.S. Equity Strategist Mike Wilson outlines how to seek investments that might mitigate the fallout.Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast – our views on tariffs and the implications for equity markets.  It's Monday, March 31st at 11:30am in New York. So let’s get after it. Over the past few weeks, tariffs have moved front and center for equity investors. While the reciprocal tariff announcement expected on April 2nd should offer some incremental clarity on tariff rates and countries or products in scope, we view it as a maximalist starting point ahead of bilateral negotiations as opposed to a clearing event. This means policy uncertainty and growth risks are likely to persist for at least several more months, even if it marks a short-term low for sentiment and stock prices. In the baseline for April 2nd, our policy strategists see the administration focusing on a continued ramp higher in the tariff rate on China – while product-specific tariffs on Europe, Mexico and Canada could see some de-escalation based on the USMCA signed during Trump’s first term. Additional tariffs on multiple Asia economies and products are also possible. Timing is another consideration. The administration has said it plans to announce some tariffs for implementation on April 2nd, while others are to be implemented later, signaling a path for negotiations. However, this is a low conviction view given the amount of latitude the President has on this issue. We don't think this baseline scenario prevents upside progress at the index level – as an "off ramp" for Mexico and Canada would help to counter some of the risk from moderately higher China tariffs. Furthermore, product level tariffs on the EU and certain Asia economies, like Vietnam, are likely to be more impactful on a sector basis. Having said that, the S&P 500 upside is likely capped at 5800-5900 in the near term – even if we get a less onerous than expected announcement. Such an outcome would likely bring no immediate additional increase in the tariff rate on China; more modest or targeted tariffs on EU products than our base case; an extended USMCA exemption for Mexico and Canada; and very narrow tariffs on other Asia economies. No matter what the outcome is on Wednesday, we think new highs for the S&P 500 are out of the question in the first half of the year; unless there is a clear reacceleration in earnings revisions breadth, something we believe is very unlikely until the third or fourth quarter.Conversely, to get a sustained break of the low end of our first half range, we would need to see a more severe April 2nd tariff outcome than our base case and a meaningful deterioration in the hard economic data, especially labor markets. This is perhaps the outcome the market was starting to price on Friday and this morning.  Looking at the stock level, companies that can mitigate the risk of tariffs are likely to outperform. Key strategies here include the ability to raise price, currency hedging, redirecting products to markets without tariffs, inventory stockpiling and diversifying supply chains geographically. All these strategies involve trade-offs or costs, but those companies that can do it effectively should see better performance. In short, it’s typically companies with scale and strong negotiating power with its suppliers and customers. This all leads us back to large cap quality as the key factor to focus on when picking stocks. At the sector level, Capital Goods is well positioned given its stronger pricing power; while consumer discretionary goods appears to be in the weakest position.  Bottom line, stay up the quality and size curve with a bias toward companies with good mitigation strategies. And see our research for more details.  Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

As credit resilience weakens with a worsening fundamental backdrop, our Head of Corporate Credit Research Andrew Sheets suggests investors reconsider their portfolio quality.Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about why we think near term improvement may be temporary, and thus an opportunity to improve credit quality. It's Friday March 28th at 2pm in London. In volatile markets, it is always hard to parse how much is emotion, and how much is real change. As you would have heard earlier this week from my colleague Mike Wilson, Morgan Stanley’s Chief U.S. Equity Strategist, we see a window for short-term relief in U.S. stock markets, as a number of indicators suggest that markets may have been oversold. But for credit, we think this relief will be temporary. Fundamentals around the medium-term story are on the wrong track, with both growth and inflation moving in the wrong direction. Credit investors should use this respite to improve portfolio quality. Taking a step back, our original thinking entering 2025 was that the future presented a much wider range of economic scenarios, not a great outcome for credit per se, and some real slowing of U.S. growth into 2026, again not a particularly attractive outcome. Yet we also thought it would take time for these risks to arrive. For the economy, it entered 2025 with some pretty decent momentum. We thought it would take time for any changes in policy to both materialize and change the real economic trajectory. Meanwhile, credit had several tailwinds, including attractive yields, strong demand and stable balance sheet metrics. And so we initially thought that credit would remain quite resilient, even if other asset classes showed more volatility. But our conviction in that resilience from credit is weakening as the fundamental backdrop is getting worse. Changes to U.S. policy have been more aggressive, and happened more quickly than we previously expected. And partly as a result, Morgan Stanley's forecasts for growth, inflation and policy rates are all moving in the wrong direction – with forecasts showing now weaker growth, higher inflation and fewer rate cuts from the Federal Reserve than we thought at the start of this year. And it’s not just us. The Federal Reserve's latest Summary of Economic Projections, recently released, show a similar expectation for lower growth and higher inflation relative to the Fed’s prior forecast path. In short, Morgan Stanley’s economic forecasts point to rising odds of a scenario we think is challenging: weaker growth, and yet a central bank that may be hesitant to cut rates to support the economy, given persistent inflation. The rising risks of a scenario of weaker growth, higher inflation and less help from central bank policy temper our enthusiasm to buy the so-called dip – and add exposure given some modest recent weakness. Our U.S. credit strategy team, led by Vishwas Patkar, thinks that U.S. investment grade spreads are only 'fair', given these changing conditions, while spreads for U.S. high yield and U.S. loans should actually now be modestly wider through year-end – given the rising risks.  In short, credit investors should try to keep powder dry, resist the urge to buy the dip, and look to improve portfolio quality. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.