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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 as you say, it's just a matter of time that there appears to be enough legal authority here for the administration to implement their desires on trade policy and tariff policy. So, I'm not sure this changes a lot in terms of where we think the economy's going. So, I'm not entirely surprised by the decision, but I'm not sure that the decision means a lot for how we think about the U.S. economy.Michael Zezas: Got it. So, the upshot there is – really no change from your perspective on the outlook for growth, for inflation or for Fed policy. Is that fair?Michael Gapen: That's right. So, it's still a slow growth, sticky inflation, patient Fed. It's just we're kind of moving around when that materializes. We pulled it into 2025 given the abrupt increase in in tariffs and the use of the IEEPA authority. And now it probably would come later if the lower court ruling stands.Michael Zezas: Right. So, sticking with the Fed. Several Fed speakers took to the airwaves last week, and it sounds like the Fed is still waiting for some of these public policy changes to have an effect on the real economy before they react. Is that a fair way to characterize it? And what are you watching at this point in terms of what determines your expectations for the Fed's policy path from here?Michael Gapen: Yeah, that's right. And I think, given that the appeals court has allowed the tariffs to stay in place as they review the lower court, the trade court's ruling, I think the Fed right now would say: Okay, status quo, nothing has changed.So, what does that mean? And what the Fed speakers said last week, and it also appeared in the minutes, is that the Fed expects that tariffs will do two things with respect to the Fed's mandate. It'll push inflation higher and puts risks around unemployment higher, right? So, the Fed is offsides, or likely to be offsides on both sides of its mandate.So, what Fed speakers have been saying is, well, when this happens, we will react to whichever side of the mandate we're furthest from our target. And their forecasts seem to say and are pretty consistent with ours, that the Fed expects inflation to rise first, but the labor market to soften later. So, what that means for our expectations for the Fed's policy path is they're likely to be on hold as they evaluate that inflation shock.And we'll keep the policy rate where it is to ensure that inflation expectations are stable. And then as the economy moderates and the labor market softens, then they can turn to cuts. But we don't think that happens until 2026. So, I don't think the ruling yesterday and the appeal process initiated today changes that.For now, the tariffs are still in place. The Fed's message is it's going to take us at least until probably September, if not later, to figure out which way we should move. Moving later and right is preferable for them than moving earlier and wrong.Michael Zezas: Got it. So bottom line, from our perspective, this court case was a big deal. However, because the administration has a lot of options to keep tariffs going in the direction that they want, not too much has really changed with our expectations for the outlook for either the tariff path and it's not going to fix to the economy.Michael Gapen: That's right. That's, I think what we know today. And we'll have to see how things evolve.Michael Zezas: Yep. They seem to be evolving every day. Mike, thanks for speaking with me.Michael Gapen: Thank you, Mike. It's been a pleasure. And 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 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.

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 ahead, or creating the type of tax environment that might induce greater corporate investment and greater economic growth years ahead – all those things are possible. But they're very hypothetical and they're subject to policy changes that could happen after the next Congress comes in or the next president comes in.So, Ariana, that's the overall look at our base case. But I think it's important to understand here that there are multiple different paths this legislation could follow. Can you explain what are some of the sticking points? And, depending on how they're resolved, how that might change the trajectory of what's ultimately passed here?Ariana Salvatore: There are a number of disagreements that need to be resolved. In particular, one of the biggest that we're focused on is on the SALT cap; so that's the cap on State And Local Tax deductions that individuals can take. That raised about a trillion dollars of revenue in the first iteration of the Tax Cuts and Jobs Act in 2017.Republicans generally are okay with making a modification to that cap, maybe taking it a bit higher, or imposing some income thresholds. But the SALT caucus, this small group of Republicans in Congress, they're pushing for a full repeal or something bigger than just a small dollar amount increase.There's also a group of moderate Republicans pushing against any sort of spending cuts to programs like Medicaid and SNAP; that's the food stamps program. And then there's another cohort of House Republicans that are seeking to preserve the Inflation Reduction Act. Ultimately, these are all going to be continuous tension points. They're going to have to settle on some pay fors, some savings, and we think where that lands is effectively at a $90 billion or so deficit increase from just the tax policy changes next year.Now with tariff revenue excluded, that's probably closer to [$]130 billion. But Mike, to your point, there are these scheduled increases in outlays that also are going to have to be considered for next year's deficit. So, you're looking at an overall increase of about $310 billion.Michael Zezas: Yeah, I think that's right and the different ways those different dynamics could play out, I think puts us in a range of a $200 billion expansion maybe on the low end, and a $400 billion expansion on the high end. And these are meaningful numbers. But I think important context for investors is that these numbers might seem a lot smaller than some of what's been reported in the press, and that's because the press reports on the congressional budget office scoring, and these are typically 10-year numbers.So, you would multiply that one-year number by 10 at least conceptually. And these are numbers relative to a reality in which the tax cuts were allowed to expire. So, it's basically counting up revenue that is being missed by not allowing the tax cuts to expire. So, the context matters a lot here. And so we have been encouraging investors to really kind of look through the headlines, really kind of break down the context and really kind of focus on the short term impacts because those are the most reliable impacts and the ones to really anchor to; because policy uncertainty beyond a year is substantially higher than even the very high policy uncertainty we're experiencing right now.So, sticking with the theme of uncertainty, let's talk timing here. Like we came into the year thinking this tax bill would be resolved late in the year. Is that still the case or are you thinking it might be a bit sooner?Ariana Salvatore: I think that timing still holds up. Right now, the reconciliation bill is supposed to address the expiring debt ceiling. So, the real deadline for getting the bill done is the X date or the date by which the extraordinary measures are projected to be exhausted. That's the date that we would potentially hit an actual default.Of course, that date is somewhat of a moving target. It's highly dependent on tax receipts from Treasury. But our estimate is that it's somewhere around August or September. In the meantime, there's a number of key catalysts that we're watching; namely, I would say, other projections of the X date coming from Treasury, as well as some of these markups when we start to get more bill text and hear about how some of the disputes are being resolved.As I mentioned, we had text earlier this week, but there's still no quote fix for the SALT cap, and the house is still tentatively pushing for its Memorial Day deadline. That's just six legislative days away.Michael Zezas: Got it. So, I think then that means that we're starting to learn a lot more about how this bill comes together. We will be learning even a lot more over the next few months and while we set out our expectations that you're going to have some fiscal policy expansion. But largely a broadly unchanged posture for U.S. fiscal policy. We're going to have to keep checking those regularly as we get new bits of information coming out of Congress on probably a daily basis at this point.Ariana Salvatore: That's right.Michael Zezas: Great. Well, Ariana, thanks for taking the time to talk.Ariana Salvatore: Great speaking with you, Michael.Michael Zezas: Thank you for your time. If you find Thoughts on the Market and the topics we cover of interest, leave us a review wherever you listen. And if you like what you hear, 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 strengthen their currency. The central bank is being very clear on this.We should have to point this out that the currency has not been part of the trade deal. And yet this hasn't prevented market participants from acting on the perceived risk of it being part of the trade talks. So, you know, Taiwanese exporters own a lot of dollars. Corporates and individuals in Taiwan hold about $275 billion worth of FX deposits and for an $800 billion or so economy, that's pretty sizable. So we think that is that dynamic, which has been the biggest factor in pushing Taiwan dollar stronger.Michael Zezas: Right, so the Taiwan dollar is this interesting case study then in how U.S. public policy choices might be creating the perception of changes in demand for the dollar changes in policy around how foreign governments are supposed to value their currency and investors might be getting ahead of that.Are there any other parts of the world where you're looking at foreign exchange globally, where you see things mispriced in a way relative to some of these expectations that investors need to talk about?James Lord: We do think that the dollar has further to go. I mean, it's on the downside. It's not necessarily linked to expectations that currency agreements will be part of any trade agreement. But, we think the Fed will need to cut rates quite a bit on the back of the slow down in the U.S. economy. Not so much this year. But Mike Gapen and Seth Carpenter, and the U.S. economics team are expecting to see the Fed cut to around 2.5 per cent or so next year. And that's absolutely not priced. And, And so I think as this slowdown – and, this is more of a sort of traditional currency driver compared to some of these other policy issues that we've been talking about. But if the Fed does indeed cut that far, I do think that that's going to put some meaningful pressure on the dollar. And on a sort of interest rate differential perspective, and when we look at what is mispriced and correctly priced, we see the Fed as being mispriced, but the ECB is being quite well priced at the moment.So as that weakening downward pressure comes through on the dollar, it should be reflected on the euro leg. And we see it heading up to 1.2. But just on the trade issue, Mike, what's your view on how those trade negotiations are going? Are we going to get lots of deals being announced soon?Michael Zezas: Yeah, so the news flow here suggests that the U.S. is engaged in multiple negotiations across the globe and are looking to establish agreements relatively quickly, which would at least give us some information about what happens next with regard to the tariffs that are scheduled to increase after that 90 day pause that was announced in earlier in April. We don't know much beyond that.I'd say our expectation is that because the U.S. has enough in common in terms of interests and how it manages its own economy and how most of its trading partners manage their own economies – that there are trade agreements, at least in concept. Perhaps memorandums of understanding that the U.S. can establish with more traditional allies, call it Japan, Europe, for example, that can ultimately put another pause on tariff escalation with those countries.We think it'll be harder with China where there are more fundamental disagreements about how the two countries should interact with each other economically. And while tariffs could come down from these very, very high levels with China, we still see them kind of settling out at still meaningful substantial headline numbers; call it the 50 to 60 per cent range. And while that might enable more trade than we're seeing right now with China because of these 145 per cent tariff levels, it'll still be substantially less than where we started the year where tariff levels were, you know, sub 20 per cent for the most part with China.So, there is a variety of different things happening. I would expect the general dynamic to be – we are going to see more agreements with more counterparties. However, those will mostly result in more pauses and ongoing negotiation, and so the uncertainty will not be completely eliminated. And so, to that point, James, I think I hear you saying that there is potentially a difference between sometimes currencies move based on general policy uncertainty and anxieties created around that.James Lord: Yeah, that's right. I think that's safer ground, I think for us as currency strategists to be anchoring our view to because it's something that we deal with day in, day out for all economies. The impact of this uncertainty variable. It could be like, I think directionally supports a weaker dollar, but sort of quantifying it, understanding like how much of that is in the price; could it get worse, could it get better? That's something that's a little bit more difficult to sort of anchor the view to. So, at the moment we feel that it's pushing in the same direction as the core view. But the core view, as you say, is based around those growth and monetary policy drivers.So, best practice here is let's keep continuing to anchor to the fundamentals in our investment view, but sort of recognize that there are substantial bands of uncertainty that are driven by U.S. policy choices and by investors' perceptions of what those policy choices could mean.Michael Zezas: So, James conversations like this are extremely helpful to our audience. We'll keep tracking this carefully. And so, I just want to say thank you for taking the time to talk with us today.James Lord: I really enjoyed it. Looking forward to the next one.Michael Zezas: Great. And thank you for listening. If you enjoy the podcast, please leave us a review wherever you listen to the podcast and share Thoughts on the Market with a friend or colleague today.

In this episode of our Perspectives series, Steven Major, HSBC's Global Head of Fixed Income Research, and Paul Mackel, HSBC's Global Head of FX Research, discuss market developments and surprises across bonds and currencies.This episode was recorded on the sidelines of the HSBC Global Investment Summit in Hong Kong on 25 March 2025. Find out more here: grp.hsbc/gisDisclaimer: Views of external guest speakers do not represent those of HSBC.Subscribe to HSBC Business Edition- MENAT on Apple Podcast, Spotify, YouTube, or Anghami for the latest business news and insights.Apple Podcast - https://podcasts.apple.com/ae/podcast/hsbc-business-editions-menat/id1530716865Spotify - https://open.spotify.com/show/3d9NPmyU64oqNGWvT0VvARYouTube - https://www.youtube.com/playlist?list=PLBOGWG1Zpoxznztf0ucbZ5HZpP1cAqQQE Anghami - https://play.anghami.com/artist/7640230 Hosted on Acast. See acast.com/privacy for more information.

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 materially lower tariff level and everywhere in the world except for China. The big variability is probably going to be in the sector tariffs now going forward.Michael Zezas: So, what sectors do you think are particularly in focus here?Rajeev Sibal: So, on the April 2nd fact sheet that the White House provided to countries and to the market, they specifically identified steel, aluminum, autos and auto parts as already having Section 232 tariffs. And we know that's true because those investigations had started in a prior Trump administration. And so, kind of the framework was already in place for them to execute those tariffs.The guidance then suggested that copper, pharmaceuticals, semiconductors, and lumber would also potentially fall under Section 232 tariffs in the future. And then there's been a range of indications as to what might be in play, so to speak, for Section 232.I know pharmaceuticals is at the top of the list of many investors, as are semiconductors. So, this is our kind of sample list, but we're pretty certain that this will evolve over time. But that's where we're starting.Michael Zezas: Okay, so pharmaceutical, semiconductors, automobile, steel, aluminum. It's a pretty substantial list. So, if that's the sort of end game landscape here – relatively elevated China tariffs, and then all of these products specific tariffs – what does an investor need to know about a company's options in this world? Can companies just rewire their supply chains around all of this? And you know, ultimately there's some temporary price pain. But once things are rewired around this, that should dissipate. Or are the decisions more difficult than that and that there has to be some cost passed through to the consumer or to the companies themselves – because this is just too many tariffs in too many places?Rajeev Sibal: Yeah, so I think the latter of your question – the difficulty – is really where we need to be thinking about what's happening here. If you think about the bigger picture, and you go back to the note that we collaborated on earlier in the year called Supply Chain Strain, we highlighted the complexity of moving factors of production and the extreme levels of investment that have required to shift factors of production.So, companies, if they're going to move a factory from country A to country B, have to make sure that country B has the institutional framework, that it has the capital, it has the labor input, and this is a big, big decision. So, as a company you're not going to make that decision to shift your investment or reconstruct productive facilities in a new country – until you understand the cost benefit analysis. And in order to understand the cost benefit analysis, you really need to know what the sector-based Section 232 tariff looks like in the end.If we remember back in 2018, the government tried to implement a wide range of tariffs. On average, it took about 250 days for each investigation to be completed. And that's a long timeframe. And so, I think what we're going through now, apart from automobiles and steel and aluminum where that process has kind of already been done, and we kind of have the framework of the tariffs and the new sectors, companies are going to have to wait for this investigation to take place so that they understand what the tariff level is. Because the tariff level is going determine the risk of actually shifting productive facilities. Or if you just kind of absorb the cost because the tariff isn't at a high enough level that it incentivizes the shift.And so, these are the changes that I think remain an open question and will be the focus of companies over the next few months as their sectors are exposed to tariffs.Michael Zezas: Right. So, what I think I'm hearing then, and correct me if I'm wrong, is that some of the focus on the China tariffs or the country level specific tariffs in the headlines – about they're moving up, they're moving down – might mask that at the end of the day, we're still dealing with considerably higher tariffs on a broad enough array of products; that it will mean difficult choices for companies and/or higher costs. And so therefore markets are still going to have to price some of the economic challenges around that.Rajeev Sibal: Yeah, I think that's absolutely right. And we've seen the market try to price some of this stuff at a country level context. But it's been hard. And, you know, even the headline tariff rate in the U.S. is really hard to pin down for the simple reason that we don't know if the Mexican and Canadian trade into the U.S. is compliant or non-compliant, and how that gets counted in the current structure of the tariff regime. And so, as these questions remain outstanding, markets are going to be volatile, trying to figure out where the tariff level is. I think that uncertainty at a country level then shifts to the sector level as we go through these investigations that we've been highlighting.Autos is a great example. We finished the investigation. We've implemented a Section 232 tariff, and we still don't know what the implied auto tariff rate is because we don't know how many parts in a car are compliant within existing free trade agreements of the United States; and if they're compliant or not really determines what the implied tariff level is for the U.S. And until companies can decide and give forward guidance and understand what their margins look like, I think markets are going to be in this guessing game.Michael Zezas: Yeah, and that certainly syncs up with our fixed income strategy views. The idea that yield curves will continue to steepen to deal with the uncertainty about U.S. trade policy and demand for dollars, as a consequence. That equity markets might be moving sideways as perhaps we priced in some of the first order effects of tariffs, but not necessarily the second order, potentially non-linear effects on the broader global economy. And unfortunately, the lingering uncertainties that you talk about implementation, they're going to be with us for awhile.Rajeev Sibal: Yeah, I think that's really fair. And our economics outlook mirrors that as well.Michael Zezas: Well, Rajeev, thanks for joining us today to help us sort through all of thisRajeev Sibal: Mike, thanks for having me on the podcast.Michael Zezas: And to all of you, thanks for listening. If you found this podcast helpful, let us know and share Thoughts on the Market with a friend or colleague today.

In this episode of our Perspectives series, Steven Major, HSBC's Global Head of Fixed Income Research, and Paul Mackel, HSBC's Global Head of FX Research, discuss market developments and surprises across bonds and currencies.This episode was recorded on the sidelines of the HSBC Global Investment Summit in Hong Kong on 25 March 2025. Find out more here: grp.hsbc/gisDisclaimer: Views of external guest speakers do not represent those of HSBC.

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.

The global trade war intensifies as the Trump Tariffs come into effect. Equities continue to decline for the fourth consecutive day, threatening to push the S&P 500 into bear market territory, as investors seek safe havens. Meanwhile, Treasuries, once considered the world's ultimate safe haven, remain under pressure as investors appear to be losing confidence in the US. To gain more insight into the bond market's reaction, we spoke with Dario Messi, Head of Fixed Income Research, who discusses the implications for investors' positioning in more detail.00:00 Introduction by Bernadette Anderko (Investment Writing)00:27 Markets wrap-up by Jan Bopp (Investment Writing)05:49 Bond market latest: Dario Messi (Head of Fixed Income Research)10:44 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

We look at what's behind the recent moves in the stock and bond markets with Alastair Pinder, Head EM and Global Equity Strategist, and Steven Major, Global Head of Fixed Income Research. Disclaimer: https://www.research.hsbc.com/R/101/llShVWF.Subscribe to HSBC Business Edition- MENAT on Apple Podcast, Spotify, YouTube, or Anghami for the latest business news and insights.Apple Podcast - https://podcasts.apple.com/ae/podcast/hsbc-business-editions-menat/id1530716865Spotify - https://open.spotify.com/show/3d9NPmyU64oqNGWvT0VvARYouTube - https://www.youtube.com/playlist?list=PLBOGWG1Zpoxznztf0ucbZ5HZpP1cAqQQE Anghami - https://play.anghami.com/artist/7640230 Hosted on Acast. See acast.com/privacy for more information.

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.

In this episode, we dive into the latest market developments as European government bonds and equities surge on contained eurozone inflation. Meanwhile, US stocks experience a volatile session ahead of the unveiling of the Trump administration's reciprocal tariff plans. Joining us is Dario Messi, Head of Fixed Income Research, who shares his insights on why he thinks it's not the right time to increase risk exposure in bond markets.00:00 Introduction by Bernadette Anderko (Investment Writing)00:24 Markets wrap-up by Roman Canziani (Head of Investment Writing)05:49 Bond market latest: Dario Messi (Head of Fixed Income Research)09:39 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

Consumer sentiment in the US continues to decline, with some indices flashing warning signs of a potential recession. Despite the weakness in sentiment, hard economic data remains resilient - for now. Meanwhile, one of the main beneficiaries of the ongoing uncertainty surrounding US tariffs, is industrial metal copper, whose price has reached an all-time-high in New York. Join us as we discuss the latest developments with Dario Messi, Head of Fixed Income Research, who predicts further volatility on the horizon, and Mathieu Racheter, Head of Equity Strategy, who argues that investors should capitalise on the current US equity bounce to diversify into international markets.00:00 Introduction by Bernadette Anderko (Investment Writing)00:27 Markets wrap-up by Roman Canziani (Head of Investment Writing)06:09 Bond market update: Dario Messi (Head of Fixed Income Research)11:24 Equity strategy update: Mathieu Racheter (Head of Equity Strategy)16:43 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

The German parliament voted in favour of a significant fiscal package yesterday, paving the way for increased defence spending and a substantial infrastructure fund, subject to the bill passing through the Bundesrat on Friday. This news was warmly received by investors, helping to drive a solid performance in European markets. In contrast, the US market told a different story, with all three major indices closing lower, largely due to a sell-off in some of the biggest technology stocks and growing investor nervousness ahead of today's Federal Reserve decision. Meanwhile, the Bank of Japan has already made its move, leaving its key policy rate unchanged at 0.5%. Joining us to provide further insight into the Fed's decision is Dario Messi, our Head of Fixed Income Research. We are also joined by Mathieu Racheter, Head of Equity Strategy, who shares his thoughts on the shift away from US equities.00:00 Introduction by Bernadette Anderko (Investment Writing)00:41 Markets wrap-up by Lucija Caculovic (Investment Writing)06:35 Bond market update: Dario Messi (Head of Fixed Income Research)11:44 Equity Strategy update: Mathieu Racheter (Head of Equity Strategy)16:18 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

We look at what's behind the recent moves in the stock and bond markets with Alastair Pinder, Head EM and Global Equity Strategist, and Steven Major, Global Head of Fixed Income Research. Disclaimer: https://www.research.hsbc.com/R/101/llShVWF. Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/ or click here: https://www.gbm.hsbc.com/insights/global-research. Hosted on Acast. See acast.com/privacy for more information.

While tariffs continue to dominate headlines, our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas suggests investors should also focus on the sectoral impacts of additional U.S. policy choices.----- 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 U.S. policy impacts on the market that aren't about tariffs.It's Wednesday, March 12th, at 10:30am in New York.If tariffs are dominating your attention, we sympathize. Again this week we heard the U.S. commit to raising tariffs and work out a resolution, this time all within the span of a workday. These twists and turns in the tariff path are likely to continue, but in the meantime it might make sense for investors to take some time to look away – instead focusing on some key sectoral impacts of U.S. policy choices that our Research colleagues have called out. For example, Andrew Percoco, who leads our Clean Energy Equity Research team, calls out that clean Energy stocks may be pricing in too high a probability of an Inflation Reduction Act (IRA) repeal. He cites a letter signed by 18 Republicans urging the speaker of the house to protect some of the energy tax credits in the IRA. That's a good call out, in our view. Republicans' slim majority means only a handful need to oppose a legislative action in order to block its enactment. Another example is around Managed Care companies. Erin Wright, who leads our Healthcare Services Research Effort, analyzed the impact to companies of cuts to the Medicaid program and found the impact to their sector's bottom line to be manageable. So, keeping an in-line view for the sector. We think the sector won't ultimately face this risk, as, like with the IRA, we do not expect there to be sufficient Republican votes to enact the cuts. Finally, Patrick Wood, who leads the Medtech team, caught up with a former FDA director to talk about how staffing cuts might affect the industry. In short, expect delays in approvals of new medical technologies. In particular, it seems the risk is most acute in the most cutting edge technologies, where skilled FDA staff are hard to find. Neurology and brain/computer interfaces stand out as areas of development that might slow in this market sector. All that said, if you just can't turn away from tariffs, we reiterate our guidance here: Tariffs are likely going up, even if the precise path is uncertain. And whether or not you're constructive on the goals the administration is attempting to achieve, the path to achieving them carries costs and execution risk. Our U.S. economics team's recent downgrade of the U.S. growth outlook for this and next year exemplifies this. 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.

US markets plummeted yesterday due to growing fears of a looming recession, with the major US stock indices all falling sharply, amid ongoing trade tensions and uncertainty over the Trump administration's tariff policies. The sell-off was particularly brutal in the tech sector, while the VIX volatility index surged 19% and bond yields plunged, reflecting heightened investor anxiety. On today's podcast, we are also joined by Dario Messi, Head of Fixed Income Research, with an update on the German Bund market.00:00 Introduction by Helen Freer (Investment Writing)00:31 Markets wrap-up by Jonti Warris (Investment Writing)06:18 Bond market update: Dario Messi (Head of Fixed Income Research)11:01 Closing remarks by Helen Freer (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

While policy noise continues to dominate the headlines, our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas points out a key theme: a transition toward a multipolar world.----- 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 discussing what investors need to focus on amidst all the U.S. policy headlines.It's Friday, March 7th, at 12:30 pm in New York.In recent weeks the news flow on tariffs, immigration, and geopolitics has been relentless, culminating in this week's state of the union address by President Trump and, if headlines hold, a partial reversal in course on Mexico and Canada tariffs that were just levied earlier this week. Understandably, measures of policy uncertainty, such as the Baker, Bloom, and Davis index, have reached all time highs. And this tracks with the confusion expressed by investing and corporate clients. In our view, this policy noise is going to continue. But, there is an important signal. These developments track with one of our four key themes of 2025. The transition toward a multipolar world. The tense White House meeting between Presidents Trump and Zelensky, played out live in front of the news cameras, was another reminder that the U.S. is evolving its role in driving international affairs. And tariffs on Mexico, Canada, and China are a reminder of the U.S.'s interest in rewiring global trade. The reasons behind this are myriad and complex, but in the near term it's about the U.S. looking more inward. Economic populism is, well, popular with voters in both parties. There's a few net takeaways for investors here. One is a positive for the European defense sector. The combination of tariffs and the evolving U.S. posture on global security has long been part of our thesis on why Europe would eventually chart a new path and step up to spend more on defense. The current situation in Russia and Ukraine underscores this, with potential for another $0.9-$2.7 trillion in defense spending through 2035. Germany's new ‘whatever it takes' approach to defense spending is a key signpost in this trend, per our colleagues in European economics, equities, and foreign exchange. Another critical takeaway is around the effects of U.S. trade realignment on both macro markets and equity sector preferences. Whether these trade policy changes play out well over time or not, the attempt costs something in the near term. Tariffs are part of that cost. And while the precise path of tariff increases is unclear, what is clear is that they're headed higher in the aggregate, a tactic in service of the administration's goal of reducing trade deficits and creating reciprocal trade barriers in order to incentivize greater production in the U.S. Over the next year, our economists expect that those tariff costs will crimp economic activity. That slower growth should eventually feed through into a more dovish monetary policy. Both factors, in the view of our U.S. rates strategy team, should continue pushing yields lower – good news for bond investors, but more challenging posture for equity investors, and a key reason our cross asset team is currently flagging a preference for fixed income. That tariff activity should also drive supply chain realignment. But, going forward, changing those supply chains may now be more costly. Per work from our Global economics team, the supply chains that need to be moved now are complex and concentrated in geopolitical rivals. That's a challenge for certain sectors, like U.S. IT hardware and consumer discretionary. But the investment to make it happen creates demand and is a benefit for the capital goods and broader industrials sector. Bottom line, the policy noise will continue, as will the market cross currents it's driving. We'll keep you informed on it all 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.

Investors have a lot to digest. With US tariffs on Canada, Mexico, and China now in force – along with some retaliatory measures from affected countries – US Commerce Secretary Lutnick hinted that the US may reconsider some tariffs. Meanwhile, in Europe, the European Commission and Germany have unveiled plans to significantly increase defence spending. In Asia, all eyes are on China's National People's Congress, where the government has set an economic growth target of around 5% for 2025. No wonder global equity markets are experiencing volatility this week, and bond markets are no less turbulent. Joining us to shed light on the latest developments in fixed income is Dario Messi, our Head of Fixed Income Research. We're also joined by Richard Tang, our Head of Research in Hong Kong, for expert analysis on the National People's Congress.00:00 Introduction by Bernadette Anderko (Investment Writing)00:37 Markets wrap-up by Lucija Caculovic (Investment Writing)06:20 Bond market update: Dario Messi (Head of Fixed Income Research)10:48 China's NPC news: Richard Tang (Head of Research Hong Kong)16:48 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

Our Global Head of Fixed Income Research and Public Policy Strategy explains why conflicting news on tariffs and government spending may point to a case for bonds.----- 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 discussing recent U.S. public policy headline noise and the signal within that for investors.It's Friday, February 28th, at 12:30 pm in New York.For investors paying attention to events in Washington, D.C., the past few weeks have been disorienting. Tariff announcements have continued, but with shifting details on timing and magnitude. And Congress passed a bill to enable substantial spending cuts, but subsequent media reports made clear the votes to actually enact these cuts later this year may not be there. Our recent client conversations have revealed that investors' confusion has reached new heights, and there's little consensus, or conviction, about whether U.S. policy choices are set to help or hurt the economy and markets. Net-net, it's a lot of policy noise, and very little signal. That said, here's what we think investors can anchor to. For all the headlines on potential new tariffs for China, Mexico, Canada and on products like copper, actual tariff actions have followed a graduated pace, in line with our base case of ‘fast announcement, slow implementation' – where tariffs on China start and continue to climb, but tariffs on the rest of world move slowly and are more subject to negotiation. Tariffs on Mexico and Canada appear, in our view, likely to be pushed out once again given progress in negotiation on harmonizing trade policy and progress in reduced border crossings. On the other hand, tariffs on China, already raised an incremental 10 percent a few weeks back, seem likely to step up again as there are much bigger disagreements that the two nations don't appear close to resolving. But even if tariffs move according to the pace that we expect, that doesn't mean they come without cost. The U.S.'s goal is to bring more investment onshore, with an aim toward increasing goods production, thereby reducing trade deficits, securing important supply chains, and growing industrial jobs. The theory is that higher tariff barriers might incentivize more direct investment into the U.S., as companies build supply chains in the U.S. to avoid the higher tariff costs. But even if that theory plays out, there's a cost to that transition. In a recent blue paper, my colleague Rajeev Sibal led a team through an analysis demonstrating that the next phase of supply chain realignment would be considerably costlier to companies, given the complexity of production that must be shifted. So either way, companies take on new costs – tariffs, CapEx, or both. That challenges corporate margins, and economic growth, at least for a time. And there's plenty of execution risk along the way. So what's an investor to do? Our cross asset and interest rate strategy teams think it's time to lean more heavily into bonds. Equity markets may do just fine here, with investors looking through these near term costs, but the risk of something going wrong with, for example, tariffs escalation or broader geopolitical conflict, may keep a ceiling on investors' risk appetite. Conversely, a growth slowdown presents a clearer case for owning bonds, particularly since it wasn't that long ago that better economic data helped the Treasury market price out most of the expected monetary policy cuts for 2025. 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.

With inflation expectations rising, credit spreads at historical tights, and US Treasury moves dictating market sentiment, how should investors position their portfolios? In this episode, Elaine Ngim, Head of Investment Advisory Singapore at Julius Baer sits down with Jonathan Liang, Head of Fixed Income Investment Specialists, Asia ex-Japan at JP Morgan Asset Management and Dario Messi, Head of Fixed Income Research at Julius Baer to break down the top-of-mind issues in fixed income markets and the corporate credit landscape today. Key topics include:(01:42) - How inflation expectations impact credit markets (04:32) - The outlook for credit spreads – are we due for a widening? (06:16) - Does investment success hinge on getting the US Treasury view right? (08:22) - The US dollar's strength and its implications for emerging markets (09:49) - Why active management is critical in volatile bond markets (12:12) - Managing volatility to achieve better risk-adjusted returns (13:03) - The evolving role of CDS (13:40) - Lessons from past market drawdowns (14:38) - Common misconceptions about credit investing (16:25) - Key takeaways for equity-focused investors

US growth concerns and geopolitics keep investors busy ahead of Nvidia's much-anticipated earnings report later today. Germany's incoming chancellor seeks to boost defence spending, while US yields decline amid uncertainty over Trump's policies and weaker-than-expected US consumer confidence data. Global markets react, with bonds rallying, the dollar down, and equities slipping, especially tech stocks. Dario Messi, Head of Fixed Income Research, explains why he expects European yields to continue to trend lower. And we have Mathieu Racheter, Head of Equity Strategy, on the show to share his expectations for Nvidia's earnings report after today's market close.00:00 Introduction by Bernadette Anderko (Investment Writing)00:34 Markets wrap-up by Jan Bopp (Investment Writing)06:13 Bond market update: Dario Messi (Head of Fixed Income Research)11:04 European equity markets: Mathieu Racheter (Head of Equity Strategy)14:56 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

Our Global Chief Economist Seth Carpenter explains the potential domino effect that President Trump's reciprocal tariffs could have on the U.S. and global economies.----- Listener Survey -----Complete a short listener survey at http://www.morganstanley.com/podcast-survey and help us make the podcast even more valuable for you. For every survey completed, Morgan Stanley will donate $25 to the Feeding America® organization to support their important work.----- Transcript -----Hi, I'm Michael Zezas, Global Head of Fixed Income Research & Public Policy Strategy at Morgan Stanley. Before we get into today's episode, the team behind Thoughts on the Market wants your thoughts and your input. Fill out our listener survey and help us make this podcast even more valuable for you. The link is in the show notes and you'll hear it at the end of the episode.Plus, help us help the Feeding America organization. For every survey completed, Morgan Stanley will donate $25 toward their important work. Thanks for your time and support. On to the show… Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist, and today I'm going to talk about downside risks to the U.S. economy, especially from tariffs.It's Thursday, February 20th at 10am in New York.Once again, tariffs are dominating headlines. The prospect of reciprocal tariffs is yet one more risk to our baseline forecast for the year. We have consistently said that the inflationary risk of tariffs gets its due attention in markets but the adverse growth implications that's an underappreciated risk.But we, like many other forecasters, were surprised to the upside in 2023 and 2024. So maybe we should ask, are there some upside risks that we're missing?The obvious upside risk to growth is a gain in productivity, and frequent readers of Morgan Stanley Research will know that we are bullish on AI. Indeed, the level of productivity is higher now than it was pre-COVID, and there is some tentative estimate that could point to faster growth for productivity as well.Of course, a cyclically tight labor market probably contributes and there could be some measurement error. But gains from AI do appear to be happening faster than in prior tech cycles. So, we can't rule very much out. In our year ahead outlook, we penciled in about a-tenth percentage point of extra productivity growth this year from AI. And there is also a bit of a boost to GDP from AI CapEx spending.Other upside risks, though, they're less clear. We don't have any boost in our GDP forecast from deregulation. And that view, I will say, is contrary to a lot of views in the market. Deregulation will likely boost profits for some sectors but probably will do very little to boost overall growth. Put differently, it helps the bottom line far more than it helps the top line. A notable exception here is probably the energy sector, especially natural gas.Our baseline view on tariffs has been that tariffs on China will ramp up substantially over the year, while other tariffs will either not happen or be fleeting, being part of, say, broader negotiations. The news flow so far this year can't reject that baseline, but recently the discussion of broad reciprocal tariffs means that the risk is clearly rising.But even in our baseline, we think the growth effects are underestimated. Somewhere in the neighborhood of two-thirds of imports from China are capital goods or inputs into U.S. manufacturing. The tariffs imposed before on China led to a sharp deterioration in industrial production. That slump went through the second half of 2018 and into and all the way through 2019 as a drag on the broader economy. Just as important, there was not a subsequent resurgence in industrial output.Part of the undergraduate textbook argument for tariffs is to have more produced at home. That channel works in a two-economy model. But it doesn't work in the real world.Now, the prospect of reciprocal tariffs broadens this downside risk. Free trade has divided production functions around the world, but it's also driven large trade imbalances, and it is precisely these imbalances that are at the center of the new administration's focus on tariffs. China, Canada, Mexico – they do stand out because of their imbalances in terms of trade with the U.S., but the underlying driving force is quite varied. More importantly, those imbalances were built over decades, so undoing them quickly is going to be disruptive, at least in the short run.The prospect of reciprocity globally forces us as well to widen the lens. The risks aren't just for the U.S., but around the world. For Latin America and Asia in particular, key economies have higher tariff supply to U.S. goods than vice versa.So, we can't ignore the potential global effects of a reciprocal tariff.Ultimately, though, we are retaining our baseline view that only tariffs on China will prove to be durable and that the delayed implementation we've seen so far is consistent with that view. Nevertheless, the broad risks are clear.Thanks for listening. And if you enjoy the podcast, help us make it even more valuable to you. Share your feedback on the show at morganstanley.com/podcast-survey, or head to the episode notes for the survey link.

Hopes for an end to the conflict in Ukraine has provided a significant sentiment boost, driving European and US stocks to new heights. Despite ongoing discussions, announcements, and postponements of new tariffs, markets are increasingly looking beyond the short-term noise. For a deeper analysis of the latest developments, we turn to our experts. Dario Messi, Head of Fixed Income Research, offers his insights into the recent moves in bond yields, while Nenad Dinic, Equity Strategy Research, shares his views on the surge in emerging market stocks and identifies areas with further growth potential.00:00 Introduction by Jonti Warris (Investment Writing)00:31 Markets wrap-up by Roman Canziani (Head of Investment Writing)06:23 Bond market update: Dario Messi (Head of Fixed Income Research)10:36 Emerging market equities update: Nenad Dinic (Equity Strategy)16:23 Closing remarks by Jonti Warris (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

The down-to-the-deadline nature of Trump's trade policy has created market uncertainty. Our Head of Corporate Credit Research Andrew Sheets points out a silver lining. ----- Listener Survey -----Complete a short listener survey at http://www.morganstanley.com/podcast-survey and help us make the podcast even more valuable for you. For every survey completed, Morgan Stanley will donate $25 to the Feeding America® organization to support their important work.----- Transcript -----Hi, I'm Michael Zezas, Global Head of Fixed Income Research & Public Policy Strategy at Morgan Stanley. Before we get into today's episode, the team behind Thoughts on the Market wants your thoughts and your input. Fill out our listener survey and help us make this podcast even more valuable for you. The link is in the show notes and you'll hear it at the end of the episode.Plus, help us help the Feeding America organization. For every survey completed, Morgan Stanley will donate $25 toward their important work. Thanks for your time and support. On to the show… Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I'm going to talk about a potential silver lining to the significant uptick in uncertainty around U.S. trade policy. It's Wednesday, February 12th at 2pm in London. One of the nuances of our market view is that we think credit spreads remain tight despite rising levels of corporate confidence and activity. We think these things can co-exist, at least temporarily, because the level of corporate activity is still so low, and so it could rise quite a bit and still only be in-line with the long-term trend. And so while more corporate activity and aggression is usually a negative for lenders and drives credit spreads wider, we don't think it's quite one yet. But maybe there is even less tension in these views than we initially thought. The first four weeks of the new U.S. Administration have seen a flurry of policy announcements on tariffs. This has meant a lot for investors to digest and discuss, but it's meant a lot less to actual market prices. Since the inauguration, U.S. stocks and yields are roughly unchanged. That muted reaction may be because investors assume that, in many cases, these policies will be delayed, reversed or modified. For example, announced tariffs on Mexico and Canada have been delayed. A key provision concerning smaller shipments from China has been paused. So far, this pattern actually looks very consistent with the framework laid out by my colleagues Michael Zezas and Ariana Salvatore from the Morgan Stanley Public Policy team: fast announcements of action, but then much slower ultimate implementation. Yet while markets may be dismissing these headlines for now, there are signs that businesses are taking them more seriously. Per news reports, U.S. Merger and Acquisition activity in January just suffered its lowest level of activity since 2015. Many factors could be at play. But it seems at least plausible that the “will they, won't they” down-to-the-deadline nature of trade policy has increased uncertainty, something businesses generally don't like when they're contemplating big transformative action. And for lenders maybe that's the silver lining. We've been thinking that credit in 2025 would be a story of timing this steadily rising wave of corporate aggression. But if that wave is delayed, debt levels could end up being lower, bond issuance could be lower, and spread levels – all else equal – could be a bit tighter. Corporate caution isn't everywhere. In sectors that are seen as multi-year secular trends, such as AI data centers, investment plans continue to rise rapidly, with our colleagues in Equity Research tracking over $320bn of investment in 2025. But for activity that is more economically sensitive, uncertainty around trade policy may be putting companies on the back foot. That isn't great for business; but, temporarily, it could mean a better supply/demand balance for those that lend to them. Thanks for listening. If you enjoy the podcast, help us make it even more valuable to you. Share your feedback on the show at morganstanley.com/podcast-survey. Or head to the episode notes for the survey link.

Markets are already showing signs of tariff headline fatigue, with US stocks little changed after the latest US tariff announcements. Meanwhile, European equities continue to outperform. French, German, and Swiss markets are all hitting new all-time highs. Traders are now braced for the US inflation report later today. Dario Messi, Head of Fixed Income Research, explains why the Fed is in no hurry to make further interest rate cuts. And we have Mathieu Racheter, Head of Equity Strategy, on the show to give us an update on the ongoing earnings season, and to discuss opportunities in Europe and China.00:00 Introduction by Bernadette Anderko (Investment Writing)00:28 Markets wrap-up by Jan Bopp (Investment Writing)05:30 Bond market update by Dario Messi (Head of Fixed Income Research)11:27 Earnings Season latest by Mathieu Racheter (Head of Equity Strategy)16:47 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or your favourite podcast player. 

Global Head of Fixed Income and Public Policy Research Michael Zezas and Head of Global Evaluation, Accounting and Tax Todd Castagno discuss the market and economic implications of proposed tax extensions and tax cuts.----- Listener Survey -----Complete a short listener survey at http://www.morganstanley.com/podcast-survey and help us make the podcast even more valuable for you. For every survey completed, Morgan Stanley will donate $25 to the Feeding America® organization to support their important work.© 2025 Morgan Stanley. All Rights Reserved. CRC#4174856 02/2025----- Transcript -----Before we get into today's episode, the team behind Thoughts on the Market wants your thoughts, and your input. Fill out our listener survey and help us make this podcast even more valuable for you. The link is in the show notes, and you'll hear it at the end of the episode. Plus, help us help the Feeding America organization. For every survey completed, Morgan Stanley will donate $25 toward their important work.Thanks for your time and support. On to the show.Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income Research and Public Policy Strategy.Todd Castagno: And I'm Todd Castagno, Head of Global Evaluation, Accounting and Tax.Michael Zezas: Today, we'll focus on taxes under the new Trump administration.It's Monday, February 10th, at 10am in New York.Recently, at the annual meeting of the World Economic Forum in Davos, President Trump stated his administration will pass the largest tax cut in American history, including substantial tax cuts for workers and families. He was short on the details, but tax policies were a significant focus of his election campaign.Todd, can you give us a better sense of the tax cuts that Trump's been vocal about so far?Todd Castagno: Well, there's tax cuts and tax extensions. So, I think that's an important place to set the baseline. The Tax Cuts and Jobs Act (TCJA), under his first administration, starts to expire in 2025. And so, what we view is, the most likelihood is, an extension of those policies going forward. However, there's some new ideas, some new contours as well. So, for instance, a lower corporate rate that gets you in the 15 per cent ballpark can be through domestic tax credits, new incentives.I think there's other items on the individual side of the code that could be explored as well. But we also have to kind of step back and creating new policy is very challenging. So again, that baseline is an extension of kind of the tax world we live in today.So, Michael, looking at the broader macro picture and from conversations with our economist, how would these tax cuts impact GDP and macro in general?Michael Zezas: Well, if you're talking about extension of current policy, which is most of our expectation about what happens with taxes at the end of the year, the way our economists have been looking at this is to say that there's no net new impulse for households or companies to behave differently.That might be true on a sector-by-sector basis, but in the aggregate for the economy, there's no reason to look at this policy and think that it is going to provide a definitive uplift to the growth forecast that they have for 2026. Now, there may be some other provisions that could add in there that are incremental that we'd have to consider.But still, they would probably take time to play out or their measurable impact would be very hard to define. Things like raising the cap on the state and local tax deduction, that tends to impact higher income households who already aren't constrained from a spending perspective. And things like a domestic manufacturing tax credit for companies, that could take several years to play out before it actually manifests into spending.Todd Castagno: And you're kind of seeing that with the prior administration's tax law, the Inflation Reduction Act. A lot of this takes years in order to actually play through the economy. So that's something that investors should consider.Michael Zezas: Yeah, these things certainly take time; and you know back in 2018 it had been a long ambition, particularly of Republican lawmakers, to reduce the corporate tax rate. They succeeded in doing that, getting it down to 21 per cent in Trump's first term. Now, Trump's talked about getting corporate tax rates lower again here. If he's able to do that, how do you think he would do that? And would that affect how you're thinking about investment and hiring?Todd Castagno: So, there's the corporate rate itself, and it's at 21 per cent currently. There is a view to change that rate, lower it. However, there's other ways you can reduce that effective tax burden through what we've just discussed. So enhanced corporate deductions, timing differences, companies can benefit from a tax system that ultimately gets them a lower effective rate, even if the corporate rate doesn't move much.Michael Zezas: And so, what sorts of companies and what sorts of sectors of the market would benefit the most from that type of reduction in the corporate tax burden?Todd Castagno: So, if you think they're mosaic of all these items, it's going to accrue to domestic companies. That might sound kind of obvious, but if you look at our economy, we have large multinationals and we have domestic companies and we have small businesses. The policies that are being articulated, I think, mostly orient towards domestic companies, industrials, for instance, R&D incentives, again powering our AI plants, energy, et cetera.Michael Zezas: Got it. And is there any read through on if a company does better under this policy – if they're big relative to being small?Todd Castagno: There are a lot of small business elements as well. So, I mentioned that timing difference, being able to deduct a piece of machinery day one versus over seven years. So, there's a lot of benefits that are not in the rate itself that can accrue through smaller businesses.Michael Zezas: YAnd what about for individual taxpayers, particularly the middle class? What particular tax cuts are on the table there?Todd Castagno: So, first and foremost is the child tax care credit. So, it's current policy, but after COVID, it was enhanced. A higher dollar amount, different mechanism for receiving funds. And so, there is bipartisan support and President Trump as well, bringing back a version of an enhanced credit. Now, the policy is a little bit tricky, but I would say there's very good odds that that comes back. You know, you mentioned the state and local tax deduction, right? The politics are also tricky, but there could be a rate of change where that reverts back to pre-TCJA.But one of the things, Michael, is all these policies are very expensive. So, I'm just curious, in your mind, how do we balance the price tag versus the outcome?Michael Zezas: Well, I think the main constraint here to consider is that Republicans have a very slim majority in the House of Representatives and the Senate, and they're unlikely to get Democratic representatives crossing the aisle to vote with them on a tax package this large. So, they'll really need complete consensus on whatever tax items they extend and the deficit impact that it causes this is the type of thing that ultimately will constrain the package to be smaller than perhaps some of the president's stated ambitions.So, for example, items like making the interest payments on auto loans tax deductible, we think there might not be sufficient support for that and the budget costs that it would create. So ultimately, we think you get back to a package that's mostly about extending current cuts, adding in a couple more items like that domestic manufacturing tax credit, which is also very closely tied to Republicans larger trade ambition. And you might also see Republicans do some things to reduce the price tag, like, for example, only extend the tax cuts for a few years, as opposed to five or 10 years.Todd Castagno: Right.Michael Zezas: Todd, thanks for taking the time to talk.Todd Castagno: Great speaking with you, Mike.Thanks for listening. If you enjoy the podcast, help us make it even more valuable for you. Share your feedback on the show at morganstanley.com/podcast-survey or head to the episode notes for survey link.The proceeding content is informational only and based on information available when created. It is not an offer or a solicitation nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.

Our Global Head of Fixed Income Research & Public Policy Strategy Michael Zezas discusses the potential economic outcomes of a shifting North American trade policy.----- 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 – the latest on tariffs and potential outcomes of a shifting North American trade policy. It's Wednesday, February 5, at 10am in New York. In a series of last-minute phone calls on Monday, President Trump reached a deal with Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau. President Trump agreed to delay the announced 25 percent tariffs on Mexico and Canada for a month – citing their intention to do more on their borders against migration and drug trafficking. But President Trump's 10 percent tariffs on all Chinese products went into effect yesterday morning. China responded promptly with its own countermeasures, which are not expected to take effect until Monday, February 10, leaving room for potential negotiations. These developments don't come as a surprise. We had been assuming – one – that Canada and Mexico could avoid tariffs by making border concessions, which they did. And – two – that the US would craft a tariff policy related to China independent from its considerations around Mexico and Canada. If the underlying goal is to transform its trade relationship with China, then the US has an interest in preserving an alignment with Canada and Mexico. Given all of that, our base case of “fast announcements, slow implementation” looks intact. We expect tariffs on China and some products from Europe to ramp up through the end of the year, putting downward pressure on economic growth into 2026. If tariffs on Mexico and Canada are avoided or delayed further, there would be no change to our broader economic outlook. The U.S. dollar could weaken as it prices out some tariff risk. Within U.S. equities, consumer discretionary as well as broader cyclical stocks could lead. If, however, we're wrong and tariffs do go up on Mexico and Canada after this one-month pause, then we expect some rise in inflation, growth to slow, and the U.S. dollar and Treasuries to outperform equities; at least for a time as the U.S. gets to work rewiring its global trade relationships. Tariffs are likely to dominate news headlines in the days and months to come. We'll keep tracking the topic and bring you updates. 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.

Marking the most significant change in US policy towards the Middle East in decades, President Trump has shocked markets by announcing plans for the US to take over the Gaza Strip, resettle Palestinians, and turn it into what he has called the ‘riviera of the Middle East'. Meanwhile, gold notches a fresh record close as tariff concerns remain at the forefront of investors' minds. On today's podcast, we are also joined by Markus Allenspach, Fixed Income Research, who provides an update on fixed income markets.00:00 Introduction by Bernadette Anderko (Investment Writing)00:31 Markets wrap-up by Jonti Warris (Investment Writing)08:05 Bond market update: Markus Allenspach (Fixed Income Research)13:11 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

With the new Trump administration moving quickly in its early days, Pam Finelli, COO and Head of Fixed Income Research, Brett Ryan, Senior US Economist, and Matthew Luzzetti, Chief US Economist discuss the most important actions impacting markets and the global economy.

Stocks rebounded after a rocky start to the week, sparked by concerns over a low-cost artificial intelligence model developed by Chinese startup DeepSeek. However, investors are beginning to see the development as a potential boon for the industry, while OpenAI says it has evidence that DeepSeek has used its model to train its own. The focus today shifts to the Federal Reserve's decision and the upcoming big tech earnings reports. Dario Messi, Head of Fixed Income Research, and Mathieu Racheter, Head of Equity Strategy, provide their insights on these key events.00:00 Introduction by Jonti Warris (Investment Writing)00:27 Markets wrap-up by Jan Bopp (Investment Writing)05:13 Bond market update: Dario Messi (Head of Fixed Income10:56 Earnings season update: Mathieu Racheter (Head of Equity Strategy)15:13 Closing remarks by Jonti Warris (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

Headline risks are back. Stocks extended their gains after Trump announced a major AI infrastructure initiative called Stargate, while vowing to hit the European Union and China with tariffs. Markets were focusing on the positive news, pushing global equities higher. This has also been supported by positive earnings news. Leonardo Pellandini from Equity Strategy discusses the ongoing earnings season in more detail, while Dario Messi, Head of Fixed Income Research, shares his view on the world of bonds and how to navigate the credit market.00:00 Introduction by Bernadette Anderko (Investment Writing)00:34 Markets wrap-up by Jan Bopp (Investment Writing)05:41 Bond Market update: Dario Messi (Head of Fixed Income Research)09:35 Earnings Season update: Leonardo Pellandini (Equity Strategy)13:10 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

US small business owners are experiencing their highest level of optimism in over 40 years, fuelled by expectations of tax cuts and deregulation under Donald Trump. US producer prices rose less than expected in December, providing some relief, although today's consumer price data release will be key. The UK reported lower-than-expected inflation in December, weighing on the pound, while Japan's yen strengthened on hints of impending rate hikes. The US earnings season kicks off today, including Goldman Sachs, JPMorgan, and Citigroup. Dario Messi, Head of Fixed Income Research, talks about Treasury Inflation Protected Securities (TIPS) and what makes them outperform. Leonardo Pellandini, Equity Strategy Research, discusses the US earnings season and what to look out for.00:00 Introduction by Bernadette Anderko (Investment Writing)00:24 Markets wrap-up by Mike Rauber (Investment Writing)06:33 Bond market update: Dario Messi (Head of Fixed Income Research)12:25 Earnings Season Preview: Leonardo Pellandini (Equity Strategy)17:04 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

While European equity markets rose in yesterday's trading, their US counterparts had a rough day as the latest economic data added to speculation that the Federal Reserve will leave interest rates unchanged this month amid inflationary pressures. This pushed Treasury yields higher across the curve, with traders no longer fully pricing in a Fed rate cut before July. Dario Messi, Head of Fixed Income Research, tells us why he would tactically take the opportunity to close any duration gap, but would still avoid excessive duration at this stage.00:00 Introduction by Bernadette Anderko (Investment Writing)00:31 Markets wrap-up by Jan Bopp (Investment Writing)05:40 Starting the year with higher bond yields: Dario Messi (Head of Fixed Income Research)11:00 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

Join us on MovingMarkets, your daily dose of global market insights. In this episode, we explore the latest records broken in Germany and the US, with the DAX index surpassing 20,000 points for the first time and US stocks hitting an all-time high for the 55th time this year. But not all markets are thriving - South Korea's political turmoil has raised concerns. Our expert guests weigh in on the latest developments: Dario Messi, Head of Fixed Income Research, analyses the situation in France ahead of the no-confidence vote, while Tim Gagie, Head of FX/PM PB Sales in Geneva, shares his expertise on currencies and metals.00:00 Introduction by Bernadette Anderko (Investment Writing)00:28 Markets wrap-up by Roman Canziani (Head of Investment Writing)06:34 Bond market update: Dario Messi (Head of Fixed Income Research)10:26 FX and Metals markets: Tim Gagie (Head of FX & PM Solutions Geneva)14:30 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

European markets closed lower yesterday, with auto stocks down 1.7%. The big US equity indices all inched higher, although small caps fell after Monday's gains. Asia was mixed this morning with Chinese stocks up and Japanese stocks down. Bitcoin is now trading nearer USD 90,000 than 100,000. Geopolitical tensions have eased a touch today after a 2-month ceasefire between Israel and Hezbollah was initiated in the early hours of this morning. Dario Messi, Head of Fixed Income Research, assesses the likely growth enhancing/hindering policies of the incoming US administration, whilst Mathieu Racheter, Head of Equity Strategy, shares the reasoning behind some of his team's recent sector rating changes.00:00 Introduction by Roman Canziani (Head of Investment Writing)00:37 Markets wrap-up by Bernadette Anderko (Investment Writing)06:30 Fixed income update: Dario Messi (Head of Fixed Income Research)10:12 Consumer cyclicals up, utilities down: Mathieu Racheter (Head of Equity Strategy)12:22 Closing remarks by Roman Canziani (Head of Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

Escalating tensions between Russia and Ukraine dampened global risk appetite and sent investors scrambling for safe-haven assets yesterday. While European markets ended the day in the red, US equities recovered from earlier losses as the focus turned to Nvidia's earnings report due after the close today. Mathieu Racheter, Head of Equity Strategy, talks about the most anticipated earnings report of the season and explains why the path of least resistance for equities is up. And we have Dario Messi, Head of Fixed Income Research, on the show to talk about the divergence between ECB and Fed rate cut expectations.00:00 Introduction by Bernadette Anderko (Investment Writing)00:24 Markets wrap-up by Jan Bopp (Investment Writing)05:17 Bond market update: Dario Messi (Head of Fixed Income Research)10:06 What we learned from the earnings season: Mathieu Racheter (Head of Equity Strategy)14:07 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

Following a decisive win for Republicans, Pam Finelli, COO and Head of Fixed Income Research, Brett Ryan, Senior US Economist and Mike Moran, Head of US Political Affairs discuss what investors should expect from President Trump's second term.

Following a strong start to the week, markets took a step back yesterday as investors continued to digest the implications of the US election outcome. With key events on the horizon – including a slew of earnings reports and the release of US inflation data later today – traders are cautious about the potential for further interest rate cuts by the Federal Reserve. Joining us to provide expert analysis on how these developments are shaping their respective markets are Dario Messi, Head of Fixed Income Research, and Mathieu Racheter, Head of Equity Strategy. They share insights into their latest rating changes in response to the shifting US political landscape.00:00 Introduction by Lucija Caculovic (Investment Writing)00:34 Markets wrap-up by Jan Bopp (Investment Writing)05:58 Fixed income rating changes: Dario Messi (Head of Fixed Income Research)10:52 Upgrade cyclicals and financials: Mathieu Racheter (Head of Equity Strategy)15:07 Closing remarks by Lucija Caculovic (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

Join us on MovingMarkets as we break down the market implications of a potential second term for Donald Trump. With his pro-growth policies, including corporate tax cuts, deregulation, and new tariffs, investors are betting on a boost to US stocks, the US dollar, and crypto assets. Meanwhile, concerns about inflation are driving up US Treasury yields. In this episode, we're joined by Dario Messi, Head of Fixed Income Research, who shares his insights on how a Trump presidency could impact US Treasury markets.00:00 Introduction by Bernadette Anderko (Investment Writing)00:41 Markets wrap-up by Roman Canziani (Head of Investment Writing)07:29 Bond market update: Dario Messi (Head of Fixed Income Research)11:06 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

European stock markets struggled yesterday, while US markets closed higher and a strong tech sector pushed the Nasdaq to a new all-time high. Earnings reports from top companies including Meta and Microsoft will be closely watched today as investors navigate high expectations and uncertain market conditions ahead of next week's US elections. An important event that is partly behind the recent rise in US yields, says Dario Messi, Head of Fixed Income Research. And we have Mathieu Racheter, Head of Equity Strategy, on the show. He tells us why the robust earnings season is a stock picker's paradise.00:00 Introduction by Roman Canziani (Head of Investment Writing)00:34 Markets wrap-up by Jan Bopp (Investment Writing)06:35 Bond market update: Dario Messi (Head of Fixed Income Research)11:07 Earnings season update: Mathieu Racheter (Head of Equity Strategy)15:09 Closing remarks by Roman Canziani (Head of Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

US stocks saw their first back-to-back drop in six weeks yesterday as traders weighed the prospects of a slower pace of Federal Reserve rate cuts. Meanwhile, gold posted another new record high on geopolitical concerns. Dario Messi, Head of Fixed Income Research, shares his thoughts on the recent steep rise in US Treasury yields. And Mathieu Racheter, Head of Equity Strategy, provides an update on the Q3 earnings season.00:00 Introduction by Bernadette Anderko (Investment Writing)00:34 Markets wrap-up by Jonti Warris (Investment Writing)06:20 Fixed income update: Dario Messi (Head of Fixed Income Research)11:35 Earnings season update: Mathieu Racheter (Head of Equity Strategy)14:49 Closing remarks by Bernadette Anderko (Investment Writing)Would you like to support this show? Please leave us a review and star rating on Apple Podcasts, Spotify or wherever you get your podcasts.

Jim Tilley is a Canadian-American poet, mathematician, and author of four poetry collections, a personal essay, and a novel. ​Born and raised in Québec, Jim holds a Bachelor's degree in physics from McGill University and a doctorate in physics from Harvard. After earning his PhD, Jim pivoted to actuarial science and established himself as a prominent thought leader in that field. During his 25-year career in insurance and investment banking, he published several prize-winning papers. ​During his working career, Jim served as Morgan Stanley's Global Head of Fixed Income Research and Chief Information Officer for Institutional Securities. For two years, he worked to help fund the California Earthquake Authority. In his retirement, he studied creative writing through workshops at Middlebury's Bread Loaf Writers' Conference, Sarah Lawrence College, and others. His newest book, Ripples in the Fabric of the Universe, was just published by Red Hen Press. Find more here: https://www.jimtilleypoetry.com/ As always, we'll also include the live Prompt Lines for responses to our weekly prompt. A Zoom link will be provided in the chat window during the show before that segment begins. For links to all the past episodes, visit: https://www.rattle.com/rattlecast/ This Week's Prompt: Write a poem in the first person perspective in which something is repaired with the use of a most unlikely tool. Next Week's Prompt: Write a poem in which someone wears a costume. Include as many sounds as possible. The Rattlecast livestreams on YouTube, Facebook, and Twitter, then becomes an audio podcast. Find it on iTunes, Spotify, or anywhere else you get your podcasts.

On Episode 403 of The Core Report, financial journalist Govindraj Ethiraj talks to Bhushan Kedar, Director, Funds & Fixed Income Research at Crisil Market Intelligence and Analytics. SHOW NOTES (00:00) The Take (04:21) Markets' worst week in over 2 years (07:09) Oil is now inching back to $80 as middle east tensions stretch further (08:25) Forex reserves hit record high, crossing $700 billion (10:01) Both services and manufacturing PMIs are at lows (10:38) How Indian banks are borrowing from institutional lenders to stay in the game (18:47) Port strike in US ends, relief for Indian exporters ⁠⁠⁠⁠Listeners! We await your feedback....⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ The Core and The Core Report is ad supported and FREE for all readers and listeners. Write in to shiva@thecore.in for sponsorships and brand studio requirements. For more of our coverage check out ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecore.in⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Join and Interact anonymously on our whatsapp channel⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Subscribe to our Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Follow us on:⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Twitter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Instagram⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Linkedin⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Youtube⁠

Bob and Jon discuss Bob's role in the history of the development of quantitative finance at Goldman Sachs, including his seminal work with Fischer Black, along with the carry trade liquidity crisis of August 2024 and its similarities to the quant crisis of 2007. They also discuss the case for quantitative investing and its ability to ride out risky environments. They also discuss a risk management approach to climate policy, Bob's E-Z climate carbon pricing model, as well Bob's advocacy for carbon taxes. Recorded on August 9, 2024. ABOUT THE SPEAKERS: Robert Litterman is the Chairman of the Risk Committee at Kepos Capital LP. Prior to joining Kepos Capital in 2010, Litterman enjoyed a 23-year career at Goldman, Sachs & Co., where he served in research, risk management, investments, and thought leadership roles. While at Goldman, Litterman also spent six years as one of three external advisors to Singapore's Government Investment Corporation (GIC). Bob was named a partner of Goldman Sachs in 1994 and became head of the firm-wide risk function; prior to that role, he was co-head of the Fixed Income Research and Model Development Group with Fischer Black. During his tenure at Goldman, Bob researched and published a number of groundbreaking papers in asset allocation and risk management. He is the co-developer of the Black-Litterman Global Asset Allocation Model, a key tool in investment management, and has co-authored books including The Practice of Risk Management and Modern Investment Management: An Equilibrium Approach (Wiley & Co.). Litterman earned a Ph.D. in economics from the University of Minnesota and a B.S. in human biology from Stanford University. He is also the inaugural recipient of the S. Donald Sussman Fellowship at MIT's Sloan School of Management and serves on a number of boards, including Commonfund, the Robert Wood Johnson Foundation, the Sloan Foundation, and World Wildlife Fund. He is also currently serving as the chair of the CFTC Climate-Related Market Risk Subcommittee. Jon Hartley is a Research Associate at the Hoover Institution and an PhD candidate in economics at Stanford University, where he specializes in finance, labor economics, and macroeconomics. He is also currently a research fellow at the Foundation for Research on Equal Opportunity and a senior fellow at the Macdonald-Laurier Institute. Jon is also a member of the Canadian Group of Economists and serves as chair of the Economic Club of Miami. Jon has previously worked at Goldman Sachs Asset Management as well as in various policy roles at the World Bank, the International Monetaty Fund, the Committee on Capital Markets Regulation, the US Congress Joint Economic Committee, the Federal Reserve Bank of New York, the Federal Reserve Bank of Chicago, and the Bank of Canada. Jon has also been a regular economics contributor for National Review Online, Forbes, and the Huffington Post and has contributed to the Wall Street Journal, the  New York Times, USA Today, the Globe and Mail, the National Post, and the Toronto Star among other outlets. Jon has also appeared on CNBC, Fox Business, Fox News, Bloomberg, and NBC and was named to the 2017 Forbes 30 under 30 Law & Policy list and the 2017 Wharton 40 under 40 list, and was previously a World Economic Forum Global Shaper. ABOUT THE SERIES: Each episode of Capitalism and Freedom in the 21st Century, a video podcast series and the official podcast of the Hoover Economic Policy Working Group, focuses on getting into the weeds of economics, finance, and public policy on important current topics through one-on-one interviews. Host Jon Hartley asks guests about their main ideas and contributions to academic research and policy. The podcast is titled after Milton Friedman‘s famous 1962 bestselling book Capitalism and Freedom, which after 60 years, remains prescient from its focus on various topics which are now at the forefront of economic debates, such as monetary policy and inflation, fiscal policy, occupational licensing, education vouchers, income share agreements, the distribution of income, and negative income taxes, among many other topics. For more information, visit: capitalismandfreedom.substack.com/

Our Global Head of Thematic and Fixed Income Research joins our Chief Fixed Income Strategist to discuss the recent market volatility and how it impacts investor positioning within fixed income. ----- Transcript -----Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research.Vishy: And I am Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist.Zezas: And on this episode of Thoughts on the Market, we'll talk about the recent market volatility and what it means for fixed income investors.It's Wednesday, August 7th at 10am in New York.Vishy, on yesterday's show, you discussed the recent growth of money market funds. But today I want to talk about a topic that's top of mind for investors trying to make sense of recent market volatility. For starters, what do you think tipped off these big moves across global markets?Vishy: Mike, a confluence of factors contributed to the volatility that we've seen in the last six or seven trading sessions. To be clear, in the last few weeks, there have been some downside surprises in incoming data. They were capped off by last Friday's US employment report that came in soft across the board. In combination, that raised questions on the soft-landing thesis that had been baked into market prices, where valuations were already pretty stretched. And this one came after a hawkish hike by Bank of Japan just two days prior.While Morgan Stanley economists were expecting it, this hike was far from consensus going in. So, what this means is that this could lead to a greater divergence of monetary policy between the Fed and the Bank of Japan. That is, investors perceiving that the Fed may need to cut more and sooner, and that Bank of Japan may need to hike more; in both cases, more than expected.As you know, when negative surprises show up together, volatility follows.Zezas: Got it. And so last week's soft US employment data raises the question of whether the Fed's overtightened and the US economy might be weaker than expected. So, from where you sit, how does this concern impact fixed income assets?Vishy: To be clear, this is really not our base case. Our economists expect US economy to slow, but not fall off the cliff. Last Friday's data do point to some slowing, on the margin more slowing than market consensus as well as our economists expected. And really what this means is the markets are likely to challenge our soft-landing hypothesis until some good data emerge. And that could take some time. This means recent weakness in spread products is warranted, and especially given tight starting levels.Zezas: So, it seems in the coming days and maybe even weeks, the path for total fixed income market returns is likely to be lower as the market adjusts to a weaker growth outlook. What areas of fixed income do you think are best positioned to weather this transition and why?Vishy: We really need more data to confirm or push back on the soft-landing hypothesis. That said, fears of growth challenges will likely build in expectations for more Fed cuts. And that is good for duration through government bonds.Zezas: And conversely, what segments of fixed income are most exposed to risk?Vishy: In one way or the other, all spread products are exposed. In my mind, the US corporate credit market recession risks are least priced into high yield single B bonds, where valuations are rich, and positioning is stretched.Zezas: So clearly the recent market volatility has affected global markets, not just the US and Japan. So, what are you seeing in other markets? And are there any surprises there?Vishy: Emerging market credit. In emerging market credit, investment grade sovereign bonds will likely outperform high yield bonds, causing us to close our preference for high yield versus investment grade. It is too soon to completely flip our view and turn bearish on the overall emerging market credit index.We do see a combination of emerging market single name CDSs as an attractive hedge. South Africa, Colombia, Mexico, for example.Zezas: So finally, where do we go from here? Do you think it's worth buying the dip?Vishy: Our message overall is that while there have been significant moves, it is not yet the time to buy on dips.Zezas: Well, Vishy, thanks for taking the time to talk.Vishy: Great speaking with you, Mike.Zezas: And as a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us wherever you listen. And share Thoughts on the Market with a friend or colleague today.

With the Republican national convention underway, Pam Finelli, COO and Head of Fixed Income Research, Brett Ryan, Senior US Economist and Mike Moran, Head of US Political Affairs discuss the latest policy narrative, anticipated market reactions and how investors are positioning given an evolving political landscape.

Our expert panel explains the U.S. dollar's current status as the primary global reserve currency and whether the euro and renminbi, or even crypto currencies are positioned to take over that role.Digital assets, sometimes known as cryptocurrency, are a digital representation of a value that function as a medium of exchange, a unit of account, or a store of value, but generally do not have legal tender status. Digital assets have no intrinsic value and there is no investment underlying digital assets. The value of digital assets is derived by market forces of supply and demand, and is therefore more volatile than traditional currencies' value. Investing in digital assets is risky, and transacting in digital assets carries various risks, including but not limited to fraud, theft, market volatility, market manipulation, and cybersecurity failures—such as the risk of hacking, theft, programming bugs, and accidental loss. Additionally, there is no guarantee that any entity that currently accepts digital assets as payment will do so in the future. The volatility and unpredictability of the price of digital assets may lead to significant and immediate losses. It may not be possible to liquidate a digital assets position in a timely manner at a reasonable price.Regulation of digital assets continues to develop globally and, as such, federal, state, or foreign governments may restrict the use and exchange of any or all digital assets, further contributing to their volatility. Digital assets stored online are not insured and do not have the same protections or safeguards of bank deposits in the US or other jurisdictions. Digital assets can be exchanged for US dollars or other currencies, but are not generally backed nor supported by any government or central bank.Before purchasing, investors should note that risks applicable to one digital asset may not be the same risks applicable to other forms of digital assets. Markets and exchanges for digital assets are not currently regulated in the same manner and do not provide the customer protections available in equities, fixed income, options, futures, commodities or foreign exchange markets. Morgan Stanley and its affiliates do business that may relate to some of the digital assets or other related products discussed in Morgan Stanley Research. These could include market making, providing liquidity, fund management, commercial banking, extension of credit, investment services and investment banking.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income Research.James Lord: I'm James Lord, Head of FX Strategy for Emerging Markets.David Adams: And I'm Dave Adams, head of G10 FX Strategy.Michael Zezas: And on this episode of Thoughts on the Market, we'll discuss whether the US status as the world's major reserve currency can be challenged, and how.It's Wednesday, May 8th, at 3pm in London.Last week, you both joined me to discuss the historic strength of the US dollar and its impact on the global economy. Today, I'd like us to dive into one aspect of the dollar's dominance, namely the fact that the dollar remains the primary global reserve asset.James, let's start with the basics. What is a reserve currency and why should investors care about this?James Lord: The most simplistic and straightforward definition of a reserve currency is simply that central banks around the world hold that currency as part of its foreign currency reserves. So, the set of reserve currencies in the world is defined by the revealed preferences of the world's central banks. They hold around 60 percent of those reserves in U.S. dollars, with the euro around 20 percent, and the rest divided up between the British pound, Japanese yen, Swiss franc, and more recently, the Chinese renminbi.But the true essence of a global reserve currency is broader than this, and it really revolves around which currency is most commonly used for cross border transactions of various kinds internationally. That could be international trade, and the US dollar is the most commonly used currency for trade invoicing, including for commodity prices. It could also be in cross border lending or in the foreign currency debt issuance that global companies and emerging market governments issue. These all involve cross border transactions.But for me, two of the most powerful indications of a currency's global status.One, are third parties using it without the involvement of a home country? So, when Japan imports commodities from abroad, it probably pays for it in US dollars and the exporting country receives US dollars, even though the US is not involved in that transaction. And secondly, I think, which currency tends to strengthen when risk aversion rises in the global economy? That tends to be the US dollar because it remains the highly trusted asset and investors put a premium on safety.So why should investors care? Well, which currency would you want to own when global stock markets start to fall, and the global economy tends to head into recession? You want to be positioning in US dollars because that has historically been the exchange rate reaction to those kinds of events.Michael Zezas: And so, Dave, what's the dollar's current status as a reserve currency?David Adams: The dollar is the most dominant currency and has been for almost a hundred years. We looked at a lot of different ways to measure currency dominance or reserve currency status, and the dollar really does reign supreme in all of them.It is the highest share of global FX reserves, as James mentioned. It is the highest share of usage to invoice global trade. It's got the highest usage for cross border lending by banks. And when corporates or foreign governments borrow in foreign currency, it's usually in dollars. This dominant status has been pretty stable over recent decades and doesn't really show any major signs of abating at this point.Michael Zezas: And the British pound was the first truly global reserve currency. How and when did it lose its position?David Adams: It surprises investors how quick it really was. It only took about 10 years from 1913 to 1923 for the pound to begin losing its crown to king Dollar. But of course, such a quick change requires a shock with the enormity of the First World War.It's worth remembering that the war fundamentally shifted the US' role in the global economy, bringing it from a large but regional second tier financial power to a global financial powerhouse. Shocks like that are pretty rare. But the lesson I really draw from this period is that a necessary condition for a currency like sterling to lose its dominant status is a credible alternative waiting in the wings.In the absence of that credible alternative, changes in dominance are at most gradual and at least minimal.Michael Zezas: This is helpful background about the British pound. Now let's talk about potential challengers to the dollar status as the world's major reserve currency. The currency most often discussed in this regard is the Chinese renminbi. James, what's your view on this?James Lord: It seems unlikely to challenge the US dollar meaningfully any time soon. To do so, we think China would need to relax control of its currency and open the capital account. It doesn't seem likely that Beijing will want to do this any time soon. And global investors remain concerned about the outlook for the Chinese economy, and so are probably unwilling to hold substantial amounts of RNB denominated assets. China may make some progress in denominating more of its bilateral trade in US dollars, but the impact that that has on global metrics of currency dominance is likely to be incremental.David Adams: It's an interesting point, James, because when we talk to investors, there does seem to be an increasing concern about the end of dollar dominance driven by both a perceived unsustainable fiscal outlook and concerns about sanctions overreach.Mike, what do you think about these in the context of dollar dominance?Michael Zezas: So, I understand the concern, but for the foreseeable future, there's not much to it. Depending on the election outcome in the US, there's some fiscal expansion on the table, but it's not egregious in our view, and unless we think the Fed can't fight inflation -- and our economists definitely think they can -- then it's hard to see a channel toward the dollar becoming an unstable currency, which I believe is what you're saying is one of the very important things here.But James, in your view, are there alternatives to the US led financial system?James Lord: At present, no, not really. I think, as I mentioned in last week's episode, few economies and markets can really match the liquidity and the safety that the US financial system offers. The Eurozone is a possible contender, but that region offers a suboptimal currency union, given the lack of common fiscal policy; and its capital markets there are just simply not deep enough.Michael Zezas: And Dave, could cryptocurrency serve as an alternative reserve currency?David Adams: It's a question we get from time to time. I think a challenge crypto faces as an alternative dominant currency is its store of value function. One of the key functions of a dominant currency is its use for cross border transactions. It greases the wheels of foreign trade. Stability and value is important here. Now, usually when we talk to investors about value stability, they think in terms of downside. What's the risk I lose money holding this asset?But when we think about currencies and trade, asset appreciation is important too. If I'm holding a crypto coin that rises, say, 10 per cent a month, I'm less likely to use that for trade and instead just hoard it in my wallet to benefit from its price appreciation. Now, reasonable people can disagree about whether cryptocurrencies are going to appreciate or depreciate, but I'd argue that the best outcome for a dominant currency is neither. Stability and value that allows it to function as a medium of exchange rather than as an asset.Michael Zezas: So, James, Dave, bottom line, king dollar doesn't really have any challengers.James Lord: Yeah, that pretty much sums it up.Michael Zezas: Well, both of you, thanks for taking the time to talk.David Adams: Thanks much for having us.James Lord: Yeah, great speaking with you, Mike.Michael Zezas: And as a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us wherever you listen to podcasts and share Thoughts on the Market with a friend or colleague today.

Our experts discuss U.S. dollar strength and its far-reaching impact on the global economy and the world's stock markets.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income Research.James Lord: I'm James Lord, Head of FX Strategy for Emerging Markets.David Adams: And I'm Dave Adams, Head of G10 FX Strategy.Michael Zezas: And on this episode of Thoughts on the Market, we'll discuss one of the most debated topics in world markets right now, the strength of the US dollar.It's Wednesday, May 1st, at 3 pm in London.Michael Zezas: Currencies around the world are falling as a strong US dollar continues its reign. This is an unusual situation. So much so that the finance ministers of Japan, South Korea, and the United States released a joint statement last month to address the effects being felt in Asia. The US dollar's dominance can have vast implications for the global economy and the world stock markets.So, I wanted to sit down with my colleagues, James and David, who are Morgan Stanley's currency strategy experts for emerging markets and developed markets. James, just how dominant is the US dollar right now and what's driving the strength?James Lord: So, we should distinguish between the role the US dollar plays as the world's dominant reserve currency and its value, which can go up and down for other reasons.Right now, the dollar remains just as dominant in the international monetary system as it has been over the past several decades, whilst it also happens to be very strong in terms of its value, as you mentioned. That strength in its value is really being driven by the continued outperformance of the US economy and the ongoing rise in US interest rates, while growth in the rest of the world is more subdued.The dollar's international role remains dominant simply because no other economy or market can match the depth of the US capital markets and the liquidity that it provides, both as a means of raising capital, but also as a store of value for investment; while also offering the strong protection of property rights, strong sovereign credit ratings, the rule of law, and an open capital account. There simply isn't another market that can challenge the US in that respect.Michael Zezas: And can you talk a bit more specifically about the various ways in which the dollar impacts the global economy?James Lord: So, one of the strongest impacts is through the price of the dollar, and the price of dollar debt, which have an impact beyond the borders of the US economy. Because the majority of foreign currency denominated debt that corporates outside of the US issue is denominated in US dollars, the interest rate that's set by the US Federal Reserve has a big impact on the cost of borrowing. It's also the same for many emerging market sovereigns that also issue heavily in US dollars. The US dollar is also used heavily in international trade, cross border lending, because the majority of international trade is denominated in US dollars. So, when US interest rates rise, it also tightens monetary conditions for the rest of the world. That is why the US Federal Reserve is often referred to as the world's central bank, even though Fed only sets policy with respect to the US economy.And the US dollar strengthens, as it has been over the past 10 years, it also makes it more challenging for countries that borrow in dollars to repay that debt, unless they have enough dollar assets.Again, that's another tightening of financial conditions for the rest of the world. I think it was a US Treasury Secretary from several decades ago who said that the US dollar is our currency, but your problem. And that neatly sums up the global influence the US dollar has.Michael Zezas: And David, nothing seems to typify the strength of the US dollar recently, like the currency moves we're seeing with the Japanese Yen. It looks very weak at the moment, and yet the Japanese stock market is very strong.David Adams: Yeah, weak is an understatement for the Japanese yen. In nominal terms, the yen is at its weakest level versus the dollar since 1990. And if we look in real terms, it hasn't been this weak since the late 1960s. Why it's weak is pretty easy to explain, though. It's monetary policy divergence. Theory tells us that as long as capital is free to move, a country can't both control its interest rates and control the exchange rate at the same time.G10 economies typically choose to control rates and leave their currencies to float, and the US and Japan are no exception. So, while the while the Fed's policy rate has risen to multi-decade highs, Japan's has been left basically unchanged, consistent with its economic fundamentals.Now, you mentioned Japanese equities, which is also increasingly important to this story. As foreign investors have deployed more cash into the Japanese stock market, a lot of them have hedged their FX [foreign exchange] exposure, which means they're buying back dollars in the forward market. The more that Japanese equities rise, the more hedges they add, increasing dollar demand versus the yen.So, put simply, the best outcome for dollar yen to keep rising is for US rates versus Japan and Japanese equities to both keep marching higher. And for a lot of investors, this seems increasingly like their base case.Michael Zezas: That makes sense. And yet, despite the dollar's clear dominance at the moment, the consensus view on the dollar is that it's going to get weaker. Why is that the case and what's the market missing?James Lord: Yeah, the consensus has been on the wrong side of the dollar call for quite a few years now, with a persistently bearish outlook, which has largely been incorrect. I think for the most part this is because the consensus has underestimated the strength of the US economy. It wasn't that long ago when the consensus was calling for a hard landing in the US economy and a pretty deep easing cycle from the Fed. And yet here we are with GDP growth north of 2 per cent and murmurings of another rate hike entering the narrative. I also wonder whether this debate about de-dollarization, whereby the dollar's global influence starts to wane, has impacted the sentiment of forecasters a bit as well.We have seen over the past three to four years much more noise in the media on this topic, and there appears to be a correlation between the extent to which the consensus is expecting dollar weakness and the number of media articles that are discussing the dollar's status as the world's major reserve currency.Maybe that's coincidence, but it's also consistent with our view that the market generally worries too much about this issue and the impact that it could have on the dollar's outlook.Michael Zezas: Now there've been a few notable changes to Morgan Stanley's macro forecasts over the last few weeks. Our US economist, Ellen Zentner revised up her forecast for US growth and inflation. And she also pushed back our expectations for the first Fed cut. Along with this, our US rate strategy team also revised their 10-year treasury yield expectations higher. Do these updates to the macro-outlook impact your bullish view on the dollar, both near term and longer term?David Adams: So, higher US rates are often helpful for the dollar, but we think some nuance is required. It's not that US rates are moving; it's why they're moving. And our four-regime dollar framework shows that increases or decreases in rates can give us very different dollar outcomes depending on the reason why rates are moving.So far this year, rates have been moving higher in a pretty benign risk environment. And in a world where US real interest rates rise alongside equities; the dollar tends to go nowhere in the aggregate. It gains versus low yielding funders like the Japanese yen, the Swiss franc, and the euro, but it tends to weaken versus those higher beta currencies with positive carry, like the Mexican peso. It's why we've been neutral on the dollar overall since the start of the year, but we still emphasize dollar strength, especially versus the euro.If rising rates were to start weighing on equities, that would lead the dollar to start rallying broadly, what we call Regime 3 of our framework. It's not our base case, but it's a risk we think markets are starting to get more nervous about. It suggests that the balance of risks are increasingly towards a higher dollar rather than a lower one.Michael Zezas: And finally, Dave, I wanted to ask about potential risks to the US dollar's current strength.David Adams: I'd say the clearest dollar negative risk for me is a rebound in European and Chinese growth. It's hard for investors to get excited about selling the dollar without a clear alternative to buy. A big rebound in rest of world growth could easily make those alternatives look more attractive, though how probable that outcome is remains debatable.Michael Zezas: Got it. So, this discussion of risk to the strong dollar may be a good time to pause. There's so much more to talk about here. We've barely scratched the surface. So, let's continue the conversation in the near future when we can talk more about the dollar status as the world's dominant reserve currency and potential challenges to that position.James Lord: This sounds like a great idea, Mike. Talk to you soon.David Adams: Likewise. Thanks for having me on the show and look forward to our next conversation.Michael Zezas: As a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us wherever you listen to podcasts and share Thoughts on the Market with a friend or colleague today.

Our Global Chief Economist joins our Head of Fixed Income Research to review the most recent Consumer Price Index data, and they lay out potential outcomes in the upcoming U.S. elections that could impact the course of inflation's trajectory. ----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research.Seth Carpenter: And I'm Seth Carpenter, Global Chief Economist.Michael Zezas: And on this special episode of Thoughts on the Market, we'll be taking a look at how the 2024 elections could impact the outlook for inflation.It's Wednesday, April 10th at 4pm in New York.Seth, earlier this morning, the US Bureau of Labor Statistics released the Consumer Price Index (CPI) data for March, and it's probably an understatement to say it's been a much-anticipated report -- because it gives us some signal into both the pace of inflation and any potential fed rate cut path for 2024. I want to get into the longer-term picture around what the upcoming US election could mean for inflation. But first, I'd love your immediate take on this morning's data.Seth Carpenter: Absolutely, Mike. This morning's CPI data were absolutely critical. You are right. Much anticipated by markets. Everyone looking for a read through from those data to what it means for the Fed. I think there's no two ways about it. The market saw the stronger than expected inflation data as reducing the likelihood that the Fed would start cutting rates in June.June was our baseline for when the Fed would start cutting rates. And I think we are going to have to sharpen our pencils and ask just how much is this going to make the Fed want to wait? I think over time, however, we still see inflation drifting down over the course of this year and into next year, and so we still think the Fed will get a few rate hikes in.But you wanted to talk longer term, you wanted to talk about elections. And when I think about how elections could affect inflation, it's usually through fiscal policy. Through choices by the President and the Congress to raise taxes or lower taxes, and by choices by the Congress and the President to increase or decrease spending.So, when you think about this upcoming election, what are the main scenarios that you see for fiscal policy and an expansion, perhaps, of the deficit?Michael Zezas: Yeah, I think it's important to understand first that the type of election outcome that historically has catalyzed a deficit expansion is one where one party gets complete control of both the White House and both chambers of Congress.In 2025, what we think this would manifest in if the Democrats had won, is kind of a mix of tax extensions, as well as some spending items that they weren't able to complete during Biden's first term -- probably somewhat offset by some tax increases. On net, we think that would be incremental about $500 billion over 10 years, or maybe $40 [billion] to $50 billion in the first year.If Republicans are in a position of control, then we think you're looking at an extension of most of the expiring corporate tax cuts -- expire at the end of 2025 -- that is up to somewhere around a trillion dollars spread over 10 years, or maybe a hundred to $150 billion in the first year.Seth Carpenter: So, what I'm hearing you say is a wide range of possible outcomes, because you didn't even touch on what might happen if you've got a split government, so even smaller fiscal expansion.So, when I take that range from a truly modest expansion, if at all, with a split government, to a slight expansion from the Democrats, a slightly bigger one from a Republican sweep, I'm hearing numbers that clearly directionally should lead to some inflationary pressures -- but I'm not really sure they're big enough to really start to move the needle in terms of inflationary outcomes.And I guess the other part that we have to keep in mind is the election's happening in November of this year. The new president, if there's a new president, the new Congress would take seats in the beginning of the year next year. And so, there's always a bit of a lag between when a new government takes control and when legislation gets passed; and then there's another lag between the legislation and the outcome on the economy.And by the time we get to call it the end of 2025 or the beginning of 2026, I think we really will have seen a lot of dissipation of the inflation that we have now. So, it doesn't really sound like, at least from those baseline scenarios that we're talking about a huge impetus for inflation. Would you think that's fair?Michael Zezas: I think that's fair. And then it sort of begs the question of, if not from fiscal policy, is there something we need to consider around monetary policy? And so around the Fed, Chair Powell's term ends in January of 2026 -- meaning potential for a new Fed chair, depending on the next US president.So, Seth, what do you think the election could mean for monetary policy then?Seth Carpenter: Yeah, that's a great question, Mike. And it's one that, as you know well, we tend to get from clients, which is why you and I jointly put out some research with other colleagues on just what scope is there for there to be a -- call it particularly accommodative Fed chair under that Republican sweep scenario.I would say my take is -- not the biggest risk to worry about right now. There are two seats on the Federal Reserve Board that are going to come open for whoever wins the election as president to appoint. That's the chair, clearly very important. And then one of the members of the Board of Governors.But it's critical to remember there's a whole committee. So, there are seven members of the Board of Governors plus five voting members, across the Federal Reserve Bank presidents. And to get a change in policy that is so big, that would have massive inflationary impacts, I really think you'd have to have the whole committee on board. And I just don't see that happening.The Fed is set up institutionally to try to insulate from exactly that sort of, political influence. So, I don't think we would ever get a Fed that would simply rubber stamp any president's desire for monetary policy.Michael Zezas: I think that makes a lot of sense. And then clients tend to ask about two other concerns; with particularly concerns with the Republican sweep scenario, which would be the impact of potentially higher trade tariffs and restrictions on immigration. What's your read here in terms of whether or not either of these are reliable in terms of their impact on inflation?Seth Carpenter: Yeah, super topical. And I would say at the very least, we have some experience now with tariff policy. And what did we see during the last episode where there was the trade war with China? I think it's very natural to assume that higher tariffs mean that the cost of imported goods are going to be higher, which would lead to higher inflation; and to some extent that was true, but it was a much smaller, much more muted effect than I think you might otherwise assume given numbers like 25 per cent tariffs or has been kicked around a few times, maybe 60 per cent tariffs. And the reason for that change is a few things.One, not all of the goods being brought in under tariffs are final consumer goods where the price would just go straight through to something like the CPI. A lot of them were intermediate goods. And so, what we saw in the last round of tariffs was some disruption to US manufacturing, disruption to production in the United States because the cost of production went up.And so, it was as much a supply shock as it was anything else. For those final consumer goods, you could see some pass through; but remember, there's also the offset through the exchange rate, that matters a lot. And, consumers, they have a willingness to pay, or maybe a willingness not to pay, and so, sellers aren't always able to pass through the full cost of the tariffs. And so, as a result, I think the net effect there is some modestly higher inflation, but really, it's important to keep in mind that hit to economic activity that, over time, could actually go in the opposite direction and be disinflationary.Immigration, very different story, and it has been very much in the news recently. And we have seen a huge surge in immigration last year. We expect it to continue this year. And we think it's contributing to the faster run rate that we've seen in the economy without continued inflationary pressure. So, I think it's a natural question to ask -- if immigration was restricted, would we see labor shortages? Would that drive up inflation? And the answer is maybe.However, a few things are really critical. One, the Fed is still in restrictive territory now, and they're only going to start to lower rates if and when we see inflation come down. So the starting point will matter a lot. And second, when we did our projections, we took a lot of input from where the CBO's estimates are, and they've already been assuming that immigration flows really start to normalize a bit in 2025 and a lot more in 2026. Back to run rates that are more like pre-COVID rates. And so, against that backdrop, I think a change in immigration policy might be less inflationary because we'd already be in a situation where those flows were coming down.But that's a good time for me to turn things around, Mike, and throw it right back to you. So, you've been thinking about the elections. You run thematic research here. I've heard you say to clients more than once that there is some scope, but limited scope for macro markets to think about the outcome from the election, but lots of scope from a micro perspective. So, if we were thinking about the effect of the election on equity markets, on individual sectors, what would be your early read on where we should be focusing most?Michael Zezas: So we've long been saying that the reliable market impacts from this election, at least this far out, appear to be more micro than macro. And so, for example, in a Republican sweep scenario, we feel pretty confident that there would be a heavier skew towards extending corporate tax cut provisions that are expiring at the end of 2025.And if you look at who benefits fundamentally from those extensions, it tends to be companies that do more business domestically in the US and tend to be a bit smaller. Sectors that tend to come in the scope include industrials and telecom; and in terms of size of company, it tends to skew more towards small caps.Seth Carpenter: So, I can see that, Mike, but let me make it even more provocative because a question I have got from clients recently is the Inflation Reduction Act (IRA), which in lots of ways is helping to spur spending on infrastructure, is helping to spur spending on green energy transition. What's the chance that that gets repealed if the outcome, if the election goes to Trump?Michael Zezas: We see the prospects for the IRA to get repealed is quite limited, even in a Republican sweep scenario. The challenge for folks who might not want to see the law exist anymore is that many of the benefits of this law have already been committed; and the geographic area where they've been committed overlays with many of the districts represented by Republicans, who would have to vote for its repeal. And so, they might be voting against the interests of their districts to do that. So, we think this policy is a lot stickier than people perceive. The campaign rhetoric will probably be, pretty elevated around the idea of repealing it; but ultimately, we think most of the money behind the IRA will be quite durable. And this is something that should accrue positively to the clean tech sector in particular.Seth Carpenter: Got it. Well, Mike, as always, I love being able to take time and talk to you.Michael Zezas: Seth, likewise, thanks for taking the time to talk. And as a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple podcast app. It helps more people find the show.