Economics Roundtable: Investors Eye Central Banks

Our head of Corporate Credit Research Andrew Sheets provides an overview of uncertainty around policy following the election of a Republican administration.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about the US election - the implications in the past, present and future. It's Friday, November 8th at 2pm in London. The US Election is over, and the result was relatively clear. Republicans won control of the Presidency, the Senate, and on current projections, are likely to narrowly take the House of Representatives. The so-called ‘sweep’ will provide significant leeway to enact policy. There is going to be lots of time over future weeks and months, and even years, to discuss what all of this is going to mean. But for now, I want to offer a few thoughts on the impact across the past, the present and the future. Looking back, the US election has been a very well-known uncertainty that has hung over this market all year. The polling was close between two candidates with very different policy priorities. To the extent the simply not knowing was holding some investors back, or that investors were worried about a contested outcome, or even worse, political unrest – that issue has now passed. The relief from that passing may help explain some of the recent positive market reaction. For the present, we now sit in this curious middle-place where the uncertainty of the result is behind us, but any uncertainty from policy changes have not yet arrived. Coupled with still strong US economic data, another interest rate cut from the Federal Reserve yesterday, and the tendency of markets to perform well in November and December, and the path of least resistance in the near term may be for markets to continue to trade well.The future, however, may have just become less certain. Credit likes moderation and stability, and we think the current economic mix, with US GDP growth and inflation at both around 2.5 per cent, while the unemployment rate sits near historic lows at 4.2 per cent, has been a good one for credit. It’s been a major driver of our optimistic spread forecasts this year. Yet based on exit polls, US voters were not happy with this economy, and voted for change. The question, which will now dominate investor conversations, is how much of what the new administration has said they will do, will end up happening – on everything from tariffs, to taxes, to immigration. I can assure you that there’s a very wide investor expectations around this. The ambiguity isn’t necessarily a problem now, but we expect these questions to harden as we get into early next year. And given the likely sweep, the odds for larger changes in policy, especially much looser fiscal policy, have risen significantly. Whatever your average expectation for the US economy over the next 24 months now is, we think the bands around that have widened, and that’s also true globally, from Latin America, to Europe, to Asia. To be a little more specific about these wider bands: To the downside, there are now scenarios where tariffs and deportations push up inflation and weaken growth. And to the upside, there are scenarios where potentially lower taxes and looser regulation could drive higher stock markets and more corporate animal spirits. But for credit, both of these present challenges: tight spreads are absolutely not priced for stagflation, while animal spirits and more corporate aggression aren’t necessarily a great story if you’re a lender. A more benign, middle scenario is, of course, still possible, and we’re keeping an open mind. But the future has now become more uncertain. 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.

8 Marras 20243min

Our panel of analysts discusses the health of the US consumer through the lens of spending, credit use and home ownership. ----- Transcript -----James Egan: Welcome to Thoughts on the Market. I'm James Egan, Morgan Stanley's co-head of Securitized Product Strategy, and today we're going to take a look at the state of the US consumer from several different perspectives.Recent economic data suggests that the US economy is strong, and that inflation is on a downward trend. Yet, some of the underlying performance data is a little bit weaker. To understand what's happening, I'm joined by my colleagues Arunima Sinha and Heather Berger from the Global and US Economics teams.It's Thursday, November 7th, at 10am in New York.Now, the macro data on the consumer has looked pretty strong. Arunima, can you give a little bit more detail here? And specifically, how has consumer spending in the US been trending relative to where it was last year?Arunima Sinha: So, a good place to start, Jim, would be just to see where consumption spending was last year. And there it ended on a strong note. And in the first three-quarters of 2023, the average quarterly analyzed growth for consumption was just under 3 per cent. And that's where we are this year. We've seen solid growth rates in all three quarters this year, with the third quarter at 3.7 per cent. A particularly interesting aspect has been that the spending on goods has actually accelerated this year, with the third [quarter] number at a blistering 6.0 per cent on a quarterly basis.We have chalked this down to labor income growth remaining robust; and we did an analysis which showed that past growth in labor income boosts real consumption spending. Over this year, labor compensation has been growing strongly. So over 6 per cent in the first quarter and about 3.5 per cent in quarters two and three.And so, we continue to expect that that solid labor income growth is going to continue to boost real consumption spending.James Egan: All right. So, if I'm hearing you correctly – good spending, holding up; services, holding up. What about discretionary versus non-discretionary spend?Arunima Sinha: That's a great question, Jim, especially because discretionary spending is 70 per cent of all nominal personal consumption spending in the US. So just for context, what does discretionary include? It's going to be all the spending on durable goods, some non-durables, and then non-essential services such as health and transport, financial services, etc. And what we also saw – that a larger share of labor income is now being spent on discretionary items relative to the pre-COVID phase.So where are growth rates running? Discretionary spending is running strong on both a nominal and a real basis. So, on a nominal basis, we have about 5.5 to 6 per cent year on year, over this year, and over 3 per cent on a real basis. And these are largely in line with pre-COVID rates, if a little bit stronger now.For non-discretionary spending – that's the spending on food at home, and clothing, energy, and housing services – nominal spending has been decent. So, 4 per cent year on year on the first three quarters this year, and real spending has been a little bit less than the pre-COVID rate. So, between 0.5 per cent to 1 per cent. And so, this suggests what we expected to see, which is there's likely greater price sensitivity among consumers for these non-discretionary categories.What do we see going forward? We think that those increases in labor income are going to continue to provide boosts to discretionary spending. And one of the interesting aspects that we found was that lending standards seem to matter for discretionary spending. So, there's been some slowing down and the tightening of lending standards – and that could provide a further tailwind to discretionary spending.James Egan: Alright, that all sounds pretty positive and makes sense as to why we're getting so many questions about economic data that looks very healthy from a consumer perspective. But then, Heather. Other consumer data is showing a little bit more weakness. Arunima just mentioned credit standards. What are we seeing from the performance perspective on the consumer credit side?Heather Berger: Well, as you mentioned, the consumer credit data has shown more weakness, as more consumers are missing payments on their loans. We initially saw delinquency rates start to pick up in loans concentrated towards consumers with lower credit scores, such as subprime auto loans and unsecured personal loans, as those consumers were more affected early on by high inflation and then rising rates.Delinquency rates for those lower credit score loans are near the highest we have on record in some cases. In the past year, though, we have also seen that delinquency rates have picked up in loans aimed at consumers with higher credit scores, such as credit cards and prime auto loans. The weakness in these is not as extreme as in subprime, but the delinquency rates of the loans taken out recently is still relatively high historically. James Egan: So, it sounds like what you are describing is that there are pockets of consumers that are feeling more weakness than others.Heather Berger: Yes, exactly. And so, on the prime consumer side, even if these consumers have higher credit scores or higher incomes, if they took out loans recently, they likely did so at higher rates, and they're really feeling the pressures of higher debt service costs.We can also see some of the bifurcation between low income and high-income consumers. In some of the more detailed economic data, we have a breakdown of 2023 spending by income group, which is a bit outdated but still useful to see the narrative – and what it shows is that in 2023 higher income consumers made up near the largest share of discretionary spending as they have historically. For lower income consumers, their spending has shifted more towards essentials, with shelter increasing the most as a share of their spending from the prior year.Now, Jim, we really think that the housing backdrop has played a role here, so can you explain a bit more of what's going on there?James Egan: Yes, now my co-head of Securitized Product Strategy, Jay Bacow, and I have been on this podcast a few times talking about the role that the housing market is playing in the economy right now. We've really talked about the lock in effect. And when we're thinking about the role that housing plays in the consumer specifically, we're talking about lower income households, more discretionary spending, shelter increasing that's not happening at the higher end, and we think that's the lock in effect.A majority of homeowners were able to get low fixed rate mortgages for 30 years with 3 or 4 per cent mortgage rates. The effective mortgage rate would be on the outstanding market right now is, average is 4 per cent. Prevailing rates are north of 6 per cent right now. So that has helped that higher end consumer who is more likely to be a homeowner – 65 per cent of the US households are homeowners – maintain that lower level.But I don't want to gloss over that entirely. Other costs of homeownership are increasing. For instance, property taxes and insurance costs are up. Homeowners have realized swelling home equity amounts amid record home price growth in recent years; perhaps giving them more confidence to spend, but that equity hasn't exactly been easy to access.Now, second lean and HELOC balances have been increasing; but the amount of equity that's being withdrawn falls well shy of previous highs, which were set back in 2009. And that's despite the fact that the overall equity in the housing market is $20 trillion larger today than it was back then. While the equity itself should provide a buffer for homeowning consumers from ultimately defaulting, these dynamics could be resulting in some of the short-term delinquency increases that we think we're seeing in products like Prime Auto, for example.But Arunima, can you tie a bow on this for us? What does all of this mean for the consumer moving forward?Arunima Sinha: Moving forward Jim, we really just see a solid consumer. So, for the end of this year, our forecast is real consumption spending growing at 2.6 per cent; at the end of next year at over 2 per cent. And that really is tied to our view on the labor market – that it's going to continue to decelerate, but not in any sudden ways.So that's it. We are seeing a strong consumer, and we are going to be watching for pockets of weakness.James Egan: All right. Arunima, Heather, thanks for taking the time to talk.Arunima Sinha: Thanks so much for having me on, Jim.Heather Berger: Great talking to you both.James Egan: And to our listeners, thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.

7 Marras 20248min

With a second Trump term at least partially reflected in the price of global markets, we focus on two key debates for the longer-term: Potential tariffs and fiscal policy. ----- Transcript -----Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income and Thematic Research. Today on the podcast – some initial thoughts on the market implications of a second term for President Trump.It’s Wednesday, Nov 6, at 2pm in New York.As it became clearer on election night that Former President Trump was set to win a second term in the White House, markets began to price in the expected impacts of resulting public policy choices. The US dollar rallied, which makes sense when you consider that President Trump has argued for higher tariffs, something that could hurt rest of world growth more than the US. US Treasuries sold off and yield rose, something that makes sense given President Trump supports tax policy choices that could meaningfully expand deficits. And US equity markets rallied led by key sectors that could benefit fundamentally from extended tax breaks and deregulation, including industrials and energy. But with a second Trump term now at least partially reflected in the price of markets across assets, it gets harder from here to understand how markets move. There’s several key debates we’ll be tracking, here’s two that are top of mind. First, how will tariffs be implemented? Per the work of our economists, higher tariffs can raise inflation and crimp growth. They estimated that a blanket 10 per cent tariffs and 60 per cent tariffs on China imports would raise inflation by 1 per cent and dampen GDP growth by 1.4 per cent. Some pretty big numbers that would really challenge the soft-landing narrative and positive backdrop for equities and other riskier assets. Other approaches may carry the same risks, but to a lesser degree. Tariffs exercised via executive authority would, in our view, likely have to be targeted to countries and products – as opposed to implemented on a blanket basis. So, the approach to tariffs could represent a substantial difference in the outlook for markets. Second, how quickly and to what degree might US deficits expand? Our presumption has been that fiscal policy action, regardless of US election outcome, wouldn’t become clear until late 2025, largely governed by the need to address several provisions from the Tax Cuts and Jobs Act that expire at the end of that year. But, while not our base case it's of course possible that a Republican Congressional majority could deliver on tax cuts earlier – and perhaps even in larger size. The resolution to this debate could make the difference between yields climbing even higher than they have recently and taking a pause at these levels. Bottom line, as the election ends and the Presidential transition begins, there’s a lot about policy implementation that we can learn to guide our market strategy. We’ll be paying attention to all the key policymaker statements and deliberations, and feed through the signal to you.Thanks for listening. If you enjoy the show, please leave us a review wherever you listen to podcasts and share Thoughts on the Market with a friend or colleague today.

6 Marras 20243min

Analyst Nathan Feather discusses why the online dating market is slowing down, and whether or not it can get back on track.----- Transcript -----Welcome to Thoughts on the Market. I’m Nathan Feather, Morgan Stanley’s Online Dating and US Small- and Mid-Cap eCommerce Analyst. Today, people across America are casting their votes. On this podcast, however, we're taking a break from our election coverage. And taking a leap into a different matter on many minds … and hearts. Online dating. Why it fell out of favor and how it might make a comeback.It’s November 5, at 10am in New York. Finding love is a tricky business. Dating has never been easy; but with an epidemic of loneliness and isolation, singles today are finding it harder than ever. For those looking for love, online dating seems to offer endless possibilities. Since its inception just three decades ago, the stigma around online dating has faded, leading more and more daters to put their faith – and money – into the algorithm. In the US, three out of four actively dating singles have used it at some point in their journey. But after years of consistent double-digit growth, the online dating market is now faltering, with US industry revenue growing just 1 per cent this year. Why? Well, we think the issue lies primarily in weakening user trends with the US user bases of major dating apps in decline. Since last spring, we have seen around a 15 per cent decrease in dating app use by singles actively looking for a relationship. To us this indicates that the product is not matching user expectations as some daters have grown tired of the persistent swiping and dead ends. Consequently, daters' intentions to use online dating in the future have consistently declined. Now, there are many theories about why this is happening. We think there may be residual impact from the pandemic when singles used online dating at record rates. People who found relationships during that time likely left the apps. And those who didn't find a partner also often left the apps, disappointed and less likely to return. But that’s not all; while Millennials embraced the fun and casual experience of swipe apps, Gen Z isn’t so enamored – instead searching for greater authenticity. So, can online dating be fixed or are these issues beyond repair? Well, there are two main schools of thought. The first believes that the issue with online dating is a lack of innovation, and an improved product should lead to improved financials. The second camp argues that daters are fundamentally shifting away from these products to date in person or not at all. We sit firmly in the first camp and think this is a product issue. The apps need to do a better job helping people find lasting relationships. Granted, fixing this is far easier said than done. Human relationships are messy and complicated. But we do think there are clear opportunities. Many of the large apps have stayed relatively unchanged over the past five to 10 years and are meeting the demands of users from then – and not now. With improvements to the user experience and better tailoring to the goals of today’s daters, we believe the apps can reaccelerate user growth. In fact, brands that have consistently improved the user experience have recently fared far better. With that being said, we do think it will take time to find the product improvements that really work and convince daters to give the apps another shot. But as products evolve, we think daters and investors can rekindle their relationship with online dating.If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market today, with a friend, colleague, significant other -- even a situationship. Thanks for listening.

5 Marras 20243min

On the eve of a competitive US election, our CIO and Chief US Equity Strategist joins our head of Corporate Credit Research and Chief Fixed Income Strategist to asses how investors are preparing for each possible outcome of the race.----- Transcript -----Mike Wilson: Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist.Andrew Sheets: I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley.Vishy Tirupattur: And I'm Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist.Mike Wilson: Today on the show, the day before the US election, we're going to do a conversation with my colleagues about what we're watching out for in the markets.It's Monday, November 4th, at 1130am in New York.So let's get after it.Andrew Sheets: Well, Mike, like you said, it's the day before the US election. The campaign is going down to the wire and the polling looks very close. Which means both it could be a while before we know the results and a lot of different potential outcomes are still in play. So it would be great to just start with a high-level overview of how you're thinking about the different outcomes.So, first Mike, to you, as you think across some of the broad different scenarios that we could see post election, what do you think are some of the most important takeaways for how markets might react?Mike Wilson: Yeah, thanks, Andrew. I mean, it's hard to, you know, consider oneself as an expert in these types of events, which are extremely hard to predict. And there's a lot of permutations, by the way. There's obviously the presidential election, but then of course there's congressional elections. And it's the combination of all those that then feed into policy, which could be immediate or longer lasting.So, the other thing to just keep in mind is that, you know, markets tend to pre-trade events like this. I mean, this is a known date, right? A known kind of event. It's not a surprise. And the outcome is a surprise. So people are making investments based on how they think the outcome is going to come. So that's the way we think about it now.Clearly, you know, treasury markets have sold off. Some of that's better economic data, as our strategists in fixed income have told us. But I think it's also this view that, you know, Trump presidency, particularly Republican sweep, may lead to more spending or bigger budget deficits. And so, term premium has widened out a bit, so that’s been an area; here I think you could get some reversion if Harris were to win.And that has impact on the equity markets -- whether that's some maybe small cap stocks or financials; some of the, you know, names that are levered to industrial spending that they want to do from a traditional energy standpoint.And then, of course, on the negative side, you know, a lot of consumer-oriented stocks have suffered because of fears about tariffs increasing along with renewables. Because of the view that, you know, the IRA would be pared back or even repealed.And I think there's still follow through particularly in financials. So, if Trump were to win, with a Republican Congress, I think, you know, financials could see some follow through. I think you could see some more strength in small caps because of perhaps animal spirits increasing a little further; a bit of a blow off move, perhaps, in the indices.And then, of course, if Harris wins, I would expect, perhaps, bonds to rally. I think you might see some of these, you know, micro trades like in financials give back some along with small caps. And then you'd see a big rally in the renewables. And some of the tariff losers that have suffered recently. So, there's a lot, there's a lot of opportunity, depending on the outcome tomorrow.Andrew Sheets: And Vishy, as you think about these outcomes for fixed income, what really stands out to you?Vishy Tirupattur: I think what is important, Andrew, is really to think about what's happening today in the macro context, related to what was happening in 2016. So, if you look at 2016; and people are too quick to turn to the 2016 playbook and look at, you know, what a potential Trump, win would mean to the rates markets.I think we should keep in mind that going into the polls in 2016, the market was expecting a 30 basis points of rate hikes over the next 12 months. And that rate hike expectation transitioned into something like a 125 place basis points over the following 12 months. And where we are today is very different.We are looking at a[n] expectation of a 130-135 basis points of rate cuts over the next 12 months. So what that means to me is underlying macroeconomic conditions in where the economy is, where monetary policy is very, very different. So, we should not expect the same reaction in the markets, whether it's a micro or macro -- similar to what happened in 2016.So that's the first point. The second thing I want to; I'm really focused on is – if it is a Harris win, it's more of a policy continuity. And if it's a Trump win, there is going to be significant policy changes. But in thinking about those policy changes, you know, before we leap into deficit expansion, et cetera, we need to think in terms of the sequencing of the policy and what is really doable.You know, we're thinking three buckets. I think in terms of changes to immigration policy, changes to tariff policy, and changes to tax code. Of these things, the thing that requires no congressional approval is the changes to tariff policy, and the tariffs are probably are going to be much more front loaded compared to immigration. Or certainly the tax policy [is] going to take a quite a bit of time for it to work out – even under the Republican sweep scenario.So, the sequencing of even the tariff policy, the effect of the tariffs really depends upon the sequencing of tariffs itself. Do we get to the 60 per cent China tariffs off the bat? Or will that be built over time? Are we looking at across the board, 10 per cent tariffs? Or are we looking at it in much more sequential terms? So, I would be careful not to jump into any knee-jerk reaction to any outcome.Andrew Sheets: So, Mike, the next question I wanted to ask you is – you've been obviously having a lot of conversations with investors around this topic. And so, is there a piece of kind of conventional wisdom around the election or how markets will react to the election that you find yourself disagreeing with the most?Mike Wilson: Well, I don't think there's any standard reaction function because, as Vishy said -- depending on when the election's occurring, it's a very different setup. And I will go back to what he was saying on 2016. I remember in 2016, thinking after Trump won, which was a surprise to the markets, that was a reflationary trade that we were very bullish on because there was so much slack in the economy.We had borrowing capabilities and we hadn't done any tax cuts yet. So, there was just; there was a lot of running room to kind of push that envelope.If we start pushing the envelope further on spending or reflationary type policies, all of a sudden the Fed probably can't cut. And that changes the dynamics in the bond market. It changes the dynamics in the stock market from a valuation standpoint, for sure. We've really priced in this like, kind of glide path now on, on Fed policy, which will be kind of turned upside down if we try to reflate things.Andrew Sheets: So Vishy, that's a great point because, you know, I imagine something that investors do ask a lot about towards the bond market is, you know, we see these yields rising. Are they rising for kind of good reasons because the economy is better? Are they rising for less good reasons, maybe because inflation's higher or the deficit's widening too much? How do you think about that issue of the rise in bond yields? At what point is it rising for kind of less healthy reasons?Vishy Tirupattur: So Andrew, if you look back to the last 30 days or so, the reaction the Treasury yields is mostly on account of stronger data. Not to say that the expectation changes about the presidential election outcomes haven't played a role. They have. But we've had really strong data. You know, we can ignore the data from last Friday – because the employment data that we got last Friday was affected by hurricanes and strikes, etc. But take that out of the picture. The data has been very strong. So, it's really a reflection of both of them. But we think stronger data have played a bigger role in yield rise than electoral outcome expectation changes.Andrew Sheets: Mike, maybe to take that question and throw it back to you, as you think about this issue of the rise in yields – and at what point they're a problem for the equity market. How are you thinking about that?Mike Wilson: Well, I think there's two ways to think about it. Number one, if it really is about the data getting better, then all of a sudden, you know, maybe the multiple expansion we've seen is right. And that, it's sort of foretelling of an earnings growth picture next year that's, you know, much faster than what, the consensus is modeling.However, I'd push back on that because the consensus already is modeling a pretty good growth trajectory of about 12 per cent earnings growth. And that's, you know, quite healthy. I think, you know, it's probably more mixed. I mean, the term premium has gone up by 50 basis points, so some of this is about fiscal sustainability – no matter who wins, by the way. I wouldn't say either party has done a very good stewardship of, you know, monitoring the fiscal deficits; and I think some of it is definitely part of that. And then, look, I mean, this is what happened last year where, you know, we get financial conditions loosened up so much that inflation comes back. And then the Fed can't cut.So to me, you know, we're right there and we've written about this extensively. We're right around the 200-day moving average for 10-year yields. The term premium now is up about 50 basis points. There's not a lot of wiggle room now. Stock market did trade poorly last week as we went through those levels. So, I think if rates go up another 10 or 20 basis points post the election, no matter who wins and it's driven at least half by term premium, I think the equity market's not gonna like that.If rates kind of stay right around in here and we see term premium stabilize, or even come down because people get more excited about growth -- well then, we can probably rally a bit. So it's much a reason of why rates are going up as much as how much they're going up for the impact on equity multiples.Vishy Tirupattur: Andrew, how are you thinking about credit markets against this background?Andrew Sheets: Yeah, so I think a few things are important for credit. So first is I do think credit is a[n] asset class that likes moderation. And so, I think outcomes that are likely to deliver much larger changes in economic, domestic, foreign policy are worse for credit. I mean, I think that the current status quo is quite helpful to credit given we're trading at some of the tightest spreads in the last 20 years. So, I think the less that changes around that for the macro backdrop for credit, the better.I think secondly, you know, if I -- and Mike correct me, if you think I'm phrasing this wrong. But I think kind of some of the upside case that people make, that investors make for equities in the Republican sweep scenario is some version of kind of an animal spirits case; that you'll see lower taxes, less regulation, more corporate risk taking higher corporate confidence. That might be good for the equity market, but usually greater animal spirits are not good for the credit market. That higher level of risk taking is often not as good for the lenders. So, there are scenarios that you could get outcomes that might be, you know, positive for equities that would not be positive for credit.And then I think conversely, in say the event of a democratic sweep or in the scenarios where Harris wins, I do think the market would probably see those as potentially, you know, the lower vol events – as they're probably most similar to the status quo. And again, I think that vol suppression that might be helpful to credit; that might be helpful for things like mortgages that credit is compared to. And so, I think that's also kind of important for how we're thinking about it.To both Mike and Vishy, to round out the episode, as we mentioned, the race is close. We might not know the outcome immediately. As you're going to be looking at the news and the markets over Tuesday evening, into Wednesday morning. What's your process? How closely do you follow the events? What are you going to be focused on and what are kind of the pitfalls that you're trying to avoid?Maybe Vishy, I'll start with you.Vishy Tirupattur: I think the first thing I'd like to avoid is – do not make any market conclusions based on the first initial set of data. This is going to be a somewhat drawn out; maybe not as drawn out as last time around in 2020. But it is probably unlikely, but we will know the outcome on Tuesday night as we did in 2016.So, hurry up and wait as my colleague, Michael Zezas puts it.Mike Wilson: And I'm going to take the view, which I think most clients have taken over the last, you know, really several months, which is -- price is your best analyst, sadly. And I think a lot of people are going to do the same thing, right? So, we're all going to watch price to see kind of, ‘Okay, well, how was the market adjusting to the results that we know and to the results that we don't know?’Because that's how you trade it, right? I mean, if you get big price swings in certain things that look like they're out of bounds because of positioning, you gotta take advantage of that. And vice versa. If you think that the price movement is kind of correct with it, there's probably maybe more momentum if in fact, the market's getting it right.So this is what makes this so tricky – is that, you know, markets move not just based on the outcome of events or earnings or whatever it might be; but how positioning is. And so, the first two or three days – you know, it's a clearing event. You know, volatility is probably going to come down as we learn the results, no matter who wins. And then you're going to have to figure out, okay, where are things priced correctly? And where are things priced incorrectly? And then I can look at my analysis as to what I actually want to own, as opposed to tradeAndrew Sheets: That's great. And if I could just maybe add one, one thing for my side, you know, Mike – which you mentioned about volatility coming down. I do think that makes a lot of sense. That's something, you know, we're going to be watching on the credit side. If that does not happen, kind of as expected, that would be notable. And I also think what you mentioned about that interplay between, you know, higher yields and higher equities on some sort of initial move – especially if it was, a Republican sweep scenario where I think kind of the consensus view is that might be a 'stocks up yields up' type of type of environment. I think that will be very interesting to watch in terms of do we start to see a different interaction between stocks and yields as we break through some key levels. And I think for the credit market that interaction could certainly matter.It's great to catch up. Hopefully we'll know a lot more about how this all turned out pretty soon.Vishy Tirupattur: It's great chatting with both of you, Mike and Andrew.Mike Wilson: Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

5 Marras 202414min

Our US Fintech and Payments analyst reviews a recent survey that reveals key trends on how Gen Z and Millennials handle their personal finances.----- Transcript -----Welcome to Thoughts on the Market. I’m James Faucette, Morgan Stanley’s Head of US Fintech and Payments. Today I’ll dig into the way young people in the US approach their finances and why it matters.It’s Friday, November 1st, at 10am in New York. You’d think that Millennials – also commonly known as Gen Y – and Gen Z would come up with new ways to think about money. After all, they live most of their lives online, and don’t always rely on their parents for advice – financial or otherwise. But a survey we conducted suggests the opposite may be true. To understand how 16 to 43 year-olds – who make up nearly 40 per cent of the US population – view money, we ran an AlphaWise survey of more than 4,000 US consumers. In general, our work suggests that both Millennials and Gen Z’s financial goals, banking preferences, and medium-term aspirations are not much different from the priorities of previous generations. Young consumers still believe family is the most important aspect in life, similar to what we found in our 2018 survey. They have a positive outlook on home ownership, college education, employment, and their personal financial situation. 28-to-43-year-olds have the second highest average annual income among all age cohorts, earning more than $100,000. They spend an average of $86,000 per year, of which more than a third goes toward housing. Gen Y and Z largely expect to live in owned homes at a greater rate in five to 10 years, and younger Gen Y cohorts' highest priority is starting a family and raising children in the medium term. This should be a tailwind for many consumer-facing real estate property sectors including retail, residential, lodging and self-storage. However, Gen Y and Z are less mobile today than they were pre-pandemic. Compared to their peers in 2018, they intend to keep living in the same area they're currently living in for the next five to 10 years. Gen Y and Z consumers reported higher propensity for saving each month relative to older generations, which could be a potential tailwind for discretionary spending. And travel remains a top priority across age cohorts, which sets the stage for ongoing travel strength and favorable cross-border trends for the major credit card providers. In addition to all these findings, our analysis suggests several surprising facts. For example, our survey results contradict the widely accepted notion that younger generations are "credit averse." The vast majority of Gen Z consumers have one or more traditional credit cards – at a similar rate to Gen X and Millennials. Although traditional credit card usage is higher among Millennials and Gen Z than it was in 2018, data suggests this is driven by convenience, not financing needs. Younger people’s borrowing is primarily related to auto and home loans from traditional lenders rather than fintechs. Another unexpected finding is that while Gen Y and Z are more drawn to online banking than their predecessors, about 75 per cent acknowledge the importance of physical branch locations – and still prefer to bank with their traditional national, regional, and community banks over online-only providers. What’s more, they also believe physical bank branches will be important long-term. Overall, our analysis suggests that generations tend to maintain their key priorities as they age. Whether this pattern holds in the future is something we will continue to watch.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.

1 Marras 20244min

With the US election as a backdrop, our Head of Corporate Credit Research Andrew Sheets tells three stories that help encapsulate the state of global credit markets.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, today I'll go around the credit world in three short stories. It's Thursday, October 31st at 2pm in London.The US election next Tuesday continues to be a top issue on investor minds, and indeed is a top issue for us here at Thoughts on the Market, where it’s dominating your feed over this week. For credit, our positive view this year has been closely tied to the idea that the asset class likes moderation. For example, in data released yesterday the US economy grew a solid 2.8 per cent in the third quarter, while core inflation moderated to just 2.2 per cent, close to the Fed’s target. And Morgan Stanley’s forecasts for the rest of this year and next see that pattern continuing: Solid US Growth, falling inflation, driving steady further rate cuts from the Federal Reserve and all creating a better-than-expected backdrop for credit that should support tighter than average spreads. That idea that credit likes moderation is core to how we view the election. Outcomes that could drive larger changes in economic policy, domestic policy or foreign policy, are all larger risks. And outcomes that could drive more moderate outcomes across all of these factors are likely going to be better for credit, in our view. But you may also be tired of hearing about the election. And so for you, here is a quick tour of the credit world in three non-election stories. In Asia, Korea will be added to the FTSE World Government Bond Index, an important benchmark for global bond investors. This has significant implications across Korean assets, but for Credit, it may be most important for sparking more interest in Corporate Bonds denominated in local Korean Won.This is a larger market than investors may initially realize, totaling roughly $1 trillion US equivalent in size. And meanwhile, the exposure of foreign investors to this market is historically low. A large market with little global exposure is a potential opportunity. Moving to Europe, you could be forgiven for thinking the mood is pretty dour. Growth has been weaker than in the United States, while the US Election is raising questions around everything from disruptions to trans-Atlantic trade, to the future of NATO, to the war in Ukraine. But over the last month, flows into European credit have been extremely good. Per work by my colleagues, inflows into European credit have reached record levels over the last several months. The start of rate cuts leading investors to lock in still-attractive all-in yields in Europe is a big part of this story. Finally, in the US, we continue to see remarkable shifts in the ease with which investors can trade large volumes of corporate bonds. So-called portfolio trading, where investors buy or sell bonds as a group, continues to grow, with September seeing a new all-time high in activity. Year-to-date, through September, we estimate that roughly $760 billion – with a ‘b’ – has been traded this way. It’s never been easier to trade very large volumes of corporate bonds. The US election on November 5th will continue to dominate investor focus over the coming days. As it should. Credit has been an enormous beneficiary of the recent backdrop that’s seen solid growth, moderating inflation, and moderating policy rates. The vote will have an important bearing on whether that moderation continues, or if something new takes its place. But away from the election there are other important things happening. Korea’s Local Currency Corporate bond market is a large, underinvested market that may get more attention after index inclusion. European Credit is seeing record flows despite its macro uncertainties, an indicator of underlying investor demand. And in the US, the continued rise of portfolio trading is re-shaping market structure and improving the ability to trade ever larger volumes of corporate bonds. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today. Oh, and Happy Halloween.

31 Loka 20244min

Our Global Head of Fixed Income and Thematic Research, Michael Zezas, outlines how investors should navigate the closing days of the presidential campaign -- including a vote-counting period that could extend past Election Day.----- Transcript -----Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income and Thematic Research. Today is going to be a little bit different. We’re exactly six days away from the US election. The race is neck-and-neck, and I want to sketch out what investors should expect in the next couple of weeks. It’s Wednesday, October 30, at 10 AM in New York.This is an historic election, and the outcome remains highly uncertain. What’s more, there’s a good chance we won’t know the winner on election night due to close vote counts. My colleagues and I have spent a lot of time on this show trying to give our listeners a sense of how the election might impact different economies around the word as well as markets, sectors, and specific industries. But today I want to take a step back and highlight a few things that investors should keep in mind right now. To sum up what we’ve covered so far: The key policies at stake are taxes, tariffs, and immigration. Congressional composition will be critical in determining the extent of tax cut extensions in either win outcome. Domestic, consumer-oriented sectors are most exposed to tax changes, while clean-tech is the most exposed to potential efforts at a repeal of the Inflation Reduction Act. Macro impacts vary depending on the scope of policies and their sequencing, but we see downside risks to growth in a Republican win outcome. As our listeners know, a candidate needs 270 Electoral College votes to win. Former President Trump’s most likely path to victory is through the Sun Belt – Arizona, North Carolina and Georgia; while Vice President Harris’ most likely path to victory is through the so-called Blue Wall – Michigan, Wisconsin and Pennsylvania. In terms of the Senate, polling and prediction markets have consistently implied higher likelihood of Republicans winning control. Democrats are defending more seats in states that Trump won in 2020, as well as more seats in states Biden won by a small margin. As far as the House of Representatives, Republicans need 11 of the 25 toss-up seats to maintain control of the House, and Democrats need 15. The generic ballot is the most reliable House indicator, in our view. It’s a political poll which asks not which candidate you plan to vote for to represent you in Congress, but rather which political party – Democrat, Republican or Independent – that you would support. The generic ballot historically correlates with the House winner, and it currently favors Democrats. All this leaves us with two key takeaways: First, don’t expect conclusive results on election night. Early vote data from key states reflects our view that vote-by-mail levels are lower than in 2020 but still elevated versus historical levels. And it may take days to get all the mail-in votes counted. Second, full election results may differ from early returns. Why is that? A candidate may have a deficit in election night vote counts but still come back to win the race once all ballots are counted. This depends on two key variables: The share of the electorate who vote by mail; and the skew among those ballots toward Democrats – a blue shift – or Republicans – a red shift. So again, we need to be patient and wait for the final results. And when that happens, we will start digging deep into the post-election outlook for the economy and markets. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen to podcasts and share Thoughts on the Market with a friend or colleague today.

30 Loka 20243min