Thoughts on the Market

Auteur(s): Morgan Stanley
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  • Short, thoughtful and regular takes on recent events in the markets from a variety of perspectives and voices within Morgan Stanley.
    © Morgan Stanley & Co. LLC
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Finances personnelles Économie
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  • Managing Fiscal Policy Uncertainty Under Trump 2.0

    Managing Fiscal Policy Uncertainty Under Trump 2.0
    Jan 30 2025
    Our Global Head of Fixed Income and Public Policy Research, Michael Zezas, and Global Head of Macro Strategy, Matt Hornbach, discuss how the Trump administration’s fiscal policies could impact Treasuries markets.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Public Policy Research.Matthew Hornbach: And I'm Matthew Hornbach, Global Head of Macro Strategy.Michael Zezas: Today, we'll talk about U.S. fiscal policy expectations under the new Trump administration and the path for U.S. Treasury yields.It's Thursday, January 30th at 10am in New York.Fiscal policy is one of the four key channels that have a major impact on markets. And I want to get into the outlook for the broader path for fiscal policy under the new administration. But Matt, let's start with your initial take on this week's FOMC meeting.Matthew Hornbach: So, investors came into the FOMC meeting this week with a view that they were going to hear a message from Chair Powell that sounded very similar to the message they heard from him in December. And I think that was largely the outcome. In other words, investors got what they expected out of this FOMC meeting. What did it say about the chance the Fed would lower interest rates again as soon as the March FOMC meeting? I think in that respect investors walked away with the message that the Fed’s baseline view for the path of monetary policy probably did not include a reduction of the policy rate at the March FOMC meeting. But that there was a lot of data to take on board between now and that meeting. And, of course, the Fed as ever remains data dependent.All of that said, the year ahead for markets will rely on more than just Fed policy. Fiscal policy may feature just as prominently. But during the first week of Trump's presidency, we didn't get much signaling around the president's fiscal policy intentions. There are plenty of key issues to discuss as we anticipate more details from the new administration.So, Mike, to set the scene here. What is the government's budget baseline at the start of Trump's second term? And what are the president's priorities in terms of fiscal policies?Michael Zezas: You know, I think the real big variable here is the set of tax cuts that expire at the end of 2025. These were tax cuts originally passed in President Trump's first term. And if they're allowed to expire, then the budget baseline would show that the deficit would be about $100 billion smaller next year.If instead the tax cuts are extended and then President Trump were able to get a couple more items on top of that – say, for example, lifting the cap on state and local tax deduction and creating a domestic manufacturing tax credit; two things that we think are well within the consensus of Republicans, even with their slim majority – then the deficit impact swings from a contraction to something like a couple hundred billion dollars of deficit expansion next year. So, there's meaningful variance there.And Matt, we've got 10-year Treasury yields hovering near highs that we haven't seen since before the global financial crisis around 10 years ago. And yields are up around a full percentage point since September. So, what's going on here and to what extent is the debate on the deficit influential?Matthew Hornbach: Well, I think we have to consider a couple of factors. The deficit certainly being one of them, but people have been discussing deficits for a long time now. It's certainly news to no one that the deficit has grown quite substantially over the past several years. And most investors expect that the deficit will continue to grow. So, concerns around the deficit are definitely a factor and in particular how those deficits create more government bonds supply. The U.S. Treasury, of course, is in charge of determining exactly how much government bond supply ends up hitting the marketplace.But it's important to note that the incoming U.S. Treasury secretary has been on the record as suggesting that lower deficits relative to the size of the economy are desired. Taking the deficit to GDP ratio from its current 7 per cent to 3 per cent over the next four years is desirable, according to the incoming Treasury secretary. So, I think it is far from conclusive that deficits are only heading in one direction. They may very well stabilize, and investors will eventually need to come to terms with that possibility.The other factor I think that's going on in the Treasury market today relates to the calendar. Effectively we have just gone through the end of the year. It's typically a time when investors pull back from active investment, but not every investor pulls back from actively investing in the market. And in particular, there is a consortium of investors that trade with more of a momentum bias that saw yields moving higher and invested in that direction; that, of course, exacerbated the move.And of course,...
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    9 min
  • A Mixed Bag for Retail and Consumer Sectors

    A Mixed Bag for Retail and Consumer Sectors
    Jan 29 2025
    Our Head of Corporate Credit Research and Head of Retail Consumer Credit discuss what choppy demand and tariff risk could mean for sectors that depend on consumer spending.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.Jenna Gianelli: I’m Jenna Gianelli, Head of Retail Consumer Credit, here at Morgan Stanley.Andrew Sheets: And today on this episode, we're going to discuss the outlook for the retail and consumer sectors.It’s Wednesday, Jan 29th at 9 am in New York.So, Jenna, it's great to talk with you, and it's really great to talk about the retail and consumer sectors heading into 2025, because it's such an important part of the investor debate. On the one hand, a lot of economic data in the U.S. seems strong, including a very low unemployment rate. And yet, we’re also hearing a lot about cost-of-living pressures on consumers, lower consumer confidence, and investor concern that the consumer is just not going to be able to hold up in this higher rate environment. And then you can layer on uncertainty from the new administration. Will we see tariffs? How large will they be? And how will retailers, which often import a lot of their goods, handle those changes?So, maybe just kind of starting off at a 40, 000-foot view, how are you thinking about consumer dynamics going into 2025?Jenna Gianelli: Of course. So, I think that that choppy consumer demand environment is actually one of the strongest pillars of our more cautious view, going into next year. How the sector, performed last year was not in tandem with kind of what the macro headlines suggested. The macro headlines were quite positive, and the consumer was, you know, seemingly strong. But there was a lot going on under the hood when you looked at different dichotomies, right? So, if you looked at the high-end versus the low-end, if you looked at goods versus services. And then within, you know, certain categories, there were categories that were, you know, really quite strong based on what the consumer was prioritizing – goods, essentials, personal care, beauty, right? And then there were others that they really shied away from.So, I think what we're going to see in 2025 is quite a bit more of that. When we think that the high-end will continue to be resilient, that pressure on the low-income consumer will continue. But actually moderate potentially as into [20]25, as we think about lower interest rates, potentially, you know, lesser immigration and so less competition for jobs at the lower income level. So maybe even some tailwinds, but it's really an alleviation of pressure and easier compares. But we do expect overall some deceleration, right? Because we had a lot of pent-up demand, especially on the high-end.So, we are expecting services, demand to slow, in 2025 and goods actually to hold up relatively well. So, we really are focused on what's going on at the individual category level and the different types of consumers that we're looking at.Andrew Sheets: And as you think about some of those, you know, subcategories that you, you cover, maybe just a minute on a couple that you think will perform the best over this year and some that you think might face the biggest challenges.Jenna Gianelli: There are some that have been under relative pressure, in [20]23 and [20]24 where we might actually see some, you know, relief. Now, depending on the direction of rates in the housing market, we could see and expect to see an uptick in bigger ticket spending, durables, home related, that have been under, you know, some pressure.And also, you know, categories where, you know, the consumer, they're arguably discretionary. But maybe they pulled back because there was a big surge in demand just post-COVID. Pet in our universe is actually one example of those, where it's been a bit depressed and we actually expect to see, you know, some recovery into next year; also tied to housing right as new house formation starts.So, but again, a lot of that is predicated on the, you know, housing direction of rates and some of these other macro factors. I'd say, irrespective of the more macro influences, we do still expect that essentials – grocery, and certain categories like a beauty, pockets of apparel and brands, right? It really comes down to the brands, the brand heat, the brand relevance. If it's relevant to the consumer, they're going to spend on it. And so, that's where we really focus on the micro level; our picks of which brands are resonating, which categories are resonating. Which is, those are some of the, you know, the few that we're expecting, either a recovery in or still, you know, relative, outperformance.I'd say on the laggard side, which is probably the next piece of that question. I mean, look, there's still a lot of secular headwinds at play. And so, you know, from a department store perspective outside of event risk or idiosyncratic risk,...
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    11 min
  • Will Trump’s Tariffs Reshape Asian Economies?

    Will Trump’s Tariffs Reshape Asian Economies?
    Jan 28 2025
    Our Global Head of Fixed Income and Public Policy Research Michael Zezas and Chief Asia Economist Chetan Ahya discuss the potential impact of U.S. tariffs in China and beyond.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Public Policy Research.Chetan Ahya: And I'm Chetan Ahya, Morgan Stanley's Chief Asia Economist.Michael Zezas: Today, we'll talk about what U.S. tariffs would mean for Asia's economy.It's Tuesday, January 28th at 8am in New York.Chetan Ahya: And 9pm in Hong Kong.Michael Zezas: Chetan, a week into the new Trump administration, I'm eager to talk tariffs with you. You and I came on the show before the U.S. election to discuss the potential impact of new tariff policies on China's economy in particular. And now that President Trump has taken office, he's been vocal about levying tariffs in a lot of places, including on China. The policy underpinning all of that appears to be a tariff review under the America First Trade Policy. That suggests to us that he's developing options to impose tariffs with China as a focus, but there's still time before implementation -- as these legal options are developed. That's in line with our base case; but investors have been talking a lot about the idea that maybe these tariffs never go on.What's your view here? And why do you think ultimately we are headed to a place where tariffs go higher?Chetan Ahya: Well, I think if you just look at the press comments that the president has made at the same time, if you read through this America First document, we sort of think that there are five avenues under which tariffs can go up on China.Number one is the recommendation from the America First policy document that the agencies in the U.S. will have to study how the large trade partners, which are running trade surpluses with the U.S. are managing their trade practices. Number two, a para in the America First document, which is suggesting that the trade agreements that US and China signed in 2018-19, how is China dealing with the commitments under that agreement?And number three is the clause which is currently exempting imports into the U.S. under [the] de minimis rule of imports under U.S. $800 per bill being allowed to import without any tariffs being imposed. And what the document is suggesting is to assess what is the potential revenue loss occurring to the government, and how can they plug that. Number four is a potential tariff action with the sale of a social media company. And number five, a potential tariff action which is linked to the fentanyl issue.So, as you can see, there are a number of avenues under which tariffs can go up on China and therefore we kind of keep that in our base case that tariffs will go up on China.And Mike, some investors are also optimistic and thinking that there is a possibility of a new trade deal being taken up by U.S. and China. What do you think are the chances of that?Michael Zezas: I think they're quite low. So, you mentioned five areas of potential dispute that the U.S. might want to use tariffs as a way of dealing with -- and I think that speaks to the idea that the bar is pretty high for China to avoid tariffs relative to some of the other negotiations the U.S. wants to engage in with other trade partners. Or maybe said differently, if the America First Trade Policy is pointing the U.S. at closing goods, trades, deficits, and improving security and making sure that it's not engaged with trade with other countries that are harming national security -- it seems that there are more of those activities going on between the U.S. and China than with other trade partners. Closing, for example, a $300 billion goods trades deficit would seem to be just really, really difficult within the structures of the economy.So, if we're right, and the chance of tariff de escalation with China appears to be slim, do you think Beijing, for example, might use renminbi depreciation to mitigate some of those economic risks?Chetan Ahya: Well, yes, we do think that China’s policymakers will allow depreciation in [renminbi] when tariffs are being imposed. However, we also think that the depreciation this time that they will allow will be less than what they did in 2018-19. And China has already been facing some capital outflows; and allowing a large depreciation could bring self fulfilling situation of more capital outflows and even sharper currency depreciation pressures.Michael Zezas: Beijing also started introducing stimulus measures last fall to boost the Chinese economy. Would tariffs disrupt this policy?Chetan Ahya: Certainly in our base case, despite the policy stimulus measures that China is taking, we think that overall growth in China will be lower in 2025 meaningfully. And more importantly in our view, China’s biggest challenge is deflation and tariffs will only exacerbate deflationary pressures.Michael Zezas: And so, we're ...
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    7 min

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