Morgan Stanley analysts on the balancing act on the Fed:
- Within the very short-term, we expect the very best case state of affairs for equities this week is that the Fed can ship a 50bp price reduce with out triggering both development considerations or any remnants of the yen carry commerce unwind—i.e., purely an “insurance coverage reduce” forward of macro knowledge that’s assumed to stabilize
MS on the bond market:
- pricing signifies that financial coverage is behind the curve
- charges staying increased for longer dangers disrupturing financial system
However, the concern is {that a} 50bp reduce dangers being perceived because the Federal Reserve acknowledging bother forward for the financial system. Such considerations centre on worries over a deteriorating labour market, an financial slowdown, and even recession.
MS additionally nod to the hazard of one other episode of yen carry commerce volatility.