By Chetan Ahya, Morgan Stanley chief economist and global head of economics
Twice a year, the Morgan Stanley macro research team huddles in a time-honoured ritual – outlook season. We come together to debate and reassess our forecasts and narratives, challenging each other while collaborating to provide clients with a consistent and coherent view of the world.
In a few hours’ time, you will be receiving our 2021 outlooks in your inboxes. As a preview, here’s a summary of our views.
We remain constructive on the prospects for macro and markets in 2021. On the macro side, we think that the global economy will enter the next phase of the V-shaped recovery. In the first stage, the global economy has reached pre-COVID-19 output levels, a milestone we expect to pass this quarter. By 2Q21, we envision the economy getting back on its pre-COVID-19 path (i.e., where GDP would have been absent the COVID-19 shock).
Three features will distinguish the global economy in 2021:
- A synchronous global recovery: At 6.4%Y, our 2021 global growth forecast remains above consensus (5.3%Y), a stance bolstered by the news on vaccines and antibody treatments. We are more bullish than consensus because we believe that the COVID-19 shock has not dampened private sector risk appetite significantly, while policy stimulus has proved to be more than a backstop. We think that a global synchronous recovery, last seen in 2017, will unfold in 2021. While rising COVID-19 cases may lead to tighter restrictions and weigh on DM activity in the near term, EM growth will continue to accelerate. Emerging from the winter, the easing of restrictions will lift growth in DMs, which will join the rest of the world from March/April 2021. While the consumer has been driving the recovery so far, we expect the capex cycle to kick in from 2Q21.
- EMs boarding the reflation train: The past eight years have been tough for EMs, as a series of challenges have brought about a prolonged downturn. While it is tempting to blame structural issues for weak EM growth, we think that cyclical challenges and exogenous shocks (e.g., China and commodity price slowdowns, trade tensions and COVID-19) played a bigger role in keeping EM growth well below potential. However, we see a turn in 2021. The COVID-19 situation is now improving in a broad range of EMs and their recoveries are gaining momentum. In 2021, a widening US current account deficit, low US real rates, a weaker dollar, China’s reflationary impulse and EMs ex China’s own accommodative domestic macro policies will lead to a sharp rebound in growth. As this cyclical recovery takes hold, it can help create a virtuous cycle where stronger nominal GDP growth alleviates some of the pressure from structural issues like the need to consolidate public finances.
- Inflation regime change in the US: We see an altogether different inflation dynamic taking hold, especially in the US. While we argued for the return of inflation in this cycle earlier this year, 2021 will lay down the marker for this thesis. The US economy will reach both pre-COVID-19 levels and its pre-COVID-19 path over the course of 2021. Even so, both monetary and fiscal policy will remain much more accommodative relative to 4Q19. Our chief US economist Ellen Zentner expects underlying core PCE inflation to rise to 2% in 2H21 and move sustainably higher from 1H22. In contrast, the consensus doesn’t expect inflation to reach 2% until 2022.
A constructive macro view provides a supportive backdrop for risk assets: Our chief cross-asset strategist Andrew Sheets believes that while abnormality defined 2020, 2021 will be characterised by a return to more normal conditions (economic growth recovering, control of the virus improving and uncertainty declining). Markets will also follow much of the 'normal' post-recession playbook. Our strategy team recommends investors overweight equities and credit against government bonds and cash and sell USD. Within equities, they would overweight cyclicals and underweight defensives across regions, and expect US small-caps to outperform large-caps.
The risks to our views are twofold. In the near term, an even sharper rise in hospitalisations in the US or Europe could prompt policy-makers to adopt stricter lockdown measures than our base case, pushing near-term growth lower and also delaying the return to the pre-COVID-19 path. Looking a bit further out, US inflation could surprise to the upside from 2H21, particularly if we get a large fiscal package. This could challenge the market’s view on inflation and create a disruptive shift in expectations for Fed policy.
GBP/USD extends losses on mixed UK data
UK retail sales improve, PMIs remain in contraction The British pound is in negative territory after two days of losses. In the European session, GBP/USD…
- UK retail sales improve, PMIs remain in contraction
The British pound is in negative territory after two days of losses. In the European session, GBP/USD is trading at 1.2245, down 0.40%. The struggling pound is down 1.1% this week and is trading at its lowest levels since late March.
UK retail sales improve, PMIs mixed
It is a busy day on the data calendar for UK releases. Retail sales rose in August by 0.4% m/m, following a 1.1% decline in July and was just shy of the market consensus of 0.5%. The sharp decline in July was largely due to unusually wet weather. On an annual basis, retail sales fell by 1.4%, compared to -3.1% in July. Consumer spending has been in a nasty rut, as annualized retail sales have now declined for 17 straight months. The silver lining was that the -1.4% drop marked the slowest pace of contraction in the current streak.
The September PMIs were a mixed bag. The Services PMI slowed to 47.2 in September, down from 49.5 in August and missing the consensus estimate of 49.2. This marked a second straight deceleration and the sharpest contraction since January 2021. The Manufacturing PMI increased to 44.2 in September, up from 43.0 in August and above the consensus estimate of 43.0.
The decline in activity in both services and manufacturing points to a UK economy that continues to cool. The Bank of England, which held interest rates on Thursday, will be hoping that the slowdown translates into lower inflation and that it can continue to hold interest rates.
UK consumer confidence remains low, but there was a bit of an improvement in September. The GfK consumer confidence index rose to -21, up from -25 in August and beating the consensus estimate of -27. This was the highest reading since January 2022, but the economy has a long way to go before consumers show optimism about the economic outlook.
- GBP/USD is testing support at 1.2267. The next support level is 1.2156
- There is resistance at 1.2325 and 1.2436
“Go To Hell”: Brave EU Politician Delivers Damning Message To Global Tyrants
"Go To Hell": Brave EU Politician Delivers Damning Message To Global Tyrants
Via The Vigilant Fox,
Member of the European Parliament Christine…
Member of the European Parliament Christine Anderson has been an unyielding opponent to Klaus Schwab’s ‘Great Reset’ Agenda. Known best for her famous smackdown on Justin Trudeau, MEP Anderson has established herself as one of the few politicians left who represent the interests of the European people.
September 13 was no different as MEP Anderson took no prisoners in her latest warning to the globalitarian elite. Before the European Parliament, in a session specifically focused on the COVID-19 response and the World Health Organization, MEP Anderson ended the meeting with a powerful statement.
Here’s what she said, word for word:
‘Go to Hell’: MEP Christine Anderson Delivers Damning Message to the Global Tyrants— The Vigilant Fox ???? (@VigilantFox) September 21, 2023
“If you do not unequivocally stand with the people ... you have no place in any parliament or in any government. You belong behind bars. You may even rot in hell for all I care at this point… pic.twitter.com/4sOVrr9CgC
“We just need to find a way to wake the people up. Because the point is simply this: it comes down to a choice. It’s either freedom, democracy, and the rule of law — or enslavement.
“There is no such thing in between. There is no such thing as a little freedom, a little democracy, a little rule of law, just as there is no such thing as a little enslavement. So that’s the choice. It comes down to – it’s either the globalitarian misanthropists or the people. It comes down to – it’s either us or them. And that’s, I think, what this really is all about.
“Now, when my colleagues and I were elected to this parliament, there was no question about it. We were on the side of the people because the people actually pay us to act in their best interests. That’s our job. And once again, I will say to every single elected representative around the world, to every single member in every elected government around the world, if you do not unequivocally stand with the people and serve in their best interests, act in their best interests, you have no place in any parliament or in any government. You belong behind bars. You may even rot in hell for all I care at this point because that’s exactly what you deserve if you sell out the people.”
MEP Anderson continued. “Now, I would like to make a promise to the people, and I’m pretty sure I can speak or speak on behalf of my colleagues. We will continue to stand with you, the people. We will continue to fight for freedom, democracy, and the rule of law. We will not shut up, and we will not stop going after those despicable globalitarian misanthropists.
“But we would also like to have you make a promise to us. You may have heard it’s all coming back. The first country is already starting [to talk about] mask mandates in Israel. They’re already imposing it. I’ve heard of a few universities in the United States. They’re already bringing it all back. And I would really like for you, the people, to not go along. Simply say no! They want you to wear a mask; say no. They want you to put in another mRNA shot; say no. They want to impose a curfew on you; say no. That’s really all you have to do.
“And it might not be or might sound a little hard, but it’s actually not that hard. Because once you have made it clear to them that you will no longer go along, once you’ve let them know, they cannot scare you anymore. Because as long as you are afraid of what they might do if you don’t comply, they have power over you. Take the power away from them! Simply say no. Once you do that, they don’t have power over you anymore. You will feel so free. Simply say no.
“And considering what we’ve heard today, and considering what we’ve seen in the last three years. Considering what we know they want to implement, heck, you might even be well within your right to tell them to screw themselves and go to hell! That’s where they belong. What will you get out of that? I can tell you. Once you’ve done that, once you’ve told them to just go to hell, they no longer have power over you. You will have an incredible feeling — kind of like a sensation of freedom will swap through your body. I promise you will feel so relieved.
“And this is the state of mind that I would ask all of you to get to. Simply don’t let them grind you down anymore. You are worth it. You are deserving of just standing up for yourselves. And tell them all to go to hell. Thank you very much.”
* * *
Subscribe to Vigilant News here to receive updates on the latest and most newsworthy stories.
Yen Drops After BOJ Does Nothing and Says Little
Overview: The BOJ’s failure to do anything or
further ideas that an exit of the negative target rate, despite the firm CPI
report helped the dollar…
Overview: The BOJ's failure to do anything or further ideas that an exit of the negative target rate, despite the firm CPI report helped the dollar recover the ground lost yesterday against the yen. The focus has returned to "intervention watch" and the market continues to press for the official pain threshold. Sterling is the weakest of the G10 currencies, off another 0.5% today following the BOE's decision not to hike yesterday. The dollar-bloc currencies enjoy a firmer tone. Emerging market currencies are mostly firmer, including the Chinese yuan.
Reports that Beijing is considering reducing some capital controls helped lift Chinese and Hong Kong equities today. Taiwan and Australian equities also advanced, while the other large bourses headed south. Europe's Stoxx 600 is extending yesterday's 1.3% drop, while US index futures are slightly higher. Yesterday's 1.6% drop in the S&P was the largest drop in six months and it was unable to recover from the gap lower opening. That gap (~4375-4401) has technical significance. European bond yields are narrowly mixed, but UK Gilts continue to rally. The US 10-year Treasury yield is slightly softer near 4.48%. Gold has come back firmer after falling more than 0.5% yesterday (its largest loss in around three weeks) and is near the 200-day moving average ($1925). November WTI has steadied and looks to snap a three-day decline. It is back above $90 a barrel and looks poised to settled higher for the fourth consecutive week.
The Bank of Japan did not change its stance, and Governor Ueda gave little hint that a change in rates is possible before the end of the year, as he did earlier this month. Indeed, he suggested those remarks were intended simply to keep the BOJ options open. The dollar, which had fallen to around JPY147.30 yesterday recovered to back toward the recent highs near JPY148.40. Japanese officials underscored they are prepared to counter excessive fx moves.
Before the BOJ's meeting concluded, Japan reported August CPI figures, which were largely anticipated by the Tokyo CPI previously reported came in a little firmer. The headline rate slipped to 3.2% from 3.3%. The core rates were unchanged. Excluding fresh food, Japan's CPI remained at 3.1% and the measure excluding both fresh food and energy stayed at the cyclical high of 4.3%. Separately, the flash PMI came in softer. The manufacturing PMI eased to 48.6 from 49.6 and the services PMI stands at 53.3, down from 54.3. This saw the composite fall to 51.8 from 52.6. Lastly after buying the most foreign bonds since 2020 in the week ending September 8 (~JPY3.6 trillion or ~$24.5 bln), Japanese investors bought another JPY885.5 bln. Meanwhile, while foreign investors bought JPY438 bln of Japanese bonds, they dumped JPY1.58 trillion of Japanese stocks, most in four years.
Australia's flash PMI showed the service sector grew (50.5 vs. 47.8), while the manufacturing sector slump deepened (48.2 vs. 49.6). Manufacturing new orders were the weakest since May 2020. The composite rose above 50 (to 50.2 from 48.0) for the first time in three months. The central bank meets on October 3 and the market sees practically no chance of a change in rates.
Yesterday, the dollar traded on both sides of Wednesday's range but the close was within the range, which removed much of the technical significance of the outside day. The broad range may be best explained by short covering of the yen ahead of the BOJ meeting. The dollar is trading back above JPY148.00 as the market continues to test the official resolve. The dollar settled near JPY147.85 last week and has only falling in one week since the end of July. The Australian dollar peaked before the FOMC meeting outcome near $0.6510 and found some bids near $0.6385 yesterday. It settled at $0.6415. It is trading with a firmer bias today and is knocking around $0.6440. To help stabilize the technical tone, the Aussie needs to get back above the $0.6465 area. However, the intraday momentum indicators are stretched in the European morning, suggesting some back and filling in early North American activity. Reports suggesting China is considering lifting some capital controls helped the yuan steady today. The greenback has been in about a 35-pip range on either side of CNY7.30. The dollar's reference rate was set at CNY7.1729. The average in Bloomberg's survey was CNY7.3028 and the gap with the fix was the widest yet. Offshore liquidity is being squeezed.
Following the flurry of European central bank meetings yesterday, the preliminary September PMI lost some of its luster. Norway, where we thought there was scope for surprise, turned out to be the least surprising. Sweden hiked but was more cagey about another hike, lifting its policy path by 10 bp. Milquetoast. It announced it would liquidate a quarter of its currency reserves, which was unexpected. The Swiss National Bank stood pat, surprising economists. But the swaps market did not think a hike was the most likely scenario, but the franc sold off hard anyway. The market went into the BOE meeting with an almost 50/50 outlook after the soft August CPI. In a 5-4 vote, where Governor Bailey cast the deciding vote, the BOE stood pat. It cut Q3 GDP forecast to 0.1% from 0.4%. However, it increased the pace of the balance sheet unwind to GBP100 bln in the fiscal year beginning next month from GBP80 bln this fiscal year.
The eurozone flash September PMI was mixed. The manufacturing PMI slipped to 43.4 from 43.5 and the services PMI edged up to 48.4 from 47.9. The composite stands at 47.1, up from 46.7. New orders softened to 44.5 from 44.6, which is the lowest since November 2020. Germany's preliminary readings were poor but better than August. The manufacturing PMI is at 39.8 (from 39.1). The services PMI is at 49.8 (47.3). The composite rose to 46.2 from 44.6, the first uptick since April. France moved in the opposite direction. Its PMI fell. The manufacturing tumbled to 43.6 from 46.0. The services PMI is at 43.6, down from 46.0. The composite now stands at 43.5 compared with 46.0 in August, a new low since late 2020.
The UK reported August retail sales. After falling a revised 1.1% in July (initially -1.2%), UK retail sales rose 0.4% in August, slightly less than the median projection in Bloomberg's survey. The flash PMI was disappointing. While the contraction in manufacturing eased (44.2 from 43.0), the contraction in services deepened (47.2 from 49.5). The composite PMI fell to 46.8 from 48.6, a new three-year low.
After posting an outside down day on Wednesday, the euro extended its decline to almost $1.0615 yesterday, a six-month low, and retested it today. Since the low was recorded, the euro's high has been about $1.0650. The price action, however, is uninspiring and an important low does not seem in place. Sterling was punished for the BOE's failure to deliver a hike, which was roughly 50% discounted. Yesterday's six-month low was near $1.2240 has been taken out today, and a marginal new low closer to $1.2230 has been recorded. Like the euro and yen, sterling recovered into the close of the European session to trade a little above $1.2300. It spent the North American afternoon in about a 10-tick range and settled a couple of hundredths of a cent below $1.23, and today, was sold when it briefly poked above it. Nearby support is seen near $1.22, but the next important target is the $1.2000-$1.2075 area.
US data was mixed yesterday. The Q2 current account deficit was slightly smaller than expected but it was inconsequential. Weekly jobless claims were lower than expected and the four-week average (217k) is the lowest since February. Continuing claims fell to their lowest since January. The September Philadelphia Fed survey was showed a sharp deterioration (to -13.5 from 12.0) and existing home sales fell for the third consecutive month, defying expectations for a small gain, after falling nearly 5.5% in the previous two months. The August index of Leading Economic Indicators continued it uninterrupted decline that goes back to Q1 22. Attention today turns to the preliminary September PMI, where economists expect slightly firmer readings. Still, the market is trying to adjust to the signal by the FOMC sees an economy growing faster than its non-inflationary speed limit, requiring policy to be restrictive for longer. The Fed funds futures strip does not have the first fully discounted in late Q3 24. By comparison, the swaps market has the first ECB cut fully discounted by early Q3.
Canada reports July retail sales today. Somewhat better numbers than June are expected when retail sales rose 0.1%, driven by autos. With them, retail sales fell by 0.8%. The swaps market has almost an 80% chance of another Bank of Canada rate hike by the end of the year. No cut its priced through Q3 24. Inflation for the first half of September will be reported by Mexico today. The bi-weekly reading may accelerate slightly, but the downtrend in the year-over-year rate should continue. The central bank meets next week, but policy is expected to be steady well into next year. The swaps market seems to be pushing the first cut into Q2 24.
The US dollar popped up to almost CAD1.3525 yesterday. The week and month's low were set on Tuesday near CAD1.3380. The greenback's momentum stalled, and it settled slightly below CAD1.3485. It is trading with a heavier bias but is holding above yesterday's low near CAD1.3450. Support now is seen around CAD1.3440, but the US dollar looks set to trade higher in North America today. After briefly dipping below MXN17.00 before the outcome of the FOMC meeting, the dollar reached MXN17.25 yesterday. That is a little shy of the (38.2%) retracement of the leg down from the nearly four-month high set on September 7 around MXN17.7080. The next retracement (50%) is slightly above MXN17.35. It is consolidating in the European morning mostly MXN17.16.
Elon Musk Says “Strange Almost No Legacy Media Coverage” On Worsening Southern Border Crisis
With Cushing Hitting “Tank Bottoms” Goldman Hikes Oil Price Target To $100
Hilton’s Chief Brand Officer just told us about the chain’s newest one
Higher for Longer Lifts the Dollar, while SNB Surprises Many by Standing Pat–Over to the BOE
Sunak should be wary of backtracking on net zero – what history tells us about flip-flopping on the environment
Escobar: Russia, North Korea Stage ‘Strategic Coup’ Against Western Hegemony
Lesson Of The Day: Sanctions Don’t Work Because They Create New Markets
Five new health systems partner with American Thoracic Society on vaccine initiative
WTI Holds Bounce Above $90 After Across-The-Board Inventory Draws
Are global banks claiming premature victory against inflation?
Uncategorized22 hours ago
NFT Collector: William Mapan explains generative art using a crayon and dice
Uncategorized23 hours ago
Reality TV show contestants are more like unpaid interns than Hollywood stars
International20 hours ago
A top airport is close to fully scrapping passports (even for international travel)
International15 hours ago
Domino effect: A tourist tax is coming to another country many want to visit
Uncategorized10 hours ago
‘End of an era’ — Consensys sunsets Truffle, Ganache amid shift to Metamask Snaps
International23 hours ago
BOE Surprises Markets By Keeping Rates Unchanged For The First Time In Two Years
International17 hours ago
EUR/GBP: Pound falls to 2-month low against euro as BOE rate hiking cycle likely over
Uncategorized15 hours ago
Bond Bloodbath Trounces Tech; Batters Bitcoin, Banks, & Bullion