Morgan Stanley on the mood in markets
Risk trades are a bit lower today but the market has been in a placid mood fora few days after last week's turmoil. Morgan Stanley doesn't think it will last.
We expect the corrective risk rebound to reverse soon. The rebound has been driven in part by investors' expectations that authorities will deliver a large (and quasi-coordinated) fiscal and monetary stimulus. Risk assets may suffer once investors realize that the authorities will under-deliver relative to expectations.
The first chance for that will come this Friday when Powell speaks at Jackson Hole. Morgan Stanley believes he may have to wait for weaker global demand for US exports and trade uncertainty to spill over into the domestic consumer sector before turning decisively dovish.
"A cautious Fed means that news may have to become worse (in terms of economic indicators) to become better (the Fed turning dovish)," they write.
Another point they make is that the ECB could end up being a risk-negative event because of the effect on banks.