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Thoughts on the Market

Morgan Stanley
Thoughts on the Market
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  • When Will the Shutdown Affect Markets?
    An extended U.S. government shutdown raises the risk for weaker growth potential. Our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas suggests key checkpoints that investors should keep in mind.Read more insights from Morgan Stanley.----- Transcript ----- Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income Research and Public Policy Strategy.Today: Three checkpoints we’re watching for as the U.S. government shutdown continues. It’s Wednesday, October 8th at 10:30am in New York. The federal government shutdown in the United States has crossed the one week mark. But if you’re watching the markets, you might be surprised at how calm everything seems. Stocks are steady. Bond yields haven’t moved much, and volatility’s low. It’s more or less the scenario my colleague Ariana and I had talked about in anticipation of the impasse in Washington. We’d noted the potential for uncertainty for investors and market reaction depending on how long the shutdown would last. So that raises a big question: what, if anything, about this government shutdown could shake investor confidence and start moving markets? The question is worth considering. Prediction markets now suggest the most likely outcome is that the government shutdown will not end for at least another week. And as we’ve seen in past shutdowns, the longer it drags on, the more likely it is to matter. That’s because risks to the economic outlook start to accumulate, and investors eventually have to start pricing in a weaker growth outlook. There’s a few checkpoints we’re watching for – for when investors might start feeling this way. First, the missed paycheck for furloughed federal workers. The first instance of this comes in a few days. Less pay naturally means less spending. Studies suggest that spending among affected workers can drop by two to four percent during a shutdown. That’s not huge for GDP at first; but it’s a sign the shutdown is having effects beyond Washington, DC. Second, this time might be different because of potential layoffs. The administration has hinted that agencies could move to permanently cut staff — something we haven’t seen before. Unions have already said they’d challenge that in court. But if those actions start, or even if legal uncertainty grows around them, it could raise the economic stakes. Third, we’re watching for real disruptions to economic activity resulting from the shutdown. The last shutdown ended when air traffic in New York was curtailed due to a shortage of air traffic controllers. We’re already seeing substantial air traffic delays across the country. More substantial delays or ground halts obviously impede economic activity related to travel. And if such actions don’t coincide with signals from DC of progress in negotiating a bill to reopen the government, investors’ concern could grow. So here’s the bottom line: markets may be right to stay calm — for now. But the longer this shutdown lasts, the more likely one of these pressure points pushes investors to rethink their optimism. Thanks for listening. If you enjoy Thoughts on the Market, please leave us a review and tell your friends about the podcast. We want everyone to listen.
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  • Get Ready for a Steeper Yield Curve
    Our Fixed Income Strategist Vishy Tirupattur explains how changes in the yield curve are affecting markets such as insurance, Treasury yields and mortgage rates.Read more insights from Morgan Stanley.----- Transcript ----- Vishy Tirupattur: Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. Today – How the shape of the yield curve has affected credit and housing markets, and the risk of changes to the curve and its implications. It’s Tuesday, October 7th at 1pm in New York. The shape of the yield curve plays a pivotal role in financial markets. It influences everything from credit conditions to housing and mortgage dynamics. And you’ve been hearing on this show for some time about more Fed rate cuts coming. Our economists expect 25 basis point rate cuts at the next three meetings – that is October, December and January. And then two more in April and July of next year. What does this mean to the shape of the curve? Our high conviction call has been that investors should position for a steeper yield curve. Why does the curve matter? It’s not just a macro signal. It’s a transmission mechanism that shapes pricing, risk appetite, and sector flows. Take life insurers, for example. A steeper curve has turbocharged demand for fixed annuity products, which in turn drives flows into spread assets like corporate and securitized credit. Insurance demand has become a powerful technical in credit markets. This year’s steepening has been led by falling front-end yields. For example, 2-year Treasuries are down about 60 basis points, significantly outpacing the 40 basis point drop in 10-year yields and just 5 basis point drop in 30-year yields. That front-end move reflects shifting rate expectations and offers relief to highly leveraged issuers who rely on short-term funding. But longer-dated yields remain sticky, keeping all-in borrowing costs elevated. That is good for insurers – and the sale of fixed annuity products – but acts as a brake on overall issuance, helping keep credit spreads tight despite macro uncertainty. That said, not all markets benefit. Mortgage rates, which track longer yields more closely than the fed funds rate, have actually risen 25 to 30 basis points since the easing cycle began in September of 2024. That’s a headwind for affordability. While a steeper curve may support lending and future housing supply, it’s not helping today’s buyers. A flatter curve with lower long-end yields would offer more meaningful relief—but that is clearly not our base case. Bottom line: Rate cuts matter, but the shape of the curve may matter more. A steeper curve is a tailwind for credit but a headwind for housing. And a reminder that not all markets move in sync. 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.
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  • How Asia Is Reinventing Itself for Global Competition
    Our strategists Daniel Blake and Tim Chan discuss how Asia is adapting to multipolar world dynamics, tech innovation and longevity trends to create new opportunities for global investors.Read more insights from Morgan Stanley.----- Transcript ----- Daniel Blake: Welcome to Thoughts on the Market. I'm Daniel Blake, Morgan Stanley's Asia Equity and Thematic Strategist. Tim Chan: And I'm Tim Chan, Morgan Stanley Head of Asia Sustainability Research and Thematic Strategist Daniel Blake: Today, how Asia is reshaping its development strategy, corporate governance, and capital markets to lead globally. It's Monday, October 6th at 8am in Singapore. Tim Chan: And it's also 8am in Hong Kong. Daniel Blake: Asia is experiencing a number of dramatic changes that are reshaping industries, even entire economies. Deglobalization, supply chain shifts, frenetic investment in AI and looming disruption from the adoption of the technology, rapid energy transformation, and the transition to super aged populations as longevity drives investment in innovative healthcare and better nutrition are just some of the overarching themes. Asia's transformation is a story every global investor needs to follow and look for opportunities in. Tim Chan: So, what are the overarching themes, when you look at Asia Pacific? For example, what are the key themes that you're seeing in terms of driving the equity return and the market trend that you're seeing? Daniel Blake: We're approaching the Asia thematic opportunity from the framework of a competitive reinvention. It's competitive because this is deeply rooted in the cultural and business norms across much of the region, which has had an export focus through the modernization process in Japan, and more broadly with the emergence of the Asia Tigers. But we're seeing this competition really stepping up another notch. As countries look at how they can take market share in emerging technologies, and also this overarching competition between the U.S. and China, which sits at the heart of the multipolar world theme we've been laying out in recent years. We're also seeing a reinvention of development strategies of corporate governance frameworks and of capital markets to try to better improve the financial supply chain, to see the capital raising the capital allocation process improved and ultimately drive better returns for an aging population. So, Tim, you've been very focused on the corporate governance improvements that were seen in much of the region. Take us through what you think is most compelling and most important for investors to note. Tim Chan: I think governance reforms is a really key thing for Asia Pacific. Take an example in Japan, in the past we have done some correlation analysis between the major governance factors and what are driving the return. What we have found is that, first of all, there is a significant alpha potential from online companies with leading governance metrics and also companies that may improve their governance metrics over time. So, if we look at the independence of board of directors as an example. There is a positive correlation between the total return and also the independence in Japan market. And overall, we are seeing a major government improvement. As Daniel you have mentioned, China, Korea, India, and Singapore, and Japan as well – all these markets together account for over 70 percent of the market cap in MS Asia Pacific in index. So that's why, we think the governance reform is really driving the return of Asia Pacific as a whole. Daniel, after talking about the governance reform and capital market reform, I know multipolar level is also a key theme for Asia Pacific. So, what you are seeing in terms of multipolar level in Asia Pacific? Daniel Blake: So, the multipolar world theme has come back to the foreground in 2025 as trade tensions have risen, as deal making has been struck or attempted. And we've seen the concept of weaponized interdependence really being proven out in the second quarter of 2025, as China has been in recent years, implementing frameworks for export controls and leverage these quite effectively. So economic security initiatives have come back to the focus for investors. Over recent years, we've seen a number being set up across the region, including Japan's Economic Security Promotion Act, the Self-Reliant India framework, and South Korea's Supply Chain Stabilization Act, as well as Australia's National Reconstruction Fund. So, we see a number of investment opportunities flowing from these reforms. Ultimately the critical mineral and permanent magnet supply chain is very much in focus, but we're also expecting to see semi localization. So, semiconductor localization efforts are continuing to drive investment and activity. Naturally, defense has been a key area of focus for investors in 2025, and overall we see defense spending rising in Asia from 600 U.S. billion dollars in 2024 to [$]1 trillion in 2030.So, Tim, the energy security theme fits as part of this overall future of energy theme that you've been exploring with the team. How do you see this intersection with the multipolar world and what are the key investment opportunities? Tim Chan: For the future of energy, I think the energy story is really at the core of Asia multipolar world positioning. Take an example, we are seeing for Southeast Asia, the region is importing gas from U.S., and then also Korea and Japan are also trying to export their nuclear technology to the Western world as well. I think all these have a part to play in the multipolar world; but at the same time, they are also crucial for these countries to meet their own energy target and strategy. In Asia Pacific, when we look at the future of energy, there are a few driving force[s]. One is the very strong growth of renewable energy. Take an example, in India, we are seeing a huge CapEx going into the renewable energy sector and solar sector as well. China is already the biggest market in solar panel. Then also Korea and Japan are developing their nuclear capacity as well. And as I have mentioned, they also export their nuclear technology to the Western world. So, I would say, these Asian countries are balancing the multipolar world priorities with their future of energy target as well. And then there were also lots of opportunities between these dynamics; I will highlight two examples. One is a nuclear renaissance thesis that we have written extensively in the past two years. We have highlighted Japan and Korea being the key beneficiaries under this multipolar world and future of energy dynamics. And then the other would be the gas globalization in Southeast Asia or ASEAN region, where we see opportunities in the gas distributor, gas infrastructure in Southeast Asia. And then gas is going to be much more important when it comes to the energy, security and transition agenda in Southeast Asia region. So we are seeing lots of development in the future of energy in Asia Pacific. But when it comes to the other big theme that is AI. Asia Pacific is also a leader in a global AI race. So, Danny, what are the most reputable trend that you're seeing on a national or regional level? On tech diffusion and AI in Asia Pacific? Daniel Blake: So, the concept of competitive reinvention also is useful in understanding Asia's response to AI and technology diffusion. So, we've seen China in particular, looking to strengthen its position in the development phase of new technologies. And we're also seeing on the export competition front, more incentives to compete for the next phase of supply chain diversification. We're also seeing the emerging class of China MNCs that are sitting at the heart of our China Emerging Frontiers research. And another key area of discussion and research for us is understanding China's unique AI path. Where we're seeing more of a focus on policy makers and corporates playing to strengths in terms of power, data and talent, given the shortages of compute, and at the same time wanting to pursue a localization strategy over the medium term. On the technology front, we think the India stack is also still underappreciated as a digital enabler of opportunities in the New India. And then more broadly, we are looking for companies that we see in Asia that will prove to be AI adoption leaders. So, this underpins a really another key work stream for us in identifying opportunities from AI and tech diffusion into the region. So, Tim, how about when we turn to the theme of longevity, what are the key investment opportunities you see in Asia Pacific? Tim Chan: First of all, let's look at China. So, China is entering a super age society and by 2030, China's elderly population will hit 260 million. So that is a big number, which accounts for 18 percent of the population. And Japan as well, and Korea as well. Korea is already entering the super aged society. And then there have been reform program on healthcare, financial system pension and labor market in order to support these, old aging population. And for Japan, the focus is really on not just living longer but also living more healthy. Take an example, we have done some reports on the healthy food industry in Japan. And how different companies are providing affordable, healthy food to consumer. And we think that will create opportunities for investor, if they would like to look into longevity as a theme. Overall, we are seeing new market in healthcare, pharmaceutical, and affordable healthy food, as well as the reform in the wealth management and pension system that will create opportunities in the financial market as well. And the longevity economy and or the silver economy is becoming a big theme for Asia Pacific for a long time to come. Daniel Blake: Tim, thanks for taking the time to talk. Tim Chan: Yeah, great speaking with you, Daniel. Daniel Blake: And 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.
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  • Introducing: What Should I Do With My Money: Season 3
    Have you ever wondered -- How much do I really need to retire early and am I on track? How do I balance all of my financial goals? How can I help my children be financially secure? Tune into Season 3 of What Should I Do With My Money, hosted by Morgan Stanley Wealth Management’s Jamie Roô to hear real-life stories about these and other big financial questions.
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  • China’s Biotech Revolution
    Our China Healthcare Analyst Jack Lin discusses how China’s biotech surge is reshaping healthcare, investment and innovation worldwide.Read more insights from Morgan Stanley.----- Transcript ----- Jack Lin: Welcome to Thoughts on the Market. I'm Jack Lin, from Morgan Stanley's China Healthcare Team. Today, the boom in China biotech – and how it's not just a headline for China-focused investors, but a story that touches all of us. It is Friday, October 3rd at 2pm in Hong Kong. Many people might not realize this but some of the next generation healthcare innovation is being developed far from Silicon Valley and Wall Street. The medicines you rely on, treatment plans that could shape your family's future, even investment opportunity that can grow your savings. They are all increasingly influenced by China's rapidly evolving biotech sector, which is transitioning from traditional generics manufacturing into the global innovation ecosystem. In fact, China's biotech industry is set to become a major player in the global innovation ecosystem. By 2040, we project China's originated assets could represent about a third of U.S. FDA approvals – up dramatically from just 5 percent today. And the question isn't if China's biotech will matter, but how global patients could benefit; and how consumers and investors worldwide might engage with its impact.What's driving this transformation? Three key components are driving the globalization of China originated drug innovations: cost, accessibility, and innovation quality. Lower cost in China's biotech sector enables more efficient development. Clinical trial quality is improving with regulatory pathways becoming more streamlined, promoting accessibility of China innovation for global markets. Finally, innovation in China's biotech sector is gaining momentum with more regionally developed medicines now eyeing market approval from leading overseas agencies like the U.S. FDA and EMA.This is all to say China is on track to become a key force on the global biotech stage. That said, right now we're also at a crossroads moment as geopolitical tensions between U.S. and China pose potential risks to the flow of innovation. Despite these uncertainties, we see a likely outcome of co-opetition, a blend of competition and collaboration, as global pharma grapples with the dual imperatives of innovation and resilience. Of course, this rapid evolution brings both opportunities and challenges. It's prompting stakeholders around the world to rethink their strategies and collaborations in this shifting landscape of global medical innovation. As the China biotech industry evolves, the choices made by investors, policy makers, and healthcare communities, both within China and globally, will determine the therapies of the future. It is truly a dynamic space, and we'll continue to bring you updates. Thanks for listening to our thoughts on the market. If you enjoy the show, please leave us a review, wherever you listen and share Thoughts on the Market with a friend or colleagues today.
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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.
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