Morgan Stanley(US:MS)2025-05-28 05:45Investment Rating - The report maintains an "Overweight" (OW) rating on US assets, particularly in global equities and core fixed income, while being "Underweight" (UW) in other fixed income and commodities [3][12]. Core Insights - The global economy is in expansion mode despite slowing growth, with a projected global growth rate of 2.5% for 2025 and 1.0% for the US [9][18]. - US assets are expected to outperform their counterparts in the rest of the world (RoW) due to a favorable macro narrative, including slowing economy, receding inflation, and policy easing [10][33]. - The USD is anticipated to weaken further, influenced by converging US rates and growth with peers, alongside rising risk premiums from FX-hedging flows [2][11]. Summary by Sections Macro Overview - The global economy is still expanding, albeit at a slower pace, with significant monetary easing expected [9][18]. - The average effective tariff rate is projected to remain at 13%, impacting inflation and consumption [22]. US Economic Outlook - The US is expected to experience a GDP growth slowdown from 2.5% in 2024 to 1.0% in 2025 and 2026, driven by tariffs and immigration controls [18][22]. - Core PCE inflation is projected to rise to 3.3% in 2025, with inflation expectations potentially becoming more malleable due to prolonged above-target inflation [19][22]. Global Equities - The S&P 500 is forecasted to show the strongest EPS growth, while emerging markets and Japan are expected to face material downgrades [33][36]. - The report suggests that dollar weakness and tax breaks will support a sustained recovery in US earnings [36]. Fixed Income - Core fixed income is rated "Overweight," with expectations of good total returns on duration rallying [3][12]. - US Treasury yields are projected to decline, with 10-year yields expected to reach 4.00% by 4Q25 [37]. Currency Outlook - The report anticipates the DXY to fall by 9% to 91 by mid-2026, driven by converging rates and growth [47]. - Safe-haven currencies like EUR and JPY are expected to benefit from the USD's weakness [42][43]. Commodities - The outlook for commodities is mixed, with lower oil prices expected due to supply-demand imbalances, while gold may rebound if the DXY weakens [57][62]. - Copper is currently tight but faces demand risks as the effects of front-loading metal to the US are realized [59].