Summary of Morgan Stanley Global Macro Forum Call Industry and Company Involved - **Industry**: Global Macro Economics, focusing on US CPI and Asia Tariffs - **Company**: Morgan Stanley Key Points and Arguments US Consumer Price Index (CPI) - Core CPI is expected to rise by 0.32% month-over-month (3.04% year-over-year), up from 0.23% in June, indicating an acceleration in inflation pressures [5][57] - Headline CPI is projected at 0.25% month-over-month (2.76% year-over-year) [5][57] - The increase in core CPI is primarily driven by core goods, with categories exposed to tariffs showing signs of pass-through, while services remain stable [57] Tariff Impact on Asia - US trade-weighted effective tariff rate on imports from Asia has increased significantly to 25%, compared to 5% at the beginning of the year [13][57] - Asian currencies are appreciating in this cycle, contrasting with the previous cycle in 2018-19 [15][57] - The tariff burden on Asian economies is substantial, with initial signs of impact on capital expenditure (capex) cycles [17][57] - Aggregate demand in Asia is likely to have continued to slow down in July, with the PMI remaining in contraction mode [29][31][57] Economic Outlook for Asia - Despite favorable domestic fundamentals in India, external challenges such as China's deflationary pressures and rising tariffs are present [57] - The Reserve Bank of India's easing measures over the past four months have lowered real rates, which should support economic reflation [57] Emerging Markets (EM) and Asia Equities - The rally in EM equities since early April appears to be waning, with valuations at all-time highs and evident downside growth risks [57] - Earnings revision breadth remains negative in EM and has turned down in Japan, indicating potential challenges ahead [35][57] - Historically, August has been the worst month for EM and Japan equities, with September also lagging [44][57] US Equities Outlook - A bullish view for the next 6-12 months is supported by rebounding earnings and cash flow, with the market having already priced in a growth slowdown [57] - Preference remains for sectors such as Industrials and Financials, while Consumer Discretionary is underweight due to tariff pressures [57] - A strong CPI print could lead to quality leadership in equities, while a weaker print may favor small caps and lower-quality stocks [57] Other Important Insights - The uncertainty regarding tariff levels has decreased, but the significant increase in US tariff rates on Asia implies a considerable burden that has not yet been shared by Asian exporters [21][57] - The aggregate US import price from Asia has risen above February 2025 levels, indicating that the tariff impact is being felt [21][57] - The call highlighted the importance of monitoring trade tensions and their effects on both trade and capital expenditure cycles in Asia [25][57]

Trade Tariffs & Manufacturing - Trump's 50% tariff threat could lead to India having the highest tariff rate in Asia [1] - This poses a risk to India's manufacturing sector, which Prime Minister Modi has been developing for a decade to compete with China [1]

Market Volatility & Investment Strategy - Market volatility is expected to return, potentially leading to an asset price explosion in the second half of the year, advising strategic positioning [2][4][6] - Historically, volatility was seen negatively, but now it's part of digitalization and financialization trends [3] - The VIX (Volatility Index) is at its lowest point in 2025, suggesting an imminent increase in market volatility [5] Tariff Revenue & US Investment - Tariff income is projected to exceed 1% of GDP, surpassing the initial estimate of $300 billion [7][8] - Private industry is committing over $10 trillion in investments into the United States [8][9] - The US is gaining advantage in the geopolitical trade realm, potentially disadvantaging those betting against it [10] Geopolitics & Trade Negotiations - The US employs a multi-lever, non-linear strategy in trade negotiations, leveraging military operations, diplomacy, economic sanctions, and oil markets [22][23][28] - Disbanding of the Klepto Task Force and discussions on Arctic routes were potential incentives offered to Russia during negotiations [30][31][32] - Arctic shipping routes are emerging as a significant geopolitical factor, influencing trade and logistics [34][35] Cryptocurrency & Digital Assets - The US government and the Chinese government are among the largest holders of Bitcoin, holding the 3rd and 4th position respectively [40] - China is seriously considering launching a yuan-backed stablecoin, potentially from Hong Kong [42] - Governments recognize the growing demand for digital assets, leading to a complex dynamic between supporting these assets and safeguarding legacy systems [44][45]

Tariff Impact & Inflation - Traditional tariff understanding involves border application, but new trade policies apply tariffs based on goods within goods or raw materials, complicating cost assessment [1][2] - The accumulation of tariff impacts across the global value chain of production leads to earning and inflation shocks [3] - Companies are adjusting pricing decisions based on when and how they understand their costs related to tariffs [3] Supply Chain Dynamics - Cost pressure from suppliers is increasing, leading to appeals for price increases [4] - Customers are using data to negotiate and understand appropriate pricing in response to tariff increases [4] - Tariff impacts are working their way through the supply chain to the end customer and ultimately affecting earnings [4]

Market Trends - The US market experienced a significant correction due to tariff news in February [1] - The US market has rebounded to new highs from the April low [1] Analysis - Political turmoil does not seem to be significantly impacting the market [1]

Trade Policy - The US imposed a 39% tariff on Swiss exports [1] - Companies cannot avoid the 39% US tariff by exporting through Liechtenstein [1]

Inflation & Tariffs - Core CPI annualized basis came in a little hotter than expected, at the highest since February [2] - Sequential core inflation and underlying inflation data are showing an uptick after two years of moving closer to the Fed target [3] - Tariff pass-through is having a moderate impact and is likely to grow in the months ahead [3] - Import-sensitive categories like furniture, appliances, and car parts are seeing a shift towards higher inflation [4] Economic Growth & Labor Market - Recent economic data shows some labor market weakening and slowing in economic activity and growth [4] - There are medium-term questions about the effect of tariffs on both inflation and economic growth/employment [4] Consumer Spending & Impact on Working Class - Tariffs disproportionately affect low and moderate-income households [8] - Wage growth is slowing down at the bottom of the income distribution [9] - Consumer spending has been almost flat in the aggregate over the last six months, likely weaker at the bottom of the distribution [9] Healthcare & Student Loans - Premiums for those getting healthcare through Affordable Care Act exchanges will increase, in some cases by 10-20% starting in 2026 [11] - The turning off of the student loan pause is already showing its way in some of the credit score data [12] - There are challenges in the bottom half of the distribution that policymakers will need to be attuned to [13] Data Integrity - It's critical that members of the US Senate interrogate the nominee and press him on whether he can commit to providing credible nonpartisan data completely free from political interference [5] - Business leaders and market participants should make their voices heard about the importance of US economic data being respected [6]

US tariff revenue reached a fresh monthly record in July, though the increase wasn’t enough to prevent a widening in the monthly budget deficit — pointing to the federal government’s continuing fiscal challenges https://t.co/lX9IwemUXp ...

Inflation Trends & Analysis - CPI inflation has been running at a 19% annualized rate since the president took office [1] - There is no evidence of tariff-induced inflation at the aggregate level [1][3] - Relative price changes are expected, but no overall inflation impact from tariffs is observed [2][3] - Core inflation numbers were slightly higher, with used cars and airfares being strong categories [4][5] Factors Influencing Inflation - Illegal immigration is estimated to have boosted rents by about 4% to 5%, contributing to overall inflation [6] - Strong border policies are expected to lead to service disinflation as net migration decreases [8] - Deregulation, capital stock expansion, and energy abundance are part of a government approach to disinflation [8] Used Car Market - There was no material increase in new car inflation, suggesting used car price increases are not directly linked to tariffs [9][10] - The premise that new car price increases would automatically inflate used car values is false in this instance [10]

President Donald Trump assailed David Solomon, the CEO of Goldman Sachs Group Inc. on Tuesday, saying the bank had made a “bad prediction” about the impact of his sweeping tariff agenda on markets and consumer costs https://t.co/W6EQZIhD0b ...