Core Viewpoint - The upcoming U.S. CPI inflation data is critical, as a higher-than-expected reading could disrupt the prevailing market consensus on interest rate cuts and negatively impact the recent strong rebound in U.S. stock and bond markets since October [1][2][10]. Group 1: U.S. Treasury Market Dynamics - The 10-year U.S. Treasury yield fell below 4% for the first time in six months, reaching a low of 3.9%, indicating a significant rebound in Treasury prices despite the government shutdown delaying key economic data [1]. - The overall return of U.S. Treasuries in October is approximately 1.3%, potentially marking the best monthly performance since February, driven by safe-haven buying and expectations of Federal Reserve rate cuts [5]. - If the September CPI data exceeds expectations, it could lead to a sharp rise in Treasury yields, negatively affecting global stock and bond markets [3][10]. Group 2: Inflation Expectations and Market Reactions - Economists predict that the overall CPI for September will show a month-over-month increase of 0.4%, with core CPI expected to rise by 0.3%, both indicating a year-over-year growth of 3.1%, the highest since May 2024 [8]. - There is a prevailing concern that strong inflation data could undermine the market's confidence in further rate cuts, as indicated by various market strategists [10][11]. - The market is currently pricing in a high probability of a 25 basis point rate cut in December, but a significant rise in inflation could jeopardize these expectations [9]. Group 3: Impact on Equity Markets - The strong performance of major tech companies and the AI sector has driven a historic investment surge in U.S. equities, with indices like the S&P 500 and MSCI Global Index reaching new highs [4]. - The 10-year Treasury yield serves as a critical component in equity valuation models, and a sustained decline below 4% could support a continued bull market in stocks, particularly in technology [3][4]. - If inflation remains stubbornly high, it could lead to a reassessment of risk asset valuations, including tech stocks and cryptocurrencies, which are currently at historical highs [4][10].

Core Viewpoint - The upcoming U.S. inflation data, particularly the September CPI, is critical as it may disrupt the prevailing market consensus on interest rate cuts, especially if the data shows unexpected increases in inflation [1][2][5]. Group 1: U.S. Treasury Market Dynamics - The U.S. Treasury market has seen a strong rally in October, with the 10-year Treasury yield dropping below 4% for the first time in six months, reaching a low of 3.9%, indicating a significant rebound in Treasury prices [1][3]. - The overall return of U.S. Treasuries in October is approximately 1.3%, potentially marking the best monthly performance since February, driven by safe-haven buying and expectations of Federal Reserve rate cuts [5][10]. - If the September CPI data exceeds market expectations, it could lead to a sharp increase in Treasury yields, negatively impacting both the stock and bond markets [3][10]. Group 2: Inflation Expectations and Market Reactions - Economists predict that the overall CPI will show a month-over-month increase of 0.4%, with core CPI expected to rise by 0.3%, leading to a year-over-year growth of 3.1%, the highest since May 2024 [8][9]. - There is a prevailing concern that higher-than-expected inflation data could undermine the market's confidence in future rate cuts, creating significant downward risks for recent gains in the stock and bond markets [2][14]. - Market participants are increasingly anxious about the quality of U.S. economic data, which could lead to skepticism regarding the reliability of inflation figures released during the government shutdown [10][14]. Group 3: Impact on Equity Markets - The 10-year Treasury yield serves as a critical benchmark for asset pricing, and a rise in yields due to higher inflation could lead to a significant downturn in global equity markets [3][4]. - The ongoing AI investment boom, driven by major tech companies, has contributed to the S&P 500 and MSCI global indices reaching new highs, but elevated Treasury yields could pressure valuations of risk assets, including tech stocks [4][5]. - If the 10-year Treasury yield remains below 4% and continues to decline, it could support a bullish trend in global equity markets, particularly benefiting technology stocks closely tied to AI [3][4].

Core Viewpoint - Concerns are rising regarding Japan's new Prime Minister's potential increase in borrowing, which may lead to a surge in long-term Japanese government bond yields, possibly triggering a repeat of the "Japanese bond sell-off storm" that previously impacted global financial markets [1][2]. Group 1: Economic Policies and Market Reactions - The new Prime Minister, high市早苗, is expected to revive "Abenomics," focusing on aggressive fiscal stimulus and a cautious stance on monetary tightening, which has led to significant market volatility [2][3]. - The "Sanae trade" reflects market expectations of stronger fiscal stimulus and mild monetary policy, resulting in a rapid rise in Japanese stock prices and a depreciation of the yen [2][3]. Group 2: Bond Yield Predictions - Claire Huang from Amundi predicts that the 30-year Japanese government bond yield could exceed 3.5%, representing an increase of nearly 40 basis points from recent trading levels [1][2]. - The 30-year bond yield recently reached 3.345%, the highest since its issuance in 1999, indicating a trend of poor performance for Japanese long-term bonds this year [2][3]. Group 3: Inflation and Monetary Policy - The potential for rising inflation and the unclear specifics of high市's economic measures may deter investors from returning to long-term Japanese bonds until more clarity is provided [3]. - The 10-year Japanese government bond yield is projected to face upward risks, potentially reaching 1.8%, as the Bank of Japan gradually reduces its bond holdings under the yield curve control policy [4]. Group 4: Global Context and Currency Implications - The "term premium" phenomenon, where investors demand higher yields for holding long-term bonds, is becoming more pronounced, particularly in the U.S. bond market, which may influence Japanese bond yields [4][5]. - The depreciation of the yen, which has fallen approximately 2.5% recently, could strengthen the case for the Bank of Japan to raise interest rates, as higher import costs contribute to domestic inflation pressures [5].

Summary of Morgan Stanley Global Macro Forum on US-China Trade Tensions Industry and Company Involvement - **Industry**: Global Trade and Macro Economics - **Companies**: Morgan Stanley and its affiliates Core Insights and Arguments - **US-China Trade Dynamics**: The long-term trend is towards de-risking and competitive confrontation, with expectations of a return to a 'narrow deal' rather than a complete decoupling [43][43][43] - **Market Expectations**: Current market-implied trough Fed funds rate suggests little probability of a recession, indicating a risk skew towards a more hawkish Federal Reserve path than the baseline [43][43][43] - **Asia's Economic Outlook**: Trade tensions have stalled exports in Asia post front-loading, with a high global dependence on rare exports from China posing risks of supply chain disruptions [25][27][29][31][43] - **China's Trade Strategy**: China's dependence on trade is expected to prevent aggressive actions that could negatively impact global trade [36][43][43] - **Equity Strategy**: Advising risk management and maintaining long thematic hedges, with concerns over a recent sharp valuation-driven rally in Asia/EM equities [43][43][43] Additional Important Points - **Export Controls**: The US has expanded export control measures affecting entities linked to China, which may prolong global dependence on Chinese rare earth processing [35][31][43] - **Market Implied Rates**: The market pricing indicates a potential further decline in the Fed funds rate, with expectations of a bear market for the USD as US rates fall [19][43][43] - **Valuation Concerns**: There are concerns about the sustainability of the recent rally in Asia/EM equities, suggesting a potential downside in the near term [43][43][43]

Core Viewpoint - The article discusses the market dynamics following the long-term interest rates breaking below 2%, highlighting the asymmetric characteristics of this decline in developed economies and suggesting a potential shift towards a prolonged period of market fluctuations rather than a continuous downward trend [1][2]. Group 1: Long-term Interest Rate Trends - The global low-interest-rate environment has led to a rare long-term bull market in China's bond market, with the 10-year government bond yield dropping from 2.8% to below 2.0% in 2023, and even reaching 1.6% on January 6, 2025 [2]. - Historical data indicates that the decline in long-term interest rates in developed economies shows significant asymmetry, with the time taken to drop from 3% to 2% being shorter than from 2% to 1% [3]. - Japan's experience during the 1998 Asian financial crisis exemplifies this pattern, where the 10-year bond yield fell rapidly below 2% and 1%, followed by a prolonged period of fluctuation between 1% and 2% for seven years [3]. Group 2: Mechanisms of Rate Fluctuations - The rebound in interest rates during periods of fluctuation can be triggered by three main mechanisms: tightening monetary policy, better-than-expected economic data, and the siphoning effect from equity markets [4]. - Long-term interest rates face strong resistance when approaching the 1% threshold, often requiring specific catalysts such as major economic crises or significant external shocks to break below this level [5]. Group 3: Constraints on Long-term Rates - The zero lower bound on policy interest rates constrains monetary policy effectiveness, as negative interest rates have not been widely adopted due to their adverse effects on bank profitability and financial stability [6][8]. - The rigidity of the term premium, which compensates for risks associated with long-term bonds, limits further declines in long-term interest rates, as it is influenced by structural factors and market expectations [10][11]. Group 4: Implications for Investment Strategies - As long-term interest rates drop below 2%, institutional investors may be forced to adjust their asset allocation strategies, often increasing their exposure to riskier assets or seeking higher yields through cross-border investments [12][14]. - The article suggests that the traditional analysis framework for bond markets may need to be revised, focusing more on financial institutions' asset-liability matching and central bank balance sheet operations rather than solely on traditional economic variables [18][19].

Core Viewpoint - The unexpected victory of Takashi Sannae in the Liberal Democratic Party presidential election has led to a trend of yen depreciation in the foreign exchange market, with the yen falling to the 152 yen per dollar range, raising concerns about potential further depreciation [2][6]. Group 1: Market Reactions - Following Takashi's election, several foreign financial institutions retracted their "buy yen" recommendations, citing increased uncertainty regarding the timing of the next Bank of Japan interest rate hike [4]. - Speculative funds that had previously bet on yen appreciation were forced to close some of their long positions, resulting in the yen's decline to the mid-150 yen per dollar range [6]. Group 2: Economic Policy Implications - Takashi is viewed as a successor to the "Abenomics" approach, which combines financial and fiscal policies, leading to expectations of a weaker yen [6]. - Predictions suggest that the yen's depreciation may be limited to around 155 yen per dollar, influenced by fiscal policy scenarios and the relationship between long-term bond yields and the yen exchange rate [8][10]. Group 3: Fiscal Policy and Bond Yields - If Takashi implements her proposed fiscal measures, such as gasoline tax cuts and additional tax rebates, the 30-year bond yield could rise by approximately 0.15%, potentially increasing the term premium and affecting the yen's value [8]. - The term premium has been rising, with a noted correlation between the increase in the term premium and the depreciation of the yen, particularly during the recent upper house elections [7]. Group 4: Future Considerations - The market is closely watching the appointment of the next Japanese finance minister, as changes in government could impact fiscal policy direction and the yen's trajectory [11]. - There is a prevailing sentiment that extreme yen depreciation is unlikely, as Takashi is perceived to distance herself from excessive fiscal expansion, supported by comments from her close associates [10].

Group 1: Monthly Performance of US Public Funds - In August 2025, the median performance of US equity funds was stronger than that of bond funds and asset allocation funds, but weaker than international equity funds, with median returns of 2.73%, 2.81%, 0.99%, and 2.17% respectively [1][7][9]. Group 2: Fund Flows and Trends - In August 2025, the US market saw a net inflow of $56 billion into actively managed funds and $706 billion into passive funds. Notably, open-end equity funds experienced a net outflow of $608 billion, while ETFs saw significant inflows of $624 billion for equity ETFs and $481 billion for bond ETFs [8][20][24][26]. - The top 10 asset management firms in the US experienced net outflows in open-end funds, with Vanguard and Capital Group seeing the largest outflows of $191 billion and $100 billion respectively. Conversely, the top 10 firms in the ETF space saw net inflows, with Vanguard and iShares leading at $374 billion and $322 billion respectively [26][30]. Group 3: New Fund Issuance - In August 2025, a total of 41 new funds were established in the US market, comprising 35 ETFs and 6 open-end funds. Among these, 20 were equity funds, 16 were bond funds, and 5 were asset allocation funds [3][35][36]. Group 4: Insights from Overseas Asset Management Institutions - Recent themes of interest among leading overseas asset management firms include the trajectory of US and European policies and foreign capital perspectives on the stock market. Concerns about rising inflation risks and the potential for a shift in stock market outlook from bullish to neutral have been highlighted [4][37][39].

Group 1 - The core issue behind the political crisis surrounding the Federal Reserve is whether it can "manipulate" interest rates and the implications of a steepening U.S. Treasury yield curve [1][5] - The market is optimistic about the Federal Reserve's interest rate cuts in the short term, influenced by Trump's potential nominations for a "dovish" shadow chairman [2][20] - The Federal Reserve can "set" but not "manipulate" policy interest rates, as interest rates are endogenous and influenced by macroeconomic factors [3][45] Group 2 - The U.S. government's fiscal and debt situation is in a "quasi-war state," necessitating fiscal consolidation to manage rising deficits and leverage ratios [7] - Sustainable fiscal consolidation can be achieved through economic growth or budget cuts, each with different political costs [7] - A decrease in the basic fiscal deficit rate by 1 percentage point could lead to a decline in the 10-year Treasury yield by 12-35 basis points [5][7] Group 3 - The Federal Reserve's long-term ability to manipulate the yield curve is limited, and the trend of rising yield premiums on U.S. Treasuries is likely to continue [4] - The market tends to price in overly "dovish" expectations during rate hike cycles and overly "hawkish" expectations during rate cut cycles [4] - The transition from "loose fiscal + loose monetary" to "tight fiscal + loose monetary" policies is crucial for the Federal Reserve's future rate cut space [5][20]

Group 1 - The Federal Reserve has restarted interest rate cuts, with the 10-year U.S. Treasury yield briefly falling below 4.0% [1][3] - Since the early 1970s, the Federal Reserve has experienced 12 interest rate cut cycles, with 5 occurring in a soft landing environment and 7 in a hard landing context [5][6] - In soft landing scenarios, the average interest rate cut is about 234 basis points (bps) over an average duration of 9 months, while in hard landing scenarios, the average cut is 647 bps over 20 months [5][6] Group 2 - The macroeconomic logic behind different interest rate patterns is influenced by the nature of the economic landing, affecting the slope and space of U.S. Treasury yields [2][27] - In preventive rate cuts, the decline in Treasury yields is smaller and rebounds sooner, while in recessionary cuts, the recovery in yields occurs later [2][28] - The low point of the 10-year Treasury yield is often associated with the pace of rate cuts, with faster cuts leading to earlier lows [2][28] Group 3 - Despite the restart of rate cuts, the potential for further declines in the 10-year Treasury yield may be limited due to rising long-term nominal neutral rates in the range of 3-3.5% [3][50] - The market has priced in 4-5 rate cuts by the end of 2026, but economic forecasts suggest the Fed may only cut rates once if inflation remains above target [3][50] - The increase in term premium is expected to dominate the direction of long-term Treasury yields, with significant upward pressure from debt supply expansion and policy uncertainty [3][56]

Group 1 - The Federal Reserve has restarted interest rate cuts, with the 10-year U.S. Treasury yield briefly falling below 4.0% [1][3] - Since the early 1970s, the Federal Reserve has experienced 12 interest rate cut cycles, with 5 occurring in a soft landing environment and 7 in a hard landing context [5][6] - In soft landing scenarios, the average interest rate cut is about 234 basis points (bps) over an average duration of 9 months, while in hard landing scenarios, the average cut is 647 bps over 20 months [5][6] Group 2 - The macroeconomic conditions determine the slope and space of the decline in U.S. Treasury yields, with preventive cuts resulting in smaller declines and earlier rebounds [2][27] - The low point of the 10-year Treasury yield often occurs 1-2 months before or after the last rate cut in preventive cut scenarios [28][75] - The timing of the low point in Treasury yields is closely related to the pace of interest rate cuts, with faster cuts leading to earlier lows [2][75] Group 3 - Despite the restart of interest rate cuts, the potential for further declines in the 10-year Treasury yield may be limited due to the rise in the long-term nominal neutral interest rate to the 3-3.5% range [3][50] - The market has priced in 4-5 rate cuts by the end of 2026, but the Federal Reserve may only cut rates once if the PCE inflation is projected at 2.6% and unemployment at 4.4% [3][50] - The increase in term premium is expected to dominate the direction of long-term Treasury yields, with the term premium rising to around 0.9% in 2025 due to expanded debt supply and policy uncertainty [3][56]