Economic Indicators - The September US CPI report showed a monthly increase of +0.3% and a yearly increase of +3.0%, which was slightly below market expectations of +0.4% m/m and +3.1% y/y [2] - The core CPI for September also rose by +0.2% m/m and +3.0% y/y, again slightly weaker than the expected +0.3% m/m and +3.1% y/y [2] - The final-August University of Michigan US consumer sentiment index fell by -1.4 points to 53.6, weaker than the expected drop to 54.5 [3] Market Reactions - The dollar index ended the day little changed, influenced by the weaker-than-expected CPI report and a -0.6 basis point decline in the US 10-year T-note yield [1] - The markets are pricing in a 97% chance of a -25 basis point rate cut at the next FOMC meeting on October 28-29 due to the ongoing US government shutdown [4] Eurozone Indicators - The preliminary-October HCOB Eurozone manufacturing PMI rose by +0.2 points to 50.0, exceeding expectations for no change at 49.8 [5] - The preliminary-October HCOB Eurozone services PMI increased by +1.3 points to 52.6, stronger than the anticipated decline to 51.2 [5]

Group 1 - The dollar index rose by +0.03% due to increased safe-haven demand from geopolitical risks in Europe, particularly after Poland shot down Russian drones [1] - The dollar's gains were limited as bond yields declined following a weaker-than-expected US August PPI report, which solidified expectations for a 25 basis point rate cut by the Fed at the upcoming FOMC meeting [1][4] - The US final-demand August PPI eased to +2.6% year-on-year from +3.1% year-on-year in July, which was below expectations of +3.3% year-on-year [3] Group 2 - Markets are currently pricing in a 100% chance of a 25 basis point rate cut and a 12% chance of a 50 basis point rate cut at the upcoming FOMC meeting on September 16-17 [4] - Following the anticipated 25 basis point rate cut at the September meeting, markets are discounting a 79% chance of a second 25 basis point cut at the October 28-29 meeting [4] - Overall, markets are pricing in a total reduction of 74 basis points in the federal funds rate by year-end, bringing it down to 3.64% from the current 4.38% [4] Group 3 - The EUR/USD fell by -0.09% due to escalating geopolitical risks in Europe, particularly after Poland's actions against Russian drones [5] - The euro is under pressure as geopolitical tensions rise, with long liquidation and position squaring affecting the currency ahead of the ECB meeting [5] - Losses in the euro were somewhat mitigated after the dollar slipped following the weaker-than-expected US August PPI report [5]

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]