Summary of Morgan Stanley's G10 FX Strategy Conference Call Industry Overview - The conference call focuses on the G10 foreign exchange (FX) strategy, analyzing various currencies and their outlooks in the context of global economic conditions and central bank policies. Key Points by Currency 1. USD (DXY) - **View**: Neutral - **Skew**: Bearish - **Insights**: - Increasing downside risks for the DXY due to soft US economic data and hawkish foreign central banks - Limited investor appetite to engage, suggesting a neutral position with a downside bias into year-end [2][3][19] 2. EUR - **View**: Neutral - **Skew**: Bullish - **Insights**: - Upside risks for EUR/USD are increasing, with potential divergence between ECB and Fed policies in 2026 - The largest impact on EUR/USD is expected to come from the USD side [4][21] 3. JPY - **View**: Neutral - **Skew**: Neutral - **Insights**: - Few catalysts to prevent JPY weakness amid uncertainty regarding the 2026 budget - Any intervention by the Ministry of Finance (MoF) could significantly alter the current trend [5][23] 4. GBP - **View**: Neutral - **Skew**: Neutral - **Insights**: - GBP's status as a high carry/volatility currency is diminishing - The Bank of England's recent hawkish tone may delay the need to reprice terminal rates lower [6][24] 5. CHF - **View**: Neutral - **Skew**: Bearish - **Insights**: - Bearish skew maintained due to low volatility and absence of external catalysts - Fair value metrics suggest EUR/CHF should be around 0.92, indicating potential downward pressure [7][25] 6. CAD - **View**: Bullish - **Skew**: Bullish - **Insights**: - Soft US economic data contrasts with a recovery in Canadian data, favoring CAD - Recommendations include shorting USD/CAD due to favorable rate differentials [8][26] 7. AUD - **View**: Bullish - **Skew**: Bullish - **Insights**: - Rising private credit indicates strong domestic demand - A retest of 0.6700 is likely if RBA minutes are hawkish [9][27] 8. NZD - **View**: Neutral - **Skew**: Bullish - **Insights**: - Expected support for AUD/NZD around 1.15, with potential for a breakout above 1.16 - Factors include dovish RBNZ signals and fair valuation [10][28] 9. SEK - **View**: Bullish - **Skew**: Bullish - **Insights**: - Elevated global risk demand and a mildly hawkish Riksbank support SEK's outlook - Recommended to stay short EUR/SEK [16][29] 10. NOK - **View**: Neutral - **Skew**: Neutral - **Insights**: - Soft oil demand and potential Norges Bank cuts suggest NOK may lag behind SEK - Monitoring of oil prices and economic data is crucial [17][31] Additional Insights - The overall sentiment indicates a cautious approach towards USD, with expectations of a potential decline as investors prepare for 2026 - The divergence in central bank policies, particularly between the US and Europe, is a significant theme influencing currency movements [19][21] Conclusion - The G10 FX strategy reflects a complex interplay of economic data, central bank policies, and market sentiment, with specific recommendations for trading strategies across various currencies.

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the macroeconomic outlook, focusing on global rates, commodities, currencies, and emerging markets, with insights from J.P. Morgan Securities. Core Insights and Arguments US Rates - Hawkish developments across developed market (DM) central banks have led to underperformance in the intermediate sector, aligning with a forecast for modestly higher yields in 2026 as easing cycles wind down [3][14] - The Federal Reserve (Fed) is expected to ease rates in January 2026, with the effective funds rate projected to be 3.40% by mid-2026 [11][12] - Treasury yields are forecasted to reach 3.60% for 2-year and 4.25% for 10-year by mid-2026, with slight increases expected by year-end [9][11] International Rates - DM rates have generally sold off due to a hawkish shift in central bank tones and strong data momentum, leading to a lightening of risk in portfolios [4][39] - The Fed's recent actions have not met more hawkish market expectations, contributing to a bearish outlook for the USD [6][80] Commodities - Cocoa's re-inclusion in the Bloomberg Commodity Index (BCOM) is expected to drive significant buying, accounting for 22% of total open interest, overshadowing more modest buying in other commodities like corn and wheat [6] - Natural gas storage withdrawals in North West Europe (NWE) have exceeded forecasts, despite weaker demand trends [6] Currencies - The USD is under pressure due to a dovish Fed stance compared to hawkish developments in other G10 countries [75][79] - Event risks are elevated with upcoming US payroll releases, and a bearish outlook for the USD is contingent on data performance [79][80] Emerging Markets - The outlook for emerging markets (EM) in 2026 is positive, with lower macro volatility expected to support local markets. The recommendation is to stay overweight (OW) on EM FX and rates [6][11] - Growth and inflation are projected to remain stable, with limited central bank easing anticipated [6] Additional Important Insights - The Fed's policy path is now more aligned with J.P. Morgan's forecasts, indicating limited scope for further bearish impulses in the near term [14] - A significant funding gap is expected to emerge in 2027, with coupon size increases anticipated starting in November 2026 [22] - The demand for Treasuries is expected to remain stable, with mutual funds and ETFs likely absorbing 50% of net T-bill supply [32] - The anticipated cuts from the Fed and other central banks are expected to create a more favorable environment for high-yield currencies [68] This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the macroeconomic landscape and its implications for various asset classes.

Core Viewpoint - The case of illegal foreign exchange operations involving individuals identified as Tong and Chen has been successfully investigated by the Shenyang Public Security Bureau, highlighting the complexities of cross-border financial crimes and the importance of international cooperation in law enforcement [1][2][3]. Group 1: Case Development - In April 2024, a tip-off from the U.S. regarding Tong's involvement in money laundering for drug traffickers prompted a thorough investigation by Chinese authorities [1]. - The Shenyang police established a task force to address challenges such as fragmented leads and differences in legal systems between China and the U.S., leading to the collection of crucial evidence [1][2]. - By May 20, 2024, Tong and Chen were apprehended in Wuhan while attempting to flee the country, following extensive evidence collection across multiple provinces and cities [2]. Group 2: Criminal Activities - Since 2017, Tong and associates operated a car dealership in the U.S., initially providing currency exchange services before shifting to illegal foreign exchange operations [2]. - From January 2020 to June 2021, Tong directed Chen and others in China to facilitate illegal currency exchanges, amassing over 16 million RMB through domestic bank accounts [2][3]. - Tong also engaged in virtual currency transactions, purchasing Bitcoin and Tether to facilitate cash exchanges, primarily serving students and gamblers in the U.S. [3]. Group 3: Legal Proceedings - The case was transferred to the prosecutorial authority on November 26, 2024, and by September 2025, both Tong and Chen were sentenced to prison terms of 1 year and 7 months, and 1 year and 4 months respectively, along with fines for their illegal foreign exchange activities [3].

Group 1 - The USD/CAD exchange rate has entered a downward trend for the second consecutive trading day, hovering around 1.3780 during the Asian trading session [2] - The unexpected decline in the US November Consumer Price Index (CPI) to a year-on-year increase of 2.7%, significantly below the expected 3.1%, has raised market expectations for potential interest rate cuts by the Federal Reserve [2] - The core CPI, excluding volatile food and energy prices, rose only 2.6%, also failing to meet the 3.0% expectation, marking the lowest growth rate since 2021 and increasing uncertainty regarding the Fed's monetary policy path [2] Group 2 - President Trump's comments have intensified market expectations for interest rate cuts, suggesting that the next Federal Reserve chair will be someone who "clearly supports rate cuts," further pressuring the dollar [3] - The Bank of Canada (BoC) maintained its interest rate at 2.25%, indicating that the current policy setting is "generally appropriate," which supports the Canadian dollar amid resilient economic activity [3] - The ongoing weakness of the USD/CAD reflects the widening policy divergence between the two central banks [3] Group 3 - Upcoming economic data, particularly the US December Michigan Consumer Sentiment Index and Canadian retail sales figures, will be closely monitored as they may significantly impact the USD's trajectory [4] - A decline in the consumer sentiment index could exacerbate expectations for Fed rate cuts, putting additional downward pressure on the dollar [4] - Strong Canadian retail sales data could provide support for the Canadian dollar, potentially exerting downward pressure on the USD/CAD exchange rate [4]

December 12, 2025 03:08 PM GMT G10 FX Strategy | Global EUR/USD may re-test its previous highs should US labor market data disappoint and President Lagarde fail to explicitly push back on hike expectations from the ECB. JPY View: Neutral | Skew: Bullish We closely monitor upcoming US labor market data next week. Any further weakness in US labor market data can open the door for USD/JPY to go 150.00, as we expect the BoJ to express further normalization at the upcoming December MPM. Our Latest Views Morgan S ...

Core Insights - Trading in the Hungarian forint has more than doubled since the U.S. President Donald Trump's inauguration, with increased trader interest following his "Liberation Day" import tariffs announcement [1] - The forint has strengthened approximately 20% against the dollar in 2025, marking its best performance in nearly 25 years and positioning it as one of the top emerging currency performers [2] - The MSCI Emerging Market Currency Index reached a record high in July and is on track for its best year since 2017, having gained over 6% [2] Market Trends - The weakening dollar has prompted investors to reassess their exposure to the currency and consider diversifying into emerging markets, including Hungary and South Africa [3] - Analysts suggest that the long-standing bear market for emerging market currencies, lasting 14 years, may have turned, coinciding with a shift in the dollar cycle [4] - The geopolitical landscape and divergent central bank policies are expected to continue influencing price movements in the currency markets [5] Economic Implications - Currency appreciation and capital inflows have significant economic implications for governments, including reduced export appeal and enhanced capacity to raise and repay debt [6] - The International Monetary Fund has issued warnings regarding potential risks stemming from currency market volatility [6]

Core Viewpoint - The Australian dollar (AUD) shows a positive trend against the US dollar (USD) despite weak GDP growth data for Q3 from the Australian Bureau of Statistics [1] Economic Data Summary - Q3 GDP growth rate was 0.4%, down from 0.6% in Q2; annual GDP growth slowed from 1.8% to 2.1%, both below market expectations, leading to a brief sell-off of the AUD during Asian trading hours [1] - October's consumer price index (CPI) rose to 3.8% year-on-year, up from 3.5% in the previous month; adjusted average CPI increased from 3.2% to 3.3%, remaining above the Reserve Bank of Australia's (RBA) target range of 2%-3% [2] Central Bank and Inflation Insights - RBA Governor Michele Bullock indicated that the central bank is closely evaluating recent inflation data to assess the sustainability of price pressures, which could impact future monetary policy [2] - The statement reduced market expectations for further policy easing in the short term, providing support for the AUD [2] External Environment Impact - China's services PMI slightly decreased from 52.6 in October to 52.1 in November but remained above the expected 52.0, showing limited reaction from the AUD [3] - The USD index remains at a relatively low level, influenced by market expectations of a dovish policy from the Federal Reserve, with a 90% probability of a 25 basis point rate cut in December [3][4] Technical Analysis - The AUD/USD recently broke through a descending trendline resistance since September and is above the 100-day simple moving average, indicating positive momentum without entering overbought territory [5] - Key resistance levels are identified at 0.6535-0.6530; a breakthrough could lead to further gains towards 0.6600 and potentially challenge the yearly high around 0.6700 [7] - Important support is at the psychological level of 0.6500; a drop below this could lead to further declines towards the 200-day moving average around 0.6465 and the November low of 0.6420 [7]

Core Insights - U.S. equities experienced a strong performance last week, marking one of the most significant November turnarounds on record despite a shorter trading week [1] - The U.S. dollar struggled to maintain a key psychological level of 100 on the index, primarily due to the Federal Reserve signaling a potential rate cut in December [2] - Macro factors, rather than micro factors, influenced the market mood, with data easing hard-landing fears and supporting the case for easier policy [3] Market Conditions - Liquidity conditions were thin, and a significant technical incident occurred when several key futures and FX venues went offline due to a cooling failure at a CME Group data center [4][5] - The NZD/JPY pair broke out of a five-month range, closing above a key level of 89, indicating bullish momentum [6][8] - The EUR/AUD pair saw the Australian dollar recover due to rising commodity prices, with potential bearish signals if it breaks support around 1.76 [9][10] Upcoming Events - The upcoming week is critical for assessing the December rate cut narrative, with potential catalysts including high-profile U.S. data and political developments [11] - Key domestic focus will be on ISM manufacturing and services data, which could influence the Fed's reaction function [12] - Friday's Non-Farm Payroll report is expected to show a modest rebound, with implications for the rate-cut timeline and market sentiment [13]

Market Overview - Global financial markets exhibited a cautious stance on the first trading day of December, with major asset prices fluctuating around economic data and central bank policy expectations [1] - U.S. stock index futures fell between 0.5% to 1% during European morning trading, reflecting investor hesitance regarding economic outlook [1] Economic Indicators - The U.S. manufacturing PMI for November, released by the Institute for Supply Management, is a key data point influencing U.S. stock market movements, as investors look to gauge the health of the manufacturing sector [1] - China's manufacturing PMI for November dropped to 49.9, indicating contraction, down from 50.6 in October and below the market expectation of 50.5, following a nearly 1.5% increase the previous week [1] Currency Movements - The Australian dollar against the U.S. dollar opened lower on Monday, trading in a negative range below 0.6550, influenced by the disappointing Chinese PMI data [1] - The U.S. dollar index, a core variable for cross-market interactions, fell over 0.7% last week, driven by dovish comments from Federal Reserve officials, with expectations for a 25 basis point rate cut in December continuing to rise [3] - The euro/dollar pair consolidated last week's gains, trading slightly below 1.1600, while the pound/dollar pair saw a slight decline to around 1.3200 after a 1% increase last week [4] Precious Metals - Gold emerged as one of the few strong assets in the current market, reaching a high of over $4250 during Asian trading, although it experienced a pullback during European morning trading, remaining above $4200 [4] - The performance of gold is directly related to the weakening dollar and market expectations for accommodative policies, highlighting its safe-haven and value-preserving attributes [4]

Summary of Key Points from the Conference Call Industry Overview - **Global Macro Outlook**: The call discusses the macroeconomic outlook, focusing on US rates, international rates, commodities, currencies, and emerging markets [3][4][5][6]. US Rates - **Federal Reserve Policy**: The Fed is expected to skip the December meeting, with easing anticipated in January and April 2026. The funds rate target range is projected to be 3.25-3.5% by mid-2026 [3][10][15]. - **Yield Forecasts**: 2-year Treasury yields are expected to reach 3.60% in 1H26 and 3.85% by YE26. 10-year yields are projected to rise to 4.25% in 1H26 and 4.35% by YE26 [10][15]. - **Financing Gap**: A smaller financing gap is anticipated due to lower medium-term deficit projections, but a large gap is expected to emerge in FY26 [19][16]. International Rates - **Market Performance**: USD rates outperformed with a 1-2 basis point increase, while EUR rates sold off by 2-3 basis points. The UK saw a steeper 2s/30s curve [4][33]. - **UK Economic Data**: The UK labor market data was softer than expected, raising concerns about fiscal policy and potential tax changes [4][41]. Commodities - **Oil Market Outlook**: Global oil demand is projected to grow by 0.9 mbd in 2025 and 1.2 mbd in 2026, while supply is expected to outpace demand. Price forecasts are $58 for Brent and $54 for WTI in 2026 [85]. - **Natural Gas Prices**: US natural gas prices are forecasted to average $3.74/MMBtu in 2026, driven by production growth to meet LNG demand [88]. - **Base Metals**: A bullish outlook on copper is maintained, with prices expected to rise to $12,500/mt in 1H26 and average $12,075/mt for the full year 2026 [89]. Currencies - **EUR/USD Forecast**: A bullish view on EUR/USD is maintained, with a target of 1.22. However, gains may be moderate due to balanced risks on the US side [53][58]. - **Emerging Markets**: The outlook for emerging markets has improved, with a recommendation to stay overweight on EM FX and rates [6][10]. Additional Insights - **Foreign Demand for Treasuries**: Despite concerns about 'de-dollarization', foreign demand for US Treasuries has firmed in 2025, although private demand may decline due to higher yields [27][66]. - **Equity Market Trends**: US equity buying continues, with net equity purchases from foreign investors increasing [67][69]. This summary encapsulates the key points discussed in the conference call, providing insights into the macroeconomic landscape, commodity forecasts, and currency outlooks.