Morgan Stanley Fixed-Global Macro Strategist A Clarifying Cut Ahead-110319172

M Global IdeaGlobal Macro StrategistA Clarifying Cut AheadMorgan Stanley & Co. LLCMatthew HornbachStrategist Matthew.Hornbach@morganstanley.com +1 212 761-1837 Andrew M WatrousStrategist Andrew.Watrous@morganstanley.com +1 212 761-5287 Martin W Tobias, CFAStrategist Martin.Tobias@morganstanley.com +1 212 761-6076 Francesco GrechiStrategist Francesco.Grechi@morganstanley.com +1 212 761-1009 Zoe K StraussStrategist Zoe.Strauss@morganstanley.com +1 212 761-0407 Eli P CarterStrategist Eli.Carter@morganstanley.com +1 212 761-4703 Morgan Stanley & Co. International plc+James K LordStrategist James.Lord@morganstanley.com +44 20 7677-3254 David S. Adams, CFAStrategist David.S.Adams@morganstanley.com +44 20 7425-3518 Wanting LowStrategist Wanting.Low@morganstanley.com +44 20 7425-6841 Lorenzo TestaStrategist Lorenzo.Testa@morganstanley.com +44 20 7677-0337 Fabio Bassanin, CFAStrategist Fabio.Bassanin@morganstanley.com +44 20 7425-1869 Dominic J KrummenacherStrategist Dominic.Krummenacher@morganstanley.com +44 20 7425-9781 Morgan Stanley MUFG Securities Co., Ltd.+Koichi SugisakiStrategist Koichi.Sugisaki@morganstanleymufg.com +81 3 6836-8428 Hiromu UezatoResearch Associate Hiromu.Uezato@morganstanleymufg.com +81 3 6836-8431 Hiroki YagiResearch Associate Hiroki.Yagi1@morganstanleymufg.com +81 3 6836-5412 In the eyes of investors, the FOMC decision to cut 25 or 50bp, its explanation, and forward guidance will clarify how it thinks about the balance of risks to the economy. Investors will act on the perception of how Fed thinking compares to their own and move markets – providing clarity to all.Global Macro StrategyWe discuss how investors may react to either a 25 or 50bp rate cut by the Fed. We review what happened in July 2019 – the last time the 25 vs. 50 debate occurred. We discuss our USD view and how 25 vs. 50bp and related Fed communication confuse the future of the USD more than clarify it.Interest Rate Strategy In the US, we maintain UST 2s20s steepener and September-November FOMC OIS flattener. In the euro area, we maintain RXV4 132.5/131.5 put spread, EUR 2s5s flatteners (vs. ESTR), ERZ5ERZ6 flatteners, and long ERZ4 96.625/96.875/97.125 call fly. We close our ECB Sep/Oct OIS steepeners. In the UK, we enter SFIH5-H6 flattener, stay long SFIZ4 95.40-55-70 call fly, keep 10s30s gilt flattener, and short 15y ASW. In Japan, maintain long 30y JGB ASW, long 20y JGB vs pay 2y OIS, and JGB 5s10s ASW box flattener.Currency & Foreign ExchangeWe expect FX market turbulence as we stay in the defense regime; JPY longs remain the clearest trade, but we stay neutral on the DXY. We discuss why productivity differentials are important for why exchange rates deviate from PPP models. We see limited GBP impact from next week's BoE meeting, but flag some downside risks amid the fragile risk backdrop. As for the Norges Bank, we see a limited impact for NOK. We remain short USD/JPY since this positioning can perform we