Morgan Stanley Fixed-Global Cross-Asset Strategy Morgan Stanley Research Key Fo...-110347925

M Global IdeaMorgan Stanley Research1 Next-12-Months Outlook: Our High-Conviction Calls Constructive outlook turning hazy: We continue to expect continued moderate growth and disinflation around the world. US data have been mixed, with weak payrolls but strong consumption. We think the Fed may need to discuss the possibility of a 50bp cut, but we believe the weight of the data still sits with three consecutive 25bp cuts this year. Ex-US, the rest of the global economy is holding up. We leave our BoJ call for January despite recent data and volatility. The ECB continued with its easing cycle at the September meeting, and project the last cut of the year at the December meeting. The BoE is a close call in September, but for a range of reasons we skip a meeting and project the next cut in November. Sunny with a chance of rain: Our economists see a soft landing into year-end, which would typically be a good backdrop for risk assets in 2H24. But concerns over recession linger given recent weaker employment data, and markets will continue to debate whether the Fed is behind the curve and what the policy path would look like after the September cut. We stay OW in global equities and in spread products within fixed income, but prefer defensive quality across the board, and have a tactically cautious tilt. 'CCC's – carry, convexity, and cheap optionality: Uncertainties beyond year-end mean investors should look for markets that give cheap optionality for bull and/or bear scenarios, good convexity where downside is limited versus upside, and attractive carry. We think European and Japanese equities, spread products like loans, and securitized assets fit the bill. Equities: Preference for Japan and Europe We prefer Japan and Europe, which we think have attractive valuations and resilient earnings revisions. In the US, we forecast robust EPS growth alongside modest multiple compression, and we favor large-caps over small-caps, and barbelling quality growth with quality cyclicals. In Europe, we expect choppiness in markets until there is proof of a sustained recovery, but we recommend buying the dip for Europe's best-positioned AI players. In Japan, we recommend diversifying between exporters and domestic stocks. For EM, we've moved to a more defensive stance, taking profit on our long-standing IT OW and moving to EW, and upgrading Consumer Staples ex-China to OW. 20242025S&P 5005,6265,40021.3x19.0x239269+8%+13%MSCI Europe2,0562,50013.5x14.8x150164+7.5%+9%Topix2,5713,00013.2x14.0x184205+12%+11%MSCI EM1,0821,07011.6x11.57988+18%+11%MS June 2025 Price TargetCurrent P/EMS June 2025 P/E TargetMS Top Down EPS YoY%13/09/2024Index (Local Ccy) Source: Markit Box, MSCI, RIMES, Datastream, IBES, Bloomberg, Morgan Stanley Research forecasts. Also, see MSCI Europe source ; S&P source report; Topix source report; MSCI EM source report Morgan Stanley Research: Key Forecasts Next-12-Months Snapshot: Growth Resilience Globa