Morgan Stanley Fixed-Global EM Strategist Recalibrating-110678948

M Global IdeaGlobal EM StrategistRecalibrating Morgan Stanley & Co. International plc+James K LordStrategist James.Lord@morganstanley.com +44 20 7677-3254 Neville Z MandimikaStrategist Neville.Mandimika@morganstanley.com +44 20 7425-2509 Pascal N BodeStrategist Pascal.Bode@morganstanley.com +44 20 7425-3282 Arnav GuptaStrategist Arnav.Gupta@morganstanley.com +44 20 7677-0382 David CuevaStrategist David.Cueva@morganstanley.com +44 20 7425-2143 Morgan Stanley & Co. LLCSimon WaeverStrategist Simon.Waever@morganstanley.com +1 212 296-8101 Ioana ZamfirStrategist Ioana.Zamfir@morganstanley.com +1 212 761-4012 Emma C CerdaStrategist Emma.Cerda@morganstanley.com +1 212 761-2344 Morgan Stanley Asia Limited+Min DaiStrategist Min.Dai@morganstanley.com +852 2239-7983 Gek Teng KhooStrategist Gek.Teng.Khoo@morganstanley.com +852 3963-0303 Fed policy was recalibrated at the last FOMC, and now investors need to recalibrate their views on the US economy. Both shifts are positive for risk assets and we adjust our EM credit stance accordingly. We expect the DXY to be supported and any EM FX exposure should be funded in EUR or JPY. FX & EM Strategy: US data and China policy support have added to the Fed's supportive stance for global risk assets. Yet, we maintain our view that the DXY is likely to be supported in the near term, suggesting EM FX exposure should be funded in EUR or JPY. Sovereign Credit Strategy: Our more cautious view has been challenged by three successive strikes via the Fed, China and US data. Data also suggest that investor positioning is fairly light following risk reduction and a lack of issuance. We thus return to a neutral view, including being neutral on IG versus HY. The supportive backdrop also opens up the path to our year-end forecast of 350bp for the index. We remove like stances on Bulgaria and Uruguay, moving Sharjah up to a like stance instead. We also return Argentina to a like stance in line with our positive medium-term view. This week we focus on the impact of UST curve movements on EM returns, spreads and issuance. Both 5s10s and 10s30s EM credit spread curves have flattened recently but only 5s10s looks stretched. Over the past two years high UST yields have caused sovereigns to issue more heavily in the front end of the curve, with long-end issuance at historical lows. As UST yields fall into 2025, we expect to see a reduction in the share of front-end issuance. LatAm Macro Strategy: We see October as more of a transition month for LatAm FX, and seasonalities tend to be more mixed as well. We refresh our individual FX views, but stay away from adding directional risk and stay long BRL/COP. We also keep our 2y1y TIIE payer vs. SOFR, Jan 29 receivers and 1y IBR receivers.Asia Macro Strategy: Strong US data and the US election suggest short covering of Asia FX, which started in August, is done and could be reversed. We expect Asia FX to trade sideways ahead of the election but the result could