M Update Global Macro Commentary | Global February 15Morgan Stanley & Co. LLCMartin W Tobias, CFAStrategist Martin.Tobias@morganstanley.com +1 212 761-6076 Morgan Stanley & Co. International plc+Dominic J KrummenacherStrategist Dominic.Krummenacher@morganstanley.com +44 20 7425-9781 Morgan Stanley & Co. LLCEli P CarterStrategist Eli.Carter@morganstanley.com +1 212 761-4703 Lenoy DujonUS/Canada Economist Lenoy.Dujon@morganstanley.com +1 212 761-2779 Morgan Stanley & Co. International plc+Marie-Anais C FrancoisStrategist Marie-Anais.Francois@morganstanley.com +44 20 7425-1877 Morgan Stanley MUFG Securities Co., Ltd.+Koichi SugisakiStrategist Koichi.Sugisaki@morganstanleymufg.com +81 3 6836-8428 USTs come off post-retail sales highs; Japan enters technical recession, JGBs rally; GBP resilience is despite UK technical recession; ACGBs rally after weak Australian jobs data; 10y BTP-Bund spread sub-150bp; ECB's Lagarde cautions on cuts; DXY at 104.28 (-0.4%); US 10y at 4.230% (-2.5bp).• Softness in January US retail sales takes US Treasuries to session highs, but the rally gradually retraces, as the curve bull-flattens.• Japan GDP contracts for the second consecutive quarter, marks technical recession. Our economists cite higher risk of a NIRP exit now in April; a broad rally in JGBs is led by the belly.• GBP is resilient after UK GDP also contracts for the second consecutive quarter, a technical recession. Our economists view the economy as fragile and the outlook heavily dependent on BoE rate cuts.• ACGBs stage a double-digit rally across the curve after Australia only adds 0.5k jobs in January (C: 25.0k; P: -62.7k) and the unemployment rate rises to 4.1%, the highest since May 2022.• Although European rates end modestly weaker, the 10y BTP-Bund spread continues to tighten, below 150bp for the first time since April 2022.• ECB President Lagarde warns against rate cuts that are too fast and says, “the last thing that I would want to see is us making a hasty decision to see inflation rise again and have to take more measures."Please refer to our recent publications and collaborations (El Salvador Sovereign Credit Strategy: Time for a Breather; Romania Sovereign Credit Strategy: Romania's New Euro Dual-Tranche Issuance Thoughts; EM Sovereign Credit Strategy: Fiscal Risk Premia).Developed MarketsUnited States: Underwhelming global economic data did little to stem the post-US CPI recovery in risk markets. The string of lackluster data began with an unexpected contraction in Japan’s economy during 4Q23, the second consecutive quarterly contraction to mark a technical recession. This was followed by another disappointing month of labor market data in Australia, as negligible job gains, and a flat participation rate pushed the unemployment rate to its highest level since May 2022. The UK economy also Morgan Stanley does and seeks to do business with companies cove...
