M Update Global Macro Commentary | Global February 12Morgan Stanley & Co. LLCMartin W Tobias, CFAStrategist Martin.Tobias@morganstanley.com +1 212 761-6076 Zoe K StraussStrategist Zoe.Strauss@morganstanley.com +1 212 761-0407 Eli 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 USTs close little changed, with muted activity; USD finishes mixed; Equity internals signal caution before US CPI, VIX rallies; CHF mildly weakens before Swiss CPI; European rates outperform cross-market; ECB's Kazaks backs cautious approach; DXY at 104.13 (+0.0%); US 10y at 4.179% (+0.4bp).• USTs close little changed, amid a sound slate of high-grade corporate issuance and a drop in the New York Fed's 3y ahead median inflation expectations measure to 2.4%, the lowest on record.• DXY USD Index settles unchanged ahead of the US January CPI release, where our economists expect further core goods deflation and stagnant core services inflation.• US equity performance divergence – Mag7 losses against Russell 2000 gains – flashes signs of apprehension ahead of US CPI; the VIX Index rises ~8%.• CHF (-0.1%) ends marginally weaker against USD, ahead of the Switzerland January CPI release.• European rates outperform cross-market, with outperformance in semi-core and peripheral spreads.• ECB Governing Council Member Kazaks describes expectations for rates to be cut in March or April as too optimistic and advocates for more cautious approach "until the inflation story is over."Please refer to our latest Global Macro Strategist (Enter the Dragon) as well as our recent publications and collaborations (Mexico Sovereign Credit Strategy: Moody's Downgrades Pemex to B3 from B1; Chile Sovereign Credit Strategy: Public Finance Report; Global Macro Strategy: Positions and Flows Report; Global Macro Strategy: Global FX Positioning; Podcast: The Global Macro Guide | Ep. 61).Developed MarketsUnited States: Activity was quiet across macro markets, with Hong Kong, Japan, and Brazil all closed for local holidays. Rallies across European (SX5E: +0.65%) and US (RSP: +0.68%) equities were led by lower-quality stocks. In particular, the divergence in US equity performance – Mag7 losses against Russell 2000 (+1.75%) gains – conveyed signs of apprehension ahead of the US CPI release, reinforced by the rise in implied equity volatility (VIX: +7.7%). Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision...
