Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross Asset

Strategist for Morgan Stanley. Along with my colleagues bringing a variety of

perspectives, I'll be talking about trends across the global investment

landscape and how we put those different ideas together. We're recording talking about the

trends across the global investment landscape and how we put those different ideas

together. We're recording this from our London offices on Thursday, May 30th

at 2 p.m. Greenwich, Meantime. I've been on the road for the last two weeks

talking to investors about the market outlook. Investors, or at least the ones I've been on the road for the last two weeks talking to investors about the market outlook.

Investors, or at least the ones I've met, are clearly worried about the renewal of trade

tensions between the US and China, a development they had not been expecting.

But in terms of the impact on this for markets, opinions are more mixed. Many

investors sound more sanguine on the state of things and for the same reason. Even if trade

tensions do remain unresolved, the US Federal Reserve stands willing and able to reduce interest

rates and support the market.

This belief by investors in a supportive Fed isn't just rhetoric, it's what they see when

they look at market pricing. Interest rate markets currently expect the Federal Reserve

to cut interest rates by half a percentage point over the next 12 months. And options markets say that there's a

one in four chance that the U.S. two-year note will be at one and a half percent in a year's time,

basically a full percentage point below the current Fed funds rate.

So why mention this? Because we think the market's confidence in Fed support is a vulnerable assumption.

First, because the bar for the Fed to take action could be higher than expected.

And second, because if the Fed is reducing interest rates because economic growth is weakening, a theme that my colleague

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