As US economy heads for a recession, half percent rate cut could be bad for stocks, says Morgan Stanley
Morgan Stanley analysts have stated that any misstep could end up being bad for the stock markets.
Fed rate cuts to strengthen Yen?
Analysts believe that cutting rates by the Fed would end up strengthening the Yen, which could end up being detrimental to the US risk assets and international trades and stocks, that are dependent on the strength of the dollar versus the Japanese currency. Any adverse reaction to the US risk assets can open up the Pandora's Box, in terms of the national economy, at a time when the recession fears are at large.
25-basis-point cut feels like the safest option
Morgan Stanley experts are of the opinion that for the time being a 25-basis-point cut in rates would be enough to strengthen investor nerves, and would in fact be much better than a 50-basis-point cut.
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Meanwhile, bond yield and foreign exchange are showing symptoms of hand-landing risks, something that has also been observed in major IT stocks like Nvidia in recent days. It is yet to be seen how the bond market responds to a basis point cut by the US Fed, as the smallest of alteration would significantly affect the bond market.
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