Episode Details

All eyes have been on President Trump’s address at the World Economic Forum. Michael Zezas, our Deputy Global Head of Research, and Ariana Salvatore, our Head of Public Policy Research, talk about potential implications for policy and the U.S. outlook.

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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Deputy Global Head of Research for Morgan Stanley. 

Ariana Salvatore: And I'm Ariana Salvatore, Head of Public Policy Research. 

Michael Zezas: Today we're discussing our takeaways from President Trump's speech in Davos and what we think it means for investors. 

It's Wednesday, January 21st at 1pm in New York. 

Michael Zezas: So, Ariana, over the last couple of weeks, there's been a lot of news about policy proposals coming out of the U.S. and from President Trump around affordability, as well as some geopolitical events around the U.S. relationship with Europe. And investors really started looking towards President Trump's speech at Davos, which he gave earlier today, as a potential vehicle to learn more about what these things would actually mean and what it might mean for the economic outlook and markets. 

Ariana Salvatore: Yeah, that's right. I think specifically investors were looking for the President to focus on affordability proposals pertaining to housing and some commentary around Greenland. Remember last weekend, President Trump proposed a 10 percent tariff on some EU countries related to this topic specifically. 

So obviously that did feature in his speech. What did we learn and what do you think are the most important things for markets to know? 

Michael Zezas: So, maybe the most important headline we got was President Trump appearing to take off the table the use of force when it comes to an attempt to acquire Greenland. And that would seem to, therefore, take off the table the idea of a broader rupture in the U.S.-EU relationship. Both the security relationship vis-a-vis NATO, as well as the economic relationship which could have been ruptured with higher tariffs on both sides, anti coercion measures around trade, and that would be of obvious economic importance. 

Europe is obviously a major importer of U.S. goods. Not as big as Canada or Mexico, but still pretty significant. So, anything that would've created higher barriers between the two would've had meaningful economic consequences for the U.S. outlook. 

Ariana Salvatore: Yeah, that's right. And we've been saying that the bilateral trade framework agreement between the U.S. and the EU is actually pretty tenuous in nature, right? So, this doesn't yet have formal backing from the European Parliament. They, in fact, delayed a vote on this exact deal, kind of on the back of these Greenland headlines. 

So how are we thinking about, you know, what's been priced into markets and maybe what this could mean for something like the dollar going forward? 

Michael Zezas: Yeah, so it's important to point out that we're not out of the woods yet in terms of potential trade escalation on both sides around the Greenland issue. However, it seems like that bigger tail problem of a decoupling might have gone away. And so, what you saw in markets so far today was that some of the actions over the past, kind of, 24-48 hours with equity market weakness. You know, the S&P was down about 2 percent yesterday. The dollar was weaker. It seemed like more term premium was being baked into the U.S. Treasury market. A lot of that appears to be unwinding today. 

Said more simply, the idea of a kind of riskier investment environment for the U.S.