The Fed, Football and the Price of Ambiguity

Summary

Andrew Sheets, Morgan Stanley's global head of fixed income research, discusses how ambiguity around Fed policy, AI financing, and energy supply may leave investors undercompensated for uncertainty. He highlights a close September Fed call, low expected volatility, and adverse seasonality as reasons to expect higher macro volatility and to be cautious on mortgage-backed securities. In credit, he expects record investment-grade supply and wider spreads, preferring collateral-backed assets over unsecured corporates. He also raises oil and European natural gas forecasts and sees energy equities as an attractive hedge.

• Andrew Sheets of Morgan Stanley discusses the value of ambiguity in markets and football.
• The September Fed meeting is a close call; markets price roughly a two-thirds chance of a rate hike.
• AI financing remains ambiguous despite large hyperscaler spending forecasts.
• Energy market supply disruptions lead to higher Q4 forecasts for Brent oil and European natural gas.
• Positioning favors higher macro volatility and caution on mortgage-backed securities.
• Credit view expects record investment-grade supply, wider spreads, and preference for collateral-backed assets over unsecured corporates.
• Energy equities are seen as an attractive hedge against oil risk to stocks and bonds.
• Investors should demand more compensation for uncertainty when the range of outcomes is wide and its price is low.