Morgan Stanley reminded of fall of ' 87 - 'The 1987 playbook'
A snippet from an overnight Morgan Stanley forex note, the firm is looking for risk off
The 1987 playbook:
In many aspects, the current constellation reminds us of what happened in autumn 1987.
- Fed was hiking rates
- deploying a hawkish tone
- Chair Greenspan hawkish rhetoric
- global economy seemed to trail the US … supported by the second Reagan tax package kicking in in 1986
- The consensus assumed the rest of the world (RoW) - notably Europe - was running wider output gaps and hence was surprised when the Bundesbank withdrew liquidity in September 1987.
In this sense, we would not dismiss hawkish remarks from ECB's Knot, who said that ECB rate hikes could come earlier than markets are expecting.
MS note the ECB and BOJ are set to turn more hawkish and risky asset markets may head toward troubled waters
ps. If you'd like a reminder of what happens when asset markets hit troubled waters:
Hope for the best, but plan for the worst folks.