Morgan Stanley Fixed-Global Macro Strategist The Election Godot Will Show

M Global IdeaGlobal Macro StrategistThe 'Election Godot' Will ShowMorgan Stanley & Co. LLCMatthew HornbachStrategist Matthew.Hornbach@morganstanley.com +1 212 761-1837 Andrew M WatrousStrategist Andrew.Watrous@morganstanley.com +1 212 761-5287 Martin W Tobias, CFAStrategist Martin.Tobias@morganstanley.com +1 212 761-6076 Francesco GrechiStrategist Francesco.Grechi@morganstanley.com +1 212 761-1009 Zoe K StraussStrategist Zoe.Strauss@morganstanley.com +1 212 761-0407 Eli P CarterStrategist Eli.Carter@morganstanley.com +1 212 761-4703 Morgan Stanley & Co. International plc+James K LordStrategist James.Lord@morganstanley.com +44 20 7677-3254 David S. Adams, CFAStrategist David.S.Adams@morganstanley.com +44 20 7425-3518 Wanting LowStrategist Wanting.Low@morganstanley.com +44 20 7425-6841 Lorenzo TestaStrategist Lorenzo.Testa@morganstanley.com +44 20 7677-0337 Fabio Bassanin, CFAStrategist Fabio.Bassanin@morganstanley.com +44 20 7425-1869 Dominic J KrummenacherStrategist Dominic.Krummenacher@morganstanley.com +44 20 7425-9781 Morgan Stanley MUFG Securities Co., Ltd.+Koichi SugisakiStrategist Koichi.Sugisaki@morganstanleymufg.com +81 3 6836-8428 Hiromu UezatoResearch Associate Hiromu.Uezato@morganstanleymufg.com +81 3 6836-8431 Hiroki YagiResearch Associate Hiroki.Yagi1@morganstanleymufg.com +81 3 6836-5412 Most macro investors in most macro markets now await the US general election – the outcome of which, while uncertain, will certainly come. We remain on the sidelines in US rates and the US dollar, and focus on risk exposure in Europe, the UK, and dollar bloc rates and currencies.Global Macro StrategyWe argue that Treasury yields will rise much less in a "Republican sweep" scenario than commonly believed based on a comparison of Fed policy expectations in 2016 vs. today. We discuss how a shift in the market-implied neutral rate for the eurozone could prove an important EUR-negative risk.Interest Rate Strategy In the US, we remain neutral on duration and curve shape. In the euro area, enter 10s30s steepeners vs ESTR and maintain Dec 24 1y midcurve euribor 98.00/98.25 call spread. In the UK, we enter long SFIM5 96.35/96.75cs vs. 95.75p, and we stay long SFIZ4 95.40-55-70 call fly and short 15y ASW. In Japan, we maintain long 20y JGB vs pay 5y OIS, long 30y JGB ASW, and JGB 10s20s ASW box flattener.Currency & Foreign ExchangeWe investigate the relationship between inflation surprises and currency movements in a tight time window around the data release. A repricing of a lower eurozone r-star could generate a 1-3% decline in EUR/USD. We see fiscal consolidation in the euro area as EUR-negative. We no longer recommend long CAD/CHF as the BoC will likely cut below neutral. We continue to recommend short EUR/AUD positions and add long AUD/CAD. We pivot to a long SEK/CHF recommendation to capitalize on lower European rates and risk positivity. Inflation-Linked BondsWe maintain long 30-year TIPS breakevens and