Gold prices drop amid waning rate cut bets; central bank demand remains
Investing.com -- U.S. equities are set to lead global stock markets next year, with Morgan Stanley expecting the United States to “outperform rest-of-world (RoW) stocks in 2026” on the back of positive operating leverage, pro-cyclical policy, and potential AI-driven efficiency gains.
In its 2026 Global Strategy Outlook note, Morgan Stanley said these factors underpin its “higher-than-consensus EPS assumption for the next two years.”
Japan is the firm’s second-favoured market, where the “positive narrative resembles the U.S.’ story,” while the bank sees fewer tailwinds for Europe and emerging markets apart from Brazil and India.
In rates, Morgan Stanley recommends overweighting duration in early 2026, noting that yields should remain range-bound but with “a front-loaded rally as the Fed delivers 50bp of cuts in 1H.”
It expects 10-year Treasury yields to fall to 3.75% by mid-year before ending 2026 at 4.05%. The ECB is projected to cut to 1.50% and hold, while U.K. gilts finish “around 3.90%” as the Bank of England moves toward 2.75%.
FX markets may face volatility, with Morgan Stanley forecasting “a choppy year ahead.” The bank’s analysts believe the DXY should dip to 94 in the first half before rebounding to 99 by year-end, while USD/JPY may fall to 140 as U.S. rates decline.
Emerging-market fixed income remains supported, with Morgan Stanley expecting “attractive returns” in the first half of 2026, particularly in BB-rated credit. In commodities, the bank favours metals over energy, calling gold its “top pick” and highlighting copper and aluminium supply challenges.