Sunday Start | What's Next in Global Macro: The Inelastic Economy

Research evidence excerpt

Sunday Start | What's Next in Global Macro: The Inelastic Economy

Global IdeaMwe think AI-sensitive items have a relatively small weight within the inflation basket,

allowing inflation to decelerate in 2H26 and supporting a more dovish path for ECB,

BoE, and BoJ policy over the next 12 months than markets imply.

But if these inelastic forces prove more powerful or persistent, they may challenge

our policy forecasts and expectation that bond yields will fall. These tech spenders

have significant financial resources and strong balance sheets. US households are

sitting on record wealth and European savings rates are historically high. For

markets, the key question may not be whether prices have risen enough to matter,

but whether demand has become too strategic, too essential, or too well-funded to

care.

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Exhibit 1: Debt capacity: non-financial corporate borrowing is historically low,

relative to equity market cap

US Non-Fin. Debt / Equity Market Cap (%)

1952 1962 1972 1982 1992 2002 2012 2022

Source: Federal Reserve Bank of St. Louis (FRED), Morgan Stanley Research

What I'm Reading This Week

US Credit Strategy Mid-Year Outlook: Financing the Future (19 May 2026)

Global Macro Strategy Mid-Year Outlook: Slippery When Oiled (15 May 2026)

US Economics Weekly: The other side of tariffs: Disinflation in the pipeline (22 May

2026)

Asia Energy Security and AI: Energy Meets Compute: Supercycle Recharges (21 May

Asia Economics: The Viewpoint: Is Asia’s macro story all about semis? (20 May

What We Are Watching This Week

MONDAY, MAY 25

Israel Base Rate: We expect the elevated uncertainty about both the

external and domestic outlook to keep the BOI on the cautious side and

Morgan Stanley Research 3