Morgan Stanley’s Global Market Sentiment Indicator Signals Risk on By Investing.com

Morgan Stanley said its global market stress and sentiment indicator turned positive, signaling a shift to “risk on” appetite after maintaining a neutral reading in January. According to the bank’s note on Tuesday, this regime has historically been linked to above-average one-week returns for global equities.

Morgan Stanley’s Market Sentiment Indicator (MSI) combines survey, positioning, volatility and momentum data to measure and quantify market stress and sentiment.

“With general sentiment now ‘down but reversed,’ MSI has moved into a positive regime,” Morgan Stanley strategists said in a note on Tuesday.

MSI generates risk-on/risk-off signals based on two key conditions: “level” and “change” in MSI. Strategists note that both conditions are currently met.

Sentiment hit a two-year low on Aug. 8, driven by bearish signals from the survey, volatility and momentum components after peaking in July. However, since then, eight out of ten metrics have shown positive changes, leading to a reversal in sentiment and generating a positive signal.

“While the ‘level’ condition should remain satisfied for a period of time, the ‘change’ condition is more fragile,” the strategists explained. “Any deterioration in sentiment data would cause the signal to revert to neutral.”

U.S. stock indexes rose to a near two-week high on Tuesday as weaker producer prices data supported expectations of a potential interest rate cut by the Federal Reserve in September.

US producer prices rose less than expected in July, with a rise in goods prices offset by lower costs for services, signaling continued inflation moderation. The producer price index (PPI) rose 2.2% year-on-year in July, following a 2.7% rise in June.

Investors are now focusing on July consumer price data due on Wednesday and retail sales figures on Thursday, which could bolster expectations for an aggressive rate cut by the Fed.