5 Things You Need to Know to Start Your Day

Good morning. Goldman Sachs and Morgan Stanley diverge on Fed outlook, the US remains at risk of a shutdown and David Cameron makes a stunni [View in browser]( [Bloomberg]( Good morning. Goldman Sachs and Morgan Stanley diverge on Fed outlook, the US remains at risk of a shutdown and David Cameron makes a stunning return.  —[David Goodman]( Battle of the banks [Wildly divergent views]( at two of Wall Street’s biggest banks show how much uncertainty is still out there about the Fed’s rate path. Morgan Stanley is betting the central bank will start cutting rates in June 2024, then again in September and every meeting from the fourth quarter onward, each in 25-basis point increments. Goldman Sachs sees the first 25-basis-point reduction in the fourth quarter of 2024, followed by one cut per quarter through mid-2026 — a total of 175 basis points Morgan Stanley’s projected path takes the policy rate to 2.375% by the end of 2025, while Goldman’s sees rates settling somewhere within a 3.5%-3.75% target range. Shutdown risk The US still faces a [risk of a government shutdown](at the end of this week despite a new compromise plan by Speaker Mike Johnson that leaves out hardline conservative priorities like cutting spending and curtailing migration. Congress has just days to pass a new stopgap bill before funding runs out after Nov. 17. Johnson on Sunday suggested his plan would buy lawmakers time to negotiate individual spending bills, which fiscal conservatives have demanded. A shutdown would threaten a downward US credit rating adjustment by Moody’s, which on Friday changed its ratings outlook for the US from stable to negative. An unexpected return Former UK Prime Minister David Cameron made a [stunning comeback]( on Monday when he was appointed Foreign Secretary in a government reshuffle. The former premier, who quit after the 2017 Brexit referendum, is no longer an MP so he has been made a Baron to allow him to take the role. The reshuffle started with the sacking of Suella Braverman as home secretary. Jeremy Hunt remains as Chancellor before next week’s fiscal statement. The moves represent a dramatic gamble for Prime Minister Rishi Sunak as he tries to overturn a 20-point polling deficit against the opposition Labour Party ahead of a general election expected in 2024. Stocks gain European stocks rose on Monday, with the[Stoxx 600 index climbing 0.7%](. Health firms were among the strongest performers, with Novo Nordisk rallying almost 4% after a study backed the use of Wegovy, its blockbuster weight-loss drug, to cut heart attacks and deaths in obesity patients. Treasury yields slipped, while oil steadied. Coming Up… It’s a quiet day on the data front, with Federal Reserve Governor Lisa Cook the only central bank speaker. The US is due to deliver its monthly budget statement. What We’ve Been Reading This is what’s caught our eye over the past 24 hours. - [Why has the pound rallied]( as BOE rate cut bets have built? - [UK home asking prices]( post biggest November fall in five years. - China’s consumption[recovery is losing momentum](. - Read our Big Take on the [coming Biden-Xi meeting](. - HK Office backed by Goldman cuts asking price by more than 30%. - Israel latest: US [strikes Iran-linked targets]( in Eastern Syria. - Most Americans still have to commute. [Here’s how that’s changed](. And finally, here's what Joe’s interested in this morning For basically the entirety of the 2010s, the Non-Farm Payrolls report was THE top-shelf economic indicator each month. The healing and recovery in the labor market was the whole ballgame. Since 2021 inflation data has been where all the action is. Inflation data is what's moved the Fed, and what's really moved the markets in this new environment. But the story is really starting to turn again. Or at least it appears to be. There's growing consensus that the rate hike cycle is over. And now the debate is about cuts. Will the Fed stay at these levels for a sustained period of time? Will cuts happen next year? And if so, when? And how intense will the cutting cycle be once it begins? Morgan Stanley's econ team, lead by Ellen Zentner, [sees the first cut occurring]( in June of next year. Goldman's expectation is for the first cut in Q4 of next year. Morgan Stanley also expects much deeper cuts than Goldman does right now. So there's no real conventional wisdom yet. In the meantime, we probably need to start turning the dial again to pay more attention to the labor market. Tomorrow we get CPI and of course that will be the big data point of the week. Expectations are for a 0.3% sequential increase in the core rate. But on Thursday, watch Jobless Claims, particularly Continuing Claims. Continuing Claims have been creeping up since late Summer and are near their highest levels of the year. Obviously the inflation numbers are still critical. But in terms of thinking about rate cuts, a lot will depend on whether the recent signs of labor market softening starts to turn into something that's perceived as threatening the employment side of the mandate. Follow Bloomberg's Joe Weisenthal on Twitter [@TheStalwart]( Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's Five Things to Start Your Day: Americas Edition newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. 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