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Welcome to Thoughts on the Market. I'm Andrew Sheats, head of corporate credit research at Morgan Stanley. Today I'm going to talk about the consumer side of the confidence debate. It's Thursday, February 27th at 2pm in London. Two weeks ago on this program, I discussed signs that uncertainty in US Government policy might be hitting corporate confidence, as evidenced by an unusually slow start to the year for dealmaking. That that development is a mixed bag. Less confidence and more conservatism in companies holds back investment and reduces the odds of the type of animal spirits that can drive large gains. But it can be a good thing for lenders, who generally prefer companies to be more cautious and more risk averse. But this question of confidence is also relevant for consumers, and today I want to discuss what some of the early surveys suggest and how it can impact our view. To start with something that may sound obvious but is nonetheless important, confidence is an extremely powerful psychological force in the economy and financial markets. If you feel good enough about the future, you'll buy a stock or a car with little regard to the price or how the economy might feel at the moment. And if you're worried you won't buy those same things even if your current conditions are still okay, or if the prices are even cheaper, confidence, you could say, can trump almost everything else. And so this might help explain the market's intense focus on two key surveys over the last week that suggested that US Consumer confidence has been deteriorating sharply. First, a monthly survey by the University of Michigan showed a drop in consumer confidence and a rise in expected inflation. And then a few days later on Tuesday, a similar survey from the Conference Board showed a similar pattern, with consumers significantly more worried about the future, even if they felt that current conditions hadn't much changed. While different factors could be at play, there's at least circumstantial evidence that the flurry of recent U.S. policy actions may be playing a role. This drop in confidence, for example, was new and has only really showed up in the last month or two. And the University of Michigan survey actually asks its respondents how news of government economic policy is impacting their level of confidence. And that response over the last month showed a precipitous decline. These confidence surveys are often called soft data, as opposed to the hard economic numbers like actual sales of cars or heavy equipment. But the reason they matter, and the reason investors listen to them this week is that they potentially do something that other data cannot. One of the biggest challenges that investors face when looking at economic data is that financial markets often anticipate and move ahead of turns in the underlying hard economic numbers. And so if expectations are predictive of the future, they may provide that important more leading signal. One weak set of consumer confidence isn't enough to change the overall picture, but it certainly has our attention. Our US Economists generally agree with these respondents in expecting somewhat slower growth and stickier inflation over the next 18 months. And Morgan Stanley continues to forecast lower bond yields across the US And Europe on the expectation that uncertainties around growth will persist. For credit investors, less confidence remains a double edged sword, and credit markets have been somewhat more stable than other assets. But we would view further deterioration in confidence as a negative given the implications for growth, even if that meant a somewhat easier policy path. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share thoughts on the market with a friend or colleague today.