### POV, Morgan Stanley..........>

US EURODLR OPTIONS: ### POV, Morgan Stanley analysts liken monetary policy on

"auto pilot" in a recent economics piece. MS sees the Fed holding steady at next

week's FOMC as well as the November 1 meeting while tightening at the Dec 14

meeting. Not a big surprise with markets already pricing in 0.0% chance of a

hike in the next two meetings for the past 1-2 weeks, though December remains in

question. Rate hike probability for the Dec 13 FOMC fell to 18.8% late last week

while this weeks sell-off has seen chances rise to 35.6% this morning, according

to MNI PINCH model. Eurodollar option traders have taken a more cautious in

building rate hike positions through year end, however, focusing instead on 1-

and 2Y midcurve (Reds and Greens) options where the longer time horizon allows

for improvement in data and a more likely hawkish Fed. Meanwhile, MS expects the

Fed to "announce it will initiate balance sheet runoff "starting in October." MS

maintains a "median expectation for three hikes this year and in 2018/19, while

adding one final hike in 2020."