Morgan Stanley: Middle East Conflict – Outlining the Risks to Staples
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Morgan Stanley highlights that the Middle East conflict could pressure European consumer staples companies through input cost inflation and weakening consumer demand. Current market forecasts do not yet reflect these potential headwinds. Based on an initial assessment screening of covered companies, Haleon, L'Oreal, Danone, Intercos, and major tobacco stocks are identified as the most defensive names within the sector.
The report emphasizes that the volume-to-price elasticity in the current cycle may be higher than in the past, given the already elevated pricing levels across the industry. Balance sheet strength varies significantly among peers, which could exacerbate vulnerabilities for certain companies that might have previously relied on asset disposals to repair their finances.
Morgan Stanley’s commodity cost tracker, assuming a typical 6–12 month hedging lag, indicates that input cost pressures will remain relatively mild through 2026 but could intensify in 2027. This forthcoming pressure will be particularly acute for home and personal care companies and beer manufacturers. Conversely, the commodity cost outlook for the food sub-sector remains favorable, primarily driven by a significant decline in cocoa prices.
The model has notable limitations, including assumptions that current commodity prices persist and that downstream impacts of energy cost surges are not fully captured. Additionally, if commodity prices ease—such as Brent crude gradually normalizing to $70/bbl in a reopening scenario—the tracker may overstate the actual pressure. Key risk exposures analyzed include input costs, current pricing power, private label exposure, logistics disruption, and corporate leverage.