Macro Monthly Podcast with UBS Asset Management
At a Glance
The desk anticipates potential volatility in the near term as the U.S. government shutdown complicates economic data availability. Per the full note source, UBS Asset Management highlights that other data sources, such as job market indicators and corporate earnings insights, remain positive despite the data blackout. This suggests resilience in the U.S. economy, but ongoing inaccessibility to government figures could spark uncertainty in market behavior. Currently, consensus targets are tightly drawn, making positioning critical amidst this lack of clarity.
Key Takeaways
- 01US government shutdown hinders critical economic data release.
- 02Positive job growth signals from ADP and state-level claims indicate resilience.
- 03Market volatility likely to increase as traders navigate uncertainty.
Full Analysis
What the desk is arguing
The desk posits that the ongoing U.S. government shutdown is creating a vacuum in available economic data, which could lead to increased market volatility. This development is significant, as uncertainty regarding growth and job metrics could shift traders' sentiment swiftly, especially in the FX markets.
Interestingly, despite the lack of government data, UBS Asset Management notes positive indicators from other sources, such as robust job growth reported by ADP and stable state-level jobless claims. This paints a picture of resilience in the macroeconomic landscape, a point that could support investor confidence if the shutdown persists.
Where it sits in our coverage
The consensus target for USD pairs is 1.075, reflecting a tightly clustered outlook with minimal divergence among firms. Notably, jpmorgan sees a target of 1.10 for March 2026, while bofa projects a lower target of 1.04.
This current positioning aligns with our desk's outlook that leans towards the higher end of the target range as we evaluate upcoming economic data permutations tied to the ongoing government-related uncertainties.
How other firms see it
Current sentiments among aligned firms like jpmorgan indicate optimism in USD positioning, suggesting bullish potential for the U.S. dollar against major peers. Conversely, bofa represents a contrasting view, emphasizing a more cautious approach to USD strength based on potential market destabilization due to fiscal policy uncertainty.
Given this divergence, it's critical to track the upcoming week’s labor reports closely, particularly initial jobless claims and ADP numbers, which could signal shifts in sentiment regarding the U.S. dollar's strength depending on the outcomes.
Market Implications
Traders should closely monitor the weekly labor market reports for shifts in sentiment, particularly the state-level jobless claims and ADP figures, as these will influence currency movements amidst the data vacuum created by the shutdown.
From the original
Join Evan Brown, Head of Multi-Asset Strategy and Portfolio Manager for UBS Asset Management, for an assessment of the current macro and geopolitical environment. Recorded on 25.11.05
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The desk's interpretation hinges on a heightened awareness of the fragility underpinning recent US economic data, particularly employment and consumer metrics. Per the full note from UBS, the expected government shutdown's impact muddies the clarity surrounding these key indicators and suggests that recent trends might be more a product of circumstance rather than robust economic growth. Compounding this uncertainty is the deterioration in data quality, something that could provoke a more cautious stance from the Federal Reserve as they navigate future policy decisions. In the approach to these critical data releases, traders are advised to position themselves with caution, particularly given the lack of clarity around US economic fundamentals.
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The desk views the US employment report's reliability as compromised due to the federal government shutdown, potentially undermining the perceived strength of the labor market; low fear of unemployment has been a bulwark against recession risk. Per the full note from UBS, the confusion around the actual cost of the shutdown further clouds economic assessment, leading to concerns about the accuracy of data reflecting economic activity. While other economic activity may merely shift in time during shutdowns, the lack of clear signals makes it harder for traders to gauge the market direction accurately.
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