UBS On-Air: Paul Donovan Daily Audio 'Competitiveness considerations'
At a Glance
German December producer price inflation, due today, gains significance as trade taxes and manufacturing competitiveness become central market themes. Per the full note source, German PPI exited deflation in November, and further improvement could reinforce the narrative of a cyclical recovery in exports. The contrast with strong US industrial production and less-weak Japanese IP suggests goods demand is global, but tariff risk skews relative competitiveness. No consensus target or firm forecasts are available for this commentary's currency pair, leaving the desk's argument as a standalone call to watch the print.
Key Takeaways
- 01German December PPI is due; November turned positive for the first time since mid-2023.
- 02Trade taxes and competitiveness concerns elevate the importance of the print.
- 03Strong US IP and less-weak Japanese IP support a global goods demand narrative.
- 04Tariff risk is the key asymmetric variable that could reverse the competitiveness calculus.
Full Analysis
What the desk is arguing
German producer prices are moving out of deflation, a shift that warrants attention given rising trade tensions and the focus on export competitiveness. Per the full note source, the November reading turned positive, and the December print will test whether this trajectory is sustainable. The desk frames this as a signal that German industry may be regaining pricing power, even as tariffs threaten to distort relative costs.
The evidence leans on the contrast between US industrial production, which surprised strongly in December, and Japan's industrial output, which was less weak than expected. This suggests underlying goods demand remains robust, bolstered by rising real incomes. The alternative read would be that the PPI uptick is noise, given the broader deflationary drag from energy and global overcapacity.
Where it sits in our coverage
No internal coverage data is available for the currency pair referenced in this commentary. The desk's argument is presented as a standalone observation without a consensus target or firm-level forecasts to benchmark against.
How other firms see it
No internal coverage data exists to identify aligned or contrary firms. The desk's view is not positioned relative to a cross-firm consensus.
Market Implications
Watch the EUR/USD reaction to the PPI print — a stronger-than-expected reading could bolster the euro on competitiveness grounds, while a miss may reinforce bearish sentiment. The US industrial production beat already tempers the relative growth story.
From the original
German December producer price inflation is due. This is not normally a major market concern, but as trade taxes and relative competitiveness become more of an issue, this is something investors might pay more attention to. German producer prices moved out of deflation in Novembe
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The Eurozone is set to release flash consumer price inflation data for February, with expectations firmly rooted in stability, indicating that inflation concerns are muted. Per the full note from UBS, there is no indication of an affordability crisis in Europe, especially when compared to the situation in the U.S. While the data remains generally benign, European governments have implemented policies that tend to suppress inflation rather than exacerbate it. Added to this, the latest producer price index data from the U.S. reveals underlying inflation trends that could impact future Federal Reserve policy as it contemplates interest rate adjustments.