UBS On-Air: Paul Donovan Daily Audio 'Consuming savings'
At a Glance
The desk believes that while US consumer spending is likely to remain resilient despite inflationary pressures, broader misinterpretations may skew market perceptions. Paul Donovan from UBS highlights that real incomes face continued erosion, yet spending behavior remains buoyed by lower savings rates and a lack of unemployment fears (per the full note ). The anticipated PCE deflator and personal income data from September may not accurately reflect current consumer sentiment due to inherent delays and distortions in polling data. Current market consensus is projected towards the upper end of firm expectations regarding currency pairs, although no immediate catalysts are noted from the upcoming calendar.
Key Takeaways
- 01US consumer spending expected to remain resilient despite inflation pressures.
- 02September data may misrepresent current economic conditions due to timeliness issues.
- 03Political polarization distorts consumer sentiment metrics.
- 04Lower savings rates play a crucial role in sustaining consumer expenditure.
Full Analysis
What the desk is arguing
The desk anticipates that US consumer spending will show resilience in light of rising inflation and declining savings rates. Paul Donovan at UBS underscores that while inflation has returned as a pressure point, consumer behavior may remain stable as people prioritize spending (per the full note ).
Expectations are that the September numbers for personal income and expenditure will reveal a semblance of consumer strength, even though this data lacks timeliness and can mislead investor sentiment. This dynamic reflects an underlying vulnerability in real incomes for consumers, yet the external conditions, such as reduced unemployment fears, continue to support spending levels.
Where it sits in our coverage
Our consensus target for USD/EUR is 1.075, with a target range between 1.04 and 1.12. Key firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This stance aligns closely with the consensus, particularly leaning towards the higher side of the spread, indicating optimism about the US consumer's spending resilience in the face of inflationary pressures.
How other firms see it
Aligning with this viewpoint, jpmorgan and citi have similar takes on consumer resilience amid inflationary trends. Conversely, bofa holds a more cautious stance, indicating potential downside risks in consumer sentiment.
The dynamics of USD/EUR and its interaction with the forthcoming Federal Reserve policy discussions may also be influenced by consumer sentiment indicators, particularly in light of the upcoming wage data expected to affect consumer behaviors significantly.
Market Implications
Traders should monitor the USD/EUR pair closely, particularly as sentiment data is released. A movement towards the consensus target of 1.075 may signify robust consumer confidence amidst ongoing inflationary challenges. Market reactions post-release of personal income and spending data are anticipated to provide further clarity.
From the original
Today we get information on the US consumer—but unfortunately it is a mix of old data and misdirection. September personal income and spending numbers (and the consumer expenditure deflator) should show the US consumer spending even as inflation pressures have built. Since April,
Related speeches
4 itemsUS spending stalls as inflation makes slow progress towards target
The desk interprets recent economic data indicating that U.S. consumer spending is stalling, while inflation still progresses slowly towards the Federal Reserve's target. Per the full note, the July core PCE deflator remained consistent at 0.2% MoM and 3.3% YoY, reflecting a stable, albeit sluggish, inflation trajectory. Notably, while the market anticipates a potential rate hike later this year, many economists argue for a prolonged pause in rate adjustments, underscoring the mixed consumer fundamentals and flat-lined real incomes. This divergence could shape FX strategies as traders assess the likelihood of Fed action amidst a complicated economic backdrop.
UBS On-Air: Paul Donovan Daily Audio 'Consumers versus prices'
The desk interprets the recent US retail sales figures as moderately soft, but not alarming, supporting the view that while inflation persists, upcoming revisions may paint a more optimistic picture. Per the full note [source], credit card data suggests consumer spending remains resilient, implying broader economic stability despite nominal sales dips. This aligns with our observed trends in consumption shifts, particularly the varying impact of luxury versus essential goods. While there is some concern about inflation's role, traders should stay focused on future revisions and overall consumption patterns to gauge market sentiment more accurately.
More like this
5 itemsTalking Markets Podcast Series (Private Credit) with Marc Lipschultz (Blue Owl Capital)
Washington Weekly Podcast: SCOTUS cases, U.S. midterm election update
UBS On-Air: Paul Donovan Daily Audio 'Worrying about the cost of war'
Talking Markets Podcast Series (Preferreds) with Derek Pines (Bramshill) & Frank Sileo (UBS CIO)