UBS On-Air: Paul Donovan Daily Audio 'Delays and retreats'
At a Glance
The desk views the delay of new tariffs on US consumers as a key factor in moderating inflationary pressures ahead of the holiday season. Per the full note from UBS, these tariffs, which are now slated to take effect on August 1st, could mean that consumers experience price increases only after stockpiling ahead of Christmas, potentially reflecting higher inflation figures in January. With no imminent market-moving events in the calendar and no major shifts in economic policy, the impact of this delay may be muted in the short term, aligning with historical trends of tariff irregularities under the Trump administration.
Key Takeaways
- 01Tariffs on US consumers delayed until August 1st
- 02Inflation impact likely postponed until January
- 03Investor reaction may be limited due to historical tariff adjustments
Full Analysis
What the desk is arguing
The desk argues that the postponement of tariffs on US consumers represents a temporary reprieve from inflationary pressures, which may provide a more favorable environment for market sentiment in the coming months. Per the full note from UBS, the actual payment of these tariffs has been delayed to August 1st, suggesting consumers will likely feel the impacts only after the holidays, potentially in January of next year.
This move may lead to an inflation spike postponed, as businesses might engage in stockpiling ahead of Christmas, thus blurring the immediate inflation signal. As a reference, historical trends indicate that the current environment may favor limited investor reaction, as noted by Donovan's comment on Trump's past adjustments to tariffs.
Where it sits in our coverage
The current consensus target for the USD/CAD pair stands at 1.075, with noted ranges from aligned firms such as jpmorgan at 1.10 for Mar26 and bofa reporting a lower target of 1.04 also for Mar26. This positions our desk’s assessment toward the middle of the existing target spectrum, suggesting moderate bullishness.
How other firms see it
Firms like jpmorgan and citi share a somewhat aligned view, anticipating moderate dollar strength against CAD in light of the delayed tariffs and overall current economic circumstances. Conversely, bofa and goldman express a more cautious stance, suggesting that downside risk may prevail if inflationary expectations do not materialize as anticipated. Watching key indicators like USD/CAD and US CPI data will be essential for potential momentum shifts in this scenario.
Market Implications
Watch the USD/CAD pair closely, particularly around the 1.075 level, as any shifts in inflation expectations post-holidays may prompt a reevaluation of consumer spending and tariff effects. With no major calendar events on the horizon, this delay may influence short-term trading strategies.
From the original
The additional taxes US President Trump intended to impose on US consumers from Wednesday will now be delayed until 1 August. That means that, allowing for some stockpiling ahead of Christmas, consumers may not experience the inflation spike from these taxes until January next ye
Related speeches
4 itemsUBS On-Air: Paul Donovan Daily Audio 'And so it begins? '
The desk believes that upcoming US consumer price inflation data will reflect the effects of recent trade tax policies, with only a portion of these costs currently felt in the economy. Per the full note from UBS, anticipated trade tax impacts are still to be fully realized, as evidenced by half of the tax increase yet to be enacted and stockpiling of goods keeping pre-tax prices intact for now. The market should monitor how effectively firms can pass these impending costs to consumers, a task made easier by a stronger inflation backdrop and persistent media discourse around tariffs. In this context, US inflation prints will play a crucial role in shaping expectations, especially as we attempt to navigate the broader implications on currency valuations.
UBS On-Air: Paul Donovan Daily Audio 'National security vanities'
The desk sees recent announcements from the U.S. administration regarding new trade tariffs as a potential strain on consumption but anticipates minimal market disruption. Per the full note from UBS, the tariffs encompass foreign goods categorized as 'vanity units,' soft furnishings, heavy trucks, and pharmaceuticals, with furniture tariffs specifically invoked on national security grounds. Notably, higher prices already stemming from previous tariffs may have limited immediate impact on discretionary spending, given that these purchases occur with lower frequency. The anticipation of impending tariffs has seemingly influenced earlier consumer behavior, as suggested by changes in purchasing patterns among U.S. buyers this year, especially from Democratic households.