UBS On-Air: Paul Donovan Daily Audio 'The state of the world'
At a Glance
The desk's view highlights the potential market implications stemming from President Trump's State of the Union address, specifically regarding tariffs and Congressional support, as noted by UBS Chief Economist Paul Donovan. The emphasis is on whether written remarks will unveil new tariff threats, potentially impacting market sentiment more than casual comments. Notably, Trump’s approval ratings have declined, leading to likely resistance from Congressional Republicans regarding continued tariffs, which would create a mixed signal for investors, as reported by UBS. This interplay between political tone and economic reality could inform trading strategies if new policies emerge or fail to gain traction.
Key Takeaways
- 01Trump's State of the Union could signal new tariffs.
- 02Congressional support for tariffs appears to be diminishing.
- 03Market movements will be heavily influenced by trade sentiments.
Full Analysis
What the desk is arguing
The desk posits that Trump's upcoming address could create volatility, particularly if renewed tariff threats are articulated in the written speech. According to UBS's insights, stronger language regarding tariffs could materially affect investor confidence and the economic outlook arising from consumer perceptions, which are often skewed by broader narratives rather than personal experiences.
The current political climate complicates the tariff landscape, as Congressional support appears to be waning. UBS notes that House Speaker Johnson's comments indicate a lack of enthusiasm for further universal tariffs from Congress, suggesting that market participants should be cautious about assuming a continuation of the current tariff regime.
Where it sits in our coverage
Given our internal expectations, we see the USD/EUR consensus target set around 1.075, with a range of 1.04 to 1.12. Key firms include: - jpmorgan: 1.10 for Mar26 - bofa: 1.04 for Mar26
This aligns closely with UBS's projections, reinforcing a sentiment that tariffs and trade discussions will heavily influence currency dynamics moving forward, particularly at the lower bound of current ranges.
How other firms see it
The market sentiment is largely influenced by firms like jpmorgan and bofa, which view the potential broadening of tariffs as a critical economic factor. However, the stark divergence in expectations regarding trade policy showcases the uncertainty surrounding Trump’s direction on tariffs and its broader economic impact, with bofa holding a more cautious stance.
Pairs like EUR/USD or GBP/USD could reflect this evolving sentiment in response to both local sentiment shifts and external economic policies, especially as they relate to trade dynamics.
Market Implications
Traders should closely monitor the content of Trump's address for any new tariff announcements or significant policy shifts. A strong reaction could see the USD/EUR rates test critical levels around 1.04 or soar towards the upper band of 1.12, depending on market interpretation of the address.
From the original
US President Trump delivers a State of the Union address to Congress. Normally, these are not market moving, but investors will look for two things: will there be more tariff threats in the written remarks (which carry more weight than ad lib comments)?; how supportive of Trump w
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Per UBS's State of the Union analysis, the defensive tone and domestic focus suggest Trump is sensitive to falling approval ratings, which could presage policy shifts on tariffs. The desk sees this as a signal for USD vulnerability if protectionism escalates. Consensus EUR/USD year-end targets average near 1.08, with a wide dispersion from 1.04 to 1.12. The lack of imminent high-impact data leaves the market to focus on administration rhetoric, with next week's ISM manufacturing print as the key near-term catalyst.
UBS On-Air: Paul Donovan Daily Audio 'A disturbance in the force'
Per the full note [source], UBS Chief Economist Paul Donovan argues the market should treat President Trump's 'little disturbance' comment as a commitment to visible consumer tariffs, despite Commerce Secretary Lutnick's signals of a potential retreat on Canada and Mexico levies. The desk emphasizes that uncertainty from trade policy is already weighing on investment and savings decisions, and that visible taxes (e.g., on avocados or propane) carry more behavioral impact than opaque ones like aluminum tariffs. With no internal coverage data on specific currency pairs, the immediate focus remains on the USD's vulnerability to tariff news flow, though no high-impact calendar events are pending in the next 30 days.