UBS Morning audio comment: Uncertain times
The desk highlights that the pervasive theme of uncertainty expressed in the latest Federal Reserve Beige Book significantly influences business behavior, impacting labor market dynamics and broader economic activity. Per the full note by Paul Donovan at UBS, the term 'uncertainty' was cited over 50 times, dwarfing the 14 mentions recorded in May 2024, indicating a rising apprehension among businesses that could stifle growth. This trend suggests that traders should be vigilant about the implications of such uncertainty as it may linger and hamper recovery from current economic challenges. With no imminent high-impact economic events to catalyze change, market participants may experience prolonged caution as they await clearer signals from the Fed and other central banks.
What the desk is arguing
The emphasis on uncertainty in the Federal Reserve Beige Book suggests that businesses are hesitant to commit to hiring or expansion plans, according to Paul Donovan of UBS. This hesitance could lead to a stagnation in economic recovery, especially as labor market indicators present mixed signals, highlighting the broader implications for future Fed policy.
Particularly concerning is the low hiring activity captured in current labor market data, where initial claims remain stable but fail to reflect reluctance among employers to add positions. The increased mentions of uncertainty compared to prior years could point to potential market volatility as businesses adapt to these challenges.
Where it sits in our coverage
Our current consensus target for the USD is 1.075, with a range between 1.04 and 1.12. Specifically, notable forecasts include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's perspective aligns closely with jpmorgan, which foresees a stronger dollar by March 2026, while diverging from bofa, which anticipates a weaker dollar at the same interval. The desk's position is at the upper boundary of the consensus range.
How other firms see it
Firms such as jpmorgan and citi view the ongoing uncertainty as a risk that supports a more robust dollar. In contrast, bofa and barclays hold a more pessimistic outlook, predicting weaknesses for the USD ahead.
Pay particular attention to labor market trends and inflation reports, as these directly correlate with the Fed's policy decisions and could impact the USD/USD trajectory significantly.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The Federal Reserve Beige Book highlights persistent uncertainty affecting business decisions, which could hinder economic recovery.
- 02Initial labor market indicators show stability, but they mask ongoing hesitance regarding hiring, increasing overall economic uncertainty.
- 03Market consensus on future USD performance suggests mixed sentiments, with bullish outlooks from some firms and bearish expectations from others.
- 04No upcoming major economic events in the next 30 days may prolong the cautious trading environment.
Market implications
Traders should watch the USD closely as uncertainty looms, particularly around 1.075. Any unexpected shifts in labor market data could catalyze movements in the USD, especially in light of the Fed's policy assessment timelines.
Risks to this view
The call could reverse if a sudden influx of positive labor market data or clear dovish signals from the Fed indicates a shift away from the current state of uncertainty, resulting in a stronger USD trajectory.
The Federal Reserve Beige Book keeps mentioning uncertainty. That can have a rather paralyzing effect on business behavior. View this email in a web browser Uncertain times UBS morning audio comment by Paul Donovan The Federal Reserve Beige Book’s summary of economic anecdote mentioned “uncertain” and “uncertainty” no fewer than 50 times this month (before tariffs were announced).
That is below the uncertainty peak that followed last year’s tariffs, but well above the 14 mentions in May 2024. Uncertainty has a paralyzing effect on business decisions—and the risk is that uncertainty endures. Uncertainty has frozen US labor market activity.
There are a series of rather unsatisfactory labor market data points today. Initial claims are fine, but do not capture the “no hire” aspect of the labor market properly. Unit labor costs and productivity depend on the accuracy of GDP data (which is not accurate), and the Challenger survey of layoffs reflects a tiny subset of actual layoffs in the economy.
An announced ceasefire between Lebanon and Israel has not moved markets much—this ceasefire was necessary because the last announced ceasefire failed. There is still an optimism bias about the war, but there is no investor gullibility bias when it comes to statements from the US administration. ECB President Lagarde speaks, but the central bank seems grimly determined to march toward its impending policy error.
Swedish May consumer price inflation offers little information for global trends, coming in slightly higher. Read important disclaimer 〉 Listen to today's Thursday, 4 June update Listen now 〉 Recommended content Listen to past recordings in Paul Donovan's daily updates 〉 Nobel Perspectives - Exploring the questions that shape our world 〉 You have received this email because you registered at . Unsubscribe #end --> | Edit profile Publication data: UBS AG, P.O.
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