What's takeaway 1 on Signal over Noise with Ulrike Hoffmann?

High-income consumers continue to drive US economic growth, accounting for two-thirds of consumer spending.

What's takeaway 2 on Signal over Noise with Ulrike Hoffmann?

Earnings growth outpaced expectations, with a reported annual EPS increase of 12%.

What are the market implications for Signal over Noise with Ulrike Hoffmann?

Traders should watch for movement in USD/EUR as appetite for the dollar strengthens, particularly if upcoming data supports current growth narratives. Additionally, monitoring shifts in capital expenditures will be critical to anticipate shifts in tech-heavy equities that could influence USD positioning.

What are the risks to this view on Signal over Noise with Ulrike Hoffmann?

The outlook may reverse if upcoming economic data suggests weakening consumer confidence among the high-end segment or if lower-income consumers exhibit continued deterioration in spending. Any unexpected earnings misses in major tech firms could also lead to a reassessment of growth trajectories and USD strength.

Signal over Noise with Ulrike Hoffmann-Burchardi

What the desk is arguing

The desk underscores the bullish potential of the US dollar, particularly as economic indicators underline ongoing growth despite broader market uncertainties. Per the full note , the high-end consumer segment continues to drive economic dynamics, contributing significantly to overall consumption despite contrasting trends among lower-income groups.

A key takeaway is that 80% of S&P 500 companies reported robust earnings, with a 12% rise in annual EPS growth — notably exceeding expectations by nearly 3%. This progress reflects a strong commitment to capital investment in areas like artificial intelligence, suggesting future economic resilience.

Where it sits in our coverage

Our current consensus target for USD performance suggests a bullish propensity with a target of 1.075, indicating potential strength in the currency. Target forecasts from firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

The desk's outlook is more aligned with jpmorgan's optimistic stance, sitting closer to the upper end of our forecast range.

How other firms see it

Consensus among aligned firms, particularly jpmorgan, reflects a bullish sentiment. However, firms like bofa represent a more cautious view, which indicates a divergence in perspectives on dollar strength moving forward.

Key currency pairs to monitor include EUR/USD, especially in light of the European Central Bank's upcoming decisions that can impact dollar dynamics as well as USD/JPY, where market movements could signal broader USD strength based on US economic performance.

Hello and welcome to Signal over Noise. I'm Ulrike Hofmann-Borchardy, CIO for the Americas and Head of Global Equities for UBS Wealth Management. It was all about US earnings last week. 80% of S&P market cap has reported by now and third quarter annual APS growth stands at 12%, almost 3% better than expected.

When you strip away the noise from earnings, there are two engines of US economic growth that stand out. The high-end consumer and capex for artificial intelligence. First, the US consumer remains resilient.

Credit card spending accelerated year over year, key credit quality metrics improved and loan growth is positive. Yet the bifurcation remains. The top-end consumer is still anchoring consumption with 20% accounting for about two thirds of overall consumption.

The middle to low-end consumer, on the other hand, seeks value and price sensitivity is up. Second, the hyperscalers, Amazon, Alphabet, Microsoft and Meta all guided their capex numbers up, yet again. These data points suggest a solid underpinning for US economic growth and slower goods price inflation ahead.

On Tuesday, the long-awaited restructuring of the deal between OpenAI and Microsoft was finally announced. It's a win-win for both sides with OpenAI now having more control over its own destiny. It allows OpenAI to raise capital more easily, including with an IPO.

OpenAI also gets more flexibility in sourcing compute. It no longer needs to give Microsoft the right of first refusal. And Microsoft, on the other hand, reduces its stake in OpenAI to 27% with OpenAI committing to 250 billion in Azure spend.

In summary, Microsoft seems to risk manage its exposure to OpenAI, whereas OpenAI goes all in on AI. What is the broader signal here? In my mind, the AI trade in the public market is now more and more tethered to the economic success of OpenAI.

Sam Altman said on Tuesday that OpenAI has committed to spend 1.4 trillion on infrastructure so far. That's about 30 gigawatts. My university professor, David Webb, who is celebrating 50 years at the London School of Economics this year, likes to say that finance is pretty simple.

You have to balance income and expenses. For OpenAI, it is now all about balancing this equation. It needs to generate income.

OpenAI has already amassed one of the most critical resources, human attention. With 800 million weekly average users, it has ample opportunities to monetize via subscription, API usage, advertising, transactional revenue, among others. How successful OpenAI is in executing on this revenue opportunity will be the key signal to watch, especially for the AI7, the public company's enabling AI, NVIDIA, Broadcom, AMD, Micron, Microsoft, Alphabet, and Oracle.

If OpenAI is successful, it will help the AI enablers that are now tied to OpenAI through a nexus of deals. But OpenAI's success will likely come at the expense of other digital consumer platforms, which compete for our attention. I think we are now on the verge of the market narrative shifting from phase one, where it's all been about the promise of AI, that every AI company wins, to phase two, where it will be about the proof, who can actually win.

One other emerging signal from this earnings season is the strong beat rate from healthcare companies. Nine in 10 names topped EPS estimates, better than the S&P average. In pharma, obesity, next-gen immunology, and oncology drove the beats, all key to extending lifespan, which bodes well for our CIO longevity portfolio.

Turning to this week. This Monday, we're on the doorsteps of the longest government shutdown in U.S. history. This shutdown may now impact the disbursement of SNAP payments.

The stakes are now increasing by the day with an estimated unrecoverable economic loss of about $250 million a day, as per the Congressional Budget Office. President Trump's return from Asia hopefully signals increased focus on domestic politics and the chance to end the shutdown this week. This week will also mark the absence of a key macro signal, non-farm payrolls that are normally scheduled to be released on Friday.

Outside of a seasonal uptick, we continue to see weak labor market trends with the doge-related layoffs expected to affect payrolls this month. We therefore think the Fed will continue to cut in December, even though Fed Chair Powell said that the December cut should not be a foregone conclusion and the market currently only prices a 50% probability. Taking it all together, we believe that despite the labor market weakness, the U.S. economy remains in good shape with the structural pillars of strong consumer spend and capex.

And with the impact from monetary and fiscal stimulus likely felt in the first half of next year, we prefer equities over fixed income and remain overweight technology, financials, and healthcare. With this, stay well and stay ahead. UBS Chief Investment Office's investment views are prepared and published by the Global Wealth Management Business of UBS AG or its affiliate, UBS.

This material has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and is published for informational purposes only. As a firm providing wealth management services to clients globally, UBS AG and its subsidiaries offer both investment advisory services and brokerage services. Investment advisory services and brokerage services are separate and distinct, differ in material ways, and are governed by different laws and separate arrangements.

In the USA, UBS Financial Services Inc. is a subsidiary of UBS AG and a member of FINRA SIPC. For information, please visit our website at ubs.com forward slash working with us. For a full legal disclaimer applicable to the independent investment views produced by UBS, please visit our website at ubs.com forward slash CIO dash disclaimer.

Institutional FX coverage in your inbox