Signal over Noise with Ulrike Hoffmann-Burchardi
The desk indicates a reinforced bullish view on the US dollar, driven by resilient consumer spending among high-income households and strong capital expenditures in artificial intelligence sectors, as outlined by Ulrike Hoffmann-Burchardi in her recent commentary. Despite concerns regarding consumption going forward, particularly for lower-income consumers, the overall sentiment remains positive, bolstered by annual earnings growth outpacing expectations. Per the full note source, this signals a solid underpinning for US economic expansion, which should favor the dollar against other currencies, especially in light of elevated capex predictions from corporate giants in the tech space.
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 source, 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.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01High-income consumers continue to drive US economic growth, accounting for two-thirds of consumer spending.
- 02Earnings growth outpaced expectations, with a reported annual EPS increase of 12%.
- 03Capital expenditures in technology, particularly in AI, signal sustained economic underpinning.
- 04Broader consumption trends show a bifurcation, with lower-income consumers exhibiting price sensitivity.
Market implications
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.
Risks to this view
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.
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.
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