Signal over Noise with Ulrike Hoffmann-Burchardi
The desk believes the US macroeconomic outlook is strengthening, driven by favorable earnings reports and positive CPI data leading into the October FOMC meeting. Per the full note from UBS' Ulrike Hoffmann-Burchardi, the benign CPI print suggests inflationary pressures are dissipating, positioning the Fed for a likely 25 basis point cut soon. This dovish pivot, coupled with improved earnings leading to potential GDP growth, indicates a bullish sentiment for the USD ahead of major policy adjustments. Furthermore, the desk anticipates **three broad disinflationary forces** will continue to support this outlook into 2026, reflecting robust market dynamics.
What the desk is arguing
The desk asserts that the signal from the US economy is one of strengthening fundamentals, characterized by better-than-expected earnings and a cooling inflation environment. As highlighted by Hoffmann-Burchardi of UBS, more companies are exceeding earnings expectations, setting the stage for a positive earnings growth outlook of 11% for Q4 if trends continue.
Additionally, the benign CPI reading of 3%, down 0.1% from expectations, signals less inflationary pressure, which should facilitate a smooth path for the anticipated Fed rate cuts in the upcoming meetings. This confluence of economic signals supports a more optimistic view of US growth potential.
Where it sits in our coverage
Our current consensus target for USD performance against key currencies stands at 1.075, with a range between 1.04 and 1.12. Firms such as jpmorgan and bofa have provided specific targets of 1.10 and 1.04, respectively.
This bullish view held by the desk aligns with the upper bound of this consensus range, as the evolving economic landscape strengthens expectations for the USD against major peers into 2026.
How other firms see it
Several firms are aligned with this optimistic outlook for the USD, particularly jpmorgan. Conversely, bofa presents a more cautious stance, indicating potential softness in the currency. This divergence underscores a broader market split on the immediate future of USD performance influenced by upcoming Fed policy shifts.
The trajectory of USD/EUR may closely reflect these dynamics, given the European Central Bank's own policy challenges and economic conditions, making it a pertinent pair to watch as developments unfold.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US macro outlook is improving with strong earnings reports.
- 02CPI data supports expectations for Fed rate cuts; most likely 25 basis points in the upcoming meeting.
- 03Positive growth guidance could lead to 11% earnings growth for Q4.
- 04Disinflationary trends reinforce a bullish USD outlook into 2026.
Market implications
Traders should monitor USD/EUR closely for directionality, particularly following the anticipated Fed rate cut this Wednesday. The prevailing market sentiment could reinforce the USD's strength, pushing it closer to key resistance levels around 1.10 if earnings momentum sustains.
Risks to this view
Any misstep by the Fed, particularly if they do not cut rates as expected or signal a more hawkish approach, could negatively affect the USD. Additionally, weakening earnings reports or unexpected inflation upticks would also challenge the current bullish positioning.
Hello and welcome to Signal Over Noise. I'm Ulrike Hoffmann-Bochadi, CIO for the Americas and Head of Global Equities for UBS Wealth Management. The clearest signals last week came from strong US earnings and the benign CPI print.
Both of these sent one clear message. The US macro picture is improving. A quarter of S&P 500 market cap has reported and more companies than normal are beating estimates.
Companies have also provided better than expected guidance for Q4. If the remaining 75% follow this pattern, we will end up with 11% earnings growth, outpacing Q2 at 8%. This bodes well for a re-acceleration of US GDP growth.
And as we look further into 2026, we see both fiscal and monetary stimulus coming through in the first half. Tax refunds from the OBBA bill and rate cuts that tend to take two to three quarters to transmit to the real economy. And then we have two potential extra kickers to growth, the repeal of IEPA tariffs and the end of the balance sheet runoff, which would further ease financial conditions.
So in sum, a powerful confluence of policies supportive of US economic growth into July 4th, 2026, when the US will celebrate its 250 year anniversary. Good news also came from the CPI print on Friday. CPI came in 0.1% lower than expected at 3%, in line with core CPI, driven in part by cooling housing related inflation.
With this backdrop, nothing should be in the way for the 25 basis point Fed cut this Wednesday. We call for two more cuts, one in December and one in Q1. As we look into next year, we see three broad disinflationary forces at play.
First, tariff related price increases easing. We will anniversary the start of tariffs on April 5th, 2026. The spent to spare deals are lowering the effective tariff rates and the potential repeal of IEPA tariffs would further lower the effective rate.
Two, shelter inflation trending down. Shelter inflation has a lag. So even if the economy picks up into next year and provides a boost to housing, the lag means that it would take time to translate into higher rents.
And third, wage inflation coming down from the slack in the labor market. With this overall strong macro picture, the weakness in the labor market seems puzzling. The statistical reason for the slack is that job openings are down and the quit rate is low.
The economic reason is less clear. Likely a combination of artificial intelligence and late cycle fears. This makes it an interesting setup for the dual mandate of the Fed.
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