The desk's thesis hinges on the significant fluctuations within the US political landscape and how these will reverberate through the markets in the coming quarters. Per the full note from UBS, President Trump's declining approval ratings, which have inverted from initial highs above 50% to current levels below, underscore shifting voter sentiment that may impact upcoming fiscal and monetary policies. Recent polling from sources including Nate Silver and RealClearPolitics highlight this trend, indicating broader implications for economic growth and market confidence. With no immediate high-impact events on the calendar, traders may look for sentiment cues in upcoming economic reports to gauge potential market reactions.
What the desk is arguing
The desk is concerned about the potential for increased volatility in response to political changes, particularly as President Trump's second term faces notably lower approval ratings compared to his first. The implications of this sentiment could mean restrictive policies in fiscal measures and adjustments in market expectations regarding economic recovery. As per Kurt Reiman of UBS, the current media narratives may further influence market stability as the opposition builds in Congress.
Additional context comes from the polling data where disapproval is on the rise, suggesting increased challenges for the administration in implementing its policy priorities. The impact on investor sentiment could be profound, particularly if continued downward trends are observed in key economic indicators.
Where it sits in our coverage
Our current consensus target for the USD appreciation against a basket of currencies is pegged at 1.075, with a range between 1.04 and 1.12. This range is corroborated by projections from various firms, including: - JPMorgan: 1.10 (Mar-26) - BofA: 1.04 (Mar-26)
The desk's view aligns closely with jpmorgan's stance, as we are situated towards the upper end of this expected range, reflecting broader confidence in a stabilized USD despite the political backdrop. We note bofa, positioned at the lower end, diverges notably from this perspective, indicating a more cautious outlook.
How other firms see it
JPMorgan and other firms projecting a bullish dollar are allied under the premise that underlying economic fundamentals remain strong. Conversely, bofa provides a stark contrast, leaning toward bearish sentiments based on potential political disruptions.
Crucially, monitor the USD/EUR transition, as any adverse shifts in sentiment may reverberate through to the Fed's policy framework, especially given how pivotal the Federal Reserve's forthcoming communications could be in shaping overall market resilience. The USD/JPY pair also warrants close scrutiny in light of these developments.
01Trump's second term approval ratings have seen a significant decline, which may impact market confidence.
02Increased volatility is expected as political uncertainty continues to grow.
03Consensus target for USD's performance is set at 1.075, with notable divergence among major firms.
04Upcoming economic reports will be critical in shaping market responses.
Market implications
Traders should remain vigilant of any shifts around the 1.075 level for the USD, as sentiment tied to political developments could lead to volatility. Upcoming economic indicators will be crucial to watch for potential trend confirmation or reversal.
Risks to this view
A key risk to this outlook would be an unexpectedly strong rebound in Trump's approval ratings, which could invalidate current market positioning and lead to renewed optimism about his administration's ability to implement policies effectively.
ubs
Hi everyone, Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel. Today we are continuing with our monthly POTUS 47 series of conversations as we recently surpassed a milestone for the second administration, the 100-day mark.
We are fortunate to have with us again for the conversation Kurt Reiman, head of Fixed Income Americas with the UBS Chief Investment Office. Kurt is joining us today to provide some reflections, takeaways from the first 100 days of the second Trump administration, as well as share some thoughts in terms of what the road ahead may have in store for policy and the impacts to the economy and markets. With that, Kurt, thank you for dropping by Top of the Morning today to spend some time with our listeners, our clients.
A lot to cover, so looking forward to hearing your insights today. Likewise. Thanks a lot, Dan, for having me back on the show.
So, Kurt, as we're recording today on Thursday, May 8th, at this point we are roughly a week past President Trump's 100-day mark of his second term in office. There is much of course we can reflect on, though looking at the president's approval rating, what's it indicative of in terms of how the American voter feels at the moment and how does it compare against 100 days into President Trump's first term in office? Yeah, thanks.
That's a great start. You know, when you think about these first hundred days and the polling numbers, it's a rather inauspicious start where at the start of his term he was polling above 50% on an approval rating and the disapproval rating was in the mid-40s, and that's basically flipped. And we can use a number of different sources.
I'll share the two that I follow in case you want to follow at home. I follow Nate Silver's Silver Bulletin Substack and RealClearPolitics. They also do a summation of the polls.
These are averages, not a particular poll. It's average of all the polls. They are telling virtually the same story, which isn't really a surprise because they're looking at the same data.
A week ago, if we had spoken, we probably would have found an even wider gap than exists today. But yeah, it's a disapproval rating that's above 50%, 51-52%, and an approval rating that's now even further below 50% at somewhere around 44-45, depending on, you know, who you follow. Basically the same numbers.
I think these, though, hide a few interesting other pieces that we should be following. You asked about, like, the trajectory relative to the first term. It's basically the same.
So there's not a whole lot of difference, but it is also, like the first term, a more difficult start to a term than what we've seen historically, almost across the board since Truman. If we look a little bit inside these numbers at some of the issues, I think it's interesting because the issues that really mattered in the election were, you know, the candidates had very different platforms and they had even different track records to bring to bear for voters to decide on. I would say it's inflation, the economy, and immigration were the three top issues, and then you could add into that maybe some lingering grievances on the trade front.
But on all four of those, including immigration, which is, you know, kind of at the 50-50 line, they're showing a net disapproval. The worst is on inflation, the second worst is on trade, the third worst is the economy, and then immigration is split. And we know, of course, that this is also very much influenced by, you know, your political party that you tend to support.
The numbers are not that different when you, you know, it's obvious, you know, which party's pulling in which direction. But I would just kind of look to some other data on, you know, strongly disapproved versus strongly approved, you know, because this is also telling you something about the, you know, the political party. And the strong disapproval is right around 42%, and the strong approval is at, call it, 27%.
So that just says, you know, what's his, like, threshold kind of low point for popularity, because he's got, you know, some people who will support him no matter what, and it's, you know, probably in the 30s, somewhere around there, maybe a little bit less. So we're trending lower, we're trending towards the average of the first term, and it's on these key issues related to the economy, and increasingly, even immigration. So as I was looking through the POTUS 47 update, one bar graph in particular jumped out at me, which referenced the quantity of executive orders versus bills signed by the president over the past few months.
So, Kurt, could you put some numbers around this for us, and speak to how the figures measure up against recent prior administrations, including, of course, Trump 1.0? Yeah, sure. So the report also that you're referencing is on a site that I would like to share, which is www.ubs.com forward slash POTUS 47, that's P-O-T-U-S, for President of the United States, and then 47 altogether.
And it's our first 100 days report, so you can access the report there. And yeah, so what I found interesting, when you looked at the number of executive orders, which is, you know, effectively governing from the executive branch, versus laws passed, which is governing because there's legislation that's been approved by both chambers of Congress and then signed into law by the president, you see two very stark observations. The first is, on executive orders, it's sort of in a, it's in an atmosphere or stratosphere all unto itself.
We've never seen, in the first hundred days, activity like this, where over 140 executive orders were passed. That is really, you know, that's rare by historical standards to see even, you know, call it a couple dozen in the first couple, first hundred days. So really in a whole new world unto itself.
And so I was even wondering a little bit about that, which is, you know, why are we seeing such a large number of executive orders? And there may be something of an urgency about getting the agenda across the line, not wanting necessarily to wait for policy to become law. And maybe also because 15% of the executive orders were related to trade, and the president has no, probably no confidence that Congress would be wanting to legislate a rise in tariff rates, then he's using the executive orders.
And some of these executive orders to implement tariffs have never been used before, at least the legal precedent. Like, if you look at the International Economic Emergency Powers Act, that is primarily the tool that the president has used in these executive orders to raise tariffs, and that's never, also never been done before. Five laws.
So five laws, typically by this point in a president's term, you'll have seen, you know, again, a couple dozen or less. Like somewhere between, you know, 10 and 20 laws. So fewer laws passed, and that may be a reflection of the narrow majorities that exist in Congress.
It may be that Congress has been really absorbed with having to figure out the reconciliation package, which they've been, not just that, but also the confirmations of key people within the executive branch, so key appointments. So that is, you know, taking up a lot of the energy within the halls of Congress, maybe limiting the degree to which we're seeing legislation come through. But also there's just been a general lack of bipartisanship on most issues.
We have just not seen that reach across the aisle to pass laws. That may, you know, that may change over time, but this is an administration that's determined to get things done, and using the power of the executive branch to do that. And we've seen in some cases that the courts have disagreed with the president's use of executive order, and have made some motions to check that authority.
So with all of that in mind, I'm curious, and perhaps from the perspective of the administration, what would you cite, Kurt, as being some notable wins, and perhaps some notable challenges over these first 100 days? Yeah, well, one of the charts that we show in this report is the number of encounters at the southern U.S. border. That's really ground to a halt.
It was running between 2021 and 2024 at an average rate of, let's call it, 200,000 encounters a month. And because of the asylum rules that were in place through much of that time, the read across is that most of the people that were encountered at the southern border, you know, were allowed in to the U.S. With the court documents, or with the court dockets on asylum, several months long, maybe years, that was limiting the pathway to citizenship.
But the president's arrival, together with some of the sort of later term moves of the Biden administration, has brought that number from 200,000 a month to, I think in March, it was 11,000. So that national emergency that the president declared day one at the southern border, you know, has been largely remedied, at least when it comes to measuring it through border encounters that the Customs and Border Protection Service has had. So, you know, I put that maybe as a win.
Now, of course, you've heard when Congress went back to meet with their constituents, something they heard a lot about was concern about the wrongful deportation. And then, of course, the Supreme Court and, you know, kind of weighing in on this. So that's, you know, that's something that is maybe taking away.
We were talking earlier about immigration as a general subject, and, you know, that's kind of right at the 50-50 line. You know, I think it's these other issues that are maybe weighing on the, you know, people considering immigration broadly as a success. But when you narrow it down to the southern border, that would be one.
When we think about the, you know, the other maybe challenges, if you will, I don't think we have to be too creative here. It's really around tariffs, not just the magnitude, but also the variability. So tariffs imposed on Canada and Mexico, 25% with very few exemptions to be reversed just 48 hours later.
You know, the reciprocal tariff announcement then being on pause for 90 days. These are the kinds of things that have been weighing on sentiment, weighing on financial markets, quite possibly weighing on the president's approval rating, and also making, as we heard yesterday, the Federal Reserve's job about, you know, communicating monetary policy and thinking about the next phase of monetary policy very, very difficult. So that is why, you know, sitting here today, one of the key issues that everybody is following to see is what is the president do on these tariffs that are so high with China that it's effectively an embargo?
And what does he do with the other bilateral trading relationships that may yield a deal or may yield a further ratcheting up of tension? So we'll, this is all playing out in real time. But that's the, that's what the market's really focused on, because it's been the, you know, the chief factor behind the revisions and estimates for the year about the economy and financial markets.
In terms of how trade policy has been impacting the economy markets, how have conditions fared over the past few months? Again, as we're recording today here on Thursday, May 8, we recently have been seeing a bit of a rebound in US equity markets. So as we look forward, what are CIOs expectations through the balance of 2025, in terms of how economic market conditions evolve, and the main drivers behind them?
Yeah, they've already worsened quite a bit. The outlook for the economy had been somewhere above, slightly above 2% for the year 2025. And they're now, you know, down close to one and a half percent.
I'm speaking about also our own forecast, as well as median economist forecast. If you look at inflation, that's actually, you know, there's really no argument that inflation has come down. You know, right now, it's sitting at a level that's only slightly above the Fed's target.
But the view is that inflation for the year was going to be in the mid twos or slightly lower than that, not at the Fed's target, but definitely much better control than it was a year or two years ago. That is now forecast to go back up above 3%, because as most of us know, tariffs are inflationary. And at these levels, the level we estimate is that the effective tariff rate in the US went from two and a half percent to just under 25%.
Again, magnitude, duration, so how high, how long. And if they stay at these levels for a long period of time, then we'll probably see even lower GDP figures and even higher inflation numbers, because I think baked into some of these forecasts for 2025 is a view that tariffs are going to be rolled back to some degree. We saw the announcement this afternoon, or this morning with the UK, light on details.
Some of these memorandums of understanding are the international legal equivalent of a handshake, but nonetheless, it takes the temperature down. And so at the beginning of the year, estimates for the S&P 500 and for earnings would have suggested kind of high single digits earnings growth, and an S&P 500 that ended the year at 6,600. And we're now at a basically flat earnings figure for this year, and a target of 5,800.
Of course, these are subject to revision based on the direction of the tariffs and the related uncertainty. And I should point out, it isn't just about the magnitude and duration. I made a mistake there.
It's more than that. It's the variability, too. It's the fact that it's hard to know what to plan for if you can't have any certainty on input costs and other price measures, where to make an investment, how much inventory to hold, how much working capital, you know, that these are how many employees.
So all of this is in flux. Potentially right now, companies are more, you know, rightfully in a more of a paralysis state. The idea would be that as the year progresses, and we get some reduction in the rates and maybe less variability that companies are then once again able to re-engage and plan.
So, but yeah, we keep hearing across the board. It hasn't shown up in the real data yet, but on almost all survey measures, companies are saying they're having a tough time planning. Their guidance has been revised down.
They're doing much more scenario planning. That is exactly what, you know, sort of feeding through into the economic data, expectations for the year, expectations for financial markets. So turning back to the administration, we're already, of course, in it, though, what might the next 100 days have in store for the Trump administration?
And that can span legislative priorities, further executive actions, even foreign policy focuses. Yeah, so the next 100 days gets us into something like, you know, late July, early August. I haven't done the numbers, but I'm just going to say, you know, the heat of the summer.
And by then, I do think we're going to have had a lot happen on the on the tariff front. I think we should be watching what happens in the courts. There's a large docket of lawsuits they're facing off in the Court of International Trade.
They're going to have oral arguments on Wednesday, I believe, or Tuesday, May 13th, I believe. But, you know, the timing of any move, if there was an injunction, or if the IEPA tariffs, the International Economic Emergency Powers Act that was used to legislate these tariffs that are, or not legislate, but order these tariffs, if they were to be enjoined, or declared illegal, then that could be sort of a sudden force of a rollback in the tariffs. And the administration can come back at it in different ways.
Think of some of the traditional measures around Section 232 or Section 301. Those are still available, but it just means, you know, more time because these require a review. Can't be a sweeping, probably fewer products.
Oh, and by the way, there are already investigations happening on semiconductors and pharmaceuticals. We may, by the next hundred days, hear something about that. It's a little early.
Typically, it takes longer, but should be on our radar screen. And then the other is, we haven't talked about, but it's around a tax cut extension. And there were some pretty ambitious goals of getting the tax cuts extended, at least a bigger framework, you know, in place by July 4th.
Judging by the latest negotiations, and by that I mean some of the efforts to cut Medicaid spending, they were, you know, gearing up for potentially $800 billion. Seems like they're hitting quite a bit of friction at the, you know, $300 billion mark. The less they're cutting from Medicaid means they have to cut elsewhere or scale back the tax cut ambitions, the extension, and then the additional tax cuts.
When we think about some of the, there's some pressure building on state and local taxes from Republicans that are representing from blue states, you know, that's also causing, because if you're if you're lifting the SALT cap deduction, state and local tax deductions, you lift that, that's less revenue. So if you're collecting less revenue, all of this just means either you've got to shrink the tax cut extension and not give as many additional tax cuts, or you have to accept a higher deficit as a share of GDP. And there's a big question as to not just whether Congress, and in particular the House, would allow for that, narrow majorities, but also will the bond market allow for that?
Because, you know, prolonged deficits that are at a high level or at a high level and growing, and we've seen some pretty sinister moves in the bond market over the past month, month and a half, you know, that could be something that comes around and short-circuits the legislative process. You know, so there's, and the debt limit is also in there, and we don't know the, as far as I know, we don't know the debt, the X date for the debt limit, meaning the time when the Treasury runs out of money. So these are all the things that, you know, that are at least on my, you know, my punch list for what to follow over the next hundred days that will surely be as interesting and as the first hundred days.
That I, that I can tell you with, you know, reasonable certainty. Well, Kurt, this was a great touch base. Thank you for dropping by top of the morning today to keep our listeners, our clients informed on how the UBS Chief Investment Office is interpreting the takeaways from President Trump's second term in office, 100 days in, and how the policy has been impacting markets, the economy.
As you pointed out, there will be much else to discuss in the weeks and months ahead. So, looking forward to our next catch-up in June. Thank you again, Kurt, for joining us today.
Thanks a lot, Dan. Absolutely. Again, today we have been joined by Kurt Reimann, Head of Fixed Income for the Americas with the UBS Chief Investment Office.
As Kurt pointed out to you, our listeners, and especially our clients of UBS, please be sure to reference the website UBS.com forward slash POTUS 47, which is updated with resources, insights from the UBS Chief Investment Office on a frequent basis. From UBS Studios, I'm Dan Cassidy. Thank you for joining us.
Thank you for tuning in. Be sure to visit UBS.com slash studios to view the entire UBS Studios suite of podcast channels along with our video offerings such as UBS Trending. You can also follow us on Instagram for content highlights at UBS Trending.
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