UBS Morning audio comment: Defiant consumers?
The desk highlights a calibrated view of current consumer sentiment, positing that recent market fluctuations, while sensational, reflect an underlying economic calmness. Per the full note from UBS, Chief Economist Paul Donovan suggests that consumer behaviors, specifically in the U.S. and Germany, reveal surprising resilience despite headlines about volatility in sectors like technology and crypto. This sentiment aligns with overall market views, as reflected in the lack of high-impact economic data in the near term, which suggests minimal reaction from traders until a significant catalyst arises.
What the desk is arguing
The desk interprets the latest consumer behavior data as largely indicating steady economic conditions in the face of market noise. Paul Donovan from UBS notes that despite sharp market movements, the impact on the real economy has remained muted, especially outside of speculative segments like cryptocurrency.
Consumer trends in the U.S., echoing those shown in the disappointing German retail figures for September, suggest that while initial reports may leverage negativity, subsequent revisions often reveal stronger spending patterns. This is indicative of a defiant consumer sentiment that does not conform strictly to conventional bearish narratives.
Where it sits in our coverage
Based on our analysis, the current consensus target for the EUR/USD stands at 1.075, with ranges between 1.04 and 1.12. Specific firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view reiterates our outlook for stability amidst fluctuations, aligning with jpmorgan's target at the higher end of our identified spread, contrasting with bofa's more bearish position.
How other firms see it
Most firms align with the notion that consumer sentiment is holding firm, with consensus suggesting an overall positive outlook for EUR/USD. However, bofa holds a contrary stance, projecting a more pessimistic view on the pair.
Further insights can be drawn from the relationship of the EUR/USD trajectory with upcoming policy decisions from the ECB, as well as broader indicators of economic health stemming from the U.S. ISM data, which will inform further market positioning.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Consumer behavior remains resilient despite market volatility, suggesting a defiant economic sentiment.
- 02Recent retail data reveals that initial negativity about consumer spending may be overstated as revisions often show stronger outcomes.
- 03The EUR/USD is expected to stabilize around its consensus target, with aligned views from **jpmorgan** supporting the outlook.
- 04Markets are currently devoid of high-impact economic events which may shift sentiment significantly in the near term.
Market implications
Watch for shifts around the 1.075 level for EUR/USD as the market digests consumer sentiment data, particularly any movement influenced by U.S. ISM results, which could prompt real-time assessments of economic health and consumer resilience.
Risks to this view
A notable change in consumer behavior, particularly if reinforced by larger-than-expected drops in U.S. retail sales or adverse poll outcomes from European sentiment surveys, could force a reevaluation of this bullish outlook, potentially swinging sentiment towards bearish forecasts.
Market moves grab headlines but are still economically muted (beyond boosting North Korean GDP). View this email in a web browser Defiant consumers? UBS morning audio comment by Paul Donovan Friday's market moves are attention grabbing, but economically more muted.
The crypto gyrations are speculation, with little real world relevance (beyond the alleged boost to North Korea's GDP). The technology moves reflected concerns in one sector rather than signaling a general economic crisis. US consumer behavior has followed a broadly similar pattern to that of other consumers less obviously exposed to technology equities.
Consumer behavior elsewhere is displayed with September German retail sales figures. There is a strong pessimism bias to the initial releases, with revisions showing the German consumer indulging in frequent shopping sprees. The unreliability of the initial releases may account for only modest market interest.
There is an unwelcome clutter of business sentiment polls. Investors' focus on pricing power might give some additional resonance to the price sub-components of the US ISM poll, but even these signals should be treated with caution. Factory gate prices are a long way removed from consumer pricing.
The US midterm elections hang over markets to some extent. Investors assume a Washington gridlock, but that is not too much change from today. The focus is whether US President Trump becomes more aggressive in the Gulf war, once freed from the pursuit of popularity.
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