UBS Morning audio comment: Up and down
Lead — The desk views the upcoming US producer price index (PPI) data as likely to showcase an increase, particularly driven by higher oil prices, as noted by UBS economist Paul Donovan. Specific attention will be paid to diesel prices, which factor directly into the headline PPI, while the non-oil components could reveal some easing. Per the full note, indications of waning tariff inflation effects could be significant, as this may alter market expectations about Federal Reserve responses to inflationary pressures.
What the desk is arguing
The desk anticipates that the October US producer price index will reflect increased inflation, predominantly influenced by higher energy costs, especially diesel, which will be a key factor in gauging inflationary trends. The insights from UBS suggest that non-oil prices may see a deceleration, lending some nuance to the overall inflation narrative and hinting at potential changes in consumer behavior as tariffs show signs of easing impact.
Supporting this viewpoint, the Federal Reserve's stance remains a critical backdrop, with New York Fed President John Williams adopting a hawkish tone in recent communications. This could signal a broader intention among policymakers to manage inflation but may also imply a risk of pushing the economy into a recession through restrictive measures, should pressures from oil prices remain persistent.
Where it sits in our coverage
The consensus target for the USD/CAD pair currently stands at 1.075, within a range of 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
Our view aligns closely with jpmorgan, indicating that the potential for rising PPI could further elevate the USD as traders adjust expectations in response to inflation data. We sit towards the upper bound of the range amidst emerging inflation concerns which could sustain the dollar's strength against the CAD.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Increase in US PPI expected, primarily driven by oil prices
- 02Focus on diesel as a key component in the PPI calculation
- 03Potential easing in non-oil prices could reshape inflation perceptions
- 04Fed's hawkish stance indicates vigilance on inflation
Market implications
Traders should monitor the USD/CAD pair for movements around 1.075, especially as the October PPI release approaches, as it could trigger shifts in positioning depending on the inflation report's outcomes.
Risks to this view
The main risk to this thesis lies in unexpected decreases in energy prices, which could deflate the PPI more than anticipated and reduce inflationary pressures, potentially reversing the Fed's current hawkish posture.
Headline US producer price inflation is likely to increase (diesel is ss.included in this calculation). Non-oil prices may ease somewhat. View this email in a web browser Up and down UBS morning audio comment by Paul Donovan Today’s release of US October producer price inflation is expected to show higher prices, with oil leading the way.
Diesel prices are directly included in this data (they are not in US consumer price numbers). However, there will also be examination of the details to see if there is better evidence of tariff inflation effects fading from the calculation. New York City banned what they call “surveillance pricing” (economists know this as “first degree price discrimination”).
This occurs when companies charge the maximum price they think an individual can pay—meaning two people can pay different prices for the same product bought at the same time. This is how prices were set before urbanization anonymized consumers. It is hard to measure, but the legislation underscores general anger at the affordability crisis and a search for groups to blame.
New York Fed President Williams sounded hawkish about inflation overnight. It is not clear if this is part of a campaign to make the Federal Reserve sound vigilant on inflation, or whether there is a genuine desire to push the non-oil US economy into recession to offset oil prices. The Microsoft outage affecting email and AI is an interesting economic experiment.
Will economic productivity go up when Microsoft apps go down? Read important disclaimer 〉 Listen to today's Friday, 13 November update Listen now 〉 Recommended content Listen to past recordings in Paul Donovan's daily updates 〉 Nobel Perspectives - Exploring the questions that shape our world 〉 You have received this email because you registered at . Unsubscribe #end --> | Edit profile Publication data: UBS AG, P.O.
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