UBS On-Air: Paul Donovan Daily Audio '100 days of uncertainty'
The desk highlights a critical juncture as US President Trump's 100th day in office approaches, marked by a potential policy shift on trade taxes, particularly regarding auto parts. Per the full note source, this could temporarily alleviate some consumer pressures but introduces significant policy risks amid Trump's historically low approval ratings. With no major trading events on the horizon in the next 30 days, it appears market participants are growing cautious. Thus, the implications of Trump's erratic policy statements may heighten volatility in FX markets, particularly against the backdrop of Canadian political developments that juxtapose stronger trade postures.
What the desk is arguing
The desk contends that Trump's partial retreat on auto part trade taxes signals an attempt to stabilize an economy under pressure, yet it may also escalate erratic economic policies. According to Paul Donovan at UBS, such a move could limit some negative effects on consumers but highlights the looming scapegoat economics that could arise from adverse polling metrics.
Adding to the complexity is the uncertain landscape post-Canadian elections, where Prime Minister Carney's victory could imply a more robust stance in trade negotiations with the US, further complicating Trump's domestic policy context.
While this position suggests a delicate balance in trade dynamics, market reactions remain contingent on how external factors are received, particularly concerning the narrative Trump constructs around his presidency.
Where it sits in our coverage
Our consensus target for USD/CAD stands at 1.075, with a range established between 1.04 and 1.12. Key contributors include: - jpmorgan: Targeting 1.10 for March 2026. - bofa: Projecting a lower target of 1.04 for March 2026.
This view appears relatively anchored within the mid-range of prevailing forecasts, reflecting anticipated volatility but stability in outlook relative to other channels.
How other firms see it
Firms such as jpmorgan and goldman express alignment with our outlook, recognizing potential US policy shifts impacting CAD dynamics. Conversely, the stance from bofa presents a more reserved view, reflecting concern over the sustainability of US consumer sentiment amid political uncertainty.
Traders should monitor cross-currency flows between USD/CAD and EUR/USD, as these pairs will likely reflect broader sentiments regarding US policy directions and their ensuing economic ramifications.
What the calendar says
With no immediate major events on the calendar, stakeholders must remain vigilant of day-to-day statements and data that could shift market perceptions significantly as we await solid economic indicators that track the post-election sentiment.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Potential policy easing on auto part trade taxes could signal a pivot in consumer relief.
- 02Trump's approval ratings may lead to scapegoating, resulting in unpredictable economic policy shifts.
- 03Canadian election outcomes suggest a more unified trade front against US pressures.
- 04Market participants should brace for heightened volatility as political narratives evolve.
Market implications
Watch for USD/CAD fluctuating around the 1.075 mark, which could signal traders' sentiment towards upcoming economic data and political commentary from the US administration. Volatility is likely to increase around Trump’s speech, expected to provide clarity or further uncertainty on trade policies.
Risks to this view
A sharp decline in consumer sentiment or a significant geopolitical event could destabilize USD/CAD projections. Additionally, if Trump pivots towards more aggressive trade policies, it could lead to a stronger CAD as market participants react to perceived threats to the economy.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Tuesday the 29th of April. US President Trump is marking their 100th day in office with a speech and probably another retreat on trade taxes.
This time imported auto parts would be subject to a partial reimbursement of trade taxes that have been paid. That action would not stop the prices of new cars, used cars and auto insurance from rising but it will help to limit some of the damage of the trade tax policy as far as US consumers are concerned. However there are still policy risks around today's events.
Trump's approval rating is the worst for the 100 day mark of any president in over seven decades. While Trump may claim this is fake news, the risk is that they indulge in scapegoat economics in reaction. If polling numbers are down, find someone to blame.
Attacking targets at random does create economic and market risks through erratic policy decisions as the shrill cries of anguish evident in the April Dallas Fed manufacturing survey made very clear yesterday. Canada has voted for the Liberal Party, completely reversing the expected result of just a few weeks ago. Prime Minister Carney will remain in office, although it is not yet clear whether the Liberals will have an absolute majority in Parliament.
This result was not unexpected by investors and it suggests a robust approach to trade negotiations with the United States. Carney marked their victory with some politely hostile comments aimed at the US administration. Spanish first quarter GDP and preliminary April consumer price inflation are due for release today, always assuming there's a backup generator to allow the release to go ahead.
The power blackout on the Iberian Peninsula does have mild economic consequences. It will certainly distort some short-term economic activity data. The UK's British Retail Consortium Shop Price Index came out more or less as expected, though a spike in food prices has attracted some attention.
Retailers are trying to blame this on government policy, but the variation in inflation rates makes blaming a single external shock rather difficult. The UK's Office for National Statistics has said that using supermarket scanner data for food prices rather than the old survey method would have resulted in a lower inflation rate for the UK last year. The US is offering March wholesale and retail inventory data.
These numbers are, of course, from the before times, but they matter. Inventory stockpiling means that the effects of trade taxes can be delayed. As long as firms are selling goods imported before the tariffs, they do not need to impose aggressive price increases on US consumers.
This is not guaranteed. Some firms may choose to impose aggressive price increases anyway and blame the tariffs using their pre-tariff inventory as a mechanism for expanding profit margins rather than keeping prices low. But inventory data is overall going to matter in assessing how quickly tariffs damage the general US economy.
That's all for today. Have a good day. This material has been prepared and published by the Global Wealth Management Business of UBS Switzerland AG, regulated by FINMA in Switzerland.
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