UBS On-Air: Paul Donovan Daily Audio 'A US day today'
The desk sees today's revised US second quarter GDP data as a critical indicator subject to significant revisions, reflecting distortions primarily caused by erratic inventory and export figures. Per the full note source, while consensus expects no changes in overall numbers, the economic trends suggest a dynamic shift, with inventory adjustments likely exacerbating volatility. The emphasis on average GDP figures, which smooth fluctuations, underscores the complex reality of US growth, particularly considering the distortions from trade and policy interventions this year. With the absence of immediate high-impact events in the calendar, this report serves as a focal point for discerning the underlying economic momentum ahead of further data releases.
What the desk is arguing
The desk believes that today’s release of the revised GDP data will reveal considerable insights into the true state of the US economy, particularly how erratic inventory changes and export behaviors play into broader GDP figures. According to Paul Donovan from UBS, there may not be much clarity as the details are likely to reveal disparities due to unreliable data.
Given that the annualization of quarterly growth highlights temporary spikes rather than sustainable trends, the desk posits that a more stable metric might be found through an averaging of the first and second quarters’ results. The GDP data reflect an economy grappling with supply chain challenges and shifting inventory strategies, influenced heavily by tariffs.
Where it sits in our coverage
Our current consensus target for the USD/EUR pair stands at 1.075, with a range spanning from 1.04 to 1.12. Notably, key firms including jpmorgan target 1.10 for March 2026 and bofa sets a more conservative target of 1.04 for the same period.
This outlook aligns with the desk's call as it recognizes potential for upward or downward adjustments based on the GDP revisions and inflation indicators, which could significantly influence positioning and sentiment in the FX market.
How other firms see it
Aligned with the desk's views, jpmorgan and bofa focus on the nuances of the US GDP report, while a more bearish stance is taken by firms that see significant risks in the current data reliability landscape. Collectively, firms that anticipate subdued economic growth patterns are on alert.
Attention will need to be paid to how trajectories unfold for pairs like USD/EUR and USD/JPY, as these may react to both GDP discrepancies and central bank communications in response to incoming data.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Revised GDP data to reveal distorted growth patterns
- 02Expect volatility in inventory contributions to GDP
- 03Market consensus may miss significant detail changes
- 04Currency positioning will depend on GDP revision outcomes
Market implications
Watch the USD/EUR exchange rate closely as the revised GDP data could shift trading sentiment substantially. A figure breaking through 1.075 may signify a stronger US economic outlook, while a drop towards 1.04 could signal retrenchment.
Risks to this view
Disruptive revisions to GDP, especially if they show a substantial decline in growth expectations, would trigger a reevaluation of USD positions, potentially leading to a sharp reversal in current trends. Macro impacts from upcoming inflation data could also play a crucial role in dictating effective market responses.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 6.30 in the morning London time on Thursday the 25th of September. Revised US second quarter GDP data is due for release and as always there will be accompanying inflation information in the form of the personal consumer deflator.
There is little expectation of change from the earlier numbers, although given the unreliable nature of US economic data these days no change is probably not that realistic, at least not as far as the details are concerned. The US second quarter was heavily distorted by policy and there is likely to be a wild swing in the net export figures because the US was importing massively in the first quarter and then in the second quarter stopped importing to use up the inventories it had accumulated at the start of the year. Unfortunately, the fiction of annualisation cannot cope with that as it assumes that whatever happens in the past three months keeps on happening for an entire year.
So this exaggerated the collapse in economic activity during the first quarter and similarly it inflates the activity of the second quarter. Averaging the two probably gives a better idea of the momentum of the US economy. We also get US wholesale inventories data for August.
Normally this is the sort of number that only an economist could get enthusiastic about, but given the wild swings in inventory and their contribution to GDP volatility year to date this may be worth glancing at in a bit more detail. In anticipation of trade tariffs, the wholesale part of the supply chain built up inventory as the GDP data demonstrates in the first quarter. However, it was mainly the wholesale sector.
Retail inventory patterns didn't really change. But wholesalers did not build inventory in a straightforward way across different sectors. Some wholesalers, like those in the computer sector, had abnormally high inventory surges in the first quarter.
Some, like furniture, focused their inventory surge into March. And some, like metals, were building abnormal inventory levels in June. It's this sort of detailed knowledge that makes economists such fascinating conversationalists.
The point about this is that the timing of pre-tariff inventory surges gives some idea as to the timing of price reactions. If there was an early stockpiling of pre-tariff inventory, which has now been used, price pressures are emerging. If inventory was stockpiled later, there is less chance of it having been used up already and price pressures will occur later as well.
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