UBS On-Air: Paul Donovan Daily Audio 'Consumers versus prices'
The desk interprets the recent US retail sales figures as moderately soft, but not alarming, supporting the view that while inflation persists, upcoming revisions may paint a more optimistic picture. Per the full note source, credit card data suggests consumer spending remains resilient, implying broader economic stability despite nominal sales dips. This aligns with our observed trends in consumption shifts, particularly the varying impact of luxury versus essential goods. While there is some concern about inflation's role, traders should stay focused on future revisions and overall consumption patterns to gauge market sentiment more accurately.
What the desk is arguing
The desk sees the softer US retail sales data as less of a concern, emphasizing that these numbers are nominal and heavily influenced by inflation. Per the full note source, the prevailing inflationary environment should not dissuade optimism, as revisions to these numbers are likely to occur.
Moreover, a focus on shifts in consumption patterns—such as the impact of social media influencers—indicates that overall consumer behavior remains robust. Credit card transaction data corroborates this resilience, showing no immediate panic signals among consumers.
Where it sits in our coverage
Our consensus target for the USD/EUR is 1.075, with a range of 1.04 to 1.12. Notable firms include: - jpmorgan: Targeting 1.10 by March 2026 - bofa: Forecasting a lower target of 1.04 for the same period
This view broadly aligns with jpmorgan, sitting near the upper bound of our consensus range. However, it diverges from bofa, indicating a more cautious approach to U.S. economic data.
How other firms see it
Firms like jpmorgan and citi are aligned in their outlook on modest consumer resilience and ongoing inflation, while bofa takes a more conservative stance based on the sales data presented. This contrasts with their emphasis on potential recessionary signs.
As the figures for retail sales unfold, there will be particular attention on the USD/EUR trajectory and the impact it may have on the Federal Reserve's strategy.
What the calendar says
With no high-impact events scheduled in the coming month, the focus will remain firmly on the evolving economic data from the U.S., particularly revisions to retail sales.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Recent US retail sales data indicated a modest decrease, but underlying trends suggest consumer resilience.
- 02Credit card data reflects continued consumer spending, mitigating panic about the nominal sales drop.
- 03Revisions to the retail sales data could provide a more optimistic view in upcoming releases.
- 04The interplay of inflation and spending patterns may influence trading strategies going forward.
Market implications
Traders should monitor upcoming revisions to the US retail sales data for potential shifts in market sentiment. Pay particular attention to any movements beyond the support level around 1.075 in USD/EUR, which could signal a change in trend.
Risks to this view
Should inflation accelerate beyond current forecasts or if the economy shows signs of further weakening, this could undermine the optimistic view and lead to a swift reevaluation of retail spending prospects.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Wednesday the 26th of November. September US retail sales do seem old news, mainly because it is old news.
However, the data did show less exuberance than we have been accustomed to experiencing from US consumers. Exuberance should not be read as too negative a signal, however. For one thing, the claim that retail sales are lower because of inflation pressures doesn't make much sense.
These figures are not adjusted for inflation, so the fact that US consumer prices continue to go up means that the value of sales should correspondingly rise. If nominal retail sales are weak, that suggests a shift in the overall desire to spend, or alternatively in the composition of spending, not a change in the real ability to spend. Even here, pessimism should be tempered.
Quite aside from the fact that this data will for sure be revised, there's also the shift in spending trends to favour having fun rather than spending on goods that has to be considered. TikTokers and Instagrammers filming themselves on vacations does not add to the retail sales number in the same way that buying a new washing machine and installing it at home does. The credit card data for middle and upper income households continues to be OK, which suggests it's not time to declare the US economy dead on arrival.
The US government shutdown has put too much of a burden on the limited data points that we have, and the retail sales data may assume more importance than it ordinarily would ahead of the next presumed US Federal Reserve meeting. The Fed also has its Beige Book of Economic Anecdote, which will be published today. While this is a survey, and economists are inclined to look with disdain bordering on contempt at survey evidence, especially those which don't conform to their own prejudices, traditionally the Beige Book has been treated with a bit more reverence because of who is asking the questions.
However, elements of political bias have undoubtedly been creeping in to recent Beige Book surveys. One thing to watch out for is whether there is talk of passing tariffs on to consumer prices more rapidly. US President Trump started reversing some food price tariffs as consumer complaints about overall consumer price inflation started to increase.
If pushing tariffs forward brings about a more rapid tariff policy reversal, firms may be encouraged to raise prices sooner rather than later in the hope of inducing some kind of tariff relief. The United Kingdom is releasing its annual government budget. There has been something bordering on mass hysteria in the United Kingdom's media about this topic.
Globally, this is of relatively little significance. The UK was the fastest growing advanced economy in the first half of this year, though it has now slowed. The UK's debt level as a share of GDP has plateaued for several years.
There is nothing like the unfortunate debt dynamics of the United States or many euro area economies. But the government has tied itself into a fiscal straitjacket and the legacy of the trust debacle does linger. What former Prime Minister Truss did was damage the UK's reputation for fiscal competence and that damage lingers on in an excess of fiscal caution.
There will be some fiscal tightening today but the real issue, that middle income taxpayers pay proportionately less with one of the lowest median tax rates in the developed world, is only likely to be tackled in the most half-hearted of manners. There's the normal pontification of central bank speakers today. ECB Chief Economist Lane is offering thoughts and, of course, ECB President Lagarde will be speaking as well.
US September durable goods orders are due but again it's hard to get too excited about such old data. That's all for today. Have a good day.
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