UBS On-Air: Paul Donovan Daily Audio 'Delays and retreats'
The desk views the delay of new tariffs on US consumers as a key factor in moderating inflationary pressures ahead of the holiday season. Per the full note from UBS, these tariffs, which are now slated to take effect on August 1st, could mean that consumers experience price increases only after stockpiling ahead of Christmas, potentially reflecting higher inflation figures in January. With no imminent market-moving events in the calendar and no major shifts in economic policy, the impact of this delay may be muted in the short term, aligning with historical trends of tariff irregularities under the Trump administration.
What the desk is arguing
The desk argues that the postponement of tariffs on US consumers represents a temporary reprieve from inflationary pressures, which may provide a more favorable environment for market sentiment in the coming months. Per the full note from UBS, the actual payment of these tariffs has been delayed to August 1st, suggesting consumers will likely feel the impacts only after the holidays, potentially in January of next year.
This move may lead to an inflation spike postponed, as businesses might engage in stockpiling ahead of Christmas, thus blurring the immediate inflation signal. As a reference, historical trends indicate that the current environment may favor limited investor reaction, as noted by Donovan's comment on Trump's past adjustments to tariffs.
Where it sits in our coverage
The current consensus target for the USD/CAD pair stands at 1.075, with noted ranges from aligned firms such as jpmorgan at 1.10 for Mar26 and bofa reporting a lower target of 1.04 also for Mar26. This positions our desk’s assessment toward the middle of the existing target spectrum, suggesting moderate bullishness.
How other firms see it
Firms like jpmorgan and citi share a somewhat aligned view, anticipating moderate dollar strength against CAD in light of the delayed tariffs and overall current economic circumstances. Conversely, bofa and goldman express a more cautious stance, suggesting that downside risk may prevail if inflationary expectations do not materialize as anticipated. Watching key indicators like USD/CAD and US CPI data will be essential for potential momentum shifts in this scenario.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Tariffs on US consumers delayed until August 1st
- 02Inflation impact likely postponed until January
- 03Investor reaction may be limited due to historical tariff adjustments
Market implications
Watch the USD/CAD pair closely, particularly around the 1.075 level, as any shifts in inflation expectations post-holidays may prompt a reevaluation of consumer spending and tariff effects. With no major calendar events on the horizon, this delay may influence short-term trading strategies.
Risks to this view
A rapid retraction of tariffs or a significant change in consumer sentiment could undermine the current thesis. Additionally, unexpected economic data releases that contradict inflation predictions could force a reassessment of market positioning.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Monday the 7th of July. The additional tax burden that US President Trump intended to place on US consumers on Wednesday will not now be happening on Wednesday.
The taxes will apparently be happening on the 1st of August, which is a Friday. Importers are being sent out today, delayed from last Friday, announcing tariff rates relating to the delayed wave of tariffs announced in early April. But US importers will not pay until early August, which means the US consumer in theory will be paying in November or December.
But stockpiling ahead of Christmas may mean that the consumer price inflation spike from these taxes would only hit in January, assuming there's no retreat. Investors might be forgiving for just assuming the retreat will take place, as Trump has a history of crashing into reverse gear on trade taxes. One of the challenges of social media, even of a podcast like this, is trying to get all the necessary information into a limited number of words.
Trump posted on social media in the small hours of the morning that any country aligning themselves with the anti-American policies of BRICS would face an additional 10% tariff. As the current BRICS gathering demonstrates, this is not exactly a coherent organisation. In fact, like the G20 and so many other international meetings, it's a photo opportunity playing at being a grown-up gathering.
It is not clear what foreign policies would trigger these tariffs, what legal authority is being used by Trump, or how quickly a retreat from this policy could be expected. Where there may be a limited market reaction in the short term, the lack of information and Trump's history of retreats means that investors are not likely to pay too much attention to this matter. So far, the trade disputes have been US versus the rest of the world.
There have been some very minor constraints imposed, for example, on steel and aluminium imports by Canada, but generally countries are not fighting amongst themselves. However, over the weekend, the current French finance minister suggested that there should be tariffs on imports from China to protect the, quote, European industrial economy. China had previously imposed anti-dumping tariffs on French and other brandies from Friday, with some exemptions.
Should this escalate beyond the rather petty nature of the disputes to date, it would be concerning. There are some measurement complications. Trump's aggressive taxing of US consumers undoubtedly encourages rerouting of trade, and some of what China apparently sells to Europe is ultimately destined for the US and poses no threat to European producers' share of the domestic market.
Sources & References
How we cover this story