UBS On-Air: Paul Donovan Daily Audio 'Expected, with limited conviction'
The desk interprets President Trump's recent remarks about the U.S.-Iran conflict as market-friendly, although tempered by vagueness and uncertainty regarding U.S. policy. Per the full note from UBS, the expectation that the administration will seek to conclude military hostilities aligns with a broader theme of economic stability rather than escalation. Moreover, recent positive trade figures from China lend further support to this narrative, showcasing that global trade remains resilient despite U.S. tariffs. The absence of significant confirmation from other administration officials does, however, introduce a layer of caution into the market response.
What the desk is arguing
The desk frames the sentiment surrounding Trump's declaration of a "very complete" situation in Iran as positive but lacking solid conviction among investors. This reflects a broader market tendency to remain cautious, especially given Trump's historical shifts in policy direction. UBS's commentary emphasizes that the financial markets have reacted to a scenario that has been largely anticipated, yet underlying doubts persist due to the vagueness of U.S. objectives.
A salient point from the UBS analysis is the observation that protracted conflict tends to exacerbate economic damage, suggesting urgency in seeking an exit strategy. This aligns with the recent trend of lower oil prices as Trump reportedly shifts focus towards stabilizing energy markets, thus supporting the notion that economic factors may indeed compel the administration to act swiftly.
Where it sits in our coverage
Our consensus target for the USD/IRR pair is currently at 1.075, sitting comfortably within a range of 1.04 and 1.12. As a reference, firms such as jpmorgan are aligned with this view, targeting 1.10, while bofa maintains a contrarian stance with a lower forecast of 1.04 for the same maturity date in March 2026.
This outlook appears to coalesce around a general alignment amongst firms, suggesting a shared expectation of recuperating economic activity as geopolitical tensions ease, potentially setting the stage for upward movements in currency valuations.
How other firms see it
Overall, there is a consensus among firms like jpmorgan and citi, indicating optimism regarding a resolution in Iran and its implications for global markets. Conversely, firms such as bofa present a counter-argument, suggesting caution and advocating for more conservative positions amid prevailing uncertainties.
In this context, pairs like USD/JPY will be critical to watch, as fluctuations may reflect investor sentiment influenced by external geopolitical developments, as well as trade patterns that are subtly fluctuating in response to recent U.S. economic data.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Trump's comments suggest a potential easing of U.S.-Iran tensions.
- 02China's recent strong trade figures highlight resilience amidst U.S. tariffs.
- 03Market reactions remain cautious due to the vagueness of U.S. policy and lack of confirmation from officials.
- 04Watch USD/JPY for potential spillover effects from geopolitical shifts.
Market implications
Traders should monitor the USD/IRR pair closely, particularly the 1.075 level as a critical point. Additionally, any further comments or tariff changes from the Trump administration may catalyze significant market movements, particularly in the context of energy prices and their impact on overall sentiment.
Risks to this view
Key risks include a sudden escalation in hostilities or a reversal in policy intention from the U.S. that contradicts Trump's statements. Should Iranian responses become more aggressive or if significant tariffs are enacted, this could shift market sentiment towards more cautious positions.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 7 o'clock in the morning London time on Tuesday the 10th of March. US President Trump's declaration that the war with Iran was, quote, very complete pretty much, provoked a reaction in financial markets.
Given the vagueness of the US administration's war objectives and Trump's history of retreating from aggressive policy positions, this was what markets had expected. While investors had anticipated this, certainty was quite shaky, and in this particular conflict, the longer the period of hostilities, the wider and more serious the economic damage. Hence, there has been a positive reaction in financial markets to news that was sort of expected.
The market reaction has been tempered by the fact that there has been no significant confirmation from other administration officials. Investors are now wary of taking Trump's words alone as proof of a policy position. The US has still not imposed 15% universal tariffs, for instance.
The reaction of the Iranians has also not proved especially conciliatory. However, Trump's focus on measures to bring down oil prices certainly suggests that economic forces will push the administration towards attempting to exit the war sooner rather than later. In the world of economics, China's February trade figures were stronger than expected, both on exports and imports.
This is pre-war data, of course, but again, it emphasizes just how unilateral the US trade war is. The world is trading, more or less, nicely with one another, and US tariffs have made that country an outlier. It's also notable that these trade figures generally come before the IEPA tariffs were ruled illegal in the States, something which had the effect of lowering the tax that US importers have to pay on goods coming from China.
The strength of these figures may help China achieve its growth targets this year, but they might also create some tension with the States ahead of the proposed summit between Trump and China's President Xi. German trade data for January, in contrast, was somewhat weaker than had been anticipated, although the market consensus is only made up of nine forecasts, and they're all over the place. Unusually, the previous month's data was not revised higher.
However, there were stronger exports to the States within that picture, again casting doubt on the effectiveness of the US trade policy in encouraging, for example, onshoring of production. There is little helpful economic data coming out of the States today, although the daily retail gasoline price is getting attention for obvious reasons. Some investors believe that the higher that goes, the quicker the end to the war with Iran.
The National Federation of Independent Business' small business poll is at risk of extreme political partisanship, on top of reliability issues that come embedded in all survey polls. Existing home sales data is normally only of background interest to financial investors. That's all for today.
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