UBS On-Air: Paul Donovan Daily Audio 'Murky situations'

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 24th of June.

US Treasury Secretary Besant expressed confidence in Federal Reserve Chair Walsh, saying Walsh would bring inflation down. Normally, the Treasury Secretary being confident in the abilities of the Fed Chair is not a focus. But as Walsh had to deny being US President Trump's sock puppet during confirmation hearings, so overt a level of support may not do that much to assist the idea of the Fed Chair being independent.

Saying Walsh will lower inflation is also a little problematic. US inflation should move lower in the coming months. The effects of the last round of US tariffs are fading from the inflation numbers.

Declaring the tariffs unlawful didn't change consumer price levels. But after a year of being imposed, the tariff effects should naturally drop out of inflation comparisons. Assuming Iran does not choose to tighten its grip on Hormuz, oil prices should slowly fade away from the inflation picture too.

But this is simply because the inflationary effects of the administration's policies and actions over the last year are now moving out of the picture. There could be a sock puppet running the Fed. The inflation path would still be exactly the same.

There's a lot more central bank noise today. The Bank of England, in particular, is out in force with speakers. However, the bank is not seen as changing rates right now, and so it's likely to be the European central bank speakers that attract market attention.

Nagel of ECB is likely to sound hawkish, as always, and will no doubt attempt to portray the recent policy error as being the right thing to do. That is going to be a bit of an uphill struggle. But Nagel has never seemed to meet an economic problem without wanting to respond with higher interest rates.

The situation in the Gulf continues to be murky. Trump was suggesting unfrozen assets could only be used to buy US products. Iran is saying that this isn't what they understand.

Markets tend to side with the Iranian viewpoint on most things, and this is not entirely irrelevant. It seems plausible, at least, that the focus of future purchases by the Gulf region at large will pivot away from the United States in the coming quarters, which would recycle petrodollars into European and Asian currencies. The disagreements and emotional social media posting by both sides is not changing investors' general inclination to look on the bright side of life, and crude oil has slowly inched lower.

Politically, Trump's challenge is that gasoline prices in the States are still around a third higher than they were before the war. And because consumers tend to remember prices for 12-18 months, the current price level will continue to be seen as too high, because a price of $3 per US gallon is what is remembered as being the fair price. The data calendar today is deathly quiet.

There is the German June Evo Business Sentiment poll if anyone cares, but that's about it. That's all for today. Have a good day.

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