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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 36 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 36 institutional desks. No promotion.
The current commentary from Paul Donovan at UBS highlights the stability in China's industrial profits, signifying less risk of aggressive dumping practices that could disrupt global markets. Per the full note, this stability in profit margins suggests a shift away from concerns regarding overproduction and significant cost-cutting measures that could destabilize pricing internationally. This can provide some reassurance to traders anticipating adverse effects from potential Chinese sell-offs abroad. The lack of high-impact economic events on the immediate calendar further supports a cautious but vigilant trading stance.
The desk is leaning towards a positive interpretation of China's industrial profit data, emphasizing that profitability growth in December indicates a lack of widespread dumping practices. This perspective is reinforced by China's stable profit margins, which diminishes fears of aggressive market behavior that could affect export dynamics. Per the full note, while localized dumping may still occur in specific sectors, the broader picture is one of steadiness.
Moreover, the implication here extends beyond China as a supplier; it influences the global demand outlook by potentially stabilizing commodity prices and curtailing inflationary pressures tied to external supply chains. The context of stable or improving economic conditions in major economies, such as Germany and the U.S., may compound this stabilizing effect on markets.
As of now, our consensus target for the EUR/USD pair sits at 1.075, which is at the intersection of forecasts provided by various firms including: - jpmorgan: target 1.10, tenor Mar26 - bofa: target 1.04, tenor Mar26
The desk's view appears to align well with jpmorgan, which is positioned at the upper end of the spectrum. It contrasts with bofa, which holds a less optimistic outlook, indicating a potential divergence in sentiment about the broader economic landscape and its implications for currency pairs.
Firms like jpmorgan and citi are generally aligned with the positive outlook suggested by UBS, focusing on industrial growth metrics and inflation stabilization. In contrast, bofa and goldman sachs present a more cautious stance, concerned about geopolitical tensions and potential economic slowdowns.
Traders should keep an eye on the EUR/USD trajectory, particularly in light of cross-correlation with U.S. manufacturing sentiment data and housing market trends, which could inform broader risk sentiment across the FX spectrum.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should look out for movements around the 1.075 level in the EUR/USD pair, particularly as U.S. housing market data becomes available. Any significant shifts in these data points could lead to increased volatility and adjustments in positioning.
Risks to this view
A reversal of this outlook could occur if we begin to see substantial evidence of Chinese dumping in various sectors, which would pressure both local and global markets. Additionally, unexpected geopolitical tensions or severe downturns in key economies, such as the U.S. or EU, could also undermine this stabilizing narrative.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 7 o'clock in the morning London time on Monday the 27th of January. China's industrial profits grew in December and, on the official data, the profit margins seem to be broadly stable.
This has some relevance outside of China's borders, as this sort of profit activity is not consistent with China dumping large amounts of product into international markets. Dumping goods involves exporters deliberately selling at a loss to attempt to dominate an overseas market, and that of course is not especially consistent with stable profit margins. This isn't to say that dumping might not be happening in a specific sector, but it doesn't seem to be happening generally.
Germany releases the IFO Business Sentiment Poll today. This is not a great deal of real-world relevance given the politicisation of sentiment data and low response rates that any survey request gets these days. However, Germany has long had a tendency to be too pessimistic in its real-time data, both the sentiment and the real-world data.
There is a question as to whether the prospects of an election might start to shift that particular pessimism or whether, in fact, it has become too entrenched. The United States also has Business Sentiment Polls, which are definitely subject to political bias, although the language in the Dallas Fed Manufacturing Sentiment Comments section is always worth looking at, just to get a sense of how partial these supposedly objective survey responses can be. New home sales data is also due from the States.
Housing is becoming a growing economic concern across a wide number of countries. Housing costs account for some of the disaffection of the younger generation, and the relative unaffordability of housing is something that has a bearing on savings behaviour too. Markets may possibly get some relief from the reality of US immigration and tariff policies exhibited over the weekend.
US President Trump's pledges to deport large numbers of migrants, and indeed citizens, are a concern to financial markets because of the disruption to US supply chains that this would entail. Investors have assumed that not much will change, and while it is early days, that does appear to be the case. Trump does not seem to be doing much more than former US President Biden did on migration, except in the area of publicity, although that publicity may create a fear of deportation that disrupts, for instance, agricultural employment.
Similarly, the threat of tariffs against Colombia over the weekend were backed away from relatively quickly, suggesting that for some trade taxes, the talk should not be taken too seriously. However, there has been a shift in tariff approaches by the US government, and some trade taxes do seem to be likely to be more enduring. That's all for today.
Have a good day. UBS Chief Investment Office's investment views are prepared and published by the Global Wealth Management Business of UBS AG or its affiliate, UBS. This material has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient and is published for informational purposes only.
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