UBS On-Air: Paul Donovan Daily Audio 'Scripted versus unscripted'
The desk frames the recent decline in South Korea's exports, as reported by Paul Donovan from UBS, as a critical insight into the nation's economic trajectory amidst rising economic nationalism. Notably, while chip exports showed resilience, overall exports fell due to fewer working days and declines in key markets such as the US, EU, and China. This situation may influence currency pairs involving the South Korean won, especially as traders seek to interpret demand signals and shifting supply chains. Per the full note, the export data suggests potential strategizing around upcoming trade dynamics, particularly as broader economic conditions evolve.
What the desk is arguing
The desk assesses that the decline in South Korea's export figures reflects underlying vulnerabilities in its economy, particularly amid rising global economic nationalism. Per the full note by UBS, this decline in exports is notably exacerbated by a greater number of holidays in January compared to the previous year.
Despite strong performance in chip exports, declines were observed in exports to major markets including the US and China. This mixed performance underscores the ongoing challenges South Korea faces in its export-driven economy and highlights the need for close monitoring of these trends as they could significantly impact the Korean won.
Where it sits in our coverage
Our consensus target for the USD/KRW is set at 1.075, with a range between 1.04 and 1.12. Notably, jpmorgan targets 1.10 for March 2026, while bofa projects a more pessimistic outlook at 1.04 for the same tenor. This consensus suggests a cautious approach to the pair, reflecting the apprehensions around South Korean export performance.
How other firms see it
Firms like jpmorgan are aligned with the view that the Korean economy's reliance on exports remains under pressure, given the recent trade data. In contrast, bofa presents a more bearish stance on the Korean won given the recent declines in key export markets. Additionally, currency pairs such as AUD/KRW and USD/CNH may also reflect similar dynamics, especially considering their exposure to the South Korean economy and trade relationships.
What the calendar says
No high-impact events are currently scheduled that could directly affect the Korean won in the coming month. As such, traders should keep an eye on the global trade landscape and any emerging geopolitical tensions that could impact South Korea's export capability.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01South Korea's exports have declined in January, driven by fewer working days and a significant drop in demand from major markets.
- 02Chip exports remain a bright spot; however, total trade data may reflect broader strain in the economy.
- 03Global economic nationalism is likely to affect trade dynamics; South Korea's role in complex supply chains warrants close monitoring.
- 04Traders should be cautious about currency pairs involving the Korean won as fresh data unfolds.
Market implications
Watch for continued signals from South Korean export performance, particularly as this data could influence USD/KRW positioning. Market reactions may also shift with evolving trade narratives and geopolitical factors affecting supply chains.
Risks to this view
A sharp rebound in export data could invalidate the current bearish stance on the Korean won, particularly if demand picks up from the US or China. Additionally, any signs of significant improvements in global trade relations could pose risks to the desk's outlook.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 5 o'clock in the morning London time on Tuesday 21st January. South Korean export data for the first 20 days of January showed a decline in exports, with fewer working days this year than was the case in 2024.
There was some strength in the numbers, led by export of chips. Exports to the US, the European Union and China all fell in year-on-year terms. Trade data is likely to be increasingly in focus as economic nationalism continues to advance around the world.
Korea plays an important role in complicated supply chains and it's therefore worth monitoring. UK labour market data is due for December. We know that the Office for National Statistics is at least honest in the absence of reliable labour market data, and is doing its best to fill in with some provisional statistics.
There has been a lot of grouching by UK companies, horrified at being asked to pay marginally more tax on employment, and this has tended to focus on the impending apocalyptic consequences for the labour market in their view. The tone is actually rather similar to the US corporate responses to the US Affordable Care Act, or Obamacare, which projected similar dire labour market results, which never in fact transpired. The UK's December retail sales showed exceptional strength in non-food sales, the strongest since the post-pandemic bounce indeed, and that doesn't really fit with a narrative of fear of unemployment.
America's earnings results are also not suggestive of cowering consumers. US President Trump's scripted inauguration remarks initially pushed the dollar weaker, as there was relatively little reference to trade taxes. The references that were made tended to focus on the misplaced idea that trade taxes will be paid by foreigners rather than by US consumers.
However, Trump's position seemed to become more radical as the day wore on. In what is euphemistically described as wide-ranging remarks in the Oval Office, Trump committed, in particular, to a series of aggressive US consumer taxes on goods from Mexico and Canada. This then pushed the dollar up, and equity futures down, as investors expect the inflation consequences to keep US interest rates higher.
Directly speaking, a 25% tax on imports from Canada and Mexico would raise US consumer prices of those goods by about 10 percentage points on average. However, there is a risk of more inflation from second-round effects, the drop in competition leading to US producers to raise prices, and retailers engaging in a profit-led inflation episode. Taxes on imports from Canada and Mexico have been thought to be unlikely because these will hit food and fuel prices especially, and food and fuel prices are noticed by the US public and pay a disproportionate impact in forming inflation expectations.
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