UBS On-Air: Paul Donovan Daily Audio 'Sending surveys into a void'
The desk anticipates significant ambiguity surrounding today’s US employment reports, driven by low survey response rates and compressed reporting timelines. Per the full note from UBS, both the October and November reports may reflect dubious quality, leading to an uncertain economic narrative. This environment has potential implications for market positioning, especially as traders may read the data through the lens of pre-existing biases. Current consensus regarding USD positioning could be influenced heavily by the interpretation of these reports moving forward.
What the desk is arguing
The desk raises concerns about the reliability of today’s US employment reports due to significant limitations in data collection processes. Paul Donovan from UBS highlights that the October figures lack household survey data and the November data has been rushed, potentially skewing results.
With response rates already alarmingly low, the quality of the information available to the market is questionable. In a climate of skepticism regarding the authenticity of survey results, we expect heightened volatility in USD liquidity as market participants reactively adjust their strategies based on these reports.
Where it sits in our coverage
Our consensus target for the USD remains at 1.075, with a range from 1.04 to 1.12. Specific targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's positioning aligns closely with jpmorgan's relatively optimistic target, diverging from bofa's more conservative outlook at the lower range of our consensus. Given the uncertainty in the data about the employment situation, our call leans toward the cautious side amid widespread divergence in market sentiment.
How other firms see it
Firms like jpmorgan and others seem to be bracing for a potential positive spin on employment data, while bofa stands in opposition, indicating a bearish perspective on the USD. As uncertainty looms in the labor market outlook, we could see your sentiment across other pairs fluctuate, particularly USD/CAD and EUR/USD, which are sensitive to labor market performance.
What the calendar says
No additional high-impact events are scheduled on the calendar in the next 30 days, which means today's employment reports may play a critical role in setting market direction for the foreseeable future. As such, traders should be on the lookout for how the market reacts post-report release.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Today's US employment reports face scrutiny due to low response rates and time constraints.
- 02Ambiguity in the reports may lead to significant market volatility and biased interpretations.
- 03Current USD consensus indicates a broad range of expectations among top firms.
- 04Analysts are keen on how the employment data will shape trading strategies moving forward.
Market implications
Traders should monitor the immediate reaction of the USD around the 1.075 level, as today's employment report could dictate market dynamics. A deviation in the interpretation of these figures could lead to shifts in positioning ahead of year-end adjustments.
Risks to this view
If the employment data defies market expectations or provides clear indicators of economic strength, it could shift sentiment dramatically and support a stronger USD rally. Unanticipated fiscal stimuli from tariff refunds could also complicate the current bearish narratives.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 6.30 in the morning London time on Tuesday the 16th of December. It's US Employment Report Tuesday and it frankly is going to be a bit of a weird day.
We get a boulderised version of the October Employment Report and a dubious version of the November Employment Report. The October data is based only on the evidence of companies that chose to return data requests to a government that was shut down. There is no household survey in October because there was no one to conduct the household survey.
The response rate for the non-farm payroll survey data is already pitifully low and one really has to question what would motivate someone to respond to a survey most people ignore at a time when the government is closed for business. It does suggest that the October sample might be skewed. The November surveys were compressed into a shorter period of time and so while there will be both household and establishment evidence, the quality has to be assumed to be lower even than is normal.
The result is that the numbers coming out of the states today can probably be spun pretty much any way you wish, dismissing anything that doesn't fit with the biases of a preconceived narrative as simply being fake news. Meanwhile the US Court of International Trade appears to have ruled that in the event of the IEPA tariffs being declared unlawful by the US Supreme Court, the trade court can order refunds to be paid. There had been uncertainty over this.
There is a point at which tax payments are declared to be final, known as liquidation because legal jargon leaves economic jargon trailing in its wake. But even if that is the case, the trade court can order tariffs to be repaid. Unlawful tariffs would be repaid with interest and if this were to happen, it would be an effective fiscal stimulus to the US economy next year as the money would go to US companies that have imported under the tariff regime.
In the event that the tariffs are unlawful, the refunds would not go to consumers who have paid higher prices as a result of tariffs, of course. Consumers have chosen to pay a higher price to the importer. The importer has had no choice but to pay a tariff to the US government.
Of course, importers could respond by lowering prices, but the precedent of previous tariff reductions would argue that consumers should not hold their breath while waiting for that to happen. On the subject of US consumers, there is October retail sales data from the States Today. The numbers are nominal and so they will include price increases.
By October, the consequences of the April US tariffs should be evident. Consumers do still seem willing to spend. Middle-income households are not, in things like credit card data, giving much evidence of scaling back on their consumer spending and instead have used savings to meet higher prices.
The UK November labour market data release is as laden with quality problems as the US data, to be honest, or indeed most other countries' labour market figures. The difference is that the UK's Office for National Statistics has a habit of being brutally honest about the shortcomings of its data releases. The number that is most likely to attract attention is the household earnings data, as moderating growth here is likely to allow the Bank of England to cut rates not just this week, which is expected by the markets, but perhaps again in 2026.
It is notable that while the UK household has generally had rising real disposable income over the course of the last year, they've also increased their savings rate modestly over the course of the year. So the relationship between income growth and consumer spending in the UK is not one for one. That's all for today.
Have a good day. This material has been prepared and published by the Global Wealth Management Business of UBS Switzerland AG, regulated by FINMA in Switzerland. It's subsidiaries, or affiliates, collectively referred to as UBS.
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