What's takeaway 1 on UBS On?

Tariff changes signal potential market changes but heighten uncertainty around US trade policy.

What's takeaway 2 on UBS On?

Consumers will still be affected by tariffs on non-compliant goods despite temporary relief measures.

What are the market implications for UBS On?

Traders should be vigilant regarding market reactions to today's employment data, particularly as it may encapsulate the impact of temporary tariff relief. A positive employment report could strengthen the USD against CAD, while conversely, disappointing data could intensify fears regarding consumer behavior under the current tax regime.

What are the risks to this view on UBS On?

The call could be invalidated by unexpected shifts in employment data indicating weakness in the labor market or renewed threats of aggressive tariff implementations following the April 2 deadline. Furthermore, any indications of coherence or stability in trade policy would reinforce confidence in consumer spending and economic growth.

UBS On-Air: Paul Donovan Daily Audio 'Tax and retreat'

What the desk is arguing

The desk believes the recent tariff developments indicate a significant pivot in fiscal policy that could alleviate immediate consumer pressure but raises questions about the coherence of US trade strategy. As Donald Trump's administration temporarily lifted certain tariffs, concerns linger regarding the overall trade policy direction. The desk emphasizes that businesses have been stockpiling goods in anticipation of these tariffs, leading to heightened financial market volatility and uncertainty surrounding corporate profitability.

Financial markets are already reacting, and Trump’s reluctance to impose visible tax increases on consumers stands out to investors, who are increasingly questioning the administration's approach. Moreover, data concerning US employment is anticipated to reveal continued labor market resilience, albeit potentially obscured by ongoing government employment dynamics.

Where it sits in our coverage

Our internal coverage suggests a bullish outlook on the USD with a consensus target of 1.075 for USD/CAD. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This view from the desk aligns closely with jpmorgan and contrasts with the more cautious outlook from bofa, which casts a shadow on higher tariff implications for trade dynamics. The desk's perspective could lean slightly towards the higher end of market expectations should consumer resilience amid tariff changes continue to support the dollar.

How other firms see it

Firms such as jpmorgan and citi generally align with this bullish sentiment on the USD based on the favorable employment trends and tariff reductions. Meanwhile, bofa expresses a more conservative stance, suggesting that the tariffs' long-term impacts may overshadow transient relief measures.

Investors should watch USD/CAD, which is closely tied to the ongoing discussions and implications of tariffs and trade negotiations, as this currency pair may reflect market sentiment influenced by the announced fiscal strategies and employment figures.

What the calendar says

With the US employment report being released today, traders should pay close attention to how the numbers reflect ongoing economic conditions and the potential ramifications of recent tariff decisions on the labor market dynamics.

Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 7 o'clock in the morning London time on Friday the 7th of March. On Monday, US President Trump imposed a heavy tax burden on US consumers with tariffs on products from Mexico and Canada.

Yesterday, Trump sounded the retreat and partially lifted those taxes where they apply to products compliant with the revised NAFTA trade deal, the exemption lasting until the 2nd of April. Markets will just assume that the taxes will not be applied after this point because the Trump administration seems very reluctant to tax US consumers in a visible way. US farmers, who have been hit by several government policies recently, also received some additional relief with a lower tax on imports of Canadian potash.

Not all the tax has gone. US consumers buying products not covered by the revised NAFTA deal are going to have to find 27.5% of the price to pay to the US government. That includes some cars, for instance.

Autos are now experiencing their fourth distinct tax regime this week. Overall, the economic cost of this week's repeat retreat on taxes has been quite high. January's large US trade deficit was partially driven by gold imports, but also by US companies stockpiling in anticipation of these threatened taxes.

Financial market volatility and confusion from corporates has economic consequences, and at least some investors are questioning whether there is any kind of coherent policy plan. We get the US employment report today. This is not likely to show the effects of Trump megadonor Musk's attempts to cut government employment, in part because federal government is such a small part of overall employment.

The people will also not likely be captured until later surveys. The rehiring of government workers that it turns out the government actually needs will also affect the data further down the line. The employment hit from federal government layoffs is more likely to be felt in second round effects anyway.

Companies that rely directly or indirectly on government activity, for instance. Tourism businesses might be affected by job cuts at the National Park Service, to give an obvious example. This month's data is therefore expected to be benign, with a stable unemployment rate.

There will be some ongoing distortions from the aftermath of the California fires. Elsewhere, China's February trade data was somewhat disappointing, with exports weaker than expected and imports falling. That is not necessarily a signal of strong domestic consumer spending, although consumers elsewhere have shown strength in services rather than rushing to buy goods.

German January factory orders data, due today, provides another glimpse at this same consumer trend. 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. As a firm providing wealth management services to clients globally, UBS AG and its subsidiaries offer both investment advisory services and brokerage services. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements.

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