UBS On-Air: Paul Donovan Daily Audio 'Tech vibes'

Good morning. This is Paul Donovan, Chief Economist at GBS Global Wealth Management. It's seven o'clock in the morning London time on Friday the 26th of June.

There have been further declines in technology stocks, which is animating financial media. Trading in the Korean Kospi was halted after an 8% decline. As with earlier declines, we are not at a level where this will translate into something that most consumers are going to care about.

The only technology Northern European consumers care about at the moment is a handheld fan. Limited exposure to equities by the majority of consumers mutes any wealth effect. And yesterday's US data reminded us that consumers' willingness to reduce the amount of cash saved each month has been the main and most important driver to the consumer spending story of late.

The fact that cash has been saved each month gives a cushion for consumer spending regardless of equity moves. A more prolonged period of weakness around technology might alter the patterns of real world investment spending, however. This is not necessarily an economic negative.

To the extent that tech spending has cannibalised other forms of investment, a slower pace of tech investment growth might then free up resources for other projects. Moreover, in the short term, non-AI projects are likely to be more immediately economically productive. A factory contributes positively to the economy as soon as it starts operating.

That is not necessarily the case for an AI dental centre. Apple announced that they were introducing some substantial price increases across a range of products in the United States. Apparently the nice shiny toy of artificial intelligence is pushing up the costs for the old toys of iPads and other such devices.

One company introducing even noticeable price hikes would not necessarily attract too much attention, and the weighting of this in consumer price inflation is fairly minimal. But the political context of this does matter. At least with a certain demographic, the iPhone or iPad is a highly visible item, and while not perhaps a high-frequency purchase, there is likely to be sensitivity to this against the backdrop of a US affordability crisis.

As affordability is about prices, incomes and what people aspire to buy, the aspiration aspect could be heightening the importance of this particular price move. So far, protests against data centres have been focused around electricity pricing and environmental costs, but the sense of political hostility to AI may broaden further if this is not an isolated instance. Final Michigan consumer sentiment data, which includes an inflation expectations number, is due from the states today.

It's not much use for its economic content, but it is marginally helpful in gauging political vibes. Japan's June Tokyo consumer price inflation data rose, with a part of the increase coming from the changing government influence over prices. In this case, water prices with some additional contribution from medical fees.

There are a number of non-market distortions to Japanese prices, and that does make gauging the underlying inflation pressures in the wider economy quite tricky. There will be a modest disinflation impulse as oil price effects start to disinflate over the coming months, but Japan limited some of the oil price increases for consumers, and that will obviously mute their reversal. The Bank of Japan began the year with an accommodative policy stance.

The recent rate increase was part of a desire to move to a more neutral position. This inflation backdrop might necessitate another rate increase perhaps later this year. Oil prices have not reacted much to an attack on a Singaporean flagged cargo ship in the Strait of Hormuz.

The US administration has said that it's too soon to say who attacked the ship. Armchair warriors might be able to speculate on that point. The reality is that few investors assumed that the process of reopening the Strait would be a straight line, and volatility is to be expected as Iran asserts the real politic of its current balance of power.

That's all for today. Have a good day. Finma in Switzerland.

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