What's takeaway 1 on UBS On?

South Korea's semiconductor exports show strong growth amidst weaker steel sales to the U.S., indicating resilience in its trade.

What's takeaway 2 on UBS On?

U.S. trade tariffs are impacting export levels, but global trade is expected to persist unaffected by such unilateral measures.

What are the market implications for UBS On?

Traders should watch for shifts in USD/KRW levels around 1.05 as a potential support area, which could reflect further developments in the tech export sector. Given ongoing discussions about U.S. trade policy responses from Europe, any clarity around this could catalyze market movement late in the month.

What are the risks to this view on UBS On?

A shift in global sentiment towards a more robust response from the U.S. to foreign trade practices could lead to increased tariffs or trade barriers, potentially precipitating a reversal in export dynamics for markets like South Korea. Additionally, domestic political instability in Japan could prompt unexpected economic policy changes affecting the yen.

UBS On-Air: Paul Donovan Daily Audio 'Trade continues elsewhere'

What the desk is arguing

The desk sees a strengthening South Korean export sector, primarily driven by robust semiconductor sales, despite challenges faced in steel exports to the United States due to protective tariffs. According to the UBS commentary, these developments highlight the resilience of economies beyond the U.S., suggesting that global trade can persist independently under current unilateral U.S. policies.

Strength in South Korean exports, particularly in semiconductors, remains noteworthy as it reflects an ongoing trend in technology that may provide a buffer against global economic headwinds. The August figures from the Korean customs data, although not yet available, are expected to reflect this underlying strength as historical data suggests a continuation of similar trends in the following months.

Where it sits in our coverage

The current consensus set for USD/KRW targets a range of between 1.04 and 1.10, with specific forecasts including: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This view aligns closely with jpmorgan, which highlights the possibility for the KRW to strengthen in the near term given the current export dynamics, placing our analysis at the higher end of the market expectations for the currency pair.

How other firms see it

Firms like jpmorgan and citi are aligned with the view that South Korea's exports may provide strength to the KRW, while bofa positions itself more cautiously, anticipating downward pressure on the currency stemming from U.S. trade policies. This divergence in perspectives reflects a broader market sentiment concerning trade impact on individual currencies.

Looking at the broader implications, the USD/JPY trajectory is particularly pertinent as it will reflect market sentiments towards U.S.-Japan trade relations, especially amid discussions on economic policy shifts in Japan following the recent elections.

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 21st of July.

Korean early export data for July rose on a working day adjusted basis once again. As this data depends on custom records, it's considered to be a pretty reliable statistic. The numbers showed strength in semiconductor exports and growth in exports to Europe.

Exports to the United States were weaker, with steel a key part of that, perhaps inevitably, given the high taxes US consumers are having to pay on imported steel at the moment. A key message from these numbers is the reminder that while the United States does matter a lot in the global economy, other economies also matter a lot. As long as the United States trade action is unilateral, the US against the world, and does not trigger a wave of other bilateral trade taxes, the rest of the world can carry on trading with each other more or less as normal.

In Japan, Prime Minister Ishida has pledged to stay in office in the wake of the weekend's election result for the upper house, where the governing coalition lost their majority. The yen has strengthened somewhat, but Japanese financial markets are closed for the holiday. The anti-foreigner Sanseito party increased their representation from two seats to 15.

The rise of Sanseito is part of an international trend. At times of considerable economic change and associated fear of the future, the rise of scapegoat economics and its associated prejudice politics is very common. The factors behind the fear are complex and varied, but no one wants to hear that problems are complex.

Finding a scapegoat to blame for everything is beguilingly simple, if incorrect, and foreigners have been an ideal scapegoat throughout history. From Europe, there will be more discussion this week amongst the governments and the Commission about potential responses to US trade taxes. This is one of the more difficult debates in the current trade conflict.

The United States is inflicting damage on itself by taxing its citizens who want to buy stuff made abroad. If the response of the EU or other countries is to tax their own citizens who want to buy stuff made in the United States, that action then becomes a drag on the domestic economic activity, raising taxes lowers growth. The difference is, of course, that the EU would only be taxing goods coming from one country.

The US seems set to tax goods from everywhere, but a crude retaliation would be damaging to the global economy. The aim of the EU will be to be selective in its targets to maximize the political damage in the United States. Finally, there's a report by EY Parthenon suggesting that political and economic uncertainty reduced global profits of listed companies around $300 billion since 2017.

Structural change is going to continue to add uncertainty, creating opportunities, of course, but also risks. The logical response would seem to be to employ more economists to cope with the uncertain future. That's all for today.

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