UBS On-Air: Paul Donovan Daily Audio 'Trading into consumer demand'
Per the full note , UBS's Paul Donovan frames China's July export data as stronger than expected, with the electrification 'big three' (electric cars, solar panels, batteries) as key drivers. He also notes that China's export data suggests trade with the US is near pre-pandemic levels, countering the US data narrative. German trade data also beat expectations, underscoring a broad global trade resilience. The desk downplays the upcoming US employment report as unreliable, emphasizing instead that consumers are willing to dip into savings, reducing the risk of a wage-price spiral. This aligns with a constructive view on risk assets, but markets await the US jobs data for direction.
What the desk is arguing
The desk argues that global trade is proving more robust than headline narratives suggest, with China's July exports beating expectations and German exports also surprising to the upside. Per the full note , China's export strength is driven by the 'electrification big three' — electric cars, solar panels, and batteries — and on China's data, exports to the US are roughly at pre-pandemic levels, a more accurate reflection than US data implies.
This is a constructive read on global demand, as it suggests that despite tariff rhetoric and supply-chain reshuffling, underlying trade flows remain solid. The desk implicitly rejects the bearish alternative that trade is fracturing along geopolitical lines, instead pointing to a world where most economies are 'trading quite nicely with one another.'
The desk also downplays the reliability of the upcoming US jobs report, arguing that data collection issues and structural shifts (small business, gig economy) make it a 'wild guess.' Instead, it focuses on the consumer's willingness to run down savings to fund spending, which supports growth without fueling a wage-price spiral.
Key takeaways
- 01China's July exports beat expectations, supported by electric cars, solar panels, and batteries.
- 02China's trade data suggests US exports are near pre-pandemic levels, though US data shows a larger decline.
- 03German exports for June also beat expectations, with prior data revised stronger, indicating broad global trade resilience.
- 04UBS doubts the reliability of US employment data and sees no imminent wage-price spiral.
Market implications
Watch for any confirmation of global trade resilience in upcoming PMI data, as this would bolster cyclical currencies and risk assets. The US jobs report, despite its questionable accuracy, remains a key catalyst for USD direction; a surprise could drive near-term volatility.
Risks to this view
The call is invalidated if upcoming trade data (e.g., August exports) show a sharp slowdown, or if the US labour market data, however unreliable, points to a significant weakening that changes the consumer-spending narrative. Escalation in US-China trade tensions could also undermine the optimistic trade picture.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Friday the 7th of August. China's export data showed better than expected export performance in July.
Exports have been helped by the electrification big three in recent months. That's electric cars, solar panels and batteries. On China's data, exports to the States are now roughly at the level they were before the pandemic.
On US data, they're a lot lower. But there are reasons to suppose that China's data may be a more accurate reflection of the current trading reality. Trade with the rest of the world continues to be fine.
German trade data for June also showed stronger exports than expected and, as should be expected with almost any German data release, the previous data was also revised stronger. German exports have been tending to outperform expectations for the past year or more, reflecting the fact that most of the world is now actually trading quite nicely with one another. Markets now await the July employment data from the United States.
These numbers represent a pretty wild guess as to what is actually happening in the labour market in the US, such is the inaccuracy of these numbers. Companies simply cannot be bothered to tell the Bureau of Labour Statistics about their payrolls and structural shifts in the economy raise questions about whether the right companies are being asked in the first place. The rise of small businesses, self-employment and side hustles is one of the complications of the modern labour market.
The US labour market is still broadly conforming to the no-hire, no-fire pattern, it would seem. The critical point from that is that consumers are still willing to reduce their savings rate to finance an ever more expensive standard of living. Associated with that, it seems very unlikely that a wage-price spiral is going to emerge.
The labour market seems strong enough to sustain spending by keeping fear of unemployment contained, but not so strong that employees feel comfortable demanding higher wages. The question is what the US Federal Reserve then does with this information. Whatever US Federal Reserve Chair Walsh might think, it is generally accepted that it's the anticipation of the Fed's reaction and not the expectations about the path of data that is most likely to move financial markets.
Walsh initially received a pretty poor reception in the financial markets, but there are now media reports citing people familiar with Walsh's thinking in an apparent attempt to change communication. This is not the sort of transparency that really helps financial markets behave in a stable manner, but the comments would seem to suggest that the current labour market situation in the United States is consistent with Walsh voting for unchanged policy. Whether Walsh now has the influence to carry the rest of the Fed along with that view is quite a different question.
Markets are likely to continue to look to the broader range of comments from other Fed members, and we've got another Fed Speaker on the schedule today. Oil prices are higher as markets shift expectations about the prospects for a reopening of the Strait of Hormuz. There is no point asking economists to analyse this as everything is very likely to change in the next 24 hours.
That's all for today. Have a good day. ...in Switzerland. It's subsidiaries, or affiliates, collectively referred to as UBS.
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