UBS On-Air: Paul Donovan Daily Audio 'Wars and trade wars'
Lead — The desk interprets the latest commentary from UBS, which notes that market responses to the ongoing Russia-Ukraine conflict and U.S. trade policies remain muted, signaling investor uncertainty. Per the full note from UBS, the geopolitical landscape is not yielding significant market implications, especially as President Trump appears to adopt a passive stance regarding Russian actions. With minimal data releases this week, the focus shifts to broader trade dynamics that may impact the USD against major currencies, particularly as Europe releases its trade figures. The evidence highlights that, while U.S. trade policy is chaotic, this is reflected more politically than economically at present.
What the desk is arguing
The desk believes that current geopolitical tensions and trade disputes will not significantly impact market movements in the near term. Per the full note from UBS, the failure to achieve a ceasefire in the Russia-Ukraine conflict is not producing immediate repercussions that drive volatility in currencies.
Further supporting this view is UBS's mention of the impending European trade data release for June, which typically carries limited market weight. This reflects the broader trend of U.S. importers adapting to trade tariffs, sometimes artificially skewing the data as they attempt to navigate the political environment.
The implicit counterfactual is the notion that a major geopolitical event could provoke a drastic change in market sentiment, which currently seems unlikely given the described muted responses.
Where it sits in our coverage
Given the current insights, our internal consensus target for EUR/USD stands at 1.075, with a range of 1.04 to 1.12. Notable firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This desk's stance aligns with jpmorgan, sitting above the consensus range, suggesting a marginally more bullish outlook.
How other firms see it
Firms such as jpmorgan and db maintain similar views suggesting stability amidst geopolitical turbulence. Conversely, bofa holds a more cautious stance, expecting downward pressure on USD due to trade policy uncertainty.
The current sentiment around EUR/USD reflects movements influenced by broader economic policies, notably the anticipated market reactions to Eurozone economic indicators and potential shifts in U.S. trade strategies.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Geopolitical tensions have led to muted market reactions according to UBS.
- 02U.S. trade policy chaos has created abnormal trade patterns that are politically more significant than economically.
- 03Upcoming European trade data is unlikely to move markets substantially.
- 04Investor uncertainty persists due to the political landscape, particularly concerning Russia and Ukraine.
Market implications
Traders should watch for potential movements in the EUR/USD pair, especially around the European trade data release. Positions may adjust ahead of these indicators, reflecting the current uncertainty around U.S. trade policies.
Risks to this view
A significant escalation in the Russia-Ukraine conflict or major changes in U.S. trade policy could shift market sentiments rapidly, leading to volatility across affected currency pairs.
Good morning. This is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Monday the 18th of August.
Market reactions to Friday's events in Alaska are likely to be muted. The Russia-Ukraine war does not have significant short-term market implications. U.S.
President Trump's failure to achieve a ceasefire therefore has limited consequences. While Trump appears to be following Russian President Putin's lead at the moment, the changeable nature of administration policy means investors have limited certainty about the future direction of events. The gathering of European leaders in Washington might produce a certain amount of rhetoric over funding, but again this is likely to be of limited interest to markets at this stage.
Meanwhile, on the trade war front, Europe releases its trade position for June. This is not normally a market-moving data release, and of course the chaos of U.S. trade policy has led to abnormal patterns of trade, with U.S. importers shifting the timing of their purchases as they desperately try to avoid additional tax burdens. The bilateral U.S. trade position is more likely to be of political significance than it is of economic significance, therefore.
Of some interest is what is happening with European trade elsewhere. Of course, long and complex supply chains mean that trade with third-party countries can still end up in the United States, but the details of other country trade help discern how well the rest of the world may be able to cut the U.S. out of the global trading system, a sort of hermit kingdom model, and whether there is any credible sign of dumping going on. In particular, China will be a focus on the dumping point, with the French having expressed concerns that China may sell Europe products that had been destined for the States at a cheaper price.
There's been little evidence of this to date, but it is a very political point. Last week's release of U.S. July import price data generally confirms that trade taxes are not being pushed up the supply chain, and exporters are not adding special discounts to offset trade taxes in the States.
EU and Mexican car exporters to the U.S. raised their prices in July, for instance, and then, of course, the taxes are imposed on top of that. Japanese auto exporters remain the only significant sector that seems to have been willing to cut prices to partially offset trade taxes. This means that the question is at which point down the supply chain the trade tax burden will fall, but it falls on U.S. soil.
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