UBS On-Air: Paul Donovan Daily Audio 'Worrying about the cost of war'
In the current geopolitical climate, the desk interprets President Trump's recent social media announcement—indicating no U.S. military action against Iran before the midterms—as a reflection of growing political concerns regarding the ongoing conflict. As articulated in the UBS commentary by Paul Donovan, this statement may indicate a desire to stabilize domestic sentiment and support market optimism (see ). With the oil market responding through decreased prices, this underscores the significant interplay between political rhetoric and economic indicators, such as consumer sentiment—which is already showing variance based on party affiliation. We anticipate that these trends will influence market positioning in the upcoming weeks as sentiment evolves ahead of the U.S. midterm elections.
What the desk is arguing
The desk holds that President Trump's social media post regarding military action against Iran is a sign of vulnerability and the resultant need to maintain political capital before the midterm elections. Per the full note from UBS, such political messaging can rejuvenate market optimism by suggesting a possible pivot towards concession and diplomacy. The factors at play, namely fluctuating oil prices and consumer sentiment, reflect the fragility of market confidence amidst geopolitical tensions.
Moreover, the declining oil prices highlight how markets react to perceived risks and shifts in geopolitical narratives. The commentary notes that a moderation of the U.S stance may be temporary, particularly as political constraints trend weaker post-elections—underscoring the precariousness of current market enthusiasm.
Where it sits in our coverage
Our consensus target for the EUR/USD currently sits at 1.075, with a range of 1.04 to 1.12. Specific forecasts include:
This desk's interpretation aligns with the central outlook provided by jpmorgan, reflecting a position near the upper bound of our identified range. The expectation positioned by bofa, contrastingly, suggests a more cautious approach that diverges from our bullish sentiment.
How other firms see it
Several firms, such as jpmorgan, are aligned with a more positive market stance given the potential for political concessions, while bofa exhibits a contrary view, highlighting the risks still inherent in the geopolitical landscape.
The expected volatility in the oil market will likely reflect these sentiments alongside broader market reactions as the USD may witness movements correlated with U.S. consumer sentiment polls and geopolitical developments.
What the calendar says
Notably, there are no significant scheduled events in the immediate calendar that could further impact or clarify these sentiments, leaving the market to react dynamically to unfolding developments in U.S.-Iran relations.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01President Trump's non-aggression statement aims to stabilize political sentiment ahead of midterms.
- 02There is an observable optimism bias returning to markets, reflected by falling oil prices.
- 03Political narratives are skewing consumer sentiment indicators along party lines.
- 04The larger implications for market movements hinge on geopolitical developments and upcoming polls.
Market implications
Traders should watch for sentiment shifts around the midterm elections, particularly movements in oil prices as a barometer of broader market confidence. Given the current EUR/USD target of 1.075, any significant geopolitical shifts may present volatility around this level.
Risks to this view
If Iran or allied entities escalate military actions independently, or if Trump's rhetoric shifts drastically post-elections, this would undermine market optimism, triggering a recalibration of FX positions that could pressure the EUR/USD below current support levels.
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 9th of October. US President Trump's social media declared that the United States will not attack Iran before the midterm elections in the States.
Markets have learned not to take social media posts at face value necessarily and of course there are multiple sides involved in this war. Iran or others may decide on a different course of action. However, the social media post has been enough to put a little life back into markets optimism bias and the oil price has fallen back somewhat.
Probably the most positive spin is that this is a signal of Trump's deep concern about the damage the war is doing to the administration. That might suggest the United States is more willing to make the necessary concessions to achieve a peaceful outcome. On the other hand, the political constraints are inevitably weaker after the midterm elections are held and a moderation of the US position may not last.
The US-Michigan consumer sentiment poll should be viewed in this light. As the electoral cycle hypes up, the politicisation and the polarisation of the United States increases. The breakdown of sentiment by political party affiliation will therefore be of interest.
The headline numbers will be of no real interest. Democrats will report that they are living in a dark dystopia and Republicans that they are living in this best of all possible worlds. The Republican sentiment has, however, weakened of late.
This is obviously a reflection of the latest political attack ads, not the economic reality. Inflation expectations within the survey will be similarly distorted. Republicans currently report that they think inflation in the next year will be half the rate that Democrats say they expect.
However, Republican-reported inflation expectations have been rising, which reflects high prices for high-frequency purchased products. Things like beef prices up 16.5% since January of 2025, gasoline prices up 42% and a greater awareness of rising electricity prices. These price increases create the perception of inflation being even higher than it actually is.
It is inflation perceptions that drive the affordability crisis. The critical point in all of this, however, is that consumers lack the power to do anything about those inflation perceptions. Unless consumer behaviour changes, whether as consumers or as employees, these numbers have political significance, but in economic terms are just meaningless noise.
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