UBS On-Air: Paul Donovan Daily Audio 'Worrying about the cost of war'

Paul Donovan · UBS Global Wealth Management

Trump's no-attack-before-midterms post may signal US concessions, but US restraint may not last after the midterms.

Trump's social media post that the US will not attack Iran before the midterms could reflect deep concern about the damage the war is doing to the administration, which might mean the US is more willing to make necessary concessions for a peaceful outcome. The counterpoint is that political constraints are inevitably weaker after the midterms, so the moderation of the US position may not last. Other parties in the war may also act differently, so the post does not settle the outlook.

“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. ... 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.”at 0:44

Paul Donovan · UBS Global Wealth Management

Partisan swings in Michigan consumer sentiment reflect political attack ads, not economic reality.

The Michigan consumer sentiment survey will be read through a political lens as the electoral cycle heats up and US politics polarises. Republican sentiment has weakened recently, which Donovan attributes to the latest political attack ads rather than to changes in economic conditions. The headline numbers therefore matter less than the breakdown by party affiliation, which is shaped by partisanship.

“The Republican sentiment has, however, weakened of late. This is obviously a reflection of the latest political attack ads, not the economic reality.”at 1:46

Paul Donovan · UBS Global Wealth Management

Rising inflation perceptions from everyday price jumps drive affordability concerns but are economically meaningless noise unless behaviour changes.

Partisan inflation expectations in the Michigan survey are distorted: Republicans expect about half the inflation Democrats do, yet Republican expectations have been rising. This reflects high prices for frequently purchased products, such as beef up 16.5% since January 2025, gasoline up 42%, and greater awareness of rising electricity prices. These price increases make people perceive inflation as even higher than it actually is, and these perceptions drive the affordability crisis. Consumers cannot do anything about those perceptions, so the numbers only matter politically unless consumer or employee behaviour changes.

“Republican reported inflation expectations have been rising, which reflects high prices for high frequency purchased products. ... These price increases create the perception of inflation being even higher than it actually is. It is inflation perceptions that drive the affordability crisis.”at 2:13

Paul Donovan · UBS Global Wealth Management

China–EU trade talks cannot dispel rising economic nationalism; at best they can limit the damage from prejudice.

China and the EU are holding trade talks against a backdrop of rising economic nationalism, which a cosy conversation or two is unlikely to dispel. Fear about the future makes people look for someone to blame, and foreigners have long been convenient scapegoats. Prejudice is irrational, so rational arguments make little headway. China's lengthy defence of its foreign exchange policy is also unlikely to change opinions. The realistic best outcome is limiting the damage that prejudice does.

“The economic nationalism is not likely to be dispelled by a cozy conversation or two. ... However, the damage of prejudice can be limited, and that perhaps is the best that can be hoped for in the Sino EU discussions.”at 3:19

Paul Donovan · UBS Global Wealth Management

Germany's doubled growth forecast is not market-significant; it shows economic data is increasingly unreliable.

Germany doubled its growth expectations in official forecasts. Markets are used to German data being revised stronger, so this is not significant for markets. It is a reminder that economic data has become less reliable and much less precise. Understanding what is happening in an economy in real time is increasingly problematic, and rapid structural change combined with underfunded statistical agencies means this is unlikely to change much in the near term.

“Germany just doubled its growth expectations in the official forecasts. This is not really significant for markets other than to serve as a reminder that economic data has become less reliable and much less precise.”at 4:24