UBS On-Air: Paul Donovan Daily Audio 'A dangerous game?'

Paul Donovan · UBS Global Wealth Management

Eurozone inflation shows energy pass-through, not second-round effects from the oil shock.

Final inflation data from the Netherlands and Germany is largely a non-event, because these numbers are almost never revised. The expectation is that there will be no evidence of second-round effects from the oil shock. Elevated inflation reflects energy costs being passed through to prices, though relatively swiftly.

“But the expectation is there'll be no evidence of second round effects from the oil shock, and the more elevated nature of inflation can be attributed to energy costs being passed through, albeit being passed through relatively swiftly.”at 2:34

Paul Donovan · UBS Global Wealth Management

UK consumer savings support moderate spending growth, a solid base for the fastest G7 growth this year.

British Retail Consortium like-for-like sales showed strength in September, growing year on year. UK consumers have the savings resources to keep growing spending moderately. This gives a solid foundation for the UK, which is the fastest-growing G7 economy year to date.

“The UK consumer has the savings resources to continue to grow their spending moderately, and that gives a solid foundation for what is the fastest growing G7 economy year to date.”at 3:06

Paul Donovan · UBS Global Wealth Management

IMF's upgrade to UK growth is old news, since IMF forecasts follow what markets already priced in.

The IMF revised up its originally pessimistic UK growth forecast. This is not new information, because IMF forecasts tend to reflect what markets had already worked out some months earlier, so the upgrade adds little to the outlook.

“The IMF predictably revised up their originally pessimistic forecasts for The UK growth rate, but this is really old news. IMF forecasts tend to represent what the markets already worked out some months before.”at 3:19

Paul Donovan · UBS Global Wealth Management

The Fed is risking policy error by trying to hold rates at the top of neutral on imprecise data.

The Fed is playing a slightly dangerous game because it is working with imprecise economic data. It appears to be trying to engineer an interest rate at the very top of the neutral range, without tipping into a recession-inducing monetary policy. The margin for error is thin given the data quality.

“The Fed is playing a slightly dangerous game with imprecise economic data. It seems to be trying to engineer an interest rate at the very top of the neutral range without tipping over into a recession inducing monetary policy.”at 1:25

Paul Donovan · UBS Global Wealth Management

The Fed cannot control oil-driven inflation, so its tough-on-inflation posture is an illusion.

The Fed wants to give the impression of being tough on oil price inflation, but it cannot control oil prices. Diesel prices remain almost 80% higher than in January 2025, so the Fed's stance on energy-driven inflation is largely cosmetic.

“At the same time, it wants to give the impression of being tough on oil price inflation, which it cannot control.”at 1:43

Paul Donovan · UBS Global Wealth Management

Chip-stock swings from the AI casino remarks won't matter much globally, though Korea and Taiwan are exposed.

Chip manufacturers' share prices have turbulence after the Broadcom CEO drew casino parallels with AI investing. A reassessment of the AI investment story is unlikely to have a significant global economic impact, and large swings in chip stocks are hardly unusual. The effect is relevant for the South Korean and Taiwanese economies. For the US, the economic consequences of a reassessment would be evident but more muted, because much of the AI investment has leaked out of the economy through imported components.

“This is not likely to have a significant economic impact globally. Large swings in chip manufacturing are hardly unusual.”at 0:40

Paul Donovan · UBS Global Wealth Management

Trump's claims of a Russia-Ukraine energy ceasefire have no basis, judging by Russia's actions.

US President Trump's social media posts about a Russia-Ukraine energy ceasefire do not appear to be grounded in reality. Judging by Russia's actions, there is no sign that such a ceasefire is near, which matters for the energy market.

“And US president Trump's social media posts about a Russian Ukraine energy ceasefire do not seem to have had any basis in reality, at least to judge from the actions of Russia.”at 1:56