UBS On-Air: Paul Donovan Daily Audio 'Oil and bonds'

Paul Donovan · UBS Global Wealth Management

US diesel prices near all-time highs; administration's attempts to influence them have been ineffective.

US diesel prices remain very close to their all-time highs. Donovan argues this underscores the impotence of the administration's attempts so far to influence that particular price.

“US diesel prices remain very close to their all time highs, underscoring the impotence of the administration's attempts to date to influence that particular price.”at 0:16

Paul Donovan · UBS Global Wealth Management

Consumer spending limits will be tested next year if refined energy prices stay high.

Developed-economy consumers have kept spending by drawing down savings, and while growth has held up, there are limits. Donovan expects those limits to be unlikely to bind over the rest of this year. Next year is more vulnerable if refined energy product prices stay high, because the willingness to scale back savings is challenged the higher oil goes, the longer prices stay elevated, or the less secure consumers feel about their economic future.

“Those limits are unlikely to be tested over the remainder of this year, but next year there is more vulnerability if refined energy product prices remain high.”at 1:00

Paul Donovan · UBS Global Wealth Management

Labour market is no-hire, no-fire, so jobless claims understate weakness hitting new workforce entrants.

The US labour market has been in a no-hire, no-fire pattern. Initial jobless claims are not showing problems, but Donovan argues that pattern does not show up in claims data. New entrants to the workforce may struggle to find work or take longer to find a job, yet they do not register as initial jobless claims, so claims understate labour market weakness.

“The pattern of the labour market has been focused on a no hire, no fire approach and that doesn't tend to get reflected in the claims numbers because while new entrants to the workforce may struggle to find work or take longer to find a job, they will not show up as an initial jobless claim.”at 1:37

Paul Donovan · UBS Global Wealth Management

Recent French protests will have little impact on broader economic activity.

Donovan argues protests do not necessarily have a significant impact on real economic activity. He expects they might delay shopping activity in the short run and affect tourism over the longer term, but they have little impact on broader activity.

“protests do not necessarily have a significant impact on real economic activity. They might delay shopping activity and in the longer term they might affect tourism, but they have little impact on broader activity.”at 2:21

Paul Donovan · UBS Global Wealth Management

French bond yields above 5% are a return to normal borrowing costs, not a new normal.

French yields rising above 5% caused a stir, which Donovan sees as a round-number reaction. He argues that after years of unfairly low yields for bondholders, government borrowing costs have returned to economic norms. Governments need to manage that, but current levels are the normal normal, not a new normal.

“The reality is that after years of giving bondholders unfairly low yields, government borrowing costs have returned to economic norms. Governments need to manage that, but where we are today is not the new normal, but the normal normal.”at 2:52