UBS On-Air: Paul Donovan Daily Audio 'Policy, promises, and affordability'

Paul Donovan · UBS Global Wealth Management

The Fed Chair's press conference will likely offer little insight; real policy guidance comes from other officials.

Markets expect unchanged rates at the FOMC decision, and it is debatable whether the meeting and press conference will have the impact they once did. Fed Chair Walsh's press conference is not likely to give investors much insight into policy. As US policy evolves, Donovan argues investors must wait for guidance from intellectual leaders such as Williams and Warren, delivered away from the press conference spotlight. He suggests this is perhaps not the most efficient way of conducting policy.

“a press conference from Fed Chair Walsh is not likely to provide investors with much insight into policy.”at 0:27

Paul Donovan · UBS Global Wealth Management

Affordability sentiment polls are more political than economic and will likely prompt further policy pledges.

Political partisanship is extreme in the US and distorts sentiment survey data, denying it much economic use. Michigan poll data shows Republicans' affordability concerns penetrating partisan bias, with their inflation expectations the highest since Trump took office. Politicians pay attention to opinion polls, and the administration appears concerned about midterm results, judging by the promised bonus payments. Donovan concludes sentiment surveys may therefore produce further policy pledges even though they carry less economic relevance.

“The relevance of this data is perhaps more political than economic. ... Sentiment survey may therefore produce further policy pledges even if there is less economic relevance.”at 1:29

Paul Donovan · UBS Global Wealth Management

China's industrial profit data is inconsistent with the claim that China is dumping products overseas.

China's October industrial production improved year on year, largely on base effects, and profit growth remains okay, with electronics a key contributor. Growth is skewed toward external demand because the domestic economy is lackluster. Donovan argues straightforward dumping is inconsistent with these numbers, since dumping would require shrinking or no profits. He notes this says nothing about subsidies, which the profit data cannot capture.

“One point that is worth noting is that this is not consistent with the idea that China is dumping product overseas. That would require shrinking or no profits.”at 2:19

Paul Donovan · UBS Global Wealth Management

UK retail prices are rising despite falling retail labour costs, which had been absorbing cost increases.

The British Retail Consortium shop price index came in higher than five economists had forecast. This is despite retail labour costs moderating, with retail employment falling and average earnings growth slowing very sharply this year. Retailers' labour costs are the largest single component of retail prices, and their moderation has absorbed at least some of the cost increases tied to the Gulf War.

“This is despite the fact that the labor costs in the retail sector have been moderating with falling retail employment and average earnings growth slowing very sharply in the retail sector this year.”at 2:48