UBS On-Air: Paul Donovan Daily Audio 'Defiant consumers?'

Paul Donovan · UBS Global Wealth Management

Crypto price moves don't matter macroeconomically; speculative gains create no real wealth effect.

Friday's crypto moves are dismissed as macro-irrelevant. The one cited consequence is reported crypto gains for North Korea, which allegedly added around 20% to its GDP this year. Because crypto gains are speculative, the speaker argues conventional wealth effects do not apply to them.

“The crypto shifts don't really matter, except, reportedly, to North Korea, which just acquired around 20% boost to its GDP this year. This has always been speculative, and as such, conventional wealth effects do not really apply.”at 0:18

Paul Donovan · UBS Global Wealth Management

The tech stock drop reflects a narrow subsector, so it is not a signal of economic calamity.

The speaker argues that the drop in technology stocks is not a reflection of the health of the wider economy, because it is confined to a narrow subsector. He concludes that the selloff should not be read as a signal of impending economic calamity.

“The drop in technology stocks is not a reflection on the health of the wider economy but on a narrow subsector of that economy. As such, it should not be taken as a signal of impending economic calamity.”at 0:35

Paul Donovan · UBS Global Wealth Management

The AI-driven wealth effect will hit US consumers disproportionately, but US spending has tracked other developed economies.

US consumer behavior has followed a pattern very similar to other developed-economy consumers in broad terms. Any disproportionate wealth effect from the AI technology story is likely to fall disproportionately on the US. The speaker therefore treats the fact that the US consumer has not been an outlier as significant.

“To the extent that the AI technology story has created a disproportionate wealth effect, that is likely to fall disproportionately in The United States. And the fact that The US consumer has not been an outlier in terms of the broad consumer pattern is therefore significant.”at 1:07

Paul Donovan · UBS Global Wealth Management

German consumers are spending more than initial retail sales data suggests, because the figures are routinely revised up.

German retail sales figures are nearly always revised upward, so the initial readings showing a sullen, spending-averse consumer are biased pessimistically. Revisions show the German consumer enjoying frequent shopping sprees over the year. The speaker argues the initial data should be discounted.

“These numbers are nearly always revised up. The initial readings suggest a sullen consumer resolutely refusing to spend. Revisions show the German consumer enjoying frequent shopping sprees over the course of this year.”at 1:44

Paul Donovan · UBS Global Wealth Management

The ISM manufacturing inflation data is not more reliable, and factory-gate prices loosely track store prices.

The ISM manufacturing survey's inflation data may get attention given the focus on price pressures, but it is no more reliable than other sentiment data. The speaker concedes the survey respondents may know pricing well. He then argues that manufacturing product prices at the factory gate have only a very loose relationship with the prices consumers pay in stores, which limits what the survey says about consumer inflation.

“It's also worth reflecting that manufacturing product prices at the factory gate have only a very loose relationship with the prices being paid by the consumer in stores.”at 2:38

Paul Donovan · UBS Global Wealth Management

Markets are priced for Washington gridlock; a Democratic Senate could block Fed appointments.

Markets are priced for gridlock in Washington and generally do not mind it. A strong Democratic Senate showing may matter in two years' time, and its immediate influence is limited, though a Democratic Senate majority could block appointments, including to the Federal Reserve. The speaker says the market focus should instead be on how Republicans react to the results.

“Markets are priced for gridlock in Washington and generally don't mind that. ... a Democrat Senate majority could block appointments, including appointments to the US Federal Reserve.”at 2:58