UBS On-Air: Paul Donovan Daily Audio 'Five points'

Paul Donovan · UBS Global Wealth Management

Congressional investigations will distract the administration from executive action.

Administration members will have to spend a lot of time with personal lawyers preparing for congressional investigations and hearings. Donovan argues that time is the scarcest resource in Washington, so this will distract from executive action.

“members of the administration are likely to have to spend a considerable amount of time with personal lawyers preparing for congressional investigations and hearings. ... Time is arguably the most precious commodity in Washington DC, and this will distract from the executive action.”at 1:48

Paul Donovan · UBS Global Wealth Management

Democrats are strongly placed to win a bigger victory in the 2026 Senate race in two years.

The Senate shift leaves Democrats very strongly positioned for two years' time. Republicans lost the Senate even though the 2026 cycle was supposed to favour them. Donovan argues that a bigger Democratic victory may follow in two years, when the odds are against Republicans, which could significantly shape the next administration's policy.

“Fourth, the senate shift means that Democrats are very strongly positioned in two years' time. ... a more sizable Democrat victory may be on the cards in two years' time when the odds are against the republicans.”at 2:09

Paul Donovan · UBS Global Wealth Management

Trump's endorsement-driven candidates may weaken his control over the Republican Party.

Republican party unity will matter for investor-sensitive topics over time. Several candidates Trump strongly endorsed, including some whose physical attributes he praised repeatedly, may weaken his control over the Republican Party machine.

“Finally, the unity of the republican party is also likely to be relevant for investor sensitive topics over time. The fact that several candidates emphatically endorsed by Trump, including those whose physical attributes the president praised repeatedly, may weaken Trump's control over the Republican Party machine.”at 2:37

Paul Donovan · UBS Global Wealth Management

Democrat governor wins make data-center opposition a risk, forcing builders to offer more local incentives.

The gubernatorial races matter for investors because local support for or opposition to AI data centers is decided there. Some Democrat governors have pledged to halt data center construction. Donovan says this may or may not happen, but it at least implies data-center builders will have to offer more incentives to local communities to get projects approved.

“The gubernatorial races have investor relevance because it is here that support for or opposition to artificial intelligence data centers is critical. Some Democrat governors have pledged to halt data center construction. That may or may not happen, but it does at least suggest that data center builders will have to offer more incentives to local communities”at 0:28

Paul Donovan · UBS Global Wealth Management

Fiscal gridlock is the likely default after the midterms, though Democrats may extend expiring tax cuts.

Donovan argues that the midterm results make fiscal gridlock the likely default for US policy. He qualifies this by noting that Democrats may still extend expiring tax cuts. He also notes that Trump appears to have backed away from his pledge to veto everything Democrats propose, and that Treasuries initially strengthened on the results.

“First, fiscal gridlock seems the likely default, although Democrats may extend expiring tax cuts. US president Trump has seemingly retreated from an earlier pledge to veto everything the Democrats suggest”at 1:06

Paul Donovan · UBS Global Wealth Management

Senate rejection of Trump Fed nominees would raise regional Fed presidents' influence on the FOMC.

Trump's nominations seem less likely to be confirmed by the Senate. The effect would matter most if Fed governor seats become vacant. Empty governor chairs would shift FOMC influence toward regional Fed presidents, who do not need Senate confirmation.

“Trump nominations seem less likely to be confirmed by the senate, and where that may really matter is if any positions for Fed governor become vacant. ... Empty governor chairs on the FOMC would increase the influence of the regional Fed presidents who do not require senate confirmation.”at 1:28

Paul Donovan · UBS Global Wealth Management

California billionaire-tax campaign spending will modestly boost Q4 GDP.

The California ballot initiative on a billionaire tax has not yet been decided. Donovan argues that the huge sums spent on the campaign to block the tax will modestly lift fourth-quarter GDP, whatever the outcome.

“One consequence of the initiative will be a modest boost to fourth quarter GDP given the vast amounts of money thrown at the campaign to block the tax.”at 3:09

Paul Donovan · UBS Global Wealth Management

Record private wealth will be tapped via taxation and repression to finance government debt.

Private-sector wealth is at a record share of GDP in almost all major economies. Governments seeking to finance debt, though not necessarily repay it, are likely to mobilise that wealth. This will involve taxation, though capital gains tax tends to work better than direct wealth taxes. It will also involve repression, such as incentivising or directing private wealth into government bonds. The California initiative and Italy's proposed wealth exit tax are examples of this trend.

“Wealth in the private sector is at a record level of GDP in almost all major economies. This is likely to be mobilized by governments seeking to finance, though not necessarily repay government debt. That will involve taxation, although capital gains tax tends to be more effective than direct wealth taxes.”at 3:32