UBS On-Air: Paul Donovan Daily Audio 'Uncertainty continues'

Paul Donovan · UBS Global Wealth Management

Chinese consumer unhappiness has translated into weak demand, unlike in the US.

The speaker says China's consumers seem unhappy about the state of the economy. Unlike US consumers, whose unhappiness has not translated into the same outcome, Chinese consumer unhappiness has translated into ongoing lacklustre consumer demand.

“China's consumer also seems to be unhappy about the state of their economy. But unlike The US consumer, that unhappiness has translated into ongoing lackluster consumer demand.”at 2:34

Paul Donovan · UBS Global Wealth Management

China's subdued inflation is food-driven and a domestic issue, since food weighs heavily and is not exported.

October headline and core inflation in China were both lower than expected, with food prices part of the reason for subdued consumer inflation. Food carries a higher weight in China's inflation calculation than in developed-market calculations, and China does not export much food, so the food-driven price weakness stays a domestic affair rather than a global one.

“Food carries a higher weight in China's inflation calculation than it does in the calculations for developed markets. And it's not something that China exports very much of, keeping it a domestic issue.”at 3:07

Paul Donovan · UBS Global Wealth Management

US administration policy uncertainty will persist, weighing on markets and firms' long-term investment plans.

The weekend's events show contradictory signals from the administration: Trump suggested immigration policy might have been too harsh while the new chief of staff Miller is seen as holding extremely strong views on it; Trump said strikes on Iran were unlikely while Rubio called Iran's demands outrageous and said a diplomatic agreement may not be possible; and Trump floated a UFC head as White House press secretary, which was apparently meant as a joke but was taken credibly. Together these suggest few conventional boundaries on administration decisions. The speaker argues this uncertainty will shape how markets react to Iran announcements and reduces the willingness of US firms to commit to longer-term investment strategies.

“The evidence of the weekend suggests that markets are going to have to continue to expect policy uncertainty from the US administration.”at 0:11

Paul Donovan · UBS Global Wealth Management

Strong jobs data conflicts with voters citing the economy, so social-media-amplified problems matter for midterms.

Friday's US employment report was strong, but exit polls suggest the state of the economy was the principal motive for voting, which clashes with that data. The speaker notes the data may be revised and that social media may exaggerate smaller economic problems, so visibility of problems acts as a catalyst for voter perception.

“The exit polls suggest that the state of the economy was the principal motive for voting, clashing somewhat with the economic strength that is suggested by the employment data.”at 1:37

Paul Donovan · UBS Global Wealth Management

US affordability concerns are driven by perception, as real wage growth still lags inflation.

The average earnings figure in the employment report implies that wage growth is still below inflation, and significantly so. The speaker notes the affordability crisis is an ongoing concern. He argues affordability is a matter of perception rather than actual conditions, but that perception still matters, which ties into voter sentiment ahead of the midterms.

“The average earnings number in the employment data implies that wage growth is still below that of inflation... Affordability is about perception, not about actuality. And so that does matter.”at 2:12