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Paul Donovan: latest market views
UBS Global Wealth Management
Summary
Paul Donovan is Chief Economist at UBS Global Wealth Management and is known for his widely followed daily macroeconomic commentary, the UBS On-Air daily audio.
Chorus has 43 views from Paul Donovan across 9 episodes on UBS On-Air since October 20, 2026.
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ECB's next leader will be chosen by national interest rather than economic competence.
Lagarde's early resignation from the ECB was widely expected. The ECB governing council is so unwieldy that the bank's leadership has had disproportionate influence. Lagarde not being an economist denied the bank a critical facet of leadership, and there was no revolutionary shift in economic analysis despite a rapidly changing outside world. Because the successor will be chosen through political horse-trading among governments, national interest rather than personal competence will dictate the next ECB leader, though there may be a minimum competence requirement.
“The European Central Bank's governing council is so unwieldy that the leadership of the bank has had to have disproportionate influence... But Lagarde's successor is not going to be determined by aptness for the role... National interest, not personal competence, will dictate the next ECB leader”at 0:31
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Dealing with the decidedly dull' ·
Euro area inflation will rise as oil price increases pass through, with diesel directly in the index.
The various European inflation figures are likely to show an increase as the effects of oil price increases filter through. Unlike the United States, diesel prices are a direct part of the European inflation calculation, so fuel costs feed straight into the headline. Indirect effects from oil will also show up in pricing over a longer period.
“The various inflation figures are likely to show an increase as the effects of oil price increases filter through. Unlike The United States, diesel prices are a direct part of the European inflation calculation”at 1:39
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Dealing with the decidedly dull' ·
Direct US-Europe GDP comparisons are misleading due to demographics and distribution of growth.
Comparing European GDP prints with yesterday's US figures is misleading for two reasons. First, demographics: Italy and Germany now have falling populations, and fewer people working automatically lowers headline growth. Second, distribution: most US households, perhaps 95%, live in a European-style economy when measured by GDP growth per person, and that is probably a mid-ranking European economy. This matters for judging where markets for products are likely to emerge.
“Italy and Germany now have falling populations. Fewer people working lowers the headline growth rate automatically... Most US households, perhaps 95% of US households, live in a European style economy, measured by GDP growth per person.”at 2:23
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Dealing with the decidedly dull' ·
Unaffordable housing for young people will shift their spending toward consumption rather than gambling.
In several developed economies younger people can no longer afford to buy a house, which is a significant issue for savings and consumption behavior. When home ownership is out of reach, people tend to save less and either indulge in conspicuous consumption, such as restaurant meals and foreign trips, or gamble. Recent tech breaches change the risks around gambling, but that probably does not change behavior. There might conceivably be a tilt toward spending and away from gambling if younger people feel the odds are stacked against them, but even that reaction is not certain.
“Younger people in several developed economies are no longer in a position to be able to afford to buy a house. That single fact is a significant issue for savings and consumption behavior... there might conceivably be a tilt towards the spending aspect and away from the gambling”at 3:44
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Dealing with the decidedly dull' ·
Fed signalling fewer meetings next year cuts policy flexibility; its productivity optimism is troubling, though the meeting was a non-event.
Donovan says the Fed's yesterday was a non-event: rates unchanged, two dissenters, and a statement that leaves tightening open. He objects to the press conference signalling fewer policy meetings next year, arguing that a fast-changing world calls for more policy flexibility, not less. He also says Chair Walsh reiterated a belief in a productivity boost, which he finds potentially troubling for policy conducted sensibly over the longer term.
“The press conference of Fed Chair Walsh signalled fewer policy meetings next year because in a fast changing world, having less policy flexibility is apparently a great idea.”at 0:27
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Mundanity upon mundanity' ·
Fading tariffs should reduce the number of rising prices, showing the current US inflation shock is narrowing.
Donovan expects the new US price-pressure measure, which counts items rising in price, to improve as tariffs fade from the US inflation calculation. He argues fewer prices should be rising as tariffs fade, and that this underscores the narrowing nature of the current inflation shock. He thinks this will matter for economists assessing inflation persistence, though not much for public inflation perceptions. Energy inflation will push up headline numbers in the PCE release, but that is a separate effect.
“it was a metric that was bound to improve as tariffs start to fade from The US inflation calculation... fewer prices should be rising as the tariffs fade... And that underscores the narrowing nature of the current inflation shock.”at 1:11
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Mundanity upon mundanity' ·
Diesel prices do not enter the PCE deflator directly, only indirectly through cost pass-through into other prices.
Donovan says energy inflation will push up the headline PCE numbers, but notes diesel prices are not a direct part of the calculation. Diesel affects the data only as a cost pass-through into other prices, including some that form part of core inflation.
“diesel prices are not a direct part of this calculation. Diesel will only appear as a cost pass through into other prices, although that will include prices that form part of the core inflation calculation.”at 1:30
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Mundanity upon mundanity' ·
US consumer resilience should persist; signs of fraying are slight but it is less dependable than before.
Donovan expects US consumer resilience to remain evident in the third-quarter GDP data. He says signs of that resilience fraying have been very slight so far, but qualifies this by saying the consumer is perhaps not as dependable as it once was.
“The resilience of The US consumer is still likely to be in evidence. Signs of that resilience fraying have been very slight so far, though it is perhaps not quite as dependable as it once was.”at 2:18
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Mundanity upon mundanity' ·
AI infrastructure & data centers
AI buildout adds to US growth through domestic construction, while imported AI technology drags on US growth.
Donovan argues AI should have added to US growth. The technology is imported, which is a growth benefit for other countries, but the physical construction of AI infrastructure is a domestic benefit. He expects imports to remain strong, which continues to act as a drag on US growth. The net effect is that domestic construction is positive while imports offset part of it.
“The technology for this is a form of growth for other countries as it imports into The United States, but the physical construction is a domestic benefit.”at 2:33
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Mundanity upon mundanity' ·
ECB presidency selection politics are blatant, and Lagarde's evasiveness on early retirement will draw questions.
Donovan says the ECB rate decision is unlikely to matter, and that market interest may instead focus on the future of ECB President Lagarde. He describes the political processes around choosing the next ECB president as fairly blatant and already well advanced. He notes that Lagarde has been evasive on early retirement, but says this is beginning to wear thin and that questions are bound to be asked.
“with fairly blatant processes of politics already well advanced around the selection of the next ECB President. Lagarde has been fairly evasive on early retirement issues, but that's beginning to wear thin and questions are bound to be asked.”at 3:09
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Mundanity upon mundanity' ·
Current US inflation is a temporary supply-shock episode that will fade within a year, not a continuous inflation problem.
The Fed faces an inflation episode driven by supply shocks, which it cannot control. Donovan calls it a temporary problem that will fade within a year of starting, so policy could not have a meaningful impact on prices in the wider economy before it fades. The appearance of continuous inflation comes from the fourth one-off shock in a row. He argues that a continuous episode would mean prices that rose last year rise again this year and next, and that is not what is happening.
“The Fed's problem is that they are facing a supply shock driven inflation episode over which they have no control. It is a temporary inflation problem which will fade within a year of its starting”at 0:40
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'The Fed – mime versus meme' ·
US households' inflation perceptions are irrational and drive an affordability crisis that logic won't change.
Donovan argues that consumers are not rational about inflation. Few ordinary US households understand what the Fed is or does. Because of the affordability crisis, which he ties to inflation perceptions, people are unlikely to respond to logical explanations. He uses this to explain why the Fed's communication is so hard, not just poor.
“Consumers are not rational when it comes to inflation perceptions. Few ordinary US households understand what the Fed is or does. And in the face of an affordability crisis driven by inflation perceptions, they're unlikely to listen to logic.”at 1:28
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'The Fed – mime versus meme' ·
Fed's rate rises to the top of neutral are performative signalling that leaves the growth outlook unaffected.
The Fed talks tough and raises rates to the top of the neutral range. Donovan calls these gesture rate rises, a performative act that signals action and lets the Fed take credit when inflation falls on its own. Because policy stays within the neutral range, he argues the growth outlook should not be affected, and the inflation outlook is unaffected too. He flags two risks. The first is that the Fed misjudges where neutral is, which he says has to be considered given the quality of US labor force data. The second is that markets read the hawkishness as a sign of tightening into an oil shock.
“The Fed's response seems to be to talk tough while raising rates to the top of the neutral range. Gesture rate rises, a form of performative art.”at 1:44
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'The Fed – mime versus meme' ·
Markets may read Fed hawkishness as a response to an oil shock, risking recession in the non-oil economy.
Donovan sees a risk in how markets interpret the Fed's hawkish stance. If investors take it as a sign the Fed intends to counter an oil shock with restrictive policy, the result could be a recession in the non-oil economy. He notes that bond investors have been flirting with this scenario, though equity investors have not.
“that the markets take the hawkishness as a sign that the Fed intends to counter an oil shock with a repressive policy and a recession in the non oil economy, a scenario bond investors, though not equity investors, have been flirting with.”at 2:28
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'The Fed – mime versus meme' ·
Investors are unlikely to bet heavily on a near-term renewal of the Gulf War after the US midterms.
The Wall Street Journal has reported that the US is warning Gulf countries of a possible short but intense renewal of the Gulf War after the US midterm elections. Donovan expects markets to price in the idea of escalation. Given past performance, he thinks few investors will bet on the short duration described with much conviction.
“Markets will take into account the idea of an escalation of the conflict. Given past performance, it is unlikely that many investors will choose to bet on the short part of the description with much conviction.”at 2:58
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'The Fed – mime versus meme' ·
The Gulf war's reported $47 billion cost adds roughly 0.15% of GDP to the US federal deficit.
Media reports put the cost of the war to the US at $47 billion. Donovan works through the implication for the federal deficit and estimates that the war adds about 0.15% of GDP to it. He uses the reported cost to size the fiscal impact of the conflict.
“Separate media reports suggest that the war has now cost $47,000,000,000 for The United States, which implies an additional to the addition to the federal deficit of about 0.15% of GDP.”at 3:13
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'The Fed – mime versus meme' ·
Israel's inconclusive election leaves Netanyahu as temporary PM, keeping control of the military until a result.
Israel's general election has produced no decisive result, because neither Netanyahu's coalition nor the opposition can form a clear majority. Donovan notes that exit polls are not wholly reliable in Israel and that the seat count is likely to shift. He concludes that Netanyahu will stay on as temporary prime minister, and so in control of the military, until a definite political outcome emerges.
“It suggests that Netanyahu will remain as temporary prime minister and thus in control of the military forces until a definite political outcome emerges.”at 3:55
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'The Fed – mime versus meme' ·
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
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Policy, promises, and affordability' ·
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
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Policy, promises, and affordability' ·
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
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Policy, promises, and affordability' ·
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
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Policy, promises, and affordability' ·
Trump's Iran remarks carry little market weight because politics will limit his ability to act.
Trump's weekend remarks on Iran carry much less weight in financial markets. Investors assume the domestic politics of the situation will limit his ability to act. The evidence cited is that retail diesel prices in the US keep rising and gasoline prices have stopped declining, which adds political pressure against escalation.
“Investors assume that the politics of this situation will thus limit Trump's ability to act.”at 0:52
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Optimism, of a sort' ·
Lula's fourth term will be constrained by a rightward shift in Brazil's Congress.
Lula won a fourth term despite markets not pricing it after he came second in the first round. However, he will be constrained by a broader rightward shift in Brazil's politics. Congressional elections increased support for Lula's opponents, which limits what he can do.
“However, Lula will be constrained by a more general rightward shift in the political spectrum in Brazil at congressional elections having increased support for Lula's opponents.”at 1:15
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Optimism, of a sort' ·
French protests will hit consumer spending, partly offset by police and repair spending.
The protests in France have an economic cost because they disrupt consumer spending patterns. Some of that is offset by government spending on police presence and on repairing damage. The net effect is a modest drag rather than a large shock.
“The protests do have an economic consequence in as much as they disrupt consumer spending patterns, there is some offset from spending money on a police presence and repairing any damage incurred.”at 1:51
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Optimism, of a sort' ·
Tech-stock volatility will have limited effect on consumer spending, since wealth effects need changed behaviour.
Volatility in AI-related tech stocks is not yet a macro concern. Wealth effects only matter for the economy if they change behaviour. Developed-economy consumers have responded to 2026 in a similar way, lowering savings rates to pay for consumption, while technology-related wealth effects differ from economy to economy. That mismatch suggests consumption depends only weakly on these wealth effects. Donovan adds that the volatility may still have real-world effects later.
“Wealth effects require changed behaviour to make them relevant in economic terms... That disjuncture suggests only a limited dependence of consumption on those wealth effects.”at 0:41
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Who cares about technology?' ·
UK consumer spending is holding up despite the oil shock, with the UK the fastest-growing G7 economy.
UK growth is the fastest in the G7 year to date. The British Retail Consortium's like-for-like sales have been resilient, and real retail sales have trended moderately higher. Consumers are cutting high savings rates to absorb the higher prices from the oil shock, and a relatively good labour market provides modest positive spending power. Spending on leisure, which retail sales miss, is strong among younger people, who may surprise positively through side-hustle income hidden from official data. The weaker GfK consumer confidence figures reflect the news environment more than consumers' intention to spend.
“The UK is the fastest growing G7 economy year to date. Consumers have high savings rates that can and are being cut to absorb the higher prices arising from the oil shock”at 1:51
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Who cares about technology?' ·
The Bank of Japan will likely raise rates but shows no real urgency about tightening.
Japan's national consumer price inflation came in as expected, so markets are unlikely to react strongly. The Bank of Japan is likely to raise interest rates, but it does not seem to have any real sense of urgency about the tightening process. The support is thin and the timing is not given.
“The Bank of Japan is likely to raise interest rates, but it doesn't seem to have any real sense of urgency about the tightening process.”at 3:30
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Who cares about technology?' ·
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
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Oil and bonds' ·
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
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Oil and bonds' ·
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
UBS On-Air: UBS On-Air: Paul Donovan Daily Audio 'Oil and bonds' ·
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