UBS On-Air: Paul Donovan Daily Audio 'Keeping the optimistic bias'

0:00Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management at 7 o'clock in the morning, London time, on Wednesday 15 April. US President Trump has suggested that peace talks with Iran could resume in the next two days. There has been enough confirmation from other sources about the idea of moving towards further talks, though maybe not in two days, that markets are prepared to give some credibility to Trump's remarks. The bias to always look on the bright side remains intact, of course, and Asia and equities have risen cautiously. The realities of the oil market have not changed for now, in as much as the state of Omos is still about as closed as it has been, and the Iranians seem reluctant to test the US blockade during the ceasefire period. Even if the US can agree a peaceful resolution with Iran, the global economy will still have to deal with the consequences of a prolonged period of disruption.

1:04Oil is unlikely to return to $60 a barrel in a sustained way anytime soon. A resolution would mean that global growth will be slower this year than would otherwise have been the case, although not the dire risk scenarios of the IMF's model-based predictions. For a whole host of reasons, mathematical models are likely to be too pessimistic about the growth outcome of the war. And, of course, GDP does remain an abstract concept, and so in countries like the United States, the overwhelming majority of the population will end up worse off as a result of the war, even if GDP doesn't actually decline very much. US import and export price data today will reflect the role of the United States as an oil exporter. The rising value of US oil exports are great for the US balance of payments, but largely irrelevant for ordinary US consumers living standards.

2:06The tariff impact via import prices, which is to say the absence of import prices falling to offset tariffs, is now very well established. The data is unlikely to add much to investors still tracking the consequences of trade disruption. The IMF's spring meetings give central bankers the opportunity to speak, and we also get the Federal Reserve's beige book of economic anecdote in the states. Bank of England Governor Bailey is one of the central bankers speaking, having already had to publicly dial back from the hawkish impression that the last bank of England meeting does signal that rate increases are not around the corner. Even Bank of England member Mann was out suggesting that markets had overreacted to the idea of UK rate increases, policy in the UK is restrictive, and second round inflation effects do not appear to be that likely, although food prices do need to be monitored for the risk of profit led inflation. The Fed's beige book is more problematic to interpret.

3:11This is the views of people at the economic front line, carefully curated by Fed members. The problem is that the extraordinary polarisation of US society means that getting impartial opinions on so politically charged a topic as the economy is becoming increasingly difficult. And while the Fed's prestige has perhaps mitigated that, the comments reported in recent beige books suggest that the mitigation is fast fading, and partisan politics is finding its way through red in tooth and claw. The main economic issue we need to learn from US companies is whether the paralysis of indecision caused by the last year of huge policy uncertainty is finally wearing off. That might then allow for stronger investment away from AI and maybe some hiring in the labour market. It might be quite difficult, however, to discern that amidst the partisanship

4:14and the fog of war. That's all for today. Have a good day. This material has been prepared and published by the Global Wealth Management Business of UBS Switzerland AG, regulated by FINMA in Switzerland. It's subsidiaries or affiliates, collectively referred to as UBS. In the USA, UBS Financial Services Inc is a subsidiary of UBS AG, and a member of FINRA SIPC. The investment views have been prepared in accordance with legal requirements designed to promote the independence of investment research. This material is for your information only, and it is not intended as an offer or a solicitation of an offer to buy or sell any investment or other specific product. The analysis contained herein

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