UBS On-Air: Paul Donovan Daily Audio 'March 2020'

0:00Good morning. This is Paul Donovan, Chief Economist at UBS Global Earth Management at 7 o'clock in the morning, London time, on Monday the 20th of April. Markets are confronting a world where there is plenty of spin, statements and speculation, but very little information of substance. There was a wave of optimism on Friday with US President Trump making a series of very positive statements about the Gulf War. Coincidentally, some very large bets were placed in the oil market some minutes beforehand. Oil prices fell, but then statements from Iran and actions in the Gulf have contradicted Trump statements and a more pessimistic view of the situation is currently shaping markets. Economically, the situation is not dissimilar to that of March 2020. Investors know that an economic change is coming. Energy price increases will have an economic impact. There is

1:02a conventional cyclical impact and there is also a structural impact as long-term behaviors change. In this, the parallels to the pandemic are very clear. However, for now, the data that is being received predates the effects, either because the oil prices and physical shortages have not taken effect in these numbers, or because consumers, in particular, have been able to offset the effects in the short term through the use of savings to meet the price increases. There is thus a lack of relevant use on which to trade and the likelihood of structural change makes extrapolating future trends very difficult. This increases the risk of policy error from central banks and governments. German March producer price inflation has been released and it was higher than expected. Overall, there is still deflation, but much less deflation than had actually been anticipated. Of course, energy prices were the big push higher,

2:05rising 7.5% over the course of the month. Metals prices also added to inflation. Some of this was precious metals which does rather complicate the economic signal that can be taken away from this. Canada comes out with its March consumer price inflation data later today. This is not normally a major focus for global financial markets, but with investors interested in assessing oil price impacts around the world, and maybe a bit more interest this time. The data is also a reminder that being an energy producer does not give immunity to domestic consumers from price effects, prices being set in a global market. Only if a government were to nationalize the domestic oil industry or impose an export ban could the power of the global market price be undermined. This is why talk of countries that are net oil exporters winning as a result of higher oil prices is misleading, and why people urging the opening of new oil fields to hedge

3:09against future higher oil prices are failing to understand the realities of the current situation. 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

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