UBS On-Air: Paul Donovan Daily Audio 'Policy responses'

0:00Good morning. This is Paul Lonevin, Chief Economist at UBS Global Welfare Management. It's 7 o'clock in the morning, London time, on Friday the 17th of April. A ceasefire has been agreed between Israel and Lebanon, scheduled to last for 10 days, lessening a potential obstacle to a wider peace agreement in the Middle East. US President Trump has asserted, without citing evidence that a peace deal is looking very good, and that Iran is agreeing to US terms. Markets have been unwilling to price that assertion in the absence of confirmation from an alternative source, and equities have been weaker in Asian trading. The biased optimism remains in markets, but investors still need something credible to work with. Aside from developments in the Gulf, the focus for markets today is central banks and their reactions to developments in the Gulf situation. With the IMF Spring Bakes still ongoing, the agenda still has a

1:04selection of central bank comments. Bank of England Governor Bailey already spoke earlier this week to stress that there was no rush to raise rates. This follows the rather unfortunate hawkish tone after the last Bank of England meeting, and Bailey was clearly putting on a hair shirt and doing the appropriate dependence. Bank of England Chief Economist Pill is being wheeled out today, and should reiterate this general line. Central banks should react to second-round effects, and it's far too soon to be seeing any second-round effects. ECB Chief Economist Lane was making precisely that point in Washington yesterday, noting that the ECB does not see decisive effects from the war for now. The account of the last policy meeting of the ECB stressed a lot of this, talking about keeping options open and stressing the good economic position that existed before the war's start. The ECB's pre-war policy stance was neutral, so

2:05there is no particular pressure to ease rates. It is possible that the ECB implements an increase in Euro-Area rates if the sticker shock of an oil price increase offends enough council members, but that would almost certainly be a policy error. US monetary policy is more complicated still. The effects of tariffs on inflation are starting to gradually fade from the numbers, but inflation perceptions remain high, and the higher oil price means that most US households are suffering as a consequence of the war. Consumers do not have much power to do anything about their inflation perceptions, at least not until the mid-term elections, so second-round inflation effects are likely to be minimal. The policy outlook is further clouded by the legal and political issues that surround the Fed leadership, with increased scrutiny of the finances of Fed Chair nominee Walsh, for instance. New York-Fair President Williams

3:06understandably signaled yesterday that now was probably not the right time to be offering guidance on policy. 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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