UBS On-Air: Paul Donovan Daily Audio 'The Wile E Coyote effect continues'

0:00Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 7 o'clock in the morning, London time, on Friday the 24th of April. UK Mart Retail Sales Data shows the Wily Coyote effect is performing as expected. In the roadrunner cartoons, Wily Coyote would run off the edge of the cliff, continue running across thin air and only later realise the absence of solid ground before plunging into the abyss below. Developed Economist consumers are still happily running across thin air. The Gulf War induced a rise in oil prices that weakens consumer spending power. One response to that would be for consumers to cut back on non-oil spending and devote their money to buying oil. What is happening at the moment is that consumers are maintaining non-oil spending, in fact increasing it, increasing oil spending, demonstrating perhaps lack of confidence in a quick end

1:05to the war, but cutting savings rates to finance the whole situation. Thus in the UK, petrol retail sales and non-oil retail sales volumes adjusted for the price increases both rows during March. One oil sales indeed rose more than expected and this was predominantly a non-food categories. The increase in oil sales does, in effect, mean that part of the UK's petroleum reserve is now held at a very localised level, stored in the tanks of the general population's cars. So far, the UK consumer data, as with earlier US retail sales data, supports the idea of people adapting to the higher oil prices. It cannot last forever, but it can last for some little while yet. Japanese March consumer price inflation showed a slightly larger increase than had been expected, which was concentrated into energy prices.

2:06The government in Japan has been restricting some of the energy prices back in March, and this support has been partially withdrawn in April, so there will be some further inflation effects in the future. Ahead, the data calendar is focused on sentiment data, which offers very, very limited value. The Germany for Business Sentiment, Paul for April is expected to slide, but as with most sentiment surveys, it can depend on the day in which the survey was completed. The wild swings and expectations surrounding the war over the last month are bound to be reflected in such analysis, although it's worth remembering that financial markets are more fixated on the aggression and retreats of US President Trump's social media commentary than are people in the real world. The final Michigan consumer sentiment data from the states for April is similarly affected, and here the headlines can just be ignored. The political polarisation that is evident in the breakdown of the data, along party lines,

3:11may be of more interest. This is a small sample of the population, and considerable care is needed in interpretation, but the political polarisation around overall sentiment and around inflation expectations is of some use. It's not because strong or weak sentiment actually translates into changing behaviour, but if, for instance, Republican sentiment or inflation expectations starts to worsen in polling evidence, that might have political implications. Members of Congress concerned about unemployment risks, their own unemployment risks, could increase political pressure for a further retreat from the Gulf, for example. 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.

4:14It'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 does not constitute a personal investment recommendation or take into account the particular investment objectives, investment strategies, financial situation, and needs of any specific recipient.

5:15This material may not be reproduced or copies circulated without prior authority of UBS. Please visit www.ubs.com-fordslash-ci-o-disclaimer to read the full legal disclaimer applicable to this material.