UBS On-Air: Paul Donovan Daily Audio 'War and affordability'

0:00Good morning. This is Paul Donovan, Chief Economist at UBS Global Path Management. It's 7 o'clock in the morning, London time on Monday the 6th of April. Both the language and the content of US President Trump's weekend social media post on Iran mean that it's likely to receive relatively little emphasis for investors. The target audience of the post would appear to be Trump's faction at the US Republican Party, and the nature of the post means that investors are increasingly unlikely to try and analyze US policy within a framework dependent on the norms of international policy. Taken at face value, there is a suggestion that Trump has extended the deadline to Iran for reopening the straight of a moose by 24 hours. Markets are not inclined to place much weight on such deadlines. Trump plans to speak in public later today. Iran has continued

1:00to strike at targets within the Gulf region, and the apparent focus on energy targets will delay the normalization of the oil market, even if Iran chooses to reopen the straight. Nonetheless, markets have been biased to the optimistic in trading so far on rather limited reports of attempts by mediators to get a ceasefire declared. This appears to be another instance of investors desire to believe that the current situation cannot continue. The oil price remains well below levels required to bring about the necessary demand reduction to offset the loss of oil from the Gulf. The oil price feeds directly into the US affordability crisis, both politically and economically, that is likely to be the focus for this week. US March consumer price inflation data is due on Friday, and that's

2:00likely to hang over the markets for the whole week. The data will not fully capture the oil price moves over the month of March. The average gasoline price in the states went from below $3 per US gallon to over $4 per US gallon, so much will depend on precisely when prices were surveyed. Prices have obviously continued to rise in April. As a high-frequency purchase, this price will influence the inflation perception that is so much of the affordability crisis. Aside from inflation perceptions, income is an important factor in determining the idea of collapsing affordability. Friday's employment report in the states was presented as strong because unemployment fell, but the details were not so good. More unemployment was long term, and employment participation rates were reported lower. The household survey, which is what determines the unemployment

3:03rate, had a lower response rate than occurred during the pandemic, hitting an all-time low. Fear of giving information to the US government is now starting to create real problems with data quality. Average earnings, not the same thing as wages, which can be distorted by the composition of employment, also weakened. The labour market data is therefore not a convincing offset to the US affordability crisis. That's all for the day. 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.

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