USD: US data and sentiment under war cloud – UBS

UBS' Chief Economist Paul Donovan comments that United States (US) April employment data are unlikely to show war effects yet, with moderate job gains and stable earnings anticipated. He also notes that Michigan consumer sentiment inflation expectations only matter if they change behavior, but politically they feed a perceived affordability crisis that pressures the US administration during the war, indirectly influencing US Dollar (USD) sentiment.

Jobs, inflation expectations and politics

"Iran launched attacks against US naval vessels, and the United Arab Emirates. The US launched airstrikes against Iran. The Washington Post reports the US CIA believes Iran’s government can avoid additional economic hardship for several months, and that Iran still holds substantial stocks of missiles and launchers. This suggests less pressure on Iran to do a deal with the US—implying the US must compromise further, or the Strait of Hormuz will be closed longer than markets expect."

"Trump extended the deadline for the EU to ratify a trade deal to 4 July. Markets place little importance on such deadlines, as they tend to change (or be forgotten). A US trade court ruled the 10% Section 122 tariffs illegal (but only as applied to the plaintiffs in the case)."

"US April employment data should not be affected by the war (too soon). Research has suggested that deporting undocumented immigrants reduced employment of citizens (simplistically, if bricklayers are deported, roofers have nothing to put a roof on). Moderate employment gains are expected, with stable earnings growth."

"Michigan consumer sentiment data includes inflation “expectations”. These numbers only matter economically if consumers change their behavior as a result. Politically, they contribute to the perceived affordability crisis, pressuring the administration over the war."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)