US inflation data left markets uncertain about Fed's next policy move – UBS
15.08.2022, 11:40

US inflation data left markets uncertain about Fed's next policy move – UBS

Paul Donovan, Chief Economist of UBS Global Wealth Management, shares his views on the latest market developments.

China facing weaker domestic demand

"Last week’s US inflation data has left financial markets uncertain about the US Federal Reserve’s next policy move. This uncertainty (and associated risk premia) can be linked to the Fed’s June policy errors. The elevation of the status of consumer price inflation increases uncertainty given the flaws and volatility of that data. The trashing of forward guidance means markets can pursue their own whims on policy without effective Fed restraint."

"China has been moving in a very different direction, with a policy interest rate cut overnight. China is facing weaker domestic demand—retail sales in July were below the level of last year. Consumers in China are saving rather than spending."

"A weaker domestic economy is a problem for China because external demand is slowing as international consumers start to moderate spending and switch to services. China exports televisions which no one wants any more (and which are falling in price). China cannot export a two-week holiday in Majorca, which is all consumers seem to care about nowadays. The data calendar is relatively quiet. German July wholesale prices fell compared to June. The US NAHB housing indicator is due—housing is already clearly responding to the effects of policy tightening."

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