Paul Donovan
@pdonovan-econ.bsky.social
Economist. Part time farmer. Amateur boxer. Occasional author. Egotist. Advocate of economics without jargon. Inflation, environmental economics, the economics of prejudice, structural change. ubs.com/pauldonovan
Stimulus and redistribution Refunding the unlawful US tariffs is a stimulus. It also redistributes wealth from US consumers to US importers, via the US Treasury. www.ubs.com/global/en/we... #EconSky
Stimulus and redistribution
Oil prices are down and the optimism bias is up. There are hopes for an Iran-Oman settlement on post-war control of the Strait of Hormuz. This would probably mean tolls eventually (probably branded a ...
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Assertions and indifference There have been contradictory assertions about talks between Iran and the US. Markets only price in statements they have confidence in. www.ubs.com/global/en/we... #EconSky
Assertions and indifference
US President Trump asserted that talks with Iran are ongoing. Iran asserted that talks with the US are not happening. Markets tend to react if Trump has the authority to back statements—threatening mi...
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Japanese lessons Reflecting on thirty five years of visiting Japan is a reminder that GDP does not measure living standards www.linkedin.com/pulse/japane...
Japanese lessons
Recently my day job sent me to Tokyo. As I embarked on the odyssey that is the Narita Express train journey to Tokyo, I realised it was almost exactly 35 years to the day since I had first visited Jap...
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Back on the see-saw Positive comments from US President Trump were met by negative events in the Gulf. Markets took in both and the optimism bias was reasserted. www.ubs.com/global/en/we... #EconSky
Back on the see-saw
Oil prices moved to the lows of last Tuesday after a flurry of activity over the weekend. US President Trump called off military strikes against Iran—markets had not priced in military strikes anyway....
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Talking when no one is listening The idea that central bankers’ inflation statements are received with rapt attention by households is questionable—and matters to policy. www.ubs.com/global/en/we... #EconSky
Talking when no one is listening
At the recent Federal Reserve press conference, Chair Warsh stated “for some households… five years of high inflation have left a mistaken impression… that the Fed’s inflation target was somehow above...
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How to conduct monetary policy The Bank of Japan and the Bank of England both left interest rates unchanged. Neither decision led bond investors to dump longer-dated bonds. www.ubs.com/global/en/we... #EconSky
How to conduct monetary policy
Japan’s Ministry of Finance seemingly intervened in foreign exchange markets in defense of the yen. Such attempts to prop up a currency’s level only work in the long term if the weakness was caused by...
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What was Warsh thinking? Federal Reserve Chair Warsh’s press conference did not get universally positive reviews from economists, or markets. www.ubs.com/global/en/we... #EconSky
What was Warsh thinking?
The Federal Reserve left interest rates (and the accompanying policy “statement”) unchanged yesterday. Fed Chair Warsh appeared to try and speak to several audiences. US President Trump was told infla...
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Precious opinions What is the Fed’s policy framework when confronted by higher oil prices and structural change? Fed Chair Warsh remains resolutely silent. www.ubs.com/global/en/we... #EconSky
Precious opinions
Iran’s missile strikes against US Gulf military bases pushed oil prices modestly higher. It is a reminder of the challenge for investors—Iranians are clearly setting the agenda in the Gulf war, and in...
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Another convulsion Technology equities have been enjoying another bout of volatility—without an economic trigger, and without much economic consequence. www.ubs.com/global/en/we... #EconSky
Another convulsion
Technology equities are having one of their periodic convulsions—without any obvious economic driver. The South Korean market is at levels last seen in April. This underscores the speed of technology ...
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Oil's tariff playbook The cycle of aggressive threats, market reaction, and policy retreat from the trade war seems to be echoed in the Gulf war. www.ubs.com/global/en/we...
Oil’s tariff playbook
The policy pattern of the trade war is echoed in the policy pattern of the ongoing Gulf war. In 2025, US threats over tariffs provoked market reactions, leading to a policy retreat in the face of thos...
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Trading times The global trade share of the world economy has continued to grow. How is this possible in an era of tariffs and trade wars? www.ubs.com/global/en/we... #EconSky
Trading times
The volume of global trade as a share of the world economy has risen for ten consecutive quarters, and is now the highest proportion of world economy activity in modern times. How is this possible in ...
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The return of the armchair generals Military matters are in focus with Iran exerting control over the Strait of Hormuz, and the US voting for increased defence spending www.ubs.com/global/en/we... #EconSky
The return of the armchair generals
Iran struck tankers attempting to traverse the Strait of Hormuz, potentially undermining shipowners’ confidence in US protection. The Houthi struck at tankers in the Red Sea—this has always been a key...
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Tariff time? More tariffs on US consumers are being proposed, including some steep charges for pharmaceuticals www.ubs.com/global/en/we... #EconSky
Tariff time?
Inside Washington DC the current focus seems to be trade tariffs, although the affordability crisis continues to be the focus in the wider economy. US President Trump suggested US consumers of importe...
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Sound and fury US President Trump’s threat to tariff US importers of Canadian products is seemingly being discounted by investors as just being noise. www.ubs.com/global/en/we... #EconSky
Sound and fury
US President Trump threatened to impose a 50% tariff on US importers of products from Canada, without exempting products covered by the latest iteration of the NAFTA trade deal. If implemented, the ta...
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More violence, same response Fresh violence in the Gulf pushed crude oil prices up. Consumers are likely to continue their strategy of cutting savings rather than spending. www.ubs.com/global/en/we... #EconSky
More violence, same response
Violence has reignited in the Gulf, with Iran firing ballistic missiles at US military bases. Crude oil futures responded; Brent rose to over USD 90 per barrel. Of more political focus, Saturday’s US ...
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The politics of price expectations Whatever the economic value, surveys of consumer sentiment and inflation expectations carry a certain political punch. www.ubs.com/global/en/we... #EconSky
The politics of price expectations
US Michigan consumer sentiment data is a weak economic signal. It does have political punch, via the inflation expectations measure. Consumers focus on the price of frequent purchases (food and fuel),...
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Prices and productivity Federal Reserve Chair Warsh sounded strict on inflation. Worryingly Warsh really seems to believe in the AI productivity pixie secure.ubs.com/global/en/we... #EconSky
Prices and productivity
Federal Reserve Chair Warsh testified to Congress—at times sounding like a Bundesbank member, with a vehement denunciation of inflation. Warsh was keen to say the Fed was solely responsible for inflat...
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Is all politics local? There can be an information gap between domestic and international investors when considering political risks. www.ubs.com/global/en/we... #EconSky
Is all politics local?
The UK’s far-right Reform Party leader, Farage, was briefly appointed Steward and Bailiff of the Manor of Northstead. UK Members of Parliament cannot actually resign, but can disqualify themselves fro...
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Could go up, could go down The Federal Reserve minutes showed financial market participants expecting a rate cut next year, but with views on both sides from policymakers. www.ubs.com/global/en/we... #EconSky
Could go up, could go down
Fresh US-Iran hostilities pushed oil prices higher, to levels experienced when the memorandum of misunderstanding was signed (10% above pre-war levels). Markets question the strength of the US positio...
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More misunderstandings US attacks on Iran and ending the Iranian oil sanctions waiver have only had a limited impact on oil prices. Investors downplay US threats. www.ubs.com/global/en/we... #EconSky
More misunderstandings
US attacks on Iran follow from Iranian attacks on Strait of Hormuz shipping. It is not a great look for the memorandum of misunderstanding. Oil futures prices rose—to levels not seen for two weeks. A ...
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Political Interference As in other areas of life, politics can interfere to try and shape economics. Politics has elevated the focus on some of today’s data. www.ubs.com/global/en/we... #EconSky
Political interference
Politics can influence which economic data is considered important. Today’s US trade data is not economically significant, but in the trade tariff era it has assumed political importance. US exports s...
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Wealth goes "woke" The great wealth transfer creates younger, more female, and more openly queer wealth owners. Queer investors need to invest differently. www.ubs.com/global/en/we... #EconSky
Wealth goes “woke”
The Great Wealth Transfer is expected to change global wealth ownership. Wealth owners will be younger, more female—and more openly queer. Gallup’s US survey suggests roughly 3% of the boomer generati...
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Policy and data problems Federal Reserve Chair Warsh rightly identifies problems with pretending official data is precise. Other data sources are also imprecise. www.ubs.com/global/en/we... #EconSky
Policy and data problems
With the US not working tomorrow, we get June labor market data today. The level of inaccuracy in the data means the monthly changes should not be taken too seriously. The trends are still the same—no...
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Hints of hosiery Federal Reserve Chair Warsh speaks at the ECB’s central bank summer camp. There may be a desire to appear to be politically independent. www.ubs.com/global/en/we... #EconSky
Hints of hosiery
At congressional confirmation hearings, Federal Reserve Chair Warsh famously denied being US President Trump’s sock puppet. Markets will scour Warsh’s comments today for any hint of hosiery. The desir...
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Dull resilience There is nothing outstanding expected from today’s data. That is the story of the year—dull resilience in spite of the dramatic headlines. www.ubs.com/global/en/we... #EconSky
Dull resilience
The narrative of today’s generally “second tier” data releases is of a global economy that is resilient if somewhat dull. This might seem remarkable in the face of war, oil price gyrations, and unpred...
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Crude and machismo Markets are unconcerned by military exchanges between Iran and the US. Investors did not expect the Versailles memorandum to run smoothly. www.ubs.com/global/en/we... #EconSky
Crude and machismo
Oil futures prices have been largely indifferent to the weekend’s events in the Gulf and Russia. Investors managed to contain their surprise at Iran and the US trading military strikes. US policy has ...
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Oil prices - past, present, and futures Crude oil futures prices are at pre-war levels, but that’s based on expectations. Oil refineries cannot refine expectations www.ubs.com/global/en/we... #EconSky
Oil prices—past, present, and futures
Crude oil futures reached pre-war levels, anticipating future oil flows through the Strait of Hormuz. Current oil flows are only a fraction of pre-war levels, and oil refineries refine actual oil, not...
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Murky situations Politics, policy, and war are creating a somewhat murky situation, but the bias to optimism has not seriously been challenged. www.ubs.com/global/en/we... #EconSky
Murky situations
US Treasury Secretary Bessent warmly endorsed Federal Reserve Chair Warsh, describing Warsh as competent and capable of lowering inflation. Such endorsements are not unusual, but as Warsh had to deny ...
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