We live in uncertain times

Posted by: Paul Donovan

13 May 2019
  • Recently, UBS asked investors and business owners how they feel about life. Our "Investor Sentiment" publication shows business owners had a positive view of the global economy. This optimism matches recent real economic numbers.
  • The survey was before US President Trump's tweets threatening more trade taxes. The tweets (to date) have costed over half a trillion dollars in US equity value. The big problem may not be taxes directly. The big problem is uncertainty. This makes the problem global.
  • For a quarter of a century, companies had stable trade rules. When there were disputes, they followed set rules. The costs and outcomes were more predictable. Companies had certainty to invest where it made most sense to invest.
  • Today's trade dispute has increased uncertainty. Uncertainty delays company investment. Delayed investment weakens global exports. Around a third of exports go to investment. Delayed investment weakens manufacturing. Investment matters more to manufacturing.
  • Hope that trade risks would fall helped the "Investor Sentiment" optimism. Now, even if today's trade dispute is solved, uncertainty may last longer. Companies that did not worry about trade taxes must now assume they are a risk. Risk costs money. Market moves imply the cost of future uncertainty exceeds the gains from any future trade deals.