Sergio Ermotti, CEO of UBS Group
Stefan Wermuth | Bloomberg |
ZURICH, Switzerland – UBS CEO Sergio Ermotti said Wednesday that market volatility could increase within the second half of the yr, but he doesn’t consider the U.S. is heading for a recession.
Global stocks saw a pointy sell-off last week as investors digested weak economic data from the US that fuelled fears of an economic slowdown on the earth’s largest economy. It also raised questions on whether the Federal Reserve needs to be less restrictive in its monetary policy. The central bank left rates of interest at a 23-year high in late July.
When asked in regards to the outlook for the US economy, Ermotti said: “Not necessarily a recession, but definitely a slowdown is possible.”
“The macroeconomic indicators are not clear enough to talk about recessions and actually it’s probably too early. What we do know is that the Fed has enough capacity to step in and support, even if it will take some time, whatever it does will trickle down to the economy,” the CEO told CNBC on Wednesday after the bank announced its second-quarter results.
UBS expects the Federal Reserve to chop rates of interest by at the very least 50 basis points this yr. Traders are currently divided on whether or not they expect a 50 or 25 basis point cut at the following Fed meeting in September, in response to LSEG data.
Speaking to CNBC, Ermotti said we’re prone to see higher market volatility within the second half of the yr, partly on account of the U.S. elections in November.
“That is one factor. But when I look at the overall geopolitical picture, when I look at the macroeconomic picture, there is also the volatility of the last few weeks, which I think is a clear sign of the fragility of some elements of the system. You should definitely expect a higher degree of volatility,” he said.
Another uncertainty concerns monetary policy and the query of whether central banks could have to chop their rates of interest more to counteract an economic slowdown. In Switzerland, where UBS is headquartered, the central bank has already cut rates of interest twice this yr. The European Central Bank and the Bank of England have each announced a cut to date.
“Knowing the unknowns on the horizon, such as the US presidential election, we were comfortable with very low volatility. Now we are moving to a more normal regime,” Bruno Verstraete, founding father of Lakefield Wealth Management, told CNBC on Wednesday.
“In the context of UBS, [more volatility is] not necessarily a bad thing, because more volatility means higher trading returns,” he added.
