Sergio Ermotti, CEO of UBS Group
Stefan Wermuth | Bloomberg | Getty Images
ZURICH, Switzerland ꟷ UBS CEO Sergio Ermotti said Wednesday that market volatility could increase in the second half of the year, but he does not believe the U.S. is heading for a recession.
Global stocks saw a sharp sell-off last week as investors digested weak US economic data, raising fears of an economic downturn in the world’s largest economy. It also raised questions about whether the Federal Reserve should be less aggressive with its monetary policy. The central bank kept interest rates unchanged at the highest level in 23 years at the end of July.
When asked about the outlook for the US economy, Ermotti said: “Not necessarily a recession, but a slowdown is certainly possible.”
‘The macroeconomic indicators are not clear enough to talk about recessions, and in fact it is probably premature. What we know is that the Fed has sufficient capacity to step in and support that, even if it will take time, whatever they do to make that happen. passed on to the economy,” the CEO told CNBC on Wednesday after the bank reported its second-quarter results.
UBS expects the Federal Reserve to cut rates by at least 50 basis points this year. Right now, according to LSEG data, traders are split between a 50 and 25 basis point cut at the Fed’s next meeting in September.
Speaking to CNBC, Ermotti said we are likely to see greater market volatility in the second half of the year, partly due to the US elections in November.
“That’s one factor, but also, when I look at the overall geopolitical picture, when I look at the macroeconomic picture, what we’ve seen in recent weeks in terms of volatility, which I think is a clear sign of the fragility from some elements of the system, … you should certainly expect a higher degree of volatility,” he said.
Another uncertainty going forward concerns monetary policy and whether central banks will have to cut rates more aggressively to counter a slowdown in the economy. In Switzerland, where UBS is headquartered, the central bank has cut interest rates twice this year. The European Central Bank and the Bank of England have both announced one cut so far.
“Knowing the events that are unknown on the horizon, such as the US presidential election, we have become complacent with very low volatility. Now we are moving to a more normal regime,” Bruno Verstraete, founder of Lakefield Wealth Management, told CNBC on Wednesday.
“In the context of UBS, [more volatility is] not necessarily a bad thing as more volatility means more trading income,” he added.