UBS CEO Ermotti says it is too early to talk about a U.S. recession

ZURICH, Switzerland ꟷ UBS CEO Sergio Ermotti stated Wednesday that market volatility may intensify within the second half of the yr, however he doesn’t imagine the U.S. is heading right into a recession.

International equities noticed sharp sell-offs final week as buyers digested weak financial information out of the U.S. which raised fears about an financial downturn on the planet’s largest financial system. It additionally raised questions on whether or not the Federal Reserve wanted to be much less hawkish with its financial coverage stance. The central financial institution saved charges on maintain in late July at a 23-year excessive.

When requested in regards to the outlook for the U.S. financial system, Ermotti stated: “Not essentially a recession, however positively a slowdown is feasible.”

“The macroeconomic indicators should not clear sufficient to speak about recessions, and truly, it is in all probability untimely. What we all know is that the Fed has sufficient capability to step in and help that, though it may take time, no matter they do to be then transmitted into the financial system,” the CEO advised CNBC on Wednesday after the financial institution reported its second-quarter outcomes.

UBS expects that the Federal Reserve will lower charges by not less than 50 foundation factors this yr. In the meanwhile, merchants are cut up between a 50 and a 25 foundation level lower on the Fed’s subsequent assembly in September, in line with LSEG information.

Talking to CNBC, Ermotti stated that we’re more likely to see greater market volatility within the second half of the yr, partially due to the U.S. election in November.

“That is one issue, but in addition, if I take a look at the general geopolitical image, if I take a look at the macroeconomic image, what we noticed within the final couple of weeks when it comes to volatility, which, in my viewpoint, is a transparent signal of the fragility of some components of the system, … one ought to count on positively a better diploma of volatility,” he stated.

One other uncertainty going ahead is financial coverage and whether or not central banks must lower charges extra aggressively to fight a slowdown within the financial system. In Switzerland, the place UBS is headquartered, the central financial institution has lower charges twice this yr. The European Central Financial institution and the Financial institution of England have each introduced one lower to this point.

“Realizing the occasions that are the unknowns on the horizon just like the U.S. presidential election, we grew to become complacent with a really low volatility, now we’re shifting to a extra regular regime,” Bruno Verstraete, founding father of Lakefield Wealth Administration advised CNBC Wednesday.

“Within the context of UBS, [more volatility is] not essentially a foul factor, as a result of extra volatility means extra buying and selling earnings,” he added.