UBS: Recent market volatility surge is an overreaction, but more volatility is expected in the future
Gerry Fowler, Head of European Equity Strategy at UBS, pointed out that the recent surge in market volatility is a "huge overreaction". Since August, market turbulence has intensified due to global economic uncertainty. The weaker-than-expected US non-farm payroll report has raised concerns about an economic recession, along with the hawkish stance of the Bank of Japan, leading to a decline in the stock market. Fowler expects market volatility to remain higher than earlier this year, with the key factor being whether the slowdown in US economic growth will exacerbate the unemployment situation, making future employment data an important economic indicator
According to the Wisdom Financial APP, since August, market turbulence has been the most significant feature, with a sharp increase in volatility surrounding the uncertainty about the global economic health. In early August, a weaker-than-expected U.S. non-farm payroll report raised concerns about a possible economic recession in the United States. Additionally, the hawkish stance of the Bank of Japan led to massive unwinding of carry trades, causing a decline in the U.S. stock market. The CBOE Volatility Index broke through 65 on August 5, sharply up from the previous trading day's 23, and then quickly fell back to 14.5.
In response to this, Gerry Fowler, Head of European Equity Strategy and Global Derivatives Strategy at UBS, stated on Tuesday that the surge in volatility is a "huge overreaction." He explained that UBS has always expected volatility to be higher than earlier this year, as historically, a decline in nominal GDP, rate cuts, and uncertainty in the job market have collectively exacerbated volatility.
He said, "So in fact, the situation of the past few weeks is the same as what we have been expecting, but the increase in volatility we are seeing is an overreaction, which has consequences in the market. However, the current pullback also seems somewhat overdone." "Until we are certain that the economic slowdown will not lead to a reduction in U.S. jobs, we should expect this uncertainty to cause a moderate increase in volatility, contrasting with what we are seeing."
Gerry Fowler believes that a key driver of market volatility will be whether the slowdown in U.S. economic growth will lead to further job losses and whether the U.S. will experience a hard landing. He stated that the next monthly employment report and weekly initial jobless claims will be important indicators in the coming weeks.
He said, "All employment data will be key data points in the coming months. During this period, we will determine whether the current apparent economic slowdown that rate cuts will ultimately support is a mid-term slowdown, or if the mid-term slowdown is actually a worse scenario, leading to a more severe economic slowdown or recession as jobs decrease."
Looking ahead, Gerry Fowler stated that UBS expects market volatility to be slightly higher than current levels. He mentioned that the market may consolidate within a range at that time