August has been a uneven month for markets, with uncertainty over the well being of the worldwide financial system sparking a soar in volatility.
Initially of the month, a weaker-than-expected jobs report within the U.S. raised considerations a couple of potential recession and triggered U.S. shares to slip. In the meantime, a extra hawkish tone from the Financial institution of Japan led to an unwinding of the yen “carry trade” and noticed the Nikkei fall over 12%.
The VIX, a measure of anticipated market volatility, topped 65 on August 5, up from round 23 the earlier buying and selling day. The index then shortly pulled again, and was final buying and selling round 14.5.
This spike in volatility was a “huge overreaction,” Gerry Fowler, head of European fairness technique and international spinoff technique at UBS, informed CNBC’s “Squawk Field Europe” on Tuesday.
UBS had been anticipating volatility ranges to extend from ranges seen earlier within the yr, he defined, as traditionally, the mixture of declining nominal GDP, rate of interest cuts and uncertainty concerning the jobs market has boosted volatility.
Vix
“So actually, the last couple of weeks have been just what we thought, except the spike we got was a huge overreaction, and there are consequences for that in the market, but equally the retracement now appears to be a bit of an overreaction,” Fowler stated.
“Until we’re sure that this slowdown does not cost jobs in the U.S., we should expect that uncertainty to produce this moderately elevated level of volatility — in contrast to what we’ve seen.”
A key driver of volatility will likely be whether or not an financial slowdown within the U.S. results in additional job losses and the U.S. sees “more of a hard landing,” in keeping with Fowler.
Each the subsequent nonfarm payrolls report, which is printed month-to-month, in addition to weekly preliminary jobless claims will likely be essential indicators within the coming weeks, he stated.
“All jobs data points will be the key data points for the next few months while we determine whether, what is fairly clearly now a slowdown, is a mid-cycle slowdown that rate cuts will eventually support, or whether the mid-cycle slowdown is actually something a bit worse and cascades with job losses into a deeper slowdown or recession,” he added.
Wanting forward, Fowler stated UBS expects markets to “settle at a slightly higher volatility level than we’ve got at the moment.”
He stated markets will then probably be buying and selling inside a variety. “It might be a range that has a slight upward tilt, a slight downward tilt, maybe it’s sideways. But it’s not the strong markets we’ve had,” he added.
