UBS Says Recent Market Volatility Was Overreaction

August has proven to be a turbulent month for financial markets, with increased volatility reflecting growing concerns about the global economy. Gerry Fowler, head of European equity strategy and global derivative strategy at UBS, characterized the recent spike in volatility as a "huge overreaction." Speaking on CNBC's "Squawk Box Europe," he noted that while UBS anticipated a rise in volatility due to factors such as declining nominal GDP and interest rate cuts, the extent of the recent fluctuations was unexpected. Fowler explained that the market's quick pullback, with volatility levels settling around 14.5, aligns with UBS's predictions. He emphasized that the current economic climate, marked by uncertainty in the jobs market, is likely to maintain a moderately elevated level of volatility. "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," he stated. A critical factor influencing future volatility will be the impact of a potential economic slowdown on employment. Fowler highlighted that upcoming jobs data will be crucial in determining whether the current slowdown is merely a mid-cycle adjustment or indicative of a more severe recession. He warned that job losses could exacerbate the situation, leading to a deeper economic downturn. Looking forward, Fowler indicated that UBS expects markets to stabilize at a slightly higher volatility level than currently observed, suggesting a trading range that reflects ongoing uncertainty rather than the robust markets seen earlier in the year.