(Bloomberg) — UBS Group AG’s chief executive officer is sounding the alarm on fresh monetary easing just as European policy makers appear poised to deliver another helping to stimulus-hungry markets.
“I’d be very, very careful about growing further the balance sheet of central banks,’’ Sergio Ermotti said in a Bloomberg TV interview on Tuesday, ahead of the European Central Bank’s policy decision this week. “We are at a risk of creating an asset bubble.”
With global growth slowing, central banks have been forced to reverse course after spending much of last year leaning toward tightening monetary policy. Federal Reserve Chairman Jerome Powell and his colleagues look primed to cut interest rates by a quarter percentage point later this month, and the ECB is also on the verge of more stimulus.
For investors, the about-face has fueled an “everything rally” lifting both risk-on and risk-off assets. The Stoxx Europe 600 Index advanced 13% in the first half of the year, the best return in the six-month period since 1998. Bonds have also soared on the intense thirst for yield spurred by dovish monetary bets and a growing pile of negative-yielding debt.
Hard to Spot
While notoriously hard to spot before they burst, potential bubbles may now be forming in the global bond market, where $13 trillion of debt is offering negative yields, the $1.3 trillion U.S. leveraged loan market and property in hot spots such as New Zealand and Canada.
The Fed’s Powell has suggested that the last two U.S. economic expansions ended not because inflation got too high but because asset markets got too frothy. In 2000, it was stock prices, especially those of high technology companies, and in 2007, it was house prices.