The European Central Bank (ECB) warned Wednesday that despite the improved economic growth in the euro area there are concerns related to a sudden increase in volatility.
"Systemic stress indicators for the euro area have remained low over the past six months," the ECB said in a statement on Wednesday, but added that "the risk of a rapid repricing in global markets nevertheless remains."
Markets have been on the bullish side throughout the year and many continue to push further into record territory. The S&P 500 is up by 16 percent since January and the pan-European Stoxx 600 is up by 7 percent. Some solid earnings and hopes of tax cuts in the U.S. and deregulation for the banking system have boosted equities.
The ECB believes there is the risk that this overall sense of optimism is miscalculated, which could end up shaking financial markets once money managers realize they took on more risk than they could handle.
"Continued compression of risk premia, subdued volatility and signs of increased risk-taking behavior in global financial markets are all sources of concern, as they may sow the seeds for large asset price corrections in the future," the ECB outlined in its Financial Stability Review report.