Volumes in Europe are still down 30-40 percent and American markets down 15 percent in the stock markets. Some fund managers may have used derivatives to get exposure to equities, believes Louise Cooper of Coopercity.
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In Europe, reductions in volumes year on year still doesn’t show any evidence of this big asset swap from bonds into equities. "I just can't see the evidence of a big switch to equities looking at the volume figures", said Cooper in an interview to CNBC-TV18.
Below is the edited transcript of his interview to CNBC-TV18
Q: What did you make of yesterdays fall, where there any renewed reasons because of the political noises from Italy or Spain or was it a market just waiting for profit taking?
A: I think it was a mixture of both, looking at volatility in the European stock markets that has increased substantially over the last week. Over the weekend we had the Spanish Prime Minister Rajoy. There was a quote in the Spanish news paper that, ‘the allegations regarding slush funds were not true except for a few bit that were.’
It is a quiet strange headline. Rajoy when he met Merkel. It appears that Berlusconi is doing well in the opinion poll ahead of the Italian election during February 24-25, 2013 and that is also making investors nervous.
Q: What is your view with regards to the movement on the euro considering that there is this political uncertainty or rather news with regards to politics which is now dominating sentiment in the Eurozone?
A: It is always difficult on currency because as we discuss that it is like a baby contest. We have got America indulging in Quantitative Easing (QE) infinity; we have got Bank of Japan stepping up its QE efforts thanks to the pressure from the new Prime Minister there.
We have got Mark Carney arriving at the Bank of England. He seems to be a lot more pro growth that is more QE then the incumbent governor the Bank of England. So, there is so much currency debasement going on. It is which currency can do the worst and which currency can do the best.
Q: How would you look at yesterday’s deep cuts across Europe as well across Wall Street? Would you think that considering the markets opened in the green, it will find support today itself or very quickly?
A: I didn’t believe the market rallied at the beginning of January because it wasn’t on good volumes. Volumes in Europe are still down 30-40 percent in the stock markets. Even volumes in American markets are down 15 percent.
Some fund managers may have used derivatives to get exposure to equities. There is a different dark pool of capital where one can trade of exchange that doesn’t get reported. Those are the things that would naturally bring volumes down.
However, in Europe the reductions in volumes year on year still doesn’t show me any evidence of this big asset swap from bonds into equities. I just can't see the evidence of a big switch to equities looking at the volume figures.
Q: What is the trajectory for the US markets? We did see that bout of profit booking yesterday especially for the S&P 500, biggest loss in 2013 in terms of a single trading session. Do you think that it is just an aberration and the uptrend for the US market is still in place?
A: The thing that I watch quite closely is the CitiGroup Economic Surprise Index. It looks at all of the US economic data. It’s not withstanding that non-farm payroll number that was slightly better than expected on Friday. If one actually looks at the sum of the economic data and the surprises we have been getting, have been quite negative surprises on the US economy.
Now that is not good for the US stock market. CitiGroup Economic Surprise Index has turned down quite sharply in the last month. I would keep a very close eye on how the US economy is doing.
The fourth quarter was tough, but it was a one-off because of the hurricane, fiscal cliff concerns, expect the first quarter to rebound. Very closely take a look at the economic data coming out of the US because that is going to be very important.