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Jun 20, 2012, 06.15 PM IST
Nick Parsons of National Australia Bank, in his analysis of the European markets on CNBC-TV18, explains that the next ECB council meeting will see strong hints of a cut in rates and that will be enough to make investors think that there is some concerted action.
Nick Parsons of National Australia Bank, in his analysis of the European markets on CNBC-TV18, explains that the next ECB council meeting will see strong hints of a cut in rates and that will be enough to make investors think that there is some concerted action.
Parsons debunks the fear of the ESM and EFSF funds being used by Germany and says that these funds were setup in order to buy sovereign debt. He adds that if the markets were made aware that the funds would be used for the purpose they were designed for would at least put some cap on yields. Below is an edited transcript of the analysis on CNBC-TV18. Also watch the accompanying video Q: What’s your forecast for the markets and the QE? A: Personally, we have no forecast though there is some scope for disappointment when the QE is announced. However, the day holds promise with Fed chairman Bernanke scheduled to address a press conference and expectations are high that a statement would be made regarding go ahead with the process of intervention. The statement probably would be a promise to the market that the Fed stands ready, but be light on actual details. The Fed chairman wants to promise something without actually delivering it in the immediate future. Q: If things do pan out the way you think they will, do you think the markets are set for some kind of a correction? Do you think the market will still hold on or is a sell-off likely in disappointment if the Fed chairman fails to offer a concrete initiative? A: Yes, I think there will be a sell-off on some disappointment. Let's remember, we have actually come quite a long way. At the start of June, the S&P was trading at 1,270 and today it is at 1,357. So we have had a good rally and when we talk about scope for disappointment in a bit of a sell-off, the markets are not about to plunge into new lows nor set off a frenzy of aggressive selling on hopes of positive news from a communique from the G20. There is reason to believe that with the formation of a government in Greece, talks of recovery are going to be back on track. The market could absorb a little bit of selling with the Fed meeting on August 1 and then the meeting of central bankers at Jackson Hole, Wyoming in the middle of August. Q: What about commodities and in particular, crude? Though the S&P rose in June, crude continues to fall. Will there be any further fall or is there a level where it will find support? A: Crude has turned very interesting at the moment. Over the winter, in January and February, crude prices kept rising as the euro-dollar kept falling. That was an exceptionally unusual state of affairs because the two are often very highly correlated.
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