In 4 weeks, France will thumb out Greece as focus pt: NAB

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show »

Nick Parsons, global head (FX strategy) at National Australia Bank spoke to CNBC-TV18 about the happenings in Europe and how the markets is likely to react to news from there.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: You have been telling us for the past couple of weeks that the markets have gone too far too soon, and there isn't so much good news but from hereon, how should the market look at Greece?

A: I am reminded of this phrase when it comes to market that you buy the mystery and sell the history, which is quite a nice way of saying buy the rumors, sell the facts. It's very instructive that the markets could rally and rally on the hope of a deal in Greece, and on the day when it's actually signed, we start to see some nervousness appear because what the market is now going to focus on is implementation. Its wanting to sign an agreement, it's actually another to implement it in concrete terms.

A great concern amongst many investors in Europe now is that when this leads to elections in Greece which are likely to be held in April, the Greek people themselves reject the deal. At the moment, they essentially have an unelected government speaking on their behalf, but none of these proposals have actually been put to the test of vote, and it's quite possible that not only are there going to be serious doubts around implementation, but there are going to be growing concerns that the Greek people themselves might find it unacceptable. For the moment at least the markets having come so far, it is just time to take some risk off the table.

Q: Markets were on pause-mode before there was any clarity on Greece, but now that the clarity is in, is this pure profit booking or was there some minute points that the market got disappointed by the EU not approving the deal?

A: I think it's a mixture of the two. Probably it is profit taking, after all, if you look at the euro stock index, six weeks into the year it is up 8.8%. If we look at the DAX index in Germany, after six weeks of the year, it's up 15.1%. We can be absolutely certain that the DAX index is not going to rise 15% every six weeks. So there is a natural move to be just taking some risk off the table.

But in terms of specifics of the deal, what we saw yesterday was Greece finally agreeing to the conditions that were held, but that's certainly half of the bargain! We still got to see that the Troika accepts that and sufficiently reassured by those promises to hand over the funds. At the moment, the noises that we are getting from that side of things, notably from Schaeuble, the German finance minister, are suggesting that it is by no means a deal on the side of those who are providing money. We fight find the agreement from those sectors who have received the money but its not absolutely clear that's going to be accepted by those who are set to provided, that's the concern.

Q: Do you think if we have clarity on this, the markets could rally a bit again? Also, while there has been a lot of talk about a second LTRO of about USD 1 trillion, a guest on our channel pointed out that he expects the off take to be rather about USD 300 billion. Could that also be a potential disappointment?

A: I think from the LTRO, it is going to be towards the upper end of the expectations, but those expectations themselves are so high that it's lost any capacity to produce a positive surprise. That's the key point there because banks have now had almost three months to start dispersal of their loans in a form which is acceptable to the ECB and they will be working extremely hard to put as much of their loans as they can into the European Central Banks. I think the take-up is going to be very high but expectations have already shifted so far that there is no room for a positive surprise.
I think what is going to be the next big focus of market attention is France, and I wouldn't be at all surprise if in four weeks time we are having this conversations around the French Presidential election because in France, when we are going to have an elections on April 22nd and 6th May, we have got a situation where the head of the Socialist Party is 12 points ahead of Mr. Sarkozy, and it is the head of the Socialist Party which has pledged to increase spending, increase public sector job creation and also wants to renegotiates the independence of the European Central Bank.
So if one starts to talk about political risk in euro land, I think we would have moved away from Greece whether or not Greece is already sign by then. I think the markets move on and the next focus of attention is going to be France. So I am sure that in four weeks time, that's the conversation we will be having then.