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Jul 12, 2012, 08.23 AM IST
In an interview to CNBC-TV18, Benoit Anne, MD, head of emerging market strategy at Societe Generale talks about his expectation for global markets ahead of the BoE and the ECB monetary policy decisions.
In an interview to CNBC-TV18, Benoit Anne, managing director, head of emerging market strategy at Societe Generale talks about his expectation for global markets ahead of the Bank of England (BoE) and the European Central Bank's (ECB) monetary policy decisions.
Below is an edited transcript of his interview. Watch the accompanying video for more.
Q: What are you expecting from the ECB today? A 25 bps in terms of refinancing rate looks like it is priced in. What else can we expect? Any mention of further easing?
A: We have a more aggressive call than that as Societe Generale. Our economics team on Europe is actually calling for a 50 bps cut on the part of the ECB, which is quite aggressive and would send a very good signal for risky assets. As an EM strategist, I am going to watch for that very strong policy response on the part of the ECB.
I am not going to care too much whether the euro goes down a bit after the ECB delivers on aggressive policy response because what it will mean for risky assets is that the policy response will be a positive boost. We are going to EM currencies including Asian currencies led today or tomorrow morning rally if you get that signal from the ECB. So it is clearly the big focus of the day and the week now.
Q: What is driving this 50 bps? Is it the weak data that we have seen or is it that the Europeans delivered something at the EU summit that would encourage the ECB to go and do this?
A: Monetary policy has essentially two functions right now - we are in crisis management mode in Europe and monetary policy can be used as a signaling power. The ECB has the option of using the policy rate to send a positive signal. I am not going to claim that this is going to have a fundamental impact on the real economy down the road but at least in terms of boost to sentiment and reviving confidence on the part of investors, that could make a big difference. So we are going to be watching whether the ECB goes that route.
Q: How will the asset prices change if it indeed comes at 50 bps? Have the markets priced in 25 and is there still something to happen if it is a 50 bps cut? If that happens, how do you expect Spanish yields or Italian yields or the euro to move?
A: You would have interesting developments in markets. You would have European yields going down which is a good thing and you will have the euro going down from the standpoint of interest rate differentials but more importantly for my focus, you will have EM currencies going up, you will have risky assets doing quite well in that kind of scenario.
Q: Are you expecting anything by way of a hint towards bond buying or more euro printing - something on the nature of an LTRO also being discussed?
A: No, we don’t expect anything on that front.
Q: Do you expect the BoE would come with something seminal that can impact markets?
A: Yes, we are also positioned for some more QE development on BoE. From my role of an EM strategist that is much less significant in my view.
Q: What's the sense on the Asian markets? Do you think India or perhaps even China can continue with the rally in the near-term or after the recent rally that we have seen, some of the positives are getting priced in now?
A: We will have to wait for the ECB to get a better sense. To me this rally has been driven essentially by anticipation of more policy response. I was a bit disappointed with the Fed’s response a few weeks ago but now if the ECB is aggressive that is going to be a positive signal on risky assets but in the absence of that you have got to watch for correction risk because that rally might happen too fast.
May 25 2013, 16:36
- in Technicals
May 25 2013, 16:36
- in MARKET OUTLOOK