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Apr 04, 2012, 05.41 PM IST | Source: CNBC-TV18

Dismal Aussie trade figures warning sign for investors: NAB

Global markets were left weakened with the Federal Reserve pouring cold water over any monetary stimulus plans. Nick Parsons of National Australia Bank says investors should now begin to look at data coming out of Australia as well.

Global markets were left weakened with the Federal Reserve pouring cold water over any monetary stimulus plans. Nick Parsons of National Australia Bank says investors should now begin to look at data coming out of Australia as well.

Instead of getting the hoped for surplus on the merchandize trade accounts yesterday, Australia reported another deficit. It is also the second month in a row that export of coal to China have dropped which is a worrying trend, says Parsons.

"These export figures from Australia raise a very, very big warning flag and itís that that investors are just beginning to realise this morning."

Below is an edited transcript of his interview on CNBC-TV18. Watch the accompanying vieo for more.

Q: Is it just profit taking these two days of weakness that we have seen in the European markets or do you expect further correction coming through for those markets like that? Whatís ailing the markets?

A: Itís not just profit taking. There are more fundamental concerns bugging investors at the moment. The first of those and the most obvious one is the USí decision last night to douse hopes that there would be further quantitative easing from the Fed. But much more significant than that and a factor which is generally only just beginning to hit the market is the detail that we saw within Australian trade figures last night.

Investors donít often look at Australian economic data in great detail. They certainly should because Australia is the largest mineral exporter to the entire world and instead of getting the hoped for surplus on the merchandize trade accounts, yesterday we saw another deficit. This is the second time in a row that exports have fallen and most importantly itís the second month in a row that exports of coal to China have fallen.

So when we are trying to get a good feel for what the Chinese economic situation really is then these export figures from Australia raise a very, very big warning flag and itís that that investors are just beginning to realise this morning.

Q: If liquidity eases from hereon do you think that global equity markets will get into a range and there wouldnít be too much of a movement or do you see some amount of downside now for equity markets?

A: The best we can hope for is we cling on to current levels. I donít see there is much scope for advance because in order to advance from here we are either going to need positive earning surprises which were noticeably absent in the first quarter or we are going to need the provision of extra liquidity.

If the Fed has ruled that out and I would expect that the ECB is going to do a similar kind of job with expectations at its meeting then we are only looking at the corporate earnings as a prop for the market from current levels. We are not talking about a global recession, we are talking about a global economy which is still going to grow at 3.25-3.5% but in the face of a slowdown itís very difficult to see how corporate earnings are going to surprise on the upside. Against that background, itís natural to expect that markets might well be slipping back a bit from here.

Q: All across the data from Europe has been negative, be it the eurozone unemployment that is at a 15 year high, the PMI thatís still sub-50 and now we have concerns emerging from Spain as well. Do you think this is a big problem for global markets?

A: It is a big problem which is about to get significantly worse. Over the course of this month, we have got to factor in political risk; in particular the French presidential elections which are likely to show that there is considerable popular resistance to austerity measures.

If we were to get a change of President in France and the first round of those elections is less than three weeks away now, if we were to get popular calls for change then itís going to throw the whole of the austerity measures across Europe into some considerable doubt.

We are negative of the euro in the short-term, we are very concerned about the performance of equity markets and see considerable scope for heightened volatility over the course of the next few weeks. Itís economics and politics which are going to begin to weigh down on the markets hereon.

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