Economic backdrop not conducive to equities: Solaris

Heading into an action-packed week, Ghriskey says all eyes are going to be on Europe and news emerging from that area. “Investors have been burned before, so we think that they are being cautious given all the problems in Europe and this weakness seen in the US economy,” he explained.

He goes on to say that the possibility of Spain requesting for banking aid may affect the market a little.

Below is an edited transcript of his interview with Menaka Doshi. Also watch the accompanying video.

Q: What do you make of the week we have seen?

A: It’s been rocky roads certainly and we are probably in for more of this. The economic data has not been desperately weak, but certainly not showing the growth or any acceleration in growth, so we are cautious here.

We have seen a bit of a bounce back from the recent market lows. Not surprised to see some buying on weakness because there is so much cash sitting on the sidelines. We think for an entry point, especially with the dividend yield so competitive with almost any type of fixed income alternative here.

But investors have been burned before and certainly we think that they are being cautious here given all the problems in Europe but also this weakness that we have seen in the US in terms of the overall economy.

Q: It’s been a week when both central banks, the Fed as well the ECB, said they are on watch mode but didn’t think it was appropriate at this point in time to comment at all on any further easing. Yet today we have news potentially that Spain may in fact make a call for emergency funding tomorrow to the EU. How does that set us up for the next few weeks?

A: We have got a month here, the month of June which is going to be full of economic news coming out of Europe, not only out of Spain but also out of Greece, Italy and out of the UK as well. So we are all on Europe watch here and its going to be critical.

We are going to see data also coming of China. We are going to get economic data tonight and you had the Chinese easing and there is concern that the May data maybe weak coming out of China. So the economic backdrop is not very conducive to equity exposure right now.

Q: If Spain does seek emergency funding for its banks tomorrow, what kind of impact do you see that having on markets on Monday?

A: I think it’s expected that at some point here the Spanish banks need help. I do not think that is a big surprise to anyone, but certainly the headlines are not going to be very favourable. We are going to see how the EU reacts to that request and whether there is some type of globally coordinated action to deal with it.

From Bernanke’s comments, from the comments coming out of the UK, it seems like they are keeping their power dry until there is some major financial need for the central bank to step in. So certainly there is going to be some weakness on Monday if indeed Spain does come out and request it. But we do not see it as a real problem here for the markets; otherwise we think we see it reflect in today’s US stock market and we are seeing a flat to slightly up day here.