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Olivier Desbarres of Barclays Capital says, the next two-three weeks are key for global risk appetite. "We still maintain a medium-term view that euro-dollar will push towards 1.20 and ultimately 1.15,” he adds.
There are many events stacked up in the month of June. While globally there is Greece elections result on June 17, domestically there is the RBI meet on June 18. In an interview to CNBC-TV18, Olivier Desbarres of Barclays Capital says, Greek elections are too close to call at this stage. "The markets can be very volatile, very nervous ahead of the elections," he adds.
According to him, the next two-three weeks are key for global risk appetite. “If we don’t see more coordinated, more potent measures from US and particularly Euro zone policy makers, I think the risk is that we will see rate sensitive currencies such as the euro, rupee and the Australian dollar renew their weakness. We still maintain a medium-term view that euro-dollar will push towards 1.20 and ultimately 1.15,” he adds.
Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.
Q: We have seen the euro go down all the way to 1.22 and then make a brave attempt at 1.26. How are you interpreting the events of the next few days? We haven’t got a very positive statement from Ben Bernanke or atleast the markets don’t think it is positive enough. Do you therefore see that it will be the turn of the euro to once again revisit 1.22 sometime soon?
A: W certainly started the week on a strong footing. The market was expecting and hoping that policy makers across the US, Euro zone and China would deliver measures, which would ultimately deal with some more pressing issues facing the world, particularly in Europe.
I think markets have ultimately been very disappointed. That is reflected in the price action of the past twenty-four hours. Yes, we did have a positive surprise from the Chinese Central Bank. But I think there are some question marks as to how potent this measure will be to support Chinese growth or atleast global growth.
We have had ultimately very little from the Fed or the Euro zone policy makers. Bernanke was far more neutral than markets had hoped for. So, he did not provide the boost to global risk appetite which was expected. The ECB remained packed; it didn’t do anything either with the rates or unconventional measures. The Bank of England as well followed the similar route by ultimately doing very little. So, markets are waking up today and wondering when these measures will come.
Also, there is still hope and expectation that will be tested in coming weeks. So, I still think that the next two-three weeks are key for global risk appetite. If we don’t see more coordinated, more potent measures from US and particularly Euro zone policy makers, I think the risk is that we will see rate sensitive currencies such as the euro, rupee and the Australian dollar renew their weakness.
Q: So, if in the next two-three weeks, we do not get any signs or hints of a monetary stimulus then what is the kind of downside we are looking at?
A: I think to be clear the stimulus doesn’t necessary have to be purely monetary. Markets ultimately are holding out for the hope that policy makers in Europe will come up with new measures to ringfence the problems that we are seeing in Greece and Spain. It could be euro bonds, it could be a return to the ECBs securities markets programme (SMP), it could be the introduction of a pan European deposit and insurance scheme, it could be the use of European Financial Stability Facility (EFSF), these are all the measures that are being talked about in the market.
If policy makers fail to take any of these boxes then I think there will be a growing concern that solvency and liquidity issues in Europe will feed off each other and will ultimately continue to put downward pressure on growth. In that scenario, there is no reason to believe the euro-dollar couldn’t revisit 1.22 and continue south. Broadening that discussion, there is no reason to think in that environment, the rate sensitive currencies going to revisit the levels we had a week or two ago and again weaken further. We still maintain a medium-term view that euro-dollar will push towards 1.20 and ultimately 1.15.
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