Global economy is not as rosy as bulls think: IG Markets

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Yesterday, Euro zone finance ministers sealed a second bailout for Greece. Justin Harper, head of research of IG Markets says, the markets had already priced in that.

A lot of the equity markets have been rising this year. Harper says, there is a lot of cheap money flushing around whether is coming from China or Europe. "That's definitely sort of mudding the water a bit," he adds.

According to him, the global economy is not as rosy as a lot of the bulls think.

Also read: Greek bailout minor milestone towards resolution, says Citi

Below is the edited transcript of his interview with CNBC-TV18's Gautam Broker and Latha Venkatesh. Also watch the accompanying video.

Q: Why is it that the markets are not excited with the Greek deal? Is it in the price or is it that there can be many a slip between the cup and the lip?

A: It is a combination of the two. Obviously, it's priced in. There is a relief that the deal has finally been done. It is not exactly a sense of euphoria, but a sense of relief that at least this part of the chapter can be ended there and also looking ahead to the next stage because it's not sort of a smooth sailing from now onwards. There is going to be a lot more pain to come for Greece and Europe.

Greece, the speculation is that they might be looking a third bailout package, if the cuts are going to be so drastic. So, yes, it's a subdued start. But a lot of people expected, when the deal was finally done, that the markets weren't suddenly going to shoot up. It's sort of priced into the market.

Q: There are so many doubts over Greece and a third bailout package. Also, recent reports from Spain suggest that its debt is also going through the roof, that was one of those countries where size of debt to GDP was not an issue. Under the circumstances, how much more credit would you give to the on going rally across the world?

A: I think a lot of the equity markets have been rising this year. You have the question of fundamentals. Have they changed? There is a lot of cheap money flushing around whether is coming from China or Europe. That's definitely sort of mudding the water a bit.

While a lot of people are happy with this bull run, you do have to look at the general global economy and say it is actually healthier position. Greece, you could argue there has been progress made there and it won't fall into default, but still the economy is in no way sort of on a rebound or recovering there. So, cracks have started to appear in more countries-Spain, Italy, Ireland, Portugal. The global economy is not as rosy as a lot of the bulls think it is.

Q: Greece is out of the way. The next big event is the second LTRO. If the quantum of what the ECB manages to lend to the banks turns out to be lower than that 1 trillion mark, do you think there could be a small sell-off in the markets, given the kind of rally we have seen in the run-up to the LTRO? What is the consensus in the market? What is the market expecting in terms of the banks borrowing from the ECB in the LTRO?

A: The next round of LTRO lending could happen with the crisis that we are seeing and the fact that the economy within Europe could contract. It's just really what the banks are going to do with the money this time around because ofcourse the last time it didn't really sort of filter that much down into the sort of wider economy. So, now if you do something about it again, obviously the element of surprise will be gone there because that's factored into the market.

We have already seen two tranches already. They won't have the uplift in the investor sentiment as well. Also, you have to say what the banks are going to do with that money. So, if it does happen, I think it has to be seriously thought out there and not to rush that money because as you say there could be a sell-off on the back of it.