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Justin Harper, head of research, IG Markets says, investors are favoring non safe haven assets. "The general feeling is equities are on a slow uptrend because the economy is tending to be more upbeat than people expected," he adds.
Yesterday, the European Central Bank (ECB) disbursed around 530 billion euros of cheap three year loans to the European banks.
Justin Harper, head of research, IG Markets says, investors are favouring non safe haven assets. “The general feeling is equities are on a slow uptrend because the economy is tending to be more upbeat than people expected,” he adds.
Below is the edited transcript of his interview won CNBC-TV18. Also watch the accompanying video.
Q: About 530 billion euro of money in the second tranche of LTRO, the total amount gone up to over a trillion euro. Should this be taken in the perspective that there is now liquidity and hence there should be a bullish view on this or do you think perhaps it is more prudent to assume that all is not well and that banks are still in trouble, they still need a lot more funding?
A: Yes, it can be taken in one of two ways. On the positive side, the cheap money is coming in that will help the banks. They wouldn’t need to worry about this for two years. Hopefully, in three years time the economy could be in a much stronger position.
On the negative side, you can say well there is obviously a need for this cash to book their balance sheets there and there has been a bigger take up this time around than there was in December. Also, this was tweak slightly to allow some of the smaller banks to come into play. So, you are not really comparing like with like from December. You are actually looking at more contenders, banks that can actually qualify for this money and a lot of German banks are coming in as well.
I am more on the side that it's quite a bullish thing that hopefully smaller banks can get involved now. The ones possibly at risk can keep their economies afloat.
Q: How do you think equity markets globally will react to this news? Do you think that risky assets will continue to be favoured or will there be trimming of positions post this news coming out?
A: You saw with the sharp correction in gold, how traders are feeling about risk assets. They are favouring non safe haven assets. There has been a move into some of the risk currencies as well. So, you have to look at the cheap money coming in. But then when that subsides, you have to say that the US economy grew 3% in GDP in Q4. It's actually doing pretty well and that will have a good affect for the rest of the global economies.
You have to look at scratch under the surface and say we are in a much stronger position then we were three months ago. That should have a good effect across the board when you look at equities there, they are holding out pretty well. Ofcourse you get these drops in certain commodities. But the general feeling is equities are on a slow uptrend because the economy is tending to be more upbeat than people expected.
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