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Sep 28, 2012, 09.39 PM IST
Nick Parsons of National Australia Bank explains to CNBC-TV18 that the Spanish Prime Minster Rajoy’s delay in seeking aid from the ECB, will send jitters across the markets.
Nick Parsons of National Australia Bank explains to CNBC-TV18 that the Spanish Prime Minster Rajoy's delay in seeking aid from the ECB, will send jitters across the markets.
Below is an edited transcript of the analysis on CNBC-TV18.
Q: Thursday was a good day thanks to positive announcement from the Spain regarding cutting costs. Do you expect an encore from France? How important will that be in terms of driving sentiment in global equities?
A: I think that the Spanish announcement on Thursday only revealed the mood of the market rather than offering anything new. I was struck by the lack of detail in the entire budget for 2013 and one will have to wait until the weekend for any detailed and concrete measures to be announced. But the market certainly was in a mood to hear good news with the end looming on what has been a spectacularly good quarter for global equities.
The market in India is up nearly 8 percent, Europe is up nearly 11 percent, in America the Dow Jones is up at nearly 5 percent is in just 90 days. So I think equity investors still wanted to hear the good news and the mood of the market is still positive.
I fear that next week might throw up a bit of a reality check when the details of the Spanish budget are probably unworkable. I also fear that the French budget announcement will provoke a similar sort of unrest as seen on the streets of Madrid and Athens. So we are absolutely not out of the woods even though it has been a fantastic quarter for equities.
Q: Would you also start shorting the euro?
A: No, we wouldn’t be shorting it at these levels. I think it was very encouraging with the euro at 1.2840 against the US dollar on Thursday and that is a very important technical level. If you are going to be bullish or at least constructive on the euro, you would want that level to hold. It did hold and I think that is encouraging.
I think there will be selling in the euro unless it breaks below 1.2825. At that point, a technical picture looks a lot worse and everybody piles into the trade. We wouldn't be looking to sell it here and we suggest that if it moves below 1.2825, it would tactically be a good level to try and play from the short side but not at these levels of 1.2925.
Q: Do you expect Rajoy to approach the authorities in November?
A: We very much do get the sense that that's what he is doing, but there is no detail in it and until we get the detail its right to remain skeptical. Rajoy is in a situation is like that of a man who is stuck between rocks and he knows he has to chop his own arm off in order to survive.
So, unless Rajoy does chop his own arm off, we fear that the consequences for markets are going to be very negative and it is understandable that he would seek to delay that as long as it's possible. So long as that delay continues, then are going to be a few more jitters in Q4.
But remember, on Thursday and today, were the last two working days of a stellar quarter for global equities and is very difficult to read too much into that performance.
Q: You spoke of continuing jitters unless Rajoy actually asks for aid. Do you think the delay will just cause jitters or could the situation get even more eerie?
A: There are two dates that we have to look at here; one is 18-19 October, which is when the EU leaders summit and then October 21 which is when there are elections in Galicia which is Rajoy's home region. He wants to avoid asking for a bailout before those elections while the EU leaders wanting him to seek aid before the summit. It's that tension that's going to persist in the market.
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