Rally still has some steam left: Deutsche Bank

Below is a verbatim transcript of the interview.

Q: Were Mario Draghi’s comment enough to stoke global risk appetite further from here? Or do you think after today’s move most of it is already baked into the price?

A: First of all, what he clearly indicated was that the tail risk of a massive sell off at the front end of Italy and Spain is removed. So, first order is you need to price in that removal of tail-risk or removal of risk aversion.

Whether it is already fully priced in? It totally depends on what asset classes you are looking at. If you look at say the very front end of Italy and Spain, say two year point, probably it is already priced in.

So, I do think the market will focus back eventually to the fundamentals which is the growth dynamics. In that sense the economic data coming from US is going to be very important particularly today.

Q: What are you expecting to hear from the jobs report today? The cues have been positive with respect to the economic data.

A: We have market data surprise index that we used to track US economic data and that has definitely turned around over the past three-four weeks. Our economists are expecting a 150,000 number for today.

If you look at the US economic picture, it is turning around and it is appearing a bit positive. So, we are hopeful on the US economic picture as well.

Q: If 150,000 jobs report does come out you think it won’t be necessary for the FOMC to go ahead and move on any kind of further quantitative easing come 13th?

A: I think at the next meeting, they will be dovish. They will definitely indicate an extension of lower for longer language. But an outright QE at this stage I would say no. But the option for another QE will still remain open.

Q: How should people really position themselves to move in sync with this global risk on rally? How much more of an upside are you expecting in emerging markets say like India?

A: I think again it depends on how much is priced in into various asset classes. So, as a background, I would say the macro environment is definitely supportive for us going forward over the next three-six months horizon. There will be implementation issues, stumbling blocks on the way.

So, what you need to do is to look at very precisely what is priced in. One of the easy metrics to look at is, say if I look at the post-crisis period from say 2008 to now, if I just compare what have various asset classes priced in compared to the peaks and troughs. That gives a very good picture as to where we are on across asset basis.

I would argue emerging market stocks have lagged the developed market stocks, no doubt and stocks head towards high event. But as long as there is enough liquidity I think the rally can potentially still have legs.