Excerpts from CNBC-TV18’s exclusive interview with Glenn Maguire, Societe generale

Q: Where do we go from here with the Fed policy?

A: At this stage when we look at the US Federal Reserve, they have moved from an environment where they were balancing inflation risk against growth risk earlier this year. They were clearly balancing inflation risk against systemic financial break down. So obviously inflation risk pales in comparison to that. Fed is likely to continue to ease aggressively and adopt creative policy from here. We would be looking for further moves to boost liquidity provision in the markets. There would be reduction in the Fed fund rates to around 1% by the middle of this year.

Q: What do you expect to hear next in terms of economic data?

A: Economic data will move to a much softer track. We are still in a situation where we are moving from financial stresses into real economic weakness. The recession in US now seems to be assured. The recession is likely to prolong and will be a consumer led recession. We expect the recession to probably remain in place till the middle of 2009. We are moving into a period of protracted and pronounced weakness in the US economy. 

Q: How do you expect Fed’s action to translate into liquidity availability globally? Do you think that if they do get to that one percent mark liquidity, the situation will become easier or there will be more activity across asset classes?

A: That is going to be a very difficult call at this stage. Fed is clearly putting institutional framework in place for greater liquidity provision but until we see financial intermediaries being more willing to transact. So, until we see some stability in housing prices and the exact magnitude of losses resulting from sub prime and other instruments which can be accurately qualified, there will be an unwillingness to transact in financial markets and that will mute the liquidity provision of these emergency and dramatic moves that Fed is actually putting in place.

Q: As a space, Asian equity markets and EMs have actually under performed. How do you see the rest of the year shaping up for this whole pocket?

A: What we need to focus on when we look at relative performance of US to Asian markets, not just today but also in the last week, is that, US market is more heavily weighted towards financials. That is responding directly to the steps that the Fed has taken. For Asia, it is going to be more of a waiting towards the US consumer or to the US capital investor. So I think, underperformance of Asian bourses relative to the US could well be a feature of markets in the coming weeks.

Q: What will be the global financial markets be more focused on over the next couple of quarters? Will it be Fed policy action or policy initiatives or the economic data and the economic situation in the US which is unfolding?

A: I think it will be a combination of both, but clearly direction is largely going to come from the US real economic data. We probably are getting towards the end game of the Fed in this cycle. They have cut rates fairly dramatically and aggressively since late last year and with the Fed funds right up to 2.25% they do not have much ammunition left. Therefore, they probably are likely to move more towards quantitative measures to support liquidity. In that environment, we continue to have a weak US economic scenario and that would be the major direction provider for regional markets. So I think we are moving into a period where the real economic data is going to call the markets shorts.

Q: And how many quarters of US economic Degrowth recession are you calling for, starting this quarter?

A: At this stage I think it’s 3 or 4.