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Aug 03, 2012, 12.26 PM IST
Richard Titherington, CIO & Head-EM Equities at JPMorgan AMC says the ECB President Mario Draghi’s commentary was disappointing and not enough to support the Spanish and Italian yields.
Richard Titherington, CIO & Head-EM Equities at JPMorgan AMC says the ECB President Mario Draghi's commentary was disappointing and not enough to support the Spanish and Italian yields.
Asian shares and the euro eased on Friday as the European Central Bank, after inaction from the Federal Reserve, disappointed markets looking for an imminent move to deal with the euro zone debt crisis, spurring risk aversion. (Full text of Draghi's speech)
But Draghi's room for maneuver is limited by Germany's powerful Bundesbank, which he singled out in his post-meeting news conference as having expressed reservations about the decision to explore "outright open market operations".
The Bundesbank's reservations mean the ECB will only buy Spanish and Italian sovereign bonds after euro zone governments activated the region's bailout fund to do the same. This in turn would happen only if countries requested such aid.
Titherington sees Germans relenting if yields spike significantly. "I think the markets will continue to gyrate between risk off and risk on trade," he told CNBC-TV18 in an interview.
Back home, traders look cautious expecting a correction on the back of the ECB's move to keep rates unchanged.
However, Titherington says valuations in India have declined to attractive levels, adding he has begun raising exposure to India recently.
Below is an edited transcript of his interview with Udayan Mukherjee and Sonia Shenoy.
Q: What did you takeaway from what Mario Draghi had to say yesterday?
A: I think the press conference was a bit disappointing. Expectations had been raised last week and investors were looking for substantive action from the European Central Bank. As you can see from the markets' reaction, they disappointed expectations, which given the fragile state of the markets is not a good thing.
Q: Draghi's statements indicate that they are open to open market purchases. Do you see that putting a cap on Spanish and Italian yields or you think that’s not enough?
A: I don’t think Draghi's statements were strong enough to definitively put a cap on yields. As you can see from the media reaction after the statement, the market thinks that the ECB has to announce something more detailed and actually has to take action in the market place in order to definitively put a cap on Spanish and Italian yields.
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