Europe in dire straits, Germany last hope: Coopercity

Louise Cooper of Coopercity believes that European Central Bank President Mario Draghi's warning of a deeper recession is a signal for the European Central Bank (ECB) to go for a rate cut. Speaking to CNBC-TV18, she said that Draghi has turned slightly hawkish last month and now he is back to being dovish.

Cooper says the poor economic data can be ignored as long as Germany remains the ultimate cheque writer. Once Germany falters, the mess will be difficult to manage. Below is the verbatim transcript of his interview to CNBC-TV18 Q: We have seen two days of fairly deep falls in the European markets. Are you seeing further falls now because of Draghi’s warning about an even deeper recession? A: First of all, most people are saying about Draghi yesterday that in fact another rate cut is likely fairly soon. He turned slightly hawkish last month – that has been completely reversed he is back to being dovish. So, the commentary today expects a rate cut from the European Central Bank (ECB). There is a lot to digest at the moment. We have got the Bank of Japan (BoJ) starting its money printing under a new directive. We will need to sit down and work out what that means. We have got the ECB’s comments yesterday, we need to work out what that means. We have got the non-farm payroll as well. So, it has been quite a volatile week for currencies and it is a lot of sitting down and trying to work out what is going. Also the state of the US economy is very important. Q: How does the BoJ’s massive Yen printing proposal change asset allocation, if that indeed USD 1.4 trillion worth of Yen is going to get printed, will asset allocation change? Are you going to change risk assets get a look-in? How will things change for you? A: I thought it was quite bizarre. Across the world, we have got central bankers printing money, devaluing their currency. They are all desperate to do. The front page of the Financial Times in London today says, ‘Japan starts monetary revolution’ and the sub-heading reads 'All but scattering cash from a truck'. So, in this environment the big coin is doing well and yet gold is continuing to fall. It is down another 3 percent this morning, which I can’t quite work out. One has got central banks all over the world devaluing and debasing their currencies. One would think people would want to go for gold and yet gold has been a terrible investment recently. Q: What is your prognosis of how bad Europe could get and the repercussions that it could have on the global equity space? A: Clearly, the economic data from periphery Europe has been pretty dire. Some of the unemployment figures particularly youth unemployment is awfully hideous. However, for the time being Germany continues to move along. It is very much a case of the two-speed Europe with the periphery countries mired in debt and recession, but Germany continuing to do well. So, for the time being we do atleast have an ultimate paymaster, we do have an ultimate cheque writer in the form of Germany. I think that is what is causing financial markets to slightly ignore what’s going on - that the dire economic data. If there is any sign that Germany starts to not perform as well, I think that is when things could get messy.