Poor economic data bigger market worry than Cyprus: UBS

The European shares and the euro dipped on Thursday because of concerns over Cyprus bailout issue. However, some pick-up in Chinese factory activity and the US Federal Reserve's commitment to its loose policy stance limited the losses.

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Stephane Deo of UBS Investment Bank feels that the economic data is the main reason for markets getting spooked on Thursday. "There has been no new news on Cyprus recently, so I don't think that is moving the market. This will be more of the economic data, having an impact on the market," Deo told CNBC-TV18.

Below is the verbatim transcript of Stephane Deo's interview on CNBC-TV18

Q: What is it that spooked the European markets today? Is it the Cyprus issue or the weak economic data?

A: It is more of the economic data. You should have got the news from Cyprus, there was some hope yesterday that a new deal could be clinched and so the market started to stabilise and rallied a bit on the back of that. There has been no new news on Cyprus recently, so I don't think that is moving the market. This will be more of the economic data, having an impact on the market.

Q: How much more pain do you expect in the European markets over what we have seen until now?

A: What is surprising for me is the lack of reaction of the market to issues as crisis of the Spanish bonds. The 10-year yield is below the level where it was before the Italian election. We had the Italian election, which was a bad outcome. We now have the Cyprus negotiation, and if you look at that despite all this bad news the bond market has reacted quite well.

Portugal has also rallied during this period and if you look at the stock market, there is some weakness today, but if you look since the beginning of the year we are still up. So, what is surprising me is the lack of reaction from the market.

Q: Do you think markets are reacting to the European Central Bank (ECB) statement that it may cut off emergency help for Cyprus after March 25, if no deal has been struck or is the market confident that a deal is going to be struck very soon?

A: The markets make the assumption that the deal will be struck. We don’t know what exactly the ECB would do anyway, but the situation related to Cyprus is much more complex than it was in Greece a year ago.

In Greece, you had the Troika on one side. Troika is ECB, European Commission and International Monetary Fund (IMF) and you have Greece on the other side.

In the case of Cyprus making things even more complex, Russia is involved in the negotiations. You have a three party negotiation, anything can happen. So, I do think there is a lot of risk in this negotiation.

Again, stock market in Europe is still at 2 percent year-to-date. The CAC and the DAX are at 4 percent. I do think that the market is sanguine compared to what could happen.