Markets almost sure ECB, BoE are going to act: City Index

In an interview to CNBC-TV18, Joshua Raymond, chief market strategist of City Index talks about where he sees global markets ahead of the European Central Bank meeting and the Bank of England meeting.

Below is an edited transcript of his interview. Watch the accompanying video for more. Q: What are the markets looking forward to now? Is it the all important Thursday meeting of the ECB and what is expected there besides the 25 basis rate cut?
A: It is not just the ECB it is also the Bank of England (BoE) of course because we are expecting the BoE to increase asset purchases by as much as 50 billion pounds. All eyes essentially are on the central bank here in Europe to see whether they are going to continue to stimulate the markets and ease, considering where their previous stances were of no real change for considerable months.
We have also seen a bit of consolidation in the markets again today. We are still seeing further gains, mostly on the back of gains in commodities. We also came through some key levels yesterday particularly on the FTSE 100, we closed at about the 5,620 levels which if it closed below that, it threatened a potential of a reversal. Now we have come through that level we look towards the 5,700 as the next key level. Q: So despite all the gloomy figures in terms of economic data, the manufacturing data from across the globe which was weak yesterday, commodity prices still holding up particularly crude. Do you think that has something to do with easing expectations in terms of a QE or LTRO by the ECB? Do you think something like that is likely?
A: It has certainly got expectations of further easing. The only thing obviously is you tend to get more of a big move on the back of expectations of the Fed and we saw the Fed recently extend ‘Operation Twist’ at the end of the year and there is a debate raging whether that is quantitative easing or not, because what you are doing is transferring short-term securities to longer-term.
But there are certainly eyes on the ECB on Thursday and also eyes on the BoE. It is all about how aggressive both those central banks want to be. The markets are fairly convinced they are going to act; it’s just a case of what we see. Q: We are getting a string of bad growth numbers from practically all the continents. How much legs therefore would you give this rally? Would you say we are going to see a repeat of the January-February moves?
A: Personally, it’s the legs of the rally because what we have seen historically in the last six months or so and we are getting into the summer months as well, people start taking a leave of absence from the market is that people tend to use the rally as an opportunity to sell and get out at high prices and take some risk off the table and look to potentially come back in around September time. So, that would be the concern for me.
It was important where we closed yesterday. We did see a very strong rally towards the close here in European markets both in the FTSE and broader European - the DAX and the CAC for instance. So, we did come to some important levels. The question for me now is once we get to 5,700 and if we are lucky a little bit higher, may be another 1% or so then its going to be question time and its about whether the BoE and the ECB provides the credibility of what has been the motivation for this move higher which is central bank action. Q: Yesterday a lot of the PMIs were actually disappointing but better than the flash estimates, for example Germany was better than 44.7. Did you think that the PMIs being better than the flash estimates is something that encouraged markets or is that because there is weakness in the manufacturing data it is to do with central bank expectation that led the rally yesterday?
A: A lot of it is down to central bank expectations. The one thing I would say is just take away the European side of the PMI, look at the US, the US manufacturing data was really bad. We are back into contraction territory for the first time in awhile. So, the real concern for me was about the US’s side of the data and whether that will have to increase expectations on the Fed to act a little bit more towards the latter stage of this year. I think that was actually broadly ignored by the markets which again emphasizes the fact that we are looking towards Thursdays action with the ECB and the BoE.