After Greece, global mkts back to worrying abt Spain: Booth

After the pro-bailout New Democracy party won the elections in Greece, global markets reacted positively but, it did not see a big rally. In an interview with CNBC-TV18, Jerome Booth of Ashmore Investment said that nothing has really changed in Greece. The winning party in Greece is clear about renegotiating the support package and it is a known fact that Greece will run out of money. While it does not lead to an immediate exit from the euro zone, it also doesn't solve the longer term problems, said Booth.

Booth further adds that the markets are back to worrying about Spanish yields. The bond markets are signaling the ECB to provide a backstop to increase liquidity. With the US central bank meeting this week, Booth said, there is a possibility of more quantitative easing. But, he hopes the Fed refrains from easing till the year-end. Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: What would you put down this tepid reaction today to? Is it that the markets have priced in the outcome or it really is not a game changer?
A: I think we are back to where we started. There has been a lot of talk in the media about how this has resolved the problem in Greece and now we are moving on to market concerns about Spanish bonds in particular, ahead of a series of meetings going on. We have got the FOMC, the end of twist, we have got the European Summit, G20 meeting and the reality is that this is more to do with psychology than economics.
Greece has not really changed, the wining party has been very clear that it wants to renegotiate the support package. Greece in any event will be running out of money and whilst this doesn't lead to an immediate exit, it doesn't really solve the longer term problems.
But it's the bond markets in Spain in particular, which is pushing the pace today. I think the message to the ECB is that bond markets will want to have a back stopper, an increase in liquidity. We have got the possibility of more quantitative easing in the US with the US central bank meeting this week. I think bond markets would like to see similar measures in Europe. Q: That is pretty much the reason why this trading rally has begun in the first place. Liquidity infusion hopes. What are you expecting personally to see from the FOMC meet, do you think there could be an extension of Operation Twist?
A: The desirable outcome as far as the Fed governors are concerned is to hold off until late in the year. They want to keep their powder dry in terms of more quantitative easing. But I think they would do it if they feel it's necessary either now or later in the year.
The problem in the US is severe. We have had further bad data over the last few weeks. It does look as if the optimism of the last couple of months in the US has been overemphasized and we are still in a period of risk for the US economy. That's one of the reasons, why the euro is holding up reasonably well against the dollar.
The big issue is towards end of the year. It would be the so called fiscal cliff, the 4% of GDP impact, negative impact of certain measures in the US running off. So, the Fed will be potentially prepared to increase quantitative easing, but prefers not to, prefers to do it later in the year. It all depends on their assessment of the data. Some of which ofcourse they get early access to.