Fed QE tapering may start next year onwards: ETX Capital

Commenting on the ongoing debate on whether Fed will tightenen, Mark Priest of ETX Capital says, the tapering will probably start sometime next year because the US economy has seen a turnaround but it has not reversed yet.

Answering a query on whether European investors were redeeming from their emerging market funds, he says there was no such move noticed. "I don’t think so because long-term, the emerging markets still give you a good return and people are happy to still put their money there," he adds. Germany's constitutional court, is investigating whether ECB's bond buying programme, is legal. The ECB has recently financed deficits of bankrupt states, which have angered many leading to legal battle. The court will hold a hearing on June 11 and 12. Below is the verbatim transcript of his interview on CNBC-TV18 Q: Will this German constitutional court hearing take the centre stage? Does anyone expect that the European Central Bank (ECB) will be stopped from its bond buying at all? A: I don’t think so. The Germans have quite a large influence over what happens in Europe, but I think we will see it passed. There is a lot of pressure for it to actually get through and it is kind of crucial for the whole bond buying programme. We are not expecting any surprises. However it does show that how on a knife-edge the whole scenario is. Q: An important trend in Asia over the last 48 hours has been fairly significant pullout of foreign investors from emerging market bonds. Although this trend has been happening for some time, there was an accelerated pressure on Asian currencies. Do you think there is more to come because we have seen bonds yields in the US hardening after the S&P upgrade? A: Japan has had a bit of a phenomenal year. They have spent a lot of money to try and steer the massive Japanese economy back on track. The Bank of Japan (BoJ) kept monetary policy steady earlier today. We have seen a bit of a sell-off in the stocks and we are still seeing quite a lot of volatility in the currency markets. Inevitably, we will see quite a lot of volatility while this sort of scenario plays out as we have seen in the last few months. I expect bit of a rocky ride. Also read: High deficits, weak rupee causing FII pullout: Deutsche Bk Q: What is your expectation from the Fed later this month? Do you as well believe that there won't be any tapering off of the bond buying programme? A: The non-farm payrolls were crucial and they weren’t good enough to warrant any panic that the bond buying programme would slowdown. They weren’t bad enough that everybody would expect that there would be an increase. For the last few months our stance has been that they will probably start tapering sometime next year. I think that will still be their stance because we are not seeing the economy suddenly turnaround and go back on track - it is slowly getting back but it hasn’t reversed as yet. Q: Do you think the sell-off in the European markets will abate now or will they continue to reel under Draghi's statement on stimulus? A: We have had a six months rally this year. There is a little bit of consolidation going on. People are still in fear that perhaps the bond buying programme will wind down. It means that the global economies are getting better and that is obviously a good thing in the long run. So, we will see probably a little bit of profit taking and once these markets come down perhaps a little bit more then people will come back in again because the fundamentals are there that these markets are set to rally. Q: Are you noticing any trends of European investors redeeming any of their funds or money that is put into emerging market funds – either debt or equity? A: I don’t think so because long-term, the emerging markets still give you a good return and people are happy to still put their money there. We haven’t really seen any moves of that sort.