Societe Generale bullish on US; bearish on EM, rupee

Benoit Anne, Societe Generale is bullish on the US economy and is therefore, calling for strong number on non-farm payroll on Friday. He, however, is bearish on the emerging markets. 

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In an interview to CNBC-TV18, Anne says there is more room for further weakness in currencies across the world and they continue to be under pressure. "We are bearish on the rupee at this level. We are concerned about the capital outflow story out of Asia which will be a major problem," he says. Below is the verbatim transcript of Benoit Anne's interview on CNBC-TV18 Q: What is your expectation in terms of the non-farm payroll data coming out from the US tomorrow? How crucial do you think it will be in terms of a movement for the equity markets as well as the currency space?
A: We are very bullish on the US economy and bearish on the US treasuries. We are therefore calling for strong number on non-farm payroll on Friday. That’s going to be a risk off signal for risky assets across the globe and particularly emerging markets. We are officially bearish on emerging markets as a result here. The US treasury correction is going to dent global investor sentiment in a significant way. The correction has already happened but there is more pain to go. Q: A bit of good correction has gone and while tweaking of the Fed is certainly going to takeaway some of the easy money that has been coming and is expected, it also signifies fundamental improvement of the US economy which is positive for a lot of emerging markets. Would there be some sense that we are somewhere close to the bottom that emerging markets after a bit more of pain become a buy or is it an extended pain?
A: We are facing an extended correction. I agree with you, over the long term, a healthier US economy is going to be positive from the big picture stand point. But right now, we are still going through the transition period and transition period involves a pretty bumpy re-pricing of US rates and that’s going to shake up risk appetite across the board. Q: What about Thursday's meet? At around 5 pm, Draghi will announce the decision of the European Central Bank (ECB) and about half an later press conference. Do you expect him to say something which European markets in particular and global markets in general should be prepared for?
A: Not really. At this point, the centre of interest from the global markets stand point has shifted away from Europe to the US. So we are watching the Fed right now rather than the ECB. Q: What are investors or institutional houses talking about with regards to emerging market currencies? We have seen a lot of volatility come into the rupee recently which is the Indian currency, but then we also see the peso decline around 6 percent in the past three weeks and the rand from Brazil also decline significantly. What is the talk behind the emerging market currency decline and how worse do you expect it to be now?
A: I am very concerned and bearish. We see more room for further weakness in currencies across the board and those continue to be under pressure. We are bearish on INR at this level. We are concerned about the capital outflow story out of Asia and that’s going to be a major problem. Q: Is there any correlation that the institutional investors do house that if in case there is aggravated weakness coming in on the currency? Will you immediately change your stand on the equity markets within that country as well which would possibly be in specific?
A: There is, right now given the conditions in global markets. Financial contagion risk that involves correlation, relationships based from across markets. So you are seeing a sell off in currency market that might be even triggered by an exit from the bond markets and that is going to spill over to equity markets in the same process. We are seeing all markets selling off at the same time here.