Pre-summit mood boosts European mkts: ING Investment

The European markets have seen some rally over the past few days. In an interview with CNBC-TV18, Patrick Moonen, Strategy and Asset Allocation Global, ING Investment Management said that it can be attributed to what can be referred to as a pre-summit mood.

Over the next couple of weeks, significant events like the Greek and French elections are scheduled along with a G20 and euro summit. According to Moonen, this is a traditional pattern when markets react on hopes of credible plans from the government and subsequently see an upside. However, he cautions looking at the trend over the last two years that once the summit is over, the markets will again start correcting.
Moonen also believes that neither Greece nor the European Union has any interest in a Greek exit. Hence, at the end, realism will prevail and other eurozone countries will help Greece in some way or the other to retain its position within the zone. Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video. Q: What is really fueling this rally, expectations of more dollar printing by the Fed as well as some bond buying by ECB?
A: There are a couple of things that are at play for the time being. What we do see in the markets, over the last 2-3 days, is that they are now in what I would call a pre-summit mood. Over the next couple of weeks, we will see more clarity on the Greek elections and also on the French parliamentary elections.
You might have seen more clarity on the recapitalization of the Spanish banking sector and we may not forget that over the next 2-3 weeks we will have a G20 and a euro summit coming up. It's bit of a traditional pattern in the last two years, in the runup to the summit, we see stronger markets building on hope that finally, politicians will get their act together and come up with some credible plans.
But what we also saw over the last two years was that once the summit was behind us, market started to correct again. That's one element. Markets are rising on hope of some kind of policy intervention. Q: We had Draghi admit yesterday that he is involved in a process of the fiscal union and there is a lot of chatter about how Barroso, Draghi all of them are getting together to outlay a map for the fiscal union of EU. Do you think that is one reason that's been factored in right now and risk assets are rallying on the back of that or do you think it’s not going to happen in near term, which is why the things that are being factored in the market right now perhaps are false hopes?
A: I think in the short term you have two problems that have to be solved quite rapidly. First of all we need to have a clear point of view with regards to Greece and how Europe will continue to support Greece. Secondly, we really need some clarity on recapitalization of the banking sector.
Those are the two very short term issues that have to be dealt with. On the longer term, it's clear that what is lacking in Europe and even on a more global scale is economic growth. Of course, for that to realize, it needs measures to stimulate growth which could be reduction in interest rates, more QE (quantitative easing). What you also need is more confidence from consumers, from companies, whether to invest or not.
For that of course you have to move towards some sort of fiscal union but, I really think that's not something that can be realized in the very short term. That’s really a plan that will take months if not years to realize but, what is needed is a plan to get there, to restore confidence which might in their term have a positive influence on the economic growth and once economic growth is there things will get much better. Q: As recently as a couple of weeks ago it was expected that the Greek elections could be a major destabilizing factor. What's your sense? Can it throw up a very nasty surprise or are the markets correctly reading that it’s not going to be too adverse a verdict?
A: I think in the end pragmatism and realism will prevail, given that neither Greece nor the European Union has any interest in quitting the eurozone. The price to be paid for both sides is so high that they have every interest to try to find an agreement to keep Greece in the eurozone. It means that eurozone countries will continue to support Greece in one or the other form. Also read: EU works on rescue plan as Spain nears crisis: RBS