EU markets pin hopes on ECB announcement, roadmap: Stewart

In his analysis of the European markets, Justin Stewart of Seven Investments explains to CNBC-TV18 that the markets are positive on news of the ECB supporting the banking system in Spain and Cyprus.

He is optimistic of significant announcements to be made at the ECB meeting and adds that the indice to watch out for is the Euro Stoxx 50 whose constitutes more of strong companies rather than banks. Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: The markets are very hopeful, but what do you expect to hear from the ECB?
A: The market is certainly a bit more positive. London has been closed for a couple of days, but nonetheless, there has been increased optimism on news of the EU's plan to announce a proposal to support the banking system, particularly in Spain and in Cyprus.
It is going to be interesting to see is how the ECB will go about doing it. It looks as there will be further support from the central bank by way of extra facilities and therefore making sure that the banking system is still maintained.
I would not be at all surprised if banks are further nationalised within the EU. But the ECB wants to make sure that the plumbing of the banking system is still maintained. Q: Is this news on banking expected today and how soon are we likely to hear with respect to nationalisation of European banks? With respect to the ECB meeting today, are critical announcements expected?
A: There is very high probability that a significant announcement will be made as all banks are in dire straits with money flowing out of Greece and Spain in significant amounts at the moment.
So, they need an infusion sooner rather than later. So, if you look at the Euro Stocks Index, the banks are strong on news of support. If that support doesn't come, then be prepared for some very significant downside volatility. Q: How high is the probability of the ECB holstering its weapons until the EU meeting at the end of June? What kind of an impact will this have on the equity markets?
A: The markets are desperate for some confidence – for a roadmap about further integration within the eurozone regarding fiscal tax, banking and a depositors' insurance.
This will ensure that deposits in banks can be secured even if the banks themselves go under and to make sure there is proper coordination. If that happens, then there will be a significant rise in the markets, which at the moment, are reacting to hearsay and tittle-tattle as politicians announce poor statements.
The index to focus is the Euro Stoxx 50 which is reacting to the plans of an integration roadmap. Fortunately, a lot of the constituents of the Euro Stoxx 50 are not banks, but strong companies. So, it does provide a buying opportunity on significant weakness.