Near-term action vital to contain euro zone carnage: Citi

In an interview to CNBC-TV18, John Woods, the managing director and chief investment strategist, APAC, Citi Private Bank says that even though there are medium to long-term initiatives being taken by euro zone policymakers, near-term action is the need of the hour to contain the carnage in the region.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: More and more there seems talk of some kind of policy backed action, whether it is in he form of a greater fund being created for European banks, euro bonds or even a direct QE from the Fed, does it look likely given what has happened with assets across the world that that maybe coming?

A: I think there is more and more talk because increasingly it appears that the euro-zone is in flames whilst policymakers fiddle as it were. In other words, whilst we are seeing a number of what might be described as medium-term to long-term initiatives being unveiled, I think there is the view that if bond yields march higher particularly in countries like Spain, the need for some slightly more near-term action is required in order to contain the carnage that we have been seeing in markets in recent days.

Q: The falls have gotten accelerated in many Asian markets through last week. Are you hearing in sync of the fall now being punctuated with sharp outflows, something we didn’t see in the course of the last month?

A: That is the case. We are now seeing some acceleration in volumes which has been different to the last couple of weeks or so. We were seeing price falls but accompanied on very minor volumes and for that reason I don’t think the market was giving it too much importance or credibility.

Volumes have increased and outflows have increased. As the market tries to come to terms with what is really a confluence of catalysts or sell catalysts that being the very sharp decline in China numbers that we saw, obviously, the body blow to the employment market in the US from the payrolls numbers and the generic in general on the core and negative data and newsflows coming from Europe.

Q: We have lost quite a bit of ground already but just in terms of prices, how much more downside risk would you say there is to markets from here? Would you be surprised by something more than a 10% cut or do you think that indeed is on the table?

A: Generic markets will remain under pressure and I wouldn’t be at all surprised if we see falls in excess of 5-7% over the next couple of weeks. I guess we do have something of a liquidity event either way in terms of the Greek elections, if for example they vote in favour of austerity in much the same way the Irish did last week then we could see a short-term reprise in the sell-off. We could see indeed a bit of a bounce as the market tries to price in the expectation of Greece remaining within the euro zone but any breather or respite we have I suspect will be short-lived.