Mkt to remain volatile until clarity on fiscal cliff: HSBC

In an interview to CNBC-TV18, Philip Poole of HSBC says the uncertainty in terms of monetary policy no longer exists after the US election results. However, he says the fiscal cliff issue still needs to be addressed. He sees an eventual solution that will reduce the fiscal drag. 

Also read: Chances of fiscal cliff hitting higher: Barclays

"My bet would be that markets will have to worry about this because it will appear for sometime to come anyway that we are not moving towards a solution. I think the solution probably appears right at the end of the window," he told CNBC-TV18 an interview.

Below is the transcript of his interview with CNBC-TV18

Q: Big selloff last night, but how do you assess the global equity market and bond market reaction going forward?

A: Obama has been re-elected as a President. But Republicans have kept the house. So, in a sense there has not been a change. This is exactly the situation, we have been, in the run up to the election. In the short-term it has removed the uncertainty about the monetary policy. The view in the market was, if Romney won, then potentially anyway, there would be a loosening of monetary policy earlier than people expected. It has also removed the risk of escalation in trade rhetoric, if nothing else with China. So, in the short-term it is positive. In the longer term the issue of fiscal cliff has not been addressed. We are in a situation where the two sides need to agree on a solution. So, markets will start to worry about that as we move to end of the year.

Q: How do you see the equity markets doing between now and the end of 2012?

A: I think in general a lot of the tail risks that we have been concerned about have been reduced and areas of uncertainty including of course the US election has been clarified. It’s not a straightforward environment. The improvement in data that we have seen in the United States and China as well that the high frequency data can be supportive of markets through year end. But, I think it's going to continue to be constrained if you like by some of these big picture risks including fiscal cliff which obviously will be looming larger and larger as we move to the end of the year.

Q: Market seem like they were fretting about that cliff last night too. How do you see the next few weeks panning out on that front?

A: I think it is more likely that this goes right to the wire likely because from past experience. If I go back thinking about this the summer before when we had the debt ceiling issue, in the end there was no resolution to what should be cut in terms of bipartisan agreement that needed to be reached. It's going to be difficult but eventually I think there is going to be a solution. That solution will reduce the fiscal drag but my bet would be that markets will have to worry about this. It will appear for sometime to come anyway that we are not moving towards a solution. I think the solution probably appears right at the end of the window.