Mkts reeling under poor macros; recovery seen in Japan: Pro

Robert Parker of Credit Suisse Asset Management told CNBC-TV18 that the bearish market run seems to be continuing this week on the back of negative political and economical news. However, he expected Japan's crucial economic data such as the job numbers and inflation to be on the positive side.

He saw the Tokyo consumer price index (CPI) to be up 0.1 percent year-on-year (YoY). The industrial production was expected to be up 0.3 percent YoY, he added. On the European banking summit, he expected the impasse to be solved in this week by working out a compromise formula. Also read: Brace for data deluge from Japan this week Below is the edited transcript of his interview to CNBC-TV18.
 
Q: We saw deep cuts as far as Asia went today. The Chinese market is the hardest hit, amid concerns about a severe strain in liquidity conditions. Goldman Sachs' report downgraded China for its economic growth. On the other hand, the US is dealing with quantitative easing (QE) shock. So, what essentially is Europe's story? Despite good purchasing managers' index (PMI) data last week, Europe is essentially down on global fears as our other emerging markets (EMs) too. A: Absolutely. Last week markets worldwide were hit by a raft of negative data. The market reaction to the Fed’s announcement QE tapering was negative. The market has been concerned by social unrest in Brazil and Turkey despite evidence stating that the unrest was calming down. We have seen this sharp fall in the Chinese markets because of the volatility in the interbank markets in China last week and continue this week too. Due to QE announcement, all bond markets are moving in tandem with the US treasury markets. The 10-year US treasury yield backing up to close to 2.6 percent. German yields now close to 1.8 percent. The Spanish bond yield of the 10 year is now close to five percent and while the Italian counterpart, which was less than four percent four weeks ago; has backed up to over 4.65 percent. That back up in bond yields has made investors more cautious and as a result we have seen this equity market sell off. So the causality clearly is due to poor economic and political news. The back up in US treasury yields has resulted in all bond markets selling off and as a result they have the negative impact on global equity markets. The EMs' equity markets have been the most vulnerable. There was negative news on growth slowdown in China. Also, the concerns about the sensitivity of the markets to global capital flows, has been particularly the case of the Turkey, which is very dependent upon foreign capital. _PAGEBREAK_ Q: This week is also big on the data front. Japan's inflation, household spending, industrial numbers, and jobs numbers data are expected. Do you have any expectations from Japan on Friday? There is a Brussels Summit. Banking union back is on the agenda for discussion. Any expectations on that front too? A: First of all on the European banking summit – they failed to agree a deal over the weekend. They will meet again in the middle of the week and it looks as though a compromise will be achieved on. If a bank fails, what will be the procedure with dealing with that failure and clearly the trend is towards shareholders and bondholders taking a hit. Taxpayers won't take a hit and the big debate is about deposit protection. It looks as though depositors will be protected upto an amount of 100,000 euros. So, despite a failure to agree over the last three or four days, by the end of this week, there will be a consensus. On the Japanese economy, the last couple of months actually on Japan really have been rather positive. The first quarter growth was revised upwards to four percent. We will see a move to inflation in Japan. The Tokyo consumer price index (CPI) comes out later this week which is expected to be up 0.1 percent year-on-year (YoY). If one looks at other data in Japan such as industrial production, the monthly number is probably going to be up 0.3 percent YoY. So, the trend of positive Japanese data will continue. To add a few positive points, the data out of US has improved; the data in Germany has improved. So, we have quite a sharp market sell-off at a time when underlying economic data in the last month has trended better.