ECB meet will disappoint; data cannot dam QE: Nick Parsons

Nick Parsons of National Australia Bank explains to CNBC-TV18, in his analysis of the euro-zone crisis, that Spanish Prime Minister Mariano Rajoy is desperately hoping that solution will emerge and save him from a Catch-22 situation - the pressures of the regional elections in his birthplace of Galicia on October 21 and accepting the bailout package from the ECB at the EU summit in Brussels on October 18.

Parsons adds that the Fed will not halt QE even if the data from the US turns out to be strong. Below is an edited transcript of the analysis on CNBC-TV18. Q: How serious is Rajoy's claim that Spain is nowhere near a bailout?
A: I think the warnings that we have put on all these was to remind you that he is a politician and one of the requirements for that job is an ability to be economical with the truth. He faces a very difficult set of policy options. He is being pressured by the Europeans to take a bailout package before the October 18 because there is an EU leaders summit in Brussels and they would quite like to have it all done, dusted and signed.
But equally, he is worried about regional elections on October 21 in Galicia where Rajoy was actually born. So he doesn’t want to alienate his home support. So he has got to decide who he wants to make unhappy. Does he want to make the Europeans unhappy or does he want to make his own voters unhappy? And needless to say, he is trying to put off that decision in the hope that something will turn up. Q: The ECB is scheduled to on Thursday. What is your expectation in terms of an outcome and how important would that be for the markets?
A: I can't recall an ECB meeting where my expectations have been so low. The journalists present in the room are all going to press Draghi on one question- When is Spain going to make a formal request under ECCL (Enhanced Conditions Credit Line) conditionalities? And he, of course, doesn't know the answer to that.
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There will be lots of attempts to try to ask that question in different ways and I am sure he will make lots of attempts not to be able to answer it, because he can't. So I think it is going to be a very inconclusive press conference. He has said what he is going to do or he stands ready to do in terms of policy. I expect very little fresh information to come from the ECB press conference on Thursday. Q: Germany is sounding increasingly impatient with having to ladle out cash. What should we watch out for from Merkel?
A: Remember today is German Reunification Day. Germany has experience of running a monetary union because it effectively had a monetary union with East Germany for the last 22 years. And the German officials know that operating a monetary union takes time, patience and collective effort.
Now all of these pre-requisites seem to be lacking across Europe. So in her meetings with Helmut Kohl, Merkel will discuss the importance of looking at the longer term.
Now the financial markets are very bad at having patience to look at the longer-term. So I estimate that at the ECB meeting, there will be a bit of scope for disappointment and nervousness. Investors will express disappointment with the outcomes. I would suggest to tactically take a look at the next couple of downward sessions because of impatience on the part of investors. Q: There is also some amount of US data which is expected. How important would it be for the European markets?
A: I think the US data is generally going to be well received by markets, because the Fed's reaction is not symmetrical. We know that even if we get strong data, the Fed is not going to stop or even reverse QE.
But equally, we have been told that if the data does not improve, they might well extend QE in terms of either duration or its amount. So if we get really bad numbers we can say, Hurrah! we are going to get QE4 and if we get strong numbers we can say Hurrah! that despite that strength, the Fed is not going to do anything to the monetary policy.