High chances of getting European version of QE: Stewart

Justin Urquhart Stewart of Seven Investments, says that there is confidence that the euro has received has received more political support.

It is not out of the woods, there are many issues still to address like Troika review of Greece which may crop up as a bad news but the mood music is that they are going to be more flexible on it so long as action is being seemed to be taken. But it wouldn't be surprising that we will see the European version of quantitative easing. Below is the edited transcript of his interview to CNBC-TV18. Q: Do you think the rally that we have seen in risk assets over the last one and a half months is peaking out now? Are markets looking a bit tentative ahead of the Wyoming and ECB meeting on 6th September?
A: Last year in August, we saw downgrade of the US credit rating and a near 20% drop in some euro stocks, whereas this year in August we saw good resilience despite news not being more impressive.
One has to be prepared for some upcoming turbulence with regards to the happening in the US elections, Dutch elections and German Constitutional Court coming up later this month, all this will add nervousness to the markets. So, people in terms of market flows are taking some risks off the table. Q: What’s helping the euro hold on? Is this an expectation that we are going to see a QE and therefore dollar could turn weak? What explains this strength in the euro?
A: In the last few months, we saw some confidence bouncing back into the euro. The fact is that the ECB is likely to take action on Draghi proposal with regards to Spain and Portugal which means that there will be some support in the form of quantitative easing or some mechanism. Another dose of euro fund is likely to come its way, but definitely there has been a change in attitude.
Behind the back there is confidence that the euro has received has received more political support. It is not out of the woods, there are many issues still to address like Troika review of Greece which may crop up as a bad news but the mood music is that they are going to be more flexible on it so long as action is being seemed to be taken. But it wouldn't be surprising that we will see the European version of quantitative easing. Q: Are you expecting the modalities of bond buying to emerge in the upcoming ECB meeting on 6th September? Like how the ECB will proceed with the buying of bonds in Spain and Italy?
A: I don’t think that we are going to see any major change in policy. But a phrase like provisioning of necessary support is being used over the past month.
The real question comes, will they start moving having greater focus on more growth agenda rather than just austerity and I have an impression that is beginning to change. But a lot will depend upon what the German Constitutional Court said later this month, because it’s still about German attitude. Yes we will provide support, but not at any price and we want those countries to be seen to be carrying out their reforms. Q: German EFSF chief who passed through India last week opined that there is 80% probability that the German Constitutional Court will not stand in the way of the creation of the ESM? What else would you watch out for? There is of course the German Constitutional Court opinion verdict, there is the ECB meeting on 6th September, are there any other events lined up that might be seminal other than Jackson Hole?
A: There is Dutch Election which may seem relatively minor, but the Dutch are very pro-European, that’s a matter the issue they have had over the past few months that much do they wish to support the euro. I think generally the message is more support. Q: Will the appetite to buy more risk assets continue?
A: Absolutely, there is risk-on for the moment. People are very happy buying some insurance in terms of some puts to buy some support beneath here, but generally at the moment there is a little bit more optimism coming through. But beware this is the season of volatility. September and October traditionally you are going to always see that and I don’t think that this year is going to be any different, so seasonal storms.