Don't expect much from EU Summit: IG Markets

The European Union (EU) Summit will begin today and leaders are expected to try and chalk out a blueprint for a possible bailout request from Spain. Greece will also be on the agenda.

But, Jason Hughes of IG Markets is not expecting much from this summit and feels that Europe still remains the biggest cause for concern globally.

Speaking to CNBC-TV18, Hughes said, it is unlikely for Spain formally asking for a bailout in this summit. "We have seen Spain to be relatively reluctant to jump into the bailout. Despite there being discussions in different ways of accessing the European Stability Mechanism (ESM), at the moment they seem reluctant to want to do that," he added. Also, not much would come out of this meeting to sort issues in Greece. "We are unlikely to see much development on the Greek front, though reports from the German Press today suggested that something may well be forthcoming on the Troika releasing their latest tranche to Greece," he explained. Below is the edited transcript of Hughes’ interview with CNBC-TV18. Q: Do you think the risk on sentiment that is obvious in some global markets will continue and there is further upside for equity markets across the globe, be it US or even troubled economies like Europe? A: So far things have been going on full steam ahead in Q4. The Q3 earnings season was expected to be a bit of a worry, but so far many stocks are coming in, in line with expectations or beating expectations, so it is not quite as depressing as the first two. General economic data particularly, out of the US seems to be pretty bullish too. Last night’s housing data really surprised on the upside. There was a good round of data out of China today, at least in line with GDP and retail sales and industrial production are coming in slightly better. It does seem that the risk on wave at the moment may continue for little bit longer. Q: What is your opinion with regards with the probability of Spain actually formally asking for a bailout at this point? We did see the borrowing cost for the 10 year actually drop quite significantly and has been below that 6 percent mark for quite a while now. What is the probability of that happening especially possibly in the EU Summit? A: At this current summit it is going to be quite unlikely. We have seen Spain to be relatively reluctant to jump into the bailout. Despite there being discussions in different ways of accessing the European Stability Mechanism (ESM), at the moment they seem reluctant to want to do that. So, in this summit it is almost certainly unlikely. We are unlikely to see much development on the Greek front, though reports from the German Press today suggested that something may well be forthcoming on the Troika releasing their latest tranche to Greece, but, we are still playing a wait and see game on both of those. Q: What is the sense that you are getting about further fund flows into emerging markets? What is the pecking order within emerging markets? Is it still China over India or you think that trend has reversed? A: I think the Chinese data today certainly helped. It gave a belief that the bottom is being found in the Chinese economy. So, there certainly is a sense between analysts and the investors. The tide might be turning there.  This latest drop in quarterly GDP might be where we level out, around 7 percent for China, as an annualized growth rate.  This is very much down from the 14 percent. Which few years back was a reasonable rate that could be sustained as they further build the economy. India is bit of a different story. We still have a lot of reforms to work their way through the system. Perhaps we need to see a bit more of that opening up of the economy, before investors feel hugely confident in India once again. However, we saw the IMF downgrade the prospect of GDP coming, in sub-5 percent for India. I think that may be a little bit overdone. So there certainly is room for decent growth in both economies. I think investors are tending to favour China at this stage. _PAGEBREAK_ Q: What you said with regards to China, how exactly would you be placed on the commodities space? Yesterday's rally in Europe was actually led by the commodities ahead of the Chinese GDP data today. What your target would be on copper and Brent crude at this point? Which would be pertinent to the Indian markets? A: Oil for the moment is going to stay relatively range bound. We have still got a fair bit of supply in the system. The demand is relatively weak, as the slower growth filters through the system. We are seeing relatively high risk premium attached to both NYMEX and Brent currently, with tensions in the Middle East yo-yoing around Syria and potential Iranian sanctions. So, oil is a tricky one to quote. It probably does look a little bit overpriced at these levels, if you look two or three months down the line, particularly if the Middle East tensions do subside. On the metal side, the base metals, if the Chinese economy has found a bottom, you would see them finding a bottom here as well. They might be also having a bit more of a bullish run into the start of 2013. We are going to need consistent data out of China and America, to show that we are finally turning the corner as far as global growth is concerned
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