Sept will be decisive for global markets: Societe Generale

The global markets have been on a strong foot over the last few sessions. In an interview to CNBC-TV18, Benoit Anne of Societe Generale says, global markets are getting a little more comfortable or confident with the strong policy signals coming from the Fed. "The risk picture backdrop is mixed with forces working in opposite direction," he adds.

According to him, the first week of September will be the real market test. It would be back to reality. It will be the acid test for global markets. “The first week of September will be quite decisive,” he adds. Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker. Q: What is the mood out there? We have seen the European markets notch up significant gains on hopes that the ECB will do something. Newspapers in Germany and in the UK have been hinting at things that the ECB officials have not quite confirmed in terms of bond buying at certain yield levels in the peripheral markets, how much can the markets wait, when are you expecting action? A: The risk picture backdrop is mixed with forces working in opposite direction. So, you flagged risk on Europe, which continues to be a serious issue for global markets. That is the troubling point. But at the same time, I would like to flag as well that global markets are getting a little more comfortable or confident with the strong policy signals coming from the Fed. That has been a boost to risk sentiment overall. We are working with a bit of a dilemma in terms of the risk picture here with continued concerns in Europe. But I am afraid that is nothing new. It is a continuation of the same problems, but stronger signals from the Fed. So, you have risky assets, especially in the currency space, which is the space I watch in particular, you have the high beta currencies doing well. The dollar is losing ground a bit. But, you are right, it is important to keep an eye on Europe because the headline risk continues to be quite elevated. Q: The feeling we get from speaking to the other global investors is that many of the Europeans who were fund managers were on a holiday. As they come back as news flow actually starts picking up in Europe, we could have some volatility. Do you think the tactical rally, which we saw from late July, could be drawing to a close and we could head into a rough patch with supported downside levels? A: That’s a good point. The first week of September will be the real market test. It would be back to reality. It will be the acid test for global markets. Right now, there is quite a bit of distortion from the market stand point with significant portion of market participants actually being on sideline or being on holidays. You see a relatively quite market action right now, but again the first week of September will be quite decisive. Q: As euro-dollar trader, what would you watch out for in Europe? What kind of events or statements, what dates are important for you? A: There is massive variety of risks in Europe. Europe always keeps us busy. There is Greece situation, whether Greece will be granted further leeway or more time or more financing. The Spain situation, which continues to be quite problematic as well, is not in control there. ECB policies, whether there is agreement on the general policy orientation or is there any sign of tension within the ECB or between the ECB and the EU authorities. Those are always market risks. And then there is the Germany stance is always quite important to watch, any official comment on the part of Germany could be a significant market mover. So, we have got lot of things to watch including the decision from Germany about the EFSF. That will also be a big market focus as well in coming days. Q: We have two events in the near-term, one ofcourse the Jackson Hole meeting and the other September 6, the ECB meeting. Do you think the modalities of bond buying could come out then? The August 1 meeting did not give us a clear picture of what the ECB wants and how it is going to proceed with bond buying, are you expecting the market is factoring that in from the September 6 meeting? Is anything factored in from the Jakson Hole meeting? A: I think it is still significant like a visibility at this point. So, I am going to be very wary of potential surprises. I am going to be very cautious.