Mkts to stay volatile in coming weeks: State Street Global

Pledge by the German and French leaders boosted hopes that the euro-zone debt crisis may be resolved which in turn showed a strong rally overnight in the international markets.

George Hoguet, strategist of emerging markets at State Street Global Advisors feels that the global rally of the last couple of days isn't sustainable. "Until we have greater clarity on the European sovereign crisis and the related banking crisis, it will be hard for the markets to sustain the rally," he told CNBC-TV18 in an interview.
Along with economic activity slowing around the world, Europe might have a recession in the next 90 days, Hoguet indicated. The growth slowdown in emerging markets has also been very visible. "We will be in volatile market for some weeks to come and it will be very news and data driven in terms of the macro economic indicators," he added.
According to Hoguet, the equity risk premium, which might be the amount over bonds that equities have to return for the people to hold equities, is very high relative to historic norms. Bonds yields are now hovering in the US around 2%.
At the same time, Hoguet pointed out that these are the extraordinary times with earnings downgrades that are likely to follow GDP downgrades. "There is a definite risk of a tail event in the eurozone," he explained. Watch the accompanying video for the complete interview...