Despite no breakthrough in negotiations between Greece and its creditors up until now, Nick Parsons, head of Research, UK and Europe at the National Australia Bank, says he expects a deal on Greece to be arrived at by month-end.
He says it will be taken as a negative signal if German DAX closes below 11000.
Below is the verbatim transcript of Nick Parsons' interview with Reema Tendulkar & Mangalam Maloo on CNBC-TV18.
Mangalam: A word on the Greek market and the European markets, all of them down in trade today. How much of a possibility of the Grexit has been factored in the market in case it has not been factored, what is the possible downside that we are looking?
A: I think at the moment the market is pricing the probability no more than 5 or 10 percent. It is viewing this negotiations essentially a fairly high profile, high stake, high drama game of chicken and the belief is amongst both market participants and indeed the Greek government that politics will try an over accountancy and ultimately a deal will be reached by the end of this month which will see Greece remain in the Europe. So it's priced at something like 5-10 percent probability. No more than that in the event churn - the second part of your question -- in the event that the Greece were to be forced out accidentally or deliberately then the downside could very large for asset market but for the currency, I would say large limited in time because it is quite likely we will have a sharp rebound in the euro after the initial decline.
Reema: What is the way forward now for European markets because the shadow of doubt to the shadow of uncertainty about Grexit continues to weigh on the indices, today as well the key European indices are down about a percent? In the next few days with the probability that Greece is likely to stay in the euro-zone, how do you expect the European markets to trade?
A: Let's step back for a moment from day to day changes and look that in Germany the DAX index is down now 10 percent over the last ten weeks and that's quite a significant decline. We at one point managed to trade on to 12,000 for the DAX index and here we are this morning, in fact the high was 12,390 and here we are at 11,054. So we have lost the best part of 1,500 points, we are more than 10 percent down, this is more than just a correction. There are some real concerns here that German tax-payers and German institutions are ultimately going to lose out and it's that that's weighing down on the European indices. So it is more than a one-day event. The key level to watch, if we look at Germany's stock market, would be a close below - and keep it very simple - a close below 11,000 would be a very negative technical signal. We haven't closed below 11,000 since the third week in February. Were that to happen then the technical backdrop would turn substantially negative.
More to follow...
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