Italian Referendum in the upcoming weekend would not have an impact on global markets as Brexit or US elections had is the word coming from Ian Hui, Global Market Strategist, JP Morgan Asset Management, adding that it could have an impact on some of the European economies.
Talking on the FOMC meet mid-December, Hui says there is 100 percent probability of a rate hike by Fed.
Although a rising dollar has been negative for emerging markets, and has resulted in outflows, further outflows would depend on US policies by Trump government and how much stronger the US dollar will get.
Although India is a bit more insulated from global trade and policies out of US may not impact that much, the India GDP number could be impacted due to the demonetisation, says Hui.Below is the verbatim transcript of Ian Hui's interview to Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Is the Italian referendum a worry. We didn't worry so much about Brexit and Trump and paid the price. Should we worry about this one?
A: We have got the Italian referendum coming up on this weekend. However, whether it's a worry or not - I do not think it has as big implication for the global economy as Brexit and the US election but I do think it has some implication at least for Europe and any spill over effects and it suggest to Europe whether this single currency region is still going to go ahead without too many problems.
Sonia: What about the Federal Open Market Committee (FOMC). Are you expecting a rate hike in this meeting and do you expect to see more money move out of emerging markets?
A: We do have the FOMC meeting in the middle of December, so still a few weeks yet, but we at JP Morgan Asset Management like very much most of the markets. We do expect a rate hike at this meeting. We think that most of the signs are suggesting that it is the right time to hike and we have also been saying for quite a number of weeks that the Fed should raise rates. If we look at the implied probability, it's fully priced in, 100 percent chance of a rate hike as calculated by the Futures. However, I guess the idea here is that rising inflation should also mean a stronger US economy and a stronger US dollar. Most of these are interlinked and that would suggest that a rising US dollar is also tended to be negative. So it has caused a lot of outflows to emerging markets.
Whether that will continue or not, I think a lot of this will depend on an outlook for a lot of President Elect's incoming policies. There is still a lot of uncertainty over policy. We have seen the US dollar stabilise over the last day or so. They might be suggesting that the reflation trade is slightly overdone. The US dollar can only go up so far. They will have to come a point where strengthening US dollar is not so beneficial to the US economy. So depending on those factors we might still see some outflows out of emerging markets just depending on how strong the US dollar will continue to be though.
Latha: How are you approaching India now? We have a domestic trigger as well in the form of demonetisation?
A: India has some positive. It is a bit more insulated from the global trade. I think any issues over US policy will have slightly less effect on India compared to a lot of other Asian markets but I do expect gross domestic product (GDP) growth to slow when the numbers come in next quarter for just this last quarter because of the demonetisation issues.
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