In an interview to CNBC-TV18, Ramin Nakisa of UBS Investment Bank shares his views on the Eorpean markets and how it is likely to fare with the Fed holding back rate hikes.
Below is the verbatim transcript of Ramin Nakisa's interview with Reema Tendulkar & Mangalam Maloo on CNBC-TV18.
Reema: It is a quite to mixed start for the European markets despite a fairly dovish sounding Fed. What do you make of the European market opening?
A: We think that obviously Europe is going to benefit from an incredible macro story. At the moment we are still tactically cautious because we think markets are not pricey in the full whisk of Greece. So, we recently put out a note called 'Five Highest Conviction Trades' and one of those trades would be to buy downside protection before the two large redemptions in July and August and then to sum that by selling downsides for the longer term.
Matter of which we are longer term bullish but short-term we are much more cautious. And we think the crunch-point to Greece is going to come around before July and August, those two large redemptions because the Greek government is going to have to give in to the Troika’s demands and obviously that is not going to play well at home. It could cause a change in government if they are forced to back down. And if they do not back down, then there is a real possibility of a default. Either way, we think there would be volatility in markets and we think that could cause contagion in Europe.
Mangalam: Also wanted to know that the US is worried about the strengthening of the Dollar at the same the Euro zone is indulging into quantitative easing. So, what levels do you have for the Dollar index and also any trajectory for the Euro-dollar parity as well?
A: Short-term forecasts are hovering around parity so one month forecast, the Euro-dollar is 1.84, 3 month is 1.02. But then one year forecast is 1.15 and our two year forecast is 1.10. We are not going to move massively from where we are now in our view. We have already seen the very large Dollar strengthening and se we think that is largely played out. And in fact we did see a bout because of what happened with the Fed yesterday. But overall I still think that the Dollar is going to be strong once the Fed does hike. I mean this is just a delay of the inevitable. We are just going to see either, it will get pushed back from June to September at the worst I think. But our central case is still that the hike is going to happen in June. Probably see the dot plots are being moved down massively. So, they have halved since the last Federal Open Market Committee (FOMC) meeting and that is going to have a big impact upon where markets see said funds. But overall we still think that we are kind of bullish on DM, we are bearish on EM, we like the DAX, we do not like emerging EMEA. So, that would be our high conviction trade, so DM versus EM.
Mangalam: So any target that you have on the Dollar index then?
A: We do have an explicit forecast for Dixie, but we would think that we get gradual strengthening from here. It is fairly inevitable given the policy differential, but as I say, we have already seen that massive move already. So, maybe not as extreme as we have been seeing for the last month or so which has left a lot of people bewildered in terms of timing. Everybody was positioned for Dollar strengthening but the rate at which it happened surprised a lot of people.
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