Global markets have been witnessing weakness primarily on account of fears of debt crisis returning to Europe with partially failed Spanish bond auctionand disappointing from the Federal Reserve in terms of quantitative easing (QE3), said Dariusz Kowalczyk of Credit Agricole CIB.
He told CNBC-TV18 that there is a big fear of Spain now becoming the next Greece. "Spain hasn't behaved very responsibly in terms of latest Budget and the results were seen in yesterday's auction, where yields were high. Markets are concerned that there could be now a systemic concerns related to Spain," he added.
Meanwhile, he feels one could buy the Indian rupee in April. "April could be a good time to buy at least the Indian currency because it is trading pretty weak. I don't think RBI will allow lot more weakness," he added.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: What are you making of this weakness we have seen overnight in Europe, are their fears now back on forefront on perhaps Spain being the next Greece?
A: That is a big fear. Spain hasn't behaved very responsibly in terms of latest Budget and the results were seen in yesterday's auction, where yields were high. Markets are concerned that there could be now a systemic concerns related to Spain and Spain is much more bigger and much more difficult to save.
Europe in the end will consolidate, but it is possible that in the near-term those concerns will be important for the market. But, at the same time we had disappointment related to the Fed.
We had seen that the odds of QE3 are smaller, this means less liquidity support from markets and the data also disappointed. All of that conspired and happened at the same time that is why we have weaker sentiment and declines in emerging Asia.
Q: What exactly happened on the commodity space because we had safe haven trade such as gold come off quite significantly and we saw quite a tumble in silver as well? Give us a sense on what you expect from commodities basket going forward and also yesterday according to you what took place?
A: In terms of commodities, we have seen the gold market being kind of heavy. It finished Q1 on a weaker note and Q2 now is opening weaker, it is partly because of what is happening in India the duty on import markets and China was closed for three days, so they were not buying.
But predominantly because you have less QE than people expected, it means less printing out of dollars, less delusion of paper money and therefore less need for a hard currency like gold to be in demand. That is one of the reasons why gold declined. Silver somewhat correlated, also concerns of a growth globally. Gold could rebound a little bit after the weakness over the past two months, but the outlook is not stellar.
Q: In such a risk off scenario how would you be placed on something like the Indian markets?
A: In the very short-term there is significant risk that people will be spooked by Chinese Q1 GDP data, and US market is high up so it could correct. But, sometime in April could be a good time to buy at least the Indian currency because its trading pretty weak and I don't think RBI will allow lot more weakness.
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