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The Markets Are Pricing In A Diplomatic Solution To Syria - Leister

posted 12 Sept 2013, 07:54 by Mpelembe   [ updated 12 Sept 2013, 07:55 ]

The waning chance of an imminent US military strike is keeping the Dollar under pressure. US Secretary of StateJohn Kerry and Russian Foreign Minister Sergei Lavrov will meet today in Geneva to try to agree on a strategy to eliminate Syria's chemical weapons. But Michael Leister, Senior Rates Strategist at Commerzbank says the markets don't think there will be war and that it's no longer certain that the Fed will start tapering this month.

LONDON, ENGLAND, UK (REUTERS ) (SEPTEMBER 12, 2013) - JOURNALIST ASKING MICHAEL LEISTER: "What have the markets priced in now on Syria?"

MICHAEL LEISTER: "I think by and large on the rate side, we are seeing that the market is pricing in a diplomatic solution. We had quite a sharp move early in the week, but for now it seems really that the markets are anticipating that we're not going to war."

JOURNALIST:"Alright. And what about the Fed, what are they saying on the Fed now?"

MICHAEL LEISTER: "Well, I think the most imminent consequence for markets is the higher volatility because as you mentioned by now it doesn't seem that certain anymore that the Fed will start tapering in September indeed or by exactly what the details will be, i.e. the amount they would reduce it. So this is really creating some noise and some volatility and we're seeing this basically in today's basis with even bunds posting quite sharp changes."

JOURNALIST:"I want to get your take on Italian bond yields, above Spain's for the first time in 18 months. Does that make sense to you especially if you look at the fundamentals?"

MICHAEL LEISTER: "Indeed, we think this is justified and we have been expecting this move across the curve for a good three or four weeks now because on the fundamental side especially when you look at the reforms, Spainhas really done its homework and they have actually done quite an impressive job, the government there, whereas, Italy of course with, you know, the government crisis is not following suit in that regard. And of course this ongoing limbo and the looming decision on Berlusconi is also weighing on sentiment here."

JOURNALIST:"The Committee of course resumes today. Are the markets taking the Berlusconi stuff seriously enough, do you think?"

MICHAEL LEISTER: "Absolutely. It will be particularly interesting today because we get a new three-year bond and also get a tap of a current 15-year benchmark. Of course the timing is quite tricky, as you mentioned, with the Committee meeting again today. So it would be very interesting how this auction will go today."

JOURNALIST:"I want to get a quick word from you on France as well. They cut the 2014 growth forecast, revised public deficit forecast yesterday. Hollande I believe comes out with some strategy announcement today. What's your take on France now?"

MICHAEL LEISTER: "Well, in terms of growth, the second quarter has been quite good. Recent data has been somewhat disappointing so this revised forecast do not come as a surprise. In market terms, France has underperformed already over the past weeks. And at this point, we prefer Belgium in that credit bucket because we think it offers a better risk reward."