Global Markets Roundup

Transcription

1 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan- Jan-6 Jan-7 Jan-8 Jan-9 Jan- Jan-11 Jan-12 Jan-13 Jan-14 Jan-1 Jan-16 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-1 Jun-1 Sep-1 Dec-1 Mar-16 Jun-16 June 14, 216 Global Markets Roundup NBG Economic Research Division Brexit concerns deepen, driving down equities and government bond yields See disclosures and analyst certification on last page. Equity markets recorded significant losses on Friday (Eurostoxx: -2.%, FTSE: -1.9%), as some polls (ORB for The Independent) suggested increasing support for the Leave camp in the UK referendum (%). The GBP recorded losses for a third consecutive week, down.8% to GBP.79/ against the euro. Political uncertainty has increased ahead of crucial referendums/elections, worsening the sentiment for risky assets (UK: June 23, Spain: June 26, US: November 8). Moreover, the weak US payroll report for May and dovish comments by Chair Yellen have refuelled demand for safe haven assets. Risk aversion was reflected mainly in gold prices, which climbed to a 4-week high (+2.4% to $1274) and lower government bond yields. -Yr US Treasury yields fell by bps on Friday to 1.64% and 2-Yr US Treasury yields declined by 4 bps on Friday to.71%. The UST curve has bull-flattened with the /2 spread at 97 bps (the lowest since 27), usually indicative of growth concerns (see graph). -Year Bund yields decreased to +.2% -- a record low -- and -Year JGBs fell further into negative territory during the past week (-.14%). Fitch reaffirmed Japan s Government debt rating at A (Moody s A1, S&P: A+), however, cutting its outlook to negative from stable, due to the delay of the scheduled increase in the consumption tax rate (to % from 8%). Paul Mylonas, PhD NBG Group Chief Economist pmylonas@nbg.gr Ilias Tsirigotakis Head of Global Markets Research Panagiotis Bakalis The Fed is expected to maintain its policy rate at.2%-.% on Wednesday, reflecting, inter alia, the latest labor market report. The tone of the post-meeting statement should err on the side of caution, with little changes to the median interest rate forecasts. Recall that the median interest rate forecast (March 216) by the Fed for end-216 is.87% (or a target range of.7%-1.%), implying two rate hikes before end-year. For end-217, the median forecasts by the Fed is 1.87% (or a target range of 1.7%-2.%), revealing a wide gap with market pricing (1% for end-217). On Monday, equity markets suffered, with the Eurostoxx index down by -2.% and Asian bourses declining sharply. Ahead of the BoJ meeting, the Nikkei22 decreased by 3.% (-16% ytd). Market expectations are increasing for additional QE by the Bank of Japan, albeit it is likely to remain on hold on Thursday, as H1:16 data have, so far, exceeded expectations. Lazaros Ioannidis Vasiliki Karagianni The CSI3 Index (A-shares in Shanghai and Shenzhen exchanges) decreased by 3.1% (-1% ytd), as fixed asset investment data was well below expectations. Note that gross fixed investment remains a significant contributor of China s real GDP growth (+3.4 pts in 214), despite the increased importance of private consumption (+3.8 pts in 214). Charts of the week bps Recessions as defined by NBER (peak to trough for each business cycle) are in grey color US y-2y Term Spread bps China Activity Indicators % Industrial Production (YoY, left) % 17 Retail Sales (YoY, left) 29, 16 Fixed Assets Investment (YoY,right) 26, 1 24, , 12 19, 11 16, 14, 9 11, 8 7 9, 6 6, 4, Source: Bloomberg Source: Bloomberg 1

2 Economics NBG Economic Research Division June 14, 216 In the US, consumer confidence remained strong in June, corroborating the view for a pick-up in private consumption in Q2:16, to +2.8% qoq saar from +1.9% qoq saar in Q1:16 (AtlantaFed Nowcast model). The University of Michigan consumer confidence indicator came out at 94.3 in June, slightly above expectations and broadly unchanged from an 11-month high of 94.7 in May. On the other hand, inflation expectations remain a source of concern. Indeed, households short-term inflation expectations (an important input in the Fed s monetary policy decisions) remain subdued, with one-year ahead inflation expectations stable at a c. ½-year low of 2.4% in June. Moreover, longer-term inflation expectations (five to ten years ahead) reached a record low of 2.3%, compared with 2.% in May. Meanwhile, according to the Fed s Financial Accounts of the United States, households net worth rose by 3.9% q-o-q saar in Q1:16, as the housing market recovery led real estate assets to rise by 8.1% q-o-q saar. The latter more than offset the decline in equity wealth (-4% q-o-q saar). As a result, the ratio of net worth to disposable income remains high at 64% in Q1:16, compared with a long-term average of 28% (and peak of 63% in Q1:1). At the same time, household debt rose by 2.4% q-o-q saar in Q1:16 (2.8% y-o-y), with both mortgage debt increasing by 1.3% q-o-q saar (1.% y-o-y) and consumer credit debt rising to 6.2% q-o-q saar / 7.% y-o-y. Note that households debt as a percentage of GDP stands at 78.% (from 78.3% in Q4:1 and 96.4% in December 27). Regarding corporates, non-financial corporate sector debt rose by 9.2% q-o-q saar (6.% y-o-y), up from +3% q-o-q saar (6.6% y-o-y) in Q4:1, with corporate debt as a percentage of GDP reaching a record high of 4.4% (from 44.6% in Q4:1 and 43% in December 27). In the euro area, the final estimate for Q1:16 real GDP revealed strong economic momentum, led by private consumption. Real GDP growth was revised up to 2.2% qoq saar (1.7% y-o-y), from 2.1% qoq saar (1.% y-o-y) in the previous estimate. At the same time, Q4:1 euro area real GDP growth was also revised up by.4 pps to 1.7% qoq saar (1.7% y-o-y). Private consumption accelerated to.6% q-o-q in Q1:16, from.3% q-o-q in Q4:1, remaining the largest source of growth (.3 pps). The outcome was distorted only in a small part by particularly strong data in France (+1% q-o-q; c. 21% of the euro area s private consumption), that followed the subdued performance in Q4:1 due to the terrorist attacks. Government consumption increased by.4% q-o-q from.% q-o-q in Q4:1, contributing.1 pp to overall growth. Business investment rose by.8% q-o-q, from +1.4% q-o-q in the previous quarter, adding.2 pps to the headline figure, while inventories contributed.1 pp. On the other hand, net trade shed.1 pp from overall growth, as solid domestic demand resulted in import growth (+.7% q-o-q) outpacing that of exports (+.4% q-o-q). UK industrial production surprised on the upside in April. Nevertheless, the weak business surveys in the recent months and Brexit uncertainty suggest that the rise may be temporary. Industrial production rose by 2% m-o-m (+1.6% y-o-y) in April from +.3% m-o-m (-.2% y-o-y) in March, above consensus expectations for a flat outcome. More importantly, the manufacturing sub-sector overperformed (c. 7% of total production), rising by 2.3% m-o-m (+.8% y-o-y), from +.1% m-o-m (-1.9% y-o-y) previously. On a 3m/3m annualized rate basis, manufacturing production stood at +.% in April, significantly up from -2% in March. In Japan, the final estimate for GDP growth confirmed the better-than-expected performance in Q1:16. Real GDP rose by.% q-o-q (from.4% q-o-q in the previous estimate and -.4% q-o-q in Q4:1). The upward revision was mainly due to private consumption reaching.6% q-o-q (.% q-o-q in the previous estimate), adding.4 pps to overall growth (vs.3 pps previously) and business investment being revised up by.7 percentage points to -.7% q-o-q, shedding.1 pp from overall growth vs -.2 pps in the previous estimate. Furthermore, the improvement in the headline figure came despite inventories subtracting.1 pp (vs a neutral contribution in the previous estimate). The latest pick-up appears unlikely to be sustained in the current quarter, on account of the strong Yen (+.9% ytd versus the USD to 7./USD), the weaker prospects for external demand and the effects from the mid-april Kumamoto earthquakes. Consensus expects that real GDP growth will decelerate to.2% q-o-q in Q2:16. Business surveys support that view, with the ECO Watchers current condition index at an 18-month low of 43 in May from 43. in April (consensus: 43.4) and the forward-looking indicator (outlook for 2-3 months ahead) improving by 1.8 pts to 47.3, above consensus estimates for 4.9. In China, high frequency indicators in May remained consistent with a gradual stabilization in the pace of GDP growth in Q2, as monetary and fiscal policy turns less expansionary. Industrial production was stable at 6.% y-o-y, in line with consensus expectations, while retail sales (in value terms) decelerated slightly, to.% y-o-y in May from.1% y-o-y previously (consensus:.1% y-o-y). On a negative note, growth in fixed asset investment slowed to 9.6% y-o-y in May (a 16-year low), from.% y-o-y in April, undershooting consensus estimates for an unchanged outcome. At the same time, exports weakened further in May, while imports stabilized. Specifically, exports in USD terms declined by 4.1% y-o-y, from -1.8% y-o-y in April, in line with consensus estimates. At the same time the decline in imports moderated substantially, to -.4% y-o-y in May, from -.9% y-o-y in April, overshooting consensus estimates for -6.8% y-o-y. Meanwhile, the CPI decelerated to 2% y-o-y in May from 2.3% y-o-y in April, below analyst expectations (2.2% y-o-y). The decline was due to food price growth moderating to.9% y-o-y from 7.4% y-o-y previously, likely on account of weather conditions normalizing in May. 2

3 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun Mar 21-Mar 28-Mar 4-Apr 11-Apr 18-Apr 2-Apr 2-May 9-May 16-May 23-May 3-May 6-Jun 13-Jun 14-Mar 21-Mar 28-Mar 4-Apr 11-Apr 18-Apr 2-Apr 2-May 9-May 16-May 23-May 3-May 6-Jun 13-Jun Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-16 Mar-16 May-16 NBG Economic Research Division June 14, 216 Quote of the week: There are many understandable political reasons to delay structural reform, but there are few good economic ones. The cost of delay is simply too high, ECB President, Mario Draghi, June 9 th 216. Markets Global equity markets declined during the past week, as growth concerns and elevated political uncertainty (e.g. risks surrounding Brexit ) tempered investors risk appetite. Indeed, the MSCI World index was down by.7% on a weekly basis, with advanced markets strongly underperforming their emerging markets peers (-.8% vs -.1% respectively). In the US, the S&P ended the week down (-.1% wow) led by Financials (-1.6%) and Consumer Discretionary (-.8%) sectors, while volatility rose on Friday to its highest level since March (VIX index: 17.%). In Europe, investors risk appetite was downbeat, with the EuroStoxx index declining by 2.7% on a weekly basis (-2.% on Friday alone) and the FTSE down by 1.% (-1.9% on Friday). Most major euro area indices recorded losses (DAX3: -2.7% wow, CAC4: -2.6% wow, IBEX3: -3.%). In contrast, Asian markets were higher on a relative basis, with the Nikkei22 broadly flat over the week and the CSI3 index (largest A-shares in Shanghai and Shenzhen exchanges) -.8% wow. However, both indices recorded sharp losses on Monday (Nikkei22: -3.%, CSI3: -3.1%), as the negative market sentiment continued, while European equities lost further ground (EuroStoxx: -2%, FTSE: -1.2%). Government bond yields declined to record low levels during the past week, reflecting investors risk-off sentiment. Indeed, the US Yr Treasury yield fell by 6 bps on a weekly basis to 1.64%, while the US 2Yr yield declined by bps to.73%. Meanwhile, the UK s Yr Gilt yield fell by 4 bps to a record low of 1.23%, while the Japanese government s Yr bond yield declined by bps to -.14% (also the lowest on record). In the euro area, the German Yr Bund yield declined by bps on a weekly basis to.2%, while periphery bond spreads over the Bund were mixed (+ bps for Italian Yr BTPs at 136 bps, +1 bp for Spanish Yr Bonos at 141 bps and -1 bp for the Portuguese government Yr bond yield to 38 bps). The Greek government Yr bond yield rose by 18 bps to 7.49% on a weekly basis, while the yield of the bonds maturing on 17/7/217 and 17/4/219 rose by 9 bps and 4 bps, respectively, to 7.82% and 7.9%. On Monday, major economies government bond yields were little changed, with the US Treasury Yr yield down by 3 bps to 1.61% and the German Yr Bund yield stable at.2%, while euro area periphery bond spreads widened (+7 bps for Italian Yr BTPs to 143 bps, +7 bps for Spanish Yr Bonos to 148 bps and +11 bps for the Portuguese government Yr bond yield to 32 bps). Corporate bonds spreads declined on a weekly basis, with US high yield spreads down by 11 bps to 98 bps and euro high yield spreads down by 7 bps to 449 bps. Euro area investment grade bonds spreads declined by 2 bps wow to 126 bps, as the ECB initiated its Corporate Sector Purchase Programme (CSPP) on June 8, while US IG spreads remained flat at 16 bps. Note that corporate bond markets weakened on Friday, as the general negative tone in markets prevailed, with US HY spreads up by 12 bps on a daily basis and their euro area counterparts up by bps. In commodities, oil prices were mixed, with WTI rising by.9% to 49.1 $/barrel on a weekly basis and Brent down by.3% to 48. $/barrel. The decline in US oil inventories for a 3 rd consecutive week (-3.2 million barrels to 32. mb for the week ending June 6) helped oil prices to reach new highs mid-week, although gains were largely offset by Friday as another report suggested increasing US rig activity (increased drilling activity, if sustained, could result in higher US oil production). Meanwhile, precious metals strengthened, with gold rising by 2.4% wow (+2.% y-t-d) to $/oz and silver up by.6% wow (+2.1% y-t-d) to 17.3 $/oz, as investor demand for safe-haven assets was buoyant and expectations fade for a Fed funds rate hike at the June/July meetings. Gold continued to gain on Monday (+.8%). Cumulative Flows into Equity ETFs as % of AUM % % 4 US ,16 1,1 1,14 1,13 1,12 1,11 1, 1,9 1,8 1,7 % Europe excl. UK UK Japan Emerging Markets Source: Bloomberg, NBG Estimates, AUM = Assets Under Management Data as of June th bps EUR/USD (left) Source: Bloomberg - Data as of June th 12 month forward EPS Estimates (YoY) S&P EuroStoxx FTSE Nikkei 22 Source: Factset - Data as of June th - Year Government Bond Spreads Greece (left) Italy (right) Portugal (right) Ireland (right) Source: Bloomberg - Data as of June th Foreign Exchange Spain (right) USD/JPY (right) bps %

4 Economic News Diary: June 7 - June 2, 216 Day Region Release Period Survey Actual Prior Current Week Tuesday 7 JAPAN Leading Index APRIL JAPAN Coincident Index APRIL EURO AREA GDP (QoQ) Q1:16 F.% +.6%.% EURO AREA GDP (YoY) Q1:16 F 1.% + 1.7% 1.% EURO AREA Gross Fixed Capital Formation (QoQ) Q1:16 1.1% -.8% 1.4% EURO AREA Government expenditure (QoQ) Q1:16.4%.4%.% EURO AREA Household Consumption (QoQ) Q1:16.% +.6%.3% GERMANY Industrial Production (sa, MoM) APRIL.7% +.8% -1.1% GERMANY Industrial Production (wda, YoY) APRIL 1.% + 1.2%.4% Wednesday 8 UK Industrial Production (MoM) APRIL.% + 2.%.3% UK Industrial Production (YoY) APRIL -.4% + 1.6% -.2% JAPAN GDP (QoQ) Q1:16 F.%.%.4% JAPAN GDP Private Consumption (QoQ) Q1:16 F.% +.6%.% JAPAN GDP Business Spending (QoQ) Q1:16 F -.4% - -.7% -1.4% JAPAN Eco Watchers Current Survey MAY JAPAN Eco Watchers Outlook Survey MAY CHINA Exports (YoY) MAY -4.% % -1.8% CHINA Imports (YoY) MAY -6.8% + -.4% -.9% Thursday 9 US Initial Jobless Claims (k) JUNE US Continuing Claims (k) MAY CHINA CPI (YoY) MAY 2.2% - 2.% 2.3% Friday US University of Michigan consumer confidence JUNE Monday 13 CHINA Industrial production (YoY) MAY 6.% 6.% 6.% Next Week CHINA Retail sales (YoY) MAY.1% -.%.1% Tuesday 14 US Retail Sales Advance MoM MAY.3%.. 1.3% US Retail sales ex-autos (MoM) MAY.4%...8% UK CPI (YoY) MAY.4%...3% UK CPI Core (YoY) MAY 1.3%.. 1.2% EURO AREA Industrial Production (sa, MoM) APRIL.8%...8% EURO AREA Industrial Production (wda, YoY) APRIL 1.4%...2% EURO AREA Employment (QoQ) Q1: % EURO AREA Employment (YoY) Q1: % Wednesday 1 US Empire Manufacturing JUNE US Industrial Production (MoM) MAY -.2%...7% US Fed announces its intervention rate JUNE 1.%...% US Net Long-term TIC Flows ($ bn) APRIL UK ILO Unemployment Rate APRIL.1%...1% CHINA Aggregate Financing (RMB bn) MAY.. 71 CHINA New Yuan Loans (RMB bn) MAY CHINA Money Supply M (YoY) MAY.6%.. 6.% CHINA Money Supply M1 (YoY) MAY 21.9% % CHINA Money Supply M2 (YoY) MAY 12.% % Thursday 16 US Initial Jobless Claims (k) JUNE US Continuing Claims (k) JUNE US CPI (YoY) MAY 1.1%.. 1.1% US Core CPI (YoY) MAY 2.2%.. 2.1% US NAHB housing market confidence index JUNE UK Retail sales Ex Auto MoM MAY.3%.. 1.% UK BoE announces its intervention rate JUNE 16.%...% UK BoE Asset Purchase Target ( bn) JUNE JAPAN Bank of Japan announces its intervention rate JUNE % JAPAN Bank of Japan annual rise in Monetary Base ( tn) JUNE EURO AREA Eurogroup/ECOFIN finance ministers meeting Friday 17 US Building permits (k) MAY US Housing starts (k) MAY Monday 2 JAPAN Exports YoY MAY % Source: Bloomberg JAPAN Imports YoY MAY % 4

5 Financial Markets Monitor Equity Market Returns (%) Developed Markets 1 Current Level 1-w eek Year-to-Date 1-Year 2-year US S&P 296 -,1 2,6 -,6 7,8 Japan NIKKEI ,2-12,8-18,6,2 UK FTSE , -2, -,7 -,6 Canada S&P/TSX ,3 7,9 -,3 -,7 Hong Kong Hang Seng 243, -4, -21,8-9, Euro area EuroStoxx 313-2,7-9,3-14,7-6,2 Germany DAX ,7-8, -13,2-1,2 France CAC ,6-7,1-13,4 -, Italy FTSE/MIB ,1-2,1-26,1-23, Spain IBEX , -11, -23,9-23,3 Emerging Markets 1 MSCI Emerging Markets 424 -,1 1,7 -,8-7,8 MSCI Asia 661,3 -,2-13, -6,9 China -,4-6,7-28, -,2 Korea 44 1,7 3,2 -,2-7,8 MSCI Latin America ,8 9,3-6,1 -, Brazil ,4 11,9-11, -16,3 Mexico ,6 4,8,4 4,1 MSCI Europe , 4, -6, -11, Russia 841 1,3 8,6 6,8 8,1 Turkey ,6 7,9-4, -3,9 As of June, 216, 1) in local currency, Source Bloomberg World Equity Market Sector Returns (%) in US Dollar terms Current Level 1-w eek Year-to-Date 1-Year 2-year Energy 198,7 1, 11,4-14, -33,8 Materials 2,6 -,2 8,6-13,3-19,3 Industrials 199,3 -,3 3,9-3, -3,9 Consumer Discretionary 187,2-1,4-3,3-6, 3,6 Consumer Staples 218,8 -,3, 7,4, Healthcare 23, -1,3-3,2-8,1 9,6 Financials 9,7-2, -6, -14,7-13,4 IT 14,7 -, -, -1,3 12, Telecoms 71,4 -,6,1, -1,4 Utilities 121,2,6 8,,3,4 in local currency Energy 2, 1,,2-12,8-29, Materials 188,3 -,3, -13, -11,4 Industrials 19, -,3 1,1 -,2 1,8 Consumer Discretionary 179,1-1,4 -, -8, 8,9 Consumer Staples 21,2 -,2 3, 7,9 17,1 Healthcare 199,3-1,3-4, -8, 14, Financials 89,8-2,1-8, -14,6-6,3 IT 14,7 -, -1, -2,2 13,9 Telecoms 73,1 -, 2, -,2 7,6 Utilities 122,7,7 7,1,3 7,4 As of June, 216, MSCI Indices, Source Bloomberg Bond Markets (%) -Year Government Bond Yields Current Last w eek Year Start One Year Back -year average US 1,64 1,7 2,27 2,38 2,98 Germany,2,7,63,88 2,41 Japan -,14 -,,27,4 1,3 UK 1,23 1,28 1,96 2, 3,14 Greece 7,49 7,31 8,29 11,23 9,96 Ireland,74,74 1,1 1,6 4,79 Italy 1,38 1,33 1,9 2,14 4,1 Spain 1,43 1,47 1,77 2,13 4,2 Portugal 3, 3,16 2,2 2,9,2 Government Bond Yield Spreads (in bps) US Treasuries Y/2Y US Treasuries Y/Y Bunds Y/2Y Bunds Y/Y Corporate Bond Spreads (BofA/ML Indices, in bps) EM Inv. Grade (IG) EM High yield US IG US High yield Euro area IG Euro area High Yield US Mortgage Market 3-Year FRM 1 (%) 3,83 3,83 4,19 4,17 4,67 vs 3Yr Treasury (bps) As of June, 216, 1. Fixed-rate mortgage rate, Source Bloomberg Foreign Exchange & Commodities Foreign Exchange Euro-based cross rates Current Level 1-w eek 1-month 1-Year Year-to-Date EUR/USD 1,13-1, -1, -,1 3,6 EUR/CHF 1,9-2,1-2,1 3,3 -,2 EUR/GBP,79,8 -,1 8,9 7,1 EUR/JPY 12,38 -,6-2,8-13,4-7,9 EUR/NOK 9,31,1 -,3, -3,1 EUR/SEK 9,3,9, 1,2 1,9 EUR/AUD 1,3-1,1-1,,1 2,4 EUR/CAD 1,44-2,2-2,1 3,9-4,3 USD-based cross rates USD/CAD 1,28-1,2 -,6 4, -7,6 USD/AUD 1,36 -,1,,1-1,2 USD/JPY 7,,4-1,3-13,3 -,9 Commodities Agricultural 16 2,4,2 9, 14,6 Energy 419 1,3,1-37,2 13,9 West Texas Oil ($) 49,9 6,1-19,3 32, Crude brent Oil ($) 49 -,3 4,9-23,3 36,8 Industrial Metals 97 -,3 -,9-17,7 1,6 Precious Metals 167 3, -,1 7,6 2,7 Gold ($) ,4 -,3 7,8 2, Silver ($) 17,6 -, 8, 2,1 Baltic Dry Index 6,,4-3, 27,6 Baltic Dirty Tankers Index 73-3,8 -,7-19,6-16, As of June, 216, Goldman Sachs Indices for Commodities, Source Bloomberg

6 NBG Economic & Markets Forecasts Euro area & US: GDP Growth & Inflation Forecasts GDP (%) 1 214a Q1a Q2a Q3a Q4a 21a Q1a Q2f Q3f Q4f 216f HICP Inflation (%) 2 214a 21a 216f Euro area,9,6,4,3,4 1,6,6,4,, 1, US 2,,2 1,,,3 2,4,2,,6,6 1,9 Euro area,4 -,3,2,1,1,, -,1,3,8,3 US 1,6 -,1,,1,,1 1,1 1, 1, 1, 1,1 a: Actual, f: Forecasts 1. Seasonally adjusted q-o-q grow th rates, 2.Year-to-year average percent change Interest Rates & Foreign Exchange Forecasts Current (*) 3-month 6-month 12-month -year government bond yield (%) Germany,2,4,4,6 US 1,64 1,9 2, 2, Official rate (%) Euro area,,,, US,,7 1, 1,2 Currency EUR/USD 1,13 1,11 1,8 1, EUR/GBP,79,7,74,7 EUR/JPY (*) As of June 216, end of period 6

7 NBG View and Key Factors for Global Markets Euro area US Japan UK Foreign Exchange Reduced short-term tail risks Higher core bond yields Current account surplus Sluggish growth Deflation concerns The ECB s monetary policy to remain extra loose (LTROs, ABSs and covered bank bond purchases, Quantitative Easing) The Fed is expected to increase its policy rate towards 1.% in 216 Growth to remain slightly above-trend in 216 Mid-214 rally probably ahead of fundamentals Safe haven demand More balanced economic growth recovery (longterm) Inflation is bottoming out Additional Quantitative Easing by the Bank of Japan if inflation does not approach 2% Strong appetite for foreign assets The Bank of England is expected to increase its Bank Rate (currently at.%) in Q1:217 Strong, albeit slowing economic growth with real GDP at c. 2.% for Current account deficit Backloaded fiscal adjustment Policy uncertainty due to the June s Referendum Lower euro against the US dollar Higher US dollar against its major counterparts Lower yen against the US dollar Slightly stronger GBP against EUR Government Bonds Fragile growth outlook Medium-term inflation expectations remain low Ultra accommodative monetary policy by the ECB Upside risk in US benchmark yields Valuations appear excessive compared with long-term fundamentals Global search for yield by non-us investors continues Fed s commitment on only gradual tightening policy Safe haven demand Valuations appear rich Underlying inflation pressures Valuations appear rich The Fed is expected to increase its policy rate towards 1% by end-216 Safe haven demand Extremely dovish central bank Sizeable fiscal deficits Restructuring efforts to be financed by fiscal policy measures Fiscal consolidation Safe haven demand Rich valuations Relatively sticky inflation feeds through inflation expectations The Bank of England is expected to increase its Bank Rate (currently at.%) not earlier than Q1:217 Slightly higher yields expected Higher yields expected Stable yields expected Higher yields expected Equities Still high equity risk premium due to policy uncertainty Credit conditions gradual turn more favorable Fiscal loosening due to the influx of refugees Sovereign debt crisis could re-emerge EPS estimates are declining Strong Euro in NEER terms since late-21 Neutral stance on equities Very low government bond yields EPS deceleration is bottoming out Cash-rich corporates lead to share buybacks and higher dividends (de-equitization) Demanding valuations Peaking profit margins Neutral-to-positive stance on equities Aggressive QE by the BoJ Signs of policy fatigue regarding structural reforms and fiscal discipline Strong appetite for foreign assets Downward revisions in corporate earnings If sustained, Japanese Yen appreciation hurts exporters companies Neutral-to-negative stance on equities Growth recovery Undemanding valuations in relative terms High UK exposure to the commodities sector assuming the oil rally continues Policy uncertainty due to the June s Referendum Neutral stance on equities 7

8 NBG 6-Month View and Key Factors for South Eastern European Markets Emerging Markets Research Team, tel: , Turkey Romania Bulgaria Serbia Foreign Exchange High domestic debt yields Narrowing current account deficit Sizable external financing Increasing geopolitical risks and security concerns Weaker to stable TRY against the EUR Small current account deficit Sizable external financing Stable to stronger RON against the EUR Currency board arrangement Large foreign currency reserves and fiscal reserves Current account surplus Sizable external financing Stable BGN against the EUR Ongoing EU membership negotiations High domestic debt yields Precautionary Stand-By Agreement with the IMF Sizable external financing Weaker to stable RSD against EUR Domestic Debt Low public debt-to-gdp ratio Tight fiscal stance Stubbornly high inflation Stable to lower yields Low public debt-to-gdp ratio Easing fiscal stance Envisaged tightening in monetary policy Stable to higher yields Very low public debt-to- GDP ratio and large fiscal reserves Low inflation Stable to lower yields Positive inflation outlook Precautionary Stand-By Agreement with the IMF Large public sector borrowing Stable to lower yields Foreign Debt Foreign Debt Narrowing current account deficit High foreign debt yields Sizeable external financing Stable to narrowing spreads Small current account deficit Large external financing Stable to narrowing spreads Solidly-based currency board arrangement, with substantial buffers Current account surplus Large external financing Stable to narrowing spreads Ongoing EU membership negotiations Precautionary Stand-By Agreement with the IMF Sizable external financing Slow progress in structural reforms Stable to narrowing spreads Equities Attractive valuations Attractive valuations Attractive valuations Low-yielding domestic debt and deposits Attractive valuations Neutral stance on equities Neutral/Positive stance on equities Neutral/Positive stance on equities Neutral/Positive stance on equities 8

9 NBG South Eastern Europe Economic Forecasts SEE Economies f 217f Real GDP Growth (%) Turkey 2,1 4,2 3, 4, 3,6 3,8 Romania,6 3, 3, 3,8 4, 3,4 Bulgaria,2 1,3 1, 3, 2,6 2,6 Serbia -1, 2,6-1,8,7 2,6 3, Headline Inflation (eop,%) Turkey 6,2 7,4 8,2 8,8 7,8 7, Romania, 1,6,8 -,9, 2, Bulgaria 4,2-1,6 -,9 -,4,7 1,4 Serbia 12,2 2,2 1,7 1, 2,4 2,8 Current Account Balance (% of GDP) Turkey -6,2-7,7 -, -4, -4,8 -,2 Romania -4,8-1,1 -, -1,1-1,9-2,4 Bulgaria -,9 1,3,9 1,4 2,8 2,1 Serbia -11,6-6,1-6, -4,8-4,8 -,3 Fiscal Balance (% of GDP) Turkey -2,1-1,2-1,3-1,2-1,6-1,2 Romania -2, -2, -1,7-1, -3,3-2, Bulgaria -,4-1,8-3,7-2,9-1,6-1,2 Serbia -6,8 -, -6,6-3,8-4, -3, f :NBG f orecasts SEE Financial Markets 13/6/216 3-month forecast 6-month forecast 12-month forecast 1-m Money Market Rate (%) Turkey,,,2 9,8 Romania,6,9 1,2 1, Bulgaria,,1,1,2 Serbia 3,2 3,2 3,4 3,8 Currency TRY/EUR 3,3 3,3 3,32 3,3 RON/EUR 4,1 4,48 4,49 4, BGN/EUR 1,96 1,96 1,96 1,96 RSD/EUR 123,4 123,2 124, 12, Sovereign Eurobond Spread (bps) Turkey (EUR 219) Romania (EUR 224) Bulgaria (EUR 222) Serbia (USD 221)(*) (*) Spread ov er US Treasuries SEE Stock Market Returns 1 13/6/216 Last w eek return (%) YTD (%) 2-year Index Turkey ISE ,6 4,6-3,1 Romania BET-BK ,8-12,6 -,6 Bulgaria SOFIX 448,9-2,7-21,6 Serbia BELEX ,4 -,9 6,6 1. In local currency 9

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