Global Markets Roundup

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1 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Nikkei-225 EuroStoxx S&P500 FTSE100 MSCI EM Precious Metals Industrial Metals WTI Italian Govt Bond UK Govt Bond Spanish Govt Bond US Treasury Bond German Bund USD YEN EURO EM Currency Index Euro area HY US IG US HY December 22, 2015 Global Markets Roundup NBG Economic Research Division Markets «took in stride» the interest rate increase by the Fed See disclosures and analyst certification on last page. The Fed, as expected, increased the target for the Federal funds rate by 25 bps to 0.25%-0.50%. This was the first hike since 2006, marking the Fed s confidence that the labor market is heading towards fullemployment. The unemployment rate (5.0%) has already declined within its long-term norm (4.8%-5.0%). Τhe markets reacted positively to the Fed s statement underscoring that the pace of tightening thereafter would be only gradual and data-dependent. Indeed, the Fed s forecasts regarding the cumulative pace of tightening for 2016 is 100 bps or 4 hikes to 1.50% (unchanged with three months ago). These interest rate estimates are consistent with forecasts of (i) 2.4% GDP growth; (ii) 1.6% inflation; and (iii) 4.7% unemployment rate (broadly unchanged with three months ago). The US economy could clear the GDP/unemployment bar, whereas oil prices need to stabilize for inflation to end Q4:2016 at 1.6% yoy. The Fed expects inflation to revert to 2% though it remains cautious due to (i) the current shortfall compared with the target (-1.8%) and (ii) the declining survey and market expectations (see graph). It would monitor actual and expected data carefully and would not hesitate to pause if inflation disappoints. For 2017, the Fed s forecast for interest rates is a tightening of 100 bps to 2.50% (from 2.75% three months ago). Nevertheless, the market continues to price in fewer hikes than the level of tightening expected by the Fed. The markets expect an interest rate path of 50 bps per annum with the Fed funds rate at 1.50% by end Importantly, the Fed will continue the policy of reinvesting principal payments and rolling over maturing debt of its balance sheet ($1.7tn USTs and $1.8tn MBSs) until normalization of the level of the federal funds rate is well under way -- rates of 1%-2% based on the FOMC minutes. All told, markets reacted positively, with the MSCI World Index rising by 1.4% following the FOMC meeting (S&P500 up by 1.5%/ Eurostoxx: +1.6%) on a daily basis. However, equities surrendered their gains by the end of the week (S&P500: -0.3% wow) as the slide in oil prices continued to hurt sentiment. Indeed, the WTI declined by 2.5% (to 34$/brl), its lowest level since Oil prices have fallen 35% ytd and is the worst performing asset class, followed by EM FX and EM equities (see graph). Note, that the US Congress lifted a 40-year ban on crude oil exports. Albeit giving US producers extra flexibility, no substantial effect on prices is expected as global oil markets suffer from excess supply. UST yields rose in anticipation of the Fed s meeting, with the 2-Year yield increasing above 1% for the first time since April 10. However, yields reversed course from Thursday onwards as weakening oil prices increased concerns over deflation. Still, they were up wow 8 bps to 0.95% (10Yr:+8 bps to 2.21%). The USD gained ground versus advanced FX (Dollar Spot Index: +1.2%), appreciating by 1.1% against the euro to USD 1.09/ and by 2.1% against the GBP to USD 1.49/. The BoJ adjusted its QQE2, extending the average maturity of its JGB purchases to 7Yr-12Yr from 7Yr- 10Yr and expanding ETF purchases by a minor 300bn (0.06% of GDP). With this announcement, the likelihood that the BoJ will take aggressive action in Q1:2016 has declined. Thus the JPY appreciated by +1% to USD 121/ and the Nikkei225 decreased by 1.9% following the announcement. In Spain, uncertainty has risen following the elections, as there is no visibility for a viable government. The People s Party (PP) won the general elections (29% of the votes) but it fell short of the overall majority (123 seats out of 350) needed to form a Government. The Socialist Party came second (22%), followed by Podemos (21%) and Citizens (14%). Increased political uncertainty sent Spanish assets lower with the IBEX 35 equity market index declining by 3.6% on Monday (Eurostoxx:-1.4%) and 10Yr Bonos-Bund spread widening by 8 bps to 122 bps. Paul Mylonas, PhD NBG Group Chief Economist pmylonas@nbg.gr Ilias Tsirigotakis Head of Global Markets Research Panagiotis Bakalis Lazaros Ioannidis Vasiliki Karagianni This is our last GMR issue of the year. We wish our readers a happy holiday season! Charts of the week Uni. Of Michigan Inflation Expectations (5-10y ahead) % % Fed's 5y/5y Forward Breakeven Inflation Rate 3,6 3,6 3,4 3,4 3,2 3,2 3,0 3,0 2,8 2,8 2,6 2,6 2,4 2,4 2,2 2,2 2,0 2,0 1,8 1,8 1,6 1,6 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% Equities Asset Classes Performance Year-to-Date Commodities Government Bonds Foreign Exchange Credit Source: Bloomberg Source: Bloomberg 1

2 Economics US industrial production in November disappointed, falling for a third consecutive month, by 0.6% m-o-m (-1.2% y-o-y) from -0.4% m-o-m (+0.3% y-o-y) in October (consensus: -0.2% m-o-m). The outcome was consistent with the weak ISM manufacturing readings for November (48.6). Low oil prices weigh negatively on mining (-1.1% m-o-m) and utilities (-4.3% m-o-m), albeit the latter was likely distorted by the unusually warm weather holding down the demand for heating. The manufacturing subcomponent (which accounts for 75% of total production) was flat m-o-m (0.9% y-o-y), from +0.3% m-o-m (+1.8% y-o-y) in October. On a 3m/3m annualized rate, manufacturing production was up by 1.3% (down from 2.3% in October). Meanwhile, business surveys failed to brighten the outlook. Indeed, the Philadelphia Fed Business Index returned to negative territory in December, falling to -5.9 versus +1.9 in November. The Empire manufacturing index improved in December (-4.6), from in November, remaining though in contraction territory for a fifth consecutive month (long-term average of +8.4). Inflation data for November improved, albeit in general still supporting the Fed s cautious assessment of inflation given the continued strengthening of the USD. Specifically, core CPI remained stable at 0.2% m-o-m in November, mainly due to increased prices in transportation and medical care services. The annual change in core CPI inched up by 0.1 pp at +2.0% y-o-y, in line with expectations. Headline inflation was flat on a monthly basis (+0.2% m-o-m in October), with the annual rate of CPI rising to +0.5% from +0.2% previously, as the effect from past year s fall in oil prices gradually dissipates. Recall that the PCE deflator (the Fed s preferred measure of gauging inflation pressures) for October stood at 0.2% y-o-y, unchanged from September, while the core figure was also unchanged at 1.3% y-o-y. Housing market data was positive overall, suggesting that the recovery continues and that the sector remains supportive for the economy. Specifically, housing starts rose by 10.5% m-o-m (+16.5% y-o-y) to 1173k in November, from -12.0% m-o-m (-1.6% y-o-y) in October, (consensus for 1130k) with unseasonal warm weather supporting the improvement. In addition, building permits rose by 11.0% m-o-m (+19.5% y-o-y) to a 5-month high of 1289k in November, from +5.1% m-o-m (+3.7% y-o-y) in October. On a negative note, the NAHB survey index that captures homebuilders confidence for new home sales, was 61 in December (consensus: 63), down 1 point from the previous month. In the euro area, business surveys for the end of the fourth quarter were mixed, remaining though consistent with a moderate recovery. The euro area composite PMI came out at 54.0 in December (from 54.2 in November). In Q4:15 the composite PMI was 54.0, on average, from 53.9 in Q3:15, consistent with real GDP growth of 0.3% q-o-q (the same as in Q3:15). The outcome was mainly driven by the decrease in the services subcomponent (-0.3 pts to 53.9), while manufacturing increased by 0.3 pts to 53.1, the highest since May Regarding PMI performance by country, France moved closer to stagnation, while Germany also experienced some weakness. Specifically, the French composite PMI came out to 50.3 in December from 51.0 previously, below estimates (51.0). The services PMI decelerated to 50.0 (-1 pt), with some companies still reporting subdued activity on the back of the Paris attacks. Meanwhile, the manufacturing PMI strengthened (+1 pt) to 51.6 in December, the highest since March The German composite PMI fell slightly to 54.9 in December from 55.2 in November below estimates of The decline was driven by the services PMI, which weakened to 55.4 (-0.2 pts), while the manufacturing PMI rose to 53.0 (+0.1 pts). In addition, business confidence unexpectedly declined in December due to the uncertainty in emerging markets and the refugee crisis. Specifically, the IFO business survey decelerated to in December from in November. The current condition subcomponent declined to in December, from previously and the forward-looking expectations component remained stable at In addition, the ZEW expectation indicator for the German economy is consistent with a slight deceleration in economic growth. Specifically, the ZEW forward-looking survey came out at 16.1 in December (from 10.4 in November), overshooting consensus expectations of 15.0, but still below the 15-year average of Meanwhile, euro area employment continues to improve, increasing by 0.3% q-o-q in Q3:15, following a revised increase of 0.4% in Q2:15, reflecting inter alia, the improving economic outlook, as well as labor market reforms in some countries (e.g. Spain). The annual rate in employment increased 1.1% y-o-y the highest since Q3:08. Recall that the unemployment rate in the euro area fell to 10.7% in October, the lowest since January In the UK, labor market developments continue to be positive as the unemployment rate declined by 0.1pp to 5.2% in October (lowest since June 2008) and employment recorded solid gains. Indeed, employment growth rose by 207k (1.6% y-o-y, its highest rate in seven months) in October, from 1.4% y-o-y in September overshooting consensus estimates (+150k). On the downside, earnings growth was weaker than expected. Specifically, average weekly earnings (ex-bonuses) rose by 2.0% y-o-y in October from 2.4% y-o-y in September. Earnings growth peaked at 2.9% y-o-y in July (in line with longterm average growth). On the inflation front, CPI growth edged up to 0.1% y-o-y in November, following a 2-month period of decline (-0.1%). Favorable base effects relating to transport prices, primarily driven by motor fuels, contributed positively (+0.08 pp) to the annual change. Energy prices edged down by 8% y-o-y in November from -8.5% y-o-y in October. Core inflation rose modestly to 1.2% y-o-y from 1.1% y-o-y in the previous month. Recall that the BoE expects inflation to remain subdued (below 1.0%) until H2:16. In Japan, the trade balance for November showed signs of improvement. Specifically, in seasonally adjusted value terms, exports were up by 0.5% m-o-m (-3.3% y-o-y) in November after increasing by 0.4% m-o-m (-2.2% y-o-y) in October, while imports decline accelerated to -2.2% m-o-m (-10.2% y-o-y) from -1.2% m-o-m (-13.4% y-o-y) previously. As a result, the trade balance improved to a deficit of 3.3bn in November from bn in October, compared with consensus expectations for bn. On a 12-month rolling basis, the trade balance stood at -0.7% of GDP in November, from -2.8% a year earlier. 2

3 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec Sep 28-Sep 5-Oct 12-Oct 19-Oct 26-Oct 2-Nov 9-Nov 16-Nov 23-Nov 30-Nov 7-Dec 14-Dec 21-Sep 28-Sep 5-Oct 12-Oct 19-Oct 26-Oct 2-Nov 9-Nov 16-Nov 23-Nov 30-Nov 7-Dec 14-Dec Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 In China, the housing market recovery appears well sustained, according to November data, suggesting that the October signs of a slowdown were temporary. Specifically, 33 out of 70 cities (47%) monitored by China s National Bureau of Statistics (NBS), reported a monthly increase in prices of new residential buildings in November, compared with 39% of cities in October (and only 3% in January). On average, prices for new residential buildings rose for a seventh consecutive month, accelerating to 0.2% m-o-m in November from 0.1% m-o-m in the previous month, while the annual rate of decline slowed to 0.4% y-o-y from -1.2% y-o-y in October and a trough of -6.3% y-o-y in April. Cumulative Flows into Equity ETFs as % of AUM % % 35 US 35 Europe excl. UK UK 25 Japan 25 Emerging Markets Quote of the week: We would like to be able to move in a prudent, and as we've emphasized, gradual manner. It's been a long time since the Federal Reserve has raised interest rates, and I think it's prudent to be able to watch what the impact is on financial conditions and spending in the economy Fed Chair, Janet Yellen, December 16 th, Markets Global equity markets were mixed, with downward pressures on oil prices moderating investors risk appetite amidst the Fed s first interest rate hike since The MSCI World rose by 0.4% on a weekly basis, with emerging markets outperforming their developed markets peers (+1.6% vs 0.2%). The S&P500 index gained 1.5% on Wednesday as the Fed s outlook for the future path of interest rates remained more benign compared with prior cycles, but edged down (-0.3% on a weekly basis). Defensives sectors (S&P500) outperformed, driven by utilities (+2.8%). Euro area equities strengthened ahead of the Fed against a weaker euro (-1.0% in NEER terms), with the EuroStoxx index advancing by 1.8% over the week. Within euro area markets the DAX30 index outperformed (+2.6%). Japanese equity markets declined as investors doubted further monetary policy stimulus in H1:15 following the BoJ s announcement of a new ETF purchases programme (Nikkei225: -1.9% on Friday, -1.3% on a weekly basis). In China, domestic markets rose sharply, with the CSI300 (largest A-shares in Shanghai and Shenzhen exchanges) up by 4.4%. The positive sentiment remained on Monday (the CSI300 up by 2.4%) following the Government s Central Economic Work Conference. According to the press release, fiscal policy will turn pro-active and monetary policy will remain flexible in 2016 in order to support structural reforms Government bond yields rose on the Fed s interest rate increase but moderated from Thursday onwards as weakening crude prices put pressure on inflation expecations. Indeed, the US Treasury yields advanced across the curve ahead of the meeting only to edge lower thereafter (10Yr Treasury yields +8 bps on a weekly basis to 2.21%). In the euro area, the German 10Yr Bund yield was stable at 0.55%. Periphery bond spreads over the Bund were broadly flat as well, with the exception of the Spanish 10Yr Bonos spread (+6 bps to 114 bps) ahead of the general elections. Following the outcome (see page 1), the Spanish 10Yr spread rose by 8 bps to 122 bps on Monday. Corporate bond spreads widened with US high yield bond spreads up on a weekly basis by 10 bps to 720 bps and investment grade bond spreads broadly unchanged (+3 bps to 174 bps). In foreign exchange markets, the US dollar gained ground across the board advancing by 1.1% on a weekly basis against the euro (to $/1.09) and by 2.1% against the British pound (to $/1.49). Regarding EM FX, the Argentine peso fell sharply on Thursday (-34.4% on a weekly basis to 13.1 against the US dollar) as the Government lifted capital controls. In commodities, downward pressures for oil continued during the past week due to an unexpected increase in US crude oil inventories (+4.8 mbbl vs consensus for -1.4 mbbl for the week ending December 11). Indeed, WTI declined by 2.5% (to 34.7 $/barrel) and Brent fell by 6.1% (to 35.1$/barrel). Oil prices have fallen circa 35% (WTI) so far this year Source: Bloomberg, NBG Estimates, AUM = Assets Under Management Data as of December 18th bps ,16 1,15 1,14 1,13 1,12 1,11 1,10 1,09 1,08 1,07 1,06 1,05 % Year Government Bond Spreads Greece (left) Portugal (right) Ireland (right) Source: Bloomberg - Data as of December 18th EUR/USD (left) Source: Bloomberg - Data as of December 18th Foreign Exchange Italy (right) Spain (right) USD/JPY (right) 12 month forward EPS Estimates (YoY) S&P500 EuroStoxx FTSE 100 Nikkei bps % Source: Factset - Data as of December 18th 3

4 Economic News Diary: December 15 - December 28, 2015 Day Region Release Period Survey Actual Prior Current Week Tuesday 15 US Empire Manufacturing DECEMBER US CPI (YoY) NOVEMBER 0.4% + 0.5% 0.2% US Core CPI (YoY) NOVEMBER 2.0% 2.0% 1.9% US NAHB housing market confidence index DECEMBER US Net Long-term TIC Flows ($ bn) OCTOBER UK CPI (YoY) NOVEMBER 0.1% 0.1% -0.1% UK CPI Core (YoY) NOVEMBER 1.2% 1.2% 1.1% EURO AREA Employment (QoQ) Q3: % 0.4% EURO AREA Employment (YoY) Q3: % 1.0% GERMANY ZEW survey current situation DECEMBER GERMANY ZEW survey expectations DECEMBER Wednesday 16 US Housing starts (k) NOVEMBER US Building permits (k) NOVEMBER US Industrial Production (MoM) NOVEMBER -0.2% % -0.4% US Markit US Manufacturing PMI DECEMBER US Fed announces its intervention rate DECEMBER % 0.50% 0.25% UK ILO Unemployment Rate OCTOBER 5.3% + 5.2% 5.3% JAPAN Nikkei PMI Manufacturing DECEMBER EURO AREA Markit Eurozone Manufacturing PMI DECEMBER , EURO AREA Markit Eurozone Services PMI DECEMBER EURO AREA Markit Eurozone Composite PMI DECEMBER EURO AREA Trade Balance SA ( bn) OCTOBER Thursday 17 US Philadelphia Fed Business Outlook DECEMBER US Initial Jobless Claims (k) DECEMBER US Continuing Claims (k) DECEMBER UK Retail sales Ex Auto MoM NOVEMBER 0.5% + 1.7% -0.8% JAPAN Exports YoY NOVEMBER -1.6% % -2.2% JAPAN Imports YoY NOVEMBER -7.3% % -13.4% EURO AREA ECB publishes its economic bulletin GERMANY IFO- Business Climate Indicator DECEMBER GERMANY IFO- Current Assesment DECEMBER GERMANY IFO-Expectations DECEMBER Friday 18 JAPAN Bank of Japan annual rise in Monetary Base ( tn) DECEMBER Monday 21 EURO AREA Consumer Confidence Indicator DECEMBER Next Week Tuesday 22 US GDP (QoQ, annualized) Q3:15 F 1.9%.. 2.1% US Personal Consumption Q3:15 F 2.9%.. 3.0% US Existing home sales (mn) NOVEMBER Wednesday 23 US Personal income (MoM) NOVEMBER 0.2%.. 0.4% US Personal spending (MoM) NOVEMBER 0.3%.. 0.1% US PCE Deflator (YoY) NOVEMBER 0.4%.. 0.2% US PCE Core Deflator (YoY) NOVEMBER 1.3%.. 1.3% US Durable goods orders (MoM) NOVEMBER -0.7%.. 2.9% US Durable goods orders ex transportation (MoM) NOVEMBER 0.0%.. 0.5% US New home sales (k) NOVEMBER UK GDP (QoQ) Q3:15 F 0.5%.. 0.5% UK GDP (YoY) Q3:15 F 2.3%.. 2.3% Thursday 24 US Initial Jobless Claims (k) DECEMBER US Continuing Claims (k) DECEMBER Friday 25 JAPAN Unemployment rate NOVEMBER 3.2%.. 3.1% JAPAN CPI (YoY) NOVEMBER 0.3%.. 0.3% JAPAN Core CPI (YoY) - ex. Fresh Food NOVEMBER 0.0% % JAPAN Core CPI (YoY) - ex. Fresh Food and Energy NOVEMBER 0.8%.. 0.7% JAPAN Construction Orders YoY NOVEMBER % Monday 28 JAPAN Industrial Production (MoM) NOVEMBER % Source: Bloomberg JAPAN Industrial Production (YoY) NOVEMBER % JAPAN Retail sales (MoM) NOVEMBER % JAPAN Retail sales (YoY) NOVEMBER % 4

5 Financial Markets Monitor Equity Market Returns Developed Markets 1 Current Level 1-w eek change Year-to-Date change 1-Year change 2-year change US S&P ,3-2,6-2,7 10,8 Japan NIKKEI ,3 8,8 10,3 21,8 UK FTSE ,7-7,8-6,4-6,8 Canada S&P/TSX ,8-11,0-9,2-2,3 Hong Kong Hang Seng ,4-7,8-4,7-6,0 Euro area EuroStoxx 343 1,8 7,4 7,6 14,0 Germany DAX ,6 8,2 8,1 15,5 France CAC ,7 8,3 8,8 12,6 Italy FTSE/MIB ,1 11,7 11,4 17,2 Spain IBEX ,9-5,5-6,5 2,9 Emerging Markets 1 MSCI Emerging Markets ,6-8,7-6,5-5,0 MSCI Asia 659 1,5-8,5-5,9-2,6 China 59 1,9-10,6-7,0-6,3 Korea 533 1,1-0,7-0,3-8,3 MSCI Latin America ,5-10,9-8,6-12,8 Brazil ,6-14,7-12,0-19,0 Mexico ,1-1,6 0,1 1,2 MSCI Europe ,1-5,1-6,4-12,6 Russia 759 0,3 14,6 10,6-2,9 Turkey ,9-15,6-13,0 2,1 As of December 18, 2015, 1) in local currency, Source Bloomberg World Equity Market Sector Returns in US Dollar terms Current Level 1-w eek change Year-to-Date change 1-Year change 2-year change Energy 174,3-1,2-26,7-25,7-34,6 Materials 179,8-1,9-19,4-18,5-22,2 Industrials 188,0-1,0-5,7-5,1-3,9 Consumer Discretionary 191,4-0,4 2,8 4,4 8,2 Consumer Staples 204,7 0,3 2,4 2,4 9,8 Healthcare 206,2 0,9 3,2 0,8 22,6 Financials 95,4 0,4-7,1-6,5-3,4 IT 144,1-1,4 2,0 1,6 20,9 Telecoms 66,7 0,6-2,5-3,3-4,8 Utilities 109,7 1,3-10,9-10,8 1,4 in local currency Energy 177,3-0,6-23,8-22,6-29,7 Materials 173,9-1,2-15,0-13,7-12,4 Industrials 189,5-0,6-2,8-1,8 4,9 Consumer Discretionary 187,5 0,0 5,3 7,4 16,3 Consumer Staples 204,0 0,9 5,3 5,8 18,2 Healthcare 204,7 1,4 5,1 3,0 29,9 Financials 96,7 0,9-2,9-2,0 6,6 IT 140,7-1,3 2,9 2,6 24,4 Telecoms 70,0 1,3 1,9 1,6 6,3 Utilities 112,5 1,8-7,8-7,3 9,9 As of December 18, 2015, MSCI Indices, Source Bloomberg Bond Markets 10-Year Government Bond Yields Current Last w eek Year Start One Year Back 10-year average US 2,21 2,13 2,17 2,21 3,11 Germany 0,55 0,54 0,54 0,62 2,58 Japan 0,27 0,32 0,33 0,36 1,11 UK 1,83 1,81 1,76 1,87 3,27 Greece 8,13 8,61 9,75 8,61 9,72 Ireland 1,07 1,04 1,25 1,30 4,92 Italy 1,57 1,54 1,88 1,96 4,13 Spain 1,69 1,62 1,61 1,74 4,12 Portugal 2,49 2,45 2,69 2,77 5,54 Government Bond Yield Spreads (in bps) US Treasuries 10Y/2Y US Treasuries 10Y/5Y Bunds 10Y/2Y Bunds 10Y/5Y Corporate Bond Spreads (BofA/ML Indices, in bps) Global Inv. Grade (IG) Global High yield US IG US High yield Euro area IG Euro area High Yield US Mortgage Market 30-Year FRM 1 4,14 4,14 4,04 4,06 4,79 vs 30Yr Treasury (bps) As of December 18, 2015, 1. Fixed-rate mortgage rate, Source Bloomberg Foreign Exchange & Commodities Foreign Exchange Euro-based cross rates Current Level 1-w eek change 1-month change 1-Year change Year-to-Date change EUR/USD 1,09-1,1 2,0-11,5-10,2 EUR/CHF 1,08-0,1-0,8-10,4-10,3 EUR/GBP 0,73 1,0 4,3-7,0-6,0 EUR/JPY 131,65-1,0-0,1-9,8-9,1 EUR/NOK 9,50-0,5 2,8 4,6 5,4 EUR/SEK 9,30-0,4 0,0-1,7-1,6 EUR/AUD 1,51-0,9 1,0 0,6 2,2 EUR/CAD 1,52 0,3 7,0 6,6 7,9 USD-based cross rates USD/CAD 1,40 1,5 4,9 20,6 20,1 USD/AUD 1,40 0,4-0,6 14,1 14,1 USD/JPY 121,38 0,3-1,8 2,1 1,4 Commodities Agricultural 461 0,4 2,0-19,1-14,9 Energy 362-3,5-17,4-45,1-42,6 West Texas Oil ($) 35-2,5-14,8-35,8-34,8 Crude brent Oil ($) 35-6,1-16,7-40,8-37,1 Industrial Metals 942 0,0 1,6-26,4-25,5 Precious Metals ,7-0,3-11,4-10,5 Gold ($) ,8-0,4-11,1-10,0 Silver ($) 14 1,4-0,5-11,2-10,2 Baltic Dry Index 477-8,6-8,1-41,4-39,0 Baltic Dirty Tankers Index 897-2,5 2,0 1,8 4,1 As of December 18, 2015, Goldman Sachs Indices for Commodities, Source Bloomberg 5

6 NBG Economic & Markets Forecasts Euro area & US: GDP Growth & Inflation Forecasts GDP a Q1a Q2a Q3a Q4a 2014a Q1a Q2a Q3a Q4f 2015f HICP Inflation a 2014a 2015f Euro area -0,3 0,2 0,1 0,3 0,4 0,9 0,5 0,4 0,3 0,3 1,5 US 1,5-0,2 1,2 1,1 0,5 2,5 0,2 1,0 0,5 0,6 2,5 Euro area 1,4 0,7 0,6 0,4 0,2 0,4-0,3 0,2 0,1 0,4 0,1 US 1,5 1,4 2,1 1,8 1,3 1,6-0,1 0,0 0,1 0,5 0,1 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 10-year government bond yield Germany 0,55 0,75 0,85 1,00 US 2,21 2,50 2,75 3,00 Official rate Euro area 0,05 0,05 0,05 0,05 US 0,50 0,50 0,75 1,00 Currency EUR/USD 1,09 1,03 1,00 1,00 EUR/GBP 0,73 0,70 0,70 0,69 EUR/JPY (*) As of December , 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 1.0%-1.25% in 2016 Growth to remain abovetrend in H1:2016 Mid-2014 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 0.50%) in Q3:2016 Solid, albeit slowing economic growth with real GDP at c. 2.5% for Current account deficit Backloaded fiscal adjustment Lower euro against the US dollar Higher US dollar against its major counterparts Lower yen against the US dollar Higher British Pound against the euro Government Bonds Weak growth outlook Medium-term inflation expectations are drifting lower Ultra accommodative monetary policy Upside risk in US benchmark yields Valuations appear excessive compared with long-term fundamentals Global disinflation pressures Fed s commitment on only gradual tightening policy Safe haven demand Valuations appear rich Growth prospects improve The Fed is expected to increase its policy rate towards 1%-1.25% in 2016 Halting US Treasuries and agency MBSs by end-2016 Safe haven demand Extremely dovish central bank Fiscal deficits Restructuring efforts brightens growth prospects 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 0.50%) in Q3:2016 Higher yields expected Higher yields expected Higher yields expected Higher yields expected Equities Periphery spreads tightening Declining equity risk premium EPS estimates are improving Credit conditions gradual turn more favorable Fiscal loosening due to the influx of refugees Sovereign debt crisis could re-emerge Political uncertainty Very low government bond yields Strong EPS growth Cash-rich corporates lead to share buybacks and higher dividends (de-equitization) Demanding valuations Peaking profit margins Disorderly re-pricing of expectations for the first interest rate-hike by the Fed Upward revisions in corporate earnings Aggressive QE by the BoJ Japanese Yen depreciation favors export companies Signs of policy fatigue regarding structural reforms and fiscal discipline Strong appetite for foreign assets Growth recovery The BoE increases interest rates faster-thanexpected due to labor market tightening High UK exposure to the commodities sector Neutral-to-positive stance on equities Neutral stance on equities Neutral-to-positive stance on equities 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 Domestic Debt High domestic debt yields Narrowing current account deficit Sizable external financing Protracted political uncertainty ahead of the formation of a new government following the June 7 th general elections Weaker to stable TRY Low public debt-to-gdp ratio Stubbornly high inflation Stable to lower yields Small current account deficit Sizable external financing Stable to stronger RON against the EUR Low public debt-to-gdp ratio Easing fiscal stance Stable to higher yields Currency board arrangement Large foreign currency reserves and fiscal reserves Current account surplus Sizable external financing Stable BGN against the EUR Very low public debt-to- GDP ratio and large fiscal reserves Low inflation Stable to lower yields Ongoing EU membership negotiations High domestic debt yields Sizable external financing Weaker to stable RSD against EUR Positive inflation outlook Large public sector borrowing Stable to lower yields Foreign Debt Foreign Debt Narrowing current account deficit Appropriate policy mix Sizeable external financing Weak foreign investor appetite for emerging market assets 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 Strengthening foreign investor sentiment Sizable external financing Slow progress in structural reforms Stable to narrowing spreads Equities Attractive valuations Weak foreign investor appetite for emerging market assets Attractive valuations Weak foreign investor appetite for emerging market assets Attractive valuations Low-yielding domestic debt and deposits Weak foreign investor appetite for emerging market assets Attractive valuations Weak foreign investor appetite for emerging market assets 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 2016f Real GDP Growth Turkey 8,8 2,1 4,2 2,9 3,4 3,2 Romania 1,1 0,6 3,4 2,8 3,6 4,0 Bulgaria 1,6 0,2 1,3 1,5 2,9 2,6 Serbia 1,4-1,0 2,6-1,8 0,8 2,5 Headline Inflation (eop,%) Turkey 10,4 6,2 7,4 8,2 8,4 7,4 Romania 3,1 5,0 1,6 0,8-0,8-1,0 Bulgaria 2,8 4,2-1,6-0,9-0,2 1,0 Serbia 7,0 12,2 2,2 1,7 1,5 2,4 Current Account Balance (% of GDP) Turkey -9,7-6,2-7,9-5,8-5,0-5,4 Romania -4,9-4,8-1,1-0,5-1,0-2,2 Bulgaria 0,9-0,3 1,8 1,2 1,5 1,0 Serbia -10,9-11,6-6,1-6,0-4,1-3,6 Fiscal Balance (% of GDP) Turkey -1,4-2,1-1,2-1,3-1,0-1,4 Romania -4,2-2,5-2,5-1,9-1,1-3,0 Bulgaria -2,0-0,4-1,8-3,6-2,0-2,0 Serbia -4,8-6,8-5,5-6,7-4,1-3,9 f : NBG f orecasts SEE Financial Markets December 21st 3-month forecast 6-month forecast 12-month forecast 1-m Money Market Rate Turkey 11,6 11,0 10,5 10,5 Romania 0,7 1,2 1,5 1,8 Bulgaria 0,3 0,2 0,2 0,2 Serbia 3,5 4,0 4,5 5,0 Currency TRY/EUR 3,18 3,12 3,08 3,00 RON/EUR 4,51 4,45 4,43 4,40 BGN/EUR 1,96 1,96 1,96 1,96 RSD/EUR 121,8 119,8 120,1 120,0 Sovereign Eurobond Spread (bps) Turkey (EUR 2017) Romania (EUR 2018) Bulgaria (EUR 2017) Serbia (USD 2021)(*) (*) Spread ov er US Treasuries SEE Stock Market Returns 1 December 21st Last w eek return YTD 2-year change Index Turkey ISE ,8-14,5 5,4 Romania BET-BK ,6 1,6 7,6 Bulgaria SOFIX 442 1,7-15,3-8,9 Serbia BELEX ,0-6,3 13,0 1. In local currency 9

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