Global Markets Roundup

Transcription

1 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-06 Jul-06 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 Charts of the week November 25, 2014 Global Markets Roundup NBG Strategy and Economic Research Division Dovish central banks fuel investors risk appetite See disclosures and analyst certification on last page. Euro area business and consumer confidence surveys were notably weaker-than-expected in November, pointing to increased downside risks for an already fragile recovery. Indeed, the euro area composite PMI indicator fell to a 16-month low (down by 0.7 pts to 51.4), while the euro area consumer confidence index retreated to its lowest level since February, down by 0.5 pts to In view of an increasingly challenging inflation outlook (CPI of 0.3%-0.4% y-o-y), Mr. Draghi, on Friday, opened the door to further unconventional measures, stating that the ECB will do what it must to raise inflation, as well as inflation expectations as fast as possible. Mr. Draghi s dovish tone and the consequent increasing likelihood of outright QE boosted equities, with the Eurostoxx overperforming (+3%), the euro declining below 1.24 against the USD, and periphery government bond spreads tightening by 10 bps (Italy & Spain) to 30 bps (Greece) on Friday. The rally was broad-based, with the MSCI World ending the week at a recent high (+1.3%) and the Vix index falling to a two-month low (12.9%). Risk appetite was also supported by the PBoC s decision to cut its 1-year lending rate by 40 bps to 5.60% and its 1-year deposit rate by 25 bps to 2.75%. The decision came in response to a weakening economic outlook and low inflation. Indeed, the HSBC PMI manufacturing index fell to a six-month low of 50.0 in November, while inflation remains far below PBoC s target of 3.5% (at 1.6% y-o-y in September). Note that oil prices recorded gains following the PBoC s decision (Brent up by 1.2% at $79bl) and ahead of the OPEC meeting on Thursday, when there is a possibility of a slight reduction in current production (by c. 0.5mb/d). Concerns regarding the evolution of inflation also prevailed in the minutes of the FOMC meeting of October 28/29. Indeed, many participants emphasized that the Fed should remain attentive to evidence of a downward shift in inflation expectations. Note that the latest University of Michigan data reveal a decline in household inflation expectations for five-years ahead to their lowest since Q1:2009, whereas market-based measures have already declined since September (see graph below). All told, the downward trend (if continued), could trigger dovish rhetoric by the Fed at its next meeting (December 17th). In Japan, PM Abe dissolved the Lower House of the Diet, calling for early elections on December 14th (two years ahead of schedule). However, the likelihood of the current Government coalition (LDP and Komeito) losing its majority (currently 326 out of 480 seats) appears negligible amid weak opposition (DPJ). At the same time, PM Abe postponed the second leg of the consumption tax-rate increase (by 2 pts to 10%) by 18 months to April 2017, and plans to proceed with an expansionary fiscal package of 3tn (0.6% of GDP) in order to support personal consumption. However, as there is little room for fiscal maneuver -- with gross debt of 245% (of GDP) -- and with limited progress on structural reforms (the second arrow of Abenomics), monetary policy has shouldered the lion s share of the effort to reflate the economy. Note that Governor Kuroda, on Wednesday, hinted that inflation could slide below 1.0% in the coming months due to declining oil prices, whereas the consensus foresees the BoJ easing further by mid- 15 in order to achieve inflation of 2.0%. The Japanese Yen depreciated against the USD for a fifth consecutive week by 1.3% to 118. Paul Mylonas, PhD NBG Group Chief Economist pmylonas@nbg.gr Ilias Tsirigotakis tsirigotakis.hlias@nbg.gr % 3,5 3,3 3,1 2,9 2,7 2,5 2,3 2,1 1,9 Fed's 5y/5y Forward Breakeven Inflation Uni. of Michigan, 5-y Inflation Expectations % 3,5 3,3 3,1 2,9 2,7 2,5 2,3 2,1 1,9 Euro area real GDP (QoQ, left) % 1,5 Euro area PMI Composite (right) 1,0 0,5 0,0-0,5-1,0-1,5-2,0-2,5-3,0 62, , , , , , , ,5 25 Source: Bloomberg,Datastream *PMI data as of October 2014, GDP data as of Q2:14 1

2 Economics US housing data were positive, with the NAHB survey index -- that reflects homebuilders confidence for new home sales -- up to 58 in November from 54 in October, exceeding consensus expectations for a broadly unchanged outcome. Similarly, existing home sales surprised on the upside, increasing by 1.5% m-o-m (2.5% y-o-y) to 5.26mn in October from 2.6% m-o-m (-1.5% y-o-y) in September, reaching their highest level in more than a year. Furthermore, building permits rose by 4.8% m-o-m (1.2% y-o-y) to 1080k in October from 2.8% m-o-m in September (3.8% y-o-y), while housing starts fell on a monthly basis in October (-2.8%) to 1009k but are up by 7.8% on an year over year ago basis. The minutes of the October FOMC meeting were perceived as slightly more dovish than expected, mainly due to participants concerns regarding inflation. Indeed, many participants highlighted that the FOMC should remain alert to evidence of a possible downward shift in longer-term inflation expectations. Recall that the Fed, in its official statement of the October meeting, acknowledged that market-based measures of inflation expectations have declined (e.g. 5Y5Y breakevens), albeit it was reassured from the fact that survey-based measures of inflation expectations were broadly stable. Note, however, that recent developments appear to challenge that view. Indeed, according to the latest University of Michigan consumer confidence survey, the 1-year measure of inflation expectations fell to 2.6% in November (from 2.9% one month ago) and, more importantly, the 5-year measure of inflation expectations fell to 2.6% in November (from 2.8% one month ago) its lowest outcome since the first quarter of (The next University of Michigan survey is due on December 12 th ). Finally, regarding forward guidance, some participants expressed concerns regarding challenges that could arise with the removal of the considerable time rhetoric, as it could be misinterpreted as a significant shift in the monetary policy stance. US core CPI rose by 0.2% m-o-m in October, following an increase of 0.1% m-o-m in September and, as a result, the annual change of core CPI accelerated to 1.8% y-o-y in October from 1.7% y-o-y in September. The gains in core items broadly offset the decline in energy prices (-1.9% m-o-m with gasoline prices falling by 3.0% m-o-m) and, as a result, headline CPI was flat on a monthly basis in October (1.7% y-o-y) from 0.1% m-o-m in September (1.7% y-o-y). It should be borne in mind that the Fed s preferred measure of inflation is the Personal Consumption Expenditures (PCE) price index, with expectations for a stable PCE at 1.4% y-o-y in September. Euro area business surveys were notably weaker in November, failing to provide signs of stabilization, and indicating that euro area growth continues to be anemic in the fourth quarter of the year. Specifically, the euro area composite PMI fell to a 16-month low -- from 52.1 in October, below consensus estimates for a small increase to Note that both the services and manufacturing subcomponents declined (the former down 1.0 pts to 51.3 and the latter down 0.2 pts to 50.4). For Q4:14 as a whole, so far, the average composite PMI stands at 51.8 from 52.8 in Q3:14, and is consistent with GDP expansion of circa 0.1% q-o-q in Q4:14, following 0.2% q-o-q growth in the third quarter of the year. It is worth noting that the new orders subcomponent of manufacturing PMI remained below the expansion/contraction threshold (50) for a third consecutive month, and the corresponding subcomponent of the services euro area PMI fell to a 15-month low of 50.0, signaling a further loss of momentum in economic activity, going forward. Regarding the PMI performance by geography, the German composite PMI declined to 52.1 in November -- a 16-month low -- from 53.9 in October and significantly below consensus expectations of Both the services and manufacturing subcomponents were down, suggesting that the German economy is not showing signs of revival despite an expansion of just 0.1% q-o-q in the third quarter and a contraction of 0.1% q-o-q in the second quarter. Similarly, the French composite PMI leading indicator remained below the expansion/contraction threshold for a seventh consecutive month, albeit increasing slightly to 48.4 in November from 48.2 in October, and pointing to extended weakness in the French private sector. Specifically, the services subcomponent rose by 0.5 to 48.8, more than offsetting the sharp decline in the manufacturing subcomponent (down by 0.9 pts to 47.6), which fell to a three-month low. Finally, the employment subcomponent has remained below 50.0 since November 2013, suggesting that French companies continue to shed jobs with the unemployment rate at its highest since end (10.5%). Euro area consumer confidence suffered a setback in November, with the EC s consumer confidence indicator (CCI) declining to from in October. Recall that the CCI had interrupted a run of four consecutive monthly declines in October, while consensus was expecting an improvement in November (-10.7). It is likely that the recent deterioration in economic activity, combined with a stubbornly high unemployment rate (unchanged at 11.5% during the past four months), more than offset the positive impact from the decline in oil prices (down by 20.5% in euro terms since June). 2

3 25-Aug Sep Sep Sep Oct Oct Oct Nov Nov Aug Sep Sep Sep Oct Oct Oct Nov Nov Aug Sep Sep Sep Oct Oct Oct Nov Nov Aug Sep Sep Sep Oct Oct Oct Nov Nov-14 NBG Strategy and Economic Research November 25, 2014 In China, the HSBC manufacturing PMI index fell to a six-month low of 50.0 in November from 50.4 in October, slightly undershooting consensus estimates for 50.2 and suggesting that manufacturing expansion has stalled. Specifically, new export orders decreased notably, by 1.2 pts to 50.5, indicating that external demand is under pressure (e.g. Chinese exports to Japan and Europe amount to 6.8% and 15.3%, respectively, of total Chinese exports). Moreover, both input as well as output price indices continue to decrease, albeit at a slower pace, pointing to disinflationary pressures. Note that the Chinese CPI has slowed to 1.6% y-o-y in September from a peak of 2.5% y-o-y in May and in 2014, so far, has averaged 2.1%, thus remaining significantly below PBoC target of 3.5% Equity Indices (3-months before = 100) Euro Area Japan UK US Quote of the week: "We are committed to recalibrate the size, pace and composition of our purchases as necessary to deliver our mandate, ECB President, Mario Draghi, on November 21 st Markets Global equity markets recorded strong gains during the past week on the back of a dovish speech from Mr. Draghi, as the ECB s President reiterated the central bank s focus on driving inflation expectations higher in the euro area, increasing the likelihood of extra policy measures at the following ECB meetings. Furthermore, the PBoC cut its benchmark rates for the first time since July 2012, in order to boost weakening economic activity, weighing positively on investor sentiment. Indeed, the MSCI All Countries Index rose by 1.3% on a weekly basis, as developed markets (1.3%) overperfomed their emerging peers (1.1%). The EuroStoxx increased 4.0%, with the four major euro area equity markets ending the week significantly higher. Similarly, the S&P500 continued its positive trend, and reached new highs (close to 2064), rising by 1.2% over the week. The FTSE100 gained 1.4% (increasing for a fifth consecutive week), while the Nikkei225 declined by 0.8% over the week as GDP contracted unexpectedly in Q3:14. Looking forward, a steady pick-up in US growth and an ongoing accommodative monetary policy stance from most major central banks is expected to support equities. However, with most valuation multiples having returned to (or exceeding) their long-term averages, earnings growth needs to be the catalyst for the equity market performance this year with the recent deterioration of global economic prospects (ex-us) posing downside risks to company profitability. The major market risk could stem from a disorderly re-pricing of the Fed s interest rate hiking cycle, whereas the ongoing Ukraine/Russia conflict (as well as developments in the Middle East) will continue to prevail as downside risks. Government Bond yields fell on the back of a weak economic environment in the euro area (euro area composite PMI fell to a 16-month low in November), as well as central bank actions (PBoC) and hints of additional monetary policy measures (ECB). The US 10-year Treasury yield remained broadly unchanged at 2.31%, while the UK 10-Year Gilt yield declined by 7 bps to 2.05%. In Japan, the 10-year Government Bond yield fell by 2 bps to 0.46% at the end of the week, whereas the German Bund yield fell by 2 bps to 0.77%. Following a more-dovish-than-expected tone from Mr. Draghi on Friday, euro area periphery countries government bond yield spreads over Bund fell significantly, with Portugal (down by 18 bps to 223 bps) and Greece (down by 16 bps to 716 bps) gaining the most. The euro lost ground across the board, depreciating by 1.0% against both the US dollar (to 1.24) and the British Pound (to 0.79), as ECB President Draghi appeared quite dovish on Friday. On a 12-month horizon, we remain biased for a weaker euro towards 1.22, as the Fed s monetary policy tightens compared with that of the ECB. In commodities markets, the Brent and the West Texas Intermediate (WTI) rose over the week by 1.2% (at 79 $/barrel) and 0.8% (at 76 $/barrel), respectively, on the back of the PBoC s interest rate cuts that fuelled expectations for a stabilization in Chinese growth. On the other hand, gold gained traction, reaching $/ounce (up by 1.1% over the week). 10-Year Government Bond Yields % % 3,00 2,80 2,60 2,40 2,20 2,00 1,80 1,60 1,40 1,20 1,00 0,80 0,60 bps ,33 1,32 1,31 1,30 1,29 1,28 1,27 1,26 1,25 1,24 1,23 US (left) UK (left) Greece (left) Portugal (right) Ireland (right) Euro Area (left) Japan (right) 10-Year Government Bond Spreads EUR/USD (left) Italy (right) Spain (right) USD/JPY (right) 0,80 0,75 0,70 0,65 0,60 0,55 0,50 0,45 0,40 bps

4 Economic News Diary: November 18 - December 1, 2014 Day Region Release Period Survey Actual Prior Current Week Tuesday 18 US NAHB housing market confidence index NOVEMBER US Net Long-term TIC Flows ($ bn) SEPTEMBER.. 164,3 52,1 UK CPI (YoY) OCTOBER 1,2% + 1,3% 1,2% UK CPI Core (YoY) OCTOBER 1,6% - 1,5% 1,5% GERMANY ZEW survey current situation NOVEMBER 1,7 + 3,3 3,2 GERMANY ZEW survey expectations NOVEMBER 0,5 + 11,5-3,6 Wednesday 19 US Housing starts (k) OCTOBER US Building permits (k) OCTOBER US FOMC Minutes UK Bank of England releases MPC Minutes JAPAN Bank of Japan annual rise in Monetary Base ( tn) Thursday 20 US CPI (YoY) OCTOBER 1,6% + 1,7% 1,7% US Core CPI (YoY) OCTOBER 1,7% + 1,8% 1,7% US Initial Jobless Claims (k) NOVEMBER US Continuing Claims (k) NOVEMBER US Markit US Manufacturing PMI NOVEMBER P 56,3-54,7 55,9 US Existing home sales (mn) OCTOBER 5,15 + 5,26 5,18 UK Retail sales Ex Auto MoM OCTOBER 0,3% + 0,8% -0,3% JAPAN Exports YoY OCTOBER 4,5% + 9,6% 6,9% JAPAN Imports YoY OCTOBER 3,4% - 2,7% 6,2% JAPAN Markit/JMMA PMI manufacturing NOVEMBER P 52,7-52,1 52,4 EURO AREA Markit Eurozone Composite PMI NOVEMBER P 52,3-51,4 52,1 EURO AREA Markit Eurozone Manufacturing PMI NOVEMBER P 50,8-50,4 50,6 EURO AREA Markit Eurozone Services PMI NOVEMBER P 52,4-51,3 52,3 EURO AREA Consumer Confidence Indicator NOVEMBER A -10, ,6-11,1 CHINA HSBC PMI Manufacturing NOVEMBER P 50,2-50,0 50,4 Monday 24 GERMANY IFO- Business Climate Indicator NOVEMBER 103, ,7 103,2 GERMANY IFO- Current Assesment NOVEMBER 108, ,0 108,4 GERMANY IFO-Expectations NOVEMBER 98,5 + 99,7 98,3 Next Week Tuesday 25 US GDP (QoQ, annualized) Q3:14 S 3,3%.. 3,5% US Personal Consumption Q3:14 S 1,9%.. 1,8% GERMANY GDP (QoQ) Q3:14 F 0,1%.. 0,1% GERMANY GDP (wda, YoY) Q3:14 F 1,2%.. 1,2% GERMANY Private Consumption (QoQ) Q3:14 0,3%.. 0,1% GERMANY Government Spending QoQ Q3:14 0,2%.. 0,1% GERMANY Capital Investment QoQ Q3:14-0,8%.. -2,3% Wednesday 26 US PCE Deflator (YoY) OCTOBER 1,4%.. 1,4% US PCE Core Deflator (YoY) OCTOBER 1,5%.. 1,5% US Pending home sales (MoM) OCTOBER 0,7%.. 0,3% US New home sales (k) OCTOBER UK GDP (QoQ) Q3:14 P 0,7%.. 0,7% UK GDP (YoY) Q3:14 P 3,0%.. 3,0% UK Private Consumption (QoQ) Q3:14 P 0,6%.. 0,6% UK Government Spending QoQ Q3:14 P 0,2%.. 1,0% UK Gross Fixed Capital Formation Q3:14 P 2,3%.. 1,3% Thursday 27 EURO AREA M3 money supply (YoY) OCTOBER 2,6%.. 2,5% EURO AREA Economic Confidence NOVEMBER 100, ,7 EURO AREA Business Climate Indicator NOVEMBER 0,02.. 0,05 Friday 28 JAPAN Jobless Rate OCTOBER 3,6%.. 3,6% JAPAN Core CPI (YoY) OCTOBER 2,2%.. 2,3% JAPAN CPI (YoY) OCTOBER 3,0%.. 3,2% JAPAN CPI ex-fresh food (YoY) OCTOBER 2,9%.. 3,0% JAPAN Industrial Production (MoM) OCTOBER P -0,5%.. 2,9% JAPAN Industrial Production (YoY) OCTOBER P -1,7%.. 0,8% JAPAN Retail sales (MoM) OCTOBER -1,1%.. 2,8% EURO AREA Unemployment Rate OCTOBER 11,5%.. 11,5% EURO AREA Core CPI (YoY) NOVEMBER A 0,7%.. 0,7% EURO AREA CPI Estimate YoY NOVEMBER 0,3%.. 0,4% GERMANY Retail sales (MoM) OCTOBER 1,5%.. -2,8% GERMANY Retail sales (YoY) OCTOBER 1,7%.. 2,3% Monday 1 US ISM Manufacturing NOVEMBER 58,0.. 59,0 Source: Bloomberg UK Markit UK PMI Manufacturing SA NOVEMBER ,2 CHINA Manufacturing PMI NOVEMBER 50,5.. 50,8 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 ,2 11,6 14,9 48,3 Japan NIKKEI ,8 6,5 13,0 88,2 UK FTSE ,4 0,0 1,0 17,4 Canada S&P/TSX ,8 10,9 12,1 24,9 Hong Kong Hang Seng ,7 0,6-0,6 8,9 Euro area EuroStoxx 322 4,0 2,5 4,8 29,8 Germany DAX ,2 1,9 5,8 35,5 France CAC ,4 1,2 2,2 25,0 Italy FTSE/MIB ,2 5,2 5,9 29,6 Spain IBEX ,7 6,1 9,6 34,8 Emerging Markets 1 MSCI Emerging Markets ,1 4,6 5,1 12,2 MSCI Asia 715-0,3 4,6 5,7 14,9 China 63-2,6-0,5-2,2 7,3 Korea 549 0,6-6,8-6,3 1,4 MSCI Latin America ,4 4,2 2,8 2,0 Brazil ,1 4,3 0,1 3,3 Mexico ,7 4,1 8,5 8,1 MSCI Europe ,8-0,5-3,5 4,2 Russia 757 2,8-4,5-4,9 3,7 Turkey ,9 23,7 13,5 18,8 As of November 21, 2014, 1) in local currency World Equity Market Sector Returns (%) in US Dollar terms Current Level 1-w eek Year-to-Date 1-Year 2-year Energy 266,3 2,9-3,4-1,8 13,3 Materials 233,5 2,1-2,7-0,5 5,7 Industrials 202,4 1,1 0,2 4,5 38,0 Consumer Discretionary 182,9 1,3 0,6 4,4 45,3 Consumer Staples 202,2 1,1 6,2 6,7 27,7 Healthcare 201,9 1,6 17,5 20,0 61,2 Financials 103,4 0,6 1,5 3,7 34,5 IT 141,0 0,6 14,4 21,3 50,3 Telecoms 71,6-0,1-0,6 2,1 27,6 Utilities 122,2 1,3 11,2 10,4 25,4 in local currency Energy 258,3 2,9-0,7 0,5 16,7 Materials 210,5 2,3 2,2 4,3 13,7 Industrials 195,7 1,3 4,8 9,3 48,0 Consumer Discretionary 173,4 1,5 4,5 8,5 54,9 Consumer Staples 194,1 1,3 10,2 10,1 32,3 Healthcare 195,2 1,7 21,3 23,1 65,9 Financials 98,8 0,7 5,7 8,0 43,4 IT 136,0 0,7 16,2 23,3 55,0 Telecoms 70,9 0,1 4,8 7,1 35,5 Utilities 120,1 1,4 15,6 14,2 30,4 As of November 21, 2014, MSCI Indices Bond Markets (%) 10-Year Government Bond Yields Current Last w eek Year Start One Year Back 10-year average US 2,31 2,32 3,03 2,79 3,34 Germany 0,77 0,79 1,93 1,74 2,88 Japan 0,46 0,48 0,74 0,63 1,22 UK 2,05 2,12 3,02 2,82 3,55 Greece 7,93 8,10 8,42 8,64 9,04 Ireland 1,49 1,57 3,51 3,54 5,16 Italy 2,21 2,34 4,08 4,10 4,32 Spain 2,01 2,13 4,15 4,11 4,30 Portugal 3,00 3,19 6,13 6,02 5,66 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 (%) 4,18 4,18 4,72 4,46 5,07 vs 30Yr Treasury (bps) As of November 21, 2014, 1. Fixed-rate mortgage rate Foreign Exchange & Commodities Foreign Exchange Euro-based cross rates Current Level 1-w eek 1-month 1-Year Year-to-Date EUR/USD 1,24-1,0-2,0-8,1-9,8 EUR/CHF 1,20 0,0-0,4-2,4-2,1 EUR/GBP 0,79-1,0 0,4-4,9-4,7 EUR/JPY 146,00 0,2 7,7 7,0 0,8 EUR/NOK 8,43-0,3 0,9 2,7 1,1 EUR/SEK 9,25 0,1 0,6 3,5 4,6 EUR/AUD 1,43-0,1-0,8-2,1-7,3 EUR/CAD 1,39-1,5-2,1-1,8-4,6 USD-based cross rates USD/CAD 1,12-0,5 0,0 6,8 5,8 USD/AUD 1,15 0,8 1,2 6,4 2,8 USD/JPY 117,78 1,3 9,9 16,4 11,8 Commodities Agricultural 541-0,7 2,7-13,2-10,9 Energy ,0 0,1 0,9 0,8 West Texas Oil ($) 76 0,8-6,2-19,6-22,4 Crude brent Oil ($) 79 1,2-5,5-28,4-28,5 Industrial Metals ,4 2,3 4,3 0,7 Precious Metals ,0-4,0-5,8-2,5 Gold ($) ,1-3,2-3,3-0,3 Silver ($) 16 0,8-4,2-17,7-15,6 Baltic Dry Index ,4 16,5-11,7-41,9 Baltic Dirty Tankers Index ,9 39,5 49,5-2,2 As of November 21, 2014, Goldman Sachs Indices for Commodities 5

6 NBG Economic & Markets Forecasts Euro area & US: GDP Growth & Inflation Forecasts GDP (%) a Q1a Q2a Q3a Q4f 2014f Q1f Q2f Q3f Q4f 2015f HICP Inflation (%) a 2014f 2015f Euro area -0,4 0,2 0,1 0,2 0,3 0,8 0,3 0,3 0,4 0,5 1,2 US 2,2-0,5 1,1 0,9 0,7 2,3 0,8 0,8 0,8 0,8 3,3 Euro area 1,4 0,7 0,6 0,4 0,4 0,5 0,6 0,7 1,0 1,2 0,9 US 1,5 1,4 2,1 1,8 1,7 1,8 1,6 1,5 1,6 1,8 1,6 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 0,77 1,20 1,40 1,60 US 2,31 2,60 2,90 3,20 Official rate (%) Euro area 0,05 0,05 0,05 0,05 US 0,13 0,13 0,13 0,75 Currency EUR/USD 1,24 1,25 1,24 1,22 EUR/GBP 0,79 0,77 0,76 0,75 EUR/JPY (*) As of Nov ember , end of period 6

7 Equities Government Bonds Foreign Exchange NBG Strategy and Economic Research November 25, 2014 NBG View and Key Factors for Global Markets Euro area US Japan UK Reduced short-term tail risks Current account surplus Sluggish growth Deflation concerns The ECB s monetary policy to loosen further (LTROs, ABSs purchases, Quantitative Easing) Overvalued on a tradeweighted basis The Fed is expected to increase its policy rate (currently at 0.00%-0.25%) in mid-2015 Structural weakness due to twin deficits Safe haven demand More balanced economic growth recovery (longterm) 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 late 2014-early 2015 Solid economic growth with real GDP at c. 3% 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 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 Lower fiscal deficit Fed s commitment on low policy rates (qualitative forward guidance) Safe haven demand Valuations appear rich Growth prospects improve The Fed is expected to increase its policy rate (currently at 0.00%-0.25%) in mid-2015 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 late 2014-early 2015 Higher yields expected Higher yields expected Higher yields expected Higher yields expected Periphery spreads tightening Declining equity risk prem Bottoming out corporate earnings Tight credit conditions & bank de-leveraging process Ongoing, albeit milder, fiscal austerity Sovereign debt crisis Political uncertainty Very low government bond yields Strong EPS growth Cash-rich corporates lead to share buybacks and higher dividends (de-equitization) Slightly demanding valuations Peaking profit margins Disorderly re-pricing of expectations for the first interest rate-hike by the Fed Bottoming out corporate earnings Aggressive QE by the BoJ Japanese Yen depreciation favors export companies Japanese stocks have rallied strongly for the past 1½ years Strong appetite for foreign assets Undemanding valuations Declining equity risk premium Growth recovery Strong EPS growth The BoE ends QE Fragile banking sector Peaking profit margins High UK exposure to the Energy sector Neutral stance on equities Neutral-to-positive stance on equities Neutral stance on equities Neutral stance on equities 7

8 Equities Foreign Debt Foreign Debt Domestic Debt Foreign Exchange NBG Strategy and Economic Research November 25, 2014 NBG 6-Month View and Key Factors for South Eastern European Markets Emerging Markets Research Team, tel: , Turkey Romania Bulgaria Serbia High domestic debt yields Narrowing current account deficit Sizable external financing Political noise ahead of June 2015 parliamentary elections Precautionary Stand-By Agreement with the IMF Small current account deficit Sizable external financing Currency board arrangement Large foreign currency reserves and fiscal reserves Current account surplus Sizable external financing Ongoing EU membership negotiations High domestic debt yields Sizable external financing Stable to stronger TRY against the EUR Stable to stronger RON against the EUR Stable BGN against the EUR Weaker to stable RSD against EUR Low public debt-to-gdp ratio Stubbornly high inflation Precautionary Stand-By Agreement with the IMF Low public debt-to-gdp ratio Very low public debt-to- GDP ratio and large fiscal reserves Low inflation Positive inflation outlook Large public sector borrowing Negative inflation outlook Stable to lower yields Stable to higher yields Stable to lower yields Stable to lower yields Narrowing current account deficit Appropriate policy mix Economic slowdown Sizeable external financing Weak foreign investor appetite for emerging market assets Precautionary Stand-By Agreement with the IMF Small current account deficit Large external financing Solidly-based currency board arrangement, with substantial buffers Current account surplus Large external financing Ongoing EU membership negotiations Strengthening foreign investor sentiment Sizable external financing Slow progress in structural reforms Stable to narrowing spreads Stable to narrowing spreads Stable to narrowing spreads Stable to narrowing spreads Attractive valuations Attractive valuations Attractive valuations Attractive valuations Economic slowdown Weak foreign investor appetite for emerging market assets Weak foreign investor appetite for emerging market assets Low-yielding domestic debt and deposits Weak foreign investor appetite for emerging market assets 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 2015f Real GDP Growth (%) Turkey 9,2 8,8 2,1 4,1 3,0 3,5 Romania -1,2 2,3 0,6 3,5 2,8 3,2 Bulgaria 0,7 2,0 0,5 1,1 1,6 2,1 Serbia 1,0 1,6-1,5 2,5-1,5 2,0 Headline Inflation (eop,%) Turkey 6,4 10,5 6,2 7,4 9,4 7,5 Romania 8,0 3,1 5,0 1,6 1,6 2,4 Bulgaria 4,5 2,8 4,2-1,6 0,5 1,4 Serbia 10,3 7,0 12,2 2,2 3,3 4,5 Current Account Balance (% of GDP) Turkey -6,2-9,7-6,2-7,9-5,4-5,8 Romania -4,7-4,7-4,6-0,8-1,2-1,8 Bulgaria -1,5 0,1-1,1 2,1 0,0 0,0 Serbia -7,4-10,5-12,3-6,5-6,5-7,3 Fiscal Balance (% of GDP) Turkey -3,6-1,4-2,1-1,2-1,8-1,5 Romania -6,4-4,3-2,5-2,5-2,2-1,9 Bulgaria -3,9-2,0-0,4-1,8-4,0-3,0 Serbia -4,7-4,9-6,5-5,0-6,8-5,5 f : NBG f orecasts SEE Financial Markets November 21 st 3-month forecast 6-month forecast 12-month forecast 1-m Money Market Rate (%) Turkey 9,6 9,0 8,5 9,5 Romania 0,9 1,9 2,3 3,0 Bulgaria 0,2 0,2 0,2 0,2 Serbia 7,2 7,0 6,2 6,0 Currency TRY/EUR 2,75 2,80 2,90 2,97 RON/EUR 4,44 4,42 4,41 4,40 BGN/EUR 1,96 1,96 1,96 1,96 RSD/EUR 120,2 118,2 118,7 119,9 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 November Last w eek 21 st return (%) YTD (%) 2-year Index Turkey ISE ,5 22,8 18,2 Romania BET-BK ,4 4,0 32,2 Bulgaria SOFIX 515-1,8 4,8 59,1 Serbia BELEX ,2 23,5 47,9 1. In local currency 9

10 DISCLOSURES: This report is provided solely as a sheer reference for the information of experienced and sophisticated investors who are expected and considered to be fully able to make their own investment decisions without reliance on its contents, i.e. only after effecting their own independent enquiry from sources of the investors sole choice, and on condition that it will not be reproduced or provided to any other person without the written permission of the National Bank of Greece. Under no circumstances is it to be used or considered as an offer to sell, or a recommendation, or a solicitation of any offer to buy. Any data provided in this report has been obtained from sources believed to be reliable. Because of the possibility of error on the part of such sources, National Bank of Greece does not guarantee the accuracy, timeliness or usefulness of any information. The National Bank of Greece and its affiliate companies, its representatives, its managers and/or its personnel or other persons related to it, accept no responsibility, or liability as to the accuracy, or completeness of the information contained in this report, or for any loss in general arising from any use of this report including investment decisions based on this report. ANALYST CERTIFICATION: Each individual contributing to this report and whose name is listed on page 1 hereby certifies that all of the views expressed in this research accurately reflect his or her personal views solely, about any and all of the subject securities, issuers, currencies, commodities, futures, options, economies or strategies. Further, each of these individuals also certifies that no part of any of the research analyst s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report. Also, all opinions and estimates are subject to change without notice. 10