Global Markets Roundup

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1 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Jun-15 June 23, 2015 Global Markets Roundup NBG Economic Research Division The Fed remains on track for a rate increase this year, whereas signs of a deal between Greece and its creditors on Monday reduced risk aversion See disclosures and analyst certification on last page. The Fed remains on course for an interest rate increase this year, with the median forecast of the Fed funds rate for end-2015 remaining unchanged at 0.625%, implying two rate hikes before endyear. However, the number of FOMC participants projecting only one hike by end-2015 rose from three at the March meeting to seven in June (out of 17), suggesting a potentially more dovish stance. At the same time, the Fed is projecting a more gradual pace of tightening post-2015, with the rate forecasts for both end-2016 and end-2017 declining by 25 bps to 1.625% and 2.875%, respectively. Recall that market estimates for the normalization path are less aggressive (at 1.025% and 1.685%). Euro area banks borrowed 73.8bn in the second of six quarterly TLTROs, above consensus estimates of 60bn. Recall that banks could borrow up to three times the actual increase (i.e. 3bn) in their net lending (ex-mortgages) during May 13 - April 14. (i.e 3 * 3bn = 9bn). Thus, the cumulative take-up of 163.8bn suggests that credit conditions are gradually improving, despite the elevated non-performing loans. According to the IMF, NPLs are c. 7% of total loans, with large deviations between EA countries (Germany at 2.7% vs Spain at 12%). Fixed income markets, especially US Treasuries, gave back some of the yield increase of the past weeks in view of a more dovish Fed. Specifically, 2-Year US Treasury yields declined by 11 bps to 0.61%, and 10-Year US Treasury yields were down by 13 bps to 2.26%. Other core global government bond yields also declined on a weekly basis, as safe haven demand intensified following uncertainty regarding an agreement between Greece and its creditors ahead of the June 30 deadlines (expiration of MFFA and an IMF payment of 1.5bn). The 10-year JGB fell by 10 bps to 0.42% and the 10-Year Bund yield declined by 8 bps to 0.75%, while 10-year Italian and Spanish government bond spreads relative to their German counterparts widened by circa 15 bps to 153 bps (BTPs) and 152 bps (Bonos). Gilts remained broadly unchanged (2-year at 0.57% and 10-year at 2%), as UK wage growth accelerated to its highest rate since early 2009 (+2.7% yoy), reinforcing the view that the BoE will proceed with the first interest rate increase in the first half of Global ended the week flat, as S&P 500 gains due to a more dovish Fed (+0.8%) were offset by European and Japanese equity losses. Emerging market underperformed, for a fifth consecutive week, with MSCI China down by 4.2% (Shanghai A-Shares declined by 13%). Risk appetite returned on Monday, due to increasing optimism that Greece and its creditors will reach an agreement. Indeed, the Eurostoxx index was up 3.5% (ASE +9%), the 10-Year Bund yield rose (+13 bps to 0.88%) and BTPs and Bonos spreads narrowed by bps. The likely removal of policy-induced uncertainty could improve euro area (down by 5.4% so far in Q2:15), whereas the rebound projected in US growth could support Cyclicals over Defensives in the more medium term. US Cyclicals year-to-date are over-performing Defensives by 386 bps. However, cyclicals are still trading at a valuation discount relative to defensives (0.96 vs a long-term average of 1.05 based on 12-month forward PE). Furthermore, we extend our previous work on ETFs (page 3) by constructing two indicators of investor positioning based on 36 ETFs with $74bn AUM (US Cyclicals) and 33 ETFs with $76bn AUM (US Defensives). Equally importantly, positioning in Cyclicals is far from stretched (see graph below). Paul Mylonas, PhD NBG Group Chief Economist pmylonas@nbg.gr Ilias Tsirigotakis Head of Global Markets Research Panagiotis Bakalis mpakalis.pan@nbg.gr Lazaros Ioannidis Charts of the week % Fed Funds Interest Rate Projections 3,25 down 3,00 Fed Officials (March 2015) by 25bps 2,75 2,50 Fed Officials (June 2015) 2,25 Futures (19 June 2015) 2,00 down 1,75 by 25bps 1,50 1,25 1,00 0,75 0,50 0,25 0,00 % Cumulative Flows into US Equity ETFs as % of Assets Under Management % Cyclicals Defensives Source: Bloomberg, NBG Estimates 1

2 Economics In the US, the Fed maintained its forward guidance, stating that it will need to be reasonably confident that inflation will revert to its 2% target over the medium term, in order to raise rates. Regarding the economic outlook, the Fed upgraded its current assessment of the economy, on the back of improved data, following the weakness in Q1. Indeed, the Fed indicated that activity has been expanding moderately from growth slowed previously; and that the pace of job gains picked up from moderated ; and also that underutilization of labor resources diminished somewhat from was little changed previously. Though the Fed lowered its GDP growth forecast for 2015 to 1.9% (from 2.5% in March), this revision mainly reflects the negative carry-over from a weak Q1 (-0.7% qoq saar). On the other hand, GDP forecasts for 2016 and 2017 rose by 0.1bp, to 2.6% and 2.3%, respectively. The PCE inflation forecasts remained unchanged at 0.7% for 2015 (Q4: YoY average), with the Fed remaining confident that inflation will gradually revert to its 2% target by Finally, the Fed raised its unemployment rate (Q4: YoY average) forecast for 2015 by 0.15 bps to 5.3%, reflecting more optimistic views about the labor force participation rate, while projections for 2016 and 2017 were broadly unchanged, both at 5.0%. Despite the lower forecast for GDP growth in 2015, the median FOMC forecast for interest rates for end-2015 was maintained at 0.625%, still pointing to two rate increases in the year. It should be noted, however, that the number of FOMC members expecting only one rate hike by end-2015, increased to seven from three in March. Moreover, the FOMC forecasts pointed to a less aggressive monetary policy tightening, looking forward. Specifically, the median forecast for end-2016 was revised down by 25 bps to 1.625% and by 25 bps to 2.875% for end Market expectations for the first interest rate increase were also pushed out, with the Fed funds futures contracts assigning a c. 44% probability of a rate hike at the September FOMC meeting, from 60% one week ago, while pricing in only one rate hike until endyear. Inflation developments in May came out below expectations and supported the Fed s view that inflation will revert to its target only gradually, with risk remaining tilted to the downside due to a strong USD. Indeed, core CPI rose by 0.1% m-o-m in May (the lowest since December 2014), from 0.3% m-o-m in April, below consensus estimates for +0.2% m-o-m. The annual change of core CPI stood at 1.7% y-o-y in May, compared with 1.8% y-o-y in April. Headline inflation accelerated to 0.4% m-o-m (0.0% y-o-y) from 0.1% m-o-m (-0.2% y-o-y) in April, benefiting mostly from the gasoline subcomponent that surged by 10.4% m-o-m. Note that the PCE deflator for April stood at 0.1% y-o-y, while the core figure stood at 1.2% y-o-y. Housing market data were mixed during the past week, but still point to a gradual, albeit slow housing market recovery. Specifically, housing starts disappointed, declining sharply by 11.1% m-o-m (5.1% y-o-y) to 1036k in May, undershooting, by a wide margin, consensus estimates for only a 4.0% m-o-m decline. It should be noted, however, that the outcome came after the particularly strong April data when housing starts increased sharply by 22.1% m-o-m (12.1% y-o-y). On the other hand, building permits rose sharply by 11.8% m-o-m (25.4% y-o-y) to 1275k in May (the highest reading since August 2007) from 9.8% m-o-m in April (+6.1% y-o-y), overshooting consensus estimates for a decline of 3.5% m-o-m. In addition, the NAHB survey index -- that captures homebuilders confidence for new home sales -- rose to 59 in June (the highest reading since September 2014), from 54 in May, exceeding consensus expectations for 56. The euro area labor market continued to strengthen in Q1:15, consistent with the cyclical recovery currently underway. Specifically, euro area employment posted its fifth consecutive quarterly increase, up by 0.1% q-o-q in Q1:15, following 0.1% q-o-q in Q4:14, reflecting, inter alia, labor market reforms and an improving business climate. Recall that the euro area composite PMI has witnessed its best Q1 performance since 2011 (average of 53.3 in Q1:15). The annual growth of employment in the euro area decelerated slightly to 0.8% y-o-y in Q1:15, from 0.9% y-o-y in Q4:14, but still appears solid, recording its second highest rate since Q2:08. Regarding developments by country, Spain remained the leader among the largest economies, as employment advanced by 0.8% q-o-q (2.9% y-o-y), gradually gaining momentum compared with a 0.7% q-o-q (2.4% y-o-y) increase in Q4:14. On the other hand, employment growth remained flat on a quarterly basis in Germany (+0.7% y-o-y), Italy (+0.3% y-o-y) and France (0.0% y-o-y). According to the ECB staff June forecasts, the unemployment rate for the euro area is expected to decline during the course of 2015, (on average) to 11.1% and to 10.6% in 2016 from an average of 11.6% in 2014, supported by a gradual recovery in economic activity. The unemployment rate stood at 11.1% in April On a negative note, the ZEW current economic situation and expectations indicators for the German economy weakened further in June, mostly reflecting external factors (i.e. euro area uncertainty, global growth concerns). Specifically, the ZEW forward-looking survey came out at 31.5 in June (from 41.9 in May), a 7-month low, undershooting consensus expectations of 37.3, though still above the 15-year average of 21.1 (since January 2000). Similarly, the current conditions index declined to 62.9 in June, down from 65.7 in May, broadly in line with expectations (63.0). In the UK, labor market developments were positive, with the unemployment rate remaining at a 6-year low of 5.5% in April (the lowest since mid-2008). Employment gains were solid, as the number of employed rose by 114k (1.4%y-o-y), albeit at a slower pace compared with 202k in March (1.9% y-o-y). Most importantly, earnings growth surprised on the upside, with average weekly earnings (excluding bonuses) increasing by 2.7% y-o-y in April (the highest since early 2009), from 2.3% y-o-y in March, exceeding consensus estimates of 2.5% y-o-y and further approaching its long-term average of 2.9%. On the inflation front, growth in the CPI returned to positive territory, posting a 0.1% y-o-y gain in May following a -0.1% y-o-y outcome in April, while core inflation accelerated to 0.9% y-o-y from 0.8% y-o-y previously. According to the BoE minutes on June 3 rd, low energy and food prices that put downward pressure on consumer prices will likely dissipate fairly shortly, with inflation expected to accelerate towards end year (0.8% y-o-y in Q4:15 according to the BoE s Inflation Report in May 15). In that context, the recent increase in earnings growth, if sustained, would provide the MPC with confidence that inflation will indeed post further gains in the coming months. Note that the first increase in the Bank rate is now fully priced-in for Q2:16, from Q3:16 in early June, based on GBP OIS forwards. The Bank of Japan maintained its policy unchanged, as expected, during the past week, reiterating its goal to increase the monetary base at an annual rate of 80tn. No significant changes were made in the communique of the statement. However, the BoJ announced a new framework for its monetary policy meetings (MPM) in order to improve its 2

3 Mar-15 Mar-15 Jun-15 Jun-15 Jun-15 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Jun-15 NBG Economic Research Division June 23, 2015 policy communication. The changes include: i) the release of the Outlook for Economic Activity and Prices on a quarterly basis (instead of a semi-annual basis); ii) the release of each Policy Board Member's forecasts for risk assessments of the economy and prices; iii) the release of a "Summary of Opinions" (a document that will contain a summary of opinions presented at each MPM) about a week after each meeting; and (iv) a modification in the frequency of MPMs (eight times a year instead of 14). In China, the housing market demonstrated signs of stabilization after a year of substantial correction, indicating that the supportive policy measures, adopted in late March, are bearing fruit. Housing market stabilization, if sustained, will offer significant support to the Chinese authorities efforts to contain the recent slowdown in activity, and reach the 2015 GDP growth target of 7.0%. Specifically, 41 out of 70 cities (59%) monitored by China s National Bureau of Statistics (NBS) reported a monthly decrease in prices of new residential buildings in May compared with 67% of cities in April and circa 91% in January. On average, the prices of new residential buildings rose by 0.1% m-o-m in May for the first time in twelve months, from -0.1% m-o-m in April, whereas the annual rate of decline slowed to 6.0% y-o-y from -6.3% y-o-y in April. Cumulative Flows into Equity ETFs as % of AUM % % 25 US Europe excl. UK 25 UK Japan 20 Emerging Markets Quote of the week:..the timing of the first decision to raise rates is something that should not be overblown whether it is September or December or March. What matters is the entire path of rates and, as I have said, the committee anticipates economic conditions that would call for a gradual evolution, Fed Chair, Janet Yellen, on June 17 th Source: Bloomberg, NBG Estimates, AUM = Assets Under Management 10- Year Government Bond Spreads bps Greece (left) Italy (right) bps Markets Global equity markets ended the week in negative territory, as policy-induced uncertainty weighed negatively on investors risk appetite. The S&P500 was the exception (+0.8%,) as a more-dovish-than-expected Fed supported sentiment. Specifically, the MSCI World index declined (down by 0.1%) for a 4th consecutive week, as emerging equity markets strongly underperformed (down by 1.1%) their developed peers (flat for the week). The EuroStoxx index declined by 1.3% on a weekly basis, while intra-euro area the DAX30 was down by 1.4% and the CAC40 (-1.8%) underperformed for a 2nd week in a row among the major euro area economy equity markets. In addition, Japanese lost ground with the Nikkei225 dropping by 1.1% on a weekly basis, as the slightly stronger yen and heightened volatility in off-shore markets drove sentiment. Looking forward, should find support from the ongoing accommodative monetary policy stance from most major central banks. However, with most valuation multiples having returned to (or exceeding) their long-term averages, earnings growth is a necessary catalyst for the continuation of the current equity market performance. The major risks are a disorderly re-pricing linked to the Fed s interest rate cycle and/or the ECB failing to cope with deflationary pressures. Moreover, political risks will continue to add to uncertainty, comprising the ongoing Ukraine/Russian conflict, developments in the Middle East, elections in Spain, and the situation in Greece. The dovish Fed projections and increased safe-haven demand during the past week sent government bond yields lower in most major countries with the US 10Yr Treasury yield ending the week down by circa 13 bps to 2.26% and the US 2Yr Treasury yield falling the most since early April (-11 bps to 0.62%). Similarly, the German 10Yr Bund yield declined by 8 bps to 0.75% as investors turned to safehaven assets and as spreads over Bund rose for most euro area countries with the BTPs and Bonos spreads rising by 15 bps (to 153 bps) and by 11 bps (to 152 bps), respectively, over the week. In the UK, the 10Yr Gilt yield rose 2 bps to 2.0% as wage growth overshot estimates. In foreign exchange markets, the US dollar lost ground across the board on the back of a more-dovish-than-expected outlook from the Fed regarding the pace of Fed funds rate hikes. Specifically, the US dollar declined by 0.8% against the euro to circa 1.14 and by 0.6% against the Japanese yen to The British pound recorded strong gains on the back of higher earnings growth, appreciating by 2.0% against the US dollar (to 1.59) and by 1.3% against the euro (to circa 0.71). In commodities, copper fell by 4.3% over the week (to $/mt) despite optimistic Chinese housing data whereas gold advanced by 1.6% (to $/ounce) partly due to increased safe-haven demand and a weaker US dollar Portugal (right) 1300 Ireland (right) Source: Bloomberg Spain (right)

4 Economic News Diary: June 16 - June 29, 2015 Day Region Release Period Survey Actual Prior Current Week Tuesday 16 US Housing starts (k) MAY US Building permits (k) MAY UK CPI (YoY) MAY 0,1% 0,1% -0,1% UK CPI Core (YoY) MAY 1,0% - 0,9% 0,8% EURO AREA Employment (QoQ) Q1:15.. 0,1% 0,1% EURO AREA Employment (YoY) Q1:15.. 0,8% 0,9% GERMANY ZEW survey current situation JUNE 63,0-62,9 65,7 GERMANY ZEW survey expectations JUNE 37,3-31,5 41,9 Wednesday 17 US Fed announces its intervention rate JUNE 17 0,25% 0,25% 0,25% UK ILO Unemployment Rate APRIL 5,5% 5,5% 5,5% UK Bank of England releases MPC Minutes JAPAN Exports YoY MAY 3,0-2,4 8,0 JAPAN Imports YoY MAY -7,5 - -8,7-4,2 Thursday 18 US CPI (YoY) MAY 0,1% - 0,0% -0,2% US Core CPI (YoY) MAY 1,8% - 1,7% 1,8% US Initial Jobless Claims (k) JUNE US Continuing Claims (k) JUNE US Philadelphia Fed Business Outlook JUNE 8,0 + 15,2 6,7 UK Retail sales Ex Auto MoM MAY -0,2% 0,2% 0,8% EURO AREA ECB publishes its economic bulletin Friday 19 JAPAN Bank of Japan annual rise in Monetary Base ( tn) JUNE EURO AREA Eurogroup/ECOFIN finance ministers meeting Monday 22 US Existing home sales (mn) MAY 5,26 + 5,35 5,09 Next Week EURO AREA Consumer Confidence Indicator JUNE -5,8 + -5,6-5,6 Tuesday 23 US Durable goods orders (MoM) MAY -0,9%.. -1,0% US Durable goods orders ex transportation (MoM) MAY 0,5%.. -0,2% US Markit US Manufacturing PMI JUNE 54,1.. 54,0 US New home sales (k) MAY EURO AREA Markit Eurozone Manufacturing PMI JUNE 52,2.. 52,2 EURO AREA Markit Eurozone Services PMI JUNE 53,6.. 53,8 EURO AREA Markit Eurozone Composite PMI JUNE 53,5.. 53,6 Wednesday 24 US GDP (QoQ, annualized) Q1:15-0,2%.. -0,7% US Personal Consumption Q1:15 1,9%.. 1,8% GERMANY IFO- Business Climate Indicator JUNE 108, ,5 GERMANY IFO- Current Assesment JUNE 114, ,3 GERMANY IFO-Expectations JUNE 102, ,0 Thursday 25 US Personal income (MoM) MAY 0,5%.. 0,4% US Personal spending (MoM) MAY 0,7%.. 0,0% US PCE Deflator (YoY) MAY 0,2%.. 0,1% US PCE Core Deflator (YoY) MAY 1,2%.. 1,2% US Initial Jobless Claims (k) JUNE US Continuing Claims (k) JUNE Friday 26 UK Nationwide House Px NSA YoY JUNE.... 4,6% JAPAN Unemployment rate MAY 3,3%.. 3,3% JAPAN CPI (YoY) MAY 0,4%.. 0,6% JAPAN CPI ex-fresh food (YoY) MAY 0,0%.. 0,3% EURO AREA M3 money supply (YoY) MAY 5,4%.. 5,3% Monday 29 US Pending home sales (MoM) MAY 1,0%.. 3,4% Source: Bloomberg JAPAN Retail sales (MoM) MAY.... 0,3% JAPAN Retail sales (YoY) MAY.... 4,9% JAPAN Industrial Production (MoM) MAY.... 1,2% JAPAN Industrial Production (YoY) MAY.... 0,1% EURO AREA Economic confidence indicator JUNE ,8 EURO AREA Business Climate Indicator JUNE.... 0,28 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 ,8 2,5 7,7 29,5 Japan NIKKEI ,1 15,6 31,3 52,3 UK FTSE ,1 2,2-1,4 5,7 Canada S&P/TSX ,6 0,1-3,0 19,4 Hong Kong Hang Seng ,9 13,4 15,5 27,5 Euro area EuroStoxx 358-1,3 11,9 6,8 31,7 Germany DAX ,4 12,6 10,4 34,7 France CAC ,8 12,7 5,5 25,4 Italy FTSE/MIB ,8 19,4 2,2 41,5 Spain IBEX ,8 6,5-2,2 35,1 Emerging Markets 1 MSCI Emerging Markets ,1 4,1 3,1 15,1 MSCI Asia 752-1,6 4,6 6,8 18,8 China 75-4,3 14,2 23,4 37,1 Korea 539-0,8 0,5-6,8 0,3 MSCI Latin America ,4 3,3-4,1 5,0 Brazil ,8 5,9-5,9 5,6 Mexico ,7 3,7 4,6 15,2 MSCI Europe ,2 5,4-5,9 2,0 Russia 794 1,0 19,9 2,5 14,0 Turkey ,5-4,9 2,3 4,5 As of June 19, 2015, 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 227,2-0,4-4,5-26,7-9,8 Materials 230,1-0,1 3,2-8,9 4,3 Industrials 205,0-0,4 2,8-1,5 18,4 Consumer Discretionary 200,9 0,6 7,9 10,8 29,1 Consumer Staples 205,3 1,3 2,7 2,1 13,8 Healthcare 221,6 1,1 10,9 18,4 46,0 Financials 105,7-0,3 2,8 0,5 16,6 IT 147,0 0,2 4,0 12,3 39,4 Telecoms 71,2 0,4 4,2-2,5 15,1 Utilities 115,4 1,0-6,2-7,6 8,2 in local currency Energy 224,6-0,7-3,5-23,0-5,8 Materials 215,2-0,5 5,2 0,1 14,3 Industrials 203,3-0,6 4,3 6,1 28,2 Consumer Discretionary 194,4 0,3 9,2 18,0 38,2 Consumer Staples 199,8 0,9 3,1 8,0 19,0 Healthcare 216,0 0,8 10,9 23,5 51,3 Financials 104,1-0,7 4,5 8,5 26,1 IT 143,1 0,1 4,6 15,3 43,7 Telecoms 72,9 0,0 6,1 6,7 25,2 Utilities 116,2 0,6-4,8-1,3 14,8 As of June 19, 2015, MSCI Indices Bond Markets (%) 10-Year Government Bond Yields Current Last w eek Year Start One Year Back 10-year average US 2,26 2,39 2,17 2,62 3,22 Germany 0,75 0,83 0,54 1,32 2,71 Japan 0,42 0,52 0,33 0,59 1,16 UK 2,01 1,99 1,76 2,74 3,39 Greece 12,67 11,76 9,75 5,88 9,42 Ireland 1,63 1,69 1,25 2,43 5,02 Italy 2,28 2,21 1,88 2,91 4,21 Spain 2,27 2,25 1,61 2,72 4,18 Portugal 3,05 3,04 2,69 3,48 5,58 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 (%) 4,22 4,22 4,04 4,36 4,91 vs 30Yr Treasury (bps) As of June 19, 2015, 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 1,14 0,8 2,3-16,6-6,2 EUR/CHF 1,04-0,4 0,2-14,4-13,4 EUR/GBP 0,71-1,3 0,1-10,5-8,0 EUR/JPY 139,27 0,2 3,5 0,4-3,9 EUR/NOK 8,78 0,5 4,5 5,4-2,6 EUR/SEK 9,21-0,1-0,5 1,1-2,5 EUR/AUD 1,46 0,2 3,7 0,9-1,4 EUR/CAD 1,39 0,4 2,9-5,4-0,9 USD-based cross rates USD/CAD 1,23-0,5 0,4 13,4 5,5 USD/AUD 1,29-0,5 1,3 21,0 5,1 USD/JPY 122,70-0,6 1,1 20,4 2,5 Commodities Agricultural 467-0,9-3,2-27,5-13,7 Energy ,0 0,1 0,9 0,4 West Texas Oil ($) 60-0,6 1,9-44,0 11,9 Crude brent Oil ($) 61-3,0-4,5-47,1 9,0 Industrial Metals ,7-7,4-15,8-10,2 Precious Metals ,9-1,2-10,7 1,4 Gold ($) ,6-0,8-9,1 1,3 Silver ($) 16 0,8-5,9-22,6 2,6 Baltic Dry Index ,3 28,5-13,6-0,4 Baltic Dirty Tankers Index ,8 9,3 44,0 18,9 As of June 19, 2015, Goldman Sachs Indices for Commodities 5

6 NBG Economic & Markets Forecasts Euro area & US: GDP Growth & Inflation Forecasts GDP (%) a Q1a Q2a Q3a Q4a 2014a Q1a Q2f Q3f Q4f 2015f HICP Inflation (%) a 2014a 2015f Euro area -0,5 0,3 0,1 0,2 0,3 0,9 0,4 0,4 0,5 0,5 1,4 US 2,2-0,5 1,2 1,3 0,6 2,4-0,2 0,8 0,9 0,9 2,6 Euro area 1,4 0,7 0,6 0,4 0,2 0,4-0,3 0,0 0,3 0,7 0,2 US 1,5 1,4 2,1 1,8 1,3 1,6-0,1-0,3 0,6 0,7 0,3 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 0,75 0,75 0,85 1,00 US 2,26 2,50 2,75 3,00 Official rate (%) Euro area 0,05 0,05 0,05 0,05 US 0,25 0,25 0,50 0,75 Currency EUR/USD 1,14 1,08 1,05 1,00 EUR/GBP 0,71 0,70 0,70 0,69 EUR/JPY (*) As of June , 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) Overvalued on a tradeweighted basis The Fed is expected to increase its policy rate by end-2015 (currently at 0.00%-0.25%) for the first time in nine years Growth to accelerate in H2:2015 Halting US Treasuries and agency MBSs reinvestments in H1:2016 Structural weakness due to twin deficits 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 Q1:2016 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 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 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%) by end-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 Q1:2016 Higher yields expected Higher yields expected Higher yields expected Higher yields expected Equities Periphery spreads tightening Declining equity risk prem EPS are bottoming out 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 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 Strong EPS growth The BoE increases interest rates faster-thanexpected due to labor market tightening Strong trade links with euro area economy High UK exposure to the Energy sector Neutral stance on Neutral-to-positive stance on Neutral-to-positive stance on Neutral stance on 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 Neutral/Positive stance on Neutral/Positive stance on Neutral/Positive stance on 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 3,8 Romania 1,1 0,6 3,4 2,8 3,4 3,2 Bulgaria 2,0 0,5 1,1 1,7 1,6 2,2 Serbia 1,4-1,0 2,6-1,8 0,0 2,0 Headline Inflation (eop,%) Turkey 10,4 6,2 7,4 8,2 7,4 6,2 Romania 3,1 5,0 1,6 0,8 0,0 1,5 Bulgaria 2,8 4,2-1,6-0,9 0,2 1,4 Serbia 7,0 12,2 2,2 1,7 2,4 3,5 Current Account Balance (% of GDP) Turkey -9,7-6,2-7,9-5,7-5,2-5,4 Romania -4,6-4,5-0,8-0,4-0,5-1,1 Bulgaria 0,9-0,3 1,9 0,9 2,5 1,5 Serbia -10,9-11,6-6,1-6,0-4,1-3,6 Fiscal Balance (% of GDP) Turkey -1,4-2,1-1,2-1,3-1,4-1,2 Romania -4,2-2,5-2,5-1,9-2,7-4,0 Bulgaria -2,0-0,4-1,8-3,7-3,0-2,5 Serbia -4,8-6,8-5,5-6,7-5,2-4,2 f : NBG f orecasts SEE Financial Markets June 19th 3-month forecast 6-month forecast 12-month forecast 1-m Money Market Rate (%) Turkey 11,0 10,8 10,5 9,5 Romania 0,9 1,2 1,5 1,8 Bulgaria 0,2 0,2 0,2 0,2 Serbia 5,2 5,5 5,5 5,5 Currency TRY/EUR 3,06 3,00 2,90 2,80 RON/EUR 4,49 4,42 4,41 4,40 BGN/EUR 1,96 1,96 1,96 1,96 RSD/EUR 120,6 119,8 120,1 120,0 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 June 19th Last w eek return (%) YTD (%) 2-year Index Turkey ISE ,4-3,8 4,6 Romania BET-BK ,9 3,5 27,5 Bulgaria SOFIX 483-1,2-7,5 9,4 Serbia BELEX ,7 1,0 36,3 1. In local currency 9

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