Global Markets Roundup

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1 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 March 22, 2016 Global Markets Roundup NBG Economic Research Division A dovish turn by central banks again supports sentiment See disclosures and analyst certification on last page. The Fed maintained unchanged the target for the Federal funds rate at However, it adopted a more cautious approach regarding the interest rate outlook, mainly reflecting risks from global economic developments (China, EA, Japan). Indeed, the median interest rate forecast by the Fed for end-2016 declined by 50 bps to (or a target range of ), implying 2 rate hikes before end-year, compared with 4 hikes at the December meeting. For 2017, the Fed s forecast for interest rates is a tightening of 100 bps (or 4 hikes), similar to December Markets continue to disagree regarding the pace of tightening, expecting only 1 hike in 2016 and 1 in 2017 (see graph). These estimates are consistent with forecasts of: i) 2.2 GDP growth in 2016 (vs 2.4 at the December meeting); and ii) 1.2 inflation for 2016 (vs 1.6 previously). The unemployment rate is still expected at 4.7, and according to our estimates, average nonfarm payrolls of 200k could drive it to 4.6 (on average) in 2016 (NAIRU: 4.8). Regarding inflation, some skepticism was expressed on whether the recent PCE acceleration would be sustained, as wages still remain anemic and transitory factors (energy price declines and US dollar appreciation) may remain in place for longer than expected (see graph). Overall, the meeting was more dovish than expected, as reflected by: i) the continued emphasis on global economic and financial developments; ii) lower US GDP and inflation forecasts for 2016; and iii) expectations for a more gradual pace of tightening. Government bond yields fell on the back of the dovish Fed tone. Indeed, the US Treasury 10-Year yield declined by 11 bps to 1.87 and 2-Year yield by 12 bps to The USD lost ground across the board over the week (Dollar Spot Index: -1.1), declining by 1.1 against the euro to USD 1.13/ and by 2.0 against the Japanese yen to 112/USD. Note that the Bank of Japan's decision to remain on hold during the past week and remove the direct reference to the prospect of cutting interest rates further in negative territory if deemed necessary, supported the Yen. Regarding policy guidance, the BoJ reiterated its willingness to take additional measures if necessary in order to achieve the inflation target of 2.0. Equity markets reacted positively to the meeting, with global equities ending the week higher (MSCI World Index: +0.8). Moreover, US equities overperformed, with the S&P500 index up by 1.4 over the week, while entering positive territory in year-to-date terms for the first time this year (+0.3). A more-dovish-than-expected Fed also supported EM equities (+2.2 wow) and a further rebound in oil prices (WTI: +2.4 wow at 39$/brl, 17 since end-february). Year-to-date, EM equities have overperformed DM by 4.8. Paul Mylonas, PhD NBG Group Chief Economist pmylonas@nbg.gr Ilias Tsirigotakis Head of Global Markets Research Panagiotis Bakalis Lazaros Ioannidis Vasiliki Karagianni Charts of the week 3,00 2,75 2,50 2,25 2,00 1,75 1,50 1,25 1,00 0,75 0,50 0,25 0,00 Federal Reserve median Projections (December 2015) Federal Reserve median Projections (March 2016) Fed Fund Futures as of March 18 down by 50bps 3,00 2,75 2,50 2,25 2,00 1,75 1,50 1,25 1,00 0,75 0,50 0,25 0,00 US Inflation CPI core (YoY) 2,6 2,6 PCE core (YoY) 2,4 2,4 PCE (YoY) 2,2 Inflation 2,2 Target:2 2,0 2,0 1,8 1,6 1,4 1,2 1,0 0,8 0,6 0,4 0,2 0,0 1,8 1,6 1,4 1,2 1,0 0,8 0,6 0,4 0,2 0,0 Source: Bloomberg Source: Bloomberg, 1

2 Economics NBG Economic Research Division March 22, 2016 In the US, high frequency indicators for February (retail sales, industrial production) were softer than expected, alleviating the optimism for a pick-up in activity in the current quarter, following the strong January reports. Retail sales (in value terms) excluding autos, gas, food services and building materials the so-called control group since they feed into the calculation for GDP were flat m-o-m (+2.9 y-o-y) in February, below consensus expectations for +0.2 m-o-m. More importantly, the January outcome was significantly revised down by 0.4 pps to +0.2 m-o-m (+2.8 y-o-y), indicating that private consumption (70 of GDP) did not enter Q1:16 on the strong footing suggested in the previous report. Headline retail sales (in value terms) declined by 0.1 m-o-m (+3.1 y-o-y), from a downwardly revised (by 0.6 pps) -0.4 m-o-m (+3.0 y-o-y) in January. Moreover, consumer confidence indicators also weakened, failing to brighten the prospects for consumption going forward. Indeed, the University of Michigan consumer confidence indicator declined to 90.0 in March (5-month low), from 91.7 in February (consensus: 92.2). Households short-term inflation expectations rose (an important input in the Fed s monetary policy decisions), in anticipation of higher gas prices, following the recent rebound in oil prices, with one-year ahead inflation expectations at 2.7 in March (from 2.5 in February). Longer-term inflation expectations (five to ten years ahead) also rose to 2.7 from 2.5 previously. US industrial production data for February were weaker than expected, while business surveys improved. Industrial production declined by 0.5 m-o-m (-1.0 y-o-y) from +0.8 m-o-m (-0.7 y-o-y) in January (consensus estimates for -0.3 m-o-m). The decline was due to utilities (-4.0 m-o-m) as the unusually mild weather resulted in weak demand for heating and mining (-1.4 m-o-m). On the other hand, the manufacturing subcomponent (which accounts for 75 of total production) rose by 0.2 m-o-m (1.8 y-o-y), from +0.5 m-o-m (+1.2 y-o-y) in January. This outcome was slightly above expectations for +0.1 m-o-m and alleviated the negative performance. The underlying trend improved, with manufacturing production at +1.9 on a 3m/3m annualized rate (+0.4 in January). Furthermore, business surveys improved significantly, albeit from particularly depressed levels. Indeed, the Philadelphia Fed Business Index was 12.4 in March versus -2.8 in February, and the Empire manufacturing index was +0.6 in March from in February, entering expansion territory (contraction/expansion threshold: 0.0) for the first time in seven and eight months, respectively. On the inflation front, the underlying gradual improvement continued in February, albeit overall price pressures moderated due to base effects. Core CPI remained stable at 0.3 m-o-m in February, with the annual rate accelerating to 2.3 y-o-y (the highest level since May 2012) from 2.2 y-o-y in January. The outcome was above consensus estimates (+0.2 m-o-m), with broad based gains across the components. On the other hand, headline inflation declined by 0.2 m-o-m (from a flat outcome in January), with the annual change decelerating to 1.0 y-o-y vs 1.4 y-o-y previously, albeit due to base effects relating to energy prices. Indeed, energy prices declined by 12.7 y-o-y in February from -6.5 y-o-y in January. Recall that the PCE deflator for January (the Fed s preferred measure of gauging inflation pressures) stood at 1.3 y-o-y (0.7 y-o-y in December) and the core figure at 1.7 y-o-y (1.5 y-o-y in December). In the euro area, employment continues to improve, benefiting, inter alia, from the (moderate) economic recovery. Employment increased by 0.3 q-o-q in Q4:15, the same as in Q3:15, while the annual growth rate was 1.2 y-o-y, the highest since Q2:08, from 1.1 y-o-y in the previous quarter. Recall that the unemployment rate in the euro area fell to 10.3 in January, the lowest rate since August 2011, from a peak of 12.1 in April In the UK, labor market developments remain favorable as wages accelerate. The unemployment rate remained stable at a 10-year low of 5.1 in January, in line with expectations and employment growth continues to rise, albeit at a slower pace. Indeed, the number of employed increased by 116k in January (1.6 y-o-y) from 205k (1.7 y-o-y) in December, below estimates (+144k). Importantly, average weekly earnings (exbonuses) increased by 2.2 y-o-y in January from 2.0 y-o-y previously, overshooting consensus estimates for 2.1. The Office for Budget Responsibility (OBR) expects weaker UK growth according to its fiscal and economic outlook for March The OBR revised down its real GDP growth forecasts to 2.0 in 2016 and 2.2 in 2017 (-0.4 pps and -0.3 pps, respectively, compared with November), reflecting lower labor productivity growth. On the fiscal front, the OBR expects public sector borrowing (net) at 72.2bn (-3.8 of GDP) in FY: (UK fiscal year runs from April 2015 through March 2016). The budget is expected to reach a surplus of 10.4bn (0.5 of GDP) in FY: on the back of lower debt interest payments and public spending, as well as a net tax increase. Public sector debt (net) is projected to fall as of GDP from the current period forecast (FY: ) of 83.7 to 77.2 in FY: The Japanese trade balance improved in February, mainly on the back of contracting imports, a development though that provides a signal regarding the strength of activity. In seasonally adjusted value terms, imports declined by 4.0 m-o-m (-17.5 y-o-y) in February from -0.4 m-o-m (-16.5 y-o-y) in January, while exports fell by 2.4 m-o-m (-6.3 y-o-y) in February, following a rise of 0.3 m-o-m (-11.0 y-o-y) previously. As a result, the trade balance rose to a surplus of 166.1bn in February, from 73.2bn in January, below consensus expectations for 235bn. On a 12-month rolling basis, the trade balance stood at -0.3 of GDP in February, from -2.2 a year earlier. In China, the housing market recovery continues, a trend that, if sustained, could support private domestic demand. Specifically, 47 out of 70 cities (67) monitored by China s National Bureau of Statistics (NBS) reported a monthly increase in prices of new residential buildings in February (the highest since March 2014), compared with 54 cities in January (and only 3 in January 2015). On average, prices for new residential buildings rose for a fourth consecutive month, by 0.4 m-o-m in February from 0.3 m-o-m in the previous month, while the annual rate of growth increased to 1.9 y-o-y, the highest since July 2014, from 1.0 y-o-y in January and a trough of -6.3 y-o-y in April

3 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar Dec 28-Dec 4-Jan 11-Jan 18-Jan 25-Jan 1-Feb 8-Feb 15-Feb 22-Feb 29-Feb 7-Mar 14-Mar 21-Mar 21-Dec 28-Dec 4-Jan 11-Jan 18-Jan 25-Jan 1-Feb 8-Feb 15-Feb 22-Feb 29-Feb 7-Mar 14-Mar 21-Mar Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 NBG Economic Research Division March 22, 2016 Quote of the week: proceeding cautiously in removing policy accommodation at this time will allow us to verify that the labor market is continuing to strengthen despite the risks from abroad. Such caution is appropriate given that short-term interest rates are still near zero, which means that monetary policy has greater scope to respond to upside than to downside changes in the outlook, Fed Chair, Janet Yellen, March 16 th Markets Global equity markets rose and volatility receded for a fifth consecutive week (VIX index: -2.3 pps to 15.4, VSTOXX index: -4.3 pps to 22.5), supported by a more-dovish-than-expected Fed. Indeed, the MSCI World rose by 0.8 on a weekly basis, while emerging markets overperformed their developed peers (2.2 vs 0.6). In the US, the weaker dollar (-1.2 wow in NEER terms) supported the rise. Indeed, the S&P500 gained 1.4, with Industrials (3.4), Energy (2.5) and Materials (2.4) overperforming. Regarding the US earnings season, out of the 494 firms that have released earnings results for Q4:15, circa 54 have exceeded analyst estimates, with EPS declining by 4.5 y-o-y so far in the fourth quarter (+1.4 y-o-y ex-energy). Recall that consensus analysts expect a decline of 4.4 y-o-y (+1.5 y-o-y excluding the energy sector). The Nikkei 225 underperformed (-1.3 wow), as the stronger JPY weighed (+1.3 wow in NEER terms). In the euro area, the EuroStoxx was flat on a weekly basis, while the DAX30 index rose by 1.2. In China, the CSI300 (largest A-shares in Shanghai and Shenzhen exchanges) rose by 5.1 wow. All told, the recent dovish turn by major central banks (BoJ, ECB, Fed) has supported investor sentiment. However, for a sustained change in risk appetite to occur, there should be an improvement in hard economic data and a stabilizing in EPS estimates. In this regard, consensus estimates for S&P500 EPS growth have declined recently to 3.4 for 2016 from 7.4 in December Market attention will soon focus on the US earnings season for Q1:16, with consensus anticipating a 9.4 y-o-y decline in S&P500 EPS in the first quarter of the year Government bond yields declined substantially, following the dovish surprise from the FOMC on Wednesday. Indeed, the US Treasury 10Yr yield fell by 11 bps to 1.87 and the 2Yr yield by 12 bps to On a similar note, the UK s 10Yr Gilt yield declined by 13 bps to 1.45, while the Japanese government 10Yr bond yield was down by 9 bps to -0.09, close to the recent historical lows (-0.99 on March 8). The German 10Yr Bund yield also fell, by 6 bps to 0.21, while euro area periphery bond spreads over the Bund were little changed (-1 bp for Italian 10Yr BTPs and Spanish 10Yr Bonos to 105 bps and 122 bps, respectively, and +4 bps to 271 bps for the Portuguese government 10Yr bond). Cumulative Flows into Equity ETFs as of AUM 45 US ,14 1,13 1,12 1,11 1,10 1,09 1,08 1,07 1,06 1,05 Europe excl. UK UK Japan Emerging Markets Source: Bloomberg, NBG Estimates, AUM = Assets Under Management Data as of March 18th bps Year Government Bond Spreads Greece (left) Portugal (right) Ireland (right) Source: Bloomberg - Data as of March 18th EUR/USD (left) Foreign Exchange Italy (right) Spain (right) USD/JPY (right) bps Corporate bond spreads recorded minor changes, with US high yield bond spreads and their euro counterparts declining by 11 bps on a weekly basis at 671 bps and by 2 bps at 516 bps, respectively. US investment grade bond spreads declined by 9 bps to 176 bps. In foreign exchange markets, the more-dovish-than-expected Fed led the US dollar lower across the board (-1.2 in NEER terms on a weekly basis and -1.1 against the euro to $/1.13). In contrast, the Japanese yen appreciated, by 1.4 in NEER terms and by 2.1 against the US dollar (to $/111.55). The Chinese remninbi increased by 0.4 against the US dollar over the week (to RMB6.47). Source: Bloomberg - Data as of March 18th 12 month forward EPS Estimates (YoY) S&P500 EuroStoxx FTSE 100 Nikkei In commodities, oil prices rose to 3-month highs during the past week, supported, inter alia, by the weaker US dollar. West Texas Intermediate (WTI) was up by 2.4 to 39.4$/barrel and Brent rose by 2.7 to 40.5$/barrel on a weekly basis. Recall that since its mid-february low, WTI has rebounded strongly by circa 50. Precious metals recorded small gains, with gold up by 0.4 over the week to 1255 $/ounce Source: Factset - Data as of March 18th

4 Economic News Diary: March 15 - March 28, 2016 Day Region Release Period Survey Actual Prior Current Week Tuesday 15 US Retail Sales Advance MoM FEBRUARY US Retail sales ex-autos (MoM) FEBRUARY US Empire Manufacturing MARCH US NAHB housing market confidence index MARCH US Net Long-term TIC Flows ($ bn) JANUARY UK ILO Unemployment Rate JANUARY JAPAN Bank of Japan announces its intervention rate MARCH JAPAN Bank of Japan annual rise in Monetary Base ( tn) MARCH EURO AREA Employment (QoQ) Q4: EURO AREA Employment (YoY) Q4: Wednesday 16 US Building permits (k) FEBRUARY US Housing starts (k) FEBRUARY US CPI (YoY) FEBRUARY US Core CPI (YoY) FEBRUARY US Industrial Production (MoM) FEBRUARY US Fed announces its intervention rate MARCH Thursday 17 US Initial Jobless Claims (k) MARCH US Continuing Claims (k) MARCH US Philadelphia Fed Business Outlook MARCH UK BoE announces its intervention rate MARCH UK BoE Asset Purchase Target ( bn) MARCH JAPAN Exports YoY FEBRUARY JAPAN Imports YoY FEBRUARY EURO AREA Trade Balance SA ( bn) JANUARY Friday 18 US University of Michigan consumer confidence MARCH Monday 21 US Existing home sales (mn) FEBRUARY Next Week Tuesday 22 US Markit US Manufacturing PMI MARCH UK CPI (YoY) FEBRUARY UK CPI Core (YoY) FEBRUARY JAPAN Nikkei PMI Manufacturing MARCH EURO AREA Markit Eurozone Composite PMI MARCH EURO AREA Markit Eurozone Manufacturing PMI MARCH EURO AREA Markit Eurozone Services PMI MARCH GERMANY IFO- Business Climate Indicator MARCH GERMANY IFO- Current Assesment MARCH GERMANY IFO-Expectations MARCH GERMANY ZEW survey current situation MARCH GERMANY ZEW survey expectations MARCH Wednesday 23 US New home sales (k) FEBRUARY Thursday 24 US Initial Jobless Claims (k) MARCH US Continuing Claims (k) MARCH US Durable goods orders (MoM) FEBRUARY US Durable goods orders ex transportation (MoM) FEBRUARY UK Retail sales Ex Auto MoM FEBRUARY EURO AREA ECB publishes its Economic bulletin Friday 25 US GDP (QoQ, annualized) Q4:15 T JAPAN CPI (YoY) FEBRUARY JAPAN Core CPI (YoY) - ex. Fresh Food FEBRUARY JAPAN Core CPI (YoY) - ex. Fresh Food and Energy FEBRUARY Monday 28 US Personal income (MoM) FEBRUARY Source: Bloomberg US Personal spending (MoM) FEBRUARY US PCE Deflator (YoY) FEBRUARY US PCE Core Deflator (YoY) FEBRUARY US Pending home sales (MoM) FEBRUARY

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 ,4 0,3-1,9 10,1 Japan NIKKEI ,3-12,1-14,1 15,6 UK FTSE ,8-0,8-11,1-5,8 Canada S&P/TSX ,2 3,7-9,3-5,8 Hong Kong Hang Seng ,3-5,7-15,5-4,2 Euro area EuroStoxx 325 0,0-5,8-13,5 3,1 Germany DAX ,2-7,4-16,4 7,3 France CAC ,7-3,8-11,4 3,6 Italy FTSE/MIB ,0-13,1-18,4-11,3 Spain IBEX ,4-5,2-18,4-10,3 Emerging Markets 1 MSCI Emerging Markets ,2 2,2-9,9 0,8 MSCI Asia 659 1,9-0,5-13,1-0,1 China 56 3,0-6,0-19,9-2,1 Korea 536 1,3 1,8-5,7-4,0 MSCI Latin America ,0 11,8-1,1 3,9 Brazil ,1 15,7-3,7 0,3 Mexico ,6 6,6 2,9 16,5 MSCI Europe ,0 7,9-0,7 2,5 Russia 856 3,2 10,5 13,1 24,1 Turkey ,7 17,0 2,6 26,9 As of March 18, 2016, 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 189,9 2,6 6,5-15,1-29,9 Materials 193,9 2,6 5,0-14,2-18,8 Industrials 197,5 2,7 2,9-3,7-0,3 Consumer Discretionary 189,8 1,6-2,0-4,1 6,4 Consumer Staples 215,0 0,9 3,2 5,7 15,4 Healthcare 192,0-2,3-8,7-12,2 5,3 Financials 91,9 1,1-5,3-10,8-8,7 IT 144,9 2,2-1,0-0,8 16,1 Telecoms 71,8 0,6 5,7 3,3 2,6 Utilities 118,7 1,6 6,3 2,2 2,0 in local currency Energy 191,3 2,1 5,4-15,4-25,4 Materials 182,5 1,7 2,3-16,0-10,6 Industrials 194,3 2,1 0,7-6,0 6,9 Consumer Discretionary 182,5 1,0-3,7-5,9 12,8 Consumer Staples 211,8 0,4 1,9 4,3 23,5 Healthcare 188,4-2,8-9,7-13,3 10,8 Financials 91,2 0,4-7,1-12,2-1,0 IT 140,3 2,0-1,8-1,7 18,6 Telecoms 73,8-0,2 3,6 1,2 13,0 Utilities 120,3 1,2 5,0 0,7 9,8 As of March 18, 2016, MSCI Indices, Source Bloomberg Bond Markets () 10-Year Government Bond Yields Current Last w eek Year Start One Year Back 10-year average US 1,87 1,99 2,27 1,97 3,05 Germany 0,21 0,27 0,63 0,19 2,50 Japan -0,09-0,01 0,27 0,34 1,07 UK 1,45 1,58 1,96 1,53 3,21 Greece 8,61 8,91 8,29 11,99 9,86 Ireland 0,80 0,86 1,15 0,80 4,86 Italy 1,26 1,33 1,59 1,25 4,07 Spain 1,43 1,49 1,77 1,25 4,07 Portugal 2,92 2,94 2,52 1,71 5,53 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) EM Inv. Grade (IG) EM High yield US IG US High yield Euro area IG Euro area High Yield US Mortgage Market 30-Year FRM 1 () 3,94 3,94 4,19 3,99 4,73 vs 30Yr Treasury (bps) As of March 18, 2016, 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 5,7 3,8 EUR/CHF 1,09-0,4-1,1 3,5 0,4 EUR/GBP 0,78 0,5 0,0 7,7 5,6 EUR/JPY 125,72-1,0-1,0-2,3-3,8 EUR/NOK 9,47 0,9-0,4 9,8-1,5 EUR/SEK 9,28-0,2-2,0 0,4 1,2 EUR/AUD 1,48 0,4-4,3 6,4-0,6 EUR/CAD 1,47-0,6-3,7 8,1-2,5 USD-based cross rates USD/CAD 1,30-1,6-4,9 2,2-6,0 USD/AUD 1,32-0,5-5,5 0,6-4,2 USD/JPY 111,55-2,1-2,2-7,6-7,1 Commodities Agricultural 451 0,5 2,4-8,2 0,2 Energy 363 2,0 15,7-35,8-1,5 West Texas Oil ($) 39 2,4 28,6-10,3 6,5 Crude brent Oil ($) 41 2,7 18,0-22,7 13,4 Industrial Metals 998-0,4 5,9-15,8 4,5 Precious Metals ,2 3,5 5,8 17,9 Gold ($) ,4 3,9 7,2 18,3 Silver ($) 16 2,9 3,4-2,1 14,0 Baltic Dry Index 395 1,8 28,7-32,4-17,4 Baltic Dirty Tankers Index 866 4,0 7,3 12,2-0,3 As of March 18, 2016, 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 2015a Q1a Q2a Q3a Q4f 2016f HICP Inflation () a 2015a 2016f Euro area 0,9 0,6 0,4 0,3 0,3 1,5 0,4 0,4 0,4 0,5 1,6 US 2,5 0,2 1,0 0,5 0,3 2,4 0,5 0,5 0,6 0,6 2,1 Euro area 0,4-0,3 0,2 0,1 0,1 0,0 0,0-0,1 0,3 0,8 0,3 US 1,6-0,1 0,0 0,1 0,5 0,1 1,0 1,0 1,0 1,5 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 10-year government bond yield () Germany 0,21 0,40 0,45 0,70 US 1,87 2,05 2,20 2,50 Official rate () Euro area 0,00 0,00 0,00 0,00 US 0,50 0,50 0,75 1,00 Currency EUR/USD 1,13 1,08 1,06 1,05 EUR/GBP 0,78 0,77 0,76 0,74 EUR/JPY (*) As of March , 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 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 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 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 e 2016f 2017f Real GDP Growth () Turkey 2,1 4,2 2,9 3,8 3,0 3,6 Romania 0,6 3,5 3,0 3,7 4,5 3,4 Bulgaria 0,2 1,3 1,5 3,0 2,6 2,6 Serbia -1,0 2,6-1,8 0,7 2,6 3,0 Headline Inflation (eop,) Turkey 6,2 7,4 8,2 8,8 8,4 7,5 Romania 5,0 1,6 0,8-0,9 0,5 2,0 Bulgaria 4,2-1,6-0,9-0,4 0,7 1,4 Serbia 12,2 2,2 1,7 1,5 2,4 2,8 Current Account Balance ( of GDP) Turkey -6,2-7,7-5,5-4,5-4,2-5,0 Romania -4,8-1,1-0,5-1,1-1,9-2,4 Bulgaria -0,3 1,8 1,2 1,2 2,0 1,3 Serbia -11,6-6,1-6,0-4,8-4,8-5,3 Fiscal Balance ( of GDP) Turkey -2,1-1,2-1,3-1,2-1,5-1,2 Romania -2,5-2,5-1,7-1,5-3,3-2,5 Bulgaria -0,4-1,8-3,7-2,9-2,0-1,5 Serbia -6,8-5,5-6,6-3,7-3,9-3,0 e: NBG estimates, f :NBG f orecasts SEE Financial Markets 21/3/ month forecast 6-month forecast 12-month forecast 1-m Money Market Rate () Turkey 11,7 11,5 11,0 10,5 Romania 0,5 1,0 1,5 1,8 Bulgaria 0,0 0,2 0,2 0,2 Serbia 3,1 3,4 3,6 4,0 Currency TRY/EUR 3,22 3,25 3,30 3,40 RON/EUR 4,47 4,48 4,51 4,50 BGN/EUR 1,96 1,96 1,96 1,96 RSD/EUR 122,8 124,1 124,6 125,0 Sovereign Eurobond Spread (bps) Turkey (EUR 2019) Romania (EUR 2024) Bulgaria (EUR 2022) Serbia (USD 2021)(*) (*) Spread ov er US Treasuries SEE Stock Market Returns 1 21/3/2016 Last w eek return () YTD () 2-year Index Turkey ISE ,1 13,9 29,1 Romania BET-BK ,0-5,5 6,9 Bulgaria SOFIX 447-0,3-3,0-24,5 Serbia BELEX ,7-3,7 7,9 1. In local currency 9

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