Global Markets Roundup

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1 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-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 September 13, 2016 Global Markets Roundup NBG Economic Research Division The ECB s more hawkish stance causes equities and government bonds to decline sharply See disclosures and analyst certification on last page. Global equity markets posted their worst performance since the Brexit vote on Friday. Investor sentiment deteriorated significantly following the ECB s decision not to loosen policy further as well as hawkish comments by Fed officials that prompted a disorderly re-pricing of government bond yields (see graph). The US 10Yr Treasury yield rose sharply by 14 bps cumulatively on Thursday/Friday, to 1.68% and the German 10Yr Bund yield increased by 13 bps to 0.01%, crossing the zero-yield threshold for the first time since early July. Euro area periphery bond yields also widened by bps. Paul Mylonas, PhD NBG Group Chief Economist pmylonas@nbg.gr In line with the sell-off in bonds, investors risk appetite weakened, with the S&P500 declining by 2.4% on Friday (albeit bouncing back, to some extent, on Monday: +1.5%) and European equities, down the most in two weeks on Monday (Stoxx600: -1.0%). Equity uncertainty was also apparent following North Korea s nuclear test during the past week, as well Mrs Clinton s narrowing lead over Mr Trump ahead of the November election (the Vix index rose by 5.5% wow to 18%). The ECB maintained its key policy rates unchanged, as expected, (MRO rate: 0.0%, Deposit rate: -0.4%), while the ECB staff macroeconomic forecasts for euro area GDP growth and inflation were broadly unchanged compared with June (see Economics section). The ECB refrained from committing to a continuation of QE beyond March 2017, thus disappointing markets. Specifically, Mr. Draghi noted that the Council did not even discuss a potential extension. However, Mr. Draghi acknowledged that the current interest rates reflect, to some extent, market expectations of a continuation of QE. Thus, the ECB is likely to extend its QE programme by end-year (beyond March 2017), in order to avoid a further tightening of financial conditions. For now, the ECB is focused on ensuring the smooth implementation of QE, as low interest rates have restricted the universe of assets eligible for its purchases. Indeed, the ECB could decide on a combination of: i) changing/removing the yield floor (current: -0.4%); ii) purchasing shorter than 2-Year maturity government bonds; and iii) raising the maximum share of an issuer s outstanding non-cac securities (to 50% from 33%). Capital outflows showed signs of acceleration in China, with FX reserves down by $16bn to $3.185tn in August, following a drop of $4bn in July (H1:2016: -$125bn, Q3:2016: -$20bn). The RMB has declined by 0.7% against the USD to RMB6.68/$ since end-july, while depreciating pressures could escalate if the Fed hikes earlier than expected and/or Chinese growth decelerates. Ilias Tsirigotakis Head of Global Markets Research Panagiotis Bakalis Lazaros Ioannidis Vasiliki Karagianni In this regard, the decision by the Chinese State Council to increase efforts, inter alia, through easing restrictions on infrastructure investment and encouraging policy banks to increase credit, should provide support to domestic demand. However, against the backdrop of continued policy support, private debt levels will continue to rise and remain a cause for concern for investors (see graph). The Bank of England is expected to remain on hold on Thursday (15/9), following a series of betterthan-expected economic data. Indeed, Mr Carney told Parliament that Q3:16 growth could be a bit stronger than the BoE had expected in its August projections (GDP: +0.1% qoq). Charts of the week bps BofA/ML MOVE Bond Volatility Index (left) VIX Index (right) % China: Private Debt vs Lending Rate % Private Non-financial Sector Debt as % of GDP (left) % 225 8,5 1Yr Benchmark Lending Rate (right) 8, ,5 7, , ,0 5, ,0 4, ,0 75 3,5 Source: Bloomberg, BofA ML MOVE Index: Yield Curve weighted index of normalized implied volatility on 1-month Treasury options Source: BIS, Bloomberg 1

2 Economics A healthy US labor market and still favorable lending conditions continue to support consumer credit. Consumer credit increased by 0.5% m-o-m (+6.0% y-o-y) in July, to $3.7tn (or 20% of GDP), compared with +0.4% m-o-m (+6.0% y-o-y) in June, suggesting that private consumption remains the main driver of US growth (2.9 pps contribution over real GDP growth of 1.1% q-o-q saar in Q2:2016). According to the Fed s latest Senior Loan Officer Opinion Survey (SLOOS), consumer loan demand was strong in Q2:16, while banks lending standards remained in easing mode for a 4 th consecutive quarter (contrary to tightening standards for corporate loans). On a negative note, the ISM non-manufacturing index surprised on the downside and, following the respective soft manufacturing survey, corroborated the view for weak business momentum in H2:2016. The ISM non-manufacturing index decreased sharply, by 4.1 pts to a 6½-year low of 51.4 in August, undershooting consensus expectations (54.9). The deterioration was broad-based, with the more forward looking subcomponents of new orders (-8.9 pts to 51.4, the sharpest monthly drop since January 2008) and new export orders (-9.0 pts to 46.5) leading the decline. On average so far in Q3:16, the ISM non-manufacturing index stands at 53.5 vs 55.0 in Q2:16. Following the release, the Atlanta Fed GDP Nowcast model foresees Q3 GDP growth of 3.3% q-o-q saar from 3.5% q-o-q saar a week ago. The ECB kept its key policy rates unchanged, as expected, maintaining at the same time its forward guidance that interest rates would remain at low levels for an extended period of time, and importantly, beyond March 2017 when its asset purchase programme ends. Regarding the latter, the ECB reiterated that the monthly asset purchases of c. 80bn are intended to run until the end of March 2017, or beyond, if necessary. Nevertheless, Mr Draghi stated that an extension of the programme was not discussed at the latest meeting (a hawkish statement). Regarding the ECB s decision to stand put on monetary policy, Mr Draghi noted that the assessment was that, for the time being, the changes (in the outlook for growth and inflation) are not substantial, as to warrant a decision to act, albeit the ECB continues to view the risks to its outlook as skewed to the downside. Indeed, ECB staff projections for real GDP growth were little changed at 1.7% for 2016 (up 0.1 pp compared with the June projections) and to 1.6% for 2017 & 2018 (down by 0.1 pp). On a similar note, ECB estimates for inflation were broadly unchanged at 0.2% for 2016, 1.2% for 2017 (down 0.1 pp compared with June) and 1.6% for 2018 (on average). Note that the positive effects of the monetary policy measures decided in December 2015 and March 2016 are 0.6 pps (GDP) and 0.4 pps (inflation), respectively, for the period The final estimate of Q2:16 euro area real GDP remained unchanged. Real GDP increased by 1.2% q-o-q saar (1.6% y-o-y) in Q2:16, from 2.1% q-o-q saar (1.7% y-o-y) in Q1:16. Net trade provided substantial support, while the other GDP components weakened from particularly strong levels. Private consumption decelerated to 0.2% q-o-q in Q2:16, from 0.6% q-o-q in Q1:16, contributing 0.1 pp to the headline figure. Furthermore, government consumption increased by 0.1% q-o-q in Q2:16 from 0.6% q-o-q in Q1:16 and business investment remained flat (0.0% q-o-q), from 0.4% q-o-q in Q1:16 both with a neutral contribution to the headline figure, while inventories shed 0.2 pps from overall growth. On the other hand, net trade added 0.4 pps to overall growth, as export growth (+1.1% q-o-q) outpaced that of imports (0.4% q-o-q). In the UK, the latest conjunctural data for July were soft, albeit exceeding consensus expectations. Industrial production rose by 0.1% m-o-m (+2.1% y-o-y) from 0.0% m-o-m (+1.4% y-o-y) in June, above consensus estimates for -0.2% m-o-m. It should also be noted that the outcome was entirely due to the volatile mining & quarrying component, which rose by 4.7% m-o-m (+7.3% y-o-y). Indeed, the manufacturing sub-sector underperformed (c. 70% of total production), down by 0.9% m-o-m (+0.8% y-o-y), from -0.2% m-o-m (+0.6% y-o-y) previously. Nevertheless, the sharp improvement in the PMI manufacturing index in August (+5.0 pts to 53.3 / the largest monthly rise on record), leaves room for optimism that the latest contraction in manufacturing output will not be sustained. Meanwhile, construction output surprised on the upside, remaining flat on a monthly basis in July (-1.5% y-o-y), from -1.0% m-o-m (-0.7% y-o-y) in June (consensus: -0.5% y-o-y). In Japan, the final estimate for Q2:16 was revised up, supported by domestic demand; albeit the lack of a strong growth driver will likely undermine momentum for the rest of the year. Real GDP rose by 0.2% q-o-q, (from 0.0% q-o-q in the previous estimate and 0.5% q-o-q in Q1:16). The upward revision was mainly due to business investment being revised up by 0.3 percentage points to -0.1% q-o-q, with a neutral contribution vs -0.1 pp in the previous estimate. Furthermore, the improvement in the headline figure came from private inventories, contributing 0.1 pp (vs a neutral contribution in the previous quarter), while private consumption remained stable at 0.2% q-o-q. Business surveys improved in August, but remain weak. The ECO Watchers current condition index increased by 0.5 pts to a 7-month high of 45.6 in August, slightly above estimates for Furthermore, the survey s forward-looking indicator (outlook for 2-3 months ahead), rose by 0.3 pts to 47.4, overshooting consensus estimates for It should be noted that both indicators remain below the expansion/contraction threshold of 50 for thirteen consecutive months. 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-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep Jun 20-Jun 27-Jun 4-Jul 11-Jul 18-Jul 25-Jul 1-Aug 8-Aug 15-Aug 22-Aug 29-Aug 5-Sep 12-Sep 13-Jun 20-Jun 27-Jun 4-Jul 11-Jul 18-Jul 25-Jul 1-Aug 8-Aug 15-Aug 22-Aug 29-Aug 5-Sep 12-Sep 1-Jan 15-Jan 29-Jan 12-Feb 26-Feb 11-Mar 25-Mar 8-Apr 22-Apr 6-May 20-May 3-Jun 17-Jun 1-Jul 15-Jul 29-Jul 12-Aug 26-Aug 9-Sep NBG Economic Research Division September 13, 2016 Quote of the week (1/2): My personal view, based on data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy, Eric Rosengren (Voting Member), Boston Fed President, September 9 th UK Equities YtD Performance FTSE 250 FTSE 100 UK Domestic Exposure Index (GS) 115 Quote of the week (2/2): Asymmetry in risk management in today's new normal counsels prudence in the removal of policy accommodation, Lael Brainard, (Voting Member) Member of the Board of Governors of the Federal Reserve System, September 12 th Markets Global equity markets recorded losses, as investors risk appetite deteriorated on the back of hawkish Fed and ECB commentary. The MSCI World index declined by 1.5% on a weekly basis (-1.7% on Friday), with the S&P500 down by 2.4% wow (-2.5% on Friday). Energy was the only sector to register gains on a weekly basis (+0.7%), as oil prices strengthened. In Europe, equities were downbeat, with the EuroStoxx index ending the week lower by 1.0%, and the FTSE100 declining by 1.7%. Euro area banks were up slightly (+0.3% wow, +1.7% on Thursday - ECB meeting day), as the ECB decided to remain on hold. In Japan, the Nikkei225 index rose slightly (+0.2% wow), but declined on Monday (-1.7%), while the Chinese CSI300 index (largest A-shares in Shanghai and Shenzhen exchanges) was stable for the week (-1.7% on Monday). Government bond yields increased during the past week, on the back of increased investor skepticism for further easing action by major central banks (ECB, BoJ) and hawkish comments by the Fed. Specifically, the US Treasury 10Yr yield rose by 7 bps wow (+14bps cumulatively on Thursday/Friday) to 1.68% and the UK s 10Yr Gilt yield was up by 13 bps (+18 bps on Thursday/Friday) to 0.86%. The German 10Yr bund yield rose by 5 bps wow (+13 bps on Thursday/Friday) to +0.01%, the highest level since the UK referendum (23 June). Euro area periphery bond spreads over the Bund were up slightly on a weekly basis (+2 bps to 124 bps for Italian 10Yr BTPs, unchanged at 107 bps for Spanish 10Yr bonos, +6 bps to 315 bps for the Portuguese government 10Yr bond). Corporate bonds spreads were broadly unchanged, despite increased risk aversion, with US high yield spreads up by 1 bp to 510 bps and euro area high yield spreads up by 3 bps to 388 bps. US investment grade bond spreads rose by 1 bp to 140 bps, while their euro area counterparts narrowed by 2 bps to 105 bps. In foreign exchange markets, the euro gained ground across the board in the past week, as the ECB meeting proved more hawkish than expected by investors. Indeed, the euro rose by 0.7% against the USD to $/1.12 and by 0.9% against the British pound to The Japanese yen rebounded (+1.2% in NEER terms) as investors turn their focus to the Bank of Japan s meeting on 21 September and skepticism remains over the BoJ s policy review. The USD was broadly unchanged (-0.1% in NEER) for the week, albeit rising by 0.9% cumulatively on Thursday/Friday on the back of hawkish comments by Fed officials Source: Bloomberg, Goldman Sachs - The GS Domestic Exposure Index includes companies with high sales exposure in the UK bps ,15 1,14 1,13 1,12 1,11 1,10 1,09 % Base: January 1 st, 2016 = Year Government Bond Spreads Greece (left) Italy (right) Portugal (right) Ireland (right) Source: Bloomberg - Data as of September 9th EUR/USD (left) Foreign Exchange Source: Bloomberg - Data as of September 9th Spain (right) USD/JPY (right) 12 month forward EPS Estimates (YoY) S&P500 EuroStoxx FTSE 100 Nikkei bps % In commodities, crude oil prices recovered in the past week, with news of declining inventories and major suppliers cooperation providing their support. Indeed, the joint pact for cooperation in oil markets, which was signed by Russia and Saudi Arabia, could lead to future output limits. However, note that the statement did not indicate plans for immediate action, putting a stop to oil gains. Meanwhile, the US oil inventories registered the largest weekly draw since 1999 (-14.5 mb to 511mb for the week ending September 2), albeit the outcome was largely due to once-off weather-related factors. In all, WTI rose by 3.2% to $45.9/barrel and Brent by 2.4% to $47.0/barrel on a weekly basis. Regarding precious metals, gold was largely flat for the week (+0.2% to $1328/ounce) and silver recorded losses (-2.0% to $19.0/ounce) Source: Factset - Data as of September 9th

4 Economic News Diary: September 6 - September 19, 2016 Day Region Release Period Survey Actual Prior Current Week Tuesday 6 US ISM non-manufacturing AUGUST EURO AREA GDP (QoQ) Q2:16 F 0.3% 0.3% 0.3% EURO AREA GDP (YoY) Q2:16 F 1.6% 1.6% 1.6% EURO AREA Gross Fixed Capital Formation (QoQ) Q2:16-0.1% + 0.0% 0.4% EURO AREA Government expenditure (QoQ) Q2:16 0.2% - 0.1% 0.6% EURO AREA Household Consumption (QoQ) Q2:16 0.3% - 0.2% 0.6% Wednesday 7 UK Industrial Production (MoM) JULY -0.2% + 0.1% 0.0% UK Industrial Production (YoY) JULY 1.9% + 2.1% 1.4% JAPAN Leading Index JULY JAPAN Coincident Index JULY GERMANY Industrial Production (sa, MoM) JULY 0.1% % 1.1% GERMANY Industrial Production (wda, YoY) JULY 0.2% % 0.9% Thursday 8 US Initial Jobless Claims (k) SEPTEMBER US Continuing Claims (k) AUGUST JAPAN GDP (QoQ) Q2:16 F 0.0% + 0.2% 0.0% JAPAN GDP Private Consumption (QoQ) Q2:16 F 0.2% 0.2% 0.2% JAPAN GDP Business Spending (QoQ) Q2:16 F -0.4% % -0.4% JAPAN Eco Watchers Current Survey AUGUST JAPAN Eco Watchers Outlook Survey AUGUST EURO AREA ECB announces its deposit facility rate SEPTEMBER % -0.40% -0.40% EURO AREA ECB announces its intervention rate SEPTEMBER % 0.00% 0.00% CHINA Exports (YoY) AUGUST -4.0% % -4.4% CHINA Imports (YoY) AUGUST -5.4% + 1.5% -12.5% Friday 9 CHINA CPI (YoY) AUGUST 1.7% - 1.3% 1.8% Next Week Tuesday 13 UK CPI (YoY) AUGUST 0.7%.. 0.6% UK CPI Core (YoY) AUGUST 1.4%.. 1.3% EURO AREA Employment (QoQ) Q2: % EURO AREA Employment (YoY) Q2: % GERMANY ZEW survey current situation SEPTEMBER GERMANY ZEW survey expectations SEPTEMBER CHINA Industrial production (YoY) AUGUST 6.2%.. 6.0% CHINA Retail sales (YoY) AUGUST 10.2% % Wednesday 14 UK ILO Unemployment Rate JULY 4.9%.. 4.9% EURO AREA Industrial Production (sa, MoM) JULY -1.0%.. 0.6% EURO AREA Industrial Production (wda, YoY) JULY -0.8%.. 0.4% Thursday 15 US Retail Sales Advance MoM AUGUST -0.1%.. 0.0% US Retail sales ex-autos (MoM) AUGUST 0.2% % US Initial Jobless Claims (k) SEPTEMBER US Continuing Claims (k) SEPTEMBER US Philadelphia Fed Business Outlook SEPTEMBER US Empire Manufacturing SEPTEMBER US Industrial Production (MoM) AUGUST -0.2%.. 0.7% UK Retail sales Ex Auto MoM AUGUST -0.7%.. 1.5% UK BoE announces its intervention rate SEPTEMBER 0.25% % UK BoE Asset Purchase Target ( bn) SEPTEMBER CHINA Aggregate Financing (RMB bn) AUGUST CHINA New Yuan Loans (RMB bn) AUGUST CHINA Money Supply M0 (YoY) AUGUST 7.3%.. 7.2% CHINA Money Supply M1 (YoY) AUGUST 24.0% % CHINA Money Supply M2 (YoY) AUGUST 10.5% % Friday 16 US CPI (YoY) AUGUST 1.0%.. 0.8% US Core CPI (YoY) AUGUST 2.2%.. 2.2% US University of Michigan consumer confidence SEPTEMBER US Net Long-term TIC Flows ($ bn) JULY Monday 19 US NAHB housing market confidence index SEPTEMBER Source: Bloomberg 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 ,4 4,1 9,0 6,6 Japan NIKKEI ,2-10,9-7,3 7,5 UK FTSE ,7 8,6 10,1-0,8 Canada S&P/TSX ,7 11,8 7,1-6,0 Hong Kong Hang Seng ,6 10,0 11,8-2,5 Euro area EuroStoxx 328-1,0-4,9-2,5 0,8 Germany DAX ,0-1,6 3,6 9,0 France CAC ,1-3,1-2,3 0,9 Italy FTSE/MIB ,2-19,9-21,7-18,8 Spain IBEX ,3-5,4-8,5-17,5 Emerging Markets 1 MSCI Emerging Markets ,7 10,2 9,9-3,3 MSCI Asia 723 1,4 9,1 10,7-1,9 China 64 3,2 8,4 10,1-3,4 Korea 568 0,3 7,8 11,4-2,1 MSCI Latin America ,5 20,5 14,7-5,5 Brazil ,6 30,7 20,7-6,5 Mexico ,8 7,5 6,8-0,7 MSCI Europe ,6 6,5 1,8-6,9 Russia 891 1,6 15,0 14,2 18,9 Turkey ,2 7,9 7,2-3,9 As of September 9, 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 203,2 0,5 13,9 8,4-30,2 Materials 211,5-1,7 14,5 10,6-13,4 Industrials 205,9-1,7 7,3 10,1 2,0 Consumer Discretionary 191,4-1,8-1,1 1,6 6,2 Consumer Staples 217,8-3,0 4,5 12,2 10,7 Healthcare 202,7-1,2-3,6-2,9 4,1 Financials 94,5-0,8-2,6-1,4-9,4 IT 155,2-2,2 6,0 13,3 12,8 Telecoms 71,3-1,2 4,9 4,8 0,7 Utilities 118,7-1,3 6,3 9,9-1,2 in local currency Energy 207,5 0,5 14,3 10,3-25,5 Materials 199,8-1,9 12,0 9,6-6,6 Industrials 201,4-2,0 4,4 8,0 5,9 Consumer Discretionary 183,2-2,0-3,3 0,1 9,7 Consumer Staples 216,3-3,1 4,1 13,2 16,8 Healthcare 199,3-1,4-4,5-3,0 7,6 Financials 94,0-0,9-4,3-2,2-3,5 IT 149,8-2,3 4,8 12,3 13,9 Telecoms 73,3-1,5 2,8 4,2 7,7 Utilities 120,9-1,4 5,5 10,3 4,3 As of September 9, 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 1,68 1,60 2,27 2,22 2,89 Germany 0,01-0,04 0,63 0,70 2,31 Japan -0,02-0,03 0,27 0,35 0,98 UK 0,86 0,73 1,96 1,87 3,04 Greece 8,29 8,10 8,29 8,58 10,05 Ireland 0,47 0,47 1,15 1,31 4,71 Italy 1,25 1,17 1,59 1,86 3,93 Spain 1,08 1,03 1,77 2,10 3,95 Portugal 3,16 3,04 2,52 2,58 5,50 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 (%) 3,68 3,68 4,19 4,10 4,59 vs 30Yr Treasury (bps) As of September 9, 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 1,12 0,7 0,5-0,4 3,5 EUR/CHF 1,10 0,2 0,6-0,2 0,7 EUR/GBP 0,85 0,9-1,5 15,9 14,8 EUR/JPY 115,37-0,5 1,9-15,2-11,7 EUR/NOK 9,27-0,1 0,3 0,4-3,5 EUR/SEK 9,54-0,4 0,9 1,1 4,0 EUR/AUD 1,49 1,1 2,7-6,6 0,0 EUR/CAD 1,47 1,3 0,5-1,9-2,5 USD-based cross rates USD/CAD 1,31 0,5-0,1-1,5-5,7 USD/AUD 1,33 0,4 2,2-6,2-3,3 USD/JPY 102,69-1,2 1,4-14,9-14,5 Commodities Agricultural 441 1,6-1,2-2,2-1,9 Energy 384 2,8 8,2-24,2 4,3 West Texas Oil ($) 46 3,2 10,0-0,1 23,9 Crude brent Oil ($) 47 2,4 10,3-2,3 31,4 Industrial Metals ,7-3,1-5,6 5,4 Precious Metals ,5-1,7 20,7 26,5 Gold ($) ,2-1,4 19,6 25,1 Silver ($) 19-2,0-5,5 29,7 37,5 Baltic Dry Index ,7 26,0-3,1 68,2 Baltic Dirty Tankers Index 542 5,0 8,4-15,3-37,6 As of September 9, 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 Q3f Q4f 2016f HICP Inflation (%) a 2015a 2016f Euro area 1,1 0,8 0,4 0,4 0,4 1,9 0,5 0,3 0,3 0,3 1,6 US 2,4 0,5 0,7 0,5 0,2 2,6 0,2 0,3 0,6 0,7 1,5 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 1,1 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 0,01 0,00 0,10 0,50 US 1,68 1,70 2,00 2,40 Official rate (%) Euro area 0,00 0,00 0,00 0,00 US 0,50 0,75 0,75 1,00 Currency EUR/USD 1,12 1,11 1,08 1,05 EUR/GBP 0,85 0,87 0,87 0,86 EUR/JPY (*) As of September , 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 (Targeted-LTROs, ABSs, covered bank bond purchases, Quantitative Easing) The Fed is expected to increase its policy rate towards 1.0% in 2016 Growth to remain slightly above-trend in 2016 Mid-2014 rally probably out of steam 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% The BoE is expected to cut rates or/and reactivate asset purchases Slowing economic growth post-brexit Sizeable Current account deficit (-5.5% of GDP) Backloaded fiscal adjustment Elevated Policy uncertainty to remain due to the outcome of the Referendum and the negotiating process Lower EUR against the USD Higher USD against its major counterparts Lower JPY against the USD Weaker GBP against the EUR and the USD Government Bonds Fragile growth outlook Medium-term inflation expectations remain low Ultra accommodative monetary policy by the ECB Upside risk in US benchmark yields Valuations appear excessive compared with long-term fundamentals Stable/higher yields expected Global search for yield by non-us investors continues Fed s commitment on only gradual tightening policy Safe haven demand Valuations appear rich Underlying inflation pressures Valuations appear rich The Fed is expected to increase its policy rate towards 1% by end-2016 Higher yields expected Safe haven demand Extremely dovish central bank Sizeable fiscal deficits Restructuring efforts to be financed by fiscal policy measures Stable yields expected The BoE is expected to cut rates or/and reactivate asset purchases Slowing economic growth post-brexit Elevated Policy uncertainty to remain due to the outcome of the Referendum and the negotiating process Rich valuations Inflation overshooting due to GBP weakness feeds through inflation expectations Stable yields expected Equities Still high equity risk premium due to policy uncertainty Credit conditions gradual turn more favorable Fiscal loosening due to the influx of refugees Sovereign debt crisis could re-emerge EPS estimates are declining Strong Euro in NEER terms since late-2015 Neutral stance on equities Very low government bond yields EPS deceleration is bottoming out Cash-rich corporates lead to share buybacks and higher dividends (de-equitization) Demanding valuations Peaking profit margins Neutral-to-positive stance on equities Aggressive QE by the BoJ Signs of policy fatigue regarding structural reforms and fiscal discipline Strong appetite for foreign assets Downward revisions in corporate earnings If sustained, Japanese Yen appreciation hurts exporters companies Neutral-to-negative stance on equities 65% of FTSE100 revenues from abroad Undemanding valuations in relative terms High UK exposure to the commodities sector assuming the oil rally continues Elevated Policy uncertainty to remain due to the outcome of the Referendum and the negotiating process 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 Increasing geopolitical risks and domestic security concerns Weaker to stable TRY against the EUR Small current account deficit Stable to stronger RON against the EUR Currency board arrangement Large foreign currency reserves and fiscal reserves Current account surplus Stable BGN against the EUR Ongoing EU membership negotiations High domestic debt yields Precautionary Stand-By Agreement with the IMF 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 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 Slow progress in structural reforms Stable to narrowing spreads Equities Attractive valuations Attractive valuations Attractive valuations Low-yielding domestic debt and deposits Attractive valuations Neutral stance on equities Neutral/Positive stance on equities Neutral/Positive stance on equities Neutral/Positive stance on equities 8

9 NBG South Eastern Europe Economic Forecasts SEE Economies f 2017f Real GDP Growth (%) Turkey 2,1 4,2 3,0 4,0 3,2 3,0 Romania 0,6 3,5 3,0 3,8 5,0 3,5 Bulgaria 0,2 1,3 1,5 3,0 2,8 2,3 Serbia -1,0 2,6-1,8 0,7 2,5 2,7 Headline Inflation (eop,%) Turkey 6,2 7,4 8,2 8,8 8,2 7,5 Romania 5,0 1,6 0,8-0,9-0,2 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 -6,2-7,7-5,5-4,5-4,8-5,2 Romania -4,8-1,1-0,5-1,1-2,0-2,8 Bulgaria -0,9 1,3 0,9 1,4 2,6 1,5 Serbia -11,6-6,1-6,0-4,8-4,8-5,0 Fiscal Balance (% of GDP) Turkey -2,1-1,2-1,3-1,2-1,8-2,0 Romania -2,5-2,5-1,7-1,5-3,3-3,0 Bulgaria -0,4-1,8-3,7-2,9-1,6-1,2 Serbia -6,8-5,5-6,6-3,8-2,6-2,8 f :NBG f orecasts SEE Financial Markets 12/9/ month forecast 6-month forecast 12-month forecast 1-m Money Market Rate (%) Turkey 8,9 9,2 9,5 9,8 Romania 0,5 0,9 1,2 1,5 Bulgaria 0,0 0,1 0,1 0,2 Serbia 3,3 3,4 3,5 3,8 Currency TRY/EUR 3,33 3,36 3,32 3,30 RON/EUR 4,44 4,48 4,49 4,50 BGN/EUR 1,96 1,96 1,96 1,96 RSD/EUR 123,2 123,2 124,0 125,0 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 12/9/2016 Last w eek return (%) YTD (%) 2-year Index Turkey ISE ,9 5,3-1,0 Romania BET-BK ,1-3,0 0,1 Bulgaria SOFIX 471-0,2 2,2-14,7 Serbia BELEX ,8 0,5-0,4 1. In local currency 9

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