Global Markets Roundup

Transcription

1 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Charts of the week October 07, 2014 Global Markets Roundup NBG Strategy and Economic Research Division US labor market report confirms strong GDP growth See disclosures and analyst certification on last page. US nonfarm payrolls surged by 248k in September, above consensus expectations of 215k, while net revisions for the previous two months totaled a solid 69k. As a result, the six-month average gain of payrolls (245k) now is at its strongest pace since mid-2006, highlighting the strong momentum of the US labor market. Moreover, the unemployment rate fell by 0.2 pps Director of to 5.9% in September, its lowest rate since July albeit to some degree due to the decline in the labor force participation rate by 0.1 pps to 62.7% in September. Additional indicators of labor market slack also improved in September (involuntary part-time workers, long-term unemployed -- see below). Regarding wages, average hourly earnings were flat on a monthly basis (2.0% y-o-y vs a 20-year average of 3.0% y-o-y), with an increase in average weekly hours, to a post-recession high of 34.6 hours per week. In our view, the latest labor market report could result in a more hawkish statement at the next Fed meeting (on October 29th), where the focus is likely to be on the modification of the considerable time rhetoric following the end of the asset purchase programme. As the timing for the first interest rate increase by the Fed approaches (market and consensus expectations are for mid-2015) and US economic growth is strengthening so as to gradually eliminate labor market slack, the US dollar has over-performed across G10 majors and emerging market currencies (see graph below). EM currencies appear to be affected by the deteriorating growth outlook (Russia, Brazil), as well as persistent current account imbalances (South Africa, Turkey, Indonesia). An ample oil supply has contributed to the recent fall in oil prices, as production in Iraq and Libya continues unabated despite geopolitical tensions. Specifically, the crude Brent price reached its lowest level in 21 months ($91/bbl), down from $110/bbl (-17.6%) at the start of 2014, with weak demand from China and Europe weighing negatively. For now, OPEC has not proceeded with production cuts to support prices, albeit the forthcoming OPEC meeting (on November 27th) will be crucial. The ECB revealed details of its ABSs and covered bank bond purchases. Specifically, the two programmes (ABSPP and CBPP3) will last for at least two years, with the ECB willing to buy up to 70% of each issue (30% for Greek and Cypriot securities). According to Mr. Draghi, the potential pool of asset purchases is circa 1.0tn (10.4% of GDP). Note that Thursday s meeting was perceived by markets as less dovish than expected, with Mr. Draghi providing no hint of further aggressive action (e.g. sovereign bond purchases), but reiterating (for a seventh consecutive meeting) the bank s commitment to use further unconventional measures should it become necessary. Investors risk appetite deteriorated during the past week, on the back of concerns regarding global economic growth prospects (the final reading of German manufacturing PMI slipped below the expansion/contraction threshold of 50 for the first time since June 2013) and heightening geopolitical risks (including the civil unrest in Hong Kong), while a wait-andsee mode by the ECB added to the deterioration. The MSCI World index retreated for a second consecutive week by 1.4%, despite a rebound on Friday (+0.9%) on the back of strong US labor market data. The S&P500 over-performed in relative terms (-0.8%), with focus now turning to the Q3:14 US earnings season that kicks off this week. Paul Mylonas, PhD NBG Group Chief Economist pmylonas@nbg.gr Ilias Tsirigotakis tsirigotakis.hlias@nbg.gr US Nonfarm Payrolls (monthly change) '000 ' month ma month ma % US Dollar gains since end-july

2 Economics The US labor market report for September was buoyant as nonfarm payrolls surged by 248k from 180k in August, overshooting by a wide margin consensus estimates of 215k. Net revisions for the previous two months were a positive 69k and, as a result, the six-month average of nonfarm payrolls (245k) reached its highest level since April 06, indicating a solid labor market. Government payrolls rose by 12k in September and are up by 57k year-to-date, nearing their first annual gain following five consecutive years of job shedding (-702k between ). The private sector added 236k jobs in September (from 175k the previous month), exceeding consensus estimates of 210k, with broad-based gains across industries. Furthermore, the unemployment rate fell to 5.9% in September, the lowest rate since July 08 from 6.1% in August, with the consensus expecting an unchanged outcome. Part of the decline was a result of a lower labor force participation rate that declined to 62.7% from 62.8% (assuming a steady participation rate, the unemployment rate would be 6.0%). Indeed, household employment increased by a solid 232k (1.6% y-o-y vs a long-term average of 1.5% y-o-y), while the number of unemployed persons decreased by 329k. Regarding additional indicators of labor market slack, involuntary part-time workers -- who would prefer to have full-time employment -- fell by 174k to 7.1mn in September (vs a 15-year average of 5.9mn) and, as a result, the ratio of involuntary part-time workers to total employment fell to a post-recession low of 4.85%. Long-term (more than six months) unemployed was broadly unchanged at 2.9mn in September (down by -9k) and now accounts for 31.9% of total unemployed, up from 31.2% in August (as short-term unemployed fell more rapidly) and a 15-year average of 25.9%. On the other hand, several leading indicators weakened in September, remaining however at robust levels. Specifically, the US ISM manufacturing leading indicator slipped to 56.6 from 59.0 (its highest level since March 2011) in August, weaker than consensus estimates for a broadly unchanged outcome. Similarly, the ISM non-manufacturing indicator fell to 58.6 in September from 59.6 in August, broadly in line with consensus estimates. In the euro area, retail sales (in volume terms) rose by 1.2% m-o-m (1.9% y-o-y) in August from -0.4% m-o-m (0.5% y-o-y) in July, exceeding consensus expectations of 0.1% m- o-m (0.7% y-o-y). For Q3:14 to date, average retail sales are up by 0.5% q-o-q, following a rise of 0.3% q-o-q in Q2:14 and suggesting that private consumption could continue to support euro area GDP in the third quarter, as happened in Q2:14 (0.3% q-o-q). Euro area inflation decelerated in September, with the flash estimate for the headline CPI index at 0.3% y-o-y from 0.4% y-o-y in August, largely driven by its energy component (-2.4% y-o-y). In addition, core CPI decreased to 0.7% y-o-y in September (its lowest level since May) from 0.9% y-o-y in August, undershooting consensus expectations for an unchanged outcome. Finally, the euro area unemployment rate remained at 11.5% in August, for a third consecutive month, and has averaged 11.6% so far in The ECB maintained, as expected, its key policy rates unchanged, with the refinancing rate (MRO) at 0.05%, the marginal lending facility rate at 0.30% and the deposit facility rate at -0.20%. Mr. Draghi stated that TLTROs, ABSs and covered bank bond purchases are expected to increase the ECB s balance sheet towards its level at the beginning of 2012 ( 2.7tn - 3.0tn), albeit he did not provide a precise figure. Indeed, Mr. Draghi emphasized that balance sheet expansion is an instrument to bring euro area inflation close to but below 2.0%, and not a target per se. In addition, Mr. Draghi attempted to downplay the significance of the 5Y/5Y forward swap interest rates (that has emerged as a benchmark following his reference at Jackson Hole), as the ECB is using a wide range of indicators to assess inflation expectations. All in all, Mr. Draghi provided no hint towards more aggressive action, appearing less dovish than expected, albeit reiterating (for a seventh consecutive meeting) its commitment to use further unconventional measures should it become necessary to further address risks of a prolonged period of low inflation. The ECB revealed the details of its Asset Backed Securities (ABSPP) and Covered Bank Bond (CBPP3) programmes, with the former due to start in Q4:14 and the latter in the second half of October. The programmes will last for at least two years, while the ECB did not provide an overall target size for the asset purchases apart from Mr. Draghi s remark during the Q&A session that the potential universe that these two programmes will address is up to 1 trillion. Specifically, the ECB will purchase ABSs (senior and guaranteed mezzanine tranches) and covered bank bonds both in the primary and the secondary market, with the eligibility criteria for the guaranteed mezzanine tranches circulating at a later stage. Moreover, ABSs (senior tranches) and covered bank bonds must have a minimum rating of at least BBB- (the threshold does not apply in the case of Greece and Cyprus as long as the two countries remain under the surveillance of an EU programme). Moreover, the ECB will apply an upper purchase limit of 70% per issue (30% for Greece & Cyprus) for ABSs, as well as for covered bank bonds. Finally, fully retained ABS purchases would be possible (with some participation by other market investors), whereas fully retained covered bank bonds are eligible to participate in the CBPP3 programme. The French Government announced its 2015 budget, confirming that the general government balance is expected to remain above the European Commission s (EC) target of -3.0% (as % of GDP) until Specifically, the budget deficit is expected at -4.4% in 2014, -4.3% in 2015, -3.8% in 2016 and -2.8% in Note that in June 2013, the EC requested France to reduce its deficit below the 3% threshold by The slower path of deficit reduction envisioned by the French Government is due to weaker growth, with real GDP estimates down by 0.6 pps to 0.4% for 2014, by 0.7 pps to 1.0% for 2015 and by 0.55 pps to 1.7%. However, the unilateral decision by the French Government to postpone its compliance with the Excessive Deficit Procedure is expected to create friction with the EC. 2

3 7-Jul Jul Jul-14 9-Aug Aug Aug Sep Sep-14 3-Oct-14 7-Jul Jul Jul-14 9-Aug Aug Aug Sep Sep-14 3-Oct Jul Jul Jul Aug Aug Aug Sep Sep Oct Jul Jul Jul Aug Aug Aug Sep Sep Oct-14 NBG Strategy and Economic Research October 07, 2014 In Japan, retail sales rose by 1.9% m-o-m (1.2% y-o-y) in August, from -0.5% m-o-m (0.6% y-o-y) in July, overshooting consensus estimates for an increase of 0.5% m-o-m. For Q3:14, so far, on average, retail sales are up by 2.3% q-o-q from a sharp fall of 7.0% q-o-q in Q2:14, following the increase of the consumption tax rate in April On the other hand, industrial production fell by 1.5% m-o-m (-2.9% y-o-y) in August, following an increase of 0.4 %m-o-m (-0.7% y-o-y) in July, significantly lower than consensus expectations of 0.2% m-o-m. For Q3:14, so far, on average, industrial production is down by 2.4% q-o-q, following a decline of -3.8% q-o-q in Q2:14. Moreover, the Tankan survey that assesses (current) business conditions for large manufacturers improved only slightly in Q3:14 (+13 from +12 in Q2:14 from a pre-consumption tax-rate hike of +17 in Q1:14). Regarding three months ahead, the Tankan outlook index revealed a broadly unchanged (albeit still positive) view among large manufacturers (to +13 in Q4:14) Equity Indices (3-months before = 100) Euro Area Japan UK US Quote of the week: "The global economy is at an inflection point: it can muddle along with sub-par growth a new mediocre ; or it can aim for a better path where bold policies would accelerate growth, increase employment, and achieve a new momentum. IMF Managing Director, Christine Lagarde, on October 2 nd Markets Global equity markets recorded losses on the back of disappointing data (PMIs, inflation) in the euro area and mounting civil unrest in Hong Kong, though a stronger-than-expected US labor market report partially reversed the sentiment at the end of the week. The Nikkei225 decreased by 3.2%, the S&P 500 fell by 0.8% and the EuroStoxx declined by 2.5% on a weekly basis. Looking forward, a steady pick-up in global growth, combined with reduced uncertainty and an ongoing accommodative monetary policy stance from most major central banks, is expected to support global 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. On the other hand, the major market risk could stem from a disorderly re-pricing of the Fed s interest rate hiking cycle, especially as we approach the termination of asset purchases (October 2014). In addition, the ongoing Ukraine/Russia conflict (as well the developments in the Middle East) will continue to attract market attention. % 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 Year Government Bond Yields US (left) Euro Area (left) UK (left) Greece (left) Portugal (right) Ireland (right) Japan (right) 10-Year Government Bond Spreads Italy (right) Spain (right) % 0,80 0,75 0,70 0,65 0,60 0,55 0,50 0,45 0,40 bps Government Bond yields declined during the week in most major economies. The US 10-year Treasury yield and the UK 10-year Gild yield fell the most in the 4 major economies by 9 bps (to 2.44%) and 8 bps (to 2.39%), respectively. The German Bund yield declined by 4 bps to 0.93% over the week, largely affected by negative PMI Manufacturing data and a low inflation estimate, while the Japan 10-year Government Bond yield has remained broadly unchanged at 0.52%. In foreign exchange markets, the US dollar gained ground across the board for a 12th consecutive week, with the DXY index rising by 1.2% on a weekly basis to 86.7, reaching its mid-2010 levels supported by a strong US labor market report. 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. 1,37 1,36 1,35 1,34 1,33 1,32 1,31 1,30 1,29 1,28 1,27 1,26 1,25 1,24 EUR/USD (left) USD/JPY (right) Commodities continued to decline in the past week, with energy and precious metals the key drivers. In particular, West Texas Intermediate (WTI) and Brent oil fell by 4.1% and 4.0% on a weekly basis, to $/barrel and $/barrel, respectively. In addition, gold declined by 2.2% to $/ounce on the back of, inter alia, a stronger US dollar. 3

4 Economic News Diary: September 30 - October 13, 2014 Day Region Release Period Survey Actual Prior Current Week Tuesday 30 US Consumer Confidence Index SEPTEMBER 92,5-86,0 93,4 UK GDP (QoQ) Q2:14 F 0,8% 0,9% 0,8% UK GDP (YoY) Q2:14 F 3,2% 3,2% 3,2% JAPAN Retail Trade YoY AUGUST 0,1% + 1,2% 0,6% JAPAN Retail Sales MoM AUGUST 0,5% + 1,9% -0,5% JAPAN Industrial Production MoM AUGUST P 0,2% - -1,5% 0,4% JAPAN Industrial Production YoY AUGUST P -1,1% - -2,9% -0,7% JAPAN Construction Orders YoY AUGUST.. 8,6% 24,4% EURO AREA Unemployment Rate AUGUST 11,5% 11,5% 11,5% EURO AREA CPI Estimate YoY SEPTEMBER 0,3% 0,3% 0,4% EURO AREA CPI Core YoY SEPTEMBER A 0,9% 0,7% 0,9% Wednesday 1 US ADP Employment Change (k) SEPTEMBER US Markit US Manufacturing PMI SEPTEMBER F 57,9-57,5 57,9 US ISM Manufacturing SEPTEMBER 58,5-56,6 59,0 UK Markit UK PMI Manufacturing SA SEPTEMBER 52,7-51,6 52,2 JAPAN Tankan - large manufacturers current index Q3: JAPAN Tankan - large manufacturers outlook index Q3: EURO AREA Markit Eurozone Manufacturing PMI SEPTEMBER F 50,5 50,3 50,5 CHINA Manufacturing PMI SEPTEMBER 51,0 51,1 51,1 Thursday 2 US Initial Jobless Claims (k) SEPTEMBER UK Markit/CIPS UK Construction PMI SEPTEMBER 63,5 + 64,2 64,0 EURO AREA ECB announces its intervention rate OCTOBER 2 0,05% 0,05% 0,05% EURO AREA ECB announces its deposit facility rate OCTOBER 2-0,20% -0,20% -0,20% Friday 3 US Trade balance ($bn) AUGUST -40,8-40,1-40,3 US Change in Nonfarm Payrolls (k) SEPTEMBER US Change in Private Payrolls (k) AUGUST US Unemployment rate SEPTEMBER 6,1% + 5,9% 6,1% US Underemployment Rate SEPTEMBER.. 11,8% 12,0% US Labor Force Participation Rate SEPTEMBER.. 62,7% 62,8% US Average Hourly Earnings MoM SEPTEMBER 0,2% 0,0% 0,3% US Average Hourly Earnings YoY SEPTEMBER 2,2% 2,0% 2,1% US Change in Household Employment (k) SEPTEMBER EURO AREA Retail sales (MoM) AUGUST 0,1% + 1,2% -0,4% EURO AREA Retail sales (YoY) AUGUST 0,7% + 1,9% 0,5% Next Week Tuesday 7 UK Industrial Production (MoM) AUGUST 0,0%.. 0,5% UK Industrial Production (YoY) AUGUST 2,6%.. 1,7% JAPAN Leading Index AUGUST P 104, ,4 JAPAN Coincident Index AUGUST P 108, ,9 JAPAN 2014 Monetary Base Target ( tn) OCTOBER GERMANY Industrial Production (sa, MoM) AUGUST -1,5%.. 1,9% GERMANY Industrial Production (wda, YoY) AUGUST -0,5%.. 2,5% Wednesday 8 US FOMC Minutes JAPAN Eco Watchers Current Survey SEPTEMBER 48,5.. 47,4 JAPAN Eco Watchers Outlook Survey SEPTEMBER ,4 Thursday 9 US Initial Jobless Claims (k) OCTOBER US Continuing Claims (k) SEPTEMBER UK BoE announces its intervention rate OCTOBER 9 0,50%.. 0,50% UK BoE Asset Purchase Target ( bn) OCTOBER EURO AREA ECB Publishes Monthly Report Friday 10 CHINA New Yuan Loans (RMB bn) SEPTEMBER 750, ,5 CHINA Aggregate Financing (RMB bn) SEPTEMBER 1.225, ,4 CHINA Money Supply M0 (YoY) SEPTEMBER.... 5,6% CHINA Money Supply M1 (YoY) SEPTEMBER 5,9%.. 5,7% CHINA Money Supply M2 (YoY) SEPTEMBER 13,0%.. 12,8% Monday 13 CHINA Exports (YoY) SEPTEMBER 11,5%.. 9,4% Source: Bloomberg CHINA Imports (YoY) SEPTEMBER -1,5%.. -2,4% 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 6,5 17,2 35,6 Japan NIKKEI ,2-3,6 11,0 79,6 UK FTSE ,8-3,3 1,2 12,1 Canada S&P/TSX ,6 8,6 16,1 19,7 Hong Kong Hang Seng ,6-1,0-0,6 10,4 Euro area EuroStoxx 313-2,5-0,3 6,6 26,3 Germany DAX ,1-3,7 7,0 25,6 France CAC ,6-0,3 3,7 25,7 Italy FTSE/MIB ,9 6,5 12,1 30,0 Spain IBEX ,6 6,6 13,7 35,0 Emerging Markets 1 MSCI Emerging Markets ,7 2,5 3,8 8,5 MSCI Asia 704-1,3 3,0 4,8 11,4 China 62-1,9-1,5 0,3 11,5 Korea 547-3,5-7,2-5,7-4,8 MSCI Latin America ,1 3,2 3,1-0,1 Brazil ,8 2,3 1,3-0,7 Mexico ,4 4,6 9,6 9,9 MSCI Europe ,0-5,1-6,3-3,6 Russia 703-2,8-11,3-9,9-8,9 Turkey ,6 10,0-2,3 11,0 As of October 03, 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 change (% Energy 270,1-4,1-2,0 4,4 10,0 Materials 226,3-4,5-5,7-1,1 0,3 Industrials 193,6-2,3-4,1 4,9 30,6 Consumer Discretionary 173,7-1,9-4,4 3,3 38,6 Consumer Staples 191,6-0,9 0,6 6,8 18,5 Healthcare 193,7-0,7 12,7 22,5 49,5 Financials 100,7-1,9-1,1 5,7 31,2 IT 134,2-1,1 9,0 21,6 33,1 Telecoms 69,0-2,1-4,1 2,8 14,1 Utilities 117,3-0,6 6,8 8,2 13,2 in local currency Energy 261,0-3,5 0,3 6,9 13,2 Materials 202,0-3,7-2,0 3,8 7,4 Industrials 184,9-1,8-1,0 9,4 39,5 Consumer Discretionary 162,6-1,5-2,0 6,9 47,2 Consumer Staples 182,5-0,3 3,6 10,1 22,5 Healthcare 186,3-0,2 15,7 25,8 53,7 Financials 95,5-1,2 2,1 10,1 39,5 IT 128,8-1,0 10,0 23,5 37,0 Telecoms 67,4-1,4-0,4 7,4 20,3 Utilities 114,5 0,0 10,2 11,8 17,5 As of October 03, 2014, MSCI Indices Bond Markets (%) 10-Year Government Bond Yields Current Last w eek Year Start One Year Back 10-year average US 2,44 2,53 3,03 2,61 3,36 Germany 0,93 0,97 1,93 1,79 2,93 Japan 0,52 0,52 0,74 0,64 1,23 UK 2,39 2,47 3,02 2,68 3,59 Greece 6,35 6,16 8,42 9,25 8,99 Ireland 1,66 1,67 3,51 3,77 5,20 Italy 2,31 2,38 4,08 4,37 4,35 Spain 2,10 2,20 4,15 4,24 4,32 Portugal 3,04 3,10 6,13 6,61 5,67 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 (%) 4,33 4,33 4,72 4,49 5,10 vs 30Yr Treasury (bps) As of October 03, 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-Da change (% EUR/USD 1,25-1,3-4,8-8,1-8,9 EUR/CHF 1,21 0,3 0,3-1,1-1,3 EUR/GBP 0,78 0,3-1,9-7,1-5,7 EUR/JPY 137,36-0,9-0,3 3,7-5,2 EUR/NOK 8,17-0,3-0,1 0,7-2,1 EUR/SEK 9,11-1,2-1,1 5,4 3,0 EUR/AUD 1,44-0,3 2,5-0,5-6,4 EUR/CAD 1,41-0,5-1,7 0,0-3,6 USD-based cross rates USD/CAD 1,12 0,8 3,3 8,8 5,8 USD/AUD 1,15 1,1 7,7 8,3 2,8 USD/JPY 109,77 0,4 4,8 12,9 4,2 Commodities Agricultural 503 1,2-7,8-23,2-17,0 Energy ,0 0,1 0,9 0,7 West Texas Oil ($) 90-4,1-6,1-13,1-8,8 Crude brent Oil ($) 91-4,0-9,8-15,9-17,6 Industrial Metals ,3-6,3-1,2-2,6 Precious Metals ,1-6,8-11,5-2,6 Gold ($) ,2-6,2-9,5-1,2 Silver ($) 17-4,5-12,2-22,2-13,5 Baltic Dry Index ,1-9,2-49,3-54,5 Baltic Dirty Tankers Index 645 5,6-5,4 8,6-35,3 As of October 03, 2014, Goldman Sachs Indices for Commodities 5

6 NBG Economic & Markets Forecasts Euro area & US: GDP Growth & Inflation Forecasts GDP (%) a Q1a Q2a Q3f Q4f 2014f Q1f Q2f Q3f Q4f 2015f HICP Inflation (%) a 2014f 2015f Euro area -0,4 0,2 0,0 0,3 0,4 0,8 0,4 0,4 0,4 0,5 1,5 US 2,2-0,5 1,1 0,7 0,9 2,1 0,8 0,8 0,9 0,9 3,3 Euro area 1,3 0,7 0,6 0,5 0,8 0,7 1,0 1,3 1,3 1,3 1,2 US 1,5 1,4 2,1 2,0 2,2 1,9 2,2 2,1 2,1 2,1 2,1 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 0,93 1,20 1,40 1,60 US 2,44 2,80 3,10 3,30 Official rate (%) Euro area 0,05 0,05 0,05 0,05 US 0,13 0,13 0,13 0,75 Currency EUR/USD 1,25 1,25 1,24 1,22 EUR/GBP 0,78 0,77 0,76 0,75 EUR/JPY (*) As of October , end of period 6

7 Equities Government Bonds Foreign Exchange NBG Strategy and Economic Research October 07, 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 one and a half year 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 October 07, 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 4,0 3,5 4,0 Romania -1,2 2,3 0,6 3,5 2,2 2,8 Bulgaria 0,4 1,8 0,6 0,9 1,5 2,0 Serbia 1,0 1,6-1,5 2,5-0,5 2,0 Headline Inflation (eop,%) Turkey 6,4 10,5 6,2 7,4 9,0 7,2 Romania 8,0 3,1 5,0 1,6 2,2 2,8 Bulgaria 4,5 2,8 4,2-1,6 0,5 1,8 Serbia 10,3 7,0 12,2 2,2 3,8 4,8 Current Account Balance (% of GDP) Turkey -6,2-9,7-6,2-7,9-5,6-6,0 Romania -4,4-4,5-4,4-1,1-2,2-2,8 Bulgaria -1,5 0,1-1,1 2,1 1,8 0,8 Serbia n.a. n.a. -12,3-6,5-6,4-7,1 Fiscal Balance (% of GDP) Turkey -3,6-1,4-2,1-1,2-2,2-2,0 Romania -6,4-4,3-2,5-2,5-2,2-1,9 Bulgaria -4,0-2,1-0,4-1,9-3,0-2,2 Serbia -4,7-4,9-6,5-5,0-6,8-5,5 f : NBG f orecasts SEE Financial Markets October 3 rd 3-month forecast 6-month forecast 12-month forecast 1-m Money Market Rate (%) Turkey 10,7 10,4 9,4 8,2 Romania 2,8 3,0 3,0 3,0 Bulgaria 0,2 0,2 0,2 0,2 Serbia 7,3 7,2 6,2 6,0 Currency TRY/EUR 2,87 2,86 2,84 2,80 RON/EUR 4,41 4,45 4,46 4,45 BGN/EUR 1,96 1,96 1,96 1,96 RSD/EUR 118,8 117,8 118,6 118,9 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 October Last w eek 3 rd return (%) YTD (%) 2-year Index Turkey ISE ,3 9,7 11,3 Romania BET-BK ,8 3,4 32,8 Bulgaria SOFIX 536-1,5 9,1 65,5 Serbia BELEX ,6 21,9 57,5 1. In local currency 9

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