January 10, 2017

Global Markets Roundup

NBG Economic Research Division

Equities start 2017 on a positive note, as post-Trump election optimism persists See disclosures and analyst certification on last page.

 Global equities began the year well, on the back of expectations for: i) an expansionary US fiscal policy;

ii) a US Government focusing on less regulation; and iii) still broadly supportive central banks. The Paul Mylonas, PhD S&P500 rose by 1.7% ytd, bringing its post US-election rally to 6%.

NBG Group 210-3341521 [email protected]

 Valuations have now become more expensive, with S&P’s forward 12-month PE level at 17x vs 16.3x

(or +4%) before the US elections and a long-term average of 14.4x (since 2004). However, expected earnings have also increased slightly (+2% to $133), suggesting that bottom-up consensus has started to incorporate a more favorable outlook into their projections.

Ilias Tsirigotakis Head of Global Markets Research 210-3341517 tsirigotakis.hlias @nbg.gr

 For risk appetite to continue to remain high, the Trump administration (Inauguration Day: January 20 th)

should deliver on corporate tax reform and particularly on lowering the statutory tax rate (of 35%). Obstacles stem from possible escalating trade tensions (tariffs) with China, which continues to intervene aggressively in the market (FX reserves down by $42bn to $3.01tn in December and -$195bn in H2) in order to support the RMB (6.93/$).  The Fed appears to share some of the market’s optimism. According to the minutes of the December

meeting (published on January 4th), Fed officials see further upside risks for US growth and inflation (see graph). However, the Fed’s US GDP point estimates for 2017 remained broadly unchanged at 2.1%, due to uncertainty regarding the prospective fiscal stimulus.

Panagiotis Bakalis 210-3341545 mpakalis.pan @nbg.gr

 Lower taxes and higher spending from H2:2017, if fully materialized, could boost US GDP growth and

inflation. Furthermore, already accelerating wages (+2.9% yoy, their highest level since mid-2009) and strong job gains (see Economics section) could trigger a more-aggressive-than-forecast Fed (3 interest rate hikes are expected for 2017).

Lazaros Ioannidis 210-3341553 ioannidis.lazaros @nbg.gr

 The ECB is expected to continue with its extended QE, albeit at a slower pace, until end-2017 (expected

asset purchases of €780bn or 7% of GDP). However, the risk remains that inflation could rise sharply (due to a further depreciation of the euro and increasing oil prices), thus triggering “tapering”. Indeed, euro area inflation accelerated to its highest rate since September 2013 (+1.1% yoy).

Vasiliki Karagianni 210-3341548 karagianni.vasiliki @nbg.gr

 Regionally, Japanese equities increased by 1.8%, supported by the ongoing depreciation of the JPY,

with the Nikkei225 at its highest level since December ‘15. Euro area equities followed suit, with the SXXE up by +1.1% ytd and Italian equities overperforming, mainly driven by the banking sector.  Italian bank equities have found some support following the establishment by the Italian Government of

a €20bn fund (1.2% of GDP) in order to ensure financial stability through: i) enhancing capital via precautionary recapitalization of banks that have a capital shortfall in the adverse scenario of a stress test; and ii) a bond-issuance guarantee scheme for banks that have no capital gap.  Monte Paschi di Siena gained access to the “precautionary recapitalization” fund, as it failed to raise

capital. BMPS requires €8.8bn to bring its CET1 ratio to 8% and the Total Capital Ratio to 11.5%. The direct cost to the Italian Government would be €4.6bn plus circa €2bn in order to compensate retail holders of subordinated bonds. The remaining amount of sub-debt (€2.2bn) would be converted into equity.

Assets Performance since 2016 US Equities

115

115

# of participants 18

110

16

Emerging Markets Equities

110 105

December Projections

# of participants 18

September Projections

16

14

14

12

12

10

10

8

8

105

100

100

Source: Bloomberg, MSCI, January 2016 = 100

Jan-17

Dec-16

Oct-16

2

Nov-16

2

Sep-16

85 Aug-16

85 Jul-16

4

Jun-16

4

May-16

6

90

Apr-16

6 90

Mar-16

95

Feb-16

95

Jan-16

Charts of the week

Developed Markets Government Bonds

Fed: Risks to GDP Growth

0

0 Weighted to downside

Broadly Balanced

Weighted to Upside

Source: Minutes of the Federal Open Market Committee December 13-14 2016

1

NBG Economic Research Division

January 10, 2017

Economics  The US labor market remained healthy in December, with wage

growth accelerating. Nonfarm payrolls rose by 156k, compared with 204k in November. The unemployment rate (U-3) was up 0.1 pp to 4.7% (with the labor force participation rate also increasing by 0.1 pp to 62.7%), reversing only a small part of the 0.3 pp decline in November. Note that the U-6 unemployment rate (a broader measure of labor market slack, which includes the unemployed, part-time workers for economic reasons, and those workers marginally attached to the labor force) fell to its lowest level since April 2008 (9.2%), corroborating the view for continued tightening in the labor market. Most importantly, wage growth recovered strongly, with average hourly earnings at +0.4% mom. As a result, the annual change in earnings accelerated to +2.9% vs +2.5% in November, the highest pace since June 2009.  Business surveys exceeded expectations and supported the

view of firming momentum in the business sector. The ISM manufacturing index rose substantially (+1.5 pts) to a 2-year high of 54.7 in December, while its non-manufacturing counterpart was stable at a 14-month high of 57.2. Importantly, the forward-looking component of new orders was the top performer in both cases. Overall, combined with the solid data regarding consumer sentiment (the Conference Board Consumer Confidence Index reached a c. 15-year high in December), the latest business surveys had positive implications for the growth outlook. Note that, according to the Atlanta Fed’s GDPNowcast model, GDP growth for Q4:2016 is currently expected at 2.9% qoq saar (vs 2.5% a week ago) from GDP growth of 3.5% in Q3:2016 and 1.1% qoq saar (on average) in H1:2016.  Housing market data suggest that the recovery continues,

although the potential negative impact from higher US interest rates will be closely monitored in the coming months (30YR fixed mortgage rate is up by 77 bps since late September 2016). New home sales rose by 5.2% mom in November to 592k, and existing home sales rose by 0.7% mom, to 5.61 mn, the highest levels since February 2007. Finally, house price growth in October remained buoyant, with the S&P/Case-Shiller 20-City home price index up by 5.1% yoy (+0.6% mom), from +5.0% yoy previously, above consensus estimates for an unchanged outcome.  Euro area inflation in December exceeded expectations,

increasing above 1.0% for the first time since September 2013. The flash estimate for headline CPI rose sharply, to +1.1% yoy, up 0.5 pps compared with November (consensus: 1.0% yoy). The increase was driven mainly by energy prices that rose by 2.5% yoy (-1.1% yoy previously), posting their first positive reading since June 2014, due to favorable base effects. Indeed, core CPI accelerated moderately, to 0.9% yoy from 0.8% yoy in November (below 1.0% for a 9th consecutive month). Note, however, that the latter was mainly due to a strong increase in services prices (+0.4 pps to 1.5% yoy) in Germany (28% weight in German CPI for the calculation of euro area CPI). The regional German inflation data suggest that the latest pick-up (in services prices) was distorted by the volatile package holidays and accommodation component.

 Euro area bank lending to the private sector remained

solid in November, suggesting that the economy will continue to find support from a strong flow of bank credit. Regarding the two major private sector components, loans to households (adjusted for sales and securitizations) rose by a robust €10.9 bn (6-month average of €10 bn), with the annual growth rate at 1.9% yoy, the highest since July 2011. Furthermore, loans to non-financial corporations increased by €11.1 bn (6-month average of €7 bn), with the annual growth rate at 2.2% yoy, the highest since June 2009. On a country by country basis, the divergent trend remains, with the annual growth rate of loans to non-financial corporations in Germany (+3.5%) and France (+4.9%) strongly outpacing that of Italy and Spain (slightly negative to zero rates).  In the UK, business surveys surprised on the upside in

December. The PMI composite index rose to a 17-month high of 56.7 from 55.3 in November, exceeding consensus expectations for 55.0, with both PMI services index and PMI manufacturing index improving substantially. The weaker GBP continues to boost competitiveness and support new export orders, while domestic demand remains strong. At the same time, the lower exchange rate led to a sharp rise in selling prices (the fastest pace since mid-2011) due to higher import costs. Note that in Q4:16, the composite PMI index averaged 55.6, pointing to real GDP growth of 0.5% qoq, close to the solid Q3:16 performance of 0.6% qoq.  Japanese industrial production for November points to

improved momentum in the business sector. Industrial production rose by 1.5% mom, broadly in line with consensus expectations, from zero monthly growth in October. Importantly, the outcome came despite a decline in inventories, a development that could act as a tailwind for production going forward. Moreover, the accompanying Survey of Production Forecast in Manufacturing calls for a continuing improvement in the next 2 months, in tandem with the latest business surveys (stronger Tankan survey and PMI manufacturing at a 1-year high of 52.4, in December).  In Japan, the latest inflation data support the view that the

recent boost to CPI is due to transitory factors, with the underlying price pressures remaining weak. Headline CPI inflation increased substantially, to +0.5% yoy in November (a 1½-year high) from +0.1% yoy in October due to fresh food prices (+0.84 pps contribution) on the back of adverse weather conditions in November. Indeed, the CPI ex-fresh food remained at a weak -0.4% yoy. Note that weather conditions were less adverse in December, and thus headline CPI will likely subside. Preliminary December data for the Tokyo area support that view, with CPI falling by 0.5 pps to 0.0% yoy in December.  Chinese PMI data for December was strong, albeit the re-

acceleration of capital outflows, if sustained, poses a risk going forward. Markit manufacturing PMI rose by 1.0 pt to 51.9 (a c. 3-year high). Meanwhile, the official manufacturing PMI (which covers a broader range of industries) fell moderately by 0.3 pts, to a still strong 51.4 in December.

2

NBG Economic Research Division

0

-5

-5

-10

-10

-15

-15

-20

-20

-25

-25

Sep-16

May-16

Jan-16

Mar-16

Jul-15

Jan-17

5

0

Nov-16

10

5

Jul-16

15

10

Nov-15

20

15

Source: Factset - Data as of January 6th

High Yield Corporate Bonds Spreads bps US

bps

EUR

900

Jan-17

Sep-16

Sep-15

Sep-14

Nov-16

250

Jul-16

300

250

Jan-16

350

300

Mar-16

400

350

May-16

450

400

Nov-15

500

450

Jul-15

550

500

Mar-15

600

550

May-15

650

600

Jan-15

700

650

Jul-14

750

700

Nov-14

800

750

May-14

850

800

Jan-14

850

Mar-14

inflation-positive data, with European yields up on a weekly basis and US yields down slightly. Specifically, the US Treasury 10-year yield ended the week down by 3 bps to 2.42%, albeit it rose by 8 bps on Friday following robust wage data. Note that compared with mid-December highs (2.60%), the UST 10-year yield has declined by 18 bps. In contrast, the UK’s 10-year Gilt yield increased by 14 bps wow to 1.38%, while the German 10-year Bund yield rose by 9 bps to 0.30%. Furthermore, periphery bond spreads over the Bund (excluding Greece) widened slightly (+6 bps to +166 bps for Italian 10Yr BTPs, +7 bps to 124 bps for Spanish 10Yr Bonos, +20 to 375 bps for the Portuguese government 10Yr bond and -33 bps to 657 bps for their Greek counterpart).

%

Nikkei 225

20

900

 Government bond yields were mixed against a backdrop of growth and

FTSE 100

25

Sep-15

US, China business surveys) continue to support the case for firmer global growth. Indeed, the MSCI World index was up by 1.7% on a weekly basis, with broad-based gains among developed and emerging equity markets (+1.7% vs +1.8% wow). In the US, the S&P500 ended the week up by 1.7%, with the healthcare and technology sectors performing strongly (+2.9% and +2.4% respectively). European equities recorded modest gains, with the EuroStoxx index up by 1.1% and the FTSE100 by 0.9% over the week, while euro area banks overperformed, rising by 4.3% wow, as government bond yields rose on the back of stronger-than-expected inflation data. Similarly, the Nikkei225 was up by 1.8% wow with the Japanese yen largely unchanged.

EuroStoxx

25

May-15

 Global equity markets entered 2017 on a positive note, as economic data (e.g.

S&P500

Jan-15

Markets

12 month forward EPS Estimates (YoY) %

Mar-15

Quote of the week: “I still think two (Fed rate hikes in 2017) is not an unreasonable expectation, …three is not going to be implausible”, Charles L. Evans President of the Federal Reserve Bank of Chicago and a voting member of the Federal Open Market Committee, January 6th 2017.

January 10, 2017

Source: Bloomberg

 Corporate bonds performed well, with spreads declining on a weekly basis in RMB CFETS Index and RMB/USD

6,3

99

6,4

98

6,5

97

6,6

96

6,7 RMB appreciates vs other FX

95

6,8

94

7,0

Jan-17

Dec-16

Nov-16

Oct-16

Sep-16

Aug-16

Jun-16

Jul-16

7,1

May-16

Apr-16

Mar-16

January '16 = 100

Jan-16

over the past week. Indeed, the US dollar was unchanged at ¥116.97/$ against the Japanese yen and fell slightly (-0.1% wow) to $/1.053 against the euro. The British pound weakened on a weekly basis (-0.4% against the euro, -0.5% against the USD) and lost further ground on Monday (-1.4% against the euro, to £/0.87, and -1.0% against the USD, to $/1.216) following comments by PM May suggesting that the UK will likely pursue a “hard” Brexit stance (i.e. preferring immigration curbs from trade access to the common market). Investor focus will be on the upcoming Trump administration for any major change in trade and tax policies that could affect FX rates, especially for emerging market currencies. Note that China’s PBoC has broadened the composition of the RMB currency basket. This implies a lower weight for the USD within the basket, thus easing pressures from a potential dollar strength.

92

6,9

Feb-16

 In foreign exchange markets, the USD remained flat against its major peers

Source: Bloomberg, CFETS: China Foreign Exchange Trade System

10- Year Government Bond Spreads

bps 900

Greece (left)

Italy (right)

Portugal (right)

Spain (right)

bps 400 375

Ireland (right)

350

800

325 300

700

275 250 225

600

200

175 500

150 125 100

400

75 50

9-Jan

2-Jan

26-Dec

19-Dec

5-Dec

12-Dec

28-Nov

21-Nov

14-Nov

7-Nov

31-Oct

25

24-Oct

300

10-Oct

$56.3/barrel, WTI: +0.5% to $53.99/barrel), while US oil inventories declined at the strongest pace since September (-7.05 mb to 479 mb for the week ending December 30th). Investors will closely watch country compliance to production cuts and will be on alert for any implementation risks concerning the OPEC agreement that has been in effect since January 1 st. Regarding precious metals, gold began 2017 on a sound footing, increasing by 1.8% (to $1.173/ounce) and silver was up by 3.6% on a weekly basis (to $16.5/ounce).

6,2

RMB/USD (right, reversed) 100

93

 In commodities, oil prices recorded gains in the past week (Brent: +1.7% to

RMB/USD

RMB Trade-weighted Index (left)

101

17-Oct

the high yield (HY) spectrum. Specifically, euro area HY spreads narrowed by 21 bps wow to 355 bps with their US peers down by 23 bps to 398 bps, the lowest level since September ’14 for both categories. Euro area investment grade (IG) corporate bond spreads fell by 2 bps wow to 122 bps, while US IG spreads remained broadly unchanged (-1 bp wow) to 128 bps. Note that since the US elections, US IG spreads are down 11 bps, while euro area IG spreads have risen by 11 bps. The ECB’s corporate bonds net purchases slowed in December (€4.0bn from €9.0bn in November), due to the slower transaction pace during the holiday season.

Source: Bloomberg - Data as of January 6th

3

NBG Economic Research Division

January 10, 2017

Economic News Diary: January 3 - January 16, 2017 Day Current Week Tuesday 3

Wednesday 4

Thursday 5

Friday 6

Monday 9

Region

Release

Period

US

ISM Manufacturing

DECEMBER

53.8

+

54.7

53.2

US

Construction spending

NOVEMBER

0.5%

+

0.9%

0.6%

Survey

Actual

Prior

UK

Markit UK PMI Manufacturing SA

DECEMBER

53.3

+

56.1

53.6

CHINA

Caixin PMI Manufacturing

DECEMBER

50.9

+

51.9

50.9

US

FOMC Minutes

DECEMBER 14

UK

Markit/CIPS UK Construction PMI

DECEMBER

52.5

+

54.2

52.8

EURO AREA

CPI Estimate YoY

DECEMBER

1.0%

+

1.1%

0.6%

EURO AREA

Core CPI (YoY)

DECEMBER

0.8%

+

0.9%

0.8%

US

ADP Employment Change (k)

DECEMBER

175

-

153

215

US

Initial Jobless Claims (k)

DECEMBER 31

260

+

235

263

US

Continuing Claims (k)

DECEMBER 24

2.045

-

2.112

2.096

US

ISM non-manufacturing

DECEMBER

56.8

+

57.2

57.2

UK

Markit/CIPS UK Services PMI

DECEMBER

54.7

+

56.2

55.2

US

Trade balance ($bn)

NOVEMBER

-45.4

+

-45.2

-42.4

US

Change in Nonfarm Payrolls (k)

DECEMBER

175

-

156

204

US

Change in Private Payrolls (k)

DECEMBER

170

-

144

198

US

Unemployment rate

DECEMBER

4.7%

4.7%

4.6%

US

Average Hourly Earnings MoM

DECEMBER

0.3%

+

0.4%

-0.1%

US

Average Hourly Earnings YoY

DECEMBER

2.8%

+

2.9%

2.5%

US

Average weekly hours (hrs)

DECEMBER

34.4

-

34.3

34.3

US

Underemployment rate

DECEMBER

..

9.2%

9.3%

US

Labor Force Participation Rate

DECEMBER

..

62.7%

62.6%

US

Factory Goods Orders

NOVEMBER

-2.3%

-2.4%

2.8%

EURO AREA

Retail sales (MoM)

NOVEMBER

-0.4%

-0.4%

1.4%

EURO AREA

Retail sales (YoY)

NOVEMBER

1.9%

+

2.3%

3.0%

EURO AREA

Economic Confidence

DECEMBER

106.8

+

107.8

106.6

EURO AREA

Business Climate Indicator

DECEMBER

0.47

+

0.79

0.41

GERMANY

Retail sales (MoM)

NOVEMBER

-0.9%

-

-1.8%

2.5%

+

3.2%

-0.8%

9.8%

9.8%

-

GERMANY

Retail sales (YoY)

NOVEMBER

1.2%

EURO AREA

Unemployment Rate

NOVEMBER

9.8%

GERMANY

Industrial Production (sa, MoM)

NOVEMBER

0.6%

-

0.4%

0.5%

GERMANY

Industrial Production (wda, YoY)

NOVEMBER

1.9%

+

2.2%

1.6%

CHINA

CPI (YoY)

DECEMBER

2.2%

..

2.3%

UK

Industrial Production (MoM)

NOVEMBER

1.0%

..

-1.3%

UK

Industrial Production (YoY)

NOVEMBER

0.7%

..

-1.1%

JAPAN

Coincident Index

NOVEMBER

115.0

..

113.5

JAPAN

Leading Index

NOVEMBER

102.6

..

100.8

US

Initial Jobless Claims (k)

JANUARY 7

255

..

235

US

Continuing Claims (k)

DECEMBER 31

2.077

..

2.112

JAPAN

Eco Watchers Current Survey

DECEMBER

..

..

48.6

JAPAN

Eco Watchers Outlook Survey

DECEMBER

..

..

49.1

EURO AREA

Industrial Production (sa, MoM)

NOVEMBER

0.5%

..

-0.1%

EURO AREA

Industrial Production (wda, YoY)

NOVEMBER

1.5%

..

0.6%

US

Retail Sales Advance MoM

DECEMBER

0.7%

..

0.1%

US

Retail sales ex-autos (MoM)

DECEMBER

0.5%

..

0.2%

US

University of Michigan consumer confidence

JANUARY

98.5

..

98.2

CHINA

Exports (YoY)

DECEMBER

-3.9%

..

-1.6% 4.7%

Next Week Tuesday 10 Wednesday 11

Thursday 12

Friday 13

Monday 16

CHINA

Imports (YoY)

DECEMBER

3.0%

..

EURO AREA

Trade Balance SA (€ bn)

NOVEMBER

..

..

19.7

CHINA

Aggregate Financing (RMB bn)

DECEMBER

1300.0

..

1736.6

CHINA

New Yuan Loans (RMB bn)

DECEMBER

676.8

..

794.6

CHINA

Money Supply M0 (YoY)

DECEMBER

7.0%

..

7.6%

CHINA

Money Supply M1 (YoY)

DECEMBER

22.0%

..

22.7%

CHINA

Money Supply M2 (YoY)

DECEMBER

11.4%

..

11.4%

Source: Bloomberg

4

NBG Economic Research Division

January 10, 2017

Financial Markets Monitor Equity Market Returns (%) Developed Markets

1

World Equity Market Sector Returns (%)

1-w eek Current Level change (%)

Year-to-Date 1-Year change (%) change (%)

2-year change (%)

in US Dollar terms

1-w eek Current Level change (%)

Year-to-Date 1-Year change (%) change (%)

2-year change (%)

US

S&P 500

2277

1,7

1,7

17,2

12,4

Energy

220,9

0,9

0,9

31,9

Japan

NIKKEI 225

19454

1,8

1,8

9,5

15,2

Materials

225,4

1,6

1,6

30,9

4,5

UK

FTSE 100

7210

0,9

0,9

21,1

12,3

Industrials

216,0

1,7

1,7

19,1

12,4

Canada

S&P/TSX

15496

1,4

1,4

24,5

8,5

Consumer Discretionary

200,2

1,9

1,9

9,6

10,8

Hong Kong

Hang Seng

22503

2,3

2,3

10,7

-5,0

Consumer Staples

208,9

0,6

0,6

3,5

6,3

Euro area

EuroStoxx

354

1,1

1,1

8,5

14,5

Healthcare

198,0

2,7

2,7

-1,8

-1,3

-1,5

Germany

DAX 30

11599

1,0

1,0

16,2

21,9

Financials

108,5

2,2

2,2

19,2

9,5

France

CAC 40

4910

1,0

1,0

11,5

19,4

IT

165,0

2,3

2,3

20,2

19,9

Italy

FTSE/MIB

19688

2,4

2,4

-2,5

8,6

Telecoms

70,5

1,5

1,5

6,9

6,4

Spain

IBEX-35

9516

1,8

1,8

5,0

-3,8

Utilities

115,3

0,3

0,3

4,8

-4,3

48522

1,8

1,8

15,7

1,1

Energy

230,0

0,7

0,7

34,4

3,7

707

2,0

2,0

13,5

-1,0

Materials

221,5

1,3

1,3

32,7

10,4

China

60

3,0

3,0

11,3

-10,2

Industrials

219,4

1,5

1,5

20,3

16,0

Korea

588

1,2

1,2

15,9

11,3

Consumer Discretionary

197,7

1,8

1,8

10,7

13,8

73240

1,8

1,8

30,8

11,8

Consumer Staples

213,7

0,5

0,5

6,0

11,1

Brazil

213518

2,3

2,3

44,5

15,6

Healthcare

198,9

2,6

2,6

-0,7

1,0

Mexico

43608

1,0

1,0

13,5

8,7

Financials

111,0

1,9

1,9

20,1

14,4

Emerging Markets

1

MSCI Emerging Markets MSCI Asia

MSCI Latin America

MSCI Europe

in local currency

4962

-0,1

-0,1

20,5

10,4

IT

161,2

2,3

2,3

20,4

20,8

Russia

991

-0,8

-0,8

30,8

43,7

Telecoms

75,6

1,3

1,3

9,0

12,1

Turkey

1075674

-1,5

-1,5

6,2

-12,6

Utilities

120,4

0,2

0,2

6,5

-0,1

As of January 6, 2017, 1) in local currency, Source Bloomberg

As of January 6, 2017, MSCI Indices, Source Bloomberg

Bond Markets (%) 10-Year Government Bond Yields

Foreign Exchange & Commodities Current

Last w eek

Year Start

One Year Back

10-year average

US

2,42

2,45

2,45

2,15

2,81

Germany

0,30

0,21

0,21

0,54

2,20

Japan

0,06

0,05

0,05

0,24

0,92

EUR/USD

1,05

0,1

-2,0

-3,6

0,1

UK

1,38

1,24

1,24

1,80

2,93

EUR/CHF

1,07

0,0

-1,0

-1,3

0,0

Greece

6,86

7,11

7,11

8,70

10,17

EUR/GBP

0,86

0,4

0,6

14,6

0,4

Ireland

0,97

0,75

0,75

1,03

4,61

EUR/JPY

123,49

0,4

0,9

-4,0

0,4

Italy

1,96

1,81

1,81

1,55

3,85

EUR/NOK

8,99

-1,1

0,0

-7,4

-1,1

Spain

1,54

1,38

1,38

1,74

3,87

EUR/SEK

9,54

-0,4

-2,2

3,1

-0,4

Portugal

4,05

3,76

3,76

2,60

5,48

EUR/AUD EUR/CAD USD-based cross rates

1,44 1,39

-1,1 -1,4

0,4 -2,0

-7,5 -9,6

-1,1 -1,4

US Treasuries 10Y/2Y

121

126

126

120

172

USD/CAD

1,32

-1,5

0,0

-6,2

-1,5

US Treasuries 10Y/5Y

50

52

52

55

88

USD/AUD

1,37

-1,3

2,5

-3,9

-1,3

Bunds 10Y/2Y

102

97

97

92

116

USD/JPY

116,97

0,0

2,8

-0,6

0,0

Bunds 10Y/5Y

77

74

74

65

69

Government Bond Yield Spreads (in bps)

EM Inv. Grade (IG)

175

181

181

239

268

EM High yield

489

510

510

897

811

US IG

128

129

129

175

200

US High yield

398

421

421

724

639

Euro area IG

122

124

124

124

124

Euro area High Yield

355

376

376

563

661

US Mortgage Market

vs 30Yr Treasury (bps)

1-w eek Current Level change (%)

1-month change (%)

1-Year Year-to-Date change (%) change (%)

Euro-based cross rates

Commodities

Corporate Bond Spreads (BofA/ML Indices, in bps)

30-Year FRM1 (%)

Foreign Exchange

Agricultural

443

2,8

1,3

0,3

2,8

Energy

431

-0,9

5,1

27,2

-0,9

West Texas Oil ($)

54

0,5

8,5

62,3

0,5

Crude brent Oil ($)

56

1,7

8,4

73,6

1,7

Industrial Metals

1136

1,3

-3,6

23,9

1,3

Precious Metals

1437

2,1

-0,8

6,0

2,1

Gold ($)

1173

1,8

-0,1

5,8

1,8

Silver ($)

16

3,6

-3,7

15,2

3,6

4,39

4,39

4,39

4,20

4,51

Baltic Dry Index

963

0,2

-17,1

116,4

0,2

138

132

132

127

100

Baltic Dirty Tankers Index

1026

11,6

18,2

-1,6

11,6

As of January 6, 2017, 1. Fixed-rate mortgage rate, Source Bloomberg

As of January 6, 2017, Goldman Sachs Indices for Commodities, Source Bloomberg

5

NBG Economic Research Division

January 10, 2017

NBG Economic & Markets Forecasts Euro area & US: GDP Growth & Inflation Forecasts 2014a 1

GDP (%)

2015a

2016f

2014a

Q1a

Q2a

Q3a

Q4a

2015a

Q1a

Q2a

Q3a

Q4f

2016f

Euro area

1,2

0,8

0,4

0,3

0,5

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

0,4

0,9

0,7

1,5

Euro area

0,4

-0,3

0,2

0,1

0,1

0,0

0,0

-0,1

0,3

0,7

0,2

US

1,6

-0,1

0,0

0,1

0,5

0,1

1,1

1,0

1,1

1,7

1,3

2

HICP Inflation (%)

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 10-year government bond yield (%) Germany 0,30 0,30 US 2,42 2,40 Official rate (%) Euro area 0,00 0,00 US 0,75 0,75 Currency EUR/USD 1,05 1,07 EUR/GBP 0,86 0,88 EUR/JPY 123 121

6-month

12-month

0,50 2,60

0,70 2,80

0,00 1,00

0,00 1,25

1,05 0,88 120

1,05 0,87 122

(*) As of January 6 2017, end of period

6

NBG Economic Research Division

January 10, 2017

NBG View and Key Factors for Global Markets

Euro area

Foreign Exchange

 Reduced short-term tail   ▬ ▬ ▬

Government Bonds



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)

Lower EUR against the USD

 Fragile growth outlook  Medium-term inflation  ▬ ▬



Equities

 ▬ ▬ ▬ 

 The Fed is expected to  ▬



Stable/higher yields expected



Neutral stance on equities

 Safe haven demand  More balanced economic  ▬

Higher USD against its major counterparts



 Global search for yield by 

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

increase its policy rate towards 1.0% in 2016 Growth to remain slightly above-trend in 2016 Mid-2014 rally probably out of steam

Japan

growth recovery (longterm) Inflation is bottoming out Additional Quantitative Easing by the Bank of Japan if inflation does not approach 2%

UK

▬ ▬ ▬ ▬ ▬

expectations remain low Ultra accommodative monetary policy by the ECB Upside risk in US benchmark yields Valuations appear excessive compared with long-term fundamentals

 Still high equity risk 

US

 ▬ ▬ ▬ ▬

  ▬ ▬



 Safe haven demand  Extremely dovish

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

 ▬ ▬

yields EPS deceleration is bottoming out Cash-rich corporates lead to share buybacks and higher dividends (de-equitization) Demanding valuations Peaking profit margins

Positive stance on equities (Banks, Industrials)

central bank Yield-targeting of 10Year JGB at around 0% Sizeable fiscal deficits Restructuring efforts to be financed by fiscal policy measures





Stable yields expected

 Aggressive QE by the BoJ ▬ Signs of policy fatigue ▬ ▬ ▬



Weaker GBP against the EUR and the USD

 The BoE is expected to  ▬

▬ ▬

Higher yields expected

 Very low government bond

Lower JPY against the USD

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



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 Higher yields expected

 65% of FTSE100 revenues from abroad

regarding structural reforms and fiscal discipline Strong appetite for foreign assets Downward revisions in corporate earnings If sustained, Japanese Yen appreciation hurts exporters companies

 Undemanding valuations

▬

commodities sector assuming the oil rally continues Elevated Policy uncertainty to remain due to the outcome of the Referendum and the negotiating process

Neutral-to-negative stance on equities



Neutral stance on equities

in relative terms

 High UK exposure to the

7

NBG Economic Research Division

January 10, 2017

NBG 6-Month View and Key Factors for South Eastern European Markets Emerging Markets Research Team, tel:210-3341211, email: [email protected]

Foreign Exchange

Turkey  High domestic debt yields

 Strong external position

▬

▬

▬ ▬

Sizable external financing requirements

 Weaker to stable TRY

 Low public debt-to-GDP



Stable to stronger RON against the EUR

 Low public debt-to-GDP ▬

Easing fiscal stance

▬

Stubbornly high inflation

▬

Envisaged tightening in monetary policy



Stable to lower yields



Stable to higher yields

 High foreign debt yields

 Strong external position

▬

▬



Large external financing requirements

Weak foreign investor appetite for emerging market assets

Stable to narrowing spreads





Stable to narrowing spreads

 Attractive valuations

 Attractive valuations

▬

Weak foreign investor appetite for emerging market assets

▬

Neutral/Positive stance on equities



 Large foreign currency

▬

Sizable external financing requirements

▬

Heightened domestic political uncertainty



Stable BGN against the EUR

 Very low public debt-to-

Weak foreign investor appetite for emerging market assets

GDP ratio and large fiscal reserves

 Low inflation



Neutral/Positive stance on equities

Stable to lower yields

 Solidly-based currency board arrangement, with substantial buffers

negotiations

 Precautionary Stand-By Agreement with the IMF

▬

Sizable external financing requirements



Weaker to stable RSD against EUR

 Positive inflation outlook  Precautionary Stand-By Agreement with the IMF

▬

Large public sector borrowing requirements



Stable to lower yields

 Ongoing EU membership negotiations

 Precautionary Stand-By

 Current account surplus ▬

Large external financing requirements

▬

Heightened domestic political uncertainty



Stable to narrowing spreads

 Attractive valuations Low-yielding  Stable spreadsdomestic debt

Agreement with the IMF

▬

Sizable external financing requirements

▬

Slow progress in structural reforms



Stable to narrowing spreads

 Attractive valuations ▬

Weak foreign investor appetite for emerging market assets



Neutral/Positive stance on equities

and deposits

▬

Weak foreign investor appetite for emerging market assets



Neutral/Positive stance on equities

Equities 

 Ongoing EU membership

arrangement

ratio

Loosening fiscal stance

▬

 Currency board

Serbia

 Current account surplus

▬

Sizable external financing requirements

Bulgaria

reserves and fiscal reserves

ratio

Foreign Debt

Domestic Debt

Large external financing requirements

Weak foreign investor appetite for emerging market assets Increasing geopolitical risks and domestic political uncertainty

against the EUR

Foreign Debt

Romania

8

NBG Economic Research Division

January 10, 2017

NBG South Eastern Europe Economic Forecasts SEE Economies 2012 2013 2014 2015 2016f 2017f

Real GDP Growth (%) Turkey 4,8 8,5 Romania 0,6 3,5 Bulgaria 0,0 0,9 Serbia -1,0 2,6 Headline Inflation (eop,%) Turkey 6,2 7,4 Romania 5,0 1,6 Bulgaria 4,2 -1,6 Serbia 12,2 2,2 Current Account Balance (% of GDP) Turkey -5,6 -6,7 Romania -4,8 -1,1 Bulgaria -0,9 1,3 Serbia -11,6 -6,1 Fiscal Balance (% of GDP) Turkey -1,9 -1,0 Romania -2,5 -2,5 Bulgaria -0,4 -1,8 Serbia -6,8 -5,5

5,2 3,0 1,3 -1,8

6,1 3,8 3,6 0,8

2,1 5,0 3,4 2,8

2,0 3,5 3,1 3,0

8,2 0,8 -0,9 1,7

8,8 -0,9 -0,4 1,5

8,5 -0,2 0,0 1,8

8,2 2,0 0,6 2,2

-4,7 -0,7 0,1 -6,0

-3,8 -1,2 0,4 -4,7

-4,2 -2,6 2,5 -4,1

-4,8 -3,2 1,3 -4,3

-1,1 -1,7 -3,7 -6,6

-1,0 -1,5 -2,8 -3,7

-1,7 -3,3 1,6 -2,0

-2,5 -4,0 -0,8 -1,7

f :NBG f orecasts

SEE Financial Markets 9/1/2017

3-month 6-month 12-month forecast forecast forecast

1-m Money Market Rate (%) Turkey 9,5 9,8 Romania 0,6 0,9 Bulgaria 0,0 0,1 Serbia 3,3 3,4 Currency TRY/EUR 3,92 4,00 RON/EUR 4,49 4,49 BGN/EUR 1,96 1,96 RSD/EUR 123,6 123,2 Sovereign Eurobond Spread (bps) Turkey (EUR 2019) 237 275 Romania (EUR 2024) 194 180 Bulgaria (EUR 2022) 140 130 Serbia (USD 2021)(*) 208 200

10,0 1,2 0,1 3,5

9,5 1,5 0,2 3,8

3,90 4,49 1,96 124,0

3,70 4,50 1,96 125,0

260 165 122 190

240 150 110 180

(*) Spread ov er US Treasuries

SEE Stock Market Returns1 9/1/2017

Last w eek return (%)

YTD (%)

2-year change (%)

77.394 1.391 596 718

-0,5 3,5 1,6 0,1

-1,0 3,5 1,6 0,1

-11,7 6,3 18,9 9,2

Index

Turkey Romania Bulgaria Serbia

ISE100 BET-BK SOFIX BELEX15

1. In local currency

9

NBG Economic Research Division

January 10, 2017

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