International Financial Outlook- Lloyds TSB-MAY

8/9/2019 International Financial Outlook- Lloyds TSB-MAY

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May 2010

International Financial Outlook

Bank of the year winner2005-2009


2/16

Latest key economic and financial market dataCalendar of central bank interest rate meetings (as at 17 May 10)

Region Current rate Date of next meeting LTSB forecast (rate at next meeting)

UK 0.50% 10 June 2010 0.50%US 0.0-0.25% 23 June 2010 0.0-0.25%Euro zone 1.00% 10 June 2010 1.00%Japan 0.10% 21 May 2010 0.10%Switzerland 0.25% 17 June 2010 0.25%Norway 2.00% 23 June 2010 2.00%Sweden 0.25% 1 July 2010 0.25%Canada 0.25% 1 June 2010 0.25%Australia 4.50% 1 June 2010 4.50%New Zealand 2.50% 10 June 2010 2.75%

Key economic data releases in the month ahead (as at 17 May 10)

Region Indicator Previous Indicator Previous

UK Consumer prices index (core) y/y (18/5) +3.4% GfK consumer confidence (28/5) -16Retail price index y/y (18/5) +4.4% Manufacturing PMI (1/6) 58.0BoE MPC minutes (May) (19/5) Mortgage approvals (2/6) +48.9kRetail sales - inc auto fuel m/m (20/5) +2.2% Services PMI (2/6) 55.3

Retail sales - exc auto fuel m/m (20/5) +4.0% Trade balance (9/6) -7.5bnBusiness investment Q1 q/q (21/5) -4.3% Producer output prices index m/m (11/5) +1.4%Public finances (PSNB) (21/5) +23.5bn Industrial output m/m (11/6) +2.0%M4 money supply y/y (21/5) +3.6% NIESR GDP estimate m/m (11/6) +0.5%GDP Q1 q/q (prel) (25/5) +0.2% RICS house price balance (15/6) +17%

US Producer prices m/m (18/5) +0.7% Core PCE deflator y/y (28/5) +1.3%Consumer prices index y/y (19/5) +2.3% ISM Manufacturing (1/6) 60.4Consumer prices index (core) y/y (19/5) +1.1% Factory orders m/m (3/6) +1.3%FOMC minutes (19/5) ISM Non-manufacturing (3/6) 55.4Existing home sales (24/5) 5.35m Factory orders m/m (3/6) +1.3%Consumer confidence (25/5) 57.9 NFP change m/m (4/6) +290kDurable goods (26/5) -0.6% Unemployment rate (4/6) 9.9%New home sales (26/5) 411k Trade balance (10/6) -$40.4bnGDP Q1 annualised (2nd estimate) (27/5) 3.2% Advance retail sales m/m (11/6) +0.4%

Euro zone German Zew survey (18/5) 53.0 M3 money supply y/y (31/5) -0.1%

Manufacturing PMI (prel) (21/5) 57.6 Unemployment rate (1/6) +10.0%Services PMI (prel) (21/5) 55.6 Retail sales m/m (3/6) +0.1%German IFO survey (21/5) 101.6 GDP Q1 q/q (prel) (4/6) +0.2%CPI flash estimate y/y (29/5) +1.5% Industrial production y/y (14/6) +6.9%

Summary financial data (as at 14 May 10)

* All data are sourced to Bloomberg. Date of next release in brackets.

Key equity market indices Close Monthly change

Dow Jones Industrial Average 10,620.16 -4.5%S&P 500 1,135.68 -6.2%Nikkei 225 10,462.51 -6.6%FTSE 100 5,262.85 -9.2%DAX 30 6,056.71 -3.5%CAC 40 3,560.36 -12.3%

Bond yields Close Monthly change

US 2yr Treasury 0.78% -26.6 BpsUS 10yr Treasury 3.45% -40.6 BpsGerman 2yr Schatz 0.56% -39.7 BpsGerman 10yr Bund 2.86% -27.8 BpsUK 2yr Gilt 0.93% -23.1 BpsUK 10yr Gilt 3.75% -28.0 Bps

Japan 2yr JGB 0.17% 0.0 BpsJapan 10yr JGB 1.31% -7.0 Bps

Commodity prices Close Monthly change

Brent Crude Oil (active month) $77.2 -10.4%COMEX Gold (active month) $1,227.8 5.9%COMEX Silver (active month) $19.2 4.3%NYMEX Platinum (active month) $1,715.4 -0.9%LME Aluminium (3 month) $2,108.0 -14.1%LME Copper (3 month) $6,987.0 -12.3%

LME Lead (3 month) $1,981.0 -16.0%LME Nickel (3 month) $22,200.0 -14.2%CBOT Corn (active month) $356.75 -0.3%CBOT Wheat (active month) $463.50 -2.4%CBOT Soybean (active month) $948.00 -2.2%Reuters CRB Index 258.6 -7.6%


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Trevor Williams

Chief Economist, Corporate Markets

Summary of main changes to exchange & interest rate forecasts

Severe volatility returned to financial markets this month.Central banks had to step in once again to be the lender oflast resort, with plentiful liquidity on offer to those borrowersthat need it. Worries about the solvency of Greece was theproximate cause for the renewal of uncertainty and sharp

reduction in volume. Securities markets have almost shutdown once again, with limited primary issuance in the lastfew weeks. Meantime, the cost of insurance against defaultrisk has soared. This time, however, the reason for thecrisis was about the ability of a sovereign to pay its debtsrather than a private company.

This prompted the eurozone to put together a $1 trillionpackage to support Greece and other euro members thatmight need funding. The ECB also said that it wouldpurchase Greek bonds in the secondary market, promisingto sterilise its intervention by selling some equivalentsecurities into the markets. Markets still worry about

sovereign risk, however, suggesting that the investorcommunity simply does not have the desire to absorb theexpected issuance of government bonds from highlyindebted countries. This has prompted many countries inthis position to announce accelerated plans to cut borrowing.

With a new coalition government now in place in the UKafter inconclusive elections on 6 May, the UK too isexpected to announce bigger cuts to public sector debt on22 June, when an emergency Budget is due.

Benchmark government bond yields have headed loweron concerns about global growth and speculation that

central banks will keep official interest rates low for longer.The 10yr Treasury yield slipped below 3.40% and 10yr giltpierced 3.75% this month for the first time in 2010. Althoughthe debt crisis has led to a widening in swap spreads inthe past month, swap rates have been driven lower. Wehave revised our near-term forecasts to reflect currentlevels but continue to look for market interest rates to trendhigher as global recovery continues.

The US dollar has been the main beneficiary of the marketsstress, rising from around 1.33 versus the euro at the startof May to below 1.23 by mid-May. Indeed, the rise in thedollar and the fall in the euro has meant that our long-standing forecasts for the year ahead have now been

reached. Whilst we think some of the selling of the eurohas been overdone, it will take substantive policy changesfor the recent trend to be reversed.

As a result, we have revised the currency lower in the yearto 1.20 against the dollar from 1.23. The pound is beingcaught between the dollar and the euro. In our view, it islikely to remain between $1.40 to $1.50, likely at the lowerend most of the time but potentially volatile.

Emerging market currencies have weakened against theUS dollar. Emerging European countries - a number ofwhich have aspirations to join the euro at some stage -

have seen their currencies hit hard by recent developmentsin Greece. Meanwhile, in Asia the topic of a near-termrevaluation in the Chinese renminbi versus the USDappears to have gone off the boil. It has been replaced bythe rapid growth of China's domestic economy, inparticular, soaring house prices. Finally, in Latin America,across-the board USD strength has limited the rise inBrazilian real - despite a bigger-than-expected (75bp)increase in the key Selic policy rate, to 9.5%.

Concerns about the downside risks to global growth sawcrude oil slump below $70 pb, while base metal pricesalso remain under strong selling pressure. In contrast, silver

and gold have posted further gains, with gold prices hittingall time highs on the flight to safety. Although this trendmay extend further from here, we believe that the globalgrowth momentum underway will ultimately prove resilientto this current setback. We look for crude oil to rise backabove $85 pb by end 2010, while a correction in gold pricesincreasingly appears inevitable based on our views onglobal inflation and the US dollar.

Contents

1 Forecast summary

2 Deficit reduction is focus of new UK government

4 UK inflation to fall back sharply over the coming year

6 Forecast commentary on exchange rates and interestrates

10 Exchange rates & interest rates - forecast table

1


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2

Deficit reduction is focus of new UK

governmentThe focus of the new coalition government the first peace-time one in over 60 years - hasbeen made crystal clear: lowering the budgetdeficit and reversing the rise in debt. Theparties agreed that tackling the deficit is thebest way to ensure economic recovery, so

there needs to be: a significantly acceleratedreduction in the structural deficit over thecourse of a Parliament with the main burdenof deficit reduction borne by reduced spendingrather than increased taxes. This clearly laysout the new governments position on this.

We estimate that around 70bn of the UKsstructural budget deficit has not yet beeenaddressed, see chart c. With an 80:20 split forreducing the deficit in favour of spending totax, this suggests total spending cuts over thenext five years of 56bn and additional tax

rises of 14bn. Yet it would not be surprising ifthe split were to be somewhat different thanthis and tax rises formed a bigger element ofthe emergency Budget.

Emergency Budget to be held in 50 daysIt has now been announced that there will bea Budget on 22 June 2010. In an echo of theformation of the MPC in 1997, a new Office forBudget Responsibility (OBR) has been set up.A new Spending Review has also been set inmotion and will report in the autumn. The

problems of Greece a highly indebtedeconomy with a Budget deficit close to that ofthe UK but with outstanding debt of 120% ofgdp (well in excess of the UKs 60% of gdp) -highlights the risk to countries of funding largedebt positions. Doing nothing would lay theUK open to the same sort of selling pressureon government bonds and hence severefunding problems, even if its financial positionis in reality stronger than that of Greece.

Doing nothing is not an optionTable 1 gives a summary of the coalitions main

policy announcements so far. In the

agreement reached between the two partiesmaking up the coalition, there is a phrase thatgives a good guide to what changes may be

made in the next Budget, namely: Newforecasts of growth and borrowing should bemade by an independent Office for BudgetResponsibility for this emergency Budget.Unfortunately, this increases the chance thatthe forthcoming Budget could be a lot tougherthan expected. The reasons are highlightedin chart a, for economic growth, and chart b,for the official path of the public financescompared to the consensus. It should benoted that whilst economic growth andborrowing this year are virtually the same asthe latest consensus (May 2010), the

projections differ sharply next year.

Chart b shows that independent forecastersexpect 12bn of more borrowing in 2011-12.The gap shows how powerful the effect offaster economic growth can be on the publicfinances. But equally it also highlights howdevastating slower economic growth could befor the path of public sector debt. For example,if economic growth were to be 1% lower eachyear over the next five years than in the March2010 Budget projection, the amount to beborrowed could be between 50-75bn higher

at the end of the current Parliament in 2015.

Chart b: Consensus expects a bigger deficit nextyear than HMT

Emergency Budget to beheld in 50 days...doingnothing is not an option

Office for BudgetResponsibility likely to betougher than theTreasury...

Chart a: Are official forecasts of GDP too high?

Table 1: Government economic policyannouncements

...but monetary policycould act as an offset

Deficit

- Significant accelerated reduction in the structuraldeficit

- Budget spending cuts of 6bn in 2010/11

- Emergency Budget to take place by end-June

Taxation

- "Substantial increase" in basic income taxthreshold (circa 10k)

- Rise in capital gains tax (40%?)

- Planned rise in employer NI threshold to go ahead

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Office for Budget Responsibility likely to betougher than the Treasury...I t is l ikely that the OBR wil l be moreconservative than the Treasury was at the timeof the March Budget, not least because the

downside risks to being able to finance adeficit have grown. If so, economic growthcould be revised down to be more in line withthe consensus. It may also assume a lowertrend rate of growth for the UK economy. Inaddition, there is a risk that the OBR will makemore conservative assumptions about taxreceipts (say from a weaker financial sector inthe next decade) than the Treasury did in theMarch Budget.

That too would raise the spectre of largerdeficits going forward than announced in the

March Budget. Therefore, if the new coalitiongovernment is serious about tackling thedeficit in a more aggressive manner than wasannounced in March, then the amount ofspending cuts and tax rises could be a lothigher than currently assumed.

Ultimately of course, the OBRs figures do nothave to be accepted by the Chancellor but itwould be odd if they were ignored withoutvery good reason. In fact, the OBR could makethe task of selling fiscal tightening easier, byshowing that the f igures come from anindependent body, though one appointed bythe government.

...but monetary policy could act as an offsetMore aggressive tightening would weakeneconomic growth in the short term, though itmight be partly or wholly offset by an easier

monetary policy stance. This implies that therecould be more QE. It also implies that interestrates could stay low for longer, despite thefact that a weakened currency could result inprice inflation staying higher near term than

thought previously.

The Bank of Englands latest Inflation Reportpaints a cautious picture of the prospects forthe UK economy. Although the MPCs near-term inflation projection was revised higher -reflecting the higher starting point for the CPI -the Committee noted that inflation was likelyto fall back to 2% over the medium term andacknowledged that the downside risks to GDPgrowth had increased. The recent volatility inasset markets, the problems in Greece,ongoing credit constraints and the prospect of

major balance sheet restructuring across thepublic and private sectors all posed risks tothe speed, magnitude and sustainability of theeconomic recovery.

What about sterling?Although the pound is currently under a lot ofselling pressure partly due to market worriesabout overly indebted countries generally, amove to t ighten the f iscal stance couldstrengthen it from its current position. One thingis for sure, the next few years look like theywill be very challenging for the public financesand for the economy.

Trevor Williams, Chief Economist

Chart d: UK fiscal deficit not falling fast enoughChart c: Cyclically adjusted deficit remains high, ataround 70bn

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4

UK inflation to fall back sharply over the

coming yearRecent inflation developments have raised thespectre of a possible resurgence of sustainedprice pressures in the UK. Since dropping to alow of 1.1% last September, the annual rate ofconsumer price inflation has risen to 3.4% (seechart a). CPI inflation has now been above the

governments 2% target for four consecutivemonths, with the move above 3% in Januaryprompting the BoE Governor to write an openletter of explanation to the Chancel lor,explaining the reasons for the overshoot andthe measures being taken to rectify it.

It has not only been CPI inflation that has risennoticeably. The rate of change of the broaderretail prices index, which includes housingcosts, has also rapidly reversed its previousdecline. Since posting outright deflation of

1.6% in June 2009, annual RPI inflation hasrisen to 4.4%, as the fall in mortgage rates inlate 2008 and early 2009 have dropped out ofthe annual comparison, and house priceshave recovered.

Against the backdrop of rising commodityprices, a weak exchange rate, a recovery ineconomic activity and unprecedented policystimulus, the rise in inflation has started tocreate some unease. There is particularconcern that the pick-up in inflation could leadhouseholds and businesses to anticipate

higher price increases in the future, setting intrain a possible upward spiral of cost-pushinflation.

Over the past year, survey and market basedmeasures of medium- and long-term inflationexpectations have remained relatively stable,although in recent months they have startedto creep higher (see chart b). The sharpestincrease has been in households expectationsof where inflation is likely to be in twelvemonths time. According to the our latest LloydsTSB Consumer Barometer, this measure ofinflation expectations has risen to 4.5% - a

rise of 2.1 percentage points since lastNovember (see chart b).

On the face of i t , the r ise in inf lat ionexpectations is concerning. Householdsinflation expectations, however, are heavilyinfluenced by the prevailing inflation rate - thecorrelation between the annual CPI andhouseholds twelve-month inf lat ionexpectations is 0.85. For short-term inflationexpectations, at least, the line of causationsuggests inflation expectations should fallover the coming months if price pressuresease.

So what is the outlook for inflation? Althoughthe risks have risen, our central view remainsthat inflation is likely to fall back sharply overthe next twelve to eighteen months. Theinfluences that have pushed inflation higherover the past six months appear to be mostly

temporary, such as unfavourable base effects,the reversal of the 2.5 percentage point cut inVAT in January and the lagged response of theconsumer price level to the rise in importprices. Unfavourable base effects have beenparticularly noticeable in fuel prices. Althoughfuel prices have risen sharply in recent months,the impact on the annual rate of inflation hasbeen magnified by the fall in fuel prices thistime last year.

Since inflation is a measure of the rate ofchange of prices, what matters for the inflation

outlook is not whether the price level of goodsand services rise over the next twelve months,but whether prices rise by more or less thanthey have over the past twelve months. Whilea further sharp fall in sterling, another rise inVAT and a renewed acceleration of fuel (andfood) prices cannot be ruled out, the most likelyoutcome is that the impact of these influenceswill steadily dissipate over the coming year.

More generally, the underlying forces shapingthe inflation outlook remain benign. As a resultof the economic downturn, the UK is operating

with significant spare capacity. This spare

While the fall in sterlingand rising commodityprices pose upside risks,the factors that havedriven inflation higher inrecent months are likelyto prove temporary

Chart a: CPI & RPI inflation turn higher

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The recent overshoot ofUK CPI inflation abovethe governments 2%target has raisedconcerns that risinginflation pressures couldbecome entrenched


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5

capacity is manifest in a substantial output gap,estimated to be around 5% of GDP. This sparecapacity is most clearly evident in the labourmarket, with the level of ILO unemploymentrising to a 14-year high of 2.5 mill ion inFebruary, or 8% of the labour force. The degreeof spare capacity in product and labourmarkets has kept wage inflation below 2 percent and has made it difficult for firms to raiseprices.

Still, there is little doubt that firms are facinggrowing cost pressures. The fal l in theexchange rate, coupled with the increase incommodity prices, has led to a substantialincrease in input price inflation. Over the pastyear, producer input prices have increased byover 10%. As the latest increase in the CPI andthe implied retail sales price deflator indicate,

some firms have started to try and pass onthese cost increases to protect their profits.This is particularly evident in goods prices,which are more sensitive to rising global rawmaterials costs than service sector prices.Having fallen sharply between 1999 and 2005,goods prices have risen by over 3% over thepast year, overtaking the rate of inflation forconsumer services (see chart c).

Looking ahead, the inflation outlook dependson whether these cost push inflation pressuresintensify and, if so, how successful firms are

at passing them on to consumers. While thereis a non-negligible r isk that import and

commodity price inf lat ion continues tointensify, input cost pressures are likely to beovershadowed by the reduction in unit wagecosts over the medium term. I t seemsreasonable to expect the labour market willcontinue to lag the recovery in economicoutput, just as it lagged during the economicdownturn. If so, productivity growth shouldrise. For a given level of wage growth, thisshould put downward pressure on unit wagecosts. As chart d shows, unit labour costs havealready started to decelerate in response tothe cyclical recovery in productivity and weexpect this trend to continue.

Overall, therefore, we remain of the view thatinflation pressures will ease sharply over themedium term. By the end of 2010 and 2011,CPI and RPI inflation are forecast to have fallen

to 2.0% and 2.7%, and to 1.2% and 2.2%,respectively. While the risks to inflation fromthe weakness of the exchange rate and risingglobal commodity prices should not beunderestimated, the underlying inf lat ionenvironment, remains, we believe, a benignone.

Adam Chester, Senior UK Macroeconomist

Chart c: Goods price inflation has picked up

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The degree of sparecapacity and a likely fallin unit labour costs areexpected to overshadowpotential price pressureselsewhere.

Overall, we expect CPIinflation to fall back

sharply in the secondhalf of the year, and tomove below 2% in 2011


8/16

Table 1: Main currency appreciation/depreciation inthe last month*, versus US$

* 14/04/10 - 14/05/10

Biggestrisers

Biggestfallers

Summary of main changes in the past monthHeightened concerns that the debt crisis inGreece could spill over and threaten the fragileglobal recovery saw policy makers take drasticsteps earlier this month to restore marketconfidence. After sustained selling pressure onthe euro, with /$ dropping below 1.26 for thefirst time since March 2009, the EU announceda substantial aid package, amounting to closeto $1 trillion of financial assistance together withadditional market support measures from theECB and the re-opening of liquidity swap lineswith the Fed and major central banks. Althoughthe package was initially well received, in largepart reflecting its size, concerns that it representsonly a temporary fix to the problem have keptfinancial markets nervous, while /$ recentlydropped below 1.23 from close to 1.31. The tableopposite shows the best and worst performersversus the US dollar across global currencymarkets last month.

In addition to safe-haven flows, the dollar wasalso supported by continuing positive economicnews in the past month. Non farm payrolls roseby 290,000 in April the most since March 2006 while retail sales and industrial productionnotched up solid gains for the seventh and tenthconsecutive months, respectively. With thenotable exception of the yen, the US dollar roseagainst its main counterparts last month.

In the UK, the General Election delivered the firsthung parliament since 1974, with no politicalparty managing to secure an outright majority.Although not unexpected, the result saw sterlingcome under selling pressure. After a few twistsand turns, a coalition government the first sincethe Second World War was formed betweenthe Conservative party and the LiberalDemocrats. The new government hasemphasised that tackling the large budget deficitwill be its primary focus, with an emergencyBudget announced for June 22nd. Although datasuggested that UK Q1 GDP may be revisedslightly higher, the latest Bank of England InflationReport said that downside risks to growth in thenear term had increased and that inflation wasmore likely be below target than above it overthe forecast period. This led financial markets topare back interest rate expectations for the yearahead. The pound recently slid below $1.43against the US dollar.

Emerging market currencies came under sellingpressure last month, with those more closely

aligned with the euro zone bearing the brunt.The Polish zloty, Czech koruna and Hungarianforint all posted falls in excess of 10% versus theUS dollar last month. The crisis in Europe hasdented expectations of an imminent revaluationof the Chinese yuan.

Chart a: Global equity markets under pressure...

Chart b: ...while government bond yields slide onsafe-haven bid

International Financial Forecast Commentary

The euro posted a sharpdecline last month as thesovereign debt crisis inEurope intensified

Japanese yen +1.0%Malaysian ringgit -0.1%

Thai baht -0.4%Argentine peso -0.5%New Zealand dollar -0.6%Philippine peso -0.6%Taiwanese d ollar -0.8%Singapore dollar -0.9%Indonesian rupiah -1.4%Indian rupee -1.7%

Hungarian forint -13.8%Polish zloty -12.4%Czech koruna -10.7%Romanian leu -10.0%

Euro -9.0%Danish krone -9.0%Swedish krona -7.7%Swiss franc -6.7%Norwegian krone -6.1%British pound -5.8%

After rallying initially on anew EU-led aid package,/S fell recently below1.23 from 1.35 last month

After an inconclusiveelection result, the UKhas its first coalitiongovernment in over 70years.

6

The US dollar postedsolid gains against mostof its main counterpartslast month, with thedollar index recentlyspiking through 87.0

The latest Bank ofEngland Inflation Reportproved more dovish thanexpected, leadingmarkets to pare backtheir interest rateexpectations

Eastern Europeancurrencies sold off

sharply last month asprospects for the eurozone were reassessed

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9/16

Chart c: /$ forecast to remain below 1.50

Chart d: /$ predicted to fall to 1.22 by end-2010

Chart f: $/Y to trend higher in coming months

Chart e: / forecast at 1.18 at end-2010

Currency forecast summariesDeveloped countries

Sovereign debt concernshave pushed the euro toa four-year low againstthe US dollar

7

The unfolding drama in Greece continues todominate the worlds developed currencymarkets, as fears of contagion intensify. Despitethe efforts of the euro-zone and IMF to stem thecrisis, currency speculators have shown littlesign of being appeased. It seems the marketsremain unconvinced that the new aid packagewill be enough to bring the crisis to an end.However, since the aid was announced, Greek5-yr senior CDS spreads have narrowed sharplyfrom a record high at around 940bp. The CDS ofSpain, Portugal and Ireland have also tightenedon confidence that the problems in Greece maynot precipitate a full-blown sovereign debt crisis.

The euro has been an immediate and obviouscasualty. The single currency hit a four-year lowagainst the US dollar, briefly touching 1.2235.Even sterling, in the face of the most uncertainUK general election in a generation took onsomething of a safe-haven status against theeuro in the run-up to the election, with / hittinga recent high of 1.1864. One-month implied vol.of EUR/USD has risen from a recent low of justover 6% in mid January to over 15% currently. Itis now trading only slightly below the impliedone month vols. of the South African rand andthe Mexican Peso.

Looking ahead, the fortunes of the euro are likelyto rest on the success, or otherwise, of the effortsto stem the crisis. We are hopeful that over thecoming days and weeks, sentiment towards theeuro should start to improve, although this mayrequire more aggressive and co-ordinatedaction - including, in extremis, the purchase ofGreek government bonds by the ECB.Nevertheless, the crisis will leave its mark. Theeuro-zone was lagging the global recoverybefore the problems in Greece erupted. Thedirect and indirect costs of the support operationsrepresent an additional tax on euro-zonegrowth. Moreover, the fiscal crisis has served to

expose a major fault-line in the single currency- namely, the need for a credible and bindingfiscal, as well as monetary, rules. Unless this iscredibly addressed, investors may demand apermanently higher risk premium for holdingeuros and euro-denominated debt in the future.Given this, we have revised down our mediumterm view for the euro, with /$ forecast to be at1.20 by Mid-2011.

The US dollar and traditional safe-havens, suchas the Swiss franc and yen, have been clearbeneficiaries of the crisis in Greece. The US

dollar, in particular, looks well placed to makefurther gains aided, by ongoing signs of USrecovery. Athough the Fed remains committedto keeping US interest rates low, we believe thesteady withdrawal of liquidity support is likely tobe a precursor to a rise in US interest rates later

The euros fortunes reston the success, orotherwise, of the supportmeasures taken toaddress the crisis - moreis likely to be required

The crisis has exposed afundamental fault-line inthe euro, namely theneed for credible fiscal,as well as monetary,arrangements

The US dollar looks wellpositioned to post furthergains on growth, interest

rate and safe-havenflows

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1.16

1.18

1.20 Euro to UK

2009

ActualForecast

2010

M J J A S O N D J F M A M J J A S O N D86

88

90

92

94

96

98

100Japanese yen to US$

Actual

2009

Forecast

2010


10/16

Chart g: Global growth fears weigh on A$

Chart h: Cad under pressure as crude oil slides

Sterling vulnerable tofurther speculative attackif a credible deficitreduction plan is notforthcoming

8

this year. On growth, interest rate and safe-havenflows, the US dollar looks well positioned to makefurther gains over the coming months.

The pound has been caught between the weakeuro and the strong dollar, although the electionresult has removed a key source of risk anduncertainty. However, the UK currency risksfalling prey to renewed speculative attacks,

particularly if the new coalition government failsto deliver a credible and binding deficit-reductionplan. As with the euro, heightened political, fiscaland economic risk is likely to weigh on sterlingin the medium-term. We have retained our end-year forecast for GBP/USD at 1.44. The outlookfor GBP/EUR is a more difficult call. While bothcurrencies face their own set of risks, sterlingremains undervalued against the euro. As such,we have raised our target for GBP/EUR to 1.18 bythe end of the year.

Apart from the majors, the commodity currencies

have also experienced heightened volatil ity. Boththe Can$ and A$ have pared back some of theirrecent gains in recent weeks, largely in responseto a fall in commodity prices and renewed riskaversion. Based on our valuation models, weremain cautious about the outlook for bothcurrencies, although the downside for the A$ islikely to be limited by the prospect of furtherinterest rate hikes over the year ahead.

US$/Australian $

N JM J J A S O1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

Actual

20 day moving average

20102009

D F M A M

Canadian $ to US $

JDM J J A S O N0.95

1.00

1.05

1.10

1.15

1.20

Actual


20102009

F M A M

Chart j: ...to a lesser extent, the RUB has also beencaught up in euro-zone woes

Chart i: The HUF has been hard-hit bydevelopments in Greece and the wider euro-zone...

Emerging market summaryEmerging market currencies have weakenedagainst the US dollar, which has benefited fromthe flight from the euro amid concerns about itsstability - the recent 750bn euro-zone rescuepackage notwithstanding. Emerging Europeancurrencies have been particularly hard-hit.

Emerging EuropeEmerging European countries a number ofwhich have aspirations to join the euro at somestage - have seen their currencies hit hard byrecent developments in Greece. Credit ratingdowngrades for Greece, Portugal and Spain have

raised some awkward questions in financialmarkets about the stability of the euro area itself.The Hungarian forint has fallen most against theUS dollar since our last Outlook (by -13.2%),followed by the Polish zloty and Romanian Leu.To a lesser extent, the Russian rouble has alsobeen affected by problems relating to Greece. Ithas lost around 5% versus the USD, havingpreviously benefited from an oil-led turnaroundin fortunes. But on an encouraging note, Russiahas returned to international bond markets forthe first time in around a decade. As far as our $/RUB forecast is concerned, a broadly positive

outlook for the rouble is offset to some degreeby an expected recovery in the USD as the USrecovery becomes better established. Our $/RUB forecast is 29.49 by end-2010.

Emerging Europeancurrencies have beenespecially hard by recentconcerns over thestability of the euro-

zone...

US$/Russian rouble

M J J A S28.5

29.0

29.530.0

30.5

31.0

31.5

32.0

32.5

33.0

33.5

Actual


2009 2010O N D J F M A M

US$/Hungarian forint

170

180

190

200

210

220

230

240

250

260

Actual


20102009

M J J A S O N D J F M MA


11/16

Chart k: Imminent renminbi revaluation by the PBoCseems to have gone off the boil as a topic

Chart l: After being allowed to appreciate by theMAS, the SGD has lost some ground versus USD

Chart m: The INR has fallen victim to a strengtheningUSD...

Chart n: ...as has the BRL, despite a bigger-than-expected increase in key policy interest rate...

China has introducednew policy tighteninginitiatives designed tocool housing marketactivity...

Jeavon Lolay, Adam Chester, Mark Miller

Emerging AsiaCompared with our April Outlook, the topic of anear-term revaluation in the Chinese renminbiversus the USD appears to have gone off theboil. It has been replaced by the rapid growth ofChinas domestic economy, in particular, soaringhouse prices. This has prompted the Chineseauthorities to introduce various policy tightening

measures such as raising the minimum depositrequired for first and second home purchases.With GDP in China rising by a hefty 11.9% in theyear to 2010Q1, we still feel that a strongerrenminbi would provide much-needed policytightening, while helping to address globalimbalances. But it is the pace of credit expansionin China which needs to be tackled. With globaleconomic recovery still in its infancy, the PBoCremains reluctant to raise its main 1-year lendingrate (currently at 5.31%). So higher bank reserverequirements (alongside property measures asnoted above) are likely to be the policy tools of

choice, at least in the short term. The PBoC hasagain raised the reserve ratio for large banks,this time to 17%. We do look for a policy shift to asustained renminbi appreciation, although wesee this as a story for later this year. Our end-2010 $/CNY forecast is 6.61.

With the exception of the Singapore dollar, Asiancurrencies have fallen modestly versus the USDsince Aprils Outlook. For much of this time, theSingapore dollar had exhibited significant gainsafter the decision by the Monetary Authority ofSingapore (MAS) to allow currency appreciation

to control rapid economic growth and risinginflation pressures. But recent USD strength,reflecting risk aversion on the back of concernsin the euro-zone, has limited the extent of thesegains. Finally, the Reserve Bank of India (RBI)raised its repo and reverse repo rate by 25bp, ina move widely anticipated by markets. Goingforward, we look for further RBI rate tighteningduring this year and into next. Our end-2010 $/INR projection stands at 44.26.

Latin AmericaUntil very recently, the Brazilian real had been

the only Latin American currency to appreciateversus the US dollar since our last Outlook. Butagain, broad-based USD strength has changedthis despite a bigger-than-expected 75bpincrease in Brazils key Selic rate, to 9.5%. Brazilseconomy is expanding at a healthy pace, but isnow coming up against capacity constraints sofuelling inflation pressure. Despite positiveeconomic fundamentals, we think the Brazilianreal will be generally stable against the USD aswe move towards the end of this year. Our end-2010 $/BRL forecast remains at 1.74. Elsewherein the region, other under-performers include

the Mexican and Chilean peso and to a lesserextent, the Colombian peso.

Until the recent fears ofeuro-zone instability,many Asian currencieshad actually beenappreciating versus the

USD...

9

The Brazilian real has

fallen by around 2.8%against the US dollarsince our last Outlook,despite a bigger-than-expected (75bp) increasein the key Selic rate...

2009 20106.8

7.0

7.2

7.4

7.6

7.8

8.0 Chinese yuan to US$

Actual


2008

US$/Singapore $

M J J A S1.36

1.38

1.40

1.42

1.44

1.46

1.48

1.501.52

1.54

1.56

Actual


2009 2010

O N D J F M A M

Indian rupee to US$

JM J J A S O

44

45

46

47

48

49

50

Actual


20102009N D F AM M

M J J A S O N D J F M A M1.65

1.70

1.751.80

1.85

1.90

1.95

2.00

2.05

2.10

2.15

2.20 Brazilian real to US$

Actual


20102009


12/16

17 May 2010US - Fed funds (target)

US - 3-month (offer)

US - 3yr swap rate (mid)

US - 5yr swap rate (mid)

Japan - overnight call rate

Japan - 3-month (offer)

UK - Base rate

UK - 3m (offer)

UK - 3yr swap rate (mid)

UK - 5yr swap rate (mid)

Euro 16 - Repo rate

Euro 16 - 3-month (offer)

Euro-16 - 3yr swap rate (mid)

Euro-16 - 5yr swap rate (mid)

Deve ope countries$ SDREffective

Euro

$

EffectiveEuro

Yen $

Euro

Euro $

Aus $ $

Euro

Can $ $Euro

Dkr $

Euro

NZ $ $

Euro

Nkr $

Euro

Skr $Euro

Sfr $Euro

Exchange rates (mid-point):

International Financial Market Forecasts - May 2010

3.09 6.09 9.09 12.09 3.10 6.10 9.10 12.10 3.11 6.11 9.11 12.11

actual actual actual actual actual

0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.75 1.25 2.00 2.50 3.25

1.20 0.60 0.29 0.25 0.29 0.35 0.85 1.33 2.13 2.63 3.38 3.88

1.69 2.12 1.88 2.07 1.80 1.70 2.20 3.10 3.70 4.10 4.70 5.10

2.23 2.94 2.65 2.98 2.73 2.54 2.92 3.30 3.80 4.30 4.70 5.20

0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.25 0.50 0.50

0.84 0.60 0.35 0.28 0.25 0.25 0.25 0.30 0.43 0.68 0.68 0.88

0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75 1.00 1.25 1.50

1.80 1.22 0.54 0.61 0.65 0.70 0.75 0.85 1.10 1.43 1.68 1.93

2.48 2.98 2.51 2.65 2.06 2.00 2.70 3.10 3.30 3.70 4.00 4.20

3.02 3.67 3.24 3.39 2.83 2.75 3.15 3.55 4.00 4.30 4.70 4.90

1.50 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.25 1.50 2.00

1.51 1.09 0.71 0.66 0.58 0.62 0.70 0.80 1.33 1.66 2.16 2.66

2.14 2.25 2.13 2.25 1.79 1.60 2.00 2.90 3.30 3.60 4.10 4.40

2.67 2.86 2.71 2.81 2.39 2.25 2.80 3.10 3.60 4.10 4.40 4.50

0.67 0.65 0.63 0.64 0.66 0.68 0.68 0.69 0.70 0.70 0.70 0.69

92.2 86.8 82.1 83.0 84.4 86.3 87.8 89.7 92.2 93.1 93.6 92.7

0.75 0.71 0.68 0.70 0.74 0.79 0.80 0.82 0.83 0.83 0.83 0.82

1.43 1.65 1.60 1.61 1.52 1.48 1.47 1.44 1.38 1.40 1.41 1.45

76.3 83.8 78.9 80.5 77.9 79.4 79.2 78.5 78.3 78.3 78.3 78.7

1.08 1.17 1.09 1.13 1.12 1.18 1.18 1.18 1.15 1.16 1.18 1.19

99 96 90 93 93 93 94 96 98 100 102 101

142 159 143 150 142 138 138 138 135 140 144 147

131.1 135.3 130.9 133.6 126.4 117.2 117.5 117.1 117.6 120.0 122.4 123.2

1.33 1.40 1.46 1.43 1.35 1.26 1.25 1.22 1.20 1.20 1.20 1.220.93 0.85 0.91 0.89 0.89 0.85 0.85 0.85 0.87 0.86 0.85 0.84

1.44 1.24 1.13 1.11 1.09 1.11 1.14 1.16 1.20 1.20 1.23 1.25

2.06 2.04 1.81 1.80 1.65 1.65 1.67 1.67 1.65 1.67 1.74 1.82

1.91 1.74 1.66 1.60 1.47 1.40 1.42 1.42 1.44 1.44 1.48 1.53

1.26 1.16 1.07 1.05 1.01 1.01 1.05 1.07 1.12 1.14 1.14 1.15

1.80 1.91 1.72 1.69 1.54 1.50 1.54 1.54 1.54 1.59 1.61 1.67

1.67 1.63 1.57 1.50 1.37 1.27 1.31 1.31 1.34 1.37 1.37 1.40

5.61 5.31 5.09 5.19 5.50 5.91 5.95 6.10 6.21 6.21 6.21 6.11

8.04 8.74 8.15 8.37 8.34 8.76 8.75 8.76 8.56 8.66 8.76 8.87

7.45 7.45 7.45 7.44 7.44 7.44 7.44 7.45 7.45 7.45 7.45 7.45

1.75 1.54 1.38 1.37 1.41 1.41 1.43 1.45 1.47 1.50 1.52 1.53

2.51 2.54 2.21 2.22 2.14 2.09 2.10 2.08 2.03 2.10 2.14 2.22

2.33 2.17 2.02 1.97 1.91 1.77 1.79 1.77 1.76 1.80 1.82 1.86

6.75 6.44 5.80 5.78 5.94 6.18 6.24 6.37 6.50 6.52 6.60 6.51

9.68 10.60 9.28 9.33 9.00 9.16 9.18 9.15 8.97 9.09 9.32 9.45

8.96 9.03 8.48 8.29 8.03 7.79 7.80 7.77 7.80 7.82 7.93 7.94

8.27 7.75 6.99 7.14 7.20 7.58 7.62 7.79 7.88 7.68 7.66 7.34

11.85 12.76 11.18 11.53 10.92 11.24 11.21 11.18 10.86 10.71 10.81 10.67

10.98 10.87 10.22 10.24 9.74 9.55 9.53 9.50 9.45 9.21 9.19 8.96

1.14 1.09 1.04 1.03 1.05 1.11 1.12 1.15 1.17 1.18 1.18 1.18

1.63 1.79 1.66 1.67 1.60 1.65 1.65 1.65 1.61 1.64 1.67 1.71

1.51 1.53 1.52 1.48 1.42 1.40 1.40 1.40 1.41 1.41 1.42 1.44

10


13/16

17 May 2010Emerging market EuropeCzech koruna $

Euro

Hungarian forint $

Euro

Polish zloty $

Euro

Romanian leu $Euro

Russian rouble $

Euro

merg ng mar et s aChinese renminbi $

Euro

HK$ $

Euro

Indian rupee $Euro

Indonesian rupiah $Euro

M ringgit $

Euro

Philippines peso $

Euro

Sing $ $Euro

South Korean won $

Euro

Taiwan $ $

Euro

Thai baht $

Euro


3.09 6.09 9.09 12.09 3.10 6.10 9.10 12.10 3.11 6.11 9.11 12.11


20.67 18.55 17.32 18.40 18.78 20.19 20.14 20.43 20.55 20.28 20.01 19.41

29.63 30.54 27.70 29.72 28.48 29.93 29.62 29.33 28.34 28.29 28.25 28.19

27.45 26.01 25.31 26.41 25.41 25.44 25.18 24.93 24.66 24.33 24.01 23.68

232.4 194.3 184.8 188.3 196.4 216.9 210.4 213.1 215.0 211.4 209.3 204.3

333.0 319.9 295.6 304.2 297.9 321.5 309.4 305.9 296.6 295.0 295.4 296.8

308.5 272.5 270.2 270.2 265.7 273.2 263.0 260.0 258.0 253.7 251.1 249.3

3.52 3.18 2.90 2.86 2.85 3.14 3.04 3.10 3.10 3.05 3.01 2.92

5.05 5.24 4.64 4.62 4.33 4.66 4.47 4.45 4.28 4.26 4.25 4.24

4.67 4.46 4.24 4.11 3.86 3.96 3.80 3.78 3.72 3.66 3.62 3.56

3.19 3.00 2.89 2.95 3.03 3.31 3.26 3.32 3.37 3.34 3.32 3.25

4.58 4.94 4.62 4.77 4.59 4.91 4.79 4.76 4.64 4.66 4.68 4.72

4.24 4.21 4.22 4.23 4.10 4.17 4.07 4.05 4.04 4.01 3.98 3.97

34.01 31.29 30.09 30.24 29.36 30.36 29.75 29.49 29.66 29.73 29.61 29.48

48.13 51.68 47.73 48.04 44.20 45.01 43.75 42.33 40.91 41.48 41.80 42.82

45.03 43.72 43.92 43.49 39.81 38.25 37.19 35.98 35.59 35.68 35.53 35.97

6.83 6.83 6.83 6.83 6.83 6.72 6.67 6.61 6.55 6.50 6.43 6.38

9.79 11.25 10.92 11.02 10.35 9.96 9.81 9.49 9.03 9.07 9.08 9.27

9.07 9.58 9.98 9.80 9.24 8.47 8.34 8.06 7.86 7.80 7.72 7.78

7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75

11.11 12.76 12.40 12.52 11.76 11.49 11.40 11.12 10.69 10.81 10.94 11.26

10.29 10.87 11.33 11.13 10.49 9.77 9.69 9.46 9.30 9.30 9.30 9.46

50.74 47.91 48.11 46.54 44.90 45.11 44.63 44.26 44.00 43.73 43.53 43.40

72.72 78.89 76.94 75.15 68.10 66.87 65.63 63.53 60.69 61.02 61.45 63.03

67.36 67.19 70.32 66.77 60.75 56.84 55.79 54.00 52.80 52.48 52.24 52.95

11555 10208 9665 9395 9100 9073 9069 9056 9042 9011 9073 9069

16562 16810 15458 15172 13803 13449 13337 12998 12472 12573 12809 13172

15342 14318 14127 13479 12313 11432 11336 11048 10850 10813 10888 11064

3.65 3.52 3.46 3.42 3.26 3.21 3.24 3.20 3.18 3.17 3.16 3.16

5.23 5.79 5.54 5.53 4.95 4.76 4.76 4.59 4.39 4.42 4.46 4.59

4.84 4.93 5.06 4.91 4.41 4.04 4.05 3.90 3.82 3.80 3.79 3.86

48.33 48.13 47.38 46.23 45.19 45.05 44.85 44.45 44.81 44.85 44.89 44.94

69.27 79.25 75.78 74.65 68.55 66.78 65.96 63.80 61.81 62.58 63.37 65.27

64.16 67.50 69.26 66.33 61.15 56.76 56.06 54.23 53.77 53.82 53.87 54.83

1.52 1.45 1.41 1.40 1.40 1.38 1.37 1.37 1.36 1.35 1.35 1.36

2.18 2.38 2.25 2.27 2.12 2.05 2.02 1.96 1.87 1.88 1.91 1.98

2.02 2.03 2.06 2.01 1.89 1.74 1.72 1.67 1.63 1.62 1.62 1.66

1383 1274 1178 1164 1131 1121 1103 1085 1070 1064 1058 1052

1983 2098 1884 1880 1716 1662 1622 1557 1476 1485 1494 1528

1837 1787 1722 1671 1531 1412 1379 1324 1284 1277 1270 1283

33.91 32.81 32.15 31.99 31.76 31.54 31.24 30.94 30.60 30.28 29.94 29.12

48.61 54.03 51.42 51.65 48.17 46.75 45.94 44.41 42.21 42.25 42.27 42.2945.02 46.02 46.99 45.89 42.97 39.74 39.05 37.75 36.72 36.34 35.93 35.53

35.47 34.07 33.41 33.34 32.34 32.29 32.20 32.18 31.98 31.90 31.93 31.84

50.83 56.11 53.43 53.84 49.05 47.87 47.35 46.19 44.11 44.51 45.08 46.24

47.09 47.79 48.84 47.83 43.75 40.69 40.25 39.26 38.38 38.28 38.32 38.84

11


14/16

17 May 2010

Vietnamese dong $

Euro

Emerging market AmericasArgentinian peso $

Euro

Brazlian real $Euro

Chilean peso $

Euro

Mexican peso $

Euro

Venezuelan bolivar $Euro

Emerging markets - other majorsIsraeli shekel $

Euro

Saudi riyal $Euro

SA rand $Euro

Turkish lira $

Euro

UAE dirham $

Euro


3.09 6.09 9.09 12.09 3.10 6.10 9.10 12.10 3.11 6.11 9.11 12.11


17797 17773 17841 18474 19090 19050 19015 18990 18500 18570 18300 18250

25509 29269 28533 29833 28958 28239 27963 27256 25517 25912 25835 26506

23629 24929 26077 26506 25831 24003 23769 23168 22200 22284 21960 22265

3.72 3.80 3.84 3.80 3.88 3.90 3.89 3.89 3.89 3.92 3.94 3.96

5.32 6.25 6.15 6.14 5.88 5.77 5.71 5.58 5.37 5.47 5.56 5.75

4.93 5.32 5.62 5.45 5.25 4.91 4.86 4.74 4.67 4.70 4.73 4.83

2.30 1.96 1.78 1.74 1.78 1.79 1.75 1.74 1.78 1.78 1.76 1.77

3.30 3.23 2.85 2.82 2.71 2.65 2.57 2.50 2.46 2.48 2.48 2.57

3.06 2.75 2.60 2.50 2.41 2.26 2.19 2.12 2.14 2.14 2.11 2.16

582.3 531.3 550.2 507.3 524.8 529.3 520.3 518.0 520.0 522.0 530.0 538.5

834.6 874.9 880.0 819.1 796.0 784.5 765.1 743.5 717.2 728.4 748.2 782.1

773.1 745.2 804.2 727.8 710.0 666.9 650.3 632.0 624.0 626.4 636.0 657.0

14.10 13.17 13.51 13.06 12.33 12.42 12.45 12.55 12.89 12.93 12.90 12.91

20.21 21.69 21.60 21.08 18.70 18.41 18.31 18.01 17.78 18.04 18.21 18.75

18.72 18.47 19.74 18.73 16.68 15.65 15.56 15.31 15.47 15.52 15.48 15.75

2.15 2.15 2.15 2.15 4.29 4.29 4.29 4.30 4.30 4.30 4.36 4.40

3.08 3.54 3.43 3.47 6.51 6.36 6.31 6.17 5.93 6.00 6.16 6.39

2.85 3.01 3.14 3.08 5.81 5.41 5.36 5.25 5.16 5.16 5.23 5.37

4.22 3.92 3.78 3.79 3.69 3.75 3.70 3.65 3.67 3.68 3.69 3.75

6.05 6.46 6.04 6.12 5.60 5.56 5.44 5.24 5.06 5.13 5.21 5.45

5.60 5.50 5.52 5.43 5.00 4.73 4.63 4.45 4.40 4.42 4.43 4.58

3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75

5.38 6.18 6.00 6.06 5.69 5.56 5.51 5.38 5.17 5.23 5.29 5.45

4.98 5.26 5.48 5.38 5.07 4.73 4.69 4.58 4.50 4.50 4.50 4.58

9.51 7.72 7.58 7.36 7.34 7.48 7.39 7.50 7.52 7.55 7.69 7.82

13.63 12.72 12.12 11.89 11.14 11.09 10.87 10.76 10.37 10.53 10.86 11.36

12.63 10.83 11.08 10.57 9.94 9.42 9.24 9.15 9.02 9.06 9.23 9.54

1.67 1.54 1.49 1.50 1.52 1.52 1.51 1.49 1.44 1.44 1.43 1.40

2.40 2.53 2.38 2.42 2.31 2.25 2.22 2.14 1.99 2.01 2.02 2.03

2.22 2.15 2.17 2.15 2.06 1.92 1.89 1.82 1.73 1.73 1.72 1.71

3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67

5.26 6.05 5.87 5.93 5.57 5.44 5.40 5.27 5.06 5.12 5.18 5.33

4.88 5.15 5.37 5.27 4.97 4.62 4.59 4.48 4.40 4.40 4.40 4.48

12


15/16

Lloyds TSB Corporate Markets provides comprehensive expertfinancial services to businesses ranging from privately-ownedfirms to multinational corporations and financial institutions.

As well as offering the expertise and capabilities ourclients need to compete successfully in themarketplace, we are proud of the relationships webuild with our customers. We work closely with themto understand their business and offer the bestfinancial solutions to meet their distinctive needs.

The wide range of services and innovative solutionswe can deliver includes:

Dedicated relationship banking

Capital market funding

Debt and equity finance

Treasury and risk management services

Structured finance solutions

Asset finance Leasing

Company registration and employee share schemes

Competitive e-trading facilities

Import and export trade finance

Tailored cash management solutions

Structured credit investments and securitisation facilities

Editorial comments to: Trevor Williams

Chief EconomistLloyds TSB Corporate Markets

Economic Research

10 Gresham Street

London, EC2V 7AE

Tel: +44 (0)20 7158 1748

Contributors:Adam Chester

Senior UK Macroeconomist

Jeavon Lolay

Senior Global Macroeconomist

Mark Miller

Global Macroeconomist

Hann-Ju Ho

Senior Sector Economist

Carl Paraskevas

Sector Economist

Kenneth Broux

Market Economist

Nikesh Sawjani

Information Manager

Caroline McDonagh

Graphic Designer

Corporate Customer Sales

Andrew Willett +44 (0)20 7158 [email protected]

Kathryn Ball +44 (0)20 7158 [email protected]

Capital Markets Distribution

Martin Bates +44 (0)20 7158 1783

[email protected]

Commercial Sales

Matt Lawrence +44 (0)20 7158 [email protected]

Wealth Product Sales

Andrew Evans +44 (0)20 7158 [email protected]

Sarah Saigol +44 (0)20 7574 [email protected]

Jamie Smith +44 (0)20 7158 [email protected]

Lloyds TSB Corporate Markets Economic Research canbe accessed:

Online: http://www.lloydstsbcorporatemarkets.com

Bloomberg: LLOY


16/16

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International Financial Outlook- Lloyds TSB-MAY