May 10, 2016 Global Markets Roundup NBG Economic Research ... · Q1:2016 (1.6% yoy) from 0.3% qoq (1.6% yoy) in Q4:2015. Available details to date reveal broad based gains, with domestic

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US nonfarm Payrolls monthly change

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US Nonfarm Payrolls '000

Source: Bloomberg

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Corporate loans

Consumer loans

Fed Senior Loan Officer Opinion Survey

Net % of Banks reporting tightening in credit standards% %

Tightening

Easing

Source: Fed, data as of Q1:16

May 10, 2016

Global Markets Roundup NBG Economic Research Division

Equities suffer due to mixed economic data and heightened policy uncertainty

Paul Mylonas, PhD NBG Group

Chief Economist 210-3341521

[email protected]

Ilias Tsirigotakis Head of

Global Markets Research

210-3341517 tsirigotakis.hlias

@nbg.gr

Panagiotis Bakalis 210-3341545 mpakalis.pan

@nbg.gr

Lazaros Ioannidis 210-3341553

ioannidis.lazaros @nbg.gr

Vasiliki Karagianni

210-3341548 karagianni.vasiliki

@nbg.gr

Ch

art

s o

f th

e w

eek

See disclosures and analyst certification on last page.

US job growth decelerated in April, with nonfarm payrolls (NFPs) increasing by a still strong 160k from 208k in March and a 12-month average of 224k. Lower NFPs in the government sector accounted for the lion’s share of the deceleration (-11k in April following average gains of +16k in Q1:2016).

The unemployment rate remained unchanged at 5.0%, despite the fact that the participation rate declined to 62.8% in April from 63.0% a month earlier, as household employment -- which also includes self-employed and agricultural workers -- declined by 316k (+1.7% yoy).

Wage increases for all employees in the private nonfarm sector picked up. Average hourly earnings increased by 0.3% mom in April from a gain of 0.3% mom in March. As a result, the annual change in earnings was 2.5% yoy.

Overall, the pace of job growth, albeit decelerating, remains consistent with a further decline in the unemployment rate by the end of 2016, assuming that the participation rate remains around its current levels. The biggest risk, however, is a lagged response by companies to the weakness in economic activity.

US GDP weakened in Q1:2016 (0.5% qoq saar), following growth of 2.4% qoq saar, on average, during the past three quarters. Private consumption decelerated to 1.9% qoq saar from 2.4% qoq saar, while business investment contracted by 5.9% qoq saar -- the worst quarterly outcome since Q2:09 -- mainly due to cutbacks in the energy and mining sectors.

More worryingly, according to the Fed’s Senior Loan Officer Opinion Survey (SLOOS), US banks tightened standards for corporate loans for a third consecutive quarter in Q1:2016 (+12% from +8% in Q4:15), due to a less favorable economic outlook and industry-specific headwinds (e.g. in the energy sector) (see graph). Banks have also tightened standards for commercial real estate (CRE) loans.

On the other side of the Atlantic, euro area real GDP surprised on the upside, increasing by 0.6% qoq in Q1:2016 (1.6% yoy) from 0.3% qoq (1.6% yoy) in Q4:2015. Available details to date reveal broad based gains, with domestic demand remaining the main driver of the recovery. Spain (+0.8% qoq) and France (+0.5% qoq) reported strong gains, while Q1:16 GDP reports for Germany and Italy are expected on Friday.

Euro area domestic demand has found support, inter alia, from improving bank credit conditions. The annual change of euro area bank loans to households (1.6% yoy) and non-financial corporates (1.1% yoy) in March accelerated to the highest level since Q4:2011. A slightly expansionary fiscal policy (in 2015 and 2016), following years of consolidation, also acts as a tailwind.

However, heightened policy uncertainty -- the UK referendum on June 23rd, Spanish elections on June 26th following the inconclusive elections of December 2015, Italian banking sector woes -- alongside unexpected weakness in earnings performance have worsened euro area sentiment for equities (Eurostoxx Q1:2016 EPS at -10% yoy, with 64% of firms having reported so far). Indeed, the Eurostoxx index declined by 2.6% during the past week (-8.6% y-t-d).

Japanese equities followed suit, with the Nikkei 225 declining by 3.4% wow (-15.4% y-t-d) in the aftermath of the BoJ decision to remain on hold, despite its weaker inflation and GDP projections. Increasing doubts over the stabilization of Chinese growth (CSI 300 down by 5% cumulatively on Friday/Monday), amplified by weak imports (-10.9% yoy) and a decline in the PMI (by 0.3 pts to 49.4), hurt sentiment as well.

The S&P500 overperformed in relative terms (-0.4% wow / +0.6% y-t-d) with the earnings season, so far, broadly in line with consensus estimates (S&P500 Q1:2016 EPS at -8% yoy).

As risk-off sentiment prevailed, government bond yields fell across the board, with 10-Yr US yields down by 5 bps to 1.78% and German 10-Yr yields declining by 13 bps to 0.14%. UK Gilts declined by 18 bps to 1.42% as a poor PMI confirmed the loss of momentum, increasing at the same time the likelihood of a “low-for-longer” BoE.

Greek Government Bond yields (10Yr) fell by 13 bps wow, and by a further 71 bps on Tuesday to 7.72%. The Government passed crucial pension and tax reforms on Sunday (153 votes out of 300), opening the door for the conclusion of the first review of the programme and setting a productive stance for the debt relief discussion.

NBG Economic Research Division May 10, 2016

2

Economics

US real GDP growth was subdued in Q1:16, increasing by

0.5% q-o-q saar (2.0% y-o-y) from 1.4% q-o-q saar (2.0% y-o-y)

in Q4:15. A weak outcome had been expected, as soft retail

sales data in the recent months signaled a deceleration in

consumption. Moreover, poor capital expenditure data due to

low oil prices pointed to weaker business fixed investment.

Finally, weak external demand combined with the strong dollar

weighed on exports. Private consumption rose by 1.9% q-o-q

saar (2.7% y-o-y), from 2.4% q-o-q saar (2.7% y-o-y) in Q4:15,

adding 1.3 pps to overall growth. The ongoing housing market

recovery supported residential investment, which remained solid at

14.8% q-o-q saar (10.6% y-o-y) compared with 10.1% q-o-q saar

(9.4% y-o-y) in Q4:15, adding 0.5 pps to growth. Government

consumption increased by 1.2% q-o-q saar (1.4% y-o-y) from

+0.1% q-o-q saar (+1.1% y-o-y), contributing 0.2 pps to overall

growth. On the other hand, business fixed investment fell sharply

by 5.9% q-o-q saar (-0.4% y-o-y) compared with a decline of 2.1%

q-o-q saar (+1.5% y-o-y) in Q4:15, subtracting 0.8 pps from overall

growth. Excluding the oil and mining sectors, business investment

would have declined by 1.3% q-o-q saar (+3.3% y-o-y). The

correction in inventories continued, subtracting 0.3 pps from growth

versus -0.2 pps in Q4:15. The strong dollar and soft external

demand continue to take their toll on exports (-2.6% q-o-q saar

from -2.0% q-o-q saar in Q4:15). Imports improved, albeit at a still

weak +0.2% q-o-q saar (from -0.7% q-o-q saar), due to weak

domestic demand and the continuing inventory correction. As a

result, net trade subtracted 0.3 pps from overall growth versus -0.1

pp in Q4:15.

Business surveys were mixed entering Q2:2016. The ISM

manufacturing index declined to 50.8 in April from 51.8 in March

(consensus: 51.4), albeit remaining above the expansion/

contraction threshold of 50 for a second consecutive month. The

new orders component led the decline (-2.5 pts to 55.8), albeit

remaining at healthy levels. At the same time, the outlook for the

services sector appears more positive as the ISM non-

manufacturing index overshot expectations, rising by 1.2 pts to

55.7 in April (consensus: 54.8). Importantly, the new orders

component led the increase (+3.2 pts to 59.9).

The US labor market report for April was weaker than

expected. Nonfarm payrolls rose by 160k in April from 208k in

March, undershooting consensus estimates of 200k, while net

revisions to the previous 2 months were a negative 19k. The

slowdown was mainly due to the government sector shedding 11k

jobs (from adding 24k in March). Indeed, the private sector added

171k jobs in April (+184k in March), with the services sector being

the main contributor (+174k), led by the subsectors of professional

& business services (+65k) and education & health services (+54k).

Despite the slowdown in job creation, the unemployment rate (U-3)

held steady at 5.0%, albeit due to a renewed decline in the labor

force participation rate, by 0.2 pps to 62.8%. 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 9.7% in April, compared with 9.8% in March, remaining

however, well above its pre-crisis level (8.8% as of December

2007). Indeed, involuntary part-time workers declined by 161k to

5.96mn in April and, as a result, the ratio of involuntary part-time

workers to total employment fell to 3.95%, from 4.05% in the

previous month. Wages recorded satisfactory gains for a

second consecutive month, suggesting their so far contained

positive trend could be firming. Average hourly earnings growth

remained at 0.3% m-o-m in April, in line with consensus

estimates. The annual change in earnings accelerated to

+2.5% y-o-y vs +2.3% y-o-y in March and a long-term average

of 2.4% y-o-y. The positive outcome was exacerbated by the

average weekly hours increasing to 34.5 hrs in April, from 34.4

hrs in March.

In the euro area, real GDP growth in Q1:16 surprised on

the upside, increasing by 0.6% q-o-q (1.6% y-o-y), from

0.3% q-o-q (1.6% y-o-y), above consensus estimates for

0.4% q-o-q. Although detailed data for the region as a whole

will not be available until June 7th, the data available for France

(22% of euro area GDP) and Spain (11% of euro area GDP),

suggest that private consumption remains the main driver of

growth, supported by credit expansion, improving labor market

conditions and low oil prices. A modest fiscal easing also

provides support. At the same time, external trade appears to

remain a drag.

Regionally, French GDP increased by 0.5% q-o-q (1.3% y-o-y)

in Q1:16, from 0.3% q-o-q (1.4% y-o-y) in Q4:15, above

consensus expectations (0.3% q-o-q). According to Insee (the

French Statistical Agency), the improvement came mainly on

the back of household consumption, while net trade was a drag

on growth. Specifically, household consumption increased by

1.2% q-o-q from -0.1% q-o-q in Q4:15 (when terrorist attacks

contributed negatively), gross fixed capital formation

accelerated in Q1:16 (0.9% q-o-q), compared with 0.7% q-o-q

in Q4:15, while government consumption decelerated slightly

to 0.4% q-o-q from 0.5% q-o-q previously. At the same time,

net trade subtracted 0.2 pps from overall growth, as imports

slowed sharply (+0.5% q-o-q in Q1:16 from 2.1% q-o-q in

Q4:15), while exports decreased slightly (-0.2% q-o-q in Q1:16

from +1.0% q-o-q in Q4:15). In Spain, according to provisional

estimates by INE (the Spanish Statistical Agency), GDP rose

by 0.8% q-o-q (3.4% y-o-y) in Q1:16, the same as in Q4:15,

with economic activity demonstrating increased resilience in

the face of political uncertainty.

On the inflation front, euro area headline CPI returned to

negative territory in April, declining by -0.2% y-o-y, from a

flat outcome in March that was influenced by seasonal

factors (Easter was in March this year compared with April

in 2015). The energy subcomponent declined by 8.6% y-o-y in

April, from a decline of 8.7% in March, as Brent prices

remained flat (-32.8% y-o-y in April from -31.9% y-o-y in

March, in EUR terms). Food, alcohol and tobacco prices

remained stable at 0.8% y-o-y in April. Core CPI decelerated to

0.7% y-o-y in April from 1.0% y-o-y previously, as growth in

services decelerated (down by 0.5 pps to 0.9% y-o-y in April).

Meanwhile, the euro area unemployment rate continues on a

downward path, declining to 10.2% in March from 10.4% in

February, the lowest rate since August 2011.


3

The Bank of Japan maintained its “QQE with a Negative Interest Rate”

policy, despite acknowledging the deterioration in activity. The BoJ lowered

its (median) projection for GDP growth in fiscal year 2015 (FY2015 accounts for

April 1st 2015 – March 31st 2016) to 0.7% y-o-y from 1.1% y-o-y in its January

projections and to 1.2% y-o-y from 1.5% y-o-y for FY2016. The BoJ attributed the

downward revision mainly to weaker exports on account of softer external

demand. At the same time, the projection for achieving the 2.0% inflation target

was pushed back further from “around the first half of fiscal 2017” to “during fiscal

2017”, reflecting the lower estimated GDP growth and the weaker – than

previously expected - wage increases. Note that the CPI ex-food & energy (the

core-core index) declined to 0.7% y-o-y in March from 0.8% y-o-y in February.

Following the lack of action by the BoJ, market attention has turned to the

Government, at least in the near term, for fiscal stimulus measures to support the

economy’s recovery. Quote of the week: “...continued expansionary policies until excess slack in the economy has been reduced and inflation dynamics are sustainably consistent again with price stability. There is simply no alternative to this today”, ECB President, Mario Draghi, May 2nd 2016.

Markets

Global equity markets recorded losses during the past week, as mixed economic

data, political uncertainty (Turkey, Spain and the UK) and weak company earnings

contribute negatively to investors’ risk appetite. Indeed, the MSCI World index

declined by 1.4% on a weekly basis, while in the US, the S&P500 was down by

0.4% as investors monitor closely the US earnings season. Out of the 355 firms

that have released earnings results for Q1:16, circa 76% have exceeded analyst

estimates. The Nikkei 225 underperformed its peers, falling by 3.4% on a weekly

basis, whereas the EuroStoxx index fell by 2.6% as major peripheral equity

markets were particularly downbeat (IBEX35: -3.6%, FTSEMIB:-4.1%). The

Turkish ISE 100 index lost ground (-8.2% wow) on the back of PM Davutoglou’s

announcement to step down later this month. In China, the CSI300 Index (largest

A-shares in Shanghai and Shenzhen exchanges) declined by 2.5% on Monday

following weak economic data. Brazil’s Bovespa index declined by 4.1% on a

weekly basis (+19.3% ytd) and the Brazilian real depreciated by 1.9% against the

US dollar to BRL/$3.50 with Fitch downgrading, in the past week, Brazil’s

sovereign debt further (to BB from BB+), citing a worse-than-expected contraction

of activity and changing fiscal target that contribute negatively to credibility.

Government bond yields declined over the week amid soft economic data and

weak risk sentiment. The US 10Yr Treasury yield fell by 5 bps to 1.78% and the

2Yr yield by 5 bps to 0.74%. Similarly, the UK’s 10Yr Gilt Yield declined by 18 bps

to 1.42%, while the Japanese government 10Yr bond yield decreased by 4 bps to

-0.11%. In the euro area, the German 10Yr Bund yield declined by 13 bps on a

weekly basis to 0.14%, while periphery bond spreads over the Bund rose in most

countries (+13 bps for Italian 10Yr BTPs to 135 bps, +13 bps for Spanish 10Yr

Bonos to 145 bps and +28 bps for the Portuguese government 10Yr bond yield to

317 bps).

In foreign exchange markets, the Japanese yen lost ground on a weekly basis,

declining by 0.7% against the US dollar to ¥/107.1 and by 0.3% against the euro to

¥/122.2, partially reversing the previous week’s strengthening of the yen when the

Bank of Japan undershot expectations for further easing (+5.0% wow against the

USD, +3.0% wow against the euro). The US dollar was higher over the week, up

by 0.5% against the euro to €/1.14, and by 1.3% in NEER terms. Turkey’s lira

recorded losses (-4.7% wow against the US dollar), as sentiment deteriorated

following PM Davutoglou’s announcement to step down.

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12 month forward EPS Estimates (YoY)

S&P500 EuroStoxx FTSE 100 Nikkei 225

Source: Factset - Data as of May 6th

%%

105

106

107

108

109

110

111

112

113

114

115

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117

118

1,07

1,08

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EUR/USD (left) USD/JPY (right)

Foreign Exchange

Source: Bloomberg - Data as of May 6th

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45

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No

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4

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Mar

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15

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No

v-1

5

Jan

-16

Mar

-16

May

-16

US

Europe excl. UK

UK

Japan

Emerging Markets

% %Cumulative Flows into Equity ETFs as % of AUM

Source: Bloomberg, NBG Estimates, AUM = Assets Under Management Data as of May 6th

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Greece (left) Italy (right)

Portugal (right) Spain (right)

Ireland (right)

10- Year Government Bond Spreadsbps

Source: Bloomberg - Data as of May 6th

bps


4

Day Region Release Period Survey Actual Prior

Current Week

Tuesday 3 UK Markit UK PMI Manufacturing SA APRIL 51.2 - 49.2 51.0

CHINA Caixin PMI Manufacturing APRIL 49.8 - 49.4 49.7

Wednesday 4 US ADP Employment Change (k) APRIL 195 - 156 200

US Trade balance ($bn) MARCH -41.2 + -40.4 -47.1

US ISM non-manufacturing APRIL 54.8 + 55.7 54.5

US Factory Goods Orders MARCH 0.6% + 1.1% -1.7%

UK Markit/CIPS UK Construction PMI APRIL 54.0 - 52.0 54.2

EURO AREA Retail sales (MoM) MARCH -0.1% - -0.5% 0.2%

EURO AREA Retail sales (YoY) MARCH 2.6% - 2.1% 2.4%

Thursday 5 US Initial Jobless Claims (k) APRIL 30 260 - 274 257

US Continuing Claims (k) APRIL 23 2.124 + 2.121 2.130

UK Markit/CIPS UK Services PMI APRIL 53.5 - 52.3 53.7

Friday 6 US Change in Nonfarm Payrolls (k) APRIL 200 - 160 215

US Change in Private Payrolls (k) APRIL 195 - 171 195

US Unemployment rate APRIL 5.0% 5.0% 5.0%

US Average Hourly Earnings MoM APRIL 0.3% 0.3% 0.3%

US Average Hourly Earnings YoY APRIL 2.4% + 2.5% 2.3%

US Average weekly hours (hrs) APRIL .. 34.5 34.4

US Underemployment rate APRIL .. 9.7% 9.8%

US Labor Force Participation Rate APRIL .. 62.8% 63.0%

Monday 9 EURO AREA Eurogroup/ECOFIN finance ministers’ meeting

CHINA Exports (YoY) APRIL 0.0% - -1.8% 11.5%

CHINA Imports (YoY) APRIL -4.0% - -10.9% -7.6%

Next Week

Tuesday 10 US Wholesale trade MARCH -0.2% .. -0.5%

CHINA CPI (YoY) APRIL 2.3% .. 2.3%

Wednesday 11 UK Industrial Production (MoM) MARCH 0.5% .. -0.3%

UK Industrial Production (YoY) MARCH -0.4% .. -0.5%

CHINA New Yuan Loans (RMB bn) APRIL 800.0 .. 1370.0

Thursday 12 US Initial Jobless Claims (k) MAY 7 270 .. 274

US Continuing Claims (k) APRIL 30 2.120 .. 2.121

UK BoE announces its intervention rate MAY 12 0.50% .. 0.50%

UK BoE Asset Purchase Target (£bn) MAY 12 375 .. 375

UK Bank of England releases MPC Minutes

UK Bank of England Inflation Report

EURO AREA Industrial Production (sa, MoM) MARCH 0.0% .. -0.8%

EURO AREA Industrial Production (wda, YoY) MARCH 1.1% .. 0.8%

Friday 13 US Retail Sales Advance MoM APRIL 0.8% .. -0.3%

US Retail sales ex-autos (MoM) APRIL 0.5% .. 0.2%

US University of Michigan consumer confidence MAY 89.5 .. 89.0

EURO AREA GDP (QoQ) Q1:16 0.6% .. 0.6%

EURO AREA GDP (YoY) Q1:16 1.6% .. 1.6%

GERMANY GDP (QoQ) Q1:16 0.6% .. 0.3%

GERMANY GDP (wda, YoY) Q1:16 1.5% .. 1.3%

Monday 16 US Empire Manufacturing MAY .. .. 9.56

US NAHB housing market confidence index MAY .. .. 58

US Net Long-term TIC Flows ($ bn) MARCH .. .. 72.0

CHINA Industrial production (YoY) APRIL 6.8% .. 6.8%

CHINA Retail sales (YoY) APRIL 10.6% .. 10.5%

Source: Bloomberg

Economic News Diary: May 3 - May 16, 2016


5

Equity Market Returns (%)

Developed Markets1

Current Level

1-w eek

change (%)

Year-to-Date

change (%)

1-Year

change (%)

2-year

change (%)

US S&P 500 2057 -0,4 0,6 -1,5 9,5

Japan NIKKEI 225 16107 -3,4 -15,4 -16,5 14,8

UK FTSE 100 6126 -1,9 -1,9 -11,1 -9,9

Canada S&P/TSX 13701 -1,8 5,3 -9,2 -6,5

Hong Kong Hang Seng 20110 -4,5 -8,2 -26,3 -7,5

Euro area EuroStoxx 315 -2,6 -8,6 -13,9 -1,9

Germany DAX 30 9870 -1,7 -8,1 -13,5 3,7

France CAC 40 4301 -2,9 -7,2 -13,4 -3,3

Italy FTSE/MIB 17843 -4,1 -16,7 -21,9 -16,0

Spain IBEX-35 8702 -3,6 -8,8 -22,2 -16,4

Emerging Markets1

MSCI Emerging Markets 44180 -2,8 -0,7 -15,8 -5,4

MSCI Asia 638 -2,5 -3,7 -18,6 -4,7

China 54 -4,3 -9,1 -32,0 -5,5

Korea 531 -0,5 0,9 -7,2 -5,6

MSCI Latin America 66568 -2,9 12,3 -7,2 -5,8

Brazil 184450 -4,1 17,3 -12,0 -10,7

Mexico 42744 -1,5 5,4 0,6 7,6

MSCI Europe 4477 -3,9 5,4 -9,1 -3,4

Russia 846 -3,4 9,2 3,0 19,2

Turkey 1106665 -8,8 9,2 -4,2 3,2

As of May 6, 2016, 1) in local currency, Source Bloomberg

Financial Markets Monitor

World Equity Market Sector Returns (%)

in US Dollar terms Current Level

1-w eek

change (%)

Year-to-Date

change (%)

1-Year

change (%)

2-year

change (%)

Energy 193,9 -3,8 8,7 -19,2 -35,1

Materials 199,0 -4,0 7,7 -15,1 -19,1

Industrials 197,6 -1,7 3,0 -3,5 -1,7

Consumer Discretionary 188,7 -1,1 -2,6 -4,8 8,6

Consumer Staples 216,3 0,4 3,8 5,5 10,5

Healthcare 197,5 -1,8 -6,1 -8,1 9,6

Financials 90,6 -2,7 -6,6 -13,7 -10,8

IT 140,2 -0,6 -4,2 -3,6 14,2

Telecoms 71,1 -1,0 4,7 -0,7 -1,7

Utilities 119,3 -0,6 6,9 2,3 -1,5

in local currency

Energy 195,1 -3,2 7,5 -18,1 -30,5

Materials 186,7 -3,2 4,6 -14,8 -10,6

Industrials 193,0 -1,4 0,0 -4,9 4,8

Consumer Discretionary 180,2 -0,9 -4,9 -5,9 14,5

Consumer Staples 212,4 0,9 2,2 6,0 18,4

Healthcare 193,2 -1,5 -7,4 -7,9 15,2

Financials 89,7 -2,0 -8,6 -13,3 -2,9

IT 135,4 -0,5 -5,2 -4,3 16,4

Telecoms 72,6 -0,5 1,8 -1,2 7,9

Utilities 120,5 -0,3 5,2 2,2 6,0

As of May 6, 2016, MSCI Indices, Source Bloomberg

Foreign Exchange & Commodities

Current Level

1-w eek

change (%)

1-month

change (%)

1-Year

change (%)

Year-to-Date

change (%)

EUR/USD 1,14 -0,4 0,1 1,2 5,1

EUR/CHF 1,11 1,2 1,9 6,9 2,0

EUR/GBP 0,79 1,0 -2,1 7,0 7,2

EUR/JPY 122,19 0,2 -2,4 -9,4 -6,5

EUR/NOK 9,35 1,5 -1,4 11,5 -2,6

EUR/SEK 9,28 0,9 -0,1 -0,3 1,2

EUR/AUD 1,55 2,7 3,2 8,7 3,9

EUR/CAD 1,47 2,4 -1,3 7,7 -2,1

USD/CAD 1,29 2,8 -1,4 6,4 -6,7

USD/AUD 1,36 3,2 3,1 7,3 -1,1

USD/JPY 107,12 0,6 -2,4 -10,5 -10,8

Agricultural 461 -2,9 4,6 -3,0 2,5

Energy 383 -3,7 13,5 -42,4 4,1

West Texas Oil ($) 45 -2,7 18,3 -24,2 20,6

Crude brent Oil ($) 45 -3,3 15,3 -30,1 25,5

Industrial Metals 996 -4,5 3,0 -22,8 4,3

Precious Metals 1591 0,1 6,8 8,8 22,5

Gold ($) 1288 -0,4 5,4 8,7 21,3

Silver ($) 17 -2,1 15,9 7,0 26,1

Baltic Dry Index 631 -10,2 26,2 10,1 32,0

Baltic Dirty Tankers Index 715 -2,1 -7,6 -3,9 -17,7

As of May 6, 2016, Goldman Sachs Indices for Commodities, Source Bloomberg

Commodities

Foreign Exchange

Euro-based cross rates

USD-based cross rates

Bond Markets (%)

Current Last w eek Year Start

One Year

Back

10-year

average

US 1,78 1,83 2,27 2,18 3,01

Germany 0,14 0,27 0,63 0,59 2,45

Japan -0,11 -0,08 0,27 0,43 1,05

UK 1,42 1,60 1,96 1,92 3,17

Greece 8,52 8,58 8,29 10,89 9,93

Ireland 0,92 0,97 1,15 1,28 4,82

Italy 1,49 1,49 1,59 1,77 4,03

Spain 1,59 1,59 1,77 1,75 4,04

Portugal 3,32 3,16 2,52 2,40 5,52

US Treasuries 10Y/2Y 104 105 122 155 165

US Treasuries 10Y/5Y 55 54 51 62 85

Bunds 10Y/2Y 66 76 97 79 114

Bunds 10Y/5Y 52 56 67 50 67

EM Inv. Grade (IG) 212 209 235 189 263

EM High yield 765 777 882 673 790

US IG 156 152 173 133 197

US High yield 648 624 695 455 626

Euro area IG 125 121 133 121 121

Euro area High Yield 475 456 535 390 652

30-Year FRM1 (%) 3,87 3,87 4,19 3,93 4,70

vs 30Yr Treasury (bps) 124 119 117 102 101

As of May 6, 2016, 1. Fixed-rate mortgage rate, Source Bloomberg

10-Year Government Bond

Yields

Government Bond Yield

Spreads (in bps)

Corporate Bond Spreads

(BofA/ML Indices, in bps)

US Mortgage Market


6

NBG Economic & Markets Forecasts

Euro area & US: GDP Growth & Inflation Forecasts

GDP (%)1

2014a Q1a Q2a Q3a Q4a 2015a Q1a Q2a Q3a Q4f 2016f

Euro area 0,9 0,6 0,4 0,3 0,3 1,5 0,6 0,4 0,5 0,5 1,5

US 2,5 0,2 1,0 0,5 0,3 2,4 0,1 0,5 0,6 0,6 1,9

HICP Inflation (%)2

Euro area 0,4 -0,3 0,2 0,1 0,1 0,0 0,0 -0,1 0,3 0,8 0,3

US 1,6 -0,1 0,0 0,1 0,5 0,1 1,1 1,0 1,0 1,5 1,1

a: Actual, f: Forecasts

1. Seasonally adjusted q-o-q grow th rates, 2.Year-to-year average percent change

2014a 2015a 2016f

Interest Rates & Foreign Exchange Forecasts

Current (*) 3-month 6-month 12-month

Germany 0,14 0,40 0,45 0,70

US 1,78 2,05 2,20 2,50

Official rate (%)

Euro area 0,00 0,00 0,00 0,00

US 0,50 0,50 0,75 1,00

Currency

EUR/USD 1,14 1,08 1,06 1,05

EUR/GBP 0,79 0,77 0,75 0,74EUR/JPY 122 122 120 119

10-year government bond yield (%)

(*) As of May 06 2016, end of period


7

NBG View and Key Factors for Global Markets

Euro area US Japan UK

Fo

reig

n E

xc

ha

ng

e

Go

ve

rnm

en

t B

on

ds

E

qu

itie

s

Reduced short-term tail

risks

Higher core bond yields

Current account surplus

▬ Sluggish growth

▬ Deflation concerns

▬ The ECB’s monetary

policy to remain extra

loose (LTROs, ABSs

and covered bank bond

purchases, Quantitative

Easing)

Lower euro against the

US dollar

The Fed is expected to

increase its policy rate

towards 1.0%-1.25% in 2016

Growth to remain above-

trend in H1:2016

▬ Mid-2014 rally probably

ahead of fundamentals

Higher US dollar against its

major counterparts

Safe haven demand

More balanced economic

growth recovery (long-

term)

Inflation is bottoming out

▬ Additional Quantitative

Easing by the Bank of

Japan if inflation does not

approach 2%

▬ Strong appetite for foreign

assets

Lower yen against the US

dollar

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

Higher yields expected

Global disinflation pressures

Fed’s commitment on only

gradual tightening policy

Safe haven demand

▬ Valuations appear rich

▬ Growth prospects improve

▬ The Fed is expected to

increase its policy rate

towards 1%-1.25% in 2016

▬ Halting US Treasuries and

agency MBSs by end-2016


Periphery spreads

tightening

Declining equity risk

premium

EPS estimates are

improving

Credit conditions gradual

turn more favorable

Fiscal loosening due to

the influx of refugees

▬ Sovereign debt crisis

could re-emerge

▬ Political uncertainty

Neutral-to-positive stance

on equities

Very low government bond

yields

Strong EPS growth

Cash-rich corporates lead to

share buybacks and higher

dividends (de-equitization)

▬ Demanding valuations

▬ Peaking profit margins

▬ Disorderly re-pricing of

expectations for the first

interest rate-hike by the Fed

Neutral stance on equities

Upward revisions in

corporate earnings

Aggressive QE by the BoJ

Japanese Yen depreciation

favors export companies

▬ Signs of policy fatigue

regarding structural reforms

and fiscal discipline

▬ Strong appetite for foreign

assets

Neutral-to-positive stance on

equities

The Bank of England is

expected to increase its

Bank Rate (currently at

0.50%) in Q3:2016

Solid, albeit slowing

economic growth with real

GDP at c. 2.5% for 2015-

2016

▬ Current account deficit

▬ Backloaded fiscal

adjustment

Higher British Pound

against the euro

Fiscal consolidation

Safe haven demand

▬ Rich valuations

▬ Relatively sticky inflation

feeds through inflation

expectations

▬ The Bank of England is

expected to increase its

Bank Rate (currently at

0.50%) in Q3:2016


Growth recovery

▬ The BoE increases

interest rates faster-than-

expected due to labor

market tightening

▬ High UK exposure to the

commodities sector


Safe haven demand

Extremely dovish

central bank

▬ Fiscal deficits

▬ Restructuring efforts

brightens growth

prospects



8

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

Turkey Romania Bulgaria Serbia

Fo

reig

n E

xc

ha

ng

e

Do

me

sti

c D

eb

t

Fo

reig

n D

eb

t

Currency board arrangement

Large foreign currency reserves and fiscal reserves


▬ Sizable external financing requirements

Stable BGN against the

EUR

Fo

reig

n D

eb

t E

qu

itie

s

Attractive valuations

▬ Weak foreign investor appetite for emerging market assets




Neutral/Positive stance on

equities


Low-yielding domestic debt and deposits



equities




equities

High domestic debt yields

Narrowing current account deficit



▬ Increasing geopolitical

risks and security

concerns

Weaker to stable TRY against the EUR

Small current account deficit


Stable to stronger RON against the EUR

Ongoing EU membership negotiations

High domestic debt yields

Precautionary Stand-By Agreement with the IMF


Weaker to stable RSD against EUR

Low public debt-to-GDP ratio

Tight fiscal stance

▬ Stubbornly high inflation

Stable to lower yields

Low public debt-to-GDP ratio

▬ Easing fiscal stance

▬ Envisaged tightening in

monetary policy

Stable to higher yields

Very low public debt-to-GDP ratio and large fiscal reserves

Low inflation


Positive inflation outlook

Precautionary Stand-By

Agreement with the IMF

▬ Large public sector

borrowing requirements


Narrowing current account deficit

High foreign debt yields

▬ Sizeable external financing requirements


Stable to narrowing spreads

Small current account deficit

▬ Large external financing requirements


Solidly-based currency board arrangement, with substantial buffers


▬ Large external financing requirements

Stable to narrowing

spreads

Stable spreads

Ongoing EU membership negotiations

Precautionary Stand-By Agreement with the IMF


▬ Slow progress in structural reforms



9

NBG South Eastern Europe Economic Forecasts

SEE Economies

2012 2013 2014 2015 2016f 2017f

Real GDP Growth (%)

Turkey 2,1 4,2 3,0 4,0 3,6 3,8

Romania 0,6 3,5 3,0 3,8 4,5 3,4

Bulgaria 0,2 1,3 1,5 3,0 2,6 2,6

Serbia -1,0 2,6 -1,8 0,7 2,6 3,0

Headline Inflation (eop,%)

Turkey 6,2 7,4 8,2 8,8 7,8 7,0

Romania 5,0 1,6 0,8 -0,9 0,5 2,0

Bulgaria 4,2 -1,6 -0,9 -0,4 0,7 1,4

Serbia 12,2 2,2 1,7 1,5 2,4 2,8

Current Account Balance (% of GDP)

Turkey -6,2 -7,7 -5,5 -4,5 -4,8 -5,2

Romania -4,8 -1,1 -0,5 -1,1 -1,9 -2,4

Bulgaria -0,9 1,3 0,9 1,4 2,8 2,1

Serbia -11,6 -6,1 -6,0 -4,8 -4,8 -5,3

Fiscal Balance (% of GDP)

Turkey -2,1 -1,2 -1,3 -1,2 -1,6 -1,2

Romania -2,5 -2,5 -1,7 -1,5 -3,3 -2,5

Bulgaria -0,4 -1,8 -3,7 -2,9 -2,0 -1,4

Serbia -6,8 -5,5 -6,6 -3,8 -4,0 -3,0

f :NBG f orecasts

SEE Financial Markets

9/5/20163-month

forecast

6-month

forecast

12-month

forecast

1-m Money Market Rate (%)

Turkey 10,6 10,6 10,2 9,8

Romania 0,6 0,9 1,2 1,5

Bulgaria 0,0 0,1 0,1 0,2

Serbia 3,1 3,2 3,4 3,8

Currency

TRY/EUR 3,35 3,32 3,32 3,30

RON/EUR 4,49 4,48 4,49 4,50

BGN/EUR 1,96 1,96 1,96 1,96

RSD/EUR 122,7 123,2 124,0 125,0

Sovereign Eurobond Spread (bps)

Turkey (EUR 2019) 215 205 190 170

Romania (EUR 2024) 229 210 180 150

Bulgaria (EUR 2022) 197 180 160 130

Serbia (USD 2021)(*) 311 290 240 180

(*) Spread ov er US Treasuries

SEE Stock Market Returns1

9/5/2016Last w eek

return (%) YTD (%)

2-year

change (%)

Index

Turkey ISE100 79.062 -5,7 8,0 4,6

Romania BET-BK 1.192 -1,6 -11,1 -1,5

Bulgaria SOFIX 444 0,4 -3,6 -26,5

Serbia BELEX15 619 0,3 -1,9 6,4

1. In local currency


10

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Documents

May 10, 2016 Global Markets Roundup NBG Economic Research ... · Q1:2016 (1.6% yoy) from 0.3% qoq (1.6% yoy) in Q4:2015. Available details to date reveal broad based gains, with domestic