Global Economic Outlook: Is the world ready for global ... · PDF fileGlobal Economic Outlook:...

September 2017

Global Economic Outlook:

Is the world ready for global tapering?

Willem BuiterAC

Global Chief Economist

[email protected]

+1 212-816-2363

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This presentation was approved for distribution on August 28, 2017; the disclosures in Appendix A1 are current as of the same date.

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Global tapering is coming amid stronger activity and stuck-flation

Global growth continues to be on track. Q2 growth, however, probably overstates the current momentum. We

expect inflation to be relatively stable but its outlook remains cloudy.

2

Economic Forecasts

Note: As of August 23 2017. Aggregates at market exchange rates. Global and EM aggregates exclude Venezuela. Inflation aggregate with US PCE.

See: Global Economic Outlook and Strategy - August 2017 Source: National Statistical Offices and Citi Research

Advanced Economy Policy Rates Forecasts

● Global growth continues to be robust, and broad-

based. Labor markets appear to be in good

shape. Investment and trade are recovering too.

● Advanced economy inflation has peaked, but ex-

US AE core sequential inflation has been rising

and we expect it to be relatively steady.

● Macro policy is supportive

– We still expect limited tax reform in the US

– Monetary policy still accommodative. We see

only modest rises to real interest rates.

Major risks:

▼ Tightening of monetary/financial conditions

▼ High leverage

▼ International tensions (including protectionism)

▼ Chinese slowdown

▲ Animal spirits could trigger positive surprise

2016 2017 2018

GDP Growth (%YY)

Global 2.5 3.1 3.3

AE 1.6 2.1 2.2

EM 3.9 4.5 4.7

Inflation (%YY)

Global 2.2 2.4 2.4

AE 0.8 1.5 1.5

EM 4.3 3.7 3.5

Current

Policy Rate2017 2018

AE 0.45 0.57 0.93

US 1.13 1.38 2.13

Euro area -0.40 -0.40 -0.40

Japan -0.11 -0.10 -0.10

UK 0.25 0.25 0.25

Canada 0.75 1.00 1.50

Australia 1.50 1.50 1.75

NZ 1.75 1.75 2.00

Sweden -0.50 -0.50 -0.25

Switzerland -0.75 -0.75 -0.75

Citi Forecast

https://www.citivelocity.com/t/eppublic/182VP





Global growth remains robust We expect global GDP growth at 3.1%YY in 2017 from 2.5% in 2016, and still expect H2 global growth slightly

above 3%. Growth is expected to remain solid in the euro area and the US. In EMs, major recessions are ending

in Brazil, Russia, etc but the broader pickup is still small.

3

Global — Real GDP Growth (%YY)

Note: Aggregates at market exchange rates. Global and EM aggregates exclude

Venezuela. Source: National Statistical Offices, IMF and Citi Research

China, India, Brazil, Russia

Sources: National Statistical Offices and Citi Research

GD

P g

row

th

US, Canada, Australia and Japan


Euro area


GD

P g

row

th

GD

P g

row

th

The global economy is steaming ahead…

Global growth is broad-based, with only three countries (4.1% of global GDP) still contracting in Q1-17. Labor

markets appear to be in good shape with unemployment at the lowers levels since 2008.

4

Sources: National Statistical Offices, IMF and Citi Research


Selected AEs– Employment

AE and Euro area – Unemployment Rate


Selected AEs– Employment


GDP growth standard deviation

… with corporate profits, trade and investment picking up too There are growing signs that corporate profits have turned the cyclical corner. Investment is recovering after

multi-year slowdown. Merchandise trade growth in 2017 is set to exceed previous years growth rates. Besides,

risks to the global economic outlook (proxied by policy uncertainty) have receded somewhat.

5

AE — Nominal Non-financial Private Corporate

Profits

Source: National Statistical Offices, OECD and Citi Research

Source: CPB and Citi Research

AE and EM — Goods Exports and Imports

Sources: PolicyUncertainty.com and Citi Research

Economic Policy Uncertainty

Source: National Statistical Offices, OECD, IMF and Citi Research

AE — Real Gross Fixed Investment

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

% of GDP%YY

AE Net Op Surplus YY% % of GDP

However, we suspect we are close to the global cyclical peak Growth in industrial activity appears to be peaking as manufacturing PMIs have been moderating. Upside risks

from sentiment measures may be slightly diminishing as both consumer and business confidence in AEs have

probably peaked.

6

Note: GDP-weighted average of US, Japan, UK, Sweden, Switzerland,

Denmark, Norway, Australia, NZ, Canada and Euro area.

Sources: National Statistical Offices, IMF and Citi Research.

AE – GDP Growth and Confidence measures Global Mfg PMI and AE Business Sentiment

Note: Global Manufacturing PMI using ISM for the US.

Sources: National Statistical Offices, Markit, ISM, IMF and

Citi Research.

Global—Composite, Mfg and Services PMI

Sources: Markit , ISM and Citi Research. Sources: Markit and Citi Research.

Global, AE and EM — Composite PMI

AE inflation appears to be ‘stuck’…

7

US and AE ex-US Core Inflation (%3m3m)


Selected Countries – Core CPI Inflation (%YY)

Note: PCE for the US, CPI for the rest. Core is CPI ex-energy and

food. Sources: National Statistical Offices and Citi Research.

Inflation has been relatively weak in the US, but less so in other Advanced Economies. Sequentially (%3m3m),

non-US AE core inflation is now higher than US core CPI inflation, against the trend in previous years. We

expect AE headline and core inflation to be relatively stable this and next year.


US— Headline and Core Inflation (%YY, %3M3Msaar)

Sources: BEA and Citi Research.

AE ex-US— Headline and Core Inflation (%YY, %3M3Msaar)

…but economists consistently over-predict inflation

8 Source: Citi Research. See: Global Economics View - Why do economists consistently over-predict inflation?.

Inflation has undershot expectations over the last 5 years or so. A number of the potential explanations probably

have merit, including that the sensitivity of wages to labor market slack has been falling, inflation expectations

have fallen and that potential output is probably larger than commonly estimated.

10 potential reasons for the consistent inflation undershoots:

1. Inflation is being mismeasured.

2. The responsiveness of domestic input costs (e.g. wages) to domestic slack (e.g. labour

market slack) has fallen.

3. The economy is more open and the shares of foreign input costs, final imports and exports

have risen and with them the sensitivity of domestic price indices to foreign market

conditions and slack.

4. The responsiveness of prices to input costs (including wages) has fallen

5. Greater than expected exchange rate appreciation and/or lower than expected external

inflation have lowered inflation.

6. Oil prices and/or other commodity prices have been lower-than-expected.

7. Inflation expectations are unusually and persistently low.

8. There is more labor market slack than estimated.

9. Tangible capital (utilization) is not particularly high and may be mis-measured.

10. The nature of production has changed. Tangible input intensity has declined.

https://www.citivelocity.com/t/eppublic/18chU






AE Fiscal Policy Turns More Expansionary in 2016-18F

AE fiscal policy in 2016 loosened for the first time since 2010. We estimate ~1pp of fiscal easing in 2016-2018.

But picture not uniform and 2017 may be a pause.

9

Note: AEs is a GDP-weighted average, at market exchange rates, of US, Japan, Euro area, UK, Canada, Australia, New Zealand, Denmark, Norway,

Sweden and Switzerland. Citi estimates from 2016-2018. Fiscal impulse measured as the change in the Cyclically-Adjusted Primary Balance.

Sources: IMF and Citi Research

AEs – GG Primary Balance and CAPB in 2015 CAPB level and Change (% and pp of GDP)

AEs – Change in CAPB (pp of GDP)

Source: BEA and Citi Research

US economy to grow at modestly-above-potential growth in 2017

10

Capex is set to pick up Manufacturing Sector still expanding

Source: Regional Federal Reserves, ISM, Markit, Citi Research

Growth picked up from the weak Q1 and job growth remains at a solid space. However, there are some weak

spots.

Source: BEA, BLS, Citi Research

Falling savings rate has been boosting spending

Sources: BLS and Citi Research

Auto sales have been weak

Solid job markets but wage growth remains subdued

11

Robust payroll growth confirms that growth is on track. However, wage pressures remain subdued.


Wage growth has picked up somewhat

Note: Forecasts for 2017-2018. Sources: BLS and Citi Research

But has been soft this year


The unemployment rate is low and still falling

Note: Forecasts for 2017-2018. Sources: BLS and Citi Research

Payrolls gains remain solid

Source: BLS and Citi Research

Moderate inflation outlook

12

Contribution to Core CPI %MM inflation Core CPI to stay low into 2018

Source: BLS and Citi Research

Inflation has surprised to the downside for five consecutive months, and core inflation is close to the lower end of

the “just strong enough” range of 0.12-0.16% that will keep the Fed on track to raise rates in December.

Weakness has been mostly centered in the “transitory” categories.

Source: BEA, Dallas Fed, Citi Research

Strength in Owner’s equivalent rent may not persist

Source: REIS, BLS and Citi Research

Trimmed-mean shows less of a slowing in inflation

There are upside risks to US activity, but could be diminishing too

13

Sentiment indicators are at a multi-year high…and usually capex follows

Sources: BEA, Duke/CFO and Citi Research..

NFIB Small Business Optimism

Sources: NFIB, Conference Board and Citi Research

Expected Growth in Capital Spending vs

Capital Spending Business Confidence Measures

-20

-15

-10

-5

0

5

10

15

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

%

Capital Spending (%YY, lagged 2 quarters)

Duke/CFO Outlook: Expected Growth inCapital Spending in Next 12 Months (%)

We expect tax reform in the US in 2017/18

Its success can hardly be taken for granted, but we continue to expect Congress to pass tax reform (implying a

moderately large fiscal stimulus) in late Q4/Q1.

14

1. Corporate taxes

a. Headline corporate tax rate to fall from 35% to 25%

(pass-through companies taxed at 25% )

b. Faster depreciation of investment, cap on interest

deductibility

c. Territorial system for profits from 2017

d. Tax rebate on repatriation of corporate profits

earned pre-2017

e. Repeal certain tax expenditures

2. Personal income taxes

a. Reduce individual tax brackets to 12%/25%/33%,

respectively.

b. Eliminate itemized deductions, except mortgage

interest and charitable giving; increase in standard

deductions and overhaul family benefits

c. Eliminate the Alternative Minimum Tax (AMT)

3. Spending

a. Infrastructure: mostly tax incentives but perhaps

$20bn/yr in federal spending

b. $50bn/yr additional discretionary defense spending

c. Discretionary spending cuts (of perhaps $45bn/yr)

We do not expect:

• broad-based border tax adjustments

• elimination of state & local income tax

deduction from federal tax

• substantial fiscal effects from any potential

Obamacare reform

• the reform to be deficit-neutral

Deficit & GDP Impact

• Measures substantial

─ We estimate the reform to raise the

federal deficit by ~$200-250bn/yr

($1.5-2trn over 10 years)

─ We estimate a GDP boost of 1-1.5%

over 2018-2021

America First: Trade and protectionism remain in focus

‘So far, so good’, but America First still applies. Major increases in protectionism are a risk and not the base

case.

15

View – There will be more ‘Buy American’ clauses in public and private infrastructure initiatives.

Buy and Hire American

• Reviewing ‘free trade agreements’ impact on the implementation of ‘Buy American’ laws in Federal Government procurement.

• Reviewing (H-1B and other) visa processes.

• Cracking down on (illegal) immigration.

View – NAFTA to be renegotiated and include changes to rules of origin and dispute settlement, as well as provisions already included in the TPP (dispute settlement, labor and environment standards, IP protection).

America First

• Renegotiate NAFTA, including increasing the US share in other countries’ imports

• Planning to renegotiate other free-trade agreements.

View – There will be selective investigations into specific sectors and countries but no official naming of currency or trade manipulators.

Make trade fair again

• Preparing an Omnibus Report on Significant Trade Deficits, due by June 29.

• Investigations on the national security impact of core industries (steel, aluminum, vehicles, aircraft, shipbuilding, semiconductors), due by end of June.

• Publishing a semi-annual FX Report where the Treasury could label a country as a Currency Manipulator

• Has imposed remedial tariffs on Canadian softwood lumber imports.

• Instructing Federal Agencies to stop buying

imported goods.

• Reducing visa allocations sharply

• Withdrawing from NAFTA or other trade

agreements

• Making major/disruptive changes to NAFTA

or other FTAs (e.g. on taxation, bilateral

deficit targets, reciprocal tariffs)

• Naming a country as ‘trade manipulator’ or

‘currency manipulator’

• Imposing broad-based tariffs and other

sanctions on specific products

• Imposing major trade remedies on China

• Introducing a broad border tax

• Withdrawing from WTO

Risk

Risk

Risk

16

Eurozone Near-Term Outlook Is Brightening

Source: ECB and Citi Research

Eurozone growth is high and growth is broadening. Political risks are still high, but the near-term risks have

subsided, including deflation risks, and there is perhaps some upside.

Economic Sentiment (LT Average = 100) Financial Conditions and GDP growth

Note: GDP-weighted averages of Austria, Belgium, Finland, France,

Germany, Netherlands (Core) and Greece, Italy, Portugal and Spain

(Periphery). Sources: European Commission and Citi Research

Measures of Labor Slack (%) EA - HICP and Wage Inflation (%YY)

UK: Exports and Investment Not Picking Up the Relay Baton Weak sterling and strengthening growth in important markets help UK exporters and show in

sentiment surveys. Yet investment is not picking up as Brexit uncertainty persists.

17

UK – Manuf. Production and CBI Syrvey

Index, YY %, 2004-2017

Sources: BoE, Markit, ONS, Lloyds, CBI, GfK, Royal Institution of Chartered Surveyors (RICS), Halifax, Nationwide and Citi Research

Goods Exports and Exchange Rate YY %, 2001-2017

UK- Investment Intentions and Investment (Score, %YY), 1998-2017

UK, US, Eurozone – Composite PMI (Index 50+= Expansion), 2014-2017

-25

-20

-15

-10

-5

0

5

10

15

20

-5

-4

-3

-2

-1

0

1

2

3

4

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

YY %Scores

Business Investment (YY %), rhs

Investment Intentions: Manufacturing

Investment Intentions: Services50

51

52

53

54

55

56

57

58

59

60

1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

50 = neutral

Eurozone

US

UK

-15

-10

-5

0

5

10

-60

-50

-40

-30

-20

-10

0

10

20

30

40

2004 2006 2008 2010 2012 2014 2016

YY %% Bal.

CBI Industrial Output (last 3M), lhs

Manufacturing Output 3M YY, rhs-30

-20

-10

0

10

20

30

2001 2003 2005 2007 2009 2011 2013 2015 2017

YY %

Non-oil Goods Exports Volumes

Trade-weighted Exchange Rate

Brexit negotiations: Clash on Order and Priorities EU and UK disagree on the order of negotiations. EU focused on financial settlement, while UK is

focused on future trade deal.

18

Sources: Draft guidelines of EU Council Presidency, UK government White Paper and Citi Research

• Withdrawal negotiations in parallel to

FTA talks.

• “Fair” settlement of [financial and

other] rights and obligations.

• Mutual guarantee of expatriates’

citizenship rights

• Solving challenges for Northern

Ireland

• First phase of Brexit negotiations

• “Sufficient progress” necessary for

FTA talks

• Guaranteed rights of EU citizens

• Single financial settlement

• Avoiding hard border in Ireland

• Relocation of EU agencies from UK

Withdrawal

• “Phased” implementation period to

adjust in a smooth and orderly way to

new arrangements

• End of free mobility of labour and

ECJ supremacy (has been watered

down since)

• Only to the extent necessary and

legally possible

• Limited in time (EU Parliament sees 3

years max)

• If Single Market membership

prolonged, ECJ supremacy and

budget contributions continue.

• “Deep and special” relationship

• “Bold” free trade agreement for

goods and services, Single Market

exit.

• Customs agreement allowing FTAs

with third countries

• Immigration control

• End of ECJ supremacy

• Can only be signed after Brexit

• FTA cannot amount to Single Market

membership

• Safeguards against unfair

competition (tax, social, environment)

• No financial stability risks for EU

• Spain veto over applicability to

Gibraltar

Transition

Free Trade

Agreement

UK negotiating stance EU negotiating stance

UK: two-step approach could still see uncertainty rise again

Source: Citi Research 19

Transition arrangement after two-year Article 50 period could help avoid worst case of no

deal, but without pre-negotiations, uncertainty could rise throughout the negotiations.

Uncertainty

• EU exit (finances,

citizenship rights

etc.)

• Future relations

(trade, security,

defence etc.)

• Transition model

(freedom of

movement, ECJ

supremacy?)

• Customs union,

Irish borders etc.

• Single Market

access

• Continued EU

budget contributions

• Limited immigration

control

• Negotiate FTAs with

rest of the world

• Scheduled UK

elections (2020)

• Scottish

Independence

Referendum?

Brexit

Negotiations

Transition/Bridge

“Soft Brexit”?

Final Model

“Hard Brexit”

2017 - 19 2019 – 2024? 2025? -

• FTA with the EU:

Largely free goods

trade

• Immigration

controls

• Barriers to services

trade

Brexit: The long-run impact Less free trade and immigration could reduce trend growth from 1.9% by 0.3-0.4pp. Signs that net

immigration already slowed after the EU referendum.

20

UK: Net Immigration (Thsds, 4Q sum), 2010-2016 • Less free trade

especially in services

could lead to a re-

allocation of

resources to less

productive sectors,

reducing potential

growth.

• In addition, net

migration from EU

countries has

averaged 0.3% of

UK population.

• About half of UK jobs

created in 2016 were

filled by EU citizens.

• A sharp reduction in

immigration would

limit labour supply

and reduce potential

growth.

Sources: ONS and Citi Research

-100

-50

0

50

100

150

200

250

300

350

400

2010 2011 2012 2013 2014 2015 2016

Thsd.

Total

British

EU

Non-EU

Government target

EU Referendum

Global tapering is on the way Despite a recent more hawkish tone, we expect most AE CBs (except for the Fed and the Bank of Canada) to

remain on hold for the rest of 2017. Central banks’ net asset purchases have already declined from their recent

peak in mid-2016, as the ECB, Bank of Japan and Bank of England have dialed down their purchases.

21

Note: The Pension Fund Global is excluded for Norway. Sources:

National Central Banks and Citi Research

AE – Annual Change in Policy Rate and

CB Balance Sheet Size

G4 – Monetary Conditions Index and Contributions

Note: G4 Average is USD Nominal GDP weighted average (at market

exchange rates) of US, euro area, Japan and UK. REER stands for Real

Effective Exchange Rate. Source: Haver, Bloomberg and Citi Research

AE – Citi And Market Policy Rate expectations

Source: Bloomberg and Citi Research

-3.00

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50-2

0

2

4

6

8

10

12

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Change in Central Bank Balance Sheet (Left)

Change in Policy Rate (Right)

pp of GDP pp, inv erted

Easing

Tightening

Citi Forecast

Current Policy Rate

End-2017 End-2018

Citi Priced in OIS curve as of Citi Priced in OIS curve as of Forecast Aug-17 Jun-17 Jan-17 Forecast Aug-

17 Jun-17 Jan-17

AE 0.45 0.57 0.50 0.51 0.47 0.93 0.65 0.71 0.72

US 1.13 1.38 1.19 1.28 1.12 2.13 1.40 1.54 1.55 Euro area -0.40 -0.40 -0.40 -0.40 -0.39 -0.40 -0.33 -0.26 -0.31 Japan -0.11 -0.10 -0.06 -0.06 -0.06 -0.10 -0.06 -0.04 -0.07 UK 0.25 0.25 0.31 0.29 0.33 0.25 0.47 0.43 0.52 Canada 0.75 1.00 1.00 0.52 0.66 1.50 1.31 0.80 0.98 Australia 1.50 1.50 1.49 1.45 1.70 1.75 1.81 1.63 2.07 NZ 1.75 1.75 1.77 1.81 2.14 2.00 2.15 2.34 2.68 Sweden -0.50 -0.50 -0.73 -0.63 -0.39 -0.25 -0.19 0.06 0.08 Switzerland -0.75 -0.75 -0.57 -0.63 -0.68 -0.75 -0.54 -0.61 -0.56

Note: EA is euro area, SE is Sweden. Change in asset holdings

expressed in US dollars. Source: National Central Banks and Citi

Research

AEs — CB Asset Purchases

-100

-50

0

50

100

150

200

250

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

USD bn

SE US UK JP EA 5 Economy Aggregate

forecast

Source: Haver and Citi Research

Central banks hold a sizable share of outstanding securities

22

Central Bank share of government debt held

Source: Haver and Citi Research Source: Haver and Citi Research

Share of government debt held in EZ varies

0%

5%

10%

15%

20%

25%

Netherlands Germany Spain Portugal France Italy

% of Outstanding

Eurozone Average

The bulk of central bank holdings is in sovereign debt. But central banks also hold sizable corporate debt (EZ,

UK), MBS (US), covered bonds (EZ) and equities (JP).

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fed BoE ECB BoJ

of Asset Holdings

Sovereign Other

Sovereign debt accounts for the bulk of CB holdings Net issuance (ex-CB) of govt debt is negative currently

Source: Citi Research

-15

-10

-5

0

5

10

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

General Government Borrowing net of Central Bank purchases

US

Japan

Euro area

Sweden

UK

5-Country Average

% of GDP

Previous global tapering was absorbed well by financial markets

Seen over entire tapering period 2009/10 and 2013-15 the MSCI index rose and global yields fell after shorter

periods of higher volatility.

23

Note: Citi Forecasts. Purchases are 3-month moving averages of changes in asset holdings by the Fed, ECB, BoE, BoJ and Riksbank.

See: Global Economics View: Precedents of Central Bank Balance Sheet Reductions and Tapering: A Case Study Analysis Source: National Central

Banks, MSCI and Citi Research

https://www.citivelocity.com/t/eppublic/16YyM


However, there is mixed evidence from specific CB precedents

The reaction of key financial markets is more mixed around specific central bank policy changes. This is

because many different factors in addition to balance sheet policy will influence returns.

24

See: Global Economics View: Precedents of Central Bank Balance Sheet Reductions and Tapering: A Case Study Analysis Source: National Central

Banks, MSCI and Citi Research



Fed: We expect one more hike in 2017 and three in 2018

We expect the Fed to announce balance sheet reduction at its September meeting and to hike 25bp at its

December meeting.

25

PCE, Core PCE and Unemployment rate Inflation to remain below target

We expect balance sheet reduction to be

announced in September

Source: Citi Research, Federal Reserve Source: Citi Research, BLS, Federal Reserve

FOMC Rate Projections and Citi Forecast

Note: Fed Forecast are 4Q/4Q change. Citi Forecast is average of

quarter. Source: Citi Research, Federal Reserve

Global CB Balance Sheet Tapering/Shrinking Not A Big Deal

1. As there is no economic reason for tapering/shrinking, they can always stop or even reverse

themselves

2. Most of the assets involved are rather liquid.

3. I believe in the portfolio balance model

• The stock of assets involved is about $45 trillion.

• These are global assets.

• Global nominal GDP growth for 2017, 2018 and 2019 is likely just above 5.5% p.a.

• Asset demand is unit elastic w.r.t. the scale variable (GDP, wealth), holding constant asset

prices and yields.

• That means annual demand growth for the aggregate of these assets, at given prices and

yields, of around $2.7 trillion annually.

• Total predicted net increase in market supply of these assets for 2018 is less than $1.3

trillion.

• So there should, barring surprises, be downward pressure on the yields of these

assets/upward pressure on their prices.

26


Loose financial conditions support further stimulus withdrawal…

Financial conditions are unusually loose and loosening since the Fed started to hike interest rates. However,

financial conditions have not evolved dramatically different than in previous tightening cycles.

27

Fed Funds Target and Financial Conditions Federal Reserve tightening cycle

Cumulative change in financial conditions

during Fed tightening cycles

Source: Chicago Fed, Federal Reserve and Citi Research Source: Chicago Fed, Federal Reserve and Citi Research

Financial Conditions during Fed tightening cycles

Note: First hike on YYMM. 1406 refers to the tightening in the Wu-Xia

Shadow Fed Fund rate. Source: Federal Reserve and Citi Research Source: Chicago Fed, Federal Reserve and Citi Research

Source: Chicago Fed, Federal Reserve and Citi Research

Implied Volatility

… but also raise some financial stability concerns There are some signs of increasingly stretched financial markets. Financial stability and the risk of a major

asset market correction are becoming increasingly frequent in financial market conversations and in speeches

by central bank officials.

28

Shiller Cyclically-Adjusted Price Earnings Ratio

and S&P500 (% of GDP)

Global CB Securities Purchases vs

MSCI World 3m change(%)


Source: MSCI, Haver and Citi Research

Global CB Securities Purchases vs

UST 12m yield change


29 29 29

US and euro area – Core Inflation

The economic recovery is gathering steam in the Eurozone, but inflation softened lately and the ECB is also

facing financial and political pressures to phase out the purchase programme.

ECB: It’s not just the economy, stupid



There are few Bunds left to buy for the ECB

Real GDP (%YY) and ECB Inflation Gap

Source: BLS, EC and Citi Research


Monthly Deviations of PSPP Buying vs the Capital Key

30 30 30 30

Sources: ECB and Citi Research Forecasts.

See: European Economics Weekly - ECB: Not Taking Its Foot Off The Gas Yet

EA: ECB Asset Purchase Programme and Citi

Expectations (€ bn)

● Dec-2016: ECB announced step-down of net

purchases from €80bn/m to €60bn/m (from Apr-

17)

● June-2017: Removed the bias to ease rates and

changed balance of risk to neutral.

● Oct-2017: ECB to announce purchases from Jan-

18

– Our European economists expect the beginning

of a ‘hard taper’ but there are many scenarios:

• Announcing total additional purchases

(eg €150bn)

• Announcing schedule of purchases

• Simple (short) extension (our base

case)

● 2019: First rate hike before end of Draghi’s

mandate (November).

● There has been no communication so far on the

future of the APP

Current guidance + scarcity issues imply the need for an announcement in the fall (e.g. October). Predictability,

prudence and flexibility to be taken in path to normalization. We expect net asset purchases until mid-18 and first

rate hike in June-19

ECB: Further tapering likely to be announced in the fall

https://www.citivelocity.com/t/eppublic/16ahU




Will the ECB Raise Rates Before the APP Ends?

Current guidance: “The Governing Council expects the key ECB interest rates to remain at their present levels

for an extended period of time, and well past the horizon of our net asset purchases”.

31

The logic of tapering before hiking Why hike before ending the APP?

Source: Citi Research. See: Global Economics View: Will The ECB Hike Rates Before The APP Ends?

● The APP is a last-resort tool for monetary

policy.

● The stimulative effect of the APP is meant to

be in part through signaling that rates are to

remain low in the future.

● Raising interest rates would reduce the

portfolio rebalancing effects of QE, which are

reinforced by negative rates

● To save Italy!

– Ending the APP earlier may tighten

monetary conditions in the Eurozone

periphery (more so than deposit rate

hikes)

● Negative rates are ‘bad’

– The deposit rate may be above the

‘reversal rate’

– Negative rates are very unpopular

● Special circumstances (strong euro, inflation

overshoot in 2017)

● Overall, we think the ECB is likely to end the APP before raising interest rates

– Changing the sequencing is difficult and the APP may face scarcity constraints

– BUT: concerns over Italy or a change in the Bundesbank position could change sequencing

https://www.citivelocity.com/t/eppublic/13UZd

The ECB may aggravate challenges for Italy

Italy faces elections by May 2018 (at the latest), growth remains low and interest rates

are rising…

32

0

100

200

300

400

500

600

0

1

2

3

4

5

6

7

8

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

bp %

BTP/Bund Spread (rhs) Italy 10y Yield (lhs)

Source: Tullett-Prebon and Citi Research

Italian 10y Yields and Spread to German Bunds

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016 2017 2018

€ bn

Gross issuance Net of CB Purchases

Italian BTP Gross Issuance

-60

-40

-20

0

20

40

60

80

100

2010 2011 2012 2013 2014 2015 2016 2017 2018

€ bn

Net issuance Net of CB Purchases

Italian BTP Issuance less Redemptions

100

150

200

250

300

350

400

450

2007 2009 2011 2013 2015 2017

€ bn

Italian Bank Holdings of Government Debt

Source: Haver and Citi Research

Major Risks

33

There are risks to the outlook Including political risks (Italian elections, US political impasse), geopolitical tensions (North Korea, Middle East),

an increase in protectionism (escalation of a trade war with China, withdrawal from NAFTA), a sharp correction

in asset prices, among others.

34

North Korea’s Ballistic Missiles Italy – Voting Election vs 2013

General Election

Sources: Center for Strategic & International Studies (CSIS),

MissileThreat

See: Global Economics & Multi-Asset View - North Korea Risk; This

Time It’s Different – Scenario Analysis & Implications for

Economies, FX, Rates, Credit / Equities

Source: www.termometropolitico.it, Citi Research See: Talking About

Italy - Could Italy Benefit from a Hung Parliament?


Shiller Cyclically-Adjusted Price Earnings Ratio

and S&P500 (% of GDP)

https://www.citivelocity.com/t/eppublic/18cmy











https://www.citivelocity.com/t/eppublic/18co0





Considerable Downside Risks for Growth and Inflation

i) Potential tightening of financial conditions, ii) rise in international tensions, and iii) the risk that anti-

globalization agendas come to power or affect policies.

35

Source: Citi Research.

Risk Scenario Implications Higher-than expected AE wage growth

Unemployment in the AEs is at its lowest level since 2008, which could push up nominal and real wage growth (especially in the US) more-than-expected.

Faster wage growth could boost real GDP growth and inflation, but also lead to more monetary tightening than is currently priced, which could disrupt financial stability. Or monetary policy could react too cautiously, leading to even-higher-inflation.

A spike in commodity prices

Low capex across many commodities, supply interruptions for oil, an OPEC cut and some demand growth could lead to a higher-than-expected increase in food, oil or other commodity prices

The initial impact on global growth could be negative, as oil importers retrench more than oil exporters increase spending. Across AEs, central banks of commodity importers (including the US) would probably mostly look through the commodity price increase, unless it showed up in second-round effects.

AE Inflation undershooting expectations

Inflation expectations and weak wage growth could keep inflation low, commodity prices could weaken once again, as supply is more resilient than expected.

Lower-than-expected AE inflation would probably push back the end of the AE monetary easing cycle. The Fed could have fewer than two hikes in 2017 and the BoJ and ECB continue asset purchase programmes for even longer than currently expected

Monetary Policy tightening faster than expected

Scepticism about the effects of monetary policy is rising in many places. Some key central bank personnel will also change by 2018-19, which could trigger a change in central bank reaction functions.

A more hawkish central bank reaction function would probably challenge many asset valuations. It could, through wealth and sentiment effects, also have some dampening impact on growth and inflation.

Trade and foreign investment wars

Opposition to globalization is rising in most AEs. President-elect Trump announced during his campaign that he would seek to renegotiate trade deals and impose punitive tariffs.

Trade wars and constraints on foreign investment would be a major downside risk for global growth, with indeterminate effects on inflation. Countries most affected would be those most open and most reliant on foreign capital flows and external demand.

US slowdown/ recession

US unemployment is close to its natural rate. Should the US avoid recession until the next Presidential election (2020), this would be the longest expansion since NBER data began.

A major US slowdown could tip the global economy into recession (defined as sub-2% global real GDP growth, at market exchange rates).

China slowdown

Financial imbalances in China are large and increasing. Attempts to cap property price inflation, a smaller fiscal or credit impulse and a reacceleration of capital outflows (due to dollar strength, higher long-term yields and monetary tightening in the US) could trigger a renewed slowdown or worse.

A major Chinese slowdown could also push the global economy into recession and put particular pressure on manufacturing exporters to China and commodity exporters generally.

Hard Brexit takes shape

It is possible that at least the early indications will point towards a rather confrontational stance on either side, implying that the UK could fall back to 'third-country' status on leaving the EU.

Signs of a hard Brexit would probably hurt business sentiment in the UK and weaken sterling further. We suspect that a hard Brexit will mostly be a concern to the UK, and, to a lesser extent, to the EU-27, unless there are signs of further EU unraveling.

Upset in other European elections

Right-wing AfD now has double-digit support in opinion polls in Germany. Likelihood of either party leading a government is low (in Germany's case, minute).

The consequences of such an (unlikely) upset, particularly in Germany, could be significant. But support for such parties can affect policies without these parties entering government, as mainstream parties steal their clothes. Decision-making at the EU level would also become even more dysfunctional.

EU/Eurozone exit and other referenda

Following the UK, other EU/Eurozone countries may declare their own referenda on EU/Eurozone membership.

Even the possibility of such referenda, let alone the success, would likely weigh on private sector sentiment. The effect would be more significant for Eurozone referenda and if the country in question is large, the effects could go beyond the EU.

Italy early elections

The populist, anti-euro M5S remains popular and could win potential early elections

The risk of such a victory could hurt household, business and financial market sentiment in Italy and the Eurozone.

On the Optimistic Side, Animal Spirits Could Be Lifted by…

A combination of AE fiscal easing, continued monetary accommodation in AEs, a dose of deregulation, and an

end to the EM slowdown.

36

Source: Citi Research.

Risk Scenario Implications

Refugee crisis escalates

A breakdown of the EU deal with Turkey, a worsening of the situation in Greece, a major increase in arrivals via the Mediterranean route and the failure of intra-EU agreements to distribute refugees across EU countries could test the EU political and social fabric.

A renewed refugee crisis could threaten the standing of German Chancellor Merkel and create an even bigger leadership vacuum in the EU. It could also increase anti-EU sentiment in a range of EU countries and increase tensions between the countries willing to accept refugees and other EU countries.

Banking crisis in Europe

A mix of low profitability, legacy issues, weak growth, low interest rates and too many banks threaten the viability of some banks in Europe. Failure of a major bank or a series of banks could result.

Since the EU/Eurozone remains very reliant on bank funding, a banking crisis would likely have severe consequences for EU/Eurozone activity. The ECB would be likely to step in, to provide emergency liquidity to banks to cushion the blow.

A sharp fall in commodity prices

A fall in commodity prices could be triggered by weak demand or rising supply (perhaps in part due to deregulation in the US or a failure of the OPEC & Russia agreement to restrain oil output).

Even though many commodity exporters have made some progress in adjusting their external sector and balance sheet, their financial health is often still fragile.

Rising concerns over sovereign debt

Public debt levels are high across many AEs. Rising real interest rates or signs of lessening monetary policy support could raise interest burdens significantly.

Financial conditions could tighten significantly in countries with highly-indebted governments, often putting pressure on banks. A number of Eurozone countries (including Portugal and Italy) as well as Japan could be among the countries most at risk of encountering sovereign debt sustainability problems.

A sharp decline in asset prices

Valuations are high for a range of assets (including equity and house prices), in part due to low interest rates and monetary policy support. Tightening of monetary policy or a 'Minsky moment' could lead to a sharp fall in such asset prices.

Asset price declines combined with high leverage tend to be a recipe for major output declines, and very slow recoveries.

Animal spirits boost investment

Increasingly expansionary fiscal policy in many AEs and/or some deregulation (in the US) could boost animal spirits and therefore spending (particularly investment) across AEs (and perhaps EMs).

Global growth and inflation would rise, perhaps easing the way to withdraw the extraordinary monetary stimulus measures of the past decade.

Rising productivity growth

High innovation may finally spill over into wider productivity growth in AEs and perhaps EMs, after years of weak productivity growth.

Higher productivity growth has the potential to raise real interest rates and banish the spectre of secular stagnation. With some delay, it may also help to reverse increasing Vox Populi risks, provided its fruits are shared in a politically acceptable, equitable manner.

Geopolitical confrontation with Russia

Tensions with Russia could erupt in the Baltics or Nordics, in Turkey, Syria, or Ukraine. Sanctions on Russia could be tightened, hurting the Russian recovery.

Geopolitical confrontation with China

Tensions with China could arise in the South China Sea, with Japan, over Taiwan, or even over US physical assets in the region.

Global risk aversion would likely rise, hurting financial market sentiment and the global investment climate.

Geopolitical confrontation in Middle East

Tensions in Syria, between Turkey and Iraq, Iran and Saudi Arabia, in Egypt, Yemen, or around Israel, could escalate.

If the turmoil includes major oil producers, oil prices could spike. Otherwise, the geopolitical risk premium would rise further, but the initial effects may be fairly localized.

Geopolitical confrontation in North Korea

Tensions in the Korean Peninsula could arise between North Korea and the US and its allies, depending on the level of technological breakthrough in NK ballistic missile program and China’s stance vis-à-vis NK.

There are risks to supply chains and to global confidence, as well as implications for capital flows. A major shock would prompt a sharp demand for safe assets and JPY would appreciate initially on escalating tensions. A serious escalation of tensions would be bad for equities, with Asian EM and Japan leading the sell-off.

Risks 1: Protectionism

Protectionism has been rising in recent years and remains a risk to the outlook. Recent signs suggest that the

US is determined to pursue trade remedies and trade enforcement fairly aggressively.

37

Number of Trade Measures Implemented Globally

Sources: Global Trade Alert and Citi Research

Sources: WTO and Citi Research

Number of Discriminatory Trade Measures

Non-tariff trade barriers measures by US Non-tariff trade barriers measures by US

Sources: WTO and Citi Research

Sources: Global Trade Alert and Citi Research

0

5

10

15

20

25

30

35

40

45

50

2009 2010 2011 2012 2013 2014 2015 2016

Net discriminatory measures in first 10 months

EU US China Japan

0

100

200

300

400

500

600

2009 2010 2011 2012 2013 2014 2015 2016

Trade measures in first 10 months of each year

"Net" discriminatory measures Disciminatory Liberalising

See: Global Economics View: US Protectionism Round-Up: Steel, Lumber, Hiring & NAFTA

Global Economics View - US Protectionism Round-Up: Legitimate Trade Defense, KORUS

https://www.citivelocity.com/t/eppublic/14m21





https://www.citivelocity.com/t/eppublic/16ar0






What Can President Trump do on International Trade?

Congress has delegated significant powers to the President on directing international trade policies.

38

Sources: Citi Research

See: Global Economics View - What Can and Will President Trump Do On Int’l Trade?

Global Economics View: US Protectionism Round-Up: Trade guidelines, Sugar & NAFFTA

● Make or Break Trade Agreements

– President could begin the renegotiation of any trade agreement after a 90-day notice to

Congress. Next round of negotiations for NAFTA is scheduled for September 1-5, and

around 6-9 rounds are expected through December.

– President could order the withdrawal from NAFTA six months after providing notification to

Canada and Mexico, without congressional consent.

● Impose trade restrictions

– Raise tariffs on free-trade partners to the MFN rates (Presidential Proclamation)

– Proclaim additional duties (Section 201 of NAFTA)

– Impose tariffs up to 50% ad valorem on imports from countries that have discriminated against US

commerce (Tariff Act of 1930)

– Impose restrictions on specific imports for national security reasons (Trade Expansion Act of 1962

Section 232b)

– Impose tariffs up to 15% for up to 150 days against countries with large balance of payments surpluses

(Trade Act of 1974 Section 122).

– Trade sanctions in retaliation for unfair trade practices (Trade Act of 1974 Section 301)

– Regulate trade and freeze assets in case of national emergency (IEEPA)

– Regulate trade, freeze and seize foreign assets during war time (TWEA)

https://www.citivelocity.com/t/eppublic/13Ny7





https://www.citivelocity.com/t/eppublic/14OhN





Renegotiate NAFTA We continue to expect NAFTA to be renegotiated on its current trilateral format, borrowing mostly from TPP.

Trade wars and radical changes to trade agreements are unlikely, in our view, but remain risks to the global

economy that cannot be ignored.

39

Sources: US Department of Commerce and Citi Research

See: Global Economics View: A Roadmap to NAFTA 2.0

US Merchandise Trade with Mexico NAFTA renegotiation

● Our base-case is that highly controversial

changes to NAFTA likely will be few, and

mutually agreed-upon given inclusion of

elements from the TPP.

● However, there is a risk that more

controversial demands including changes

in taxation rules, more punitive “snap-

back” rules, and changes to procurement,

currency and bi-lateral trade deficit

targets, may wade into the negotiations.

● US exit or dissolution of NAFTA still

remain tail risks, as recently reminded by

President Trump’s statements.

https://www.citivelocity.com/t/eppublic/166uR

https://www.citivelocity.com/t/eppublic/166uR

Make Trade Fair Again, or Labeling Trade Manipulators

The factors that will be reviewed by the USTR Omnibus Report on Significant Trade deficits, pending since June,

closely mirror those that give the President power to impose trade remedies (eg tariffs) under US law.

40

● This report was meant to identify

– foreign trading partners with which the US has a significant trade deficit

– the factors underlying the trade deficit (including trade abuses)

– whether the country is discriminating against US producers

– the effects of the trade relationship on US manufacturing

– the effects on US employment and wages

– identifying trade-related national security risks.

Sources: Citi Research

See: Global Economics View - What Can and Will President Trump Do On Int’l Trade?

US Bilateral Goods Trade Balance (US$ billion)





Small Open Economies Are Vulnerable to Protectionism

Mexico and Canada have most export exposure to the US, but Asian and European economies rely much more

on exports in general.

41

Note: Data for 2011.

Sources: OECD and Citi Research

Trade Openness (% of GDP, Value Added terms)

0

10

20

30

40

50

60

70

80

90

100

Vie

tna

mS

ing

ap

ore

Ma

laysia

Ire

land

Ho

ng

Ko

ng

Hu

ng

ary

Ta

iwan

Cze

ch

Re

pub

lic

Sw

itze

rla

nd

Kore

aN

orw

ay

Philip

pin

es

Isra

el

Ge

rma

ny

Ne

w Z

ea

lan

dE

uro

Are

aC

an

ad

aIn

dia

Un

ite

d K

ing

do

mN

eth

erla

nds

Tu

rke

yIn

don

esia

Me

xic

oR

ussia

Fra

nce

Austr

alia

Ch

ina

Jap

an

Un

ite

d S

tate

sB

razil

Imports

Exports

% of GDP

-2

0

2

4

6

8

10

12

14

-2

0

2

4

6

8

10

12

14

Canad

a

Mexic

o

Ire

land

Sin

gapore

Vie

tnam

Isra

el

Sa

ud

i A

rab

iaT

aiw

an

Mala

ysia

Hong K

ong

Sw

itzerl

and

Kore

a

Th

aila

nd

Philip

pin

es

Chin

a

United K

ingdo

m

Norw

ay

Ind

ia

Ge

rmany

New

Zea

land

Japa

n

Ind

onesia

Russia

Euro

are

a

South

Afr

ica

Ne

the

rla

nd

sF

ran

ce

Au

str

alia

Tu

rkey

Bra

zil

Exports to the US

Trade balance with the US

(% of GDP)

US runs a Trade surplus

US runs a Trade deficit

Exports to the US and Trade with the US (% of GDP, Value Added terms)

Risk 2: Italy as the Remaining Major European Political Risk

● Government resignation – Italians rejected the constitutional reform with a large margin 59.6% vs.

40.4%, with ~70% turnout. PM Renzi resigned as a result.

● Early elections? – Elections are currently expected to take place May 2018 at the latest.

● Support for euro is the lowest among all euro area countries – 53% of Italians support the euro, 37%

are against and 11% don’t know (see below)

● Proportional Representation electoral system – should prevent extreme outcomes, although probably

perpetuate the muddling-through scenario. However, support for the electoral reform fell through recently.

42

Source: Eurobarometer Survey, October 2016 and Citi Research.

Italy: Political Fragmentation -> Lack Reform Momentum

Anti-establishment parties poll at more than 40%, PD still polling higher than last general election in Feb-2013.

Fragmented political scene will weaken future governments’ stability.

43 43 43 43 43 43 43 43

Election Results and Opinion Polls (%). 2013 – Jan 17

Sources: Various pollsters and Citi Research

Support for Alternative Parties (%), Jan 17

Sources: Various pollsters and Citi Research

44 44 44 44 44 44

Italy: Debt Sustainability Concerns to Resurface Nominal GDP growth of around 2% stabilises the debt ratio, higher growth needed to drive it lower

Italy – Public Debt and Nominal GDP

(EUR bn)

Sources: Eurostat, Italian Treasury and Citi Research

Italy – Public Debt/GDP Projections (%)

Under Different Nominal GDP Growth Scenarios

Citi F: nominal GDP growth of 1.6% in 2016-2018 on average.

Sources: Eurostat and Citi Research

800

1000

1200

1400

1600

1800

2000

2200

2400

1995 2000 2005 2010 2015

General GovernmentDebtNominal GDP

90

95

100

105

110

115

120

125

130

135

140

1995 1998 2001 2004 2007 2010 2013 2016 2019

45

Risk 3: Concerns on Chinese near-term momentum

All-around activity data came below expectations in July after a solid Q2. We expect growth to remain robust in

2H but slower than 1H. CPI inflationary pressure seems limited, PPI has peaked already.

Sources: CEIC and Citi Research Sources: CEIC and Citi Research

PPI and CPI Inflation PPI diverged from commodity prices

IP vs PMI Production GDP growth (%YY and QQ)

46

While long-term challenges are still there

An overleveraged economy, property prices bubble concerns and structural imbalances remain risks to the

Chinese outlook.

Structural imbalances

Sources: CEIC and Citi Research

FAI slowdown will continue to weigh on growth

Sources: NBS and Citi Research

Debt overhang remains Property prices are turning around

47

Risk 4: US Business Cycle Is Probably in a Relative Mature Phase Even though business cycles don’t have expiration dates, the current US

expansion is already long in the tooth.

Note: Expansions since 1854 Q4. According to NBER there have been 33 cycles

between 1854 and 2009.

Source: NBER and Citi Research

0

20

40

60

80

100

120

140

160

Lon

gest

expa

nsio

n

Sho

rtest

expa

nsio

n

Avera

ge

expa

nsio

n

Me

dia

ne

xpa

nsio

n

Expa

nsio

nu

ntil n

ow

Expa

nsio

nu

ntil n

ow

+ f

our

ye

ars

Duration in months since lastTrough

Months

0 500 1000 1500 2000

2010-2011

1980-1981

1989-1990

1978-1980

1975-1977

1998-2000

1971-1973

1967-1969

1963-1966

1958-1962

2003-2008

1982-1987

2011-2017

1991-1998

Source: Citi Research, Bloomberg. * Correction defined as a 15%

drop from maximum over the last two years.

Days since last correction* in the S&P500,

longest streaks

Expansions since 1854 Q4

Appendix

48

Calendar

49

Global Economic and Political Calendar for 2017

50 Source: Citi Research.

Date Country Data / Event Comments

August US AHCA Senate Vote Senate Republicans have yet to find consensus on a revised version of the AHCA (to repeal and partially replace the ACA). Alternatives being considered include repealing the ACA and replacing it at a later date. If a consensus cannot be built, legislative work on the AHCA may be postponed, see here.

Jul 20-Sep 5 UK Parliament Summer Recess Parliament in summer recess (makes triggering a leadership contest against PM Theresa May more difficult).

Before Aug 31 Brazil Temer’s Administration sends 2018 Budget to Congress

After President Temer survived the corruption-charge vote in the House, the loyal politicians in the ruling coalition now claim a bigger share in the Cabinet. According to the local press, in order to make their claims credible, they could blockade further fiscal measuressuch as the ones recently proposed by Meirelles when announcing the loosening of all 2017-2020 fiscal targets, ultimately also placing road bumps for the Congress analysis of the Pension System Reform’s constitutional amendment bill.

Aug - Sep Brazil Prosecutor General (PG) Janot could still seek the House’s approval to press further criminal charges against Temer

Although we think PG Rodrigo Janot is less likely to request the House’s approval to press further criminal charges against Temer, the local press frequently reports on the possibility of imminent further plea bargains that could change our current view, clouding the political landscape for structural reforms. It is worth mentioning Janot steps down from his PG position, while PG-appointed Raquel Dodge is locally perceived to as hawkish as incumbent Janot.

September Singapore Presidential Election The 2017 elections will be the first under new rules, which aim to tighten eligibility criteria and ensure a minority President from time to time.

September US Tax Reform & Debt Ceiling Negotiations; Must Pass Legislation

In September, the “Gang of Six” (Sec. Mnuchin and Cohn from the Trump Administration, Sen. McConnell and Sen. Hatch from the Senate, and Rep. Ryan and Rep. Brady from the House of Representatives) is expected to release a unified tax reform proposal, we believe with estimates for provisions’ effects on the 10-year deficit. Negotiations for resolving the current debt ceiling impasse will continue. Congress must eliminate, raise or suspend the ceiling before the government exhausts its ability to borrow, we believe by mid-October. We anticipate the limit will be suspended, given lack of consensus among members of Congress to raise the ceiling without including conditions for spending cuts. Congress must also pass legislation to fund government programs for FY2018 or face a partial shutdown at month-end; reauthorize the Federal Aviation Administration (FAA); and shore-up funding for the Children’s Health Insurance Program (CHIP). Senate confirmation hearings will also resume for Fed Board members and President Trump’s subordinate cabinet designees. A bi-partisan AHCA repeal/replace effort is likely to take a back seat given other priorities.

Sep 3 Germany Party Leader Debate TV debate between Chancellor Merkel and candidate Schulz ahead of the Federal elections.

Sep 5-6 Brazil BCB Policy Meeting Following the more dovish tone in BCB minutes than in the last statement, we expect BCB to cut the Selic Rate by 100bp to 8.25%.

Sep 6-7 Russia Eastern Economic Forum in Vladivostok Russia Its objective is to improve relations between the international investment community, Russian business and governments.

Sep 7 Eurozone ECB Policy Meeting We expect the GC to signal the extension of asset purchases beyond December at this meeting. We expect more information about QE for 2018, perhaps taking the form of a ~€150bn envelope for 1H-18, allowing the ECB to retain some flexibility about monthly purchases. In case of sharp improvements in the data, the ECB could decide to end purchases earlier or announce a ‘hard-taper-to-zero’ path. Updated projections will be released.

Sep 7 US Deadline for final countervailing duties determination on softwood lumber from Canada

On June 26, the Department of Commerce announced its preliminary decision to exclude lumber imports from the Atlantic Provinces from antidumping and countervailing duties. However, the final determination is due on September 7.

Sep 9 North Korea Anniversary of the founding of North Korea On last year’s anniversary, N. Korea conducted the fifth nuclear bomb test for a smaller warhead. For more, see here.

Sep 11 Norway Parliamentary Election All 169 parliamentary seats will be contested.

Sep 13 EU European Commission President Juncker delivers State of the Union Speech

Sep 14 UK MPC Outcome and Minutes Sir Dave Ramsden will join the MPC for the first time, after he takes up the role of deputy governor for markets and banking on September 4.

Sep 19-20 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair. Our base case is that balance sheet reduction is announced at this meeting. See here.

Sep 20-21 Japan Bank of Japan Policy Meeting

Global Economic and Political Calendar for 2017 (cont.)


Date Country Data / Event Comments

August US AHCA Senate Vote Senate Republicans have yet to find consensus on a revised version of the AHCA (to repeal and partially replace the ACA). Alternatives being considered include repealing the ACA and replacing it at a later date. If a consensus cannot be built, legislative work on the AHCA may be postponed, see here.

Jul 20-Sep 5 UK Parliament Summer Recess Parliament in summer recess (makes triggering a leadership contest against PM Theresa May more difficult).

Before Aug 31 Brazil Temer’s Administration sends 2018 Budget to Congress

After President Temer survived the corruption-charge vote in the House, the loyal politicians in the ruling coalition now claim a bigger share in the Cabinet. According to the local press, in order to make their claims credible, they could blockade further fiscal measuressuch as the ones recently proposed by Meirelles when announcing the loosening of all 2017-2020 fiscal targets, ultimately also placing road bumps for the Congress analysis of the Pension System Reform’s constitutional amendment bill.

Aug - Sep Brazil Prosecutor General (PG) Janot could still seek the House’s approval to press further criminal charges against Temer

Although we think PG Rodrigo Janot is less likely to request the House’s approval to press further criminal charges against Temer, the local press frequently reports on the possibility of imminent further plea bargains that could change our current view, clouding the political landscape for structural reforms. It is worth mentioning Janot steps down from his PG position, while PG-appointed Raquel Dodge is locally perceived to as hawkish as incumbent Janot.

September Singapore Presidential Election The 2017 elections will be the first under new rules, which aim to tighten eligibility criteria and ensure a minority President from time to time.

September US Tax Reform & Debt Ceiling Negotiations; Must Pass Legislation

In September, the “Gang of Six” (Sec. Mnuchin and Cohn from the Trump Administration, Sen. McConnell and Sen. Hatch from the Senate, and Rep. Ryan and Rep. Brady from the House of Representatives) is expected to release a unified tax reform proposal, we believe with estimates for provisions’ effects on the 10-year deficit. Negotiations for resolving the current debt ceiling impasse will continue. Congress must eliminate, raise or suspend the ceiling before the government exhausts its ability to borrow, we believe by mid-October. We anticipate the limit will be suspended, given lack of consensus among members of Congress to raise the ceiling without including conditions for spending cuts. Congress must also pass legislation to fund government programs for FY2018 or face a partial shutdown at month-end; reauthorize the Federal Aviation Administration (FAA); and shore-up funding for the Children’s Health Insurance Program (CHIP). Senate confirmation hearings will also resume for Fed Board members and President Trump’s subordinate cabinet designees. A bi-partisan AHCA repeal/replace effort is likely to take a back seat given other priorities.

Sep 3 Germany Party Leader Debate TV debate between Chancellor Merkel and candidate Schulz ahead of the Federal elections.

Sep 5-6 Brazil BCB Policy Meeting Following the more dovish tone in BCB minutes than in the last statement, we expect BCB to cut the Selic Rate by 100bp to 8.25%.

Sep 6-7 Russia Eastern Economic Forum in Vladivostok Russia Its objective is to improve relations between the international investment community, Russian business and governments.

Sep 7 Eurozone ECB Policy Meeting We expect the GC to signal the extension of asset purchases beyond December at this meeting. We expect more information about QE for 2018, perhaps taking the form of a ~€150bn envelope for 1H-18, allowing the ECB to retain some flexibility about monthly purchases. In case of sharp improvements in the data, the ECB could decide to end purchases earlier or announce a ‘hard-taper-to-zero’ path. Updated projections will be released.

Sep 7 US Deadline for final countervailing duties determination on softwood lumber from Canada

On June 26, the Department of Commerce announced its preliminary decision to exclude lumber imports from the Atlantic Provinces from antidumping and countervailing duties. However, the final determination is due on September 7.

Sep 9 North Korea Anniversary of the founding of North Korea On last year’s anniversary, N. Korea conducted the fifth nuclear bomb test for a smaller warhead. For more, see here.

Sep 11 Norway Parliamentary Election All 169 parliamentary seats will be contested.

Sep 13 EU European Commission President Juncker delivers State of the Union Speech

Sep 14 UK MPC Outcome and Minutes Sir Dave Ramsden will join the MPC for the first time, after he takes up the role of deputy governor for markets and banking on September 4.

Sep 19-20 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair. Our base case is that balance sheet reduction is announced at this meeting. See here.

Sep 20-21 Japan Bank of Japan Policy Meeting

Sep 23 New Zealand General election Official results of the election to renew the Parliament are declared until October 7

2017. Currently, Parliament is in office until October 10 2017 if not dissolved earlier. The current minority government is leaded by the National Party (59 seats), which has governed since 2008. Latest polls suggest it could win 55-56 seats, with 61 seats needed for a majority. The Labour Party has enjoyed a bounce in polls, and would like to change the RBNZ Act from the single decision maker model, a broadening of the objectives of monetary policy to include employment, appointment of a minority of external members and publication of Minutes. We don’t see these as representing a major paradigm shift for the RBNZ.

Sep 24 Germany Federal Election We think it is extremely likely that Angela Merkel will be re-elected as Chancellor for four more years. Polls give Chancellor Merkel’s CDU a commanding lead, with several coalition options. For a cross-asset preview and scenarios for the Federal election, see here.

September 26 New Zealand RBNZ Governor Wheeler’s term expires Deputy Governor Grant Spencer will assume as acting Governor until March 2018. The next government (general election on September 23) will appoint the next governor.

Sep 24-27 UK Labour Party Conference The Labour’s increased support in June’s General Election has secured left-wing

Jeremy Corbyn’s position as party leader.

Sep 27 Czech Republic Czech National Bank monetary policy meeting The CNB hiked its policy rate by 20bp in August after 4¾ years being at the

0.05%. This meeting is likely to add more colour whether the CNB will continue

with its hiking cycle in foreseeable future or the FX will enforce a pause.

Sep 29 US Treasury Secretary Mnuchin’s “hard” debt ceiling estimate

On a letter to House Speaker Ryan, Treasury Secretary Mnuchin noted that Congressional action to increase the debt ceiling would be needed by September.. (At that time, the suspension period of issuance of debt for the Civil Service and Postal service retirement funds will end. Suspension of reinvestments in the G-Fund will continue.) However, we and the CBO estimate that the “hard’ debt ceiling deadline can be extended through mid-October. The Treasury will likely still have additional headroom under the ceiling to exhaust and will have room to reduce daily cash balances further to avoid breaching the debt limit for several more weeks after September 29th.

Sep 30 US End of Fiscal Year 2017 If Congress does not pass a FY2018 budget resolution to fund government programs next year, then a continuing resolution, maintaining FY2017 funding levels likely will be passed to avoid a Federal government shutdown. While the Trump Administration has expressed comfort with staging a shutdown, the decision is largely in the hands of Congress, which likely would desire to avoid the erosion of voter, market, and international confidence associated with an impasse.

Autumn Italy Early elections could take place The accord on a new electoral law has fallen through. Early elections in Autumn were contingent on the bill being passed, therefore chances of an early ballot have now fallen considerably. For more, see here.

October US US Treasury semi-annual FX report is due.

Oct-Dec Brazil Senate floor voting on Pension System Reform Our base case scenario assumes that the pension reform will get approved in the 4Q17, under further dilution. However, it’s important to highlight that the risks are skewed to have an even later and more diluted pension reform. This bill should secure a long-run sustainability of the fiscal equilibrium. For more, see here.

Oct 1-4 UK Conservative Party Conference Conference could be an opportunity for rivalling hopefuls to gather support for a move to replace Theresa May. Focus may not be on May, but any speeches by Davis, Hammond or Johnson, for example.

Oct 1 Spain Possible Non-Binding Independence Referendum in Catalonia

We believe the referendum, even if it takes place, is unlikely to lead to Catalonia’s exit from Spain. A new round of regional elections likely to follow. For more, see here.

Oct 1 Portugal Local elections Local elections will take place for the 308 Portuguese municipalities. The electoral contest will serve as a gauge of support for the ruling Socialist minority government while it could potentially create conflicts within the left-wing alliance at the national level.

Oct 1 US Sequestration returns At the start of FY2018, automatic cuts to Federal Government discretionary spending levels resume unless Congress passes a budget or other legislation that temporarily raises spending caps, suspend cuts, or eliminates them.

Oct 6 Brazil Deadline for passing constitutional amendment bill changing Electoral Law so that new rules are already binding in 2018 General Elections

Another major distraction before the Congress analyses the Pension System Reform bill is the discussion of a constitutional change of the Electoral Law so that the new rules are already valid in the General Elections in 2018. Under discussion are: i) how campaigns are to be financed; and ii) moving from the current Proportional Representation electoral system towards a Majoritarian one or a hybrid version.



Sep 23 New Zealand General election Official results of the election to renew the Parliament are declared until October 7 2017. Currently, Parliament is in office until October 10 2017 if not dissolved earlier. The current minority government is leaded by the National Party (59 seats), which has governed since 2008. Latest polls suggest it could win 55-56 seats, with 61 seats needed for a majority. The Labour Party has enjoyed a bounce in polls, and would like to change the RBNZ Act from the single decision maker model, a broadening of the objectives of monetary policy to include employment, appointment of a minority of external members and publication of Minutes. We don’t see these as representing a major paradigm shift for the RBNZ.

Sep 24 Germany Federal Election We think it is extremely likely that Angela Merkel will be re-elected as Chancellor for four more years. Polls give Chancellor Merkel’s CDU a commanding lead, with several coalition options. For a cross-asset preview and scenarios for the Federal election, see here.

September 26 New Zealand RBNZ Governor Wheeler’s term expires Deputy Governor Grant Spencer will assume as acting Governor until March 2018. The next government (general election on September 23) will appoint the next governor.

Sep 24-27 UK Labour Party Conference The Labour’s increased support in June’s General Election has secured left-wing

Jeremy Corbyn’s position as party leader.

Sep 27 Czech Republic Czech National Bank monetary policy meeting The CNB hiked its policy rate by 20bp in August after 4¾ years being at the

0.05%. This meeting is likely to add more colour whether the CNB will continue

with its hiking cycle in foreseeable future or the FX will enforce a pause.

Sep 29 US Treasury Secretary Mnuchin’s “hard” debt ceiling estimate

On a letter to House Speaker Ryan, Treasury Secretary Mnuchin noted that Congressional action to increase the debt ceiling would be needed by September.. (At that time, the suspension period of issuance of debt for the Civil Service and Postal service retirement funds will end. Suspension of reinvestments in the G-Fund will continue.) However, we and the CBO estimate that the “hard’ debt ceiling deadline can be extended through mid-October. The Treasury will likely still have additional headroom under the ceiling to exhaust and will have room to reduce daily cash balances further to avoid breaching the debt limit for several more weeks after September 29th.

Sep 30 US End of Fiscal Year 2017 If Congress does not pass a FY2018 budget resolution to fund government programs next year, then a continuing resolution, maintaining FY2017 funding levels likely will be passed to avoid a Federal government shutdown. While the Trump Administration has expressed comfort with staging a shutdown, the decision is largely in the hands of Congress, which likely would desire to avoid the erosion of voter, market, and international confidence associated with an impasse.

Autumn Italy Early elections could take place The accord on a new electoral law has fallen through. Early elections in Autumn were contingent on the bill being passed, therefore chances of an early ballot have now fallen considerably. For more, see here.

October US US Treasury semi-annual FX report is due.

Oct-Dec Brazil Senate floor voting on Pension System Reform Our base case scenario assumes that the pension reform will get approved in the 4Q17, under further dilution. However, it’s important to highlight that the risks are skewed to have an even later and more diluted pension reform. This bill should secure a long-run sustainability of the fiscal equilibrium. For more, see here.

Oct 1-4 UK Conservative Party Conference Conference could be an opportunity for rivalling hopefuls to gather support for a move to replace Theresa May. Focus may not be on May, but any speeches by Davis, Hammond or Johnson, for example.

Oct 1 Spain Possible Non-Binding Independence Referendum in Catalonia

We believe the referendum, even if it takes place, is unlikely to lead to Catalonia’s exit from Spain. A new round of regional elections likely to follow. For more, see here.

Oct 1 Portugal Local elections Local elections will take place for the 308 Portuguese municipalities. The electoral contest will serve as a gauge of support for the ruling Socialist minority government while it could potentially create conflicts within the left-wing alliance at the national level.

Oct 1 US Sequestration returns At the start of FY2018, automatic cuts to Federal Government discretionary spending levels resume unless Congress passes a budget or other legislation that temporarily raises spending caps, suspend cuts, or eliminates them.

Oct 6 Brazil Deadline for passing constitutional amendment bill changing Electoral Law so that new rules are already binding in 2018 General Elections

Another major distraction before the Congress analyses the Pension System Reform bill is the discussion of a constitutional change of the Electoral Law so that the new rules are already valid in the General Elections in 2018. Under discussion are: i) how campaigns are to be financed; and ii) moving from the current Proportional Representation electoral system towards a Majoritarian one or a hybrid version.



Oct 10 US Public hearing for Section 301 investigation on Chinese practices on intellectual property rights.

After the USTR launched the Section 301 investigation on August 18, the USTR must determine within 12 months whether any discriminatory act, policy or practice exists and, if so, which action to take.

Oct 10 Venezuela Regional elections After being delayed by the National Electoral Council, regional elections will take place in October to elect state governors, but not state legislators. The elections were previously scheduled to take place in December, but were pushed forward by the Constituent Assembly shortly after it convened.

October-November

US Hard Debt Ceiling CBO anticipates the “hard” debt ceiling to bite in October instead of November. This is consistent with our projection (October for larger deficit, November for a smaller deficit. We currently project a mid-October date.) Once the hard debt ceiling bites, Congress must raise, suspend, or do away with the debt ceiling, or risk default. We also anticipate For more, see here.

Oct 13-15 IMF/WB Annual Meeting in Washington DC Includes meeting of G20 central bank governors and finance ministers and of the IMFC.

Oct 15 Austria Early elections After the grand coalition broke apart prematurely, Austria is heading for snap elections on 15 October. A three-way race in the polls is currently led by the centre-right ÖVP, but could see the right-wing populist FPÖ join government.

Oct 19-20 EU European Council Meeting Amongst others, first opportunity to move the Brexit negotiations on towards discussing a future trade deal.

Oct 20-21 Czech Republic General Elections The nomination of PM could become highly uncertain after the election as it could become a part of campaign before the Presidential election in January 2018 and because the police asked the Parliament to remove the immunity of Mr. Babis, the leader of ANO party, a likely winner of elections.

Oct 22 Japan Lower House by-elections in Ehime third district and Aomori fourth district (both seats held by the LDP).

The results of these elections will likely affect the political landscape heading into 2018.

Oct 24-25 Brazil BCB Policy Meeting We believe the BCB will cut the Selic rate by 75bp, bringing it to 7.50%.

On or before Oct 26

US Deadline for Commerce Department and USTR report The executive order signed on April 29 requires a report within 180 days. This report is intended to identify trade abuses and violations of any US trade agreement, trade relations under WTO rules, or trade preference program.

Oct 26 Eurozone ECB Policy Meeting A decision on the extension of asset purchases beyond December is likely to be unveiled at this meeting.

Oct 22 Argentina Legislative Elections

Oct 30-31 Japan Bank of Japan Policy Meeting with Outlook Report

Oct 31–Nov 1 US FOMC Meeting

Autumn (likely in November)

China 19th National Congress of the Communist Party The 19th Party Congress will have far-reaching implications for China’s politics and economic policy beyond the next five years. A new leadership of the Party will be elected, with five of the seven-member standing committee of the politburo likely to retire, and two promising young leaders to be selected among the newly selected standing members.

Nov 2 UK MPC Outcome, Minutes and Inflation Report

Nov 7 US Local elections in Virginia and New Jersey Special elections to the US Congress may take place in case of vacancies.

Late November UK Budget 2018/19 Controversy, for example around public sector pay, could test the government’s wafer-thin majority.

Nov 30 OPEC 173rd Ordinary OPEC Meeting in Vienna, Austria

Nov 30 Mexico Carstens resignation as Banxico Governor becomes effective.

Gov. Carstens’s departure to head the BIS was previously announced to take place on July 1.

Dec China Central Economic Work Conference This meeting will set key policy tasks for the coming year.

Dec 5-6 Brazil BCB Policy Meeting We believe the BCB will deliver a final cut to the Selic rate (50bp), bringing it to 7.0%, and will remain on hold in 2018.

Dec 12-13 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair. We expect the Fed will hike rates at this meeting.

Dec 14 UK MPC Outcome and Minutes

Dec 14 Eurozone ECB Policy Meeting Updated projections are released at this meeting.

Dec 14-15 EU European Council Meeting

Dec 16-20 South Africa ANC Presidential Election The ANC governing party of South Africa will hold its internal presidential election from 16 – 20 December 2017 whereby current ANC president Jacob Zuma will step down and the ANC will elect a new party president. Jacob Zuma will continue as country president until the Q2 2019 national elections however, the new ANC president will take on this country president role in 2019 if the ANC wins majority rule again in that election.



Oct 10 US Public hearing for Section 301 investigation on Chinese practices on intellectual property rights.

After the USTR launched the Section 301 investigation on August 18, the USTR must determine within 12 months whether any discriminatory act, policy or practice exists and, if so, which action to take.

Oct 10 Venezuela Regional elections After being delayed by the National Electoral Council, regional elections will take place in October to elect state governors, but not state legislators. The elections were previously scheduled to take place in December, but were pushed forward by the Constituent Assembly shortly after it convened.

October-November

US Hard Debt Ceiling CBO anticipates the “hard” debt ceiling to bite in October instead of November. This is consistent with our projection (October for larger deficit, November for a smaller deficit. We currently project a mid-October date.) Once the hard debt ceiling bites, Congress must raise, suspend, or do away with the debt ceiling, or risk default. We also anticipate For more, see here.

Oct 13-15 IMF/WB Annual Meeting in Washington DC Includes meeting of G20 central bank governors and finance ministers and of the IMFC.

Oct 15 Austria Early elections After the grand coalition broke apart prematurely, Austria is heading for snap elections on 15 October. A three-way race in the polls is currently led by the centre-right ÖVP, but could see the right-wing populist FPÖ join government.

Oct 19-20 EU European Council Meeting Amongst others, first opportunity to move the Brexit negotiations on towards discussing a future trade deal.

Oct 20-21 Czech Republic General Elections The nomination of PM could become highly uncertain after the election as it could become a part of campaign before the Presidential election in January 2018 and because the police asked the Parliament to remove the immunity of Mr. Babis, the leader of ANO party, a likely winner of elections.

Oct 22 Japan Lower House by-elections in Ehime third district and Aomori fourth district (both seats held by the LDP).

The results of these elections will likely affect the political landscape heading into 2018.

Oct 24-25 Brazil BCB Policy Meeting We believe the BCB will cut the Selic rate by 75bp, bringing it to 7.50%.

On or before Oct 26

US Deadline for Commerce Department and USTR report The executive order signed on April 29 requires a report within 180 days. This report is intended to identify trade abuses and violations of any US trade agreement, trade relations under WTO rules, or trade preference program.

Oct 26 Eurozone ECB Policy Meeting A decision on the extension of asset purchases beyond December is likely to be unveiled at this meeting.

Oct 22 Argentina Legislative Elections

Oct 30-31 Japan Bank of Japan Policy Meeting with Outlook Report

Oct 31–Nov 1 US FOMC Meeting

Autumn (likely in November)

China 19th National Congress of the Communist Party The 19th Party Congress will have far-reaching implications for China’s politics and economic policy beyond the next five years. A new leadership of the Party will be elected, with five of the seven-member standing committee of the politburo likely to retire, and two promising young leaders to be selected among the newly selected standing members.

Nov 2 UK MPC Outcome, Minutes and Inflation Report

Nov 7 US Local elections in Virginia and New Jersey Special elections to the US Congress may take place in case of vacancies.

Late November UK Budget 2018/19 Controversy, for example around public sector pay, could test the government’s wafer-thin majority.

Nov 30 OPEC 173rd Ordinary OPEC Meeting in Vienna, Austria

Nov 30 Mexico Carstens resignation as Banxico Governor becomes effective.

Gov. Carstens’s departure to head the BIS was previously announced to take place on July 1.

Dec China Central Economic Work Conference This meeting will set key policy tasks for the coming year.

Dec 5-6 Brazil BCB Policy Meeting We believe the BCB will deliver a final cut to the Selic rate (50bp), bringing it to 7.0%, and will remain on hold in 2018.

Dec 12-13 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair. We expect the Fed will hike rates at this meeting.


Dec 14 Eurozone ECB Policy Meeting Updated projections are released at this meeting.

Dec 14-15 EU European Council Meeting

Dec 16-20 South Africa ANC Presidential Election The ANC governing party of South Africa will hold its internal presidential election from 16 – 20 December 2017 whereby current ANC president Jacob Zuma will step down and the ANC will elect a new party president. Jacob Zuma will continue as country president until the Q2 2019 national elections however, the new ANC president will take on this country president role in 2019 if the ANC wins majority rule again in that election.

Dec 20-21 Japan Bank of Japan Policy Meeting

Dec 31 US Tax Extenders expire A small number of energy tax provisions, that were not made permanent in 2015, will expire. Congress must decide whether to extend the tax breaks, make them permanent, or eliminate them. These provisions may alternatively be folded into a broader tax reform package ahead of the December deadline.

December Venezuela Municipal elections While regional elections were scheduled by the constituent assembly to take October, municipal elections are still expected to take place later this year, with an exact date still pending to be established.

Global Economic and Political Calendar for 2018


January 1 Sweden Riksbank Governor Ingves term expires After a second term, Governor Ingves will likely be replaced by an external member. Taking into account the outlook for monetary policy normalization in 2018 (we expect QE program to end in December 2017 and the first hike by mid-2018), the governor appointment could send a signal to markets about the pace (or flexibility) of the normalization.

January Czech Republic Presidential Elections

January 14 US Deadline for the Commerce Department to present its findings on the investigations of the effect of steel imports on National Security

Investigations started on April 19, with public hearings taking place on May 24, and a report expected within 270 days after the initiation. Within 90 days after receiving the report, the President determines which actions must be taken (including tariffs and quotas) if the Commerce Department finds that such imports threaten to impair national security.

January 22 US Deadline for the Commerce Department to present its findings on the investigations of the effect of aluminum imports on National Security

Investigations started on April 27, with public hearings taking place on May 24, and a report expected within 270 days after the initiation. If aluminum imports are found to impair national security, the President will have 90 days to determine what action should be taken to remedy that harm.

January 25 Eurozone ECB Policy Meeting

January 30-31 US FOMC Meeting

January 31 EU / Russia EU economic sanctions on Russia expire Sanctions were extended for 6 months. These keep restrictions on business with Russian defense, financial and energy sectors. Note that these are separate from the asset freeze and visa ban.

February 3 US Janet Yellen's term as Fed Chair expires

February 8 UK MPC Outcome, Minutes and Inflation Report

March 8 Eurozone ECB Policy Meeting

March 11 Russia Presidential Election first round. If no candidate gets absolute majority, a second round will be scheduled three weeks later (April 1, 2018).

Mar 11 Colombia Parliamentary Elections This vote will elect the 102 members of the senate and 166 members of house of representatives, and will include candidates from the newly formed political party of FARC. This vote will help identify how public opinion around the peace accords could influence the presidential elections later in the year.

March 20-21 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair.

May 27 Colombia Presidential Elections (First Round) The first round of presidential elections will narrow down a wide field of candidates, with the debate being likely revolve around the recently signed peace accords with FARC. We expect to see the two leading candidates to include a member of former president Alvaro Uribe's Centro Democrático party, which opposes the peace accords as they stand, and a candidate representing a group of parties in favor of the peace deals.

March 22 UK MPC Outcome and Minutes

Q1 OPEC End of current oil production cut agreement

April 8 Japan BoJ Governor Kuroda's retirement Media Reports suggest that Gov. Kuroda could be reappointed for another term.

April 17 US Deadline for Report with assessment of the Manufacturing Capacity, Defense Industrial Base and Supply Chain Resiliency of the US

The report follows the presidential executive order signed on July 21 2017.

April 26 Eurozone ECB Policy Meeting

April-May Hungary Parliamentary Elections

May 1-2 US FOMC Meeting

May 10 UK MPC Outcome, Minutes and Inflation Report

No later than May 20

Italy Elections We expect the M5S could win a majority of seats in the Lower House but not enough to form a government. For more, see here.

Within 90 days after June 05

Pakistan General Elections

June 12 US Stanley Fischer's term as Vice Chairman of Board of Governors expires

June 12-13 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair.

June 14 Eurozone ECB Policy Meeting

June 21 UK MPC Outcome and Minutes



January 1 Sweden Riksbank Governor Ingves term expires After a second term, Governor Ingves will likely be replaced by an external member. Taking into account the outlook for monetary policy normalization in 2018 (we expect QE program to end in December 2017 and the first hike by mid-2018), the governor appointment could send a signal to markets about the pace (or flexibility) of the normalization.

January Czech Republic Presidential Elections

January 14 US Deadline for the Commerce Department to present its findings on the investigations of the effect of steel imports on National Security

Investigations started on April 19, with public hearings taking place on May 24, and a report expected within 270 days after the initiation. Within 90 days after receiving the report, the President determines which actions must be taken (including tariffs and quotas) if the Commerce Department finds that such imports threaten to impair national security.

January 22 US Deadline for the Commerce Department to present its findings on the investigations of the effect of aluminum imports on National Security

Investigations started on April 27, with public hearings taking place on May 24, and a report expected within 270 days after the initiation. If aluminum imports are found to impair national security, the President will have 90 days to determine what action should be taken to remedy that harm.

January 25 Eurozone ECB Policy Meeting

January 30-31 US FOMC Meeting

January 31 EU / Russia EU economic sanctions on Russia expire Sanctions were extended for 6 months. These keep restrictions on business with Russian defense, financial and energy sectors. Note that these are separate from the asset freeze and visa ban.

February 3 US Janet Yellen's term as Fed Chair expires

February 8 UK MPC Outcome, Minutes and Inflation Report

March 8 Eurozone ECB Policy Meeting

March 11 Russia Presidential Election first round. If no candidate gets absolute majority, a second round will be scheduled three weeks later (April 1, 2018).

Mar 11 Colombia Parliamentary Elections This vote will elect the 102 members of the senate and 166 members of house of representatives, and will include candidates from the newly formed political party of FARC. This vote will help identify how public opinion around the peace accords could influence the presidential elections later in the year.

March 20-21 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair.

May 27 Colombia Presidential Elections (First Round) The first round of presidential elections will narrow down a wide field of candidates, with the debate being likely revolve around the recently signed peace accords with FARC. We expect to see the two leading candidates to include a member of former president Alvaro Uribe's Centro Democrático party, which opposes the peace accords as they stand, and a candidate representing a group of parties in favor of the peace deals.

March 22 UK MPC Outcome and Minutes

Q1 OPEC End of current oil production cut agreement

April 8 Japan BoJ Governor Kuroda's retirement Media Reports suggest that Gov. Kuroda could be reappointed for another term.

April 17 US Deadline for Report with assessment of the Manufacturing Capacity, Defense Industrial Base and Supply Chain Resiliency of the US

The report follows the presidential executive order signed on July 21 2017.

April 26 Eurozone ECB Policy Meeting

April-May Hungary Parliamentary Elections

May 1-2 US FOMC Meeting

May 10 UK MPC Outcome, Minutes and Inflation Report

No later than May 20

Italy Elections We expect the M5S could win a majority of seats in the Lower House but not enough to form a government. For more, see here.

Within 90 days after June 05

Pakistan General Elections

June 12 US Stanley Fischer's term as Vice Chairman of Board of Governors expires

June 12-13 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair.

June 14 Eurozone ECB Policy Meeting

June 21 UK MPC Outcome and Minutes

July 1 Mexico Congress and Presidential Elections

July 26 Eurozone ECB Policy Meeting

July 31- Aug 1 US FOMC Meeting

August 2 UK MPC Outcome, Minutes and Inflation Report

On / before Aug 24

Malaysia General Election

Between Autumn 2018 and Spring 2019

Scotland First Minister Nicola Sturgeon planned date to hold another independence referendum

Sep 9 Sweden General Election

Sep 13 Eurozone ECB Policy Meeting

Sep 25-26 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair.

September Japan PM Abe Shinzo term ends as leader of the LDP party. Back in March, the LDP changed an internal rule to extend the maximum term of its president to nine years, which could allow PM Abe Shinzo to serve a third term, if re-elected, that would last through 2021. Since mid-June, however, cabinet approval ratings are now lower than cabinet disapproval ratings despite some recovery after the Cabinet reshuffling. We expect PM Abe to survive until the LDP presidential election, and in this case the next BoJ Governor will be appointed by

Mr. Abe. For more see here.

Oct - Dec Thailand General election

October Brazil General election

October Venezuela Presidential Elections

October 22 Japan Potential snap election As two by-election will take place in Aomori and Ehime prefectures, PM Abe may call for a snap election. We see e see a 30% probability of a snap election in the rest of 2017 or in early 2018, with the main hurdle being that the parties supporting constitutional reform would fall short of the required two-thirds majority.

For more, see here.

Oct 25 Eurozone ECB Policy Meeting

Nov Ireland Presidential Election

Nov 6 US Mid-term elections for all 435 seats in the House of Representatives and 33 of the 100 seats in the Senate

Nov 7-8 US FOMC Meeting

On or before Dec 13

Japan 48th general election of members to the House of Representatives

Latest polls show the LDP party having a clear lead, although it has narrowed recently.

Dec 13 Eurozone ECB Policy Meeting

Dec 18-19 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair.


2019

Jan 29-30 US FOMC Meeting

Mar 29 UK Official Brexit date

June Eurozone ECB Policy Meeting We expect the ECB to deliver its first (repo & depo) rate hikes in this meeting. The pace of future interest rate increases should be slow.

Jun 30 UK BoE Governor Carney’s term ends

Oct 31 Eurozone ECB President Draghi’s term ends

2020

Nov 3 US Presidential Elections



July 1 Mexico Congress and Presidential Elections

July 26 Eurozone ECB Policy Meeting

July 31- Aug 1 US FOMC Meeting

August 2 UK MPC Outcome, Minutes and Inflation Report

On / before Aug 24

Malaysia General Election

Between Autumn 2018 and Spring 2019

Scotland First Minister Nicola Sturgeon planned date to hold another independence referendum

Sep 9 Sweden General Election

Sep 13 Eurozone ECB Policy Meeting

Sep 25-26 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair.

September Japan PM Abe Shinzo term ends as leader of the LDP party. Back in March, the LDP changed an internal rule to extend the maximum term of its president to nine years, which could allow PM Abe Shinzo to serve a third term, if re-elected, that would last through 2021. Since mid-June, however, cabinet approval ratings are now lower than cabinet disapproval ratings despite some recovery after the Cabinet reshuffling. We expect PM Abe to survive until the LDP presidential election, and in this case the next BoJ Governor will be appointed by

Mr. Abe. For more see here.

Oct - Dec Thailand General election

October Brazil General election

October Venezuela Presidential Elections

October 22 Japan Potential snap election As two by-election will take place in Aomori and Ehime prefectures, PM Abe may call for a snap election. We see e see a 30% probability of a snap election in the rest of 2017 or in early 2018, with the main hurdle being that the parties supporting constitutional reform would fall short of the required two-thirds majority.

For more, see here.

Oct 25 Eurozone ECB Policy Meeting

Nov Ireland Presidential Election

Nov 6 US Mid-term elections for all 435 seats in the House of Representatives and 33 of the 100 seats in the Senate

Nov 7-8 US FOMC Meeting

On or before Dec 13

Japan 48th general election of members to the House of Representatives

Latest polls show the LDP party having a clear lead, although it has narrowed recently.

Dec 13 Eurozone ECB Policy Meeting

Dec 18-19 US FOMC Meeting This meeting is associated with a Summary of Economic Projections and a press conference by the Chair.


2019

Jan 29-30 US FOMC Meeting

Mar 29 UK Official Brexit date

June Eurozone ECB Policy Meeting We expect the ECB to deliver its first (repo & depo) rate hikes in this meeting. The pace of future interest rate increases should be slow.

Jun 30 UK BoE Governor Carney’s term ends

Oct 31 Eurozone ECB President Draghi’s term ends

2020

Nov 3 US Presidential Elections

Forecasts

58

Real GDP Growth Forecasts

We expect Global GDP growth at 3.1%YY in 2017, picking up to 3.3%YY in 2018.

59

GDP growth forecasts in 2017 and 2018

Note: At market exchange rates. Source: Citi Research (as of 23 August 2017). Global and EM aggregates excluding Venezuela.

See: Global Economic Outlook and Strategy - August 2017

https://www.citivelocity.com/t/eppublic/18CEm




Real GDP Growth Forecasts

We expect Global GDP growth in 2017 to be slightly higher than in 2016, and to improve further in 2018.

60

Change in expected GDP growth (percentage points, 2016 to 2017 and 2017 to 2018)







Inflation Forecasts

We expect global inflation at 2.4%YY in 2017 and 2018.

61

Inflation forecasts in 2017 and 2018







Inflation Forecasts

We expect global inflation to slightly accelerate in 2017 and remain steady in 2018.

62

Change in expected Inflation (percentage points, 2016 to 2017 and 2017 to 2018)







63 63 63 63 63 63 63

Citi Economic Forecasts: GDP and Inflation in 2017-2020

Note: We use PCE deflator in the US. Source: Citi Research (as of 23 August 2017). Global and EM aggregates exclude Venezuela.


2016F 2017F 2018F 2019F 2020F 2016F 2017F 2018F 2019F 2020F

Global 2.6 3.1 3.3 3.2 3.2 2.2 2.4 2.4 2.5 2.5

Advanced Economies 1.6 2.1 2.2 2.0 1.9 0.7 1.6 1.6 1.8 1.9

United States 1.5 2.1 2.6 2.4 2.1 1.2 1.7 1.8 2.0 2.1

Japan 1.0 2.0 1.7 1.0 1.0 -0.1 0.4 0.5 0.7 0.9

Canada 1.5 2.8 2.0 2.0 2.0 1.4 1.6 1.9 2.0 2.0

Australia 2.5 2.1 2.6 2.7 2.7 1.3 2.1 2.1 2.3 2.9

New Zealand 3.1 2.6 3.1 3.3 2.7 0.6 2.2 2.0 2.1 2.2

Euro Area 1.7 2.2 2.0 1.8 1.9 0.2 1.5 1.2 1.5 1.7

Germany 1.9 2.3 2.4 2.0 2.3 0.5 1.7 1.6 1.7 1.7

France 1.1 1.7 1.8 2.1 2.1 0.3 1.1 1.5 1.8 2.1

Italy 1.0 1.5 1.0 0.8 0.9 0.0 1.3 0.9 1.2 1.4

Spain 3.2 3.2 2.7 2.0 1.9 -0.3 1.8 1.1 1.4 1.5

Greece 0.0 0.7 1.1 1.3 1.4 0.0 1.2 0.1 0.3 0.7

Ireland 5.1 3.5 3.4 3.1 3.0 0.1 1.2 1.1 1.2 1.3

Portugal 1.4 2.7 2.1 1.8 1.6 0.6 1.5 1.3 1.5 1.5

Netherlands 2.1 3.2 2.1 1.9 1.7 0.1 1.4 1.6 1.5 1.9

Belgium 1.2 1.7 1.8 1.9 1.8 1.8 2.0 1.5 2.2 2.2

Norway 0.8 2.1 2.2 2.3 2.3 3.5 2.0 1.8 1.8 2.0

Sweden 3.0 3.3 2.6 2.4 2.2 1.0 1.8 1.9 1.9 2.1

Switzerland 1.3 1.2 1.8 1.7 1.7 -0.4 0.5 0.8 1.0 1.0

United Kingdom 1.8 1.6 1.5 1.4 1.9 0.6 2.7 2.9 2.2 1.8

Emerging Markets 3.9 4.5 4.7 4.8 4.9 4.3 3.7 3.5 3.5 3.3

China 6.7 6.8 6.5 6.4 6.3 2.0 1.8 2.2 2.1 2.2

India 7.1 7.5 7.9 8.1 8.3 4.5 3.5 4.3 4.8 4.5

Russia -0.2 2.0 2.3 2.5 2.5 7.0 4.2 4.0 4.1 4.1

South Africa 0.3 0.5 0.9 1.5 1.7 6.6 5.3 4.7 5.4 5.2

Brazil -3.6 0.5 2.2 2.5 2.5 8.8 3.6 3.8 4.1 4.1

Mexico 2.3 2.0 2.5 2.8 3.0 2.8 5.9 4.2 4.0 3.7

GDP Growth (%YoY) CPI Inflation (%YoY)





64 64 64 64 64 64 64

Citi Forecasts: Interest Rates in 2017-2021

Source: Citi Research (as of 23 August 2017).






65 65 65 65 65 65 65

Citi Forecasts: Yield Curves in AE in 2017







66 66 66 66 66 66 66

Citi Economic Forecasts: Exchange Rate in 2017-2018







67 67 67 67 67 67 67

Citi Foreign Exchange Forecasts

Source: Citi Research (as of July 20 2017).

See:Global Asset Allocation - Citi House Views – July 2017

https://www.citivelocity.com/t/eppublic/16hKO







68 68 68 68 68 68 68

Citi Market Forecasts

Source: Citi Research (as of July 20 2017).

See:Global Asset Allocation - Citi House Views – July 2017








69 69 69 69 69 69 69

Citi Economic Forecasts: Commodities Prices







70

Credit Ratings

Note: *- means negative watch. As of 25 July 2017.

Source: Bloomberg

Ratings and outlook (25 July 2017):

S&P Outlook Moody's Outlook Fitch Outlook DBRS Outlook S&P Outlook Moody's Outlook Fitch Outlook DBRS Outlook

US AA+u STABLE Aaa STABLE AAA STABLE AAA STABLE Denmark AAA STABLE Aaa STABLE AAA STABLE AAA STABLE

Japan A+u STABLE A1 STABLE A STABLE A STABLE Norway AAA STABLE Aaa STABLE AAA STABLE AAA STABLE

European Union AA STABLE Australia AAAu NEG Aaa STABLE AAA STABLE AAA STABLE

Austria AA+ STABLE Aa1 STABLE AA+ STABLE AAA STABLE New Zealand AA STABLE Aaa STABLE AA STABLE

Belgium AAu STABLE Aa3 STABLE AA- STABLE AAH STABLE Sweden AAAu STABLE Aaa STABLE AAA STABLE AAA STABLE

Estonia AA- STABLE A1 STABLE A+ STABLE AAL STABLE Switzerland AAAu STABLE Aaa STABLE AAA STABLE AAA STABLE

Finland AA+ STABLE Aa1 STABLE AA+ STABLE AAH STABLE UK AAu NEG Aa1 NEG AA NEG AAA STABLE

France AAu STABLE Aa2 STABLE AA STABLE AAA STABLE

Germany AAAu STABLE Aaa STABLE AAA STABLE AAA STABLE China AA- NEG A1 STABLE A+ STABLE AH STABLE

Greece B- POS Caa2 POS CCC CCCH STABLE India BBB-u STABLE Baa3 POS BBB- STABLE BBB STABLE

Ireland A+ STABLE A3 POS A STABLE AH STABLE South Korea AA STABLE Aa2 STABLE AA- STABLE

Italy BBB-u STABLE Baa2 NEG BBB STABLE BBBH STABLE Brazil BB *- Ba2 NEG BB NEG BB NEG

Latvia A- STABLE A3 STABLE A- STABLE Mexico BBB+ STABLE A3 NEG BBB+ NEG BBBH STABLE

Lithuania A- STABLE A3 STABLE A- STABLE AL STABLE Russia BB+ POS Ba1 STABLE BBB- STABLE

Luxembourg AAA STABLE Aaa STABLE AAA STABLE Hungary BBB- STABLE Baa3 STABLE BBB- STABLE

Malta A- STABLE A3 STABLE A POS A STABLE Poland BBB+ STABLE A2 STABLE A- STABLE A STABLE

Netherlands AAAu STABLE Aaa STABLE AAA STABLE AAA STABLE Nigeria B STABLE B1 STABLE B+ NEG

Portugal BB+u STABLE Ba1 STABLE BB+ POS BBBL STABLE

Slovakia A+ STABLE A2 POS A+ STABLE AH STABLE

Slovenia A+ STABLE Baa3 POS A- STABLE

Spain BBB+ POS Baa2 STABLE BBB+ POS AL STABLE

71

Global Economics Publications


Date Publication

Latest Global

Economic Outlook Global Economic Outlook and Strategy - August 2017

Latest Presentation Global Economic Outlook: Stuck-flation?

18-Aug-17 Global Economics View: US Protectionism Round-Up: Sec 301, NAFTA start, KORUS

11-Aug-17 Global Economics View: Are (US) Financial Conditions Unusually Easy?

10-Aug-17 Global Economics View: US Protectionism Round-Up: Chinese aluminum, NAFTA 1st round

9-Aug-17 Global Economics View: Why does the Fed (or any central bank) want to shrink its balance sheet?

2-Aug-17 Global Economics View: Why do economists consistently over-predict inflation?

27-July-17 Global Economics View: The ECB’s Euro Challenge

19-July-17 Global Economic Outlook and Strategy: July 2017*

19-July-17 Global Economics View: Precedents of Central Bank Balance Sheet Reductions and Tapering: A Case Study Analysis

17-July-17 Global Economics View: US Protectionism Round-Up: NAFTA Renegotiation Objectives

16-July-17 Global Economics View: US Protectionism Round-Up: Legitimate Trade Defense, KORUS

13-July-17 Global Economics View: Are AE Central Banks Coordinating To Turn Hawkish?

13-July-17 Global Economics View: Base effects to weigh on advanced economy inflation in H2

9-July-17 Global Economics View: G20 Summit: Show of No Unity

7-July-17 Global Economics View: Will China’s credit impulse cut the global recovery short?

5-July-17 Global Economics View: A Roadmap to NAFTA 2.0

5-July-17 Global Economics View: G20 Summit Preview: two world views collide

28-June-17 Trade and Trump: A Trade and Protectionism Overview

26-June-17 Global Economics View: US Protectionism Round-Up: Steel, Trade Deficit, USTR testimony

22-June-17 Global Economics View: H2 Outlook: Stuck-flation

22-June-17 Global Economic Outlook and Strategy: June 2017

14-June-17 Global Economics View: Central Banks Turn Patient

14-June-17 Global Economics View: Global trade recovery: does it have legs?

9-June-17 Global Economics View: US and Eurozone Monetary Conditions Converging Fast

5-June-17 Global Economics View: US Protectionism Round-Up: Mech. tubing, Sugar, TTIP, Steel

24-May-17 Global Economic Outlook and Strategy - May 2017

18-May-17 Global Economics View - US Protectionism Round-Up: NAFTA Renegotiation Set to Begin

10-May-17 Global Economics View: US Protectionism Round-Up: Trade guidelines, Sugar & NAFFTA

27-Apr-17 Global Economics View - US Protectionism Round-Up: Steel, Lumber, Hiring & NAFTA





https://www.citivelocity.com/t/eppublic/15hUV



https://www.citivelocity.com/t/eppublic/17ysy



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72 72 72 72 72

Daily Publications Weekly Publications and Data Notes Monthly Publications

●Europe ●Europe ●Global Economic Outlook and Strategy

●US ●US ●Chief Economist Willem Buiter Special Pieces

●Japan ●Japan ●EM Economic Outlook and Strategy

●UK

●Canada

●Australia and New Zealand

●Emerging Markets

Citi Economic Research Is Available via Email, Websites and

Various Research Distribution Providers

If you would like to receive any of the research listed below, please contact

Ann O’Kelly ([email protected])

73

Appendix A-1

Analyst Certification

The research analysts primarily responsible for the preparation and content of this research report are either (i) designated by “AC” in the author block or (ii) listed in bold alongside content which is attributable to that analyst. If multiple AC analysts are designated in the author block, each analyst is certifying with respect to the entire research report other than (a) content attributable to another AC certifying analyst listed in bold alongside the content and (b) views expressed solely with respect to a specific issuer which are attributable to another AC certifying analyst identified in the price charts or rating history tables for that issuer shown below. Each of these analysts certify, with respect to the sections of the report for which they are responsible: (1) that the views expressed therein accurately reflect their personal views about each issuer and security referenced and were prepared in an independent manner, including with respect to Citigroup Global Markets Inc. and its affiliates; and (2) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in this report.

IMPORTANT DISCLOSURES

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of United States

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of CANADA (GOVERNMENT)

Citibank (China) Co., Ltd is a Bond Market Maker, a Spot FX Market Maker and a Forward & Swap FX Market maker in the interbank market.

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Mexico Alejandra Bautista, Administrative Assistant, holds a short position in the securities of Mexico.

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Australia

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Chile

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of PERU, REPUBLIC OF (GOVERNMENT)

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Panama

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Brazil

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Argentina

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Saudi Arabia

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Jordan

Citigroup Global Markets Ltd is currently mandated as advisor to the Hellenic Republic in relation the announced privatisation process of various State owned airports and Hellinikon.

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of COLOMBIA, REPUBLIC OF (GOVERNMENT)

74

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Philippines. Citibank N.A Philippines Branch does market making activities for FX US$/PHP Spot and Forwards, PHP Government Securities and Interest Rate Derivatives.

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Indonesia

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Switzerland

Citi India is a Market Maker in Rupee FX Forwards, Dollar- Rupee Spot FX and Fixed Income Sovereign Bonds.

Citigroup Global Markets Inc. owns a position of 1 million USD or more in the debt securities of Germany

Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of United States, Canada, Mexico, South Korea, Australia, Chile, New Zealand, Netherlands, Belgium, Brazil, Jordan, Norway, Colombia, Romania, Philippines, Portugal, Poland, Spain, Sweden, Israel, Indonesia, France, Italy, Ireland, Germany, Finland.

Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from United States, Japan, Canada, United Kingdom, China, Mexico, South Korea, Australia, Chile, Malaysia, New Zealand, Peru, Singapore, Hong Kong, Netherlands, Belgium, Panama, Brazil, Argentina, Egypt, Saudi Arabia, Jordan, Kenya, Norway, Greece, Colombia, Romania, Philippines, South Africa, Portugal, Nigeria, Poland, Czech Republic, Spain, Hungary, Denmark, Sweden, Russian Federation, Israel, Indonesia, Switzerland, France, India, Italy, Ireland, Germany, Austria, Slovenia, Slovakia, Malta, Luxembourg, Lithuania, Latvia, Estonia, Finland.

Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from Japan, United Kingdom, China, Mexico, South Korea, Australia, Malaysia, Peru, Singapore, Brazil, Saudi Arabia, Norway, Colombia, Poland, Spain, Denmark, Israel, Indonesia, India, Austria.

Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from United States, Japan, Canada, United Kingdom, China, Mexico, South Korea, Australia, Chile, Malaysia, New Zealand, Peru, Singapore, Hong Kong, Netherlands, Belgium, Panama, Brazil, Argentina, Egypt, Saudi Arabia, Jordan, Kenya, Norway, Greece, Colombia, Romania, Philippines, South Africa, Portugal, Nigeria, Poland, Czech Republic, Spain, Hungary, Denmark, Sweden, Russian Federation, Israel, Indonesia, Switzerland, France, India, Italy, Ireland, Germany, Austria, Slovenia, Slovakia, Malta, Luxembourg, Lithuania, Latvia, Estonia, Finland in the past 12 months.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): United States, Japan, Canada, United Kingdom, China, Mexico, South Korea, Australia, Chile, Malaysia, New Zealand, Peru, Singapore, Hong Kong, Netherlands, Belgium, Panama, Brazil, Argentina, Egypt, Saudi Arabia, Jordan, Kenya, Norway, Greece, Colombia, Romania, Philippines, South Africa, Portugal, Nigeria, Poland, Czech Republic, Spain, Hungary, Denmark, Sweden, Russian Federation, Israel, Indonesia, Switzerland, France, India, Italy, Ireland, Germany, Austria, Slovenia, Slovakia, Malta, Luxembourg, Lithuania, Latvia, Estonia, Finland.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securities-related: United States, Japan, Canada, United Kingdom, China, Mexico, South Korea, Australia, Chile, Malaysia, New Zealand, Peru, Singapore, Hong Kong, Netherlands, Belgium, Panama, Brazil, Argentina, Egypt, Saudi Arabia, Jordan, Kenya, Norway, Greece, Colombia, Romania, Philippines, South Africa, Portugal, Nigeria, Poland, Czech Republic, Spain, Hungary, Denmark, Sweden, Russian Federation, Israel, Indonesia, Switzerland, France, India, Italy, Ireland, Germany, Austria, Slovenia, Slovakia, Malta, Luxembourg, Lithuania, Latvia, Estonia, Finland.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, non-securities-related: United States, Japan, Canada, United Kingdom, China, Mexico, South Korea, Australia, Chile, Malaysia, New Zealand, Peru, Singapore, Hong Kong, Netherlands, Belgium, Panama, Brazil, Argentina, Egypt, Saudi Arabia, Jordan, Kenya, Norway, Greece, Colombia, Romania, Philippines, South Africa, Portugal, Nigeria, Poland, Czech Republic, Spain, Hungary, Denmark, Sweden, Russian Federation, Israel, Indonesia, Switzerland, France, India, Italy, Ireland, Germany, Austria, Slovenia, Slovakia, Luxembourg, Lithuania, Latvia, Estonia, Finland.

75

United States or its affiliates beneficially owns 5.0% or more of any class of common equity securities of Citigroup Inc.

Singapore or its affiliates beneficially owns 2.0% or more of any class of common equity securities of Citigroup Inc.

Citigroup Global Markets Inc. and/or its affiliates has a significant financial interest in relation to United States, Canada, United Kingdom, China, Mexico, South Korea, Malaysia, New Zealand, Panama, Brazil, Egypt, Saudi Arabia, Jordan, Kenya, Romania, Philippines, Poland, Czech Republic, Spain, Hungary, Russian Federation, Indonesia, Switzerland, India, Italy, Germany, Austria, Slovakia, Finland. (For an explanation of the determination of significant financial interest, please refer to the policy for managing conflicts of interest which can be found at www.citiVelocity.com.)

Disclosure for investors in the Republic of Turkey: Under Capital Markets Law of Turkey (Law No: 6362), the investment information, comments and advices given herein are not part of investment advisory activity. Investment advisory services are provided by authorized institutions to persons and entities privately by considering their risk and return preferences. Whereas the comments and advices included herein are of general nature. Therefore, they may not fit to your financial situation and risk and return preferences. For this reason, making an investment decision only by relying on the information given herein may not give rise to results that fit your expectations. Furthermore, Citi Research is a division of Citigroup Global Markets Inc. (the “Firm”), which does and seeks to do business with companies and/or trades on securities covered in this research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.

Analysts’ compensation is determined by Citi Research management and Citigroup’s senior management and is based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates (the “Firm”). Compensation is not linked to specific transactions or recommendations. Like all Firm employees, analysts receive compensation that is impacted by overall Firm profitability which includes investment banking, sales and trading, and principal trading revenues. One factor in equity research analyst compensation is arranging corporate access events between institutional clients and the management teams of covered companies. Typically, company management is more likely to participate when the analyst has a positive view of the company.

For securities recommended in the Product in which the Firm is not a market maker, the Firm is a liquidity provider in the issuers' financial instruments and may act as principal in connection with such transactions. The Firm is a regular issuer of traded financial instruments linked to securities that may have been recommended in the Product. The Firm regularly trades in the securities of the issuer(s) discussed in the Product. The Firm may engage in securities transactions in a manner inconsistent with the Product and, with respect to securities covered by the Product, will buy or sell from customers on a principal basis.

For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citi Research product ("the Product"), please contact Citi Research, 388 Greenwich Street, 28th Floor, New York, NY, 10013, Attention: Legal/Compliance [E6WYB6412478]. In addition, the same important disclosures, with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures. Valuation and Risk assessments can be found in the text of the most recent research note/report regarding the subject company. Pursuant to the Market Abuse Regulation a history of all Citi Research recommendations published during the preceding 12-month period can be accessed via Citi Velocity (https://www.citivelocity.com/cv2) or your standard distribution portal. Historical disclosures (for up to the past three years) will be provided upon request.

NON-US RESEARCH ANALYST DISCLOSURES Non-US research analysts who have prepared this report (i.e., all research analysts listed below other than those identified as employed by Citigroup Global Markets Inc.) are not registered/qualified as research analysts with FINRA. Such research analysts may not be associated persons of the member organization and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. The legal entities employing the authors of this report are listed below:

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Citigroup Global Markets Inc Cesar Rojas; Willem Buiter; Ebrahim Rahbari

OTHER DISCLOSURES

Any price(s) of instruments mentioned in recommendations are as of the prior day’s market close on the primary market for the instrument, unless otherwise stated.

European regulations require that where a recommendation differs from any of the author’s previous recommendations concerning the same financial instrument or issuer that has been published during the preceding 12-month period that the change(s) and the date of that previous recommendation are indicated. Please refer to the trade history in the published research or contact the research analyst.

European regulations require that a firm must establish, implement and make available a policy for managing conflicts of interest arising as a result of publication or distribution of investment research. The policy applicable to Citi Research's Products can be found at https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures.

The proportion of all Citi Research fundamental research recommendations that were the equivalent to “Buy”,”Hold”,”Sell” at the end of each quarter over the prior 12 months (with the % of these that had received investment firm services from Citi in the prior 12 months shown in brackets) is as follows: Q2 2017 Buy 32% (70%), Hold 45% (63%), Sell 24% (57%); Q1 2017 Buy 32% (70%), Hold 45% (63%), Sell 24% (56%); Q4 2016 Buy 31% (71%), Hold 45% (64%), Sell 24% (58%); Q3 2016 Buy 32% (68%), Hold 44% (64%), Sell 24% (61%).

Citigroup Global Markets India Private Limited and/or its affiliates may have, from time to time, actual or beneficial ownership of 1% or more in the debt securities of the subject issuer.

Citi Research generally disseminates its research to the Firm’s global institutional and retail clients via both proprietary (e.g., Citi Velocity and Citi Personal Wealth Management) and non-proprietary electronic distribution platforms. Certain research may be disseminated only via the Firm’s proprietary distribution platforms; however such research will not contain changes to earnings forecasts, target price, investment or risk rating or investment thesis or be otherwise inconsistent with the author’s previously published research. Certain research is made available only to institutional investors to satisfy regulatory requirements. Individual Citi Research analysts may also opt to circulate published research to one or more clients by email; such email distribution is discretionary and is done only after the research has been disseminated. The level and types of services provided by Citi Research analysts to clients may vary depending on various factors such as the client’s individual preferences as to the frequency and manner of receiving communications from analysts, the client’s risk profile and investment focus and perspective (e.g. market-wide, sector specific, long term, short-term etc.), the size and scope of the overall client relationship with the Firm and legal and regulatory constraints.

Pursuant to Comissão de Valores Mobiliários Rule 483, Citi is required to disclose whether a Citi related company or business has a commercial relationship with the subject company. Considering that Citi operates multiple businesses in more than 100 countries around the world, it is likely that Citi has a commercial relationship with the subject company.

Securities recommended, offered, or sold by the Firm: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. The Product is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in the Product must take into account existing public information on such security or any registered prospectus. Although information has been obtained from and is based upon sources that the Firm believes to be reliable, we do not guarantee its accuracy and it may be incomplete and condensed. Note, however, that the Firm has taken all reasonable steps to determine the accuracy and completeness of the disclosures made in the Important Disclosures section of the Product. The Firm's research department has received assistance from the subject company(ies) referred to in this Product including, but not limited to, discussions with management of the subject company(ies). Firm policy prohibits research analysts from sending draft research to subject companies. However, it should be presumed that the author of the Product has had discussions with the subject company to ensure factual accuracy prior to publication. All opinions, projections and estimates constitute the judgment of the author as of the date of the Product and these, plus any other information contained in the Product, are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice.

77

Notwithstanding other departments within the Firm advising the companies discussed in this Product, information obtained in such role is not used in the preparation of the Product. Although Citi Research does not set a predetermined frequency for publication, if the Product is a fundamental equity or credit research report, it is the intention of Citi Research to provide research coverage of the covered issuers, including in response to news affecting the issuer. For non-fundamental research reports, Citi Research may not provide regular updates to the views, recommendations and facts included in the reports. Notwithstanding that Citi Research maintains coverage on, makes recommendations concerning or discusses issuers, Citi Research may be periodically restricted from referencing certain issuers due to legal or policy reasons. Citi Research may provide different research products and services to different classes of customers (for example, based upon long-term or short-term investment horizons) that may lead to differing conclusions or recommendations that could impact the price of a security contrary to the recommendations in the alternative research product, provided that each is consistent with the rating system for each respective product.

Investing in non-U.S. securities, including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of the U.S. Securities and Exchange Commission. There may be limited information available on foreign securities. Foreign companies are generally not subject to uniform audit and reporting standards, practices and requirements comparable to those in the U.S. Securities of some foreign companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. In addition, exchange rate movements may have an adverse effect on the value of an investment in a foreign stock and its corresponding dividend payment for U.S. investors. Net dividends to ADR investors are estimated, using withholding tax rates conventions, deemed accurate, but investors are urged to consult their tax advisor for exact dividend computations. Investors who have received the Product from the Firm may be prohibited in certain states or other jurisdictions from purchasing securities mentioned in the Product from the Firm. Please ask your Financial Consultant for additional details. Citigroup Global Markets Inc. takes responsibility for the Product in the United States. Any orders by US investors resulting from the information contained in the Product may be placed only through Citigroup Global Markets Inc.

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