The UniCredit Macro & Markets...

4/22/2016

The UniCredit Macro & Markets

Weekly

Economics & FI/FX Research No. 12 Credit Research 22 April 2016 Equity Research Cross Asset Research

ECB: a bold corporate sector purchase program

The ECB released bold details for its upcoming CSPP, while eurozone PMIs remain consistent with a steady, though gradual, recovery. Intense primary market activity in EGBs and improved risk appetite have led to higher government bond yields and steeper curves. In the equity space, we saw some fairly solid earnings in Food & Beverage and Health Care sectors, with the market focus now set to shift to more cyclical sectors.

– Macro: Next week, the Fed is expected to leave interest rates unchanged again, as the committee remains concerned about external developments despite the recent improvement in US financial conditions and global economic indicators. In terms of data, the focus will be on 1Q16 GDP releases in the US and the eurozone.

– FI: Data releases are set to support USTs while modestly dampening demand for Bunds and possibly pushing the 10Y UST-Bund spread back below 160bp. EGB supply will slow. Italy will again be active in the primary market.

– FX: A cautious Fed will likely continue to weigh on the US dollar. In Japan, the BoJ should remain on hold although recent communication has added to speculation about another rate cut. That said, we see no trend reversal in USD-JPY. In Russia, unchanged CBR policy should allow the RUB to track energy prices higher.

– Equities: European consensus estimates see a decline of about 5% yoy in 1Q16 company earnings. However, looking into more detail, the picture is not as gloomy as it seems at first glance. In fact, we expect “Investment Cyclicals” and consumer-related sectors to continue their above-average earnings growth and performance.

– Credit: The details of ECB’s CSPP are technically spread positive, but experience from previous purchase programs (CBPP and ABSPP) tells investors that the biggest part of the spread rally is already behind us.

Editors: Dr. Tobias Rühl, Economist (UniCredit Bank), Dr. Thomas Strobel, Economist (UniCredit Bank) Editorial deadline: 22 April 2016, 11:00 CET

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22 April 2016

Macro & Markets Weekly

UniCredit Research page 2 See last pages for disclaimer.

Trades Recommendations

FI Type

Trade

Opened on

Entry level

Actual

Target

Stop loss

P&L (bp)

Rationale

Curve trade Long BTP Mar47 vs. Dec25 (vs. swap)

4-Feb-16 65 63 45 75 2 The 10-30Y BTP has widened on supply pressure. Investors should increase their focus on the shape of the curve to find pick-up opportunities. And the 10/30Y BTP is considerably steeper than other EMU curves.

Relative value

Long BTP Feb17, 6M forward

22-Feb-16 0.39 0.07 0.00 0.10 32 The short end of the Italian curve has been under pressure while financing rates are extremely low.

Curve trade Short OAT Apr26 vs. Apr21 e Apr60

11-Mar-16 -53 -58 -30 -65 -4 The barbell has richened and convexity is attractive at the moment.

Curve trade Short BTP May21 vs. BTP Feb18 &

Aug46

11-Mar-16 -160 -158 -140 -175 2 The barbell has richened and convexity is attractive at the moment.

Cross Country

Short Gilt Sep26 vs. DBR Feb26

21-Apr-16 -135 -135 -170 -110 0 Ahead of the UK referendum, we see a case for staying short Gilts: if the probability of a Brexit increases, Gilts will likely come under pressure, whereas if it decreases, BoE rate hikes will start to be priced back in.

Relative value

Long BTP 1.6% Jun26 vs. SPGB

1.95% Apr26

22-Apr-16 -6 -6 -20 0 0 SPGBs trade at the rich end of the recent range vs. BTPs. With lingering political uncertainty we favor positioning on BTPs at these levels.

Relative value

Long BTP 1.45% Sep22 vs. CCT

Jun22

22-Apr-16 14 14 5 20 0 Longer-dated CCT have richened vs. BTPs, and the upcoming launch of a new line should fuel some cheapening.

P/L open trades 32.4 P/L closed trades -2.8

P/L total 29.6

Source: Bloomberg, UniCredit Research

FX Currency pair

Position

Instrument

Opened on

Entry level

Actual

Target Stop loss

Expiry

P&L spot (%)

Rationale

AUD-CAD Short Spot 8-Jan-16 0.9867 0.9852 0.9000 1.0170 - 0.14 Currency misaligned with terms of trade

EUR-NOK Short 50%

Spot 11-Feb-16 9.6902 9.2543 8.9600 9.4479 2.36 Too much monetary policy easing priced-in for the Norwegian economy (with above target inflation). NOK still significantly undervalued.

USD-NOK Short 50%

Spot 11-Feb-16 8.5558 8.2116 7.9100 8.3419 2.10

EUR-SEK Short 50%

Spot 15-Mar-16 9.2617 9.1890 9.0000 9.3900 - 0.40 Krona is significantly undervalued

USD-SEK Short 50%

Spot 15-Mar-16 8.3339 8.1537 8.0400 8.4800 - 1.10

P/L open trades 6.10 P/L closed trades -11.69 P/L total -5.59


22 April 2016



Risky Assets Type

Trade

Opened on

Entry level

Actual

Target

Stop loss

P&L (bp)

Rationale

Credit long Buy AALLN 2.5% Apr 2021

19-Feb-16 850 423

450 1000 +2035 We close the trade as it hit the target value and take a profit of more than 20%.

Credit long Buy CoCo (AT1) 26-Feb-16 10% 8.3% 6-7% 14% +770 The sell-off in CoCos (AT1) is overdone. Within banks’ capital structure, CoCos are the sweet spot and are more attractive than equities.

Short equities

Short Euro STOXX 50

04-Mar-16 3028 2850 3110 -270 Trade triggered stop loss on 19 April. The trade moved to a positive performance end of March and came very close to the target on 7 April as the index reached 2860 index points. The counter move that followed triggered the stop loss.

Equity relative value

Long STOXX Europe 600 Construction & Materials vs. Benchmark

26-Feb-16 1,1118 1,1180 n.m. 1,0951* +56 Construction & Materials was expected to outperform due to solid sector earnings development vs. negative earnings revision trend in the benchmark STOXX Europe 600.

Equity relative value

Long STOXX Europe 600 Technology vs. Benchmark

26-Feb-16 0,9861 0,9645 n.m. 0,9515* -219 Technology was expected to outperform due to solid sector earnings development vs. negative earnings revision trend in the benchmark STOXX Europe 600.

Credit P/L reflects spread change, duration, carry and roll-down. Source: Bloomberg, UniCredit Research *Stop/loss 5% below the previous high since starting the position; n.m. = not meaningful

22 April 2016



Macro overview

Steady and cautious Fed Dr. Harm Bandholz, CFA Chief US Economist (UniCredit Bank New York) +1 212 672-5957 [email protected]

■ The FOMC is expected to leave interest rates unchanged again at the upcoming meeting. The Committee’s main concern remains potential spillovers from external developments, even as US financial conditions and global economic indicators have improved in recent weeks.

FOMC still in a wait and see mode

Next Wednesday, the Federal Reserve will end its third regular FOMC meeting of the year. Following an unexpectedly dovish turn by Chair Yellen last month, it seems to be a done deal that the Fed will leave its interest rate unchanged. In addition to Ms. Yellen, several FOMC members expressed the view at the March FOMC meeting “that a cautious approach to raising rates would be prudent or noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate.” To be sure, the March minutes revealed a deep split within the Committee with many members arguing in favor of a somewhat faster normalization of interest rates. But the fact that Chair Yellen and Vice Chair Dudley are in the dovish camp should mean that this side will prevail – certainly at the upcoming meeting.

Statement largely unchanged As there will be no press release and no update of the Committee’s economic and interest rate projections, the sole focus will be on the post-meeting press release. The statement will continue to emphasize the data-dependent approach. In that context, the minutes explicitly highlighted the increased importance of global and financial developments: “the relevant data include not only domestic economic releases, but also information about developments abroad and changes in financial conditions that bear on the economic outlook.” Given that economic numbers have been mixed in recent weeks, we do not expect any material changes in the wording. If the Committee wanted to send a somewhat more constructive message, it could emphasize the improvement in financial conditions (weaker USD and higher stock prices) as well as better numbers from China. But given the currently – in our view overly – cautious attitude of the Committee, it seems more likely than not that these positive developments won’t be mentioned in the statement.

Weak US GDP growth to start the year ■ We revise down our US 1Q16 GDP forecast to 0.5% (annualized) from 2.2% on slower

consumption growth, a larger inventory correction, and weaker net exports.

We now expect 0.5% 1Q16 GDP growth

One day after the FOMC meeting, on Thursday, the BEA will release the advance estimate of 1Q16 GDP growth. We now expect that the US economy expanded another weak 0.5% at the beginning of the year. That is substantially lower than the 2% we had expected thus far. The Atlanta Fed’s GDPNow tracker saw a similar steep decline over the past few weeks, from above 2% to a pitiful 0.3%. The reasons for the downward revisions were slower consumption growth – in particular a sizeable downward revision to the January numbers – a larger inventory correction, and weaker net exports.

Consumer spending weaker, but still the growth engine

Even after the revision, consumer spending likely remained the main growth driver, expanding an annualized 1.8% and adding 1¼pp to 1Q16 growth. Net exports and inventories, on the other hand, were sizeable drags that together shaved 1¼pp off the growth. Nonresidential investment was weak, while residential investment likely jumped by more than 10%.

Annual GDP growth down to 1.9%

Due to the slower start into the year, our growth forecast for 2016 as a whole comes down to 1.9% from 2.2%. For comparison: The IMF just lowered its 2016 growth forecast for the US from 2.6% to 2.4%.

22 April 2016



Major events and data releases of the week

EMU

Money supply set to ease slightly in March

Wed, 27 Apr, 10:00 UniCredit Consensus Last M3 Money Supply, % yoy Mar 4.8 5.0 5.0

■ We expect the yearly growth rate of M3 to print at by 4.8% in March, slightly lower than the 5% yoy in the period January-February.

■ The monthly flow of the first two months of the year surprised on the upside, compared to 1Q15. Therefore, we foresee a more contained increase in March.

■ We expect the ongoing recovery in credit to continue in March, also supported by the overall-positive message of the ECB’s bank lending survey.

CPI to stabilize

Fri, 29 Apr, 11:00 CET UniCredit Consensus Last CPI, % yoy, flash estimate Apr 0.0 0.1 0.0

Core CPI, % yoy Apr 0.9 0.9 1.0

■ We expect headline inflation to stabilize in April, with risks tilted to the downside.

■ Core inflation will likely ease to 0.9% yoy from 1.0% as part of the Easter effect reverses. The contribution of energy inflation will probably become slightly less negative, while food inflation may have accelerated.

■ We see headline inflation hovering around zero in the next few months. From the late summer on, we project a gradual rising trend that may lift inflation towards 1% by the beginning of 2017.

■ Headline inflation (CPI) is expected to print at +0.2% yoy in Germany, -0.3% yoy in Italy and -0.1% yoy in France.

GDP to reaccelerate

Fri, 29 Apr, 11:00 CET UniCredit Consensus Last Real GDP, % qoq 1Q 0.5 0.4 0.3 Real GDP, % yoy 1Q 1.5 1.5 1.6

■ For the first time, Eurostat will publish a flash GDP estimate within 30 days after the end of the quarter. We expect growth to reaccelerate to 0.5% qoq in 1Q16.

■ No details will be available at this stage. We think that domestic demand was the main growth driver, while trade balance data signal weakness in exports and imports.

■ Healthy growth would come despite a weakening of business and consumer sentiment at the beginning of the year. Solid hard data at this stage should in part be seen as a correction of excessive weakness at end-2015.


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CPI, % yoy

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GDP, % yoy (rs) GDP, % qoq (ls)

22 April 2016



Germany

Ifo business climate to increase moderately

Mon, 25 Apr, 10:00 CET UniCredit Consensus Last Ifo Business Climate, Index Apr 107.1 107.0 106.7 Ifo Current Assessment, Index Apr 113.8 113.8 113.8

Ifo Expectations, Index Apr 100.6 100.6 100.0

■ We expect the Ifo business climate index to increase slightly in April.

■ The current assessment component is expected to stay at current, historically decent levels.

■ The business expectations component will probably continue its modest recovery after it dropped sharply in February, driven by financial market turmoil and concerns about Emerging Asia

France

GDP to accelerate mildly in 1Q

Fri, 29 Apr, 7:30 CET UniCredit Consensus Last Real GDP, % qoq 1Q 0.4 n.a. 0.3

Real GDP, % yoy 1Q 1.1 n.a. 1.4

■ We expect French GDP to accelerate slightly in 1Q16, printing at 0.4% qoq.

■ Private consumption is likely to be the main driver of the acceleration, as energy spending should bounce back amid a normalization in weather temperatures, while sales of housing durables are set to benefit from the upcoming switchover to a new standard of video coding.

■ Given that the IP quarterly performance has been so far weak, we expect that the rebound in 1Q private consumption will come mainly via destocking and imports.

UK

The UK economy likely slowed in 1Q16

Wed, 27 Apr, 10:30 CET UniCredit Consensus Last Real GDP, % qoq 1Q 0.4 0.4 0.6

Real GDP, % yoy 1Q 2.1 2.0 2.1

■ UK GDP growth probably slowed to 0.4% qoq (2.1% yoy) in 1Q16, down from 0.6% qoq in 4Q15. The risks to our forecast are tilted to the upside.

■ Business surveys have eased over the last few months. The composite PMI averaged 54.2 in 1Q16, down from 55.5 in 4Q15; and both the CBI and BoE Agents’ surveys of economic activity softened in the last few months.

■ However, with the notable exception of industrial production, the hard data have so far held up fairly well; hence, the risks to our forecast are skewed to the upside.


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Mar-01 Mar-04 Mar-07 Mar-10 Mar-13 Mar-16

Business climateCurrent situationBusiness expectations

-2.0

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4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

GDP, % qoq (rs)

GDP, % yoy (ls)

-2.5

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GDP, % qoq (rs) GDP, % yoy (ls)

22 April 2016



Spain

Moderate GDP slowdown in 1Q16

Fri, 29 Apr, 9:00 CET UniCredit Consensus Last Real GDP, % qoq 1Q 0.7 n.a. 0.8 Real GDP, % yoy 1Q 3.3 n.a. 3.5

■ We expect a moderate GDP slowdown in 1Q16 to 0.7% qoq from 0.8%. This is a 0.1pp downward revision from our previous forecast.

■ The deterioration of the external environment, with rising financial volatility and sluggish global trade, weighed on the recovery. Although no data breakdown will be available next week, most of the growth will come from domestic demand. Private consumption and investment will likely be the main drivers of growth, fuelled by favorable financial conditions.


Dr. Harm Bandholz, CFA, Chief US Economist (UniCredit Bank New York) Dr. Loredana Federico, Economist (UniCredit Bank Milan) Tullia Bucco, Economist (UniCredit Bank Milan) Edoardo Campanella, Economist (UniCredit Bank Milan) Marco Valli, Chief Eurozone Economist (UniCredit Bank Milan) Daniel Vernazza, Ph.D., Lead UK Economist (UniCredit Bank London) Dr. Tobias Rühl, Economist (UniCredit Bank) Dr. Thomas Strobel, Economist (UniCredit Bank)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

-4.5

-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

GDP, % qoq (rs) GDP, % yoy (ls)

22 April 2016



FI Strategy UST/Bund tightening to gain momentum

Elia Lattuga, Fixed Income Strategist (UniCredit Bank London) +44 207 826-1642 [email protected]

■ Data releases are set to support USTs while modestly dampening demand for Bunds and possibly pushing the 10Y UST-Bund spread back below 160bp. EGB supply will slow. Italy will again be active on the primary market.

■ Supply pressure added to an already steep BTP curve, widening the gap with core curves. We see room for some flattening at the extra-long end. Upcoming supply might open interesting entry opportunities for SPGB-BTP wideners and CCT-BTP tighteners.

EGB markets have experienced a week of intense supply activity, skewed towards the long and extra-long end of the curve. Together with a calmer market environment, this has helped push the 10Y Bund yields to its highest level in for weeks, in the 0.20-0.25% area. The 2-10Y Bund steepened to over 70bp, while the 10-30Y was more directional on periphery, and, to some extent, on semi-core countries, where extra-long primary market activity was more intense. Periphery failed to benefit from the improved risk appetite and moved sideways. The most likely reasons were supply pressure, political uncertainty and budget discussions. The BTP-Bund moved out of synch, compared to the iTraxx, and failed to follow the latest leg of tightening. The ECB was on hold, as expected, but bold details for its CSPP fuelled the rally in credit markets, again with limited impact on sovereign periphery.

Room for a tighter UST-Bund spread and a wider Gilt-Bund spread

While on offer, Bunds did slightly better than USTs at the long-end this week. Gilts underperformed both. At the 10Y, the Gilt-Bund spread widened to its highest level this year, in the 135bp area. This is not surprising given the ongoing pressure on the GBP. When analyzed over a longer horizon, the 10Y Gilt-Bund spread level does not seem to price in enough of a Brexit risk. We recently suggested to stay long Bunds vs. Gilts ahead of the referendum, targeting 170bp with a stop at 110bp. » FI Trades - Stay short UK, long Bund ahead of the UK’s June referendum - 21 April 2016.

Data should offer more support to Bunds

The data calendar this week is very crowded. Scheduled releases are set to add to demand for USTs and to be less bond-friendly in the EU. This could possibly keep the 10Y Bund above the 0.20% handle and push the UST-Bund spread below 160bp. In the US, the advance estimate is expected to downgrade 1Q16 growth sizably, while the FOMC meeting should deliver little surprises. In the EU, growth is expected to have reaccelerated in 1Q16 after a soft 4Q15. Inflation is likely to hover around of 0% for a few months. EGB supply will slow next week: Italy and Germany are expected to sell less than EUR 10bn on aggregate. The US treasury will tap the 2Y and the 7Y and will sell 2Y floaters.

I-TRAXX AND 5Y BTP VS. SWAP 10Y UST AND GILT SPREAD TO BUNDS


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Itraxx BTP Dec21

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US UK (rs)

https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2016_153329.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVJ1YeU3c7Y14yxNAKp2VB_FTDGAUZ1RMOA==

22 April 2016



BTP curve: an extra-long end that is too steep

On the BTP curve, supply added to an already steep extra-long end. After the successful sale of a new 20Y line, the gap between the BTP and swap/core curves has widened further. The 15-30Y is trading at ca. 70bp on the BTP curve, while it is only 17bp on the swap curve (10-30Y spreads on the two curves are respectively 115bp and 53bp). Given the upcoming 10Y BTP supply, we see room for some flattening of the extra-long segments. Moreover, BTPs in the 15-20Y range are quite well bid vs. those at 10Y and 30Y. The launch of a new 20Y BTP line might bring some gradual normalization at these tenors, but we think the BTP 2.25% Sep36 will stay at rather rich levels on the curve due to its relatively low cash price. The composition of demand for the new 20Y also supports this view; it is more skewed towards domestic investors and players with a relatively longer investment horizon (insurance companies, pension funds, official investors etc.).

5Y-7Y-10Y and supply cycle Room for some cheapening in CCTs

At shorter tenors, the richening of the 7Y vs. the 5Y and the 10Y continues. As previously mentioned, the 10Y will be auctioned next week, together with the 5Y. We would monitor the barbell and possibly enter a long 5Y and 10Y position vs. the 7Y BTP. Note also that, the Italian treasury is due to sell a new CCT in the second quarter. The new floater will mature on July 2023 and based on the current levels of the BTP curve, it might be auctioned at ca. 65-70bp in discount margin. The floor embedded in the new bond is worth over 10bp, based on current market levels. Note that CCT Jun22 and Dec22 trade ca. 8-14bp through the BTP curve. We see some supply risk for these bonds and see the possibility of a tighter CCT-BTP spread over the week. We suggest selling Jun22 and buying BTP 1.45% Sep22 (current spread 14bp, target 5bp, stop 20bp).

Italy vs. Spain

Political uncertainty in Spain lingers, and the chances of a coalition agreement being struck before 2 May appear limited. This would pave the way for additional headline risk into the new election date (likely to be scheduled for the end of June). Nonetheless, SPGBs have performed rather well vs. BTPs. Spreads have tightened along the entire curve, and at the 5Y, BTPs and SPGBs are currently trading at flat levels; the spread rises to 5bp at the 10Y. We see these levels as stretched and suggest positioning for a tighter spread by selling SPGB 1.95% Apr26 and buying BTP 1.6% Jun26 (entry -6bp, target -20bp, stop at 0bp). At shorter maturities we expect some flattening of the Italian 2-5Y vs. the Spanish one.

BTPS AND CCTS (6-7Y AREA) Z-SPREAD AND DM BTP-SPGB SPREAD


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BTP 1.45 Sep22 CCT Jun22 CCT Dec22 BTP 5.5 Nov22

-25

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-15

-10

-5

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2026 2025

22 April 2016



FX Strategy A cautious Fed will keep pressure on the dollar

Roberto Mialich, FX Strategist (UniCredit Bank Milan) +392 88 62-0658 [email protected] Kiran Kowshik, EM FX Strategist (UniCredit Bank London) +44 207 826-6080 [email protected]

■ A cautious Fed and soft US data will likely continue to weigh on the USD. In Japan, the BoJ will likely remain on hold, which should maintain some pressure on USD-JPY.

■ A 15bp cut from the NBH appears priced in, hence the central bank will have to do more to weaken the currency. Unchanged CBR policy should allow the RUB to track energy prices higher.

USD: Cautious Fed and soft US growth to weigh on the USD

The Fed is expected to remain on hold again and, importantly, maintain a cautious approach without making any commitment on dates. This outcome is unlikely to offer the USD meaningful support. In our view, the USD is set to stay weak and depreciate further, potentially more slowly than it has recently, since some of its previous overvaluation has already been absorbed, as we pointed out in our FX Special “Picking the winner from further dollar weakness”. Next week, we therefore expect EUR-USD to resume a more bullish tone, at least towards the upper end of the 1.12-1.14 band, as US GDP data are also expected to disappoint, showing a sizeable deceleration from 4Q15, while growth in the eurozone, where a new CPI estimate is also due, is expected to show a +0.5% recovery on a quarterly basis after +0.3% in 4Q15.

JPY: BoJ on hold, but FX rhetoric will remain

The BoJ meeting next Thursday comes very soon after the recent IMF summit in which G20 countries reiterated their intention to avoid excessive FX volatility. This is an additional reason why we think that the bank will not ease further. On the economic front little has changed: inflation data should show some stability (albeit at the zero level) and growth dynamics remain unchanged. In that sense, easing by the BoJ could only be justified on the basis of TW JPY appreciation, something which would clearly deviate from the G20 discussions. Nonetheless, there is a risk of more negative rates (likelihood of more QQE is very low in our view) and it is reasonable to expect that the BoJ FX rhetoric will remain tough, with Governor Haruhiko Kuroda reiterating that the yen’s rise is a potential threat to inflation and that the bank is ready to act if needed. On balance, medium-term prospects for USD-JPY remain on the downside, although the pace of yen strength is likely to soften. The exchange rate has reduced a large part of its past overvaluation (see the left chart), so the decline may be decelerating

USD-JPY OVERVALUATION ALREADY PARTIALLY ABSORBED

NZD LAGGING OIL PRICES AND STILL BELOW 2016 START


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Brent Oil Price (RS)

https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2016_153229.ashx?M=D&R=31666850

https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2016_153229.ashx?M=D&R=31666850

22 April 2016



Commodity FX: higher inflation may delay the RBNZ cut

New Zealand’s inflation remained low, but picked up to +0.4% yoy in 1Q16: this will probably not spur the RBNZ to cut rates at its meeting next week. Oil prices quickly reversing their initial drop (due to the lack of agreement at the Doha meeting) and hitting new highs, offered a further boost to commodity FX, but the right chart in the previous page suggests that, in TWI terms, NZD has so far lagged the rebound and is still lower than at the start of the year. The RBNZ will therefore probably keep its easing bias, but is not likely to step up its already strong FX rhetoric. Looking at the entire commodity-currency bloc we think that the CAD is more likely to appreciate than the NZD and the AUD, although at a slower pace than in 1Q16. This view stems from the disparate sensitivity of the three currencies to major risk factors (USD strength, global stocks and energy prices) as well as valuation and monetary policy prospects (for a detailed discussion see our FX Perspectives “Slicing and dicing the commodity FX rally: upswing to remain in place with CAD continuing to outperform”).

NBH may have to go beyond a 15bp rate cut to weaken the HUF

The National Bank of Hungary meets on Tuesday and we expect a 15bp cut in the benchmark 3M deposit rate to 1.05%. In late February, the NBH flagged a return to conventional easing policy and followed it by cutting the benchmark rate (which forms the mid-point of the rates corridor) by 15bp. However, the bank also cut the overnight repo rate (top of corridor) and overnight deposit rate (bottom of corridor) by 65bp and 15bp, respectively. Although it is possible that the corridor will be further adjusted, we note that HUF’s forward implied carry has most recently been closely linked to the benchmark 3M deposit rate (see left chart). With carry now at 1.05%, it appears that a 15bp cut (the consensus expectation) has been priced in. Accordingly, the NBH may have to go further to prompt a weakening in the forint. The currency has performed very well on account of its strong balance-of-payments surplus, gaining against the PLN by 2.50% since the beginning of April. We think that the cross faces further downside in the weeks ahead.

Unchanged CBR policy should allow the RUB to track oil

The Central Bank of Russia meets on Friday and we expect rates to remain unchanged. The looser fiscal policy has helped return Russia’s banking sector liquidity into surplus, which has reduced the need for further easing. At the same time, the authorities maintain their rather hawkish stance on inflation. Amid stabilizing energy prices, we think a prudent central bank augurs well and should see inflows into Russian markets remain strong, further underpinning the RUB. We note that the crude oil price is near RUB 2,900 per barrel, the higher end of recent ranges. Hence, the RUB does not appear too strong relative to energy prices even after the recent rally. We continue to monitor the weekly 28D FX repo auctions as a litmus test indicating the willingness of the authorities to re-start FX purchases (which is seen as negative by FX markets). We would view a material increase in repo rates (like that seen ahead of the May 2015 FX interventions) as a red flag. However, recent repo auctions have been undertaken at stable rates (see right chart) suggesting the CBR is not a barrier to further RUB gains in the near future.

HUF: FX CARRY MOSTLY LINKED TO BASE RATE UNCHANGED FX REPO = LOWER RISK OF INTERVENTION

Source: Bloomberg, CBR, UniCredit Research

-0.5

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15

Base Rate

O/n Repo Rate

O/n Deposit rate

3M FX implied yield

1st phase of easing

2nd phase of easing

3Q15: Cut in o/n depositrate and introduction of3M deposit as benchmark

0

0.5

1

1.5

2

2.5

3

3.5

-3000

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-1000

0

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2000

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Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16

FX reserve building program dailypurchases (USD mn)28D FX repo weighted rate (%, rs)

https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2016_153323.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVJ1YeU3c7Y144ZRM6Jojh8g42-l-rETFwQ==&T=1

https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2016_153323.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVJ1YeU3c7Y144ZRM6Jojh8g42-l-rETFwQ==&T=1

22 April 2016



Equity Strategy 1Q16 earnings season: light and shadow

Christian Stocker, CEFA Equity Strategist (UniCredit Bank) +49 89 378-18603 [email protected]

■ The general momentum in the economy and earnings estimates is tending to the downside. US consensus estimates are for a 10% decline in company earnings year on year in 1Q16; for Europe, consensus estimates suggest a decline of about 5% (in each case based on Bloomberg consensus).

■ However, going into more detail, for the overall market the picture is not as gloomy as it seems at first glance. In fact, we expect “Investment Cyclicals” and consumer-related sectors (“Stable Growth” sectors) to continue above-average earnings growth and performance.

Overall earnings picture remains gloomy, but…

Hard macroeconomic data had a solid start to 1Q16, but the leading indicators weakened at the beginning of the year. Basically, overall risks to GDP forecasts are to the downside even if the current hard macroeconomic data indicate stabilization of growth. In the past, a decline in macroeconomic expectations has exerted pressure on earnings estimates, which is also reflected in the current deterioration of the revisions trend for earnings estimates. Against this background, we see a continuation of the current trend towards lower earnings estimates for the overall European equity market. The left chart below illustrates the high correlation between the course of economic sentiment in Europe and the growth of earnings estimates. As long as there is no brightening in economic sentiment, a lasting trend towards higher earnings estimates is highly unlikely. The right chart below highlights the reason for the general pressure on earnings despite fairly stable economic data: the sluggish economic demand environment is a burden for sales and revenues. The overall aggregate turnover of the STOXX Europe 600 companies is about 7% below the previous year and the current development does not indicate an immediate end to this trend.

ECONOMIC SENTIMENT INDICATOR AND GROWTH IN EARNINGS ESTIMATES

STOXX EUROPE 600: DEVELOPMENT OF COMPANY TURNOVER


…“Investment Cyclicals” and “Stable Growth” sectors shine

The earnings reporting season will get into full swing next week (starting 25 April). As described above, the earnings picture remains gloomy and indicates a continuation of the slightly declining earnings trend of the overall market. However, looking into more detail, the picture is not as gloomy as it seems at first glance for the overall market. Eurozone growth is underpinned by upbeat consumer and solid investment spending. Private consumption is benefitting from the low oil price and labor market improvements in Europe. The investment setting in Europe remains intact, with low interest rates and the need to realize efficiency gains supporting investment demand from companies. What is more, the ECB's most recent decisions should have a positive effect on lending and thus support investment demand.

-50

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125

2005 2007 2009 2011 2013 2015

EU Economic Sentiment Indicator (European Commission)STOXX Europe 600: y-o-y growth of 12M fwd. earnings estimates (rs)

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STOXX Europe 600: trailing salesSTOXX Europe 600: y-o-y growth in trailing sales (rs)

22 April 2016



As long as the domestic European economy remains the key pillar of growth, “Investment Cyclicals” and consumer-related sectors (“Stable Growth” sectors) should be able to continue their above-average earnings growth and performance against this backdrop. In this context, it is worth emphasizing that in the last six months, during which negative revisions in 12M forward earnings estimates have gained momentum across the board, earnings estimates for these sectors have barely changed. In an overall market trading broadly sideways (as we expect), we see the best likelihood of achieving positive returns, also in terms of risk/return considerations, in “Investment Cyclicals” and “Stable Growth” sectors. During the upcoming 1Q16 earnings reporting season we expect the following:

■ “Investment Cyclicals”1: Solid earnings reports with a slightly positive business outlook. SAP reported preliminary figures with a solid increase in 1Q16 earnings but missing high consensus expectations. However, the earnings guidance and business outlook remain strong.

■ “Stable Growth” sectors2: Solid earnings reports with a stable to slightly positive business outlook. Nestlé, Danone, Novartis, Roche and Unilever (all companies among the largest sector representatives in Food & Beverage, Health Care and Personal & Household Goods) have already released solid 1Q16 sales and revenue data, lending credence to this view.

■ Materials and Oil & Gas sectors: Based on the rebound of oil and industrial commodity prices since mid-January, 1Q16 results might beat depressed estimates. However, the overall trend may show an ongoing decline in earnings growth. Company outlooks might be very cautious based on the ongoing declining sales environment, particularly for companies producing basic and intermediate goods.

“INVESTMENT CYCLICALS”: EARNINGS COMPARED TO OVERALL MARKET (2006 = 100)

“STABLE GROWTH” SECTORS: EARNINGS COMPARED TO OVERALL MARKET (2006 = 100)


1 “Investment Cyclicals”: Construction & Materials, Industrial Goods & Services and Technology 2 “Stable Growth” sectors: Food & Beverage, Health Care, Personal & Household Goods

70

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100

110

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2005 2007 2009 2011 2013 2015

STOXX Europe 600: 12M fwd. earnings estimatesInvestment Cyclicals: 12M fwd. earnings estimates

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2005 2007 2009 2011 2013 2015

STOXX Europe 600: 12M fwd. earnings estimatesStable Growth sectors: 12M fwd. earnings estimates

22 April 2016



Credit Strategy ECB: a bold corporate sector purchase program

Dr. Philip Gisdakis, Head of Credit & Cross Asset Strategy (UniCredit Bank) +49 89 378-13228 [email protected]

■ The ECB released bold details for its upcoming CSPP: it will buy in the primary as well as secondary markets, has set an ISIN limit of up to 70%, will buy bonds with maturities of up to 30Y and may even buy bonds with sub-investment-grade ratings if the first-best rating is investment grade. Moreover, under certain circumstances, even bonds of non-euro-area issuers may be eligible.

■ This is technically spread positive, but experience from previous programs (CBPP and ABSPP) suggests that the largest part of the spread rally is already behind us.

Following its regular press conference on 21 April, the ECB released details (press release and FAQ) of its Corporate Sector Purchase Program (CSPP), which can be summarized as another set of bold measures, maximizing the volume eligible to be bought by the ECB. Purchases will start in June, but the central bank did not give any concrete target volume for purchases. Based on the set collateral criteria together with the details set out below, we estimate an aggregated market size of about EUR 1tn.

Details about the CSPP ■ Market: The purchases will be conducted in the primary and secondary markets. But the ECB will not buy bonds from public (i.e. state-owned) companies in primary markets.

■ Maturities: Eligible maturities range from 6M up to 30Y (i.e. less than 31Y). The 30Y limit is in line with the PSPP, while the lower limit (6M) is shorter than in the PSPP (where it is 2Y), in order to also allow purchases of bonds issued by smaller companies, which tend to be shorter-dated. Moreover, principal payments on the securities purchased under the CSPP will be reinvested as they mature, for as long as necessary.

■ Sector: Bonds need to be issued by non-bank corporations, which includes insurance companies. Moreover, if a non-bank corporation owns a bank then it is still eligible, however, if the parent is a bank then it is not. One example is the auto banks, which will be eligible.

■ Rating: The minimum criteria is a first-best rating of at least BBB- or an equivalent rating obtained from an external credit assessment institution (ECAI). This first-best rating approach includes bonds with crossover ratings, when at least one agency has an IG rating. A prominent example is Telecom Italia, which is rated BBB- by Fitch, while Moody’s has a Ba1 and S&P a BB+ rating.

■ Region: Eligible issuers have to be resident in the euro area. However, even bonds of companies whose parent is not resident in the euro area are eligible as long as the issuing vehicle is. To be more precise, the ECB will purchase EUR-denominated bonds issued by non-European vehicles if the ultimate parent is resident in the euro area (prominent examples again come from the European auto industry, where there are also issues from North-American subsidiaries) as well as issuing vehicles incorporated in the eurozone if the parent is non-eurozone.

■ Volume limits: The ISIN limit was set at 70% and there is no limit regarding the minimum issue size. However, for bonds issued by publicly owned companies the restrictions (i.e. lower limits) of the PSPP will apply. Such a high ISIN limit may have implications for market liquidity of some bonds. Clearly, investors will not be too excited to invest in bonds where the ECB owns the remaining 70%, as liquidity will be poor and it is not clear how the ECB will operate, for example, in case of downgrades to sub-investment grade. However, experience from the covered bond purchase programs tells us that 1. the ECB does normally not aim for a 70% allocation and 2. issuers may not allocate 70% to the ECB (as they do not want to discourage their existing investor base). Hence, in our view the 70% limit, in practice, will only affect small and illiquid bonds, such as private placements.

https://www.ecb.europa.eu/press/pr/date/2016/html/pr160421_1.en.html

https://www.ecb.europa.eu/mopo/implement/omt/html/cspp-qa.en.html

22 April 2016



If the ECB had not set a high ISIN limit, it will be difficult to buy existing PPs, as the holder will likely want to sell the entire stake if at all.

■ Yield limit: The ECB can purchase bonds with negative yields, as long as the yield to maturity is above the deposit facility rate at the time of purchase (currently -0.4%).

■ Allocation: The ECB will define a benchmark at the issuer group level, including all qualifying bonds. The weights in the benchmark will serve to define issuer group limits in the portfolio in order to achieve a diversified portfolio. In essence, the ECB aims to allocate a portfolio that is proportional to the overall market, which will also help to address issues regarding a level playing field. This also means that bond purchases will not be made proportional to the capital keys.

■ Risk management: The ECB has not been explicit about what risk management rules may apply, i.e. what it intends to do if bonds, for example, violate rating restrictions. While selling activity by the ECB will have very crucial implications for markets (after all, the ECB will become one of the largest holders of European corporate bonds), understandably, the ECB won’t be explicitly stating any guidelines in this respect in order to avoid advertising arbitrage opportunities to other market participants.

The risks from the CSPP will be fully shared within the Eurosystem, while the purchases will be conducted by only six national central banks: Belgium, Finland, France, Germany, Italy and Spain. The CSPP will contribute to the aggregate EUR 80bn target, but there will be no explicit target volume. The volume of CSPP holdings will be published on a weekly and monthly basis. A breakdown of primary and secondary market purchases will also be published every month.

In a nutshell This is clearly a bold set of rules, which maximizes the eligible universe and will enable the ECB to buy a large variety of corporate bonds. The theoretically eligible universe is so broad that it appears easier to list the criteria of bonds they will NOT buy: non-EUR denominated and ultra-long bonds, hybrid securities, bank bonds and issues that are firmly in sub-investment grade space, as well as bonds where not even the issuing vehicle is incorporated in the eurozone. The rest is eligible. This will (at least theoretically) enable the ECB to buy larger volumes and the bold set of rules suggests that the ECB wants to signal that it is ready to do so. Nevertheless, we still believe that it will already be ambitious for the ECB to buy EUR 2-3bn per month given market liquidity constraints.

CREDIT SPREAD TIME SERIES

Recent credit spread developments in cash bonds (iBoxx indices) Market impact of the ABSPP

Source: UniCredit Research

0

20

40

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120

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-1

Cre

dit S

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d (in

bp)

Non-Financials (Spreads)Banks (Spreads)

ECB QE

Greece/China

Volkswagen

China & Commodities

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ead

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ead

(bp)

AAA Dutch Prime (LS) AAA UK Prime (LS, not eligible)AA Italian Prime (RS) Single A Spanish Prime (RS)

ABSPP announced

ABSPP terms announced

Start of ABSPP purchases

PSPP announced

CSPP announced

22 April 2016



Conclusions for credit markets What are the implications for credit markets? Based on the experience of the past programs (Covered Bonds and ABS), the strongest tightening impact comes right after the initial announcement. In corporate credit markets, average non-financial senior spreads have tightened about 30bp since 10 March, which is about one third of the average spread level at the time of the announcement (see left chart). Note that average non-financials spreads are trading higher than financials in cash bonds, and this gap has narrowed substantially over the last couple of weeks. In synthetics, the spread ratio is the other way round. In the case of ABSPP (see right chart), there was also some additional tightening after the details of the purchasing program had been released. But already at that time the spread trajectory varied significantly between the different ABS classes. Shortly after purchases started, some spreads even began to widen. However, the fact that non-financial spreads are still trading on average 20-30bp higher than the low one year ago, may mean that corporate credits still have some potential for additional tightening. However, in the absence of significant macro-economic improvements, we believe that this additional tightening potential (which results mostly from technical factors) is limited and the biggest part of the rally already lies behind us. At the same time, with the ECB ready to buy, risks of pronounced spread widening also appear to be limited.

22 April 2016



Major data releases and economic events of the week ahead Date Time UniCredit Consensus 23-29 Apr 2016 (CET) Country Indicator/Event Period estimates (Bloomberg) Previous Mon, 25 Apr EC ECB's Constancio, Coeure, Nouy at Conference in Frankfurt

10:00 GE Ifo Expectations (Index) Apr 100.6 100.6 100.0 10:00 GE Ifo Current Assessment (Index) Apr 113.8 113.8 113.8 10:00 GE Ifo Business Climate (index) Apr 107.1 107.0 106.7 16:00 US New Home Sales (thousands) Mar 520 512

Tue, 26 Apr US Rhode Island, Pennsylvania, Maryland, Delaware, Connecticut Primary 14:00 HU Base Rate Announcement (%) Apr 26 1.05 1.05 1.20 14:30 US Durable Goods Orders (% mom) Mar 2.7 1.9 -3 15:00 US S&P/Case-Shiller Home Price Index (% yoy) Feb 5.7 5.5 5.8 16:00 US Conference Board Consumer Confidence Apr 96.0 95.6 96.2 8:00 GE GfK Consumer Confidence May 9.5 9.4 10:00 IT Business Confidence (ISTAT, index) Apr 101.8 102.2 10:00 IT Consumer Confidence (ISTAT, index) Apr 105.0 114.8 10:00 EMU M3 Money Supply (% yoy) Mar 4.8 5.0 5.0 10:30 UK Real GDP (% qoq) 1Q 0.4 0.4 0.6 20:00 US Federal Funds Target Rate (%) Apr 27 0.50 0.50 0.50 23:00 NZ RBNZ Official Cash Rate (%) Apr 28 2.25 2.25 Thu, 28 Apr 1:30 JP Consumer Price Index, CPI (% yoy) Mar 0.0 0.3

1:50 JP Industrial Production (% yoy) Mar -1.5 -1.2 8:00 UK House Price Index (Nationwide, % yoy) Apr 5 5.7 9:00 SP Harmonized CPI (% yoy) Apr -0.8 -1.0 9:55 GE Unemployment Rate (%) Apr 6.2 6.2 6.2 9:55 GE Unemployment Change (thousands, sa) Apr 0 0 11:00 EMU European Commission Economic Sentiment (index) Apr 103.5 103.5 103.0 14:00 GE Harmonized CPI (% yoy) Apr 0.1 0.1 14:00 GE Consumer Price Index, CPI (national, % yoy) Apr 0.2 0.2 0.3 14:30 US Real GDP (% qoq annualized) 1Q 0.5 0.7 1.4 14:30 US Initial Jobless Claims (thousands) Apr 23 247 Fri, 29 Apr 1:05 UK Consumer Confidence (GFK, index) Apr -1 0 7:30 SZ Swiss National Bank Releases 1Q 2016 Currency Allocation

7:30 FR Real GDP (% qoq) 1Q 0.4 0.3

8:45 FR Household Consumption (% mom) Mar -0.4 0.6 8:45 FR Consumer Price Index, CPI (% yoy) Apr -0.1 -0.1 9:00 SP Real GDP (% qoq) 1Q 0.7 0.8 9:00 SZ KOF Leading Indicator Apr 103.0 102.5 10:00 SZ SNB's Thomas Jordan Speaks at Annual General Meeting in Bern 10:00 IT Unemployment rate (%) Mar 11.6 11.7 11:00 IT CPI incl. tobacco (% yoy) Apr -0.3 -0.2 11:00 EMU Consumer Price Index, CPI (% yoy, flash estimate) Apr 0.0 0.1 -0.1 11:00 EMU Core CPI (% yoy) Apr 0.9 0.9 1.0 11:00 EMU Real GDP (% qoq) 1Q 0.5 0.4 0.3 11:00 EMU Unemployment Rate (%) Mar 10.3 10.3 10.3

12:30 RU Bank of Russia Key Rate Apr 11.00 11.00 11.00 14:30 US PCE Core Inflation (% yoy) Mar 1.6 1.5 1.7 14:30 US PCE Core Inflation (% mom) Mar 0.1 0.1 0.2 14:30 US Personal Expenditures (% mom) Mar 0.2 0.1

14:30 US Personal Income (% mom) Mar 0.3 0.2 14:30 US Employment Cost Index (% qoq) 1Q 0.6 0.6 0.6 15:45 US Chicago Purchasing Managers Index Apr 53 53.6 16:00 US University of Michigan Consumer Confidence Apr F 91.0 90.2 89.7

*Asterisked releases are scheduled on or after the date shown; sa = seasonal adjusted, nsa = not seasonally adjusted, wda = working day adjusted, F = final release, S = second release, P = preliminary release

Source: UniCredit Research

22 April 2016



UniCredit economic forecasts Real GDP (% yoy) Consumer prices (% yoy) Budget balance (% of GDP) 2015 2016 2017 2015 2016 2017 2015 2016 2017 Industrialized countries USA 2.4 1.9 2.4 0.1 1.2 2.4 -3.8 -3.6 -3.3 Euro Area 1.5 1.7 1.6 0.0 0.2 1.3 -2.1 -1.9 -1.8

Germany 1.7* 1.8* 1.4* 0.2 0.6 1.7 0.5 0.0 0.0 France 1.2 1.4 1.3 0.0 0.2 1.1 -3.5 -3.4 -2.9 Italy 0.6 1.2 1.2 0.1 0.0 1.1 -2.6 -2.4 -1.4 Spain 3.2 2.9 2.4 -0.6 -0.1 1.2 -4.8 -3.5 -2.6 Austria 0.9 1.5 1.5 0.9 1.4 1.9 -1.2 -1.7 -1.3 Greece -0.2 -0.5 2.2 -1.0 0.8 1.1 -7.2** -3.2 -2.5 Portugal 1.5 1.4 1.5 0.5 1.0 1.2 -4.4 -2.8 -2.4

UK 2.3 1.9 2.1 0.0 0.7 2.1 -4.0 -3.2 -2.3 Switzerland 0.9 1.5 1.8 -1.1 -0.4 0.7 -0.2 0.0 0.1 Sweden 3.8 3.7 2.9 0.0 0.7 1.5 -1.0 -0.5 -0.2 Norway 1.1 1.2 2.0 2.2 2.9 2.4 7.5 7.0 7.0 Japan 0.5 0.9 0.6 0.8 0.4 1.8 -6.0 -6.1 -5.0 Developing countries Central & Eastern Europe

Russia -3.7 -2.5 1.2 15.6 8.7 7.2 -2.6 -4.3 -3.1 Poland 3.6 3.7 3.8 -0.9 -0.4 2.1 -2.6 -3.1 -3.5 Czech Republic 4.3 2.2 3.0 0.3 0.6 2.2 -0.4 -1.2 -1.5 Hungary 2.9 2.7 2.6 -0.1 0.4 2.9 -1.9 -2.0 -1.6 Turkey 3.8 3.3 3.4 7.7 8.4 8.1 -1.5 -2.5 -2.7

Emerging Asia China 6.9 6.5 6.2 1.7 1.9 2.2 -1.9 -3.0 -3.2

Real GDP (% qoq sa) 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 US (annualized) 1.4 0.5 2.7 2.6 2.5 2.3 2.3 2.3 2.3 Euro Area 0.3 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.3

Germany 0.3 0.6 0.5 0.4 0.4 0.4 0.4 0.3 0.3 France 0.3 0.4 0.4 0.4 0.3 0.4 0.3 0.3 0.3 Italy 0.1 0.4 0.4 0.3 0.3 0.3 0.3 0.2 0.2 Spain 0.8 0.7 0.7 0.6 0.6 0.6 0.6 0.5 0.5 Austria 0.2 0.5 0.5 0.4 0.4 0.4 0.3 0.3 0.3

UK 0.6 0.4 0.4 0.5 0.5 0.5 0.5 0.6 0.6 Switzerland 0.4 0.4 0.5 0.5 0.5 0.4 0.4 0.4 0.4 Sweden 1.3 0.8 0.8 0.7 0.7 0.7 0.9 0.5 0.5 Norway 0.1 0.4 0.5 0.4 0.4 0.5 0.5 0.5 0.6 Russia -0.7 -1.2 -1.3 -0.6 -0.1 -0.5 -1.2 -0.9 0.2 Poland (%yoy) 4.3 3.3 3.7 3.9 3.8 3.7 3.1 3.8 4.3 Czech Republic 0.0 0.4 0.5 1.4 0.7 0.6 0.6 0.7 0.7 Hungary 1.0 0.6 0.7 0.7 0.6 0.7 0.7 0.7 0.7 Turkey 1.0 1.5 1.4 1.3 0.4 0.3 1.0 1.4 1.2

Consumer prices (% yoy) 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 US 0.4 1.1 1.0 1.2 1.6 2.3 2.4 2.5 2.5

Core rate (ex food & energy) 2.0 2.3 2.1 2.1 2.2 2.1 2.4 2.5 2.5 Euro Area 0.2 0.0 -0.1 0.2 0.6 1.1 1.1 1.3 1.5

Core rate (ex food & energy) 1.0 1.0 0.9 1.0 1.0 1.1 1.1 1.1 1.2 Germany 0.3 0.2 0.5 0.7 1.0 1.6 1.6 1.7 1.9 France 0.1 0.0 -0.2 0.2 0.5 1.0 1.1 1.1 1.2 Italy 0.2 -0.1 -0.3 0.1 0.3 0.7 1.2 1.3 1.3 Spain -0.5 -0.8 -0.5 0.1 0.6 1.1 1.0 1.2 1.4 Austria 0.7 1.0 0.9 1.4 2.1 2.3 2.2 1.8 1.3

UK 0.1 0.3 0.6 0.9 1.1 1.8 2.1 2.3 2.3 Switzerland -1.4 -1.0 -0.6 0.0 0.2 0.4 0.6 0.8 1.0 Sweden 0.1 0.7 0.7 0.7 0.9 1.1 1.3 1.6 1.8 Norway 2.5 3.2 3.2 2.5 2.8 1.7 2.3 2.8 3.0 Russia, eop 9.6 16.2 15.8 15.8 14.5 8.6 8.5 8.5 7.8 Poland, eop -0.6 -0.8 -0.8 -0.4 0.3 1.8 2.1 2.2 2.3 Czech Republic 0.1 0.5 0.2 0.6 1.2 2.0 2.1 2.4 2.2 Hungary, eop 0.9 -0.2 -0.5 0.7 1.7 3.0 2.9 2.7 2.7 Turkey, eop 8.2 9.1 8.0 8.3 8.2 8.9 8.3 8.1 7.2

*non-wda figures. Adjusted for working days: 1.4% (2015), 1.7% (2016) and 1.6% (2017) Source: UniCredit Research **Forecasts on Greek public finances do not include the impact of the forthcoming recapitalization of the Greek banking sector

22 April 2016



UniCredit FI forecasts INTEREST RATE AND YIELD FORECASTS (%)

Current 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 EMU Refi rate 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Depo -0.40 -0.40 -0.40 -0.40 -0.40 -0.40 -0.40 -0.40 3M EUR -0.25 -0.25 -0.25 -0.25 -0.25 -0.25 -0.25 -0.25 2Y Schatz -0.49 -0.45 -0.40 -0.40 -0.40 -0.40 -0.30 -0.10 5Y Obl -0.32 -0.38 -0.33 -0.27 -0.08 0.05 0.25 0.45

10Y Bund 0.23 0.30 0.45 0.60 0.80 1.00 1.20 1.40 fwd 0.26 0.29 0.32 0.35 0.38 0.41 0.44 30Y Bund 0.93 1.05 1.15 1.30 1.45 1.60 1.75 1.90 2/10 73 75 85 100 120 140 150 150

2/5/10 -38 -30 -35 -37 -28 -25 -20 -20 10/30 70 75 70 70 65 60 55 50 2Y EUR swap -0.14 -0.10 -0.05 -0.05 -0.05 -0.05 0.00 0.20 5Y EUR swap 0.05 0.03 0.08 0.13 0.27 0.40 0.55 0.75

10Y EUR swap 0.61 0.70 0.85 1.00 1.15 1.35 1.50 1.70 US FedFunds 0.50 0.75 1.00 1.25 1.50 1.75 1.75 2.00 3M Libor 0.64 1.00 1.15 1.40 1.65 1.90 1.90 2.15 2Y UST 0.81 0.90 1.15 1.40 1.65 2.00 2.20 2.40

5Y UST 1.34 1.53 1.75 2.10 2.25 2.43 2.60 2.73 10Y UST 1.86 1.90 2.15 2.40 2.60 2.80 2.90 2.90 fwd 1.92 1.97 2.02 2.06 2.10 2.14 2.17 30Y UST 2.69 2.55 2.75 2.95 3.10 3.30 3.35 3.35

2/10 106 100 100 100 95 80 70 50 2/5/10 0 13 10 20 12 2 5 8 10/30 82 65 60 55 50 50 45 45 2Y USD swap 0.94 1.00 1.30 1.55 1.85 2.20 2.45 2.65

10Y USD swap 1.73 1.85 2.15 2.40 2.65 2.85 3.00 3.00 UK Key rate 0.50 0.50 0.50 0.75 1.00 1.25 1.50 1.75 10Y Gilt 1.58 1.60 1.85 2.10 2.40 2.70 2.85 2.90 fwd 1.69 1.76 1.81 1.86 1.92 1.98 2.03

Spreads Current 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 10Y UST-Bund 163 160 170 180 180 180 170 150 10Y UST-Gilt 28 30 30 30 20 10 5 0 10Y Gilt-Bund 135 130 140 150 160 170 165 150 10Y BTP-Bund 124 110 95 80 70 70 60 60

10Y EUR swap-Bund 38 40 40 40 35 35 30 30 10Y USD swap-UST -14 -5 0 0 5 5 10 10


22 April 2016



UniCredit FX forecasts

EUR Current 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 3M 6M 12M BEER* Deviation** G10 EUR-USD 1.13 1.07 1.09 1.12 1.14 1.16 1.17 1.18 1.08 1.10 1.15 1.20 -5.8%

EUR-CHF 1.10 1.12 1.14 1.16 1.17 1.19 1.20 1.21 1.13 1.15 1.18 1.21 -9.1% EUR-GBP 0.79 0.75 0.75 0.75 0.75 0.75 0.75 0.74 0.75 0.75 0.75 0.71 11.3% EUR-JPY 125 119 119 121 121 122 122 122 119 120 122 115 8.7% EUR-NOK 9.25 9.00 8.95 8.90 8.80 8.70 8.60 8.50 8.98 8.93 8.77 7.24 27.8% EUR-SEK 9.17 9.20 9.18 9.15 9.12 9.00 8.95 8.90 9.19 9.17 9.08 7.21 27.2% EUR-AUD 1.46 1.47 1.47 1.49 1.50 1.51 1.52 1.55 1.47 1.48 1.51 1.76 -17.0% EUR-NZD 1.64 1.57 1.58 1.60 1.63 1.63 1.63 1.62 1.57 1.59 1.64 1.71 -4.1% EUR-CAD 1.44 1.43 1.42 1.40 1.38 1.38 1.38 1.38 1.43 1.41 1.38 1.42 1.4% EUR-TWI 94.7 92.3 93.3 94.8 95.7 96.7 97.3 97.8 92.6 93.8 96 CEEMEA & CHINA EUR-PLN 4.32 4.26 4.23 4.20 4.16 4.14 4.12 4.12 4.25 4.22 4.15 3.93 9.9% EUR-HUF 310 315 318 320 312 317 322 325 313 315 313 313 -1.0% EUR-CZK 27.0 27.1 27.1 27.1 27.1 26.7 26.5 26.5 27.1 27.1 27.0 29.3 -7.8% EUR-TRY 3.19 3.17 3.30 3.47 3.58 3.62 3.65 3.78 3.19 3.37 3.61 EUR-RUB 74.7 77.5 78.8 80.2 80.8 81.1 81.8 80.8 77.9 79.4 80.6 EUR-RON 4.48 4.49 4.46 4.49 4.45 4.44 4.45 4.44 4.49 4.47 4.44 EUR-CNY 7.32 7.17 7.36 7.62 7.84 8.07 8.23 8.38 7.26 7.45 7.95

USD Current 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 3M 6M 12M BEER* Deviation** G10 EUR-USD 1.13 1.07 1.09 1.12 1.14 1.16 1.17 1.18 1.08 1.10 1.15 1.20 -5.8%

USD-CHF 0.98 1.05 1.05 1.04 1.03 1.03 1.03 1.03 1.05 1.05 1.03 1.01 -3.0% GBP-USD 1.43 1.42 1.46 1.50 1.52 1.55 1.57 1.60 1.43 1.47 1.53 1.70 -15.9% USD-JPY 111 111 109 108 106 105 104 103 110 109 106 95.5 16.2% USD-NOK 8.20 8.41 8.21 7.95 7.72 7.50 7.35 7.20 8.34 8.12 7.63 6.02 36.2% USD-SEK 8.13 8.60 8.42 8.17 8.00 7.76 7.65 7.54 8.54 8.34 7.90 5.99 35.7% AUD-USD 0.77 0.73 0.74 0.75 0.76 0.77 0.77 0.76 0.73 0.74 0.76 0.68 13.2% NZD-USD 0.69 0.68 0.69 0.70 0.70 0.71 0.72 0.73 0.68 0.69 0.70 0.70 -1.4% USD-CAD 1.27 1.34 1.30 1.25 1.21 1.19 1.18 1.17 1.33 1.28 1.20 1.18 7.6% USTW$ 89.6 93 91.2 89.1 87.4 86.2 85.4 84.7 92.4 90.5 87 83.1 7.8% USD-DXY 94.8 98.8 96.9 94.5 92.7 91.2 90.4 89.5 98.2 96.1 92.2 CEEMEA & CHINA USD-PLN 3.83 3.98 3.88 3.75 3.65 3.57 3.52 3.49 3.94 3.84 3.61 3.27 17.1%

USD-HUF 275 294 292 286 274 273 275 275 290 286 272 260 5.8% USD-CZK 24.0 25.3 24.9 24.2 23.8 23.0 22.6 22.5 25.1 24.6 23.5 24.4 -1.6% USD-TRY 2.83 2.96 3.03 3.10 3.14 3.12 3.12 3.20 2.95 3.06 3.14 USD-RUB 66.2 72.4 72.3 71.6 70.9 69.9 70.0 68.5 72.1 72.2 70.1 USD-RON 3.97 4.20 4.09 4.01 3.90 3.83 3.80 3.76 4.16 4.06 3.86 USD-CNY 6.49 6.70 6.75 6.80 6.88 6.96 7.03 7.10 6.72 6.77 6.91

Forecasts are end-of-quarter / end-of-month forecasts. *BEER values are fair value estimates based on our Behavioural Equilibrium Exchange Rate model ''BEER by UniCredit''(see FX Special, 3 March 2016) **Deviation between current value of the exchange rate and the fair value estimate Source: Bloomberg, UniCredit Research

https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2016_152739.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVJ1YeU3c7Y14ZUHLz6X0yPKd7vm3w7zrag==

22 April 2016



UniCredit risky assets forecasts COMMODITY, EQUITY AND CREDIT FORECASTS

Current 2Q16 3Q16 4Q16 Mid Year Year-End Oil Brent. USD/bbl. 44.80 35 40 40 -- -- Equities* Euro STOXX 50 3130 o - + 3,200 DAX 10340 o - + 10,800

FTSE MIB 18570 o - + 19,000 Credit* iBoxx Non-Financials 80 o o - 85 100 iBoxx Financials Sen 62 o o - 60 65 iBoxx High Yield NFI 420 o o - 400 450

*For equities and credit we state expected quarterly developments. ++ strong positive performance, + positive performance, o flat performance, - negative performance, -- strong negative performance


22 April 2016



Related research CHIEF ECONOMIST’S COMMENT » Global Chief Economist´s Comment: Sunday Wrap - 17 April 2016

ECONOMICS » Tricky balancing act to continue - ECB Preview - 18 April 2016 » The ECB’s BLS in 1Q16: overall positive despite the increase in market stress - Economics Flash - 19 April 2016 » UK: Employment growth slows ahead of referendum - Economics Flash - 20 April 2016 » Economics Flash - Update of the EMU Financial Conditions Index by UniCredit: considerably tighter but no need to worry - 20 April 2016 » UK: Retail sales add to evidence of a slowdown - Economics Flash - 21 April 2016 » The Riksbank steps up QE again - Economics Flash - 21 April 2016 » Bold on corporate bond purchases - ECB Review - 21 April 2016 » Eurozone’s PMIs signal steady pace of recovery - Economics Flash - 22 April 2016

FI STRATEGY » Weekly supply preview: Activity is still geared towards the long end - Primary Market Focus - 18 April 2016 » FI Trades - Stay short UK, long Bund ahead of the UK’s June referendum - 21 April 2016 » Rates Perspectives - Using data dependency to time 10Y UST trading - 21 April 2016

FX STRATEGY » FX Perspectives - Slicing and dicing the commodity FX rally: upswing to remain in place with CAD continuing to outperform - 21 April 2016

CREDIT AND EQUITY STRATEGY » EEMEA Credit Explorer - Doha’s effect on Russian credits short lived - 18 April 2016 » Equity Strategy Flash - Focus on earnings predictability - 20 April 2016 » Credit Derivatives Analytics – Index client positioning - 20 April 2016 » Securitization Market Watch - Portuguese RMBS – all that’s left - 21 April 2016

FINANCIALS CREDIT RESEARCH » Credit Comment - Morgan Stanley: 1Q16 profit drops by more than 50% - 18 April 2016 » Credit Comment - Goldman Sachs: Worst quarterly start to the year since 2004 - 19 April 2016 » Covered Bond & Agency Monitor - 21 April 2016 - English version

CORPORATE CREDIT RESEARCH » CEE Credit Comment (HY/TMT): RCS & RDS - FY15 results show sequential EBITDA growth (to Hold from Buy) - 18 April 2016 » Credit Flash (HG/Autos): FCA Bank – Core Tier 1 at FYE15 at 11.2% and adding EUR 1bn TLTRO (Overweight) - 18 April 2016 » Euro High Yield & Crossovers (HYCO) – April 2016 - 20 April 2016 » Sector Flash - HY Industrials – trade ideas - 20 April 2016 » Credit Flash (HG/TMT): Sky – Weak 3Q15/16 results (Underweight from Marketweight) - 21 April 2016

https://www.research.unicredit.eu/DocsKey/economics_docs_2016_153264.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJDApU23Sj_xc7t0h65isuXk=

https://www.research.unicredit.eu/DocsKey/economics_docs_2016_153270.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJDApU23Sj_xcZg4oB6aRkt8=

https://www.research.unicredit.eu/DocsKey/economics_docs_2016_153294.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJDApU23Sj_xc3HoDCl5Hc_Y=

https://www.research.unicredit.eu/DocsKey/economics_docs_2016_153313.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJNf4rtQc7XNadKGWgAR8gGo=

https://www.research.unicredit.eu/DocsKey/economics_docs_2016_153319.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJNf4rtQc7XNa0H91fXvjRWY=

https://www.research.unicredit.eu/DocsKey/economics_docs_2016_153333.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJNf4rtQc7XNawhx9vFaiShg=

https://www.research.unicredit.eu/DocsKey/economics_docs_2016_153336.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJNf4rtQc7XNa5fpyExV2grs=

https://www.research.unicredit.eu/DocsKey/economics_docs_2016_153342.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJNf4rtQc7XNaPvkuAxjs49c=

https://www.research.unicredit.eu/DocsKey/economics_docs_2016_153354.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJNf4rtQc7XNaNj5fXTwRs2M=

https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2016_153263.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVJ1YeU3c7Y148T8eal9Iza8sSjpmI8r0TQ==

https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2016_153329.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVJ1YeU3c7Y14yxNAKp2VB_FTDGAUZ1RMOA==

https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2016_153337.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVJ1YeU3c7Y14B1v6RYmstdcFHdABrtF3WA==

https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2016_153323.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVJ1YeU3c7Y144ZRM6Jojh8g42-l-rETFwQ==

https://www.research.unicredit.eu/DocsKey/crediteemea_docs_2016_153279.ashx?EXT=pdf&KEY=3PM0f7PP8x0WHI5R8IfmuYmk2G5wdlzBhzMBuho3UjfXpjWh7gHUsQ==

https://www.research.unicredit.eu/DocsKey/crossassetstrategy_docs_2016_153306.ashx?EXT=pdf&KEY=S4YH8MAeOefbdOwCPJCOKsCyI6NALS63cfupxHcat3d7HLDLDqPm5w==

https://www.research.unicredit.eu/DocsKey/creditstrategy_docs_2016_153308.ashx?EXT=pdf&KEY=SB2lbiCTHCBdthAW4aD_lVH9gRMky7HUnYGOKVn4g44ATOUKxVD4tQ==

https://www.research.unicredit.eu/DocsKey/creditstrategy_docs_2016_153322.ashx?EXT=pdf&KEY=SB2lbiCTHCBdthAW4aD_lVH9gRMky7HUWZm_30F1vzk8_2ZC2JkGVw==

https://www.research.unicredit.eu/DocsKey/credit_docs_2016_153282.ashx?EXT=pdf&KEY=n03ZZLYZf5nemXA3J7CyxiwkrvC2FJvPMWBTWS6fFRM=

https://www.research.unicredit.eu/DocsKey/credit_docs_2016_153298.ashx?EXT=pdf&KEY=n03ZZLYZf5nemXA3J7Cyxiq2MIE-PUFqhCU53-USJWQ=

https://www.research.unicredit.eu/DocsKey/credit_docs_2016_153338.ashx?EXT=pdf&KEY=n03ZZLYZf5nemXA3J7CyxhJFACoGDvqEZrMYzTz8YMQ=

https://www.research.unicredit.eu/DocsKey/crediteemea_docs_2016_153271.ashx?EXT=pdf&KEY=3PM0f7PP8x0WHI5R8IfmuYmk2G5wdlzBLXAcCyl0GQ35fVHm186gsw==

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https://www.research.unicredit.eu/DocsKey/credit_docs_2016_153315.ashx?EXT=pdf&KEY=n03ZZLYZf5nemXA3J7Cyxj6SJGXveKolvIJrV9AwN3U=

https://www.research.unicredit.eu/DocsKey/credit_docs_2016_153316.ashx?EXT=pdf&KEY=n03ZZLYZf5nemXA3J7CyxlCrNIqvgYixw4S6c-omvi0=

https://www.research.unicredit.eu/DocsKey/credit_docs_2016_153334.ashx?EXT=pdf&KEY=n03ZZLYZf5nemXA3J7CyxsOvFl4zTQwS5-cZrMwZBe4=

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UniCredit Research page 23

Disclaimer Our recommendations are based on information obtained from, or are based upon public information sources that we consider to be reliable but for the completeness and accuracy of which we assume no liability. All estimates and opinions included in the report represent the independent judgment of the analysts as of the date of the issue. This report may contain links to websites of third parties, the content of which is not controlled by UniCredit Bank. No liability is assumed for the content of these third-party websites. We reserve the right to modify the views expressed herein at any time without notice. Moreover, we reserve the right not to update this information or to discontinue it altogether without notice. 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Regulatory authority: Hong Kong Monetary Authority, 55th Floor, Two International Financial Centre, 8 Finance Street, Central, Hong Kong d) UniCredit Bank AG Singapore Branch (UniCredit Bank Singapore), Prudential Tower, 30 Cecil Street, #25-01, Singapore 049712 Regulatory authority: Monetary Authority of Singapore, 10 Shenton Way MAS Building, Singapore 079117 e) UniCredit Bank AG Tokyo Branch (UniCredit Tokyo), Otemachi 1st Square East Tower 18/F, 1-5-1 Otemachi, Chiyoda-ku, 100-0004 Tokyo, Japan Regulatory authority: Financial Services Agency, The Japanese Government, 3-2-1 Kasumigaseki Chiyoda-ku Tokyo, 100-8967 Japan, The Central Common Government Offices No. 7.

POTENTIAL CONFLICTS OF INTERESTS Telecom Italia 3; Key 1a: UniCredit Bank AG and/or any related legal person owns at least 2% of the capital stock of the analyzed company. Key 1b: The analyzed company owns at least 2% of the capital stock of UniCredit Bank AG and/or any related legal person. Key 2: UniCredit Bank AG and/or any related legal person has been lead manager or co-lead manager over the previous 12 months of any publicly disclosed offer of financial instruments of the analyzed company, or in any related derivatives. Key 3: UniCredit Bank AG and/or any related legal person administers the securities issued by the analyzed company on the stock exchange or on the market by quoting bid and ask prices (i.e. acts as a market maker or liquidity provider in the securities of the analyzed company or in any related derivatives). Key 5: The analyzed company and UniCredit Bank AG and/or any related legal person have concluded an agreement on the preparation of analyses. Key 6a: Employees or members of the Board of Directors of UniCredit Bank AG and/or any other employee that works for UniCredit Research (i.e. the joint research department of the UniCredit Group) and/or members of the Group Board (pursuant to relevant domestic law) are members of the Board of Directors of the analyzed company. Members of the Board of Directors of the analyzed company hold office in the Board of Directors of UniCredit Bank AG (pursuant to relevant domestic law). The application of this Key 6a is limited to persons who, although not involved in the preparation of the analysis, had or could reasonably be expected to have access to the analysis prior to its dissemination to customers or the public. Key 6b: The analyst is on the Supervisory Board/Board of Directors of the company they cover.

RECOMMENDATIONS, RATINGS AND EVALUATION METHODOLOGY Company Date Rec. Company Date Rec. Company Date Rec. TITIM 16/02/2016 Hold TITIM 06/08/2015 Hold TITIM 24/04/2015 Hold TITIM 13/01/2016 Restricted TITIM 06/08/2015 Marketweight Overview of our ratings You will find the history of rating regarding recommendation changes as well as an overview of the breakdown in absolute and relative terms of our investment ratings on our website www.disclaimer.unicreditmib.eu/credit-research-rd/Recommendations_CR_e.pdf. Note on the evaluation basis for interest-bearing securities: Recommendations relative to an index: For high grade names the recommendations are relative to the "iBoxx EUR Benchmark" index family, for sub investment grade names the recommendations are relative to the "iBoxx EUR High Yield" index family. Marketweight: We recommend having the same portfolio exposure in the name as the respective iBoxx index. We expect that the average total return of the instruments of the issuer is equal to the total return of the index. Overweight: We recommend having a higher portfolio exposure in the name as the respective iBoxx index. We expect that the average total return of the instruments of the issuer is greater than the total return of the index. Underweight: We recommend having a lower portfolio exposure in the name as the respective iBoxx index. We expect that the average total return of the instruments of the issuer is less than the total return of the index. Outright recommendations: Hold: We recommend holding the respective instrument for investors who already have exposure. We expect that the total return of the instruments of the issuer is equal to the yield. Buy: We recommend buying the respective instrument for investors who already have exposure. We expect that the total return of the instruments of the issuer is greater than the yield. Sell: We recommend selling the respective instrument for investors who already have exposure. We expect that the total return of the instruments of the issuer is less than the yield. We employ three further categorizations for interest-bearing securities in our coverage: Restricted: A recommendation and/or financial forecast is not disclosed owing to compliance or other regulatory considerations such as a blackout period or a conflict of interest.

22 April 2016



Coverage in transition: Due to changes in the research team, the disclosure of a recommendation and/or financial information are temporarily suspended. The interest-bearing security remains in the research universe and disclosures of relevant information will be resumed in due course. Not rated: Suspension of coverage. Trading recommendations for fixed-interest securities mostly focus on the credit spread (yield difference between the fixed-interest security and the relevant government bond or swap rate) and on the rating views and methodologies of recognized agencies (S&P, Moody’s, Fitch). Depending on the type of investor, investment ratings may refer to a short period or to a 6 to 9-month horizon. Please note that the provision of securities services may be subject to restrictions in certain jurisdictions. You are required to acquaint yourself with local laws and restrictions on the usage and the availability of any services described herein. The information is not intended for distribution to or use by any person or entity in any jurisdiction where such distribution would be contrary to the applicable law or provisions. If not otherwise stated daily price data refers to pre-day closing levels and iBoxx bond index characteristics refer to the previous month-end index characteristics. Coverage Policy A list of the companies covered by UniCredit Bank is available upon request. Frequency of reports and updates It is intended that each of these companies be covered at least once a year, in the event of key operations and/or changes in the recommendation.

SIGNIFICANT FINANCIAL INTEREST UniCredit Bank AG and/or other related legal persons with them regularly trade shares of the analyzed company. UniCredit Bank AG and/or other related legal persons may hold significant open derivative positions on the stocks of the company which are not delta-neutral. UniCredit Bank AG and/or other related legal persons have a significant financial interest relating to the analyzed company or may have such at any future point of time. Due to the fact that UniCredit Bank AG and/or any related legal person are entitled, subject to applicable law, to perform such actions at any future point in time which may lead to the existence of a significant financial interest, it should be assumed for the purposes of this information that UniCredit Bank AG and/or any related legal person will in fact perform such actions which may lead to the existence of a significant financial interest relating to the analyzed company. Analyses may refer to one or several companies and to the securities issued by them. In some cases, the analyzed companies have actively supplied information for this analysis.

INVESTMENT BANKING TRANSACTIONS The analyzed company and UniCredit Bank AG and/or any related legal person concluded an agreement on services in connection with investment banking transactions in the previous 12 months, in return for which the Bank and/or such related legal person received a consideration or promise of consideration or intends to do so. Due to the fact that UniCredit Bank AG and/or any related legal person are entitled to conclude, subject to applicable law, an agreement on services in connection with investment banking transactions with the analyzed company at any future point in time and may receive a consideration or promise of consideration, it should be assumed for the purposes of this information that UniCredit Bank AG and/or any related legal person will in fact conclude such agreements and will in fact receive such consideration or promise of consideration.

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This document does not constitute or form part of any offer for sale or subscription for or solicitation of any offer to buy or subscribe for any securities and neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Notice to Brazilian investors: The individual analyst(s) responsible for issuing this report represent(s) that: (a) the recommendations herein reflect exclusively the personal views of the analysts and have been prepared in an independent manner, including in relation to UniCredit Group; and (b) except for the potential conflicts of interest listed under the heading “Potential Conflicts of Interest” above, the analysts are not in a position that may impact on the impartiality of this report or that may constitute a conflict of interest, including but not limited to the following: (i) the analysts do not have a relationship of any nature with any person who works for any of the companies that are the object of this report; (ii) the analysts and their respective spouses or partners do not hold, either directly or indirectly, on their behalf or for the account of third parties, securities issued by any of the companies that are the object of this report; (iii) the analysts and their respective spouses or partners are not involved, directly or indirectly, in the acquisition, sale and/or trading in the market of the securities issued by any of the companies that are the object of this report; (iv) the analysts and their respective spouses or partners do not have any financial interest in the companies that are the object of this report; and (v) the compensation of the analysts is not, directly or indirectly, affected by UniCredit’s revenues arising out of its businesses and financial transactions. UniCredit represents that: except for the potential conflicts of interest listed under the heading “Potential Conflicts of Interest” above, UniCredit, its controlled companies, controlling companies or companies under common control (the “UniCredit Group”) are not in a condition that may impact on the impartiality of this report or that may constitute a conflict of interest, including but not limited to the following: (i) the UniCredit Group does not hold material equity interests in the companies that are the object of this report; (ii) the companies that are the object of this report do not hold material equity interests in the UniCredit Group; (iii) the UniCredit Group does not have material financial or commercial interests in the companies or the securities that are the object of this report; (iv) the UniCredit Group is not involved in the acquisition, sale and/or trading of the securities that are the object of this report; and (v) the UniCredit Group does not receive compensation for services rendered to the companies that are the object of this report or to any related parties of such companies. Notice to Canadian investors: This communication has been prepared by UniCredit Bank AG, which does not have a registered business presence in Canada. This communication is a general discussion of the merits and risks of a security or securities only, and is not in any way meant to be tailored to the needs and circumstances of any recipient. The contents of this communication are for information purposes only, therefore should not be construed as advice and do not constitute an offer to sell, nor a solicitation to buy any securities. Notice to Cyprus investors: This document is directed only at clients of UniCredit Bank who are persons falling within the Second Appendix (Section 2, Professional Clients) of the law for the Provision of Investment Services, the Exercise of Investment Activities, the Operation of Regulated Markets and other Related Matters, Law 144(I)/2007 and persons to whom it may otherwise lawfully be communicated who possess the experience, knowledge and expertise to make their own investment decisions and properly assess the risks that they incur (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on by persons who are not relevant persons or relevant persons who have requested to be treated as retail clients. Any investment or investment activity to which this communication related is available only to relevant persons and will be engaged in only with relevant persons. This document does not constitute an offer or solicitation to any person to whom it is unlawful to make such an offer or solicitation. Notice to investors in Ivory Coast: The information contained in the present report have been obtained by Unicredit Bank AG from sources believed to be reliable, however, no express or implied representation or warranty is made by Unicredit Bank AG or any other person as to the completeness or accuracy of such information. All opinions and estimates contained in the present report constitute a judgement of Unicredit Bank AG as of the date of the present report and are subject to change without notice. They are provided in good faith but without assuming legal responsibility. This report is not an offer to sell or solicitation of an offer to buy or invest in securities. Past performance is not an indicator of future performance and future returns cannot be guaranteed, and there is a risk of loss of the initial capital invested. No matter contained in this document may be reproduced or copied by any means without the prior consent of Unicredit Bank AG.

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Notice to New Zealand investors: This report is intended for distribution only to persons who are “wholesale clients” within the meaning of the Financial Advisers Act 2008 (“FAA”) and by receiving this report you represent and agree that (i) you are a “wholesale client” under the FAA (ii) you will not distribute this report to any other person, including (in particular) any person who is not a “wholesale client” under the FAA. This report does not constitute or form part of, in relation to any of the securities or products covered by this report, either (i) an offer of securities for subscription or sale under the Securities Act 1978 or (ii) an offer of financial products for issue or sale under the Financial Markets Conduct Act 2013. Notice to Omani investors: This communication has been prepared by UniCredit Bank AG. UniCredit Bank AG does not have a registered business presence in Oman and does not undertake banking business or provide financial services in Oman and no advice in relation to, or subscription for, any securities, products or financial services may or will be consummated within Oman. The contents of this communication are for the information purposes of sophisticated clients, who are aware of the risks associated with investments in foreign securities and neither constitutes an offer of securities in Oman as contemplated by the Commercial Companies Law of Oman (Royal Decree 4/74) or the Capital Market Law of Oman (Royal Decree 80/98), nor does it constitute an offer to sell, or the solicitation of any offer to buy non-Omani securities in Oman as contemplated by Article 139 of the Executive Regulations to the Capital Market Law (issued vide CMA Decision 1/2009). This communication has not been approved by and UniCredit Bank AG is not regulated by either the Central Bank of Oman or Oman’s Capital Market Authority. Notice to Pakistani investors: Investment information, comments and recommendations stated herein are not within the scope of investment advisory activities as defined in sub-section I, Section 2 of the Securities and Exchange Ordinance, 1969 of Pakistan. Investment advisory services are provided in accordance with a contract of engagement on investment advisory services concluded with brokerage houses, portfolio management companies, non-deposit banks and the clients. The distribution of this report is intended only for informational purposes for the use of professional investors and the information and opinions contained herein, or any part of it shall not form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Notice to Polish Investors: This document is intended solely for professional clients as defined in Art. 3.39b of the Trading in Financial Instruments Act of 29 July 2005 (as amended). The publisher and distributor of the document certifies that it has acted with due care and diligence in preparing it, however, assumes no liability for its completeness and accuracy. This document is not an advertisement. It should not be used in substitution for the exercise of independent judgment. Notice to Serbian investors: This analysis is only for distribution to professional clients (profesionalni klijenti) as defined in article 172 of the Law on Capital Markets. Notice to UK investors: This communication is directed only at clients of UniCredit Bank who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations, etc.”) of the United Kingdom Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. CR e 8

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UniCredit Research* Erik F. Nielsen Group Chief Economist Global Head of CIB Research +44 207 826-1765 [email protected]

Dr. Ingo Heimig Head of Research Operations +49 89 378-13952 [email protected]

Cross Asset Research

Economics & FI/FX Research European Economics Marco Valli, Chief Eurozone Economist +39 02 8862-0537 [email protected] Dr. Andreas Rees, Chief German Economist +49 69 2717-2074 [email protected] Stefan Bruckbauer, Chief Austrian Economist +43 50505-41951 [email protected] Tullia Bucco, Economist +39 02 8862-0532 [email protected] Edoardo Campanella, Economist +39 02 8862-0522 [email protected] Dr. Loredana Federico, Lead Italy Economist +39 02 8862-0534 [email protected] Dr. Tobias Rühl, Economist +49 89 378-12560 [email protected] Chiara Silvestre, Economist [email protected] Dr. Thomas Strobel, Economist +49 89 378-13013 [email protected] Daniel Vernazza, Ph.D., Lead UK Economist +44 207 826-7805 [email protected]

US Economics Dr. Harm Bandholz, CFA, Chief US Economist +1 212 672-5957 [email protected]

EEMEA Economics & FI/FX Strategy Lubomir Mitov, Chief CEE Economist +44 207 826-1772 [email protected] Dan Bucşa, Lead CEE Economist +44 207 826-7954 [email protected] Dumitru Vicol, Economist +44 207 826-6081 [email protected]

Global FI Strategy Michael Rottmann, Head, FI Strategy +49 89 378-15121 [email protected] Dr. Luca Cazzulani, Deputy Head, FI Strategy +39 02 8862-0640 [email protected] Chiara Cremonesi, FI Strategy +44 207 826-1771 [email protected] Alessandro Giongo, FI Strategy +39 02 8862-0538 [email protected] Elia Lattuga, FI Strategy +44 207 826-1642 [email protected] Kornelius Purps, FI Strategy +49 89 378-12753 [email protected] Herbert Stocker, Technical Analysis +49 89 378-14305 [email protected]

Global FX Strategy Dr. Vasileios Gkionakis, Global Head, FX Strategy +44 207 826-7951 [email protected] Kathrin Goretzki, CFA, FX Strategy +44 207 826-6076 [email protected] Kiran Kowshik, EM FX Strategy +44 207 826-6080 [email protected] Roberto Mialich, FX Strategy +39 02 8862-0658 [email protected]

Cross Asset Strategy Dr. Philip Gisdakis, Head +49 89 378-13228 [email protected] Marino Bucher, Technical Analysis +49 89 378-18148 [email protected] Dr. Tammo Greetfeld, Equity Strategy +49 89 378-18361 [email protected] Jochen Hitzfeld, Commodity Strategy +49 89 378-18709 [email protected] Christian Stocker, CEFA, Equity Strategy +49 89 378-18603 [email protected]

Credit Strategy & Structured Credit Research Dr. Philip Gisdakis, Head Credit Strategy +49 89 378-13228 [email protected] Dr. Christian Weber, CFA, Deputy Head Credit Strategy +49 89 378-12250 [email protected] Dr. Tim Brunne Quantitative Credit Strategy +49 89 378-13521 [email protected] Holger Kapitza Credit Strategy & Structured Credit +49 89 378-28745 [email protected] Dr. Stefan Kolek EEMEA Corporate Credits & Strategy +49 89 378-12495 [email protected] Manuel Trojovsky Credit Strategy & Structured Credit +49 89 378-14145 [email protected]

Publication Address

UniCredit Research Corporate & Investment Banking UniCredit Bank AG Arabellastrasse 12 D-81925 Munich [email protected]

Bloomberg UCGR Internet www.research.unicredit.eu

*UniCredit Research is the joint research department of UniCredit Bank AG (UniCredit Bank), UniCredit Bank AG London Branch (UniCredit Bank London), UniCredit Bank AG Milan Branch (UniCredit Bank Milan), UniCredit Bank New York (UniCredit Bank NY), UniCredit Bulbank, Zagrebačka banka d.d., UniCredit Bank Czech Republic and Slovakia, Bank Pekao, ZAO UniCredit Bank Russia (UniCredit Russia), UniCredit Bank Romania. XA 31

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