National Bank of Greece S A : Global Economy & Markets, Weekly Roundup 07/07/20

Global Markets Roundup

N A T I O N A L B A N Κ

National Bank of Greece | Economic Research Division | July 7, 2020

O F G R E E C E

As economic activity improves, investor focus turns to the path of the subsequent recovery and the risk of a second wave of Covid-19

•  Global risk assets (equities, speculative grade corporate bond spreads) entered Q3 on a positive

  footing, due, inter alia, to the fact that economic activity is growing at a fast pace following the easing of lockdown measures across the developed economies. Indeed, the MSCI ACWI is up by 1.4% since June 30th, after recovering in Q2 a substantial portion of its -22% qoq pandemic-related sharp losses in Q1 (+19% qoq | the strongest quarterly performance on a price basis since Q2:2009).

  Ilias TsirigotakisAC

  Head of Global Markets Research [e-mail]

•  Equity valuations appear to be running ahead of fundamentals, with the 12-month forward P/E ratio (share prices divided by consensus estimates for 12-month forward earnings per share) at 19x for the MSCI ACWI versus a 15-year average of 14x. In the US, the respective valuation metric stands at 22x versus a 15-year average of 15x, even with robust expectations for the 12-month forward EPS at $144. Indeed, bottom-up expectations suggest a strong and sustained "V"-shaped recovery for corporate profitability, with consensus pointing to a bottoming out in annual growth from a trough of -44% yoy in Q2:20 to -24% yoy in Q3:20, -12% yoy in Q4:20, +14% yoy in Q1:21 and +69% yoy in

Panagiotis Bakalis [e-mail]

Q2:21.

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Vasiliki Karagianni [e-mail]

•  The latest economic data corroborate the view that a strong rebound in activity took hold from mid-May into June following the phased easing of the restrictions. Specifically, the US ISM manufacturing index rose by 9.5 pts to 52.6 in June and its non-manufacturing counterpart by 11.7 pts to 57.1, both overshooting consensus estimates (49.5 and 50, respectively) and well above the expansion/contraction threshold of 50. Moreover, the US labor market improved significantly for a 2nd consecutive month in June, but began to slow following the labor market report's reference week (June 7th to June 13th) (see Economics). Furthermore, the easing of social distancing also appears to have weakened in recent days in the US, as suggested by mobility reports from both Google and Apple (these reports track movements of people | see graph). Overall, caution is warranted regarding the subsequent path for the recovery, in view, inter alia, of the recent deterioration in epidemiological data (e.g. higher infection rates), especially in the US.

  Leonidas Patsios 210-3341553

  [e-mail]

•  Accommodative monetary policies remain a major pillar for economic recovery and for risk appetite. In the event, the minutes of the US Federal Open Market Committee (FOMC) meeting on June 9th - 10th suggest increased likelihood of the Federal Reserve's forward guidance to be soon linked to certain economic outcomes. Of the various candidates, a guidance tied to inflation outcomes "that could possibly entail a modest temporary overshooting of the Committee's longer-run inflation goal but where inflation fluctuations would be centered on 2%" appears relatively more probable (Average Inflation Targeting). Such a development would set a high bar for policy tightening, consequently strengthening the case for a "low-for-long" interest rate policy, since the chance of inflation reverting back to target is currently not on the cards (headline PCE inflation was +0.5% yoy in May | core PCE: +1% yoy). Extensive discussions took place regarding potential policy approaches that cap or target interest rates along the government bond yield curve in the footsteps of Reserve Bank of Australia and/or Bank of Japan. FOMC members expressed reluctance for such policies, but called for further respective analysis.

Table of Contents

Overview_p1

Economics & Markets_p2,3

Forecasts & Outlook_p4

Event Calendar_p5

Markets Monitor_p6

ChartRoom_p7,8

Market Valuation_p9,10

COVID-19 Cases per million

US Mobility Trackers (relative to pre-pandemic baselines)

USSwedenUKFranceGermanyItaly

%

Based on Google's Community Mobility Report* (7-day average, left)Index

Based on Apple's Mobility Trends Report** (7-day average, right)

160

Chartsoftheweek

140 120

100 80

60 40 20

0

0

10 120

5 110

0 100

-5 90

-10 80

-15 70

-20 60

-25 50

-30 40

-35 30

21-Feb

28-Feb

6-Mar

13-Mar

20-Mar

27-Mar

3-Apr

10-Apr

17-Apr

24-Apr

1-May

8-May

15-May

22-May

29-May

5-Jun

12-Jun

19-Jun

26-Jun

3-Jul

10-Jul

25

50

75

100

125

Source: NBG Research, Google, Apple *: simple average of the Retail & Recreation mobility and the additive inverse of the residential (stay-at-home)Source; NBG Research, Bloomberg, t=0, COVID deaths exceed 0.25 per 1million population

components, **: simple average of all three components of the mobility report, i.e. driving, transit and walking

See page 11 for disclosures and analyst certification

O F G R E EC E

US labor market conditions continued to improve in June, due to the gradual resumption of economic activity

•  According to the monthly labor report for June, nonfarm payrolls increased sharply by 4.8 mn, exceeding consensus of circa 3 mn. This is the largest monthly job gains in history, surpassing by a wide margin the record set in May (+2.7 mn, revised up by 0.2 mn). Notably, the industries that were affected the most by lockdowns recorded the largest increase in June, asin industry (+5 bps) and among consumers (+3.2 bps), while in June the recovery was due to significant increases in confidence across all sectors, with the main drivers retail trade (+10.4 bps) and services (+8 bps). The index has now recouped c. 37% of the combined losses over March and April, having increased by 10.9 bps since April, as economies gradually re-open.

Euro area inflation flash estimate was slightly above expectations in June

employment in leisure & hospitality increased by 2.1 mn,  Headline inflation accelerated by 0.2 pps to +0.3% yoy in June

accounting for c. 44% of the total gains, with employment in food services and drinking places rising by 1.5 mn but still remaining 3.1 mn below its February level. Gains also occurred in retail trade (+0.74 mn but 1.3 mn below its February level) and in education and health services (+0.57 mn but 1.8 mn below its February level). As a result, the unemployment rate decreased to 11.1% in June, from 13.3% in May and 14.7% in April, which was the highest rate since 1940. Despite the improvement during the past two months, the unemployment rate remains significantly higher than the pre-pandemic level of 3.5%, which was a 50-year low, with the level of employment being almost 15 mn below its level in February as the combined job losses in March and April reached 22 mn. As the Bureau of Labor Statistics (BLS) acknowledged, the unemployment rate for June is less underestimated than the previous months as the degree of misclassification declined considerably. In the latest surveys, many participants in the labor force were recorded as employed but absent from work due to "other reasons", while they should have been classified as unemployed on temporary layoff. Without that misclassification error, BLS estimates that the unemployment rate would have been c. 1 pp higher than reported. Recall that BLS estimated that the underestimation for April was c.

from a 4-year low of 0.1% in May, according to the flash estimate from Eurostat. Recall that, in June, economies across the bloc gradually re-opened and oil prices also rallied. Indeed, the change was mostly due to energy prices (-9.4% yoy versus -11.9% in May), while, on the other hand, the respective index for food, alcohol & tobacco declined modestly to +3.1% yoy versus +3.4% yoy in May. At the same time, core inflation (which excludes the effects of energy and food components) declined to +0.8% from +0.9% yoy, reflecting the possible effects of the pandemic on demand. It should also be noted, however, that June's inflation data provide the most detailed indication of underlying price pressures since the beginning of the Covid-19 crisis, as businesses of particular sectors were previously restricted by containment measures across most euro area countries (as a result, in cases where data collection was restrained, national statistics authorities incorporated assumptions).

Unemployment in the euro area rose only slightly and by less than expected in May, as restriction measures were gradually lifted, albeit the increase was more intense for youths and women

5 pps and for May c. 3 pps. Note also that a broader measure of  The euro area unemployment rate increased in May to 7.4%labor market conditions, the U-6 unemployment rate (which includes the unemployed, part-time workers for economic reasons, and those workers marginally attached to the labor force), decreased significantly to 18% in June from 21.2% in May and 22.8% in April. Importantly, the data reference period for the monthly report was for the week June 7th to June 13th. In the following weeks, there was a sharp increase in daily new cases of Covid-19 in the US from 25k to over 50k and, as a result, some of the hardest-hit states decided to pause or roll back their re-opening plans, as indicated also by the new claims for unemployment insurance. Indeed, initial jobless claims posted only a small decline of 55k to 1.43 mn for the week ending June 27th, remaining above 1 mn for a 15th consecutive week. Moreover, continuing claims increased by 59k to 19.29 mn for the week ending June 20th. Note that the minutes of the Federal Reserve's latest meeting indicate the concerns of its members regarding the possibility that the gradual re-opening of the economy will be suspended or reversed due to a second wave of the pandemic and, as a result, the expected further improvement of the labor market may not materialize.

The recovery of the Economic Sentiment Indicator (ESI) in the euro area intensified

•  The euro area's ESI registered in June the largest monthly increase on record (+8.2 bps) to 75.7 from 67.5 in May and 64.8 in April, its lowest levels since 1985 when records began. In May the increase was due to improvement in sentiment mainly

(lower than consensus of 7.7%) from 7.3% in April and 7.1% in March, its lowest level since 1998 when the records began.

Youth unemployment (for persons aged under 25) rose to 16.0% in May from 15.7% in April and 15.0% in March, unemployment for women increased to 7.9% in May form 7.7% in April and 7.5% in March, while unemployment for men remained stable at 7% (6.8% in March). Among the bloc's largest economies, the highest unemployment rate was reported in Spain (14.5% from 14.6% in April), France (8.1% from 8.7%) and Italy (7.8% from 6.6%), while the lowest was recorded in Germany (3.9% from 3.8%). The small increase in the headline figure reflects the re-opening of euro area economies, started during the reference month but also the massive (temporary) furlough and short-time work schemes introduced by countries. Moreover, a significant part of those who had been registered as unemployed were no longer actively looking for a job as this was not possible due to the restrictions of movements in force, thus leading to discrepancies in the number of registered unemployed and those measured as unemployed. Looking forward, larger unemployment figures are expected in the following months as restrictions are lifted and schemes draw to a close. This is also evident in the ECB's macroeconomic projections, as it forecasts an unemployment rate of c. 10% for Q3:2020, remaining at this level in 2021 (10.1% on average) only to be reduced in 2022 (10.1% on average).

•  Global equity markets rose in the past week, as better-than-expected economic data and positive vaccine developments offset investors concern over the increase on COVID-19 cases. Overall, the MSCI ACWI ended the week up by +3.2% (-5.8% ytd), with both Developed (+3.0% wow | -5.3% ytd) and Emerging Markets (+3.1% wow | -3.3% ytd) recording strong gains. In the US, S&P500 rose by 4.0% wow (-3.1% ytd), while on a sector level, Communication Services and Materials overperformed (+5.6% and 5.5% wow, respectively), in a week though that saw broad based gains across sectors. On the other side of the Atlantic, EuroStoxx rose by 2.7%, with Banks leading the increase (+5.3% wow), on the back of higher yields. On Friday European equites recorded losses (-0.6%), as investors mulled a reported conflict among policy makers over a stimulus package for the single-currency region, as well as political upheaval in France. Specifically, according to media reports the ECB is facing a potential rift over how much their emergency bond-purchase program should stay weighted toward weaker countries such as Italy. However, on Friday, the upward trend resumed (EuroStoxx: +1.7%). In China, CSI 300 rose by 6.8% wow (+7.9% ytd), at the highest level since June 2015, as in June NBS/Caixin manufacturing PMIs continued the recovery trend.

  Equities

•  Government bond yields increased in major advanced economies due to reduced "safe haven" demand. Overall, the US 10-year yield rose by 3 bps to 0.67%, following stronger-than-expected economic data (labor market report) and hopes of a COVID-19 vaccine. Similarly, in the Germany, the 10-year Bund yield rose by 5 bps to -0.43%. Meanwhile, periphery bond spreads declined in the past week across the board (Italy: -9 bps to 169 bps, Spain: -6 bps to 88 bps, Portugal: -8 bps to 86 bps). Corporate bond spreads declined in the past week as the improving activity levels across the globe and ongoing concerns regarding second wave infections remain the main drivers.

• Fixed Income

• Specifically, the USD HY spread declined by 24 bps to 617 bps, while its euro area counterpart fell by 12 bps to 511 bps. In the Investment Grade spectrum, the decline of spreads was less intense both in the US (-8 bps to 154 bps) and in the euro area (-4 bps to 143 bps).

  FX and Commodities  In foreign exchange markets, British pound rose in the past week as investors assessed the probability of Britain signing a trade deal with the European Union by the end of the year. Note that Brexit talks in the past week between Britain and the EU ended prematurely by one day and are expected to resume this week, with the EU's chief negotiator, Michel Barnier, noting that serious divergences remain. Overall, the British Pound rose by 1.2% against the US dollar to $1.248 and by 0.9% wow against the euro to €/0.901. Meanwhile, US dollar was at a tight range in the past week as growing optimism about the economy offset by concerns about a resurgence in coronavirus infections. Overall, USD declined by 0.3% wow against the euro to $1.125. Finally, in commodities, oil prices rose in the past week due to a drawdown in crude inventories and wider signs of economic recovery. Specifically, US oil inventories declined by 7.2 million barrels (the biggest decline since the beginning of the year) from a record high in the past week (544 million barrels) to 534 million barrels for the week ending June 26th. Overall, Brent ended the week up by 5.9% to $42.4/barrel (-36% ytd), and the WTI rose by 5.6% to $40.7/barrel (-33% ytd). Gold prices were broadly stable at $1772/ounce. Note that from the beginning of the year gold prices have increased by 17%, due to increased safe haven demand.

N A T I O N A L B A N Κ
O F G R E EC E
EPS Consensus Forecasts
S&P 500	EuroStoxx	Nikkei 225
Stoxx 600	DAX 30	Ibex 35

Quote of the week: "We have entered an important new phase and have done so sooner than expected… While this bounce-back in economic activity is welcome, it also presents new challenges - notably, the need to keep the virus in check", Fed Chair, Jerome Powell, June 30th 2020.



NBG Global Markets Roundup | Economic & Markets Forecasts

O F G R E EC E

12-Month View & Key Factors for Global Markets

US

Euro Area

Japan

UK

+Still high equity risk premium relative to other regions

+ Massive Fiscal loosening will support the economy but wont avoid a recession

- 2020 EPS growth expectations have further room to fall from +2%. Earnings will contract in 2020

EquityMarkets

- Forget aggresive share buybacks for now due to political pressures

- Peaking profit margins

- Protectionism and trade wars

- P/Es (Valuations) are in line with long-term averages despite P/E contraction of more than 20% since February highs (19x)

+ Modest fiscal loosening in 2020 excluding Germany - Signs of policy fatigue regarding structural reforms

(5% of GDP)

- 2020-2021 EPS estimates may turn pessimistic as economic growth fails to pick up

- Political uncertainty (Italy, Brexit) could intensify

+Still aggressive QE and "yield-curve" targeting by the +65% of FTSE100 revenues from abroadBoJand fiscal discipline

- Strong appetite for foreign assets

- JPY appreciation in a risk-off scenario could hurt exporters

+Undemanding valuations in relative terms

- Elevated Policy uncertainty to remain due to the outcome of the Brexit negotiating process

Neutral/Positive

Neutral

Neutral

Neutral/Negative

NBG Global Markets Roundup | Economic News & Events Calendar

N A T I O N A L B A N Κ

O F G R E EC E

rEact onomic Calendar

In the US, attention turns to the weekly initial and continuing jobless claims for a more updated view of labor market conditions.

In China, attention turns to inflation data for June, due to release on Thursday. CPI is expected at 2.5% yoy from 2.4% yoy in May.

In Germany, industrial production for May is released on Tuesday (consensus for +11.1% mom vs -17.9% mom and -16.9% yoy vs -25.3% yoy in the previous month).

US Unemployment Insurance Claims

Continuing Jobless Claims

mnmn

Initial Jobless Claims

30

25

20

15

10

5

0

ore	cast

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Jul-19

Aug-19

Sep-19

Source: NBG Research, FRED Economic Data

30

25

20

15

10

5

0

Oct-19

Nov-19

Dec-19

Jan-20

Feb-20

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Economic News Calendar for the period: June 30 - July 13, 2020
Tuesday 30						Wednesday 1
US S A Conference board consumer confidence June 91.5 + 98.1 P 85.9 S&P Case/Shiller house price April 3.80% + 3.98% 3.91%			EURO AREA S AP CPI (YoY) Core CPI (YoY)June June 0.2% + 0.3% 0.1% 0.8% 0.8% 0.9% CHINA			US ADP Employment Change (k) Construction spending (MoM) ISM Manufacturing June May June S 2900 1.0% AP - 2369 3065 - -2.1% -3.5% 49.8 + 52.6 43.1
index 20 (YoY)			Manufacturing PMI June 50.5 + 50.9 50.6			FOMC Minutes June 10
UK			UK
GDP (QoQ) Q1:20 -2.0% - -2.2% -2.0%			Nationwide House Px NSA YoYJune 0.9% - -0.1% 1.8%
GDP (YoY) Q1:20 -1.6% - -1.7% -1.6% JAPAN			JAPAN Tankan - large manufacturersQ2:20 -31 - -34 -8
Jobless Rate Industrial Production (MoM) Industrial Production (YoY) Construction Orders YoY May May May May 2.8% - 2.9% 2.6% -5.9% - -8.4% -9.8% -23.1% - -25.9% -15.0% .. -6.1% -14.2%			current index Tankan - large manufacturers outlook index Q2:20 -24 - -27 -11 CHINA Caixin PMI Manufacturing June 50.5 + 51.2 50.7 GERMANY Retail sales (MoM) Retail sales (YoY) May May 3.5% + 13.9% -6.5% -3.2% + 3.8% -6.4%
Thursday 2						Monday 6
US S A Trade balance ($bn) May -53.2 - -54.6 P -49.8						US S A ISM non-manufacturing June 50.2 + 57.1 P 45.4
Change in Nonfarm Payrolls (k)June 3230 + 4800 2699			UK
Change in Private Payrolls (k)June 3000 + 4767 3232			Markit/CIPS UK ConstructionJune 46.0 + 55.3 28.9
Unemployment rate Average weekly hours (hrs) Average Hourly Earnings MoM Average Hourly Earnings YoY June June June June 12.5% + 11.1% 13.3% 34.5 34.5 34.7 -0.8% - -1.2% -1.0% 5.3% - 5.0% 6.6%			PMI EURO AREA Retail sales (MoM) Retail sales (YoY)May May 15.0% + 17.8% -12.1% -6.5% + -5.1% -19.6%
Labor Force Participation RateJune 61.2% + 61.5% 60.8%
Underemployment Rate June ..	18.0% 21.2%
Initial Jobless Claims (k) Continuing Claims (k) Factory Goods Orders (MoM)June 27 June 20 May 1350 - 1427 1482 19000 - 19290 19231 8.6% - 8.0% -13.5%
EURO AREA Unemployment Rate May 7.7% + 7.4% 7.3%
Tuesday 7						Wednesday 8
JAPAN S AP Leading Index Coincident IndexMay May 79.3 .. 77.7 74.6 .. 80.1 GERMANY			JAPAN S AP Eco Watchers Current Survey Eco Watchers Outlook SurveyJune June 24.3 .. 15.5 39.3 .. 36.5
Industrial Production (sa, MoM)May 11.1% .. -17.9%
Industrial Production (wda, YoY)May -16.9% .. -25.3%
Thursday 9
US S AP
Initial Jobless Claims (k) July 4 1375	.. 1427
Continuing Claims (k) June 27 18800	.. 19290
Wholesale trade (MoM) May ..	.. -16.9%
CHINA
CPI (YoY) June 2.5% .. 2.4%
Source: NBG Research, Bloomberg S: Bloomberg Consensus Analysts Survey, A: Actual Outcome, P: Previous Outcome