RESEARCH | GLOBAL MACRO DAILY | NEW YORK OPEN

2 August 2011

Global Macro Daily

The House approved legislation to raise the US debt ceiling by $2.1trn and the legislation now goes to the Senate for a final vote later today. The debt deal does not stabilize the debt-GDP ratio, however, and does not appear to meet the criteria laid down by rating agencies to avoid a downgrade. We maintain our recommendation of Treasury curve steepeners. However, given the extent of steepening of 5s30s curve, we recommend 10s30s curve steepeners instead (see FOCUS below). Global manufacturing confidence indicators have disappointed in the past 24 hours. The ISM manufacturing index fell to 50.9 in July from 54.5 in June, well below expectations. The reading was the lowest since July 2009, suggesting a weak start for growth in Q3. Full Story The headline euro area manufacturing PMI was unrevised at 50.4 in July. The main "new news" in the release came from the peripheral countries: in particular, the sharp deterioration in Spanish PMI. Full Story In light of the weak manufacturing confidence indicators, the upcoming Services PMI numbers (Wednesday for Europe and the US) are likely to draw additional attention, with a potentially larger-than-usual impact on cyclical assets.
Market Insights and Events Global Europe Asia Pacific North America EEMEA Latin America 4 4 5 6 8 8

The next 24 hours Europe North America EEMEA Latin America Calendar Contacts 9 9 9 9 10 11

Focus
Not Good Enough
Ajay Rajadhyaksha, Anshul Pradhan
Policymakers in Washington have agreed on a deal that a) raises the debt ceiling until after the November 2012 elections, and b) cuts the deficit by around $900bn in the first step, with triggers that would add another $1.2-$1.5trn in cuts in the second stage in the absence of an agreement to cut deficits by at least that amount. Our first reactions: This deal does not put the US on a sustainable fiscal path, since it does not stabilize the debt-GDP ratio over the next decade. Moreover, the recent weakness in US growth has the potential to offset most of the savings claimed by the debt reduction package.

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Barclays Capital | Global Macro Daily

This debt profile does not meet the expectations of the rating agencies, and could act as a trigger for a downgrade. But the key question is not whether the rating agencies downgrade the US, but whether the bond markets move in that direction. We believe that the combination of weaker-than-expected growth and the lack of resolution on longer-term fiscal issues will keep the steepening trade on track.

But given the extent to which 5s-30s has steepened since mid April when we first recommended it, we move our steepening call to 10s/30s instead.

Figure 1 shows that deficit cuts of this magnitude would leave US debt/GDP at 82% by 2021, and rising (assuming revenues increase as laid out in the CBO alternative scenario, ie most tax cuts are extended). However, even this projection may be optimistic, for two reasons. First, real GDP growth is tracking well below the CBOs March economic forecast, which suggests its deficit projections in the baseline may be optimistic.

Figure 1: Debt/GDP ratio would keep rising under the latest proposal
Debt/GDP Ratio, % 95% 90% 85% 80% 75% 70% 65% 60% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 82%

93% 87%

Assuming $2.1-$2.4trillion in cumulative savings over the next 10 years Additional Deficits due to weaker growth projections in 2011 and 2012 Additional deficits due to debt overhang and fiscal risk premium
Source: CBO, IMF, Barclays Capital

Figure 2 shows that our economists expect 2011 Q4/Q4 real GDP growth of 1.5%, compared with the CBOs expectations of 3.1%, and they do not expect any catch up in 2012 as well. How much would that push deficits higher? According to the sensitivities published by the OMB, a 1% downward surprise in growth in 2011 should result in a $750bn increase in cumulative deficits over the next 10 years (Figure 3). Hence, just based on the downward shift in 2011 and 2012, cumulative deficits would be $1.2trn higher, offsetting the bulk of the expected savings. Figure 1 shows that debt/GDP ratio would steadily rise to 87% taking this effect into account. Second, rising debt/GDP ratios should lower underlying growth, due to crowding out, and the $2trn in deficit reduction should put some drag on growth in future years as well. In addition, a rising fiscal risk premium, due to the worsening of the debt trajectory, could add to interest costs. Taking these effects into account, the debt/GDP ratio could potentially rise to slightly north of 90% by 2021. While there is uncertainty around these estimates, the latest proposal seems to fall well short of what could be viewed as sufficient either by investors or by rating agencies. Hence, if S&P were to be consistent with its rationale for putting the US sovereign rating on negative watch, ie, the lack of a plan to stabilize the debt/GDP ratio, it is likely to downgrade the US. It is entirely possible, however, that S&P will wait to review the joint committees proposals before taking that step.
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Barclays Capital | Global Macro Daily

However, what matters far more than the rating agency move is whether bond markets come to the same conclusion about US debt. The 5s/30s curve (where we have recommended a steepener since April, when S&P put the US on negative outlook) is a good place to start. The 5s30s curve has steepened by nearly 55bp since early April. A substantial part of the move has been due to weaker data leading to expectations of Fed hikes being pushed out. But some of it seems to be driven by fiscal concerns. The 10bp narrowing of 30y swap spreads over the same period and the nearly 25bp of cheapening of 10y US Treasuries relative to 10y bunds support this theory as well. In previous research (see "How risk-free are US Treasuries?", January 8, 2010), we estimated the effect of a one-notch downgrade in the sovereign rating to correspond to an increase in yields of about 25bp. The moves so far suggest that the effect of such a downgrade has been priced in to a large extent, although long-end swap spreads appear to have further room to tighten. Given that the current plan does not solve longer-term fiscal issues, we do not expect a reversal of the 5s/30s steepening just because a deal has been passed. But the large move that has already occurred means that we find the entry level to be unattractive for 5s30s steepeners. In addition, there are a couple of other risks to 5s/30s steepeners. The weakness in data could put QE3 back on the table. Brian Sack, the markets group chief of the New York Fed, has suggested that monetary accommodation could be achieved by the Feds extending the duration of its portfolio. This would put downward pressure on longend rates, hurting the 5s/30s steepener. Even if the Fed were to stay on hold in the face of disappointing data, 5s might well be anchored near current levels, given how much they have rallied. We recommend moving the steepening out to 10s/30s instead. That part of the yield curve has steepened considerably less than 5s/30s, and any new asset purchases should affect the entire 10-30 year sector, reducing the risk of flattening.

Figure 2: Growth is expected to track well below the CBOs estimate in 2011
3.50% 3.00% 2.50% 2.00% 1.50% 1.50% 1.00% 0.50% 0.00% 2011 Q4/Q4 Barclays
Source: CBO, Barclays Capital

Figure 3: which would lead to a worsening of deficits, offsetting the bulk of the savings
$bn Cumulative Additional Deficits (2011-2021) = $755bn 120 105 98 91 100 84 78 71 80 64 57 60 48 43 40 19 20 0

3.10% 2.70% 2.80%

2012 Q4/Q4 CBO

2011

2013

2015

2017

2019

2021

Additional Deficits for 1% lower growth in 2011

Source: OMB

2 August 2011

Barclays Capital | Global Macro Daily

MARKET INSIGHTS AND EVENTS

Global
Global Manufacturing PMIs
Aroop Chatterjee Global manufacturing PMIs show a continued slide in activity into July with very few exceptions. Slowing global activity may provide a bid for currencies with more closed economies, such as the USD and the JPY. Other traditional safe havens, such as the EUR and the CHF, may underperform, given their more open economies. There are risks to consider for the USD and JPY, primarily stemming from potential policy action. Full Story

Europe
Italy: July central government budget data
Fabio Fois Central government budget data show a surplus of EUR4bn in July, compared with a surplus of EUR2.5bn recorded in July last year. In a note published on its website, the Italian Treasury reports that, net of transfers made to Greece, the surplus would have been of EUR5.0bn. YTD, the state sector borrowing requirement was EUR39.6bn versus EUR44.7bn recorded in 2010. Full Story

French, Italian and Spanish new car registrations: Momentum remains tentative
Marion Laboure, Julian Callow French, Italian and Spanish new car registrations: Momentum remains tentative. Based on our seasonally adjusted calculations, we find that the pace of new car registrations in July in France, Italy and Spain continued to be weak, reflecting the ongoing concerns of households towards making big-ticket expenditures. While French registrations in SA terms in July were slightly above their Q2 average, our calculations suggest that the Italian and Spanish registrations were weaker. Full Story

Swiss PMI (sa) at 53.5 in July, marginally up m/m

Thorsten Polleit In July, the Swiss PMI (sa) stood at 53.5, marginally up from the 53.4 reported for June (market consensus: 52.5, BarCap: 51.1). This is actually somewhat surprising given the latest decline in the KOF index (which fell 0.19 points m/m to 2.04 in July) and growing concerns about the potentially dampening effects the appreciating Swiss franc exchange rate could have on growth. Looking at the PMI breakdown, output rose strongly to 51.5 from 46.6 in the previous month. Full Story

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Barclays Capital | Global Macro Daily

German VDMA orders lost further momentum in June

Thorsten Polleit In June, German total VDMA plant and machinery orders fell 2.4% m/m after a 2.2% m/m retreat in May. The 3m/3m rate stood at -2.3% after -2.2% in the previous month. Clearly, the June VDMA data suggests the German recovery has been losing quite some momentum since February this year - with the total VDMA order level down 8.3% up to June. Full Story

Euro area headline PMI unrevised, but divergences continue to be manifest at the country level
Julian Callow The headline euro area manufacturing PMI was unrevised at 50.4 in July, while the gap between the diffusion orders for new orders and finished goods inventories was revised to a slightly weaker -1.3 from -1.0 previously. As we observed when the "flash" data came out, these are the weakest readings since Sept. 09 (headline) and April 09 (gap). The main "new news" in today's release came from the peripheral countries: in particular we are struck by the particular deterioration in the Spanish PMI. Full Story

UK manufacturing sector posts decline

Blerina Uruci The manufacturing PMI was significantly weaker than expected in July, dropping 2.3 points to 49.1 (BarCap: 50.5, consensus: 51.0). The index fell below the 50 point mark, which indicates falling activity, for the first time since July 2009; although it had been on a downward trend for the past six months after reaching an all-time high of 61.6 in January. Full Story

Asia Pacific
Australia: RBA considers a rate hike, but remains on sidelines, for now
Gavin Stacey, Joaquin Vespignani The statement that accompanied the rate decision was slightly more hawkish than July's statement, with the RBA showing more concern about the medium term inflation outlook. We believe that the RBA has acknowledged that domestic conditions seem supportive of an interest rate hike. However, the only factor holding this decision back is the growing uncertainty in global financial markets. Full Story

Japan auto sales suggest recovery moving into cruise control after earlier Vshaped turnaround
Kyohei Morita, Yuichiro Nagai New auto sales (new passenger vehicle and minis) fell a seasonally adjusted 7.4% m/m in July, their first decline in three months. After a V-shaped recovery in May and June following the earthquake, auto sales may now be shifting into "cruise control." Assuming flat m/m readings in August and September, however, they are still on pace to increase 9.7% q/q in Q3. In this context, we believe consumption will turn up q/q in Q3 after contracting in Q2, supporting our outlook for economic recovery through Q1 12. Full Story

2 August 2011

Barclays Capital | Global Macro Daily

JPY: Buying time with verbal intervention

Masafumi Yamamoto Following the stepping up of rhetoric by Finance Minister Noda last week (see JPY: MoF steps up its rhetoric, 29 July 2011), Japanese authorities seem to be gearing up to cope with a stronger JPY. According to a report in the Nikkei, Japanese authorities are considering large-sized intervention in coordination with the BOJ, which is holding a two-day meeting over 4-5 August, and potentially with US and European counterparts. Full Story

JPY Rates Intraday Commentary

Noriatsu Tanji The JGB "summer rally" mechanism. Long-term yields tend to fall in August according to our estimates of bond market seasonality based on average fluctuations during the past 10 years. This note looks at three factors that may explain the mechanism behind this "summer rally" with a focus on JGBs. Full Story

North America
With debt ceiling likely to be raised until early 2013, focus shifts to the bad news on the economy
Anshul Pradhan, Vivek Shukla Weak economic data drove Treasury yields lower on Monday, with 5y, 10y, and 30y yields each declining 6bp. The weak ISM index for July which fell to 50.9, the lowest reading since July 2009, versus a consensus economic forecast of 54.5 drove the yield lower as economic weakness persists into Q3. In addition, there were signs of an increase in risk aversion as CDS spreads on European banks/sovereigns widened and global equities declined. Over the weekend, the Democratic and Republican leaderships coalesced around a plan to increase the debt ceiling that would cut $2.1-2.4trn in spending and raise the debt ceiling until after November 2012. The cuts will be achieved in two steps, an initial cut of around $0.9trn and a subsequent joint committee-recommended cut of $1.2-1.5trn. We think this proposal falls short of the threshold set by S&P and does not put the U.S. on a sustainable fiscal path, since it does not stabilize the debt-to-GDP ratio over the next decade. We continue to recommend Treasury curve steepeners, but given the extent of steepening of 5s30s since mid-April, when we first recommended it, we move our steepening call to 10s30s instead. Please see the focus article for more details. Separately, the Treasury announced that it expects to issue $331bn in net marketable debt, assuming an end-of-September cash balance of $110bn. This estimate is $74bn lower than announced in May 2011; the revision was due to lower outlays ($37bn) and revisions to starting and ending cash balances ($47bn). Furthermore, the Treasury estimates net marketable borrowing of $285bn in Q4 2011, assuming an end-of-year cash balance of $100bn. We expect unchanged coupon auction sizes.

2 August 2011

Barclays Capital | Global Macro Daily

Congressional Budget Office scoring of compromise to raise debt ceiling indicates plan cuts at least $2trn from deficits over next 10 years
Troy Davig The Congressional Budget Office (CBO) scoring of the proposed compromise to raise the debt ceiling indicates that, over a ten-year horizon, deficit savings from already agreed upon discretionary spending caps would culminate in $917bn relative to the CBO March baseline. Other measures, which will come from either recommendations from a Congressional Joint Select Committee or automatic spending cuts, would result in over $2trn in deficit savings over the next 10 years. Full Story

Lowest US ISM reading since July 2009

Peter Newland The ISM manufacturing index fell to 50.9 in July from 54.5 in June, well below our forecast (55.0) and the consensus (54.5) and the lowest reading since July 2009. The decline was broad-based, with new orders down to 49.2 from 51.6 (the first reading below 50 since the recession); production falling to 52.3 from 54.5; and declines in supplier deliveries (to 50.4 from 56.3), employment (to 53.5 from 59.9), and inventories (to 49.3 from 54.1). Full Story

Small increase in US construction spending

Michael Gapen Construction spending rose 0.2% m/m in June, in line with our forecast (0.2%) and onetenth above the consensus (0.1%). The upside surprise also came with an upward revision to May's numbers, where construction spending was revised to show an increase of 0.3% against the previous 0.6% decline. The increase in June was driven by a 0.8% increase in private construction spending, while public construction spending fell 0.7%. Full Story

US Debt Ceiling Deal: Not good enough

Ajay Rajadhyaksha, Rajiv Setia, Anshul Pradhan, Amrut Nashikkar Policymakers have agreed on a deal cutting $2.1-2.4trn in deficits over the next 10 years, which, in our view, does not stabilize the debt-GDP ratio. Further, this debt profile does not appear to meet the criteria laid down by rating agencies, and could act as a trigger for a downgrade. We maintain our recommendation of Treasury curve steepeners. However, given the extent of steepening of the 5s30s curve, we recommend 10s30s curve steepeners instead. Full Story

US Fixed Income Outlook for August 2, 2011

Ajay Rajadhyaksha, Dean Maki Over the weekend, the Democratic and Republican leaderships coalesced around a plan to increase the debt ceiling that would cut $2.1-2.4trn in spending and raise the ceiling until after November 2012. We think this proposal falls short of the threshold set by S&P and does not stabilize the debt-to-GDP ratio over the next decade. We recommend 10s30s curve steepeners on lower-than-expected growth and a lack of resolution for longer-term fiscal issues. Full Story

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Barclays Capital | Global Macro Daily

EEMEA
Emerging EMEA PMI: A cooler summer
Daniel Hewitt, Eldar Vakhitov July manufacturing PMI in Emerging EMEA has continued the downward trend observed in Q2 11. Average PMI declined by 2.1pts to 50.8 in July, well below the averages of 53.7 in Q2 and 56.2 in Q1. However, most of the decline in July was attributable to strike-induced declines in South Africa. Still, without South Africa, average PMI fell by 0.6pts to 52.1, more than a point below its Q2 average. Full Story

South Africa: Massive deterioration in July PMI

Jeffrey Schultz South Africa's seasonally adjusted PMI fell massively, to back below the critical level of 50, in July, measuring 44.2 vs 53.9 in June. This marks the lowest level in the index since August 2009 and follows a host of global PMI's over the past few days which suggest somewhat of a "soft patch" in global manufacturing activity. Strike action along with weaker global activity heavily impacted July PMI. Full Story

Turkey: Sober market assessment to the military resignations

Koon Chow The negative market impact from last Friday's high-level resignation from Turkey's military has started to abate. Investors' concerns that the resignations may negatively impact political or social stability in Turkey should steadily ease although the Supreme military council meetings this week (biannual meeting between the PM and senior military officials) are still likely to be a focal point for the market. The popularity of the ruling AKP party has been consistently high, lessening the risk that the resignations trigger a popular backlash against the government. Full Story

Latin America
Venezuela: 2031 allocations signal lower-than-expected supply
Alejandro Grisanti, Alejandro Arreaza The allocations of more bonds to the public financial systems, means lower supply in the shorter term and higher supply in the medium term, as the allocation to the public financial system will be sold through SITME. This allocation also supports the view of no more issuance during the rest of 2011, which is very supportive to the Venezuelan assets Full Story

Argentina: August 14th

Sebastian Vargas City of Buenos Aires Mayor Mauricio Macri was re-elected on Sunday night. He garnered more than 64% of the votes against President Cristina Kirchner's candidate, Daniel Filmus. We see the result as negative news for Kirchner, suggesting the opposition has momentum, but believe the Aug 14 primaries will be an important political and market event, as they will provide fresh information on whether Cristina Kirchner's chances to win in the first round are as high as the market currently seems to expect. Full Story
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Barclays Capital | Global Macro Daily

THE NEXT 24 HOURS

Europe
Euro area Retail sales: We look for euro area retail sales to have risen by 2.0% m/m in June (0.6% y/y), after a fall of 1.0% m/m (-1.8% y/y) in May. However, this estimate is very tentative and is likely to be revised down, since it encompasses the provisional German estimate (+6.3% m/m) which was inflated by a new statistical sample, and which is also very likely to be revised down sharply at a later stage. An outcome in line with our provisional estimate would result in the level of retail sales in Q2 being down 0.2% q/q versus Q1. UK Services PMI: We expect the PMI figure to show a small deceleration in the pace of output growth in the services sector. We forecast the index to have fallen to 53 in July from 53.9 previously. However, at this level the PMI would still remain consistent with decent growth in the services sector.

North America
US Personal income and spending: We expect personal income to rise 0.1% and personal spending to increase 0.1% in June. Within the income number, we are looking for a flat reading in the main wages and salaries component, consistent with the sideways move in average hourly earnings and decline in hours worked in the June employment report. Elsewhere, we have penciled in small gains in rental and interest income. On the consumption side, our forecast is consistent with a 0.1% gain in real terms as well (with a flat reading on the PCE price index). Softness partly reflects the further decline in auto sales during June, which we believe mainly owed to the supply disruption from Japan. Finally, revisions to the recent history of the personal income and personal spending series, and their components, will be published with the June release, to bring them into line with the quarterly revisions to GDP published in the Q2 advance release. US Vehicle sales: Vehicle sales declined to 11.4mn in June from 11.8mn in May and 13.1mn in April. This, in large part, reflects a drop in supply as a result of disruption to auto production from Japanese suppliers, as well as decreased incentives and higher prices among domestic suppliers in response to the supply effect. We expect a modest rebound to 11.8mn sales in July.

EEMEA
Russia: Banking sector no longer has excess liquidity, which has been clearly demonstrated during the tax payment period. This should keep policy rates on hold. Romania: The recent decline in inflation to 7.9% and expected fall in July to around 5-5.5% relieves the pressure to raise rates. However, as inflation remains well above the 2-4% target, there is no basis for cutting rates at this time. We think the next move will probably be a cut, but not until H2 2012. Still no signs of life in consumer spending. Turkey: We expect inflation to surge in July, partly due to unfavourable base effects. Kazakhstan: KZT strengthening has likely triggered NBK to buy excess currency from the market.

Latin America
Brazil industrial production: This is consistent with a 0.3% m/m SA contraction of IP at the margin, following drops in most of the IP leading indicators: -2.3% m/m SA in corrugated paper production, -0.5% in heavy truck flow in toll roads, -0.1% in auto production and 0.1% in energy consumption.
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Barclays Capital | Global Macro Daily

CALENDAR
Tuesday 2 August 00:30 Australia: Interest rate announcement, % Uruguay: CPI, % m/m 03:00 UK: Halifax house price index, % m/m (3m/y) (5/8) 03:30 Swi: Retail sales, % y/y 03:30 Swi: Manufacturing PMI, index 04:00 E17: Publication of the MFI interest rate statistics 04:30 UK: Construction PMI, index 05:00 E17 : PPI, % m/m (y/y) 06:00 South Africa: Naamsa Vehicle Sales (% y/y) 06:00 South Africa: Kagiso PMI 08:00 Brazil: Industrial production, % y/y 8:30 US: Personal income, % m/m 8:30 US: Personal spending, % m/m 8:30 US: PCE price index, % m/m (y/y) 08:30 US: Core PCE price index, % m/m (y/y) 09:30 Singapore: Electronics PMI 17:00 US: Vehicle sales, mn saar 19:01 UK: BRC shop price index, % y/y 05:30 Belgium 17Nov 2011 &19Jan12 05:30 UK: 2034 Gilt Auction 11:30 US: 4 week bills auction Wednesday 3 August Russia: Overnight Deposit Rate,% Russia: Refinancing rate, % Romania: Interest rate announcement, % Uruguay Unemployment rate Kazakhstan: International Reserves (USD bn) South Africa: SACCI Business Confidence 03:13 Spain: Services PMI, index 03:30 Swi: Manufacturing PMI, index 03:43 Italy: Services PMI, index 03:48 France: Final services PMI, index 03:53 Germany: Final services PMI, index 03:58 E17: Final services PMI, index 03:58 E17: Final composite PMI, index 04:00 Turkey: CPI, % y/y 04:00 Romania: Retail Sales (% y/y) 04:28 UK: Services PMI, index 05:00 E17: Retail sales, % m/m (y/y) 06:00 Croatia: Real Retail Trade (% y/y) 08:15 US: ADP private payrolls, chg, thous 10:00 US: ISM non-manufacturing index 10:00 US: Factory orders, % m/m 05:30 Portugal: BT 18Nov 2011 22:00 Japan: Liquidity Enhancement Auction
Note: All times are EDT time. Sources: Reuters, Market News, Bloomberg, Barclays Capital

Period Aug Jul Jul Jun Jul Jul Jun Jul Jul Jun Jun Jun Jun Jun Jul Jul Jul

Prev 2 4.75 0.34 -1.4 (-3.7) -0.15 58.4 53.3 0.8 (6.8) 8.0 56.4 -1.3 0.4 0.6 0.4 (1.9) 0.2 (0.9) 53.0 13.14 2.5

Prev 1 4.75 0.33 0.4 (-4.2) 7.76 59.2 54.0 0.9 (6.7) 6.1 55.1 -1.5 0.3 0.3 0.3 (2.2) 0.2 (1.1) 51.4 11.76 2.3

Latest 4.75 0.35 1.2 (-3.5) -3.9 R 53.4 53.6 -0.2 (6.2) 12.6 53.9 2.7 0.3 0.0 0.2 (2.5) 0.3 (1.2) 50.9 11.41 2.9

Forecast 4.75 2.1 51.1 53.0 0.1 (6.0) 2.5 0.1 0.1 0.0 (2.6) 0.2 (1.4) 50.7 11.8 -

Consensus 4.75 A 0.0 (-2.8) 7.4 A 53.5 A 53.5 A 0.0 (5.9) A 10.5 A 44.2 A 2.6 0.2 0.2 0.2 (1.4) 50.5 11.80 3bn 2bn $18bn Consensus 3.50 8.25 6.25 52.8 54.2 52.9 51.4 53.3 0.5 (-0.9) 105 54.0 -0.1 0.5/0.75bn 300bn

Period Aug Aug Aug Jun Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jun Jul Jun Jun P Jul Jul Jun

Prev 2 3.25 8.25 6.25 6.4 37.0 86.9 50.4 58.4 52.2 62.5 56.1 56.0 55.8 4.3 -5.8 54.3 -0.9 (-1.5) -2 188 52.8 3.8

Prev 1 3.50 8.25 6.25 6.4 36.0 85.8 50.9 59.2 50.1 56.1 56.7 53.7 53.3 7.2 -6.2 53.8 0.7 (0.8) 3.7 36 54.6 -0.9

Latest 3.50 8.25 6.25 6.4 34.8 86.8 50.2 53.4 47.4 54.2 P 52.9 P 51.4 P 50.8 P 6.2 -6.4 53.9 -1.0 (-1.8) 1 157 53.3 0.8

Forecast 3.50 8.25 6.25 35.0 47.5 51.1 44.5 54.2 52.9 51.4 50.8 7.4 53.0 2.0 (-0.6) 54.0 -1.2

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RESEARCH CONTACTS
Larry Kantor Head of Research +1 212 412 1458 larry.kantor@barcap.com Piero Ghezzi Head of Economics, Emerging Markets and FX Research +44 (0)20 313 42190 piero.ghezzi@barcap.com

US
Michael Gavin Head of International Macro Strategy +1 646 412 5915 michael.gavin@barcap.com Ajay Rajadhyaksha Head of US Fixed Income and Securitised Products Strategy +1 212 412 7669 ajay.rajadhyaksha@barcap.com Barry Knapp Head of US Equity Strategy +1 212 526 5313 barry.knapp@barcap.com Rajiv Setia Co-head, Interest Rate Strategy +1 212 412 5507 rajiv.setia@barcap.com Dean Maki Head of US Economics Research +1 212 526 1731 dean.maki@barcap.com Michael Zenker Head of US Commodities Research +1 415 765 4743 michael.zenker@barcap.com Guillermo Mondino Head of EM Strategy +1 212 412 7961 guillermo.mondino@barcap.com Michael Pond Co-head, Interest Rate Strategy +1 212 412 5051 michael.pond@barcap.com

Europe
Julian Callow Head of International Economics +44 (0)20 7773 1369 julian.callow@barcap.com Paul Horsnell Head of Commodities Research +44 (0)20 7773 1145 paul.horsnell@barcap.com Alia Moubayed Senior Economist Middle East & North Africa +44 (0)20 313 41120 alia.moubayed@barcap.com Koon Chow Senior EMEA Strategist +44 (0)20 777 37572 koon.chow@barcap.com Moyeen Islam UK Rates Strategy +44 (0)20 7773 4675 moyeen.islam@barcap.com Kevin Norrish Commodities Research +44 (0)20 7773 0369 kevin.norrish@barcap.com Frank Engels Co-Head of European Economics +49 69-7161 1832 frank engels@barcap.com Alan James Head of Inflation-linked Strategy +44 (0)20 7773 2238 alan.james@barcap.com Antonio Garcia Pascual Chief Southern European Economist +44 (0)20 313 46225 antonio.garciapascual@barcap.com Laurent Fransolet Head of European Fixed Income Strategy +44 (0)20 7773 8385 laurent.fransolet@barcap.com Christian Keller Head of Emerging EMEA Strategy +44 (0)20 7773 2031 christian.keller@barcap.com Edmund Shing Head of European Equity Strategy +44 (0)20 7773 4307 edmund.shing@barcap.com Simon Hayes Head of UK Economics +44 (0)20 7773 4637 simon.hayes@barcap.com Paul Robinson Head of FX Research +44 (0)20 777 30903 paul.robinson@barcap.com

Asia-Pacific
Jon Scoffin Head of Credit Research and Head of Research, Asia-Pacific +65 6308 3217 jon.scoffin@barcap.com Yoshio Takahashi Head of Non-Yen Strategy, Japan +81 3 4530 1686 yoshio.takahashi@barcap.com Chotaro Morita Head of Japan Fixed Income Strategy +81 3 4530 1717 chotaro.morita@barcap.com Nick Verdi Currency Strategist, Asia +65 6308 3093 nick.verdi@barcap.com Kyohei Morita Chief Economist, Japan +81 3 4530 1688 kyohei.morita@barcap.com Tetsufumi Yamakawa Co-Head of Research, Japan +81 3 4530 1130 tetsufumi.yamakawa@barcap.com Gavin Stacey Australia and New Zealand Fixed Income Strategist +61 2 9334 6128 gavin.stacey@barcap.com Masafumi Yamamoto Chief FX Strategist, Japan +81 3 4530 5038 masafumi.yamamoto@barcap.com Fumiyuki Takahashi Equity Strategist, Japan +81 3-4530 2943 fumiyuki.takahashi@barcap.com

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Analyst Certification(s) We, Piero Ghezzi, Anshul Pradhan and Ajay Rajadhyaksha, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Important Disclosures For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Capital Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to https://ecommerce.barcap.com/research/cgibin/all/disclosuresSearch.pl or call 212-526-1072. Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Barclays Capital may have a conflict of interest that could affect the objectivity of this report. Any reference to Barclays Capital includes its affiliates. Barclays Capital and/or an affiliate thereof (the "firm") regularly trades, generally deals as principal and generally provides liquidity (as market maker or otherwise) in the debt securities that are the subject of this research report (and related derivatives thereof). The firm's proprietary trading accounts may have either a long and / or short position in such securities and / or derivative instruments, which may pose a conflict with the interests of investing customers. Where permitted and subject to appropriate information barrier restrictions, the firm's fixed income research analysts regularly interact with its trading desk personnel to determine current prices of fixed income securities. The firm's fixed income research analyst(s) receive compensation based on various factors including, but not limited to, the quality of their work, the overall performance of the firm (including the profitability of the investment banking department), the profitability and revenues of the Fixed Income Division and the outstanding principal amount and trading value of, the profitability of, and the potential interest of the firms investing clients in research with respect to, the asset class covered by the analyst. To the extent that any historical pricing information was obtained from Barclays Capital trading desks, the firm makes no representation that it is accurate or complete. All levels, prices and spreads are historical and do not represent current market levels, prices or spreads, some or all of which may have changed since the publication of this document. Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise.

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