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7 2.70 2.80 2.8 2.8 EEMEA Czech R. Policy 0.05 0.25 0.50 0.75 1.00 2y 0.74 0.60 0.80 1.00 1.10 1 Oy 1.37 1.20 1.40 1.60 1.70 Hungary Policy 0.90 0.90 0.90 0.90 0.90 2Y 0.42 0.40 0.50 0.70 0.90 1 Oy 2.35 2.20 2.30 2.50 2.80 Israel Policy 0.10 0.10 0.10 0.10

k off scenarios. As our Sentiment Survey shows, geopolitical risks are still one of the main risks for investors (Chart 24). What we like in EM In LatAm, we still like receiving rates in the belly of the Brazilian curve (Jan 21) and we closed Jan 19 receivers. We think there is room for some short te

rrency weakness, and more inclined to continue to push through rate cuts, if not regardless of FX, at least as long as FX depreciation is orderly. Hungary's NBH have made it very clear that the focus is on growth, and that inflation is taking the back-seat for now. Consequently, the NBH rate cutting

however, heavy positioning and potential transitory increase in risk aversion could induce a temporary break in the appreciation trend. Figure 1: LatAm and Asia FX on overvaluation territory environment of reduced volatility. Nevertheless, as the deterioration of fundamentals slowly spreads from t

about duration we note that interest rate differentials vs. DM are still near lows. We see relatively high term premium in Peru (but tighten stop), Hungary (favoring flatteners), and Israel (vs. US payers), but keep steepeners in Asia and CZK. Favor ARS floaters (Bocan 20s) and hard currency for durati

will hike the policy rate by 25bps next week. While October inflation is likely to decline in Poland and Russia, it should accelerate in Turkey. In LatAm, the COPOM minutes on Tuesday should reinforce a final 50bp cut next while leaving the door open for more. Watch for some deceleration in Mexico's Q

c Area) country list = Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom, I

holder(s), Decision Maker(s) reside in Germany) Any new clients or prospects who reside in Germany MUST be referred to the German American Team. LatAm and USO Bankers are NOT permitted to open any new accounts for new German domiciled clients. For bankers with existing relationships with non MIFID

ater. This time, we expect a sharp selloff with an eventual recovery. Our bearish view on LatAm credits in particular is driven by 1) positioning in LatAm is heavier than in EMEA or Asia — watch outflows from IG crossover investors who will rethink their EM IG investments; 2) their exposure to commoditi

the above mentioned global factors, for the last two years and the years 2013-2014 for the sake of comparison (Chart 64). We find that currencies in LatAm and EEMEA are more exposed to global factors than in Asia. Interestingly, LatAm and EMEA currencies are more sensitive to shocks in commodity prices

ad | 16 November 2016 43 Merrill Lynch HOUSE_OVERSIGHT_014773 --- PAGE BREAK --- Chart 73: Fundamentals — CEE beats periphery Chart 74: Poland and Hungary wide relative to Chart 75: HUF vol lagging EUR and PLN Italy and Spain 190% 5% 12 140% ©) am "8 @ | 3% 90% ® ay 10 40% 1% -10% 0% 5 Spain France P