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BOV Market Watch - Week Ending 17 June 2016
17 Jun 2016

Fed leaves interest rates unchanged. The U.S. Federal Reserve policymakers this week voted against a rise in interest rates.
The Fed signalled that it still anticipate to raise interest rates twice this year. In the previous meeting held in April, the Fed had
favoured an increase in interest rates in June, though May’s jobs sharp slowdown, low inflation and geopolitical headwinds were
factors the Fed could not ignore. Though U.S. economic growth continues to strengthen, the rate of improvement in the labour
market had diminished and “business fixed investment has been soft”. In May, the economy have added only 38,000 jobs. The
Fed lowered their 2016 GDP forecast to 2% this year from 2.2% previously. It seems unlikely that inflation will rise to Fed’s 2%
target by the end of 2018.

Eurozone first quarter employment growth remains stable. Statistics published this week by the Eurostat showed that
Eurozone employment increased at a steady rate for the second consecutive quarter in the three months ended March. The
number of employed people increased by 0.3% the same rate of rise in the preceding two quarters. Eurostat estimates show that
there were 152.6 million employed in the Eurozone. This was the highest level since the fourth quarter of 2008. Employment in
construction increased by 0.2% whilst employment in manufacturing rose by 0.1% over the quarter. A decline of 0.2% was
registered in the agriculture, forestry and fishing sector. On annual basis, Eurozone employment rose by 1.4% in the first quarter,
up from the 1.2% in the previous period.

UK house prices up by 8.2% over the year. According to figures published by the Office for National Statistics (ONS) showed
that the British house price inflation slowed for the first time in eight months in April. The U.K. house price index rose by 8.2%
year-over-year in April, marginally lower than the previous month’s 8.5% increase. The average U.K. house price reached
GBP209,000 in April, which was GBP16,000 higher when compared to April 2015. On an annual basis house prices inflation in
England was 9.1% whilst house prices in Wales rose by 1.7%. The ONS said that London remained to be the region with the
highest average house price at GBP470,000. In April, house prices increased by 0.6% over the previous month.

German 10-year government bond yields dip below zero. The yield on the 10-year benchmark German Bund fell below zero
for the first time ever this week as investor’s rush to safe havens ahead of Britain’s Brexit referendum. The country joined Japan
and Switzerland in having 10-year bond yields in negative territory. Falling yields has been influenced by European Central Bank’s
(ECB) policy of negative interest rates and asset purchase programme. It is also accredited to concerns about the global economy,
low inflation outlooks in the Eurozone and as surveys are showing the “Leave” campaign in Britain’s referendum is gaining
momentum.

Australia business confidence falls in May. According to a survey published by the National Australia Bank (NAB), business
confidence in Australia weakened further in May. The NAB Business confidence index fell from 5.0 in April to 3.0 in May. In March,
the score was 6.0. Simultaneously, the index gauging present business environments was stable at 10.0 in May. Likewise, the
forward orders index also remained unaffected at 2.0 in May. This was more stable with business situations and projects good
near-term predictions for activity. Notwithstanding better trading conditions, the employment index fell from 4.0 in April to 1.0 in
May. “The RBA's cut to interest rates did not help lift business confidence as we had hoped, even as sales activity continues to
improve,” NAB Group Chief Economist Alan Oster, said. “Uncertainty around the upcoming election might be a factor here, but
mixed results across industries suggest that other factors are at play”.

Global oil markets to balance out. The International Energy Agency (IEA) said that the Global oil markets are moving close to
balance in the second half of this year on stronger-than-expected demand and on supply disruptions. According to IEA, the
oversupply in the first half of this year is expected to stand around 800,000 barrels per day, less than the 1.5 million barrels
originally projected. The IEA alerted that an “enormous inventory overhang” is likely to inhibit predictions of a significant rise in oil
prices. .

Gold prices today hit 22 month high. Gold price increased by nearly 2% , exceeding the $1300 level following the U.S. Federal
Reserve which showed it could be less aggressive in tightening monetary policy next year. Gold is influenced by interest rate
hikes, which rises the opportunity cost of holding such metal.

Brexit Referendum Notice to customers. The U.K. government will hold a referendum on Thursday, June 23, 2016 to decide
whether the country will remain a member of the European Union. Due to the Brexit event, the financial markets are likely to
experience high volatility, along with liquidity gaps and market dislocations around this event (either slightly ahead of, or during
the vote, or after the vote, as exit polls and results start to filter out). However we want to underline some possible constraints
ahead of potentially disrupted market conditions which might negatively affect the usual levels of liquidity and pricing in general.

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