German economic sentiment highest since August 2015

Financial Markets
Emerging-market equities gained for a third day after Federal Reserve Chair Janet Yellen signaled that
policy makers might be taking a more cautious outlook on the economy, boosting expectations that they
will keep U.S. interest rates lower for longer. MSCI’s gauge of developing-country stocks advanced 0.4
percent to extend its three-day gain to 3.1 percent. The prospect of continued low U.S. interest rates
offset concern that Britain will exit the European Union.

The amount of bonds that traded at negative yields jumped to a record high of $10 trillion this week, up
from $2 trillion just one year ago, according to Bloomberg News. Thanks mostly to unprecedented
monetary stimulus from central banks in Japan and the European Union, debt yielding less than zero,
which is mostly issued by governments, now exceeds the entire universe of global corporate bond
market.


Advanced Markets
Germany’s ZEW Indicator of Economic Sentiment surged to 19.2 in June, from 6.4 in May and above the
market consensus of 4.8. This was the highest reading since August 2015, buoyed by a jump in the
sentiment of both the current conditions and expectations of future economic conditions, suggesting
improved confidence in the resilience of the German economy.

U.K.’s order book balance strengthened to -2 in the three months to June, the highest reading since
August 2015, from -8 in May and above the market expectations of -10, according to the Confederation of
British Industry. The increase was led by a rise in output expectations, while export orders remained
broadly unchanged, suggesting depreciation of the Sterling pound has yet to significantly affect external
demand. Further, selling prices are expected to be stable in the near-term.


Emerging and Developing Economies
Europe and Central Asia

In line with preliminary estimates, Ukraine's economy grew 0.1 percent (y/y) in Q1, compared to the 1.4
percent contraction in Q4, final data showed. Investments and government consumption rose, while
consumer spending, imports and exports shrank. On a quarterly basis, the GDP contracted 0.7 percent,
following the 1.4 percent growth in Q4.

The Turkish central bank left its benchmark one-week repo rate unchanged at 7.5 percent, noting that it
will maintain the tight monetary policy stance considering the recent developments in services. The bank,
however, lowered its overnight lending rate for a fourth time in a row to 9 percent, and kept the overnight
borrowing rate at 7.25 percent.


Middle East and North Africa

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Morocco’s central bank kept its benchmark interest rate on hold at 2.25 percent, noting the outlook for
inflation is consistent with price stability target. The bank raised the reserve requirement ratio to 5 percent
from 2 percent.

June 21, 2016



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