JPM Global Data Watch Di 2016-06-25 2057870

Completed 24 Jun 2016 09:20 PM EDT
Disseminated 24 Jun 2016 09:21 PM EDT
Economic Research
June 24, 2016
Global Data Watch

Brexit: Modest growth drag, but heightened European political uncertainty skews global risks downward
Contents
The UK votes to leav e the EU
Expecting BoE, ECB, and BoJ easing; Fed hike pushed to December
13
US: Which indicators are most
EM fallout varies by region, but policy bias for further easing
useful on first print?
17
German Court's OMT ruling
Meanwhile, back at the ranch: global industry slowly waking up
strengthens ECB's policy tools
19
Colombia: Taking stock of
Divided we wobble
troublesome twin deficits
The UK decision to leave the EU after 43 years of membership represents a

significant economic and political shock to Western Europe. The negative economic shock is likely to be concentrated in the UK, but the political reverberations to be material and far-reaching across the continent. The level of uncertainty these political reverberations generate (transmitted through financial markets and sentiment) likely will determine the global consequences of this event.
Our baseline view is that heightened uncertainty will produce drags amounting to about 1.25% of GDP for the UK and 0.5% of GDP for the Euro area
over the coming year (see the research note The UK votes to leave the EU
in this GDW). Lower currency values and policy easing across the continent
should cushion the blow. We anticipate the Bank of England will ease quickly, lowering rates to zero over the next two months. We expect the ECB to
respond more gradually, pushing policy rates further into negative territory
and expanding its QE program in September. If peripheral financial market
pressure is intense, the ECB should respond with a country-specific intervention program (like the OMT but without conditionality).
The consequences of this projected shock to European GDP should be modest
for the global economy. However, the financial market response to Europes
murky political path ahead raises additional concerns. UK politics is in for a
very bumpy ride with a change of leadership in the offing alongside the start
of a long and likely contentious negotiation of its withdrawal agreement with
the EU. While much discussion in the campaign has focused on immigration
and future merchandise trading relationships, the withdrawal agreement will
have far-reaching consequences for the UK in areas that include the budget,
cross-border security, regulatory responsibilities, foreign policy, and the legal
status of citizens living abroad. Negotiations about financial services are likely to be particularly difficult with the EU likely to encourage the regional financial center to relocate from London. Given the importance and the complexity of these negotiations, the UK will likely want to delay the start of the
Figure 1: Govt yield, 2yr
bp, chg since May 1, 2016
14
7
DI, sa. Jun based on flash

US
EMU
0
-7
57
St.dev from hist avg

Business
confidence
55
53
-14
UK
-21
-28
May 1
Figure 2: G-3 mfg PMI & business confidence
May 14 May 28 Jun 10 Jun 24
Source: J.P. Morgan
51
49
2014
PMI - output
2015
Source: J.P. Morgan
2016
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
21
EM Asia: Domestic demand comes

knocking on the door
25
Global Economic Outlook Summary
Global Central Bank Watch
Now cast of global growth
Selected recent research from
J.P. Morgan Economics

The J.P. Morgan View: Markets
Data Watches
United States
Euro area
Japan
Canada
Mex ico
Brazil
Argentina
Colombia
United Kingdom
Emerging Europe
South Africa & SSA
Australia and New Zealand
China, Hong Kong, and Taiwan
Korea
ASEAN
India
Asia focus
27
35
41
45
47
49
51
53
55
57
61
65
67
71
73
77
79
Regional Data Calendars
80
Our latest Special Report, "Profit stall

threatens global expansion," was published
on June 21 and is now av ailable on our
w ebsite.
Bruce Kasman
(1-212) 834-5515
bruce.c.kasman@jpmorgan.com
JPMorgan Chase Bank NA
David Hensley
(1-212) 834-5516
david.hensley@jpmorgan.com
Joseph Lupton
(1-212) 834-5735
joseph.p.lupton@jpmorgan.com
www.jpmorganmarkets.com
This document is being provided for the exclusive use of Giovanna Murillo at RIMAC SEGUROS Y REASEGUROS.

Bruce Kasman (1-212) 834-5515
Joseph Lupton (1-212) 834-5735

Economic Research
Global Data Watch
June 24, 2016
David Hensley (1-212) 834-5516

article 50 process that sets a two-year limit from the time the
UK notifies the EU of its intentions to leave. But the EU is
unlikely to enter substantive negotiations before receiving a
formal request. And once the two-year clock ends, all existing
EU treaties will cease to apply to the UK, putting enormous
pressure on UK negotiators to reach agreement.
Brexit will have political consequences which, over time, may
prove of greater significance. We have highlighted risks to the
unity of the UK. Scotlands SNP is likely to press for a new
referendum before the UK leaves the EU. The possible reinstitution of border controls in Ireland will likely create difficulties in managing relations between north and south of the
border. The EU will lose a large member state inclined towards market-oriented policies and some balance that exists
between EMU-ins and -outs. Euro-outs will become increasingly marginalized. Perhaps most important, the UK referendum provides a concrete demonstration that the legitimacy of
EU institutions is fragile. In the short term this should energize non-mainstream parties and stall the integration process.
However, the medium-term political consequences are highly
uncertain.
You picked a fine time to leave, UK

While the global economy has delivered disappointing growth
in recent years, it has remained bounded close its trend pace,
highlighting its resiliency in the face of a number of global
shocks. Our forecast that global growth decline by roughly
0.2% as a result of Brexit should be seen as a continuation of
this disappointing but resilient performance. That said, financial market and sentiment spillovers from this policy-induced
drag on European growth comes at a time in which there are
important vulnerabilities.
Global corporate profits are contracting (Figure 3). This
week we published a study highlighting this expansions
global corporate profit stall and the risk it poses to the outlook (Profit stall threatens global expansion, Special Report, June 21, 2016). In the DM, the US corporate sector is
under particular pressureas external drags from an elevated dollar and low oil prices combine with weak productivity gains. This drag has produced a contraction in investment and slowing in job growth. Our forecast assumes
the profit drag will fadedue to a stable dollar and higher
commodity pricesand that solid gains in consumer spending will buoy corporate confidence. The risk is that Brexit
magnifies the pullback through a stronger USD and rising
global uncertainty. In response, we lowered our 2H16 US
GDP growth forecast from 2.3% to 2% this week.
An over-levered EM. Recent months have seen financial
market pressures on EM economies moderate as the terms
of trade of commodity producers improved and a stable dol-
lar has afforded some opportunity for EM policy ease.

However, the underlying tightening of credit conditions
remains in place and the unwind of leverage on corporate
sector balance sheets is still in its early stages. There is a
risk that a new bout of global risk aversion could take hold
and be magnified if it also generated significant pressure for
Chinese capital outflows.
Figure 3: Global nominal GDP and corporate profits
%q/q, saar; both scales
9
60
40
Profits
7
6
20
-20
Nominal GDP
3
2
-40
98
01
04
07
10
13
16
Source: J.P. Morgan; MSCI earnings
Constraints on providing policy support. In the face of a

greater-than-expected shock to growth, policymakers are
severely constrained. It would be unreasonable to expect a
quick fiscal response to signs that global growth is faltering.
Monetary easing usually provides insurance in the face of rising risk and is actively used to cushion economic downturns.
While the actions expected from the BoE and ECB are appropriate for the magnitude of drag we project, the banks will
have a hard time responding to a more substantial growth
shock. The benefits of additional QE in an environment of
negative term premia and flat forward policy rate expectations are likely to be limited. And uncertainties around NIRP
will make it hard for this tool to be used in an aggressive and
timely fashion. That said, we are looking for BoJ easing in
July and further yen appreciation could deliver earlier action.
For the Fed, the Brexit shock likely delays the normalization
reboot until close to year-end.
EM braces for uneven Brexit fallout

The DM Brexit growth shock is a clear negative for the EM,
but the policy response is more complicated given last weeks
yet-again dovish shift from the Fed. Pushing out Fed rate
hikes was a welcome relief to many EM central banks,
providing breathing room to either delay their own rate hikes
or engage in further monetary easing. The Bank of Indonesia
explicitly noted the Feds dovishness in easing last week. The
impact of Brexit on EM policy is less clear as a desire to cushion the economic fallout with easier policies potentially is
offset by a risk-off flow of capital out of the region. With the
global macro-impact expected to be limited, we are not in-

Bruce Kasman (1-212) 834-5515

Economic Research
Global Data Watch
June 24, 2016

clined to make material changes to the EM outlook. Risks are

skewed toward less growth and more easing. For now, we are
encouraged that the post-Brexit risk sell-off has not hit EM
unusually hard. Indeed, EM FX is down only 1.4% from its
pre-Brexit levels (Figure 4).
Figure 4: Foreign exchange rate
Index, currencies versus the USD
102
EM
EUR
99
release of the 2Q inflation report next Tuesday, however, before we revisit our monetary policy call. While authorities in
Mexico are concerned about financial contagion, they are
opting to maintain a cautious stance. The Foreign Exchange
Commission in charge of interventions said that it will only
act if MXN reacts differently from the rest of the EM. So as to
bolster market sentiment in its fundamentals, the Ministry of
Finance also reaffirmed its commitment to fiscal consolidation. For its part, Banxico said it will wait until next weeks
meeting to decide on the appropriate monetary policy stance.
We project a 50bp hike, although expectations of looser monetary policy in Europe and a delay in rate hikes in the US have
increased the likelihood of inaction.
96
GBP
93
May 31, 16
Jun 6, 16
Jun 12, 16
Jun 18, 16
Jun 24, 16
Source: J.P. Morgan; EM is the EMCI
The growth and financial market fallout from Brexit will likely be largest in the EMEA EM. Countries that are most open
and tied to the Euro areaCzech Republic and Hungaryare
likely to be most affected. The impact will take time and the
growth drag will likely peak in early 2017. We dont expect
any immediate response by CEE central banks, but a more
dovish tone/additional unconventional easing are likely later
this year. Such measures may be a delay in the Czech Republics exit from the FX floor, introduction of new unconventional easing measures in Hungary, and the introduction of
such instruments, which the new governor prefers to rate cuts,
in Poland. While already in our call, we continue to see easing
from Russia. South Africa stands out as we still think the
SARB will hike 25bp this year.
The drag on EM Asia is likely to be less than in EMEA EM.
But with growth already underperforming potential and the
Fed on hold for longer, we continue to look for easing across
the region. We see further cuts from China, Taiwan, Indonesia, Malaysia, and Thailand. More broadly, policy settings
both fiscal and monetarywould be precautionary and lean
toward easing. A more material rise in the USD would likely
bias policy in favor of more fiscal rather than monetary easing
given the risks to financial stability.
In Latin America, the country facing the most significant
stress, Brazil, saw its currency sell off only 1.5% on Friday
while the country with among the best fundamentals, Mexico,
saw its currency tumble 4%. The BCB released a note stating
it stands by to provide support if needed. The lower growth
forecasts in UK and Euro area, in addition to more monetary
easing from the region, would allow for a more aggressive
monetary easing cycle in Brazil. We prefer to wait for the
Global industry edging up pre-Brexit

Against the backdrop of Brexit and its potential contagions,
the latest signs on global industry have been mixed. This
weeks flash PMI readings for June were a fair bit stronger
than expected across the US, Euro area, and Japan, with solid
gains in both the output and new orders components along
with declines in inventory readings (Figure 2). For Japan,
however, the weaker headline PMI reading (held back by a
drop in the employment and inventory components) along
with a disappointing Reuters Tankan still raises downside
risks to our 2H16 outlook. The latest Brexit-related jump in
the yen adds to this risk. We will reassess the forecast after
next weeks readings on May IP (and the projections for June
and July) and household spending. We also expect next
weeks CPI report to show core inflation ticked down to
0.8%oya in May, which would support our call for added BoJ
easing. Elsewhere in Asia, factory output expanded in Taiwan
in May with broad-based gains in both tech and nontech,
complementing reports of a rebound in export orders.
Rajans exit creates policy uncertainty

The global uncertainties surrounding Brexit do not come at a
good time for India. RBI governor Rajanwho is widely credited with helping restore macroeconomic stability over the last
three years and who enjoys significant credibility with investorsindicated he will not oversee a second term when his
term ends in September, an unexpected and negative surprise.
The nature and suddenness of his exit has created uncertainty
about whether the exit simply marks a change in personnel or
may be construed as a more ominous structural break in the
monetary and financial policies of the last three years. Whether
the banking and monetary reforms may be diluted will only be
known when the governors successor is named, which is likely
to happen sometime over the next month.
Editor: Gabriel de Kock (1-212) 622-6718 gabriel.s.dekock@jpmorgan.com

Economic Research
Global economic outlook summary

June 24, 2016
Carlton Strong (1-212) 834-5612

carlton.m.strong@jpmorgan.com
Global economic outlook summary

Real GDP
Real GDP
% over a year ago
% over previous period, saar
2015
United States
Canada
Latin America
Argentina
Brazil
Chile
Colombia
Ecuador
Mexico
Peru
Uruguay
Venezuela
2.4
1.1
-0.4
2.1
-3.8
2.1
3.1
0.3
2.5
3.3
1.0
-5.7
2016
1.7
1.5
-0.8
-1.4
-3.6
1.8
2.1
-2.0
2.4
4.0
0.0
-8.5
4.6
0.7
2.9
2.5
5.8
6.7
7.3
3.1
1.1
5.0
2.8
3.8
5.8
1.5
1.2
2.9
2017
1.9
2.6
1.8
3.4
0.7
2.3
3.0
0.5
2.6
3.5
0.6
2.0
4.6
1.1
3.1
2.4
5.7
6.4
7.1
3.3
2.1
5.3
2.7
3.8
5.2
1.7
2.2
3.0
4Q15
1Q16
2Q16
1.4
0.8 2.0
0.5
2.4
0.2
-1.9
0.4
-1.7
-5.6
-3.0
-6.0
-5.2
-1.1
-3.3
0.4
5.3
0.2
3.1
0.6
1.5
0.2
-3.0
-5.0
2.2
3.3
1.0
5.7
3.1
3.0
0.2
-0.1
-0.3
-9.5
-11.0
-10.0
4.2
4.6
4.6
-1.8
1.9
1.0
3.0
4.3
1.0
3.6
3.0
1.1
5.9
5.4
5.9
6.6
6.0
7.0
7.3
8.0
7.1
3.7
2.8
2.9
0.8
-1.6
2.6
5.2
4.5
4.6
2.7
2.1
3.1
5.0
4.2
1.8
8.8
4.5
4.5
6.2
0.2
1.5
0.8
3.1
1.8
3.4
3.8
1.5
3Q16
2.0
2.8
0.6
3.0
-1.8
1.5
2.0
1.0
2.7
4.0
0.0
-5.0
4.6
1.5
2.2
2.3
5.7
6.6
7.0
3.0
2.4
5.0
2.6
1.8
5.0
1.2
2.2
2.8
Consumer prices
% over a year ago
4Q16
2.0
3.1
1.4
4.0
0.0
2.0
2.0
-2.0
2.5
4.0
0.3
0.0
4.5
1.2
2.9
2.0
5.6
6.3
7.2
3.1
2.2
5.0
2.8
1.4
6.0
1.2
2.2
2.8
1Q17
4Q15
2Q16
4Q16
2Q17
2.0
2.8
1.9
3.8
0.9
3.0
2.5
1.5
2.5
3.0
0.8
5.0
4.6
1.2
3.3
2.6
5.6
6.3
7.1
3.3
2.2
5.2
2.8
2.9
5.3
2.0
2.3
3.0
0.4 1.1
1.9
2.5
1.3
1.7
2.0
2.0
7.1
5.8
5.0
6.7
25.9
42.7
38.5
22.0
10.4
7.7
6.2
9.1
4.1
4.3
3.6
3.3
6.4
6.4
4.1
8.2
3.4
2.7
2.6
2.5
2.3
3.2
3.7
2.6
4.1
3.7
3.2
2.7
9.3
9.4
10.5
10.3
151.4
346.9
480.8
288.2
Asia/Pacific
4.7
1.6
1.8
2.2
2.3
Japan
0.6
0.3
0.4
1.0
-0.4
Australia
2.5
1.7
1.2
1.4
1.8
New Zealand
2.5
0.1
1.0
1.9
0.2
EM Asia
6.0
2.0
2.5
2.8
2.7
China
6.9
1.5
2.7
2.4
2.3
India
7.5
5.3
5.4
5.2
4.8
Ex China/India
3.2
1.6
1.8
2.3
1.5
Hong Kong
2.4
2.4
2.3
2.4
3.2
Indonesia
4.8
4.8
2.8
3.2
3.0
Korea
2.6
1.1
0.9
1.7
2.3
Malaysia
5.0
2.6
1.2
2.4
1.8
Philippines
5.9
1.0
1.6
1.6
1.8
Singapore
2.0
-0.7
0.9
1.2
-0.2
Taiwan
0.6
0.3
1.6
1.4
1.1
Thailand
2.8
-0.9
1.2
2.1
0.6
Western Europe
1.7
1.6
1.3
1.9
2.1
1.3
1.2
1.2
1.3
0.2
0.1
1.0
1.5
Euro area
1.6 1.6
1.3
1.7
2.2
1.3
1.3
1.3
0.2
0.9
1.4
1.3
-0.1
Germany
1.4
1.6
1.3
1.1
2.7
1.3
1.3
1.3
1.3
0.2
0.0
1.0
1.7
France
1.2 1.5
1.1
1.5
2.6
1.0
1.0
1.0
0.2
1.0
1.5
1.3
0.1
Italy
0.6
0.9
0.9
0.7
1.0
0.8
0.8
0.8
1.0
0.2
-0.3
0.5
1.4
Spain
3.2 2.8
2.0
3.2
3.1
1.8
1.8
2.0
-0.5
0.3
1.3
2.5
-1.1
Norway
1.0
0.9
1.7
-0.5
1.3
1.5
1.8
2.0
1.5
2.5
3.3
3.1
2.3
Sweden
3.9 3.7 3.1
6.6
2.0 3.3
3.3
3.2
3.2
0.1
1.5
1.5
0.9
United Kingdom
2.3
1.5
1.1
2.4
1.4
1.0
0.5
0.5
1.0
0.1
0.3
1.1
2.2
EMEA EM
0.3 1.4 2.3
1.7
0.7
0.9
2.1
2.2
2.5
7.8
4.8
4.7
4.6
Czech Republic
4.2
2.8
3.0
1.4
1.4
3.2
5.0
3.3
2.1
0.1
0.3
1.2
1.5
Hungary
2.9 1.5 3.0
2.4 -3.1 3.0
6.1
3.6
2.0
0.5
1.2
2.8
-0.4
Israel
2.5
2.4
3.0
3.4
1.3
2.4
4.1
4.5
3.2
-0.9
-1.1
0.1
1.0
Poland
3.6 3.2
3.5
5.3
-0.4
3.6
3.3
3.4
3.5
-0.6
0.2
1.7
-0.8
Romania
3.8
4.2
3.4
4.6
6.4
2.0
3.6
2.8
4.3
-1.2
-2.5
0.2
2.3
Russia
-3.7 -0.3
1.5
-1.1
-0.1
-0.8
1.0
1.5
1.5
14.5
6.4
5.4
7.4
South Africa
1.3
-0.1
0.8
0.4
-1.2
0.7
0.4
0.4
0.8
4.9
6.2
7.1
6.1
Turkey
4.0 3.3
4.9
3.1
2.2
2.4
4.1
8.2
7.8
7.7
3.5
1.2
7.2
Global
2.6
2.4
2.7
2.2
2.4
2.3
2.6
2.6
2.7
1.7
1.7
2.2
2.5
Developed markets
1.9
1.6
1.7
1.3
1.6 1.5
1.7
1.7
1.7
0.4
1.4
1.9
0.6
Emerging markets
3.8
3.8
4.4
3.7
3.6
3.6
4.1
4.2
4.4
3.9
3.6
3.7
3.4
Global PPP weighted

3.1 3.0 3.3
2.7
2.9 2.8
3.2
3.2
3.3
2.3 2.3
2.7
2.8
Note: For some emerging economies seasonally adjusted GDP data are estimated by J.P. Morgan. Bold denotes changes from last edition of Global Data Watch, with arrows showing the direction of changes. Underline indicates beginning of J.P. Morgan forecasts. Unless noted, concurrent nominal GDP weights calculated with current FX rates are used in
computing our global and regional aggregates. Regional CPI aggregates exclude Argentina, Ecuador and Venezuela. Regional GDP aggregates exclude Venezuela. Forecasts for
Argentina are based on JPMorgans estimates of GDP and CPI. Source: J.P. Morgan

Carlton Strong (1-212) 834-5612
carlton.m.strong@jpmorgan.com

Economic Research
Global Data Watch
June 24, 2016
G-3 economic outlook detail

2015
2016
2015
2016
2017
3Q
4Q
1Q
2Q
3Q
4Q
United States
Real GDP
2.4
1.7
1.9
2.0
1.4
0.8
2.0
2.0
2.0
Private consumption
3.1
2.7
2.2
3.0
2.4
1.9
4.0
2.5
2.3
Equipment investment
3.1
-1.5
3.0
9.9
-2.1
-9.0
-2.1
2.0
3.0
Non-residential construction
-1.5
-4.9
3.2
-7.2
-5.1
-8.9
-8.3
2.0
3.0
Intellectual property products
5.7
1.4
3.2
-0.8
-0.1
-0.1
3.5
2.0
3.0
Residential construction
8.9
8.3
4.8
8.2
10.1
17.2
-2.1
6.0
6.0
Inventory change ($ bn saar)
97.5
52.2
42.3
85.5
78.3
69.6
47.2
46.2
45.7
Government spending
0.7
1.0
1.3
1.8
0.1
1.2
-0.5
1.8
1.9
Exports of goods and services
1.1
-0.3
2.6
0.7
-2.0
-2.0
-0.7
1.8
2.2
Imports of goods and services
4.9
0.8
4.3
2.3
-0.7
-0.2
-1.5
4.5
4.8
Domestic final sales contribution
2.8
2.1
2.3
3.0
1.8
1.3
2.3
2.4
2.4
Inventories contribution
0.2
-0.3
-0.1
-0.7
-0.2
-0.2
-0.6
0.0
0.0
Net trade contribution
-0.6
-0.1
-0.3
-0.3
-0.1
-0.2
0.2
-0.4
-0.4
Consumer prices (%oya)
0.1
1.4
2.5
0.1
0.4
1.1
1.1
1.5
1.9
Excluding food and energy (%oya)
1.8
2.3
2.4
1.8
2.0
2.3
2.2
2.3
2.4
Core PCE deflator (%oya)
1.3
1.8
2.0
1.3
1.4
1.7
1.6
1.8
1.9
Federal budget balance (% of GDP, FY)
-2.4
-2.9
-2.9
Personal saving rate (%)
5.1
5.2
5.1
5.0
5.2
5.7
5.2
5.0
5.0
Unemployment rate (%)
5.3
4.8
4.4
5.2
5.0
4.9
4.8
4.7
4.6
Industrial production, manufacturing
0.8
0.5
1.9
1.7
-0.7
0.6
-1.0
2.3
2.3
Euro area
Real GDP
1.6
1.6
1.3
1.3
1.7
2.2
1.3
1.3
1.3
Private consumption
1.7
1.7
1.8
2.2
1.3
2.2
1.3
1.8
1.8
Capital investment
2.7
3.0
2.1
2.0
5.9
3.4
2.0
2.0
2.0
Government consumption
1.3
1.5
1.2
1.2
2.0
1.6
1.3
1.3
1.3
5.1
2.3
2.2
1.6
2.7
1.7
2.0
2.3
2.3
5.9
3.5
2.5
5.2
5.6
3.0
2.0
2.5
2.5
1.7
1.8
1.7
1.8
2.3
2.2
1.4
1.6
1.6
-0.1
0.2
-0.3
0.9
0.5
0.4
-0.2
-0.3
-0.4
-0.1
-0.4
0.0
-1.4
-1.1
-0.5
0.1
0.0
0.0
Consumer prices (HICP, %oya)
0.0
0.3
1.3
0.1
0.2
0.0
-0.1
0.5
0.9
ex food, alcohol and energy
0.8
0.9
1.0
0.9
1.0
1.0
0.8
0.8
0.9
General govt. budget balance (% of GDP, FY)
-2.1
-1.8
-1.7
10.9
10.1
9.6
10.7
10.5
10.4
10.1
10.0
9.9
Industrial production
1.5
2.2
2.3
1.5
1.5
4.0
2.0
2.3
2.3
Japan
Real GDP
0.6
0.7
1.1
1.7
-1.8
1.9
1.0
1.5
1.2
Private consumption
-1.2
0.5
0.9
1.9
-3.2
2.6
1.5
1.0
1.0
Business investment
1.6
1.4
2.5
3.2
5.2
-2.6
2.0
4.0
3.0
Residential construction
-2.7
0.6
2.3
6.8
-4.1
-2.9
2.0
2.0
2.0
Public investment
-1.9
-2.2
3.9
-9.4
-13.8
-2.9
2.0
10.0
5.0
1.2
1.8
0.8
0.7
2.9
3.0
0.8
0.8
0.8
2.8
0.5
3.2
10.8
-3.1
2.4
-1.0
3.5
3.5
0.3
-1.1
4.0
6.9
-4.3
-1.6
-5.0
5.0
5.0
-0.4
0.8
1.2
1.4
-1.3
1.5
1.4
1.7
1.4
0.6
-0.3
-0.1
-0.5
-0.6
-0.3
-1.0
-0.1
-0.1
0.4
0.3
0.0
0.8
0.1
0.7
0.6
-0.1
-0.1
Consumer prices (%oya)
0.8
0.0
1.0
0.2
0.3
0.1
-0.4
-0.2
0.4
General govt. net lending (% of GDP, CY)
-4.9
-5.6
-5.2
3.4
3.1
3.0
3.4
3.3
3.2
3.2
3.1
3.0
-1.2
-0.5
4.1
-3.8
0.1
-4.1
3.0
4.0
5.0
Memo: Global industrial production
1.2
1.6
1.6
1.4
0.5
1.3
2.3
3.1
3.2
%oya
1.3
0.8
0.8
1.3
1.8
2.5
Note: More forecast details for the G-3 and other countries can be found on J.P. Morgans Morgan Markets client web site. Source: J.P. Morgan
2017
1Q
2Q
2.0
2.3
4.0
5.0
4.0
5.0
41.6
1.2
3.0
4.8
2.4
-0.1
-0.3
2.6
2.3
1.9
2.0
2.0
3.5
5.0
3.5
5.0
45.5
1.2
3.3
4.8
2.2
0.1
-0.3
2.5
2.4
2.0
5.0
4.5
2.0
5.0
4.4
2.0
1.3
1.8
2.0
1.3
2.3
2.5
1.6
-0.4
0.0
1.5
1.0
1.3
1.8
2.0
1.3
2.3
2.5
1.6
-0.4
0.0
1.4
1.1
9.7
2.3
9.6
2.3
1.2
0.8
3.0
2.0
5.0
0.8
3.5
5.0
1.3
0.1
-0.1
0.7
1.0
0.8
2.0
3.0
2.0
0.8
3.5
4.5
1.1
0.0
-0.1
1.0
3.1
4.0
3.0
4.0
3.0
2.9
3.1
3.1

Olya E Borichevska (1-212) 834-5398

olya.e.borichevska@jpmorgan.com
Economic Research
June 24, 2016


Official
Current
rate
rate
(%pa)
05-07 avg
oya
2.27
-198
-6
2.27
2.17
2.15
2.20
2.19
2.27
Global
excluding US
Change since (bp)
Last change
Next mtg
Forecast
next change
Forecast (%pa)
Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17
2.87
-134
56
2.88
2.74
2.64
2.62
2.60
2.61
Developed
0.32
-307
0.31
0.25
0.35
0.44
0.44
0.55
Emerging
5.61
-139
-31
5.62
5.46
5.24
5.22
5.19
5.19
Latin America
9.59
-123
81
9.73
9.35
8.97
8.97
9.05
9.13
EMEA EM
6.76
36
-22
6.74
6.49
6.32
6.15
5.88
5.79
EM Asia
4.20
-151
-66
4.19
4.11
3.93
3.93
3.94
3.95
The Americas
2.22
-293
41
2.25
2.17
2.29
2.47
2.50
2.72
0.50
0.50
0.75
1.00
1.00
1.25
United States
Fed funds
0.50
-383
38
Canada
O/N rate
0.50
-313
-25
Brazil
SELIC O/N
14.25
-119
Mexico
Repo rate
3.75
-419
Chile
Disc rate
3.50
Colombia
Repo rate
7.50
Peru
Reference
Europe/Africa
Euro area
Refi rate
United Kingdom Bank rate
16 Dec 15 (+25bp) 27 Jul 16 14 Dec 16 (+25bp)

15 Jul 15 (-25bp)
13 Jul 16
2Q 17 (+25bp)
0.50
0.50
0.50
0.50
0.75
1.00
50
29 Jul 15 (+50bp)
20 Jul 16
20 Jul 16 (-25bp)
14.25
13.50
12.75
12.75
12.75
12.75
77
18 Feb 16 (+50bp) 30 Jun 16
Jun 16 (+50bp)
4.25
4.25
4.50
4.75
5.00
5.25
-100
50
17 Dec 15 (+25bp) 14 Jul 16
Mar 17 (+25bp)
3.50
3.50
3.50
3.75
4.00
4.00
25
300
21 Jun 16 (+25bp) 29 Jul 16 22 Jun 16 (+25bp)
7.50
7.50
6.75
5.75
5.75
5.75
4.25
27
100
11 Feb 16 (+25bp) 14 Jul 16 11 Aug 16 (+25bp)
4.25
4.50
4.50
4.50
4.50
4.50
1.42
-226
-2
1.42
1.30
1.26
1.23
1.17
1.16
0.00
-290
-5
10 Mar 16 (-5bp)
21 Jul 16
4Q19 (+25bp)
0.00
0.00
0.00
0.00
0.00
0.00
0.50
-442
5 Mar 09 (-50bp)
14 Jul 16
3Q 16 (-25bp)
0.50
0.00
0.00
0.00
0.00
0.00
Norway
Dep rate
0.50
-258
-75
17 Mar 16 (-25bp) 22 Sep 16
3Q 16 (-25bp)
0.50
0.25
0.25
0.25
0.25
0.25
Sweden
Repo rate
- 0.50
-302
-25
11 Feb 16 (-15bp)
6 Jul 16
On hold
-0.50
-0.50
-0.50
-0.50
-0.50
-0.50
Czech Republic 2-wk repo
0.05
-235
1 Nov 12 (-20bp)
30 Jun 16
3Q 17 (+20bp)
0.05
0.05
0.05
0.05
0.05
0.25
Hungary
3-m dep
0.90
-641
-60
21 May 16 (-15bp) 26 Jul 16
1Q 18 (+25bp)
0.90
0.90
0.90
0.90
0.90
0.90
Israel
Base rate
0.10
-412
23 Feb 15 (-15bp) 27 Jun 16
2Q 17 (+15bp)
0.10
0.10
0.10
0.10
0.50
0.75
Poland
7-day interv
1.50
-317
4 Mar 15 (-50bp)
3Q 16 (-25bp)
1.50
1.25
1.00
1.00
1.00
1.00
Romania
Base rate
1.75
-719
-50
6 May 15 (-25bp) 30 Jun 16
3Q 17 (+25bp)
1.75
1.75
1.75
1.75
1.75
2.00
Russia
Key pol rate
10.50
N\A
-100
14 Jun 16 (-50bp)
Sep 16 (-50bp)
10.50
10.00
9.50
9.00
8.50
8.25
South Africa
Repo rate
7.00
-123
125
17 Mar 16 (+25bp) 21 Jul 16 24 Nov 16 (+25bp)
7.00
7.00
7.25
7.25
7.25
7.00
Turkey
Eff. fund. rate
8.14
-787
64
21 Jun 16 (-35bp) 19 Jul 16
8.00
8.00
8.25
8.50
8.00
8.00
3.16
-46
-54
3.15
3.03
2.90
2.89
2.88
2.88
1.75
-413
-25
3 May 16 (-25bp)
1.75
1.50
1.50
1.25
1.00
1.00
Asia/Pacific
Australia
Cash rate
New Zealand
Cash rate
Japan
O/N call rate1
Hong Kong
China
6 Jul 16
29 Jul 16
5 Jul 16
Jul 16 (-25bp)
Aug 16 (-25bp)
2.25
-506
-100
10 Mar 16 (-25bp) 10 Aug 16
Jun 16 (-25bp)
2.00
1.75
1.75
1.75
1.75
1.75
- 0.10
-33
-18
28 Jan 16 (-20bp)
29 Jul 16
29 Jul 16 (-20bp)
-0.10
-0.30
-0.30
-0.30
-0.30
-0.30
Disc. wndw
0.75
-506
25
17 Dec 15 (+25bp)
0.00
14 Dec 16 (+25bp)
0.75
0.75
1.00
1.25
1.25
1.50
1-yr working
4.35
-175
-75
23 Oct 15 (-25bp)
4Q 16 (-25bp)
4.35
4.35
4.10
4.10
4.10
4.10
Korea
Base rate
1.25
-283
-25
11 Jun 15 (-25bp)
14 Jul 16
4Q16 (25bpbp)
1.25
1.25
1.00
1.00
1.00
1.00
Indonesia
BI rate
6.50
-318
-100
17 Mar 16 (-25bp) 21 Jul 16
21 Jul 16 (-25bp)
6.50
5.00
5.00
5.00
5.00
5.00
India
Repo rate
6.50
-31
-75
5 Apr 16 (-25bp)
9 Aug 16
On hold
6.50
6.50
6.50
6.50
6.50
6.50
Malaysia
O/N rate
3.25
10 Jul 14 (+25bp)
13 Jul 16
13 Jul 16 (-25bp)
3.25
3.00
3.00
3.00
3.00
3.00
Philippines2
Rev repo
3.00
-404
On hold
3.00
3.00
3.00
3.00
3.00
3.00
Thailand
1-day repo
1.50
-219
3 Aug 16
4Q 16 (-25bp)
1.50
1.50
1.25
1.25
1.25
1.25
Taiwan
Official disc.
1.500
-102
-38 24 Mar 16 (-12.5bp) 30 Jun 16
2Q16 (-13bp)
1.38
1.38
1.38
1.38
1.50
1.63
-100 11 Sep 14 (+25bp) 11 Aug 16

0
29 Apr 15 (-25bp)
Source: J.P. Morgan. 1 Refers to trough end-quarter rate from 2009-present Effective rate adjusted on daily basis 3 BoJ targets 80tn/year expansion in monetary base and sets the IOER (O/N) as
policy guidance. Bold denotes move since last GDW and forecast changes. Underline denotes policy meeting during upcoming week. Aggregates are GDP-weighted averages. 4 The Philippines introduced a recalibrated reverse repo rate effective June 3 at a level of 3.00%

Olya Borichevska (1-212) 834-5398

Economic Research
Global Data Watch
June 24, 2016

Nowcast global growth: 2Q16

stable; 2H shifts 0.4%-pt lower
Our bottom-up forecast for 2Q16 global GDP growth inched
0.1%-pt lower this week to 2.3% ar. Despite a seemingly
small revision to 2Q, our 2H growth profile shifted 0.3%-pt
lower following the surprising referendum result that the UK
will leave the EU. Naturally, we expect the biggest hit to the
UK (2%-pt in 2H16) whereas we now expect the Euro area to
grow 1.25% in 2H, a 0.75%-pt downward revision. In the US,
we shaved 0.3%-pt off of growth in the second half of the
year. Our US forecast for the current quarter remains at 2.0%
ar. Outside of the Brexit-related GDP forecast changes, we
lowered 2Q GDP growth in Mexico 1.2%-pts to 1% ar.
Table 1: Global real GDP
%q/q, saar (Current forecast shaded)
2Q16
Current
Last week
4 weeks ago
2.4
2.2
2.3
2.1
Global PMI model
2.3
2.2
2.2
2.2
Figure 1: Nowcasting global real GDP by forecast date, 2Q16
Source: J.P. Morgan
%q/q, saar
Table 2: J.P. Morgan global aggregates

%ch over previous period, sa (ar for quarterly). PMIs are levels.
1Q16
2Q16
Mar 16
Apr16
PMI, mfg
51.0
50.6
51.4
50.4
PMI, serv
51.7
51.8
51.5
51.9
IP
1.6
1.1
0.1
0.5
Retail sales
3.2
3.6
0.2
0.6
Auto sales
-18.2
8.8
2.3
1.7
Cap. orders
-5.5
-1.3
3.8
-3.5
Nowcast
2.2
2.2
2.1
2.5
May16
50.1
51.4
-0.1
0.1
0.1
1.5
2.2
Jun 16
51.2
52.1
0.2
0.3
0.2
-0.7
2.6
Note. Shaded values show forecasts computed by the Kalman filter estimates from the dynamic factor model.
Underlined values are our estimates based on available data and our judgment.
Source: J.P. Morgan, Markit, and national statistical agencies.
Against solid April activity data, our marks for May numbers
appear lower, especially in manufacturing output, where the
current tracking for May looks for a tepid 0.1% increase fol-
Nowcast
2.9
Jul 29
Jul 22
Jul 15
Jul 08
Jul 01
Jun 24
Jun 17
Jun 10
Jun 03
May 27
2.1
1.9
1.7
May 20
2.7
2.5
2.3
May 13
The nowcast for 2Q remained at 2.2% ar this week despite

encouraging news from the Flash June manufacturing PMI
reports. Indeed, each reporting economy (US, Euro area, Japan) posted an increase of about a point and a half in the output index. This translates to a slightly smaller gain (+1.1pts to
51.2) for the global PMI, where the final result will be released next Friday. If realized, the positive momentum in the
June PMI would be encouraging for global industry. We also
updated May global auto sales this week; the global aggregate
ticked up 0.1%m/m. In April global auto sales moved up a
solid 1.7% leaving the tracking for 2Q well above 1Q. To be
sure, auto sales fell about 18% in 1Q but this followed a larger gain in 4Q15.
J.P. Morgan
Aug 19
2.3
2.2
Aug 12
2.4
2.2
Aug 05
J.P. Morgan
Global Nowcaster
The disconnect between solid global consumer spending and

prolonged weakness in manufacturing output growth can be
partially explained by weak business equipment spending.
This weeks report on durable goods from the US showed
continued weakness in May. We look for equipment spending
in the US to contract 1.2% ar in 2Q. Next to report data on
capital goods performance is Germany on July 6.While the
May outlook appears somewhat weak, the 1.6% rise in April
G-3 capital goods shipments likely will leave the quarter
above 1Q. Moreover, our new global capital goods imports
aggregate points to a gain this quarter as well. Global business
capital spending is tracking a 4.3% ar contraction in 1Q.
May 06
1Q16
lowing a 0.5% jump in April. While the run-rate swings to

2.6%3m ar, we dont expect the quarter to be much different
than the 1.6% gain in 1Q. The picture is better for the global
consumer; after a strong 0.6% gain in April retail sales, May
tracking points to a 0.4% rise. If we assume a modest gain in
June, the quarter is left with at least a 3.5% ar increase. The
last time global consumer spending advanced this much was
in 4Q14.
Source:J.P.Morgan
Figure 2: Global real GDP

%q/q, saar. Box shows J.P. Morgan projection for 2Q16. Nowcst thru 2Q16
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
Jan 11
Nowcaster
(dashed line shows %m/m)
Actual/JPM
(%q/q, saar)
Jan 12
Dec 12
Dec 13
Dec 14
Dec 15
Source:J.P.Morgan
Next week we look for the final June global manufacturing

PMI to be released on Friday. On Monday, the US will report
its June Flash services PMI. Other reports to look for include
Japan IP for May and household spending, German May retail
sales, and Brazils May IP.
7

Bruce Kasman (1-212) 834-5515

Economic Research
Selected recent research
June 24, 2016

Selected recent research from J.P. Morgan Economics

Global
Japan
Credit cycles increasingly divergent, Jun 17, 2016

3% global growth in 2H: Once more unto the breach, Jun 10, 2016
China: Global impact of the CNY basket regime, Jun 10, 2016
EM: It's all about growth, Jun 10, 2016
A tentative step forward for global manufacturing, May 6, 2016
Global inflation bounce still to come, Apr 1, 2016
Japan: Fiscal package and wage gains too little to attain 2% CPI target, Jun 3, 2016
Japan: Abenomics 2.0 needs to step up further, May 27, 2016
Japan: What will happen if the VAT hike is delayed, May 20, 2016
Japan: Consumption looks better with the BoJ's index, May 13, 2016
Japan: Fiscal policy is back; is it helicopter money? Apr 22, 2016
Japan: Weak consumption induces fiscal stimulus, but story is not simple Apr 1, 2016
United States and Canada
Non-Japan Asia and Pacific
US: Test-driving the "data science" toolbox, Jun 17, 2016

US: The big squeeze for margins keeps rolling on, Jun 10, 2016
What Usual Weekly Earnings says about US labor markets, May 20, 2016
US: Inflation expectationsa bee in the Fed's bonnet, May 13, 2016
Nowcasting Canada GDP, May 13, 2016
US: How much a dollar cost, May 6, 2016
US: It's the time of the season when the growth runs high, May 6, 2016
US: The consequences of concentration, Apr 29, 2016
US: Regional stories behind national trends in OER/rent, Apr 22, 2016
US: Sharp rise in participation is a head-scratcher, Apr 8, 2016
US: Lots of positives for the housing market, Apr 1, 2016
US: Data-dependent NAIRU estimates are edging up, Apr 1, 2016
Why can't the RBA just ignore low inflation? Jun 17, 2016
EM Asia: Services lift offsetting manufacturing drift, Jun 17, 2016
India: Is the free lunch ending, at the "margin"? Jun 17, 2016
Australia: 3% growth can still be deflationary, Jun 10, 2016
China's proactive fiscal policy, Jun 10, 2016
China: A closer look at the undercurrents of FAI growth, Jun 10, 2016
Korea and Taiwan: Decoding the PMI divergence, Jun 10, 2016
Australia: Digesting the dwelling supply expansion, Jun 3, 2016
China: Recalibrating monetary policy, Jun 3, 2016
Tracking Koreas growth potential: Implications and limitations, May 27, 2016
Australia: Real inflation problem needs real exchange rate solution, May 13, 2016
China: A liquidity perspective on the onshore commodity boom, May 13, 2016
China: Labor market not immune from slowing growth, May 6, 2016
Hong Kong: Housing market to drive slowing in consumption, May 6, 2016
Korea: Revisiting FX macroprudential measures, May 6, 2016
Australia: GDP growth under the microscope, Apr 22, 2016
EM Asia exports: The unbearable lightness of G-3 demand, Apr 8, 2016
China: Signs of a moderate, near-term growth pickup, Apr 8, 2016
Korea: BoK encounters election headwinds, Apr 8, 2016
Australia: Upside and downside risks in business credit, Apr 1, 2016
Western Europe
The implications of Brexit, Jun 17, 2016
Brexit: Tracking the result in real time, Jun 17, 2016
Norway: Slight improvement in growth outlook, Jun 17, 2016
Germany: Labor market starting to show migration impact, Jun 3, 2016
Brexit: When is it safe to chill out about turnout? Jun 3, 2016
Riksbank sensitivity to the currency remains strong, Jun 3, 2016
Euro area: Construction is slowly beginning to recover, May 27, 2016
Greece: A summer lull, May 27, 2016
Nowcasting the Euro area business cycle and GDP, May 20, 2016
Brexit: Putting the BoE's policy dilemma under the microscope, May 20, 2016
Euro: Monetary transmission and growth resilience, May 13, 2016
Euro area: Big current account surplus hides net trade drag, May 13, 2016
UK: Euroscepticism after a vote to stay, May 13, 2016
Assessing the Brexit referendum polling: Remain by 4%, May 6, 2016
Greece: The contours of official debt relief, May 6, 2016
Brexit: Wealth effects are much larger than income effects, Apr 29, 2016
France: Taking stock of the reform agenda, Apr 29, 2016
Brexit: How much are "leave" fears weighing on UK growth? Apr 22, 2016
Spain: Solid but slower growth ahead as fiscal woes resurface, Apr 15, 2016
Helicopter money may come to a Euro area airport near you, Apr 8, 2016
Euro area: Governments take big chunk of oil windfall, Apr 8, 2016
Brexit: How would low turnout sway the vote? Apr 1, 2016
Central Europe, Middle East, and Africa

Russia: Inflation expectations to keep easing cycle gradual, May 20, 2016
Russia: Unemployment rate looks too NEET, Apr 8, 2016
Latin America
Mexico: Potential GDP, output gap, and inflation, Apr 15, 2016
Brazil: More red ink, Apr 15, 2016
Special Reports and Global Issues

Profit stall threatens global expansion, Jun 21, 2016
Global FX reserve plunge continues; Hints of stabilization, May 10, 2016
Sliding down the EM credit growth curve, Mar 11, 2016
US: Growing in slow motion, Mar 3, 2016
Negative policy rates: The bound is lower than you think, Feb 9, 2016
The Euro area needs a long business cycle expansion, Jan 28, 3016
Global economy: The impact of a record oil price plunge, Jan 14, 2016
EM Asia 2016 Outlook: The future is still not here, Dec 11, 2015
China 2016 outlook: A two-speed economy, Dec 11, 2015
Korean consumers advance against structural headwinds, Dec 9, 2015
The 2016 US economic outlook: Life after liftoff, Dec 4, 2015
Global outlook 2016: Still bounded after all these years, Dec 1, 2015
What if it all goes wrong? Western Europe's policy options, Nov 30, 2015
Global productivity slowdown lowers sights on potential GDP, Nov 25, 2015
Hazard ahead: The EM credit cycle has turned down, Nov 17, 2015
Rainy day funds: EM woes spark stall in reserves growth, Oct 29, 2015
The elephant in the room: Taking stock of the surge in EM private debt, Sep 4, 2015
Note: Research notes listed have been published in GDW; Special Reports and Global Issues are stand-alone features, but may also have appeared in some form in GDW.

Jan Loeys (1-212) 834-5874
jan.loeys@jpmorgan.com
The J.P. Morgan View
Global risk-off should fade

in weeks
Asset allocation Surprise and uncertainty brought on
the Brexit vote are creating global risk off, but it remains
our view that beyond a few weeks of volatility, this shock
has a largely regional impact. Globally, we remain simply
in a low-growth world where we are 5% UW equities and
OW high-income producing assets.
Economics Brexit induces us to lower UK growth over the
next year by 1.4%, and Euro area by 0.5%. Global growth is
cut by 0.2% for next year, with modest further downside risk.
This brings global forecasts closer to the 2.5% cruising pace
the world economy has held for the past 5 years.
Fixed Income Enter 10s/30s Germany flatteners and
longs in 10Y UK.
Equities Overweight high dividend and value stocks
including energy.
Credit Move credit longs to outright instead of duration
hedged.
FX Day I of Brexit had currencies hit the expected
targets. Fall in sterling not over. We see GBP averaging
$1.29 in Q3, vs $1.36 now.
Commodities Oil stumbles and gold soars on Brexit
vote. Take profit on long gold.
Video this week.

Markets went risk-off today after the UKs surprise
vote to exit the European Union. Government bond
yields rallied strongly, with the 10-year UST falling below
1.5%, before rebounding, not too far from the all-time low
reached in 4 years ago during the EMU sovereign debt
crisis. Midday London time, the US money market prices
higher odds of Fed easing than tightening next month.
Last week, we expressed the view that Brexit would be a
big problem for the UK, a negative for neighboring countries, but, beyond short-term market volatility, only a regional one for the world: Global risk-off short term, but
not medium term. On Day I of the New Britain, one
can only confirm short-term volatility, largely as a result
of the surprise of the event and the uncertainty it generates.
Our research colleagues are continuously updating their
forecasts and strategies, the streaming collection of which
can be found on The UK's EU referendum on
www.jpmm.com.
Economic Research
Global Data Watch
June 24, 2016
In a nutshell, we cut UK growth by just under 1.5% over

the next year and Euro area by 0.5%, US growth by 0.25%
(H2), and expect extra easing by the ECB and the BoE.
Neither economy falls into recession, though. This lowers
our global growth numbers by about 0.3% for the next 3
quarters, with possibly another 0.1% or so coming, as we
review the impact on other countries. This still only brings
global growth to the same 2.5% pace we have been growing at for 5 years now. Our economists already pushed out
the Fed to September last week, and Brexit turmoil now
brings the call to December. In markets, UK and Euro
monetary easing should push local bond yields down further and curves flatter. The fall in sterling is probably not
over and we see it average $1.29 in Q3, down from $1.36
at the moment.
Contagion is what can turn a local shock into a global one.
Contagion can be economic, financial, or political. Economic contagion is largely via trade uncertainty, and here we
do not see enough to bring the world economy down. Financial contagion is mostly a function of leverage and the impact
on banks which is in our mind simply not large enough. European bank stocks are down badly, as the weaker economy
and displacement costs of potentially having to move part of
the City to the Continent would raise costs. But this should
not have that much impact on solvency.
Political contagion is of greater concern, in particular if the
UK exiting worsens centrifugal forces in the EU. Anti-EU
populist parties are clearly emboldened by the UK vote and
are demanding the same vote, which we do not think the parties in power will offer. In addition, as the reality rather than
the dream of exiting the EU sets in for the UK, its appeal for
copy-cat action in the EU should fade.
More broadly, should we interpret Brexit as a worrying sign of the
rise of populism and nationalism in the world and the twilight of
globalization? At the margin, the move is clearly there, but it is not
pre-ordained it will continue. At the core of our Defensive strategy
focused on Income is a view that we are stuck in the mud in a lowgrowth world, half the pace of a normal economic expansion. Investors started to realize this early this year, and switched from
growth assets into high-income assets, just as we did. The strategy
does require that macro volatility stays low, and that we neither
surge into much stronger growth, requiring us to be OW equities
instead, nor fall into recession, requiring us to be UW both Equities and Credit.
Low growth in incomes and jobs, however, does raise voter dissatisfaction, who could lead to populist actions. A rapid move into
anti-globalization and anti-trade policies and politics would dramatically and ultimately raise macro volatility and uncertainty,
threatening our income focused strategy, much of which is long
dividends, credit spreads and EM. We are loath to get overpessimistic here, as the young generation, evident yesterday in the
9

Jan Loeys (1-212) 834-5874
Economic Research
UK, is clearly voting for more globalization. In addition, several

South-American countries, where populism had reigned for years
and voters had seen it brought no happiness, choose this year to reenter the pro-market fold. A rise in protectionism is possible in the
world, but it is equally possible that governments seize the initiative and instead try to boost growth through fiscal expansion.
given the still attractive relative valuation and higher relative

yield in the UK (Matejka, Equity strategy, Jun 24).
We thus feel comfortable, through the near-term volatility, to

stay with our defensive UW of equities and stability based
OW of high-income assets.
Fixed Income
Bonds rallied sharply on Friday as it became clear that the
UK had voted to leave the European Union, as Brexit risk
had largely been priced out amid a shift in polls since the
weekend. 10Y yields ended the week around 5-6bp lower in
the US, UK and Germany.
As noted last week, we think the major medium-term impact
should be local and regional rather than global: we see UK and
Euro area growth 1.4% and 0.5% lower relative to our previous
baseline over the coming year, largely due to uncertainty effects.
In terms of central bank responses, we now see the BoE cutting
rates by 50bp by end-Aug, and the ECB cutting deposit rates by
10bp to -0.50% and extending QE purchases by 9M to end-2017
at its Sep meeting, and eventually to mid-2018 (around 1.2tn of
additional purchases at the current pace). But the full implications
of Brexit for the UK and the EU will take years to play out as negotiations over the terms of the UKs withdrawal take place.
Given the moves in German yields, with benchmark bonds
out to 7Y maturities trading below the ECBs deposit rate of 0.40% (thus ineligible for purchases), we think this exacerbates the scarcity effect for the ECB. Indeed, our European
rates colleagues estimate that only 75bn of German conventional bonds could be bought going forward before hitting the
33% issuer limit for eligible bonds. Unless the ECB tweaks
its QE framework, the Bundesbank looks set to run out of
bonds to buy by the end of this year. We re-enter 10s/30s
flatteners in Germany.
For the UK, the deterioration in the macro outlook with lower
growth and ongoing uncertainty, and our expectation of two
cuts (vs. money market curve pricing in one by 1Q17) means
that we think UK gilts can rally further from here. Our UK
rates colleagues expect 10Y gilt yields to reach 85bp by 3Q16
from 108bp currently. We thus enter longs in 10Y gilts.
Equities
Global equities sold off today in the aftermath of the Leave
vote in the UKs referendum on EU membership. Euro area
equities were down almost 9% in local currency terms today
underperforming other regions, weighed down by the uncertainty around economic and political outcomes. We remain
overweight UK vs. Euro area, on a currency hedged basis,
June 24, 2016
These developments have also caused less visibility around the

future direction of monetary policy and we now expect the next
Fed hike only in December. In June (GAA, Jun 1), we added a
tactical overweight in US banks to hedge a July hike. With our
Fed hike expectation pushed out to December and indeed the risk
of further delays into next year, we close this trade.
Beyond the referendum, our cautious view on the corporate
profit cycle in the US keeps us focused on high-income equities via high-dividend and preferred stocks. We remain
overweight Value in the US on a low-growth, weaker-dollar
environment (Lakos-Bujas, US Portfolio Strategy, June 22).
One of our preferred sectors in value is Energy on supportive
fundamentals given the stability in oil prices with upside risks
as we see further tightening in supply balances into the second half of this year.
Credit
Credit spreads widened dramatically today, following yesterdays Brexit vote. In the US, HG widened by less than the
rally in underlying UST yields and HG bond prices are up
about half a percent as of writing. HY prices are lower and
spreads are wider on the 5% drop in oil prices. Euro and Sterling HG bond prices are down with spreads rising more than
the rally in government yields, simply as they are closer to
the shock and more dominated by financials.
Two months ago, we decided to hedge the duration risk of
our longs in credit in our long-short portfolio as we feared the
rising Fed warnings about its intention to hike rates. We retained a simple OW of Credit versus equities in our long-only
portfolio. Hedging the duration risk worked last month, but
has cost us dearly in recent weeks, and in particular today.
We now no longer forecast any Fed hiking until after the US
elections, and thus do not see as much need to hedge duration. We therefore choose to return to own US credit, both
HG and HY outright against cash instead of against USTs in
our long-short portfolio.
We exit long Euro HY and corporate hybrids as the benefit
of higher yield by carrying subordination risk should see
more reversal in Europe. We add long US HG vs. Euro HG,
vs. Euro HY and vs. Sterling HG, with short legs in
spreads, as US HG should continue to see strong demand
despite Brexit, while European and UK credit should widen
further. We are also OW non-financials vs. financials in
both the US and Europe, as financials are most exposed to
Brexit risk and will continue to underperform.
In our view, Sterling credit, particularly UK banks, will
have the most direct impact as a result of Brexit. We forecast
spreads for sterling HG to widen to 320bp, and senior financials to widen to 200bp. European credit should also see
10

Jan Loeys (1-212) 834-5874
Economic Research
Global Data Watch
spreads widen. Euro HG and HY spreads should widen further after today to 135bp and 650bp. In CDS, we see iTraxx
Main and Crossover moving to 125bp and 500bp (Bailey et
al., Brexit Alert, Jun 23).
substantive change to fundamentals. Targets for Q4 2016, Q1

2017 and Q2 2017 are still 103, 102 and 101, respectively.
Sterling forecasts are lowered simply because the risk scenario weve discussed for several months Brexit has become
reality. Thus, Q3 targets are 1.29 on GBP/USD and 0.8760 on
EUR/GBP, with high odds that sterling will undershoot this
new baseline.
Our European financials strategist also downgraded the European

banking sector across the capital structure, to UW. In periods of
volatility, European financials tend to underperform the rest of the
market, as experienced during H112 on the prospect of Grexit.
But we expect the spread move will be less pronounced than 12,
as now European banks have higher capital levels and less leveraged balance sheets. The ECB will likely intervene in the markets
to suppress volatility, but its limited to providing liquidity in
TLTRO form instead of purchasing bank debt. We also think the
AT1 market is particularly vulnerable and is likely to test new
lows potentially exceeding the Feb16 sell-off, as UK banks are
dominant issuers in this market (Henriques et al., All Bets are Off,
Jun 24).
Foreign exchange
We have always thought that Brexit was a huge local issue
and a minor global one, so JPMs longstanding FX targets
in the event of Brexit were always more aggressive for
sterling than for other currencies. Ahead of the vote, when
GBP/USD was trading in the mid-1.40s, we targeted cable at
1.32 and EUR/GBP at 0.83 the day after Brexit, since the
currency seemed to price only an ordinary cyclical downturn
that triggered BoE easing rather than a proper regime change
that would permanently alter the UKs trade and investment
environment. We saw limited scope for retracement higher in
the subsequent weeks or months, given the array of new economic and political uncertainties that begin after the referendum.
EUR/USD contagion was expected to be significant in the
hours after the vote, but since the macro and political readacross should be limited, we put EUR/USD at 1.09. We expected gradual retracement to 1.12 in Q3 given a dovish Fed
and US Presidential election risks that would favor reserve
assets like the euro, yen and gold. USD/JPY was expected to
decline to 101 intra-day, with limited retracement afterwards
in view of Fed policy, and relatedly, the ineffectiveness of
BoJ easing. Even if the MoF/BoJ were to intervene, a
USD/JPY spike would probably reverse within a week. We
thought highly-cyclical currencies like commodity FX and
emerging markets might fall 2% to 3% on the day but
should stabilize the following week since the hits to UK and
Euro area growth would be too small collectively to affect
global demand or commodity balances.
Today almost all currencies have met these initial projections, and since there is no change to the macro and policy
context we expect to prevail over the next several months,
forecast changes are minor. With USD/JPY, we lower the
Q3 target from 106 to 103 as a mark-to-market rather than a
June 24, 2016
Commodities
Despite the volatility surrounding the UKs decision to leave
the European Union, international benchmark Brent crude
prices remain close to the $50/bbl mark for now. Oils 5%
drop overnight has lagged our expectations which were for a
more meaningful pullback short-term in this eventuality. Further price weakness in the days ahead, as markets adjust to
the new reality, could become a reality if the large speculative
position in Brent futures is aggressively unwound. Such a
dramatic position-squaring exercise would undoubtedly
weigh on oil prices. Nevertheless, the bigger picture outlook
for oil has deteriorated only marginally and barring more
meaningful deterioration in the growth outlook we regard this
pullback in oil prices will prove short-lived. Counterintuitively, the rise in uncertainty could yet dampen the nascent recovery in oil companies desire to increase spending,
with the consequence of further extending the downswing in
company capex plans. This would, in time, be positive for oil
prices rather than a quicker recovery in capex budgets. Consequently, we would prefer to remain long oil than short on a
six-month horizon and would look to scale into any further
price weakness towards $42-45/bbl on Brent and WTI (Martin et al., Oil Market Weekly, Jun 24).
Heading into the UK referendum, we were looking for gold to
trade up to $1,350/oz to $1,400/oz today in the event of a
vote for Brexit. Gold did reach an intra-day peak just shy of
$1,360/oz shortly before 5:00 am London when it became
increasingly clear that the vote would come in for a Leave
outcome. Since then, it has retraced and has broadly hovered
between $1,310/oz and $1,330/oz. Looking ahead, over the
coming days we envisage further retracement, mostly due to
likely profit taking, given the very long net managed money
position in CME gold and have chosen to tactically take
profit on our long Dec16 CME gold trade recommendation. Further out, however, yesterdays vote for Brexit underlies our medium- to long- term bullish view on gold as we
move throughout 2H2016 and 2017. In addition to the fall out
surrounding Brexit, the recent more dovish shift in Fed policy, yield-diminishing unconventional monetary policy around
the world, and a business cycle that is rapidly aging, keeps us
generally constructive on gold and we would look to re-enter
a long position at more attractive levels in the future (Kaneva
et al., Metals Weekly, Jun 24).
11

Jan Loeys (1-212) 834-5874
Economic Research
June 24, 2016
Investment themes
Forecasts & Strategy

Interest rates
United States
Euro area
Current
Sep-16
Dec-16
Mar-17
Jun-17
Fed funds rate
0.39
0.50
0.75
1.00
1.00
10-year yields
1.58
1.65
1.70
1.75
1.80
Refi rate
0.00
0.00
0.00
0.00
0.00
10-year yields
-0.05
-0.15
-0.10
-0.05
0.00
United Kingdom
Repo rate
0.50
0.00
0.00
0.00
0.00
1.09
0.85
0.85
1.00
1.20
Japan
10-year yields
Overnight call
rate
-0.10
-0.30
-0.30
-0.30
-0.30
10-year yields
-0.20
-0.20
-0.20
-0.10
-0.05
GBI-EM - Yield
6.42
6.64
Emerging markets
Credit Markets
Current
Dec-16
US high grade (bp over UST)
176
160
Euro high grade (asset swap sprd)
100
135
USD high yield (bp vs. UST)
642
650
Euro high yield (bp over Bunds)
465
650
EMBIG Div (bp vs. UST)
379
350
EM Corporates (bp vs. UST)*
Foreign Exchange
383
375
Current
Sep-16
Dec-16
Mar-17
Jun-17
EUR/USD
1.11
1.13
1.15
1.17
1.18
USD/JPY
102
103
103
102
101
GBP/USD
1.36
1.29
1.30
1.32
1.33
AUD/USD
0.75
0.72
0.70
0.67
0.65
USD/BRL
3.38
3.70
3.90
3.95
4.00
USD/CNY
6.62
6.63
6.75
6.75
6.70
USD/KRW
1179
1200
1240
1240
1220
USD/TRY
2.92
3.00
3.05
3.10
3.15
JPM USD Index
117.0
118.1
118.6
117.9
116.8
Commodities
Quarterly Averages
16Q4
17Q1
Current
16Q3
Brent ($/bbl)
48
50
50
50
55
Gold ($/oz)
1320
1200
1250
1330
1300
Copper ($/metric ton)
4781
4300
4500
4300
4400
YTD Equity Sector Performance*

Energy
Materials
Industrials
Discretionary
Staples
Healthcare
Financials
Information Tech.
Telecommunications
Utilities
Overall
*Levels/ returns as of Jun 23, 2016
Source: J. P. Morgan
US
16.9%
11.6%
7.5%
2.0%
8.5%
-0.1%
-1.1%
1.7%
21.8%
18.3%
1.1%
OW
OW
N
UW
N
N
OW
N
N
N
Europe
17.4%
7.3%
4.4%
-5.9%
3.8%
-7.5%
-9.9%
-4.3%
-6.4%
1.7%
-1.4%
N
UW
UW
OW
N
OW
N
N
OW
OW
Japan
-21.2%
-19.0%
-12.0%
-20.3%
-7.9%
-7.8%
-26.2%
-16.5%
0.8%
-22.7%
-15.2%
OW
N
N
UW
UW
UW
OW
N
UW
OW
Slow growth, but no imminent US recession

The real risk to the world is further slowing to
subpar growth on the collapse in productivity
growth, no fiscal easing, no supply side reform
and little central bank ammo left.
Defensive: 5% UW equities
Stocks in a range, but earnings have fallen.
Corporates are already cutting back on capex,
not yet on jobs. Given uncertainty of recession
timing, we have been dollar averaging to a
defensive position, which has us now at our
minimum equity UW.
Focus on Higher-Income assets
.. as low growth means we can forget about
capital gains. Obtain income from high-dividend
stocks, Credit spreads, and EM FX.
But prepare for the Fed disturbing the income
party, even as it should only produce a pause
Be short 2yr USTs as a hedge, earn credit
income only on a spread basis vs govies, and
fund EMFX in commodity currencies. We wait
until after the Fed before going long duration
again in DM and EM.
Be long Commodities
As oil supply is tightening and precious
metals are gaining on concerns about too ambitious central baSnks. Stay short and UW
industrial metals on continuing excess supply.
Source: J.P. Morgan
Tactical overview
Direction
Country
Asset
allocation Short risk
Credit & CO
OW vs EQ and
Bonds
Equities
UW
Energy, Preferred, Dividends, REITs,

Defensives
Bonds
UW and
NZ, AU vs
small short EU PeInflation linkers
duration
riphery
Credit
OW spreads
US on
yield
FX
Flat USD,
Short
commodity
FX
Comds
OW
17Q2
EM$
17.8%
13.5%
0.2%
2.7%
8.5%
-1.5%
4.1%
7.1%
5.7%
8.0%
6.4%
UW
OW
OW
UW
OW
N
UW
OW
UW
UW
Sector
HY
Long Gold,
Energy. Short
Metals
Source: J.P. Morgan
12
JPMorgan Chase Bank N.A, London Branch

Malcolm Barr (44-20) 7134-8326
Allan Monks (44-20) 7134-8309
malcolm.barr@jpmorgan.com
allan.j.monks@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
David Mackie (44-20) 7134-8325

david.mackie@jpmorgan.com
Economic Research Note
The UK votes to leave the EU

UK growth set to slow to a crawl over the coming quarters
Leadership of the Conservative Party likely to change
and shift in a more EU-sceptic direction
BoE likely to take rates down to zero by end-August
Exit process will likely prove lengthy and difficult
The UK has decided to leave the EU, after 43 years of membership. The referendum saw relatively high turnout (near
72% compared to 66% at the last election), to deliver 51.9%
of the vote for Leave and 48.1% of the vote for Remain.
This is a momentous decision for both the UK and the rest of
the EU. It has come about largely for two main reasons. First,
the sizable disconnect between a frustrated population and the
political establishment. And second, the concern of UK citizens about migration overcame the concern about the economic disruption that a departure could cause. Although the
UK has often had an uncomfortable relationship with the rest
of the EU over the past four decades, it is the large migration
inflows of recent years that appear to have created the momentum for this decision, alongside broader structural economic changes such as stagnant wages and economic inequality.
From a legal point of view, nothing will change until either a
withdrawal agreement is reached using article 50 of the Lisbon Treaty or the UK government takes unilateral action in
repealing specific pieces of legislation. The former would take
several years; the latter could occur more quickly. Although
there is a desire in the Leave camp to do the latter, we believe
it is more likely the UK government would follow a more
acceptable legal route to secession using article 50. This
means that, from a legal point of view, the UK is likely to
remain a member of the EU for several years to come.
Nevertheless, this decision represents a significant economic
and political shock to the UK, and to the rest of the region,
which will be felt immediately. Our baseline assumption is
that this is a regional rather than a global shock. Our analysis
suggests that UK growth will likely be 1%-1.5%-pts lower
over the coming year than it would have been had the UK
remained in the EU, while we expect Euro area growth to be
around 0.5%-pt lower. Importantly, we assume that the financial market response is measured. It is possible, however, that
financial markets act as a significant amplifier, which would
weigh on demand further. Longer-run consequences for economic activity are less clear, and will depend on the outcome
of years of complex negotiations. Most likely, in our view,

they will be negative for the UK relative to the situation of
having remained in the EU.
Equally important are the political consequences of this decision. Prime Minister Cameron has already announced his resignation, and there will now be a leadership contest, with the
new leader of the Conservative party automatically becoming
prime minister. In the rest of the EU, it will create more political stress in the sense that it will energize non-mainstream
political parties. However, we do not expect any further referenda on EU or Euro area membership across the region.
Prepare for a very bumpy ride

Process and politics: Prime Minister Cameron announced his
resignation within hours of the result. He will, of course, remain in office until a successor is chosen, which could take
several weeks. Our expectation is that Boris Johnson will be
elected as the new leader of the Conservative party and will
take over as prime minister. A snap general election is possible, but in our view, unlikely.
Under Conservative party rules for the election of the party
leader, MPs reduce the field of candidates to two through successive rounds of voting, with the candidate with least votes
eliminated in each round. The election between the last two
candidates is via a postal ballot of Conservative party members. If only one candidate stands unopposed, that candidate
becomes the leader of the party. If Boris Johnson is the only
MP to stand, the process could be completed within a matter
of days. If other individuals choose to stand, however, the
process will be more drawn out. In 2005, for example, it took
two months.
The new leader of the Conservative party will automatically
become prime minister. It is possible that the new leader will
want a new mandate from the people. However, under the
Fixed-Term Parliaments Act 2011, the next election should
not take place until 2020. But, according to the Act, a general
election can be held prior to the expiry of the five-year fixed
term if the government loses a confidence vote. Thus, it is
possible for Conservative MPs to trigger a general election by
voting against the government in a confidence vote. However,
we would view this as rather unlikely.
The legal route for a departure from the EU is article 50 of the
Lisbon Treaty, which asserts that any member state may decide to withdraw from the Union in accordance with its own
constitutional requirements. Once the UK has notified the
Council of its intention, the Council will agree on its negotiating position, without the UK being involved in these discussions, and the Commission will then negotiate with the UK in
accordance with the guidelines provided by the Council. Once
13

Malcolm Barr (44-20) 7134-8326
Allan Monks (44-20) 7134-8309
Economic Research
June 24, 2016
David Mackie (44-20) 7134-8325

the UK and the Commission reach a withdrawal agreement, it

then has to be concluded by the Council acting by a qualified
majority after obtaining the consent of the European Parliament.
While much discussion during the campaign has focused on
the future trading relationship between the UK and the rest of
the EU, the withdrawal agreement has to cover many other
things as well, including, inter alia, commitments under the
EU budget, cross-border security arrangements, cooperation
on foreign policy, transfer of regulatory responsibilities,
movement of EU agencies, the legal status of UK citizens
residing in the rest of the EU and vice versa, and fishing
rights. Given that the UK would want the withdrawal agreement to cover its future trading relationship with the rest of
the EU as well, a successful negotiation could take many
years. However, article 50 sets the clock ticking from the
moment that the UK notifies the Council of its intention to
leave. Absent a unanimous vote of all 28 member states to
extend the negotiations, the EU Treaties cease to apply to the
UK after two years even if a withdrawal agreement has not
been reached.
Given this ticking clock in article 50, Vote Leave has argued
that a formal article 50 request to leave the EU should not
be made in the immediate aftermath of the referendum, and
informal negotiations about how the process will evolve
should take place first. There have been suggestions that these
informal negotiations could take several years before article
50 is invoked. However, Vote Leave has also stated that the
UK government will take unilateral action over the next year
to deal with aspects of EU membership they deem unacceptable. They have stated that they will pass a European Union
Law (Emergency Provisions) Bill which will amend the European Communities Act 1972 but will not repeal it. It is far
from clear how this unilateral action fits with the need to sustain a good relationship with the rest of the EU during what is
likely to be many years of complex negotiations.
Vote Leave believes that the UK will get a uniquely preferential trade agreement with the rest of the EU, which will involve full access to the single market for goods and services,
but without contributions to the EU budget and free movement of labor. We think this is unlikely. Although the rest of
the EU has an economic interest in trading with the UK, it
also has a political interest in sticking to the existing framework. Given the reluctance of the UK Leave camp to contribute to the EU budget or to accept free movement of labor, the
UKs new trade relationship with the EU would likely be
more restrictive than Norways or Switzerlands. Negotiations
about trade in financial services are likely to be particularly
difficult. The EU will likely encourage the regional financial
center to relocate from London to somewhere within the Euro
area, reflecting the need for regulatory control and the sectors
high share in value added. If the UK were to take unilateral
action that was perceived as unfriendly, negotiations could get
very difficult, and in the extreme the UK could end up trading
with the EU under WTO rules.
The UK will also have to negotiate new trade agreements with
the rest of the world. At the moment, UK trade with other
countries is governed by over 50 bilateral, free-trade agreements negotiated by the EU. These will cease to apply once
the UKs membership of the EU ends. Commentators generally assume that it takes time to negotiate trade agreements, so
it could easily take more than a decade to replace all of these
agreements. Importantly, third countries are unlikely to want
to agree a bilateral trade deal with the UK until the UKs trade
relationship with the rest of the EU is settled. Until new bilateral deals are agreed, the UK will trade with third countries
under WTO rules once it has left the EU.
There will be other political consequences flowing from the
decision to leave. In particular, the unity of the UK itself is
likely to come under pressure. The SNP is likely to press for
another referendum on Scottish independence before the UK
formally leaves the EU. Although the decision to hold a referendum lies in the hands of the central government in Westminster, denying Scotland another referendum is likely to
cause support for independence to build. In addition, the possible reinstitution of border controls in Ireland would likely
create difficulties in managing relations between north and
south of the border.
Growth: Uncertainty around the UKs future trading relationships, with both the EU and the rest of the world, is likely to
depress firms employment and investment, and limit household spending. We have created a composite indicator of uncertainty and calibrated how uncertainty typically affects the
UK economy. Our judgment is that the uncertainty caused by
this referendum will weigh on growth by over 1%-pt over the
coming quarters, which will push actual growth below 1%
(Table 2 summarizes the range of estimates). Although sterling is likely to fall in value, recent experience suggests that
UK corporates are not well positioned to take advantage of
currency weakness by increasing their investments and building market share. In the meantime, import price increases
would likely be passed through to households, compressing
real income growth. We would expect some of the uncertainty
drags on growth to dissipate as it becomes clear that the terms
of the EU exit will take a number of years to negotiate. Table
1 summarizes the changes to our growth forecasts, while Table 2 summarizes the range of estimates on the short term
impact of the referendum decision on UK growth.
14

Malcolm Barr (44-20) 7134-8326
Allan Monks (44-20) 7134-8309
Economic Research
Global Data Watch
June 24, 2016
David Mackie (44-20) 7134-8325

Table 1: GDP forecasts and UK referendum outturns
Table 3: Studies of impact on UK GDP of EU exit in the medium term
%ch over prior period, annualized
%-pt impact on level of GDP
UK
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
Remain
1.6
1.0
2.5
2.5
2.0
2.0
Leave
1.6
1.0
0.5
0.5
1.0
1.5
Euro area
Remain
Leave
2.2
2.2
1.3
1.3
1.8
1.3
2.0
1.3
1.8
1.3
1.8
1.3
Source: J.P. Morgan
Table 2: Studies of impact on UK GDP of EU exit in the short term

%-pt impact on level of GDP, first column is the implied annual growth impact of
the central case
Implied
annual
impact
Nomura (2016, over 1 yr)
-4.0
HM Treasury (2016, over 2 yrs)
-1.8
Citi (2016, over 3 yrs)
-1.3
HSBC (2016, over 1 yr)
-1.25
Soc. Gnrale (2016, over 5 yrs)
-1.2
Deutsche Bank (2016, over 3 yrs)
-1.0
Morgan Stanley (2016, over 2 yrs)
-1.0
JP Morgan (2016, over 1 yr)
-1.0
PwC/CBI (2016, over 5 yrs)
-0.9
Credit Suisse (2016, over 2 yrs)
-0.8
OECD (2016, over 4 years)
-0.8
IMF (2016, over 2 yrs)
-0.6
Mansfield (2014, over 3-5 yrs)
0.0
Economists for Brexit (2016, over 4 yrs) 0.4
Average
-1.1
Near term (up to 5 yrs)

Worst
Central
Best
case
case
case
-4.0
-6.0
-3.6
-4.0
-1.5
-1.25
-1.0
-8.0
-6.0
-4.0
-3.0
-2.5
-2.0
-1.5
-1.0
-5.5
-4.25
-3.0
-2.0
-1.5
-1.0
-3.3
-5.2
-1.3
-2.6
0.1*
1.1
-4.2
-2.7
-1.6
Source: HM Treasury and stated above. *This refers to the most probable outcome rather than
the average of best and worst case scenarios
The longer-term consequences for economic activity will depend critically on what new trading relationships are established, both with the EU and with the rest of the world. Most
likely, these will be more restrictive than current arrangements, leading to some long-run decline in the level of economic activity relative to the situation of the UK having remained in the EU; Table 3 summarizes the range of published
estimates.
Policy: The Bank of England has argued that the policy consequences of a decision to leave are not clear cut, because
even as growth slows and unemployment rises, the fall in sterling will lift inflation. Nevertheless, we expect the Bank of
England to be very active, initially in providing verbal reassurance that price stability and financial stability will be
maintained and subsequently in delivering actual monetary
easing. Even though the labor market is relatively tight, we
expect the real-economy effects to dominate the Bank of Englands thinking. Thus, we now expect a cumulative 50bp easing by the end of August (our central case is 25bp cuts in July
HM Treasury (WTO, 2016)

Bertelsmann Stiftung** (2015)
HM Treasury (FTA, 2016)
CEP (dynamic, 2014)
OECD (2016)
HM Treasury (EEA, 2016)
PwC/CBI (2016)
Pain & Young (2004)
CEP (static, 2014)
Oxford Economics (2016)
Open Europe (2015)
Institute of Directors (2000)
Minford & Mahambre (2005)
Economists for Brexit (2016)
Civitas (2004)
Tim Congdon (UKIP, 2015)
Average
Medium term (beyond 5 yrs)

Worst case
Central case
Best case
-9.5
-7.5
-5.4
-14.0
-7.3
-0.6
-7.8
-6.2
-4.6
-9.5
-5.85
-2.2
-7.7
-5.1
-2.7
-4.3
-3.8
-3.4
-3.5
-2.35
-1.2
-2.25
-3.1
-2.1
-1.1
-4.0
-2.05
-0.1
-2.2
-0.3
1.6
1.75
3.2
3.5
3.7
4.0
1.5
4.0*
5.2
12.0
-5.1
-1.2
-0.9
Sources: HM Treasury and stated above, *This refers to the most probable outcome rather than
the average of best and worse case scenarios, **These estimates refer to GDP per capita
and August). The speed and magnitude of the MPC response

will be sensitive to moves in financial markets. More disruptive broad-based developments in asset markets would likely
prompt earlier easing. If the currency is the only asset price
moving, the MPC could delay the easing. It is possible that
the currency falls by enough to prevent monetary easing altogether, but the decline would have to be more than 30% in our
view. The Bank of England has already planned emergency
liquidity auctions and will stand ready to provide more if
needed.
Euro area: A meaningful but manageable

shock
Growth: The impact on growth will come from the spillovers
from the uncertainty effect in the UK, and the hit to Euro area
confidence and financial markets. In our view, Euro area
growth will be around 0.5%-pt lower than it otherwise would
have been over the coming year. Unemployment will still
probably decline, although at a much-reduced pace. Inflation
is likely to be slightly lower, perhaps by around 0.1%-pt. A
key uncertainty is the extent to which financial markets amplify the fundamental shock from greater uncertainty.
Policy: The ECB has already expressed its commitment to
ensure price and financial stability in the region, which necessitates a commitment to the integrity of the region. The ECBs
actual policy response to this shock will depend on the extent
of the impact on growth and inflation, and on the extent to
which financial market stress looks likely to weigh further on
spending and increase sovereign and bank funding costs.
15

Malcolm Barr (44-20) 7134-8326
Allan Monks (44-20) 7134-8309
Economic Research
June 24, 2016
David Mackie (44-20) 7134-8325

We now expect more easing on rates and the balance sheet.

Our forecast already anticipated further easing in September,
in the form of an extension of the current asset purchase program through end-2017 (an increase in asset purchases worth
720bn). We now expect additional easing involving a 10bp
cut in the deposit rate (to -50bp) in September and a further
extension of asset purchases into 2018 (adding a further
480bn in asset purchases) to be announced next June. These
moves could come more quickly if financial markets put the
ECB under a lot of pressure. If peripheral financial market
pressure is intense enough to threaten the integrity of the region, the ECB could introduce a new instrument to limit contagion. This could involve country-specific bond market intervention (like the OMT) but without conditionality. In our
view, the ECB would rather introduce a new instrument to
limit peripheral stress than divert purchases from the existing
asset purchase program. Regarding potential bank funding
pressure, banks already have access to unlimited liquidity in
the weekly and three-monthly operations. If needed, the ECB
could adjust the timing of these operations.
Politics: The rest of the EU is torn between fear and fantasy:
Fear that a UK exit will lead the region to unravel, and fantasy
that without the UK the Euro area can take a leap forward in
terms of integration. Neither of these extremes seems very
likely. Non-mainstream political parties that are hostile to the
EU have been energized by a UK vote to leave, but no other
country in the EU looks likely to call a referendum on EU or
Euro area membership. And, in our view, it is not the UK that
has held back the Euro area from further integration; it is domestic politics in the member states. We expect EU politicians to express strong commitments to the integrity of the
EU, but we do not expect any concrete action to integrate further. Such steps likely need to wait at least until after the
German and French elections next year.
of integration, and (c) lean toward institution-building on an

intergovernmental basis where possible, rather than passing
more powers to the Commission and Parliament. The result is
that designs for further institutional change (such as the 5
Presidents Report) lack detail and do not pursue an ambitious timetable. The UKs vote may generate more reflection
on these issues, but it is difficult to visualize a different approach emerging.
Spillovers elsewhere
A UK decision to exit the EU would also be a meaningful
shock to the rest of Western EuropeSweden, Switzerland,
Denmark, and Norway. These countries are very sensitive to
upward pressure on their currencies, and they would respond
either to sustain the current peg in Denmark or to limit appreciation in Sweden and Switzerland. Depending on the extent
of the pressure, these countries could see some combination
of rate cuts, asset purchases, and FX intervention. Limits on
rate cuts or asset purchases due to concern about pressure on
bank profitability or market liquidity are not as relevant as
elsewhere. In Norway, the central bank could act to counteract
a tightening of financial conditions.
There will be other political consequences of the UKs departure. The EU will lose a large member state inclined to an
economically-liberal, market-friendly, free-trade approach.
Without the UK, the EU risks emphasizing solutions that involve greater centralization, protectionism, and harmonization. The UKs departure is also likely to change the balance
of power between the Euro-ins and Euro-outs. The Euro-outs
will lose a sizable ally.
We note the UKs referendum has provided a vivid demonstration to politicians in the EU of something they already
knewthat the legitimacy and popularity of the EU project is
not at all secure in the eyes of voters. Although the intensity
of the UK debate is not shared universally, many of its themes
echo around the region. To date, the reaction to this challenge
has been for European leaders to (a) avoid referenda on EUrelated issues, (b) recognize the political limits to further steps
16

Jesse Edgerton (1-212) 834-9543
jesse.edgerton@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
Daniel Silver (1-212) 622-6039

daniel.a.silver@jpmorgan.com

We rank economic indicators by the accuracy of their
first prints in predicting their final prints
Some of the most reliable first prints are for the consumer and business surveys, auto sales, and payrolls
Some of the least reliable first prints are for construction spending, new home sales, and durable goods
However, even the less reliable first prints still add to
our knowledge about the state of the economy
We forecast and track a wide variety of economic indicators,
many of which are subject to substantial revisions in the
months and years after they are first reported. Many reports
are subject to revision in the first months after the initial release as additional respondents complete the survey forms.
Many reports are also revised years later when seasonal adjustments are recalculated or when results are benchmarked to
more accurate surveys that are conducted less frequently.
In this note, we quantify the implications of these revisions for the
accuracy of the initial first print reports. We find considerable
variation across indicators in the magnitude of revisions. Some
indicators, like surveys of business and consumer sentiment, revise
very little, if at all. And some "hard data" are revised more than
others. For example, the first prints of auto sales and payrolls are
considerably more reliable than the first prints of construction
spending, new home sales, and durable goods. However, we note
that even the less reliable first prints generally still add to our
knowledge of the state of the economy when they are released, in
the sense that they still contribute modestly to the forecasting power of a model incorporating all of the available data.
First times the charm

Table 1 contains information about the first prints of a variety
of major data releases from 2006 to 2012. We begin the sample in 2006, because we have first print data available for a
large number of series beginning then. And we end in 2012
because data from 2013 and later are more likely to be subject
to additional annual and benchmark revisions.
The first column of results in the table contains the root-meansquared error (RMSE) of the Bloomberg consensus forecast in
predicting the first print of the data, with each release measured
in the units reported by Bloomberg. These should be useful as a
reference in interpreting the magnitude of data surprises. For
example, for nonfarm payrolls, the table shows that the typical
miss for the consensus forecast has been around 65,000 jobs.
Table 1: Errors of first print data in predicting final prints

Indicator
Auto sales
Business inventories
Capacity utilization
Chicago PMI
Conference Board confidence
Construction spending
Consumer credit
Durable goods orders
Empire State manufacturing
Existing home sales
Factory orders
Housing permits
Housing starts
ISM manufacturing
Michigan sentiment
NAHB sentiment
New home sales
Nonfarm payrolls
Pending home sales
Personal consumption
Personal income
Philly Fed manufacturing
Retail sales
Richmond Fed manufacturing
Unemployment rate
Wholesale inventories
Units
Consensus RMSE for

1st print
1st print
RMSE for
final print
000000s
%chg
index
index
index
%chg
%chg
%chg
index
000000s
%chg
000s
000s
%chg
index
index
index
000s
000s
%chg
%chg
%chg
index
%chg
index
%
%chg
0.49
0.21
0.4
3.9
5.1
0.87
6.60
2.47
9.5
0.22
0.75
50
69
0.45
1.9
1.4
2.3
47
65
4.83
0.14
0.35
9.8
0.54
8.7
0.17
0.56
0.21
0.25
1.4
2.0
1.6
1.14
6.50
2.80
3.2
0.64
1.47
32
26
0.42
1.1
0.0
0.5
44
97
3.35
0.21
0.54
3.9
0.46
7.9
0.09
0.32
Source: Bloomberg, J.P. Morgan. Sample is 2006-2012.
The last column in Table 1 returns to the focus of this note by

showing the RMSE of the first print for each release in predicting its final print, which we measure as the currently
available value of the data (although some of the data may, in
fact, still be subject to further revisions). The table shows, for
example, that the typical revision to payrolls between its first
print and its final revision several years later has been about
97,000 jobs. Some other notable releases include construction
spending, with a typical revision of 1.1%-pts, durable goods
orders (2.8%-pts), and retail sales (0.5%-pts). Many of the sentiment indexes revise very little, as the seasonal factors are usually the only source of revisions. For example, typical revisions
to the level of the Philly Fed and Empire State manufacturing
indexes are 3.9 and 3.2 points. The Michigan index of consumer sentiment (measured here using the "final" print, as opposed
to the preliminary) does not revise at all after it is released.
We next attempt to put the indicators on a comparable basis
by converting them all into "growth" terms where necessary.
Many of the indicators, like retail sales or durable goods orders, are already reported in terms of percentage changes in
Table 1. But some others are reported in levels (auto sales,
17

Economic Research

June 24, 2016
home sales) or changes (payrolls). We thus convert these into

percentage changes to make them comparable to the other
indicators. For some remaining indicators, it is less obvious
how they should be converted. We use changes in the unemployment rate and capacity utilization, as opposed to percentage changes, although this makes little difference to our results. For the business sentiment indexes, we view their levels
as roughly representative of growth rates in underlying activity, as the indexes are based on the fractions of businesses reporting increases in activity. The consumer and homebuilder
indexes, however, seem closer to capturing levels of activity,
so we convert them into changes. But again, this choice
makes little difference for results, as these indexes are subject
to only small revisions, no matter how you slice them.
Everybody puts their foot down
Figure 1: Predictive power of first prints for final prints

R2 of first print in predicting final print, 2006-2012
0%
20%
40%
60%
80%
100%
New home sales
Personal income
Consumer credit
Pending home sales
Durable goods orders
Richmond Fed manufacturing
Factory orders
Existing home sales
Consumption spending
Unemployment rate
Housing starts
Retail sales
Housing permits
Wholesale inventories
Business inventories
Nonfarm payrolls
Auto sales
Chicago PMI
Philly Fed manufacturing
Conference Board confidence
Empire State manufacturing
ISM manufacturing
NAHB sentiment
Michigan sentiment
Source: J.P. Morgan. All indicators measured with transformation that corresponds to growth.
Figure 1 reports the fraction of the variation in the final print of

each transformed indicator that is explained by the first print (the
R2). There is considerable variation across indicators. The construction spending report stands out as the least reliable, with the
first print explaining less than 20% of the variation in final prints.
New home sales is next worst at about 50%. Some other less reliable first prints include personal income, consumer credit, pending
home sales, and durable goods. Meanwhile, many of the business
and consumer sentiment measures, which we have noted are generally subject only to seasonal revisions, have R2s well above 90%.
Some of the best hard data releases are auto sales, payrolls, and
housing permits, with R2s near 90%. Some other major releases
like personal consumption, industrial production, housing starts,
and retail sales are in the middle of the pack at 70-80%.
So how should we interpret these results? Should we ignore

the releases with low R2s in Figure 1? To answer this question, we experimented with measuring the incremental forecasting power of the first print of each release for broader
measures of activity. Specifically, we set up models for forecasting the final print of payrolls or broader monthly activity
measures like the Chicago Fed National Activity Index
(CFNAI). Then we added the first prints of each of our indicators to the models one at a time in the order that they would
normally be received in real time, measuring the increase in
the model's forecasting power after adding each indicator.
The first prints of most indicators make incremental contributions to our forecasting power for these broader measures of
activity (Figure 2). And the incremental contributions were not
especially highly correlated with the R2s in Figure 1. These
results suggest that the first prints all of the indicators discussed
in this note provide at least some useful information about the
current state of the economy, even if they will be revised at a
later date. In general, we find that the largest incremental improvement for these forecasting models tended to come from
variables that are directly linked to the dependent variable in
question, and the magnitude of the contributions from some
other variables were mixed, but generally more modest.
Thus it seems that we should not go so far as to ignore any of
the indicators, even if the accuracy of their first prints is low.
And neither should we expect a few indicators to work as
"magic bullets" that are far better than others. Rather, we
should incorporate all of the data into our overall view of economic conditions, a conclusion that will likely come as no
surprise to long-time data watchers.
Figure 2: R2 in forecasting final prints with first prints
R2, incorporating all information available through each release
1.0
Payroll forecast
Chicago Fed NAI forecast
0.9
0.8
0.7
Auto
sales
(m1)
IP (m1)
Durables
(m1)
Auto
sales
(m2)
IP (m2)
Durables
(m2)
Typical progression of data releases over 2 months (not all reports labelled)
Source: J.P. Morgan
We thank Natalie Kozlova, an intern on our team, for assistance with this report.
18

Greg Fuzesi (44-20) 7134-8310
greg.x.fuzesi@jpmorgan.com
Economic Research
Global Data Watch
to preserve price stability, while the immediate aim is to safeguard an appropriate monetary policy transmission and the
singleness of monetary policy across the region. But, this
involves purchases of government bonds in Euro area countries experiencing difficulty, that are in ESM adjustment programs, and whose yields have been pushed to high levels by
increased risk premia. In addition, the ECB set no ex ante
limit on the scale of any purchases and accepted the same
(pari passu) treatment as private investors should there be a
restructuring of the bonds.

German Court openly criticizes ECJ for its ruling on
OMT, but accepts that OMT is legal
German Court imposes modest conditions on OMT
Its ruling nevertheless gives ECB broad discretion in
designing and employing its monetary policy tools
This makes it easier for ECB to adjust QE to deal with
any constraints and to design new tools
Almost four years after its launch, the German Federal Constitutional Court (GFCC) has decided that the ECBs OMT is
legal, rejecting numerous legal challenges made in Germany
against the program. It did however impose some (modest)
conditions on any implementation of OMT and has tasked
both the Bundesbank and the Bundestag to closely monitor
whether these conditions are being met, including any
costs/risks to the German budget. It also took a swipe at the
European Court of Justice (ECJ), arguing that the ECJs reasoning fell short in a number of areas. Clearly, the GFCC remains skeptical about OMT and retains for itself a broad role
in assessing the legality of the ECBs monetary policy.
Nevertheless, we think this weeks ruling is a big positive for
the ECB as the GFCC has grudgingly accepted the broad
discretion given by the ECJ to the ECB in the area of monetary policy. Hence, even though legal challenges to ECB policy actions will continue to be made in Germany, their chance
of success has been reduced. In our view, it is also likely that
the ECB now has greater freedom to address any limitations
in its QE program by altering some of the constraints currently built into its design.
Four years of back and forth: A review

One of the main legal questions regarding OMT is whether it
goes beyond the ECBs remit in the area of monetary policy
by straying into the area of economic policy, which includes
fiscal policy, industrial policy, etc. The Treaty on the Functioning of the EU (TFEU) leaves responsibility for economic
policy with governments (and in some cases the European
Union), while the ECB has only a supporting function. In addition, there is a separate legal question that is more specific
to Germany, namely whether the ECBs actions are violating
the democratic identity of the German Bundestag, including
its ability to control Germanys budgetary position.
Against this backdrop, it is easy to see OMT raising legal
questions. According to the ECB, the ultimate aim of OMT is
June 24, 2016
In its initial opinion in February 2014, the GFCC raised numerous objections to OMT. It questioned whether OMT was
really aimed at maintaining price stability, despite the ECBs
claim. It suspected that the real aim was to prevent a breakup
of EMU, even though decisions about EMU membership are
for governments to make. It also argued that targeted purchases of bonds of a country in an adjustment program and whose
creditworthiness is being questioned by financial markets is
functionally equivalent to economic assistance. This is because the aim is to reduce bond yields, which helps with the
countrys financing. In the GFCCs initial view, this violates
the prohibition on monetary financing, also because the
ECBs pari passu status indicates preparedness to participate
in a debt restructuring, no minimum rating threshold was set
for the purchases, the bonds are held to maturity, and no exclusion period was set around primary issuance.
While the GFCC made its own view very clear, it still referred
the case to the ECJ. In June 2015, the ECJ rejected the objections and ruled that OMT was fully compatible with the
TFEU. The ECJs arguments were in three parts:
ECJ: OMT is monetary policy. The ECJ took the ECBs
word about the objective of OMT, without questioning it. In
fact, it even argued that it was important for the ECB to fix
any impairment to the transmission mechanism, as otherwise it would not have the tools to maintain price stability.
And as monetary policy needed to be effective across the
region, targeted purchases were allowed to tackle localized
impairments, even if this had some side-effects.
ECJ: OMT is proportionate. Even if a chosen policy tool
falls within the area of monetary policy, the ECJ ruled that
its use must be necessary and proportionate to the problem.
But, due to the technical nature of monetary policy, it
was willing to trust the ECBs assessment of this. In doing
so, it turned many of the GFCCs arguments upside down,
arguing that features of OMT that the GFCC had concerns
over were actually enhancing OMTs effectiveness.
ECJ: OMT is not monetary financing. The GFCC worried that any reduction in bond yields could reduce the
pressure on a government to make required adjustments.
But, the ECJ was more tolerant of side-effects, as long as
19

Greg Fuzesi (44-20) 7134-8310
Economic Research
June 24, 2016
the ECB did not implicitly commit to buy a countrys bonds

with certainty. In its view, this condition was met as the
ECB would terminate OMT once the monetary policy objective had been achieved and as it would, for example, buy
only a subset of bonds (with maturities of 1-3 years).
GFCC made the most of a difficult situation

The ECJ put the GFCC in a difficult position, also because its
Advocate General had criticized the GFCC for creating a possible conflict between EU and national law. Importantly, the
GFCC backed down and declared OMT legal. Its reasoning
also made sensible shifts in some areas. For example, it accepted that being in an ESM adjustment program, which is a
precondition for the activation of OMT, can pressure a government to make the necessary adjustment, thereby reducing
the importance of high market rates to do so.
Nevertheless for OMT to be legal and for the Bundesbank to
be able to participate, the GFCC requires a number of conditions to be met (in addition to there being an ESM adjustment
program). First, the purchases are not announced before they
are made. Second, the volume of purchases is limited ex ante.
Third, a minimum period between bond issuance in the primary market and ECB purchases in the secondary market is respected. Fourth, the ECB can only buy bonds of countries that
have market access. Fifth, purchased bonds can be held to
maturity only in exceptional circumstances. Finally, when
intervention under OMT is no longer necessary, new purchases must cease and bonds already bought must be remarketed.
Some of these conditions may sound worse than they are. For
example, the GFCC thinks that the ECB should aim to sell
bonds before maturity and once the program ends, but does
not define what exceptional circumstances are or how
quickly any bond holdings should be sold. Similarly, even
though the ECB has presented OMT to markets as being unlimited, it has noted as well that there are limits due to finite
market size and because any purchases are restricted to maturities of 1-3 years. The ECB may simply need to be clearer
about such implicit size limits when addressing markets.
We think it is worth comparing the conditions imposed by the
GFCC to those it considered in its earlier opinion two and a half
years ago. It no longer wants the ECB to exclude a debt cut,
hence it likely accepts that the ECB can be pari passu as long as
it does not vote in favor of any debt restructuring. The GFCC is
no longer suggesting that the size of any OMT intervention
should not thwart the size of any ESM assistance. The GFCC is
now allowing bonds to be held to maturity, at least in exceptional circumstances. And, by accepting OMT, it implicitly takes a
more lenient view of issues such as the selectivity of purchases
(i.e., buying only in some countries) and the riskiness of the purchased bonds (i.e., not requiring a minimum credit rating).
A dig at the ECJ

In effect, the GFCC seized on those constraints already built
into OMT that were mentioned by the ECJ in its legal reasoning, elevating them to legal requirements. It is unclear whether the ECJ is entirely happy about this. Even more strikingly,
the GFCC openly criticized the ECJ for its ruling. It clearly
was frustrated that the ECJ simply took the ECBs word about
the objective it is pursuing with OMT without making any
real attempt to question it. We have some sympathy with the
GFCCs frustration on this, although its ruling suggests that it
has grudgingly accepted that broad discretion should be
given to the ECB. The GFCC also was frustrated that the ECJ
did not comment at all on the question of whether OMT goes
beyond the mandate that was democratically transferred to the
ECB. This relates to the question often posed by German critics of the ECB about redistribution of risks/losses via the
ECBs balance sheet, beyond what countries had agreed to at
the launch of EMU.
Where does this leave QE and other tools?

Overall, the GFCCs ruling is very important, because it gives
the ECB a lot of freedom to design and use its policy tools.
Implicitly, the GFCC has accepted the ECJs primacy in reviewing ECB policy actions, despite frustration that the ECJ
essentially trusts the ECB to control itself.
In terms of QE, financial markets have worried that the ECB
will run into constraints and fall short of the intended purchase volume. But, in light of the ECJ ruling, we see scope
for the ECB to move away from the capital key and the deposit rate floor. As long as it has made a reasonable attempt to
comply with these self-imposed rules, we doubt that the ECJ
would block any reasonable changes. For example, if the ECB
can no longer make purchases in Germany due to the issue/issuer limits, we think it would be possible to reallocate
those purchases to other countries in a systematic way. Similarly, the deposit rate floor could be removed, given that the
income flows and any profit/losses are determined by much
more complex factors than the level of yields at the time of
purchase. Issue/issuer limits are likely to be much firmer legal
requirements, though.
Finally, we still see scope for the ECB to launch an anticontagion program that allows selective bond purchases without ESM conditionality. But, for this, the spikes in yields
would clearly need to originate from outside the affected
country and would need to be significant. But, based on this
weeks ruling, from a legal point of view, we think it could be
justified.
20
J.P. Morgan Securities LLC

Ben Ramsey (1-212) 834-4308
benjamin.h.ramsey@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
Katherine V Marney (1-212) 834-2285

katherine.v.marney@jpmorgan.com
The strong tailwind from oil, vanished
Colombia: Taking stock of

troublesome twin deficits
Helped by a near doubling of oil production volumes in the

second half of the last decade, Colombia caught a dramatic
tailwind during the period of high prices. Oil exports grew to
more than half of Colombias total exports, while investment
in the sector boosted overall FDI inflows. Meanwhile, the oilrelated fiscal intake reached 3.4% of GDP, and 20% of the
central governments revenues, by 2013, while royalties from
the sector flooded municipal government coffers. Colombia
ran twin deficits during the boom years: a CAD around 3% of
GDP, and a 1.7% central government fiscal deficit. However,
FDI more than financed the CAD, while primary surpluses at
the consolidated government level, a strong peso, and high
growth (4.3% on average, including 2009) reduced the countrys and the governments respective debt burdens. The nonfinancial public sector debt stood at 32% of GDP in 2012,
down 9%-pts from 2005, while the countrys external debt
dropped from 40% of GDP in 2003 to 21% by 2012.
The terms of trade shock has widened Colombias twin

deficits to uncomfortable levels
The current account is adjusting, but the deficit remains
high at 5.6% of GDP
Getting fiscal accounts on track requires tough tightening, which politically may depend on the peace outcome
Financing deficits has been manageable but increasingly
depends on friendly markets
Colombia has been hit hard by the oil price shock since mid2014, in both its external and fiscal accounts. Compared to
oil-exposed regional peers (Venezuela and Ecuador in particular), Colombias macroeconomic framework, governed by a
Fiscal Rule and a credible inflation-targeting regime, has allowed the country to weather the steep, over-20% terms-oftrade plunge in a relatively orderly fashion. The exchange rate
has adjusted sharply, leading to passthrough to inflation and
forcing a monetary tightening cycle, but capital inflows and a
modest fiscal expansion have cushioned growth, which has
slowed gradually and smoothly to 3.1% in 2015, and an expected 2.1% in 2016. Nonetheless, the flip side of gradualism
has been widening current account and fiscal deficits, to levels that raise sustainability concerns.
This week we received new information on both the fiscal and
the balance of payments fronts that allows us to take stock of
the situation. On the external side, where concerns have been
more acute given the wide 6.4% of GDP current account deficit (CAD) in 2015, the first quarter marked a somewhat faster
adjustment than expected. Signs of adjustment, accompanied
by a more dovish Fed, should diminish fears about external
sustainability, minimizing hard-landing risks. On the fiscal
front, the government has produced its annual medium-term
fiscal plan (the so-called Marco Fiscal). The report paints a
picture of slow but sure belt-tightening to adjust to the revenue shock, but with remaining heavy liftingparticularly, a
politically challenging fiscal reform by year-endneeded to
stabilize debt dynamics and reassure rating agencies. The
gradual correction of twin deficits implies headwinds to
growth (we see below-potential 3.0% growth next year), but
as long as market confidence is maintained, hard-landing scenarios should be avoided. The tax reform appears to be the
biggest test on the horizon, as a suboptimal reform or a delay
could lead to downgrades, calling into question Colombias
ability to finance the twin gaps.
A wide, but narrowing current account gap

Colombias current account deficit narrowed in 1Q15. In
nominal terms the CAD was US$3.38bn, the lowest figure
since 4Q13. BanRep estimates this figure as equivalent to
5.6% of GDP, down from 6.4% in 2015, and below its own
5.9% forecast for 2016. We now foresee the CAD finishing
2016 at US$15bn, or 5.5% of full-year GDP (Table 1).
Table 1: Colombias balance of payments
US$bn
Current Account
% of GDP
Goods and services
Goods
Exports
o/w oil
Imports
Services
Income
Transfers
Financial Account
FDI
Inflows
Outflows
Portfolio investment
Inflows
Outflows
Loans and other (net)
Errors and omissions
Change in reserve assets
Memo: Brent (avg)
2014
-19.5
-5.2
-11.3
-4.6
56.9
28.9
61.5
-6.7
-12.5
4.4
24.3
12.4
16.3
3.9
11.7
18.7
7.0
0.2
-0.3
4.4
1Q15
-5.2
-7.0
-4.6
-3.4
10.1
4.0
13.5
-1.1
-1.8
1.2
5.4
2.9
3.2
0.2
0.7
4.1
3.4
1.7
-0.1
0.1
2015
-18.8
-6.4
-18.1
-13.9
38.1
14.2
52.0
-4.1
-5.8
5.1
19.4
7.7
11.9
4.2
9.5
9.8
0.3
2.1
-0.2
0.4
1Q16
-3.4
-5.6
-3.7
-3.1
7.1
1.9
10.2
-0.6
-1.0
1.3
3.3
3.6
4.6
1.0
1.8
2.2
0.4
-2.1
0.1
0.1
2016f
-15.0
-5.5
-15.1
-11.6
31.0
10.6
42.6
-3.5
-5.0
5.1
15.0
7.0
10.0
3.0
7.0
8.5
1.5
1.0
0.0
0.0
98.9
55.1
53.7
34.4
46.4
Source: BanRep and J.P. Morgan
21

Ben Ramsey (1-212) 834-4308
Economic Research
Colombia
June 24, 2016

The trade deficit is narrowing, but very slowly. Exports are

struggling as oil output wanes and weak foreign demand is
undermining the exports gains from exchange rate depreciation. The merchandise trade deficit was 5.1% of quarterly
GDP in 1Q, up from 4.8% in 2015. Exports continued to fall,
plunging 30%oya in 1Q, dragged by oil (down 51%oya).
While exports should recover somewhat on higher oil prices
and as currency depreciation eventually at least halts the decline of non-commodity exports, lower oil production and
exports will mute the recovery. Imports declined visibly, falling 25%oya and 19%q/q, but remain somewhat resilient (especially in volume terms), suggesting the trade deficit will
remain stubborn for the rest of the year.
Nonetheless, the other components of the current account
remain supportive. The services deficit is capturing more of
the real exchange rate depreciation, dipping to 0.9% of GDP,
the lowest quarterly deficit since 1Q06, as imports of services
fall while service exports are more stable. The service deficit
is down from 1.4% in 2015. Lower remittances of oil/mining
firms dwindling profits have shrunk the income deficit to
1.7% of GDP in 1Q (from 2% in 2015). Inflows from workers
remittances, for their part, remained solid at 2.2% of GDP in
1Q, up from 1.8% of GDP in 2015 (Figure 1).
Figure 1: Trade deficit partially offset by service, income balance
$bn, 4Q sum
10
5
Transfers
-5
-15
-20
Source: BanRep
Services
Income
Goods
08
Figure 2: FDI slowing; portfolio flows more relevant to finance CAD

$bn, 4Q sum
20
Net FDI
15
10
5
Net portfolio
0
-5
Source: BanRep
08
10
12
14
16
Net portfolio inflows were US$1.8bn (3% of GDP) in 1Q.

Inflows stood at US$2.2bn, including US$1.4bn from the Republics external bond issuance, US$0.3bn foreign purchases
of local-currency Treasury debt, and US$0.5bn equity inflows. We project US$8.5bn (3.1% of GDP) net portfolio inflows in 2016, supported in part by issuance to fund the governments highway infrastructure agenda. Overall, since 2014
the financing of the CAD has relied increasingly on loans and
portfolio flows (Figure 3).
Figure 3: External financing of the growing current account deficit
-10
and only US$1.8bn per quarter on average in the balance of

2016. Colombian direct investment abroad was US$1.0bn in
1Q, and we project US$3.0bn for the full year, leaving net
direct investment inflows at US$7.0bn.
10
12
14
16
External financing solid, if less ample

The financial account surplus was solid in 1Q, mirroring the
CAD as BanRep did not intervene in this period. FDI inflows
are waning overall, leaving Colombia more dependent on
portfolio flows to fund the current account deficit (Figure 2).
FDI inflows jumped to US$4.6bn (+45%oya) in 1Q, but
boosted by a US$2.4bn privatization in the electricity sector
(note the cash stayed offshore up to March). Absent that credit, inward FDI fell 32%oya. FDI in the oil sector plunged
75%oya to just US$0.26bn, while flows to the mining sector
(including coal) also were subdued, at $0.04bn. Excluding
oil/mining and the one-off inflow in the electricity sector, the
remaining sectors saw a 13.3% increase in FDI inflows. We
conservatively project only US$10bn (3.7% of GDP) of inward FDI this yeardown from almost US$12bn last year,
% of GDP
50
45
40
35
30
25
20
15
10
5
0
07
08
Govt external
debt (bonds +
loans)
Private loans
Equity holdings
Pvt external debt
09
10
11
12
13
14
15
16
Source: BanRep's NIIP series
All told, the current account deficit remains wide, but a gradual correction is underway. Portfolio financing is more important, but for now Colombia has ample access to international markets, as well as support from multilaterals. That
said, markets may lose patience with Colombia, especially if
poor management of the fiscal accounts leads to downward
ratings pressure. Notably, S&P put a negative outlook on its
BBB rating for Colombia earlier this year, with focus squarely
on the governments pledge to deliver revenue-enhancing
structural fiscal reform to stabilize debt and aid in dampening
the CAD. Leading us to the fiscal side
22

Ben Ramsey (1-212) 834-4308
Economic Research
Global Data Watch
June 24, 2016

Fiscal Plan admits some

acknowledges challenges
slippage,
The main news in the release of the Fiscal Plan (Marco Fiscal) was the governments acknowledgment that it would
miss its fiscal target this year and the upward adjustment of
next years target, taking advantage of the space afforded by
Colombias Fiscal Rule. The 2016 central government fiscal
deficit is now seen at 3.9% of GDP, up from 3.6%; for 2017
the deficit is projected at 3.3% of GDP, up from 3.1% originally planned in last years Marco Fiscal.
The government passed on an opportunity to recognize fiscal
slippage last year when the lower oil price and growth outlook
(vis--vis the 2015 Plan) implied clear downside risks for the
3.6% deficit target. Indeed, the Fiscal Rulewhich targets a
structural deficit based on long-term growth and oil
price/output parametersallows an additional cyclical deficit. This means Colombia can run a higher overall fiscal deficit in 2016 due to low oil prices, low oil output and weak
GDP growth and still comply with the Rule (Table 2).
Table 2: Colombia's central government accounts (% of GDP)
Total revenue
Oil-related
Non-oil
Total Expenditure
Current
Investment
Other
Balance (total)
Primary balance
Fiscal Rule accounting
Structural Revenues
Non-energy
Energy
Cyclical Revenues
Tax (ex-oil and mining)
Energy
Structural balance
Cyclical balance
'12
16.1
2.7
13.4
18.4
15.1
2.8
0.5
-2.3
0.1
'13
16.9
3.4
13.5
19.3
15.9
3.2
0.2
-2.4
-0.1
'14
16.7
2.6
14.1
19.1
16.1
3.0
0.0
-2.4
-0.2
'15
16.1
1.1
15.0
19.2
16.1
3.1
0.0
-3.0
-0.5
'16e
15.0
-0.1
15.1
19.0
17.0
1.9
0.0
-3.9
-0.7
'17f
14.8
0.0
14.9
18.2
17.0
1.1
0.0
-3.3
-0.1
16.0
13.4
2.7
0.1
0.0
0.1
-2.4
0.1
17.0
13.8
3.2
0.0
-0.1
0.1
-2.3
0.0
16.8
14.8
2.0
-0.1
-0.1
0.0
-2.3
-0.1
16.9
15.3
1.6
-0.8
-0.3
-0.5
-2.2
-0.8
16.8
15.3
1.5
-1.8
-0.4
-1.4
-2.1
-1.8
16.1
n/a
n/a
-1.3
n/a
n/a
-2.0
-1.3
Source: Finance Ministry
Nonetheless, in recognition of perceived market constraints,

the government hadup until nowdrawn a line in the sand
on the 3.6% of GDP deficit target, pledging throughout this
year to enact spending cuts if necessary to achieve the target.
Implicitly, the government had committed to outperform the
Fiscal Rule and forego the additional cyclical space afforded
by lower realized growth and oil prices.
In the new Marco Fiscal, the government finally took advantage of some of the cyclical deficit allowed by the rule to
revise up the 2016 and 2017 deficit targetsat the risk of
raising market concerns over the slippage.
Despite these revisions, the government now explicitly plans

to outperform the Fiscal Rule in 2017 and 2018. As such,
the authorities will not take advantage of the full cyclical deficit allowance implied by the forecast of growth below potential (3.3% expected on average, versus potential at 3.8%) and
oil below the committee-defined long-term price ($45/bbl
on average assumed, versus $71/bbl average LT price relevant
for those years). The document clarifies that the Fiscal Rule
committee is mandating the outperformance as it doesnt feel
the full utilization of the hypothetical cyclical space is consistent with the economic reality, in particular the external
imbalance and the goal of public debt sustainability and financing at competitive rates. Figure 4 portrays the structural
balance path consistent with the long-term growth and oil
assumptions, and the headline balance path (structural plus
cyclical balance) consistent with the governments current
oil/GDP forecasts, adjusted lower by the outperformance.
Figure 4: The government says it will "outperform" the rule in 2017-18
% of GDP
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
-4.0
-4.5
Structural balance path
-2.7
Official target
-3.3
-3.9
Permitted by rule
13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
The implicit carrot/stick of the tax reform

The government has yet to fully replace lost oil-related fiscal
revenues, which fell from 3.4% of GDP in 2013 to basically
nil in 2016 and 2017. In fact the government is required to
reimburse the oil sector 0.2% of GDP in overpayments, which
likely was the key factor leading to the decision to concede a
higher deficit this year. Of this 3.4% of GDP in lost revenue,
the government is quick to point out that it has taken a balanced approach to apportioning the pain, with 1.6% of GDP
in higher non-oil taxes (mainly via a 2014 reform), 1.1% of
GDP in spending cuts (versus original budget plans), and now
a 1.6% of GDP increase in the deficit. Although primary expenditure has indeed been reduced substantially, with capital
expenditure seen down by 1.1%-pts from 2015, higher interest
burdens have kept overall spending above 19% of GDP, similar to 2013 levels (Table 2).
Despite intensifying market and rating agency focus on a
structural tax reform that the government has committed to
send to Congress this year, the Marco Fiscal assumes no additional revenue from tax reform in 2017. At first glance this
is a surprising result. Indeed, the central governments total
23

Ben Ramsey (1-212) 834-4308
Economic Research
Colombia
June 24, 2016

revenues are projected at only 14.8% of GDP, the lowest

since 2010. Rather, the deficit reduction from 3.9% of GDP
this year to 3.3% in 2017 reflects an additional 0.8%-pt of
GDP in spending cuts, borne entirely by investment spending,
which is down to 1.1% of GDPthe lowest since 2004.
However, the Plan is clear that there are unidentified revenues
that must be forthcoming starting in 2018 in order to comply
with the guidelines of the Fiscal Rule. These missing revenues
are quantified as 1.1% of GDP in 2018; 1.5% in 2019; 1.9%
by 2020; eventually reaching 2.4% by 2022 (Figure 5). The
document goes on to say that these revenues could be obtained by a structural tax reform that is expected to be submitted to the Congress in the second half of the year.
Figure 5: Expected path of central gov't revenues and expenditures
% of GDP
20
Expenditure
18
Unidentified
Revenues
16
Revenues
2.4%
14
12
10
12
14
16
18
20
22
24
26
So is the government throwing in the towel on a 2016 tax reform, with revenues for 2017? We dont think so. While no
2016 revenues from tax reform are included in the plan, we
believe that the 0.8%-pt of GDP reduction in primary expenditure, focused solely on investment, will be a bitter pill
for legislators to swallow. From a political negotiation standpoint, the government was aware that some politicians bristled at the unnecessarily fiscally hawkish stance embodied
by the previous insistence on the original deficit targets (3.6%
and 3.1% of GDP in 2016 and 2017, respectively). The governments concession of wider targets for 2016-17 now may
be a sign to the Congress of willingness to be somewhat flexible, despite some costs in terms of market credibility. However, even with this wider deficit, the government must still
cut expenditures to meet the new targets (Figure 6).
In this context, the Congress could understand that the only
way to spend more in 2017, while sticking with the new deficit target, will be to pass the tax reform this year. Indeed, the
Marco Fiscal clearly states that, if as a consequence of the
reform additional revenues are realized in 2017, it will be
necessary to include them in a revision of the financial plan
for that year. For legislators, this may appear to be a carrot
of additional spending.
Figure 6: Short-term spending cut in order, pending tax reform in '16
% of GDP
18
Primary spending - '15 plan
16
Primary spending - '16 plan

14
10
12
14
16
18
20
22
24
26
In the end, as we have written, the prospects for fiscal reform

should be intertwined with the prospects of the peace process
(see Tough tasks ahead, May 12). This weeks news of a
peace deal is positive, insofar as it can lead to a plebiscite on
the deal, leaving time and, hopefully, increased political capital, for the government to push the tax reform by year-end.
Overall, we expect that following the deficit reduction path of
the Fiscal Rule will allow the central government to lower its
debt from the expected 43% of GDP peak to below 40% by
2020 (Figure 7). But this is based on an assumption of higher
revenues via a forthcoming structural tax reform and lower
spending despite the peace process.
Figure 7: Projected gross debt of the Central Government
% of GDP
50
45
42.6 43.1
40
'16 plan
35
34.5
30
'15 plan
'14 plan
25
20
02
04
06
08
10
12
14
16
18
20
22
24
26
The government expects growth to average 4.3% over 201722. This is not a terribly aggressive assumption if the peace
deal prospers and the 4G highway infrastructure process unfolds as planned. But it is not overly conservative either, especially if uninspired tax reform leads to ratings downgrades
and a negative confidence shock. If the financing of twin deficits is not forthcoming, then their correction will necessarily
be faster and more abrupt, leading to hard landing risks. This
is not our base case, and we think a sufficiently robust tax
reform can be approved this year, allowing Colombias ratings to remain firmly in the investment grade space. However,
the stakes are high, as still-wide twin deficits mean Colombia
can ill afford a loss of market confidence.
24
JPMorgan Chase Bank, N.A., Singapore Branch

Nur Raisah Rasid (65) 6882 7375
raisah.rasid@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
Figure 1: EM Asia ex. CN/IN domestic demand and exports
EM Asia: Domestic demand

comes knocking on the door
%oya, both scales

8
30
Real exports
Final domestic demand
20
Strong domestic demand since 3Q15 amid sluggish external demand bucks historical trend
10
Resilience buttressed by strong fiscal spending
Reduced fiscal stimulus may drag on 2H16 growth
We expect EM Asia ex. CN/IN growth will revert a trajectory underpinned by external demand weakness
-10
03
05
07
09
11
13
15
17
Source: National sources and J.P. Morgan
Figure 2: EM Asia domestic demand correlation with exports

Rolling 8-quart.correl. between domestic demand and exports cont. to oya growth
Given the openness of EM Asia economies, domestic demand

historically has been regarded as a derived function of external demand. Until recently, the correlation between final domestic demand and external demand has held up convincingly, apart from a divergent phase in 2012/2013 due to simultaneous country-specific policies (Figuring the drivers of
ASEANs rebalancing, GDW, August 24, 2012). The recent
phase of domestic demand resilience, which is most discernible in the Philippines, Thailand, Korea, and Indonesia, largely
is due to greater fiscal stimulus which in turn has boosted
fixed asset investment. Among these four countries, construction spending has picked up materially since 2015 in all but
the Philippines.
Investment takes the drivers seat
Given that robust fiscal spending has buoyed domestic demand, one of markets primary concerns is the sustainability
of the current level of fiscal stimulus. Absent further fiscal
spending gains, domestic demand likely will slow toward the
external demand trend in due course, reviving the historical
relationship. Therefore, beyond the near-term investment
boost, we expect EM Asia ex. CN/IN growth to weaken
again.
Since 3Q15, in the aggregate, fixed asset investment has

played a more important role in driving growth while the
growth impulse from consumption has remained steady (Figure 3). The pickup in investment is most striking in the Philippines, Thailand, Korea, and Indonesia. In Malaysia and Singapore, by contrast, domestic demand support for growth has
declined across both consumption and investment. Meanwhile, consumption weakness has single-handedly reduced
domestic demand in Taiwan and Hong Kong (Figure 4).
Another exception to the rule since 3Q15

Since 3Q15, EM Asia final domestic demand has continued to
expand against a backdrop of subdued external demand,
marking a clear break from the long-standing close relationship between domestic demand and exports (Figures 1 and 2).
We attribute the divergence to increased fiscal stimulus that
has subsequently boosted investment. The fundamental question, in our view, is whether this recent domestic demand resilience represents a structural break or is just a fleeting deviation from the external trend. The short-lived divergence in
2012-2013 suggests that the current decoupling of domestic
and external demand trends will end soon due to the lack of
sustainability, or policymakers unwillingness to prolong the
fiscal expansion cycle.
1.0
0.5
0.0
-0.5
-1.0
03
05
07
09
11
13
15
17
Figure 3: EM Asia ex. CN/IN domestic demand

%-pt contribution to %oya GDP growth
3.5
3.0
Consumption
Fixed investment
3.0
2.0
2.5
1.0
2.0
0.0
10
12
14
16
25

Economic Research
EM Asia
June 24, 2016
Limited support from consumption
Figure 4: Shifts in domestic demand drivers

%-pt. contribution to oya growth, sum 1Q16/4Q15 less sum 3Q/4Q15
Fixed asset investment
10
8
Consumption
6
4
2
0
-2
-4
PH
TH
KR
ID
MY
SG
TW
HK
Construction spending leading the way

Akin to the divergent phase in 2012/2013, it appears that construction spending has gained traction in the region since
2015 (Figure 5). Indeed, the boost in fixed investment in
Thailand, Korea and Indonesia originates primarily from the
surge in construction activity (Figure 6). The Philippines
stands out, as its pickup in fixed investment owes mainly to
machinery capital expenditures as part of continuing reforms.
Thailands recent growth narrative is characterized by a material pickup in public infrastructure investment. Loosening
monetary conditions in Korea have accommodated the recovery in the real estate sector and have subsequently propped up
construction spending.
Figure 5: EM Asia ex. CN/IN fixed investment
1.0
2.0
Non-construction
Construction
0.8
1.5
0.5
1.0
0.3
0.5
0.0
0.0
10
12
14
16
Figure 6: Changes in fixed asset investment
Others
% of GDP, 2015 less 2014

4
Construction
Machinery
Private consumption arguably has played a consistent role in

driving growth in some pockets of the region over recent
years, particularly in Malaysia and Philippines. While we expected the windfall gain stemming from the commodity price
collapse to translate into greater spending, the response to the
windfall generally has been disappointing with countries
spending only a portion of the estimated income gains (EM
Asia: Parsing the oil price impact, GDW, January 23, 2015).
As commodity prices appear to have bottomed, we expect
limited growth support from private consumption in 2016. On
the public sector front, the growth support from government
consumption surged in 2015 (Figure 7).
Figure 7: EM Asia ex. CN/IN consumption
Private
2.5
1.0
Government
2.0
0.5
1.5
0.0
10
12
14
16
Domestic demand strength to persist temporarily (for a select few)

In the Philippines, with continued focus on improving infrastructure via PPPs (public private partnerships) and the investment expansion still in its early phase, we expect domestic demand growth to persist. The upshot here is absent sufficient capital inflows, a small balance of payments deficit is
likely to materialize in 2016. The willingness of Koreas central government to use off-budget measures to support growth
should bolster domestic demand in the near term. In Indonesia
and Thailand, due to fiscal constraints, moderating fiscal
stimulus likely will translate into meaningful drags on growth.
Meanwhile, we do not expect domestic demand in Hong
Kong, Taiwan, Malaysia, and Singapore to increase materially
given the limited room for policy action amid lackluster external demand.
In sum, a sluggish external backdrop arguably would have a
significant negative income effect on domestic demand.
Therefore, as the broad-based trade malaise persists, we expect the growth trajectory in EM Asia ex. CN/IN to revert to
one underpinned by external demand weakness.
1
0
-1
-2
PH
TH
KR
ID
TW
MY
SG
HK
26

Robert E Mellman (1-212) 834-5517
robert.e.mellman@jpmorgan.com
Economic Research
Global Data Watch
United States
This past weeks reports on May new and existing home sales
confirm that falling mortgage rates are boosting housing demand in 2H16 (Figure 2). The May durables report indicates
that manufacturing was still stuck in a rut, although early June
manufacturing surveys show hints of improvement. Other
indicators were generally positive for growth, including the
latest low-side reading on initial jobless claims.
June 24, 2016
We clip our forecast of 2H growth, move first Fed hike

to December as an initial response to the Brexit vote
There is low visibility around the Fed call; jobless
claims, business surveys are key near-term indicators
Recent data confirm growth was strengthening in 2Q16
ahead of the Brexit vote; 2Q16 GDP forecast still 2.0%
In our view the impact of the Brexit vote will be concentrated in
the UK and the Euro area. But our forecasts for appreciably
weaker growth in both the U.K. and Euro area, the increased
uncertainty facing business, and post-Brexit swings in financial
markets are bound to have some effect on the US. At this point
we think that impact on US real GDP growth will be modest but
noticeable, and we revise down our forecast of 2H16 growth to
2.0% from 2.25%. Somewhat weaker foreign growth will dampen exports, and impacts on business sentiment and attitudes toward risk-taking will probably hold back capital spending as
well. Housing should benefit from lower mortgage rates.
A shakier global economy and likely policy easing abroad should
leave the Fed appreciably more cautious about raising rates. We
have pushed out the first rate hike from September to December
of this year, but there is low visibility on the policy outlook right
now. Forecasts for the economy and the Fed will depend importantly on how financial markets and business confidence
evolve. The immediate financial market response to the Brexit
vote was acute. But, at least so far, both US stock market indices
and the value of the trade-weighted dollar are well within their
ranges of the past several months (Figure 1).
Figure 1: US equity prices and trade-weighted dollar
Index
2150
J.P. Morgan nominal broad index, 2010=100
S&P 500
124
122
2080
120
2010
118
1940
Dollar
1870
1800
Jul 15
116
114
112
Sep 15
Nov 15
Jan 16
Mar 16
May 16
Jul 16
Source: Standard and Poor's, J.P. Morgan; latest values at press time
Real GDP growth in 2H16 will be influenced importantly by

the aftershocks of the Brexit vote. But it will also be influenced by the economys momentum just before Brexit. The
latest round of data were reasonably close to expectations and
did not noticeably change our view that real GDP growth is
strengthening from 0.9% saar in 1Q16 to 2.0% this quarter
and real final sales growth from 1.2% to 2.6%.
Figure 2: New home sales and conventional mortgage rate

Mn. units, saar, 3mma
New home sales
0.57
0.54
3.5
3.7
0.51
3.9
0.48
30-year mortgage rate
(inverted scale)
0.45
0.42
0.39
2014
percent
2015
2016
4.1
4.3
4.5
2017
Source: Census, Federal Reserve
The upcoming economic calendar includes the third estimate

of 1Q16 GDP as well as June unit auto sales and May reports
on real consumer spending, foreign trade, and construction
spending, which will help refine our tracking estimate of
2Q16 growth. The calendar also includes the June ISM and
final PMI manufacturing surveys. Over the next few weeks
we will pay particular attention to timely labor market indicators, especially initial jobless claims, and measures of business confidence as captured by business surveys.
Lower rates boost housing

Mortgage rates through May had declined about 35bp since
the end of the year, and lower rates are helping to boost home
sales. May existing home sales rose 1.8% samr to a 5.53 million annual pace, a new high for the expansion. Existing home
sales increased 7.9% saar in 1Q16, possibly helped by a mild
winter, and sales through the first two months of this quarter
are up 17.4%. Substantial increases in both pending home
sales and mortgage purchase applications since April point to
further gains in the next month or two.
The market for existing homes remains extremely tight, and
limited availability should continue to push up prices. The
inventory of unsold homes (as seasonally adjusted by J.P.
Morgan) declined slightly in May, so that the months supply
on the market declined to 4.36, a new monthly low for the
expansion (Figure 3, next page). And the combination of rising demand and limited inventories is continuing to push
house prices higher. The April Case-Shiller house price index
will be released on Tuesday and, based partly on other housing price measures that have already been released, we look
for the 20-city index to rise 0.4% samr and 5.3%oya.
27

Economic Research
United States
June 24, 2016
Figure 3: Existing home sales and months' supply for sale

Mn. units, saar, 3mma
Ratio, 3mma, sa by J.P. Morgan
5.5
7.5
Existing home sales
7.0
6.5
5.0
Months' supply on
the market
4.5
6.0
5.5
5.0
4.5
4.0
2012
4.0
2013
2014
2015
2016
Source: NAR, J.P. Morgan
Limited supply and rising prices in the market for existing

homes tend to drive buyers toward the new home market. And
this has been the case. Although May new home sales were a
little short of expectations, April-May sales are up 12.9%oya
(vs. 5.1%oya for existing home sales). And average AprilMay new home sales are 47.4% saar above their 1Q16 average (vs. 17.4% for existing home sales).
Another dud for durables: The May durables report shows

continued weakness in manufacturing. The 2.2% decline in
total durable goods orders was largely associated with a
34.1% plunge in orders for military aircraft, a notoriously
volatile component. But new orders ex. transportation declined 0.3%. New orders for core capital goods declined 0.7%
and core capital shipments declined 0.5%. But as a result of
modest upward revisions to April data, we have nudged up
our 2Q16 forecast for real spending on business equipment to
-1.2% saar (from -2.1%).
Figure 4: Manufacturing survey measures of export orders
Sa
PMI export orders
ISM export orders
Sa
53.5
52
51.5
51
49.5
50
47.5
49
48
Jan 15
45.5
Apr 15
Jul 15
Oct 15
Other recent data positive for growth

Low reading on jobless claims: We think that the May labor
market report greatly exaggerated the slowdown in job growth
and that the June figure will be substantially stronger. Low
levels of initial jobless claims tend to support this view. Initial
claims for the week of the June labor market survey declined
to 259,000, down 19,000 from its reading in the week of the
May survey. And the 4-week average is nearly 9,000 lower.
The latest 4-week average of 267,000 is slightly below the
weekly average in 1Q16 (269,000) or 4Q15 (272,000). (Figure 5.)
Figure 5: Initial jobless claims
'000s, sawr
Update on manufacturing
53
from a more representative national sample, increased 0.7%pt to 51.4, also a relatively low reading for this survey. Most
key measures of activity rose in the PMI but export orders
were the standout, up 2.8%-pts to 52.5, its highest level since
September 2014 (Figure 4). There will be keen interest in
whether the final June survey shows any early impacts of the
Brexit vote on export and overall orders.
Jan 16
Apr 16
Source: Markit, ISM
June manufacturing surveys a little better: The tone of the

June manufacturing surveys to date suggest that activity was
still soft but may have been beginning to strengthen ahead of
the Brexit vote. The average derived composite of the three
regional Fed surveys available for June edged up 1.6pts, but
to a still-low 49.3. The flash manufacturing PMI, with results
4-week
average
300
290
280
270
260
Weekly
250
240
Oct 15
Dec 15
Feb 16
Apr 16
Jun 16
Source: Department of Labor
Confidence okay, inflation expectations up off their low:

The most recent weekly Bloomberg consumer comfort index
reached its highest level since March. The final June Michigan sentiment survey slipped a bit, but May and June figures
were at highs since last June. The preliminary June survey
indicated that 5- to 10-year inflation expectations had dropped
to 2.3%, a record low for the series. Expectations were back
up to 2.6% in the final survey, its average over the past year.
AIA index back up: The AIAs Architectural Billing Index
increased 2.5pts to 53.1, its highest level since last October.
This index tends to lead nonresidential construction activity
by 9-12 months, so there are no near-term implications. The
increase, if confirmed, would suggest that nonresidential construction will strengthen in 1H17.
28

Michael Feroli (1-212) 834-5523
michael.e.feroli@jpmorgan.com



Economic Research
Global Data Watch
June 24, 2016
Data releases and forecasts

Mon
Jun 27
8:30am
International trade (adv.)

$bn, samr, unless noted
Balance of goods, Cen. basis
Exports (%samr)
Imports (%samr)
Feb
-64.0
2.1
2.1
Mar
-56.0
-1.9
-5.6
Apr
-57.5
2.4
2.5
May
-56.9
0.5
0.0
We believe the nominal goods balance narrowed from

-$57.5bn in April to -$56.9bn in May. We look for nominal exports to increase 0.5% during the month while nominal imports were basically unchanged. Data already reported on inbound and outbound container traffic look mixed
across various ports, and we think the figures are consistent with no change in export volumes and a modest decline in import volumes in May (volume data will not be
included in the advance trade report). Overall, it looks like
the trend in exports has been picking up recently following
a very weak period, suggesting that we have moved past
the biggest drag from the stronger dollar.
Mon
Jun 27
9:45am
growth for the quarter. We do not expect very large revisions to the main components of growth based on the economic indicators that have been released since the BEAs
May 27 report showing 1Q growth at 0.8%. But on net, we
expect the revisions to be slightly positive. We also anticipate that the composition of growth in 1Q will be favorable, with growth in final sales revised higher and the
change in inventories revised lower.
Tue
Jun 28
9:00am
Business activity
Incoming new business
Employment
Business expectations
Input prices
Prices charged
Backlogs of work
May
Jun
51.3
50.9
54.0
63.3
51.9
50.5
48.5
52.8
52.3
53.1
64.1
52.8
50.1
49.8
51.3
52.0
52.5
60.7
53.3
51.3
47.8
51.5
We forecast that the headline for the Markit services

PMIreflecting business activityedged up 0.2pt to 51.5
in the flash June report. Many economic indicators have
turned more upbeat in recent months and we expect the
services PMI to show an acceleration in activity. We look
for only a modest gain in the June data, however, as separate June survey data on the service sector that have already been released look mixed.
Tue
Gross domestic product
Jun 28
8:30am
%ch, q/q, saar, unless noted
Real GDP
Final sales
Domestic final sales
Consumption
Equipment
Intellectual property
Nonres. structures
Residential investment
Government
Net exports (pct.pt.contr.)
Inventories (pct.pt.contr.)
Core PCE price index
(%oya)
GDP chain price index
(%oya)
Adj. corporate profits
(%oya)
4Q15
1.4
1.6
1.7
2.4
-2.1
-0.1
-5.1
10.1
0.1
-0.1
-0.2
1.3
1.4
0.9
1.1
-7.8
-11.5
Adv
1Q16
0.5
0.9
1.2
1.9
-8.6
1.7
-10.6
14.9
1.2
-0.3
-0.3
2.1
1.7
0.7
1.3
Sec
1Q16
0.8
1.0
1.2
1.9
-9.0
-0.1
-8.9
17.2
1.2
-0.2
-0.2
2.1
1.7
0.6
1.2
0.3
-5.7
Thi
1Q16
0.9
1.2
1.2
1.8
-9.4
1.6
-8.1
16.4
1.3
-0.1
-0.3
Jan
5.7
0.8
5.0
5.4
Feb
5.4
0.7
4.7
5.3
Mar
5.4
0.9
4.7
5.2
Apr
5.3
0.4
We forecast that the Case-Shiller 20-city composite house

price index increased 0.4% samr in April (5.3%oya). Most
house price indexes have shown that prices have continued
to appreciate recently and we believe that prices will keep
pushing higher over time. We also think that the monthly
changes in the seasonally adjusted Case-Shiller data have
been affected by changes in seasonal patterns that have not
been fully captured by the related seasonal factors. In recent years, we have seen strong monthly gains in the data
early in the year followed by softer figures around the
middle of the year. We think that the April data for this
year will show this shift toward softer increases following
a strong start to the year.
Index, sa
Apr
%oya, unless noted

20-city composite
%m/m, sa
10-city composite
National
Markit services PMI (flash)

Mar
S&P/Case-Shiller home price index
Tue
Jun 28
10:00am
Consumer confidence
Sa
Conference Bd index
Present situation
Jobs plentiful
Jobs hard to get
Labor mkt diff
Expectations
Mar
96.1
114.9
25.4
25.2
0.2
83.6
Apr
94.7
117.1
24.2
22.8
1.4
79.7
May
92.6
112.9
24.3
24.4
-0.1
79.0
Jun
95.0
We look for the Conference Board consumer confidence

index to increase 2.4pts to 95.0 in June. The separate consumer sentiment index reported by the University of Michigan showed modest deterioration in sentiment between
May and June. But this followed a significant improvement in sentiment during May, which was not evident in
the Conference Board data (which weakened in May).
Over the past few months, the data from the Michigan survey have been looking more upbeat than the figures from
the Conference Board survey, so we expect some improvement in the upcoming report from the Conference
Board.
Sources: ADP/Moodys Analytics, BEA, BLS, Census Bureau, Conference Board, Department of
Labor, Federal Reserve Board, ISM, J.P. Morgan forecasts, NAHB, NAR, NFIB, NY Fed, Markit,
Philadelphia Fed, Standard & Poors, University of Michigan, US Treasury
We estimate that 1Q real GDP growth will be revised up

by 0.1%-pt to 0.9% saar in the BEAs third report on
29




Wed
Jun 29
8:30am
Economic Research
United States
June 24, 2016
Personal income
Thu
Jobless claims
%m/m, sa, unless noted
Jun 30
8:30am
Thousands, sa
Personal income
Wages & salaries
Consumption
Real consumption
PCE price index
Core
Mkt-Based Core
Core (%oya)
Mkt-Based Core (%oya)
Saving rate
Feb
0.1
0.0
0.2
0.3
-0.1
0.18
0.2
1.7
1.6
5.5
Mar
0.4
0.4
0.0
0.0
0.1
0.06
0.0
1.6
1.5
5.9
Apr
0.4
0.5
1.0
0.6
0.3
0.17
0.1
1.6
1.4
5.4
May
0.2
0.2
0.4
0.3
0.2
0.18
1.7
5.2
We believe that real consumption increased 0.3% in May

while nominal spending rose 0.4%. Increases already reported in auto sales and other types of retail sales point to a
decent gain in the May spending data. Building on top of
the even stronger growth reported for April, it looks like
2Q will be a strong quarter for real consumer spending.
We forecast that both the headline and core PCE deflators
increased 0.2% in May based on data already released in
the CPI and PPI for the month. To two decimal places, we
look for the core index to be up 0.18% during the month
and we forecast that it will be up 1.7%oya. While there
have been some monthly wiggles in the core inflation data,
it looks like the trend in both the core PCE deflator and
core CPI have firmed recently.
We also look for nominal income to increase 0.2% with a
similar 0.2% gain in disposable income. Income has grown
more rapidly over the past few months but data from the
May employment report signal that wage growth slowed
somewhat during the month. We forecast that wages increased 0.2% in May. With spending expected to outpace
income in May, we look for the saving rate to decline
0.2%-pt during the month.
Wed
Pending home sales
Jun 29
10:00am
Sa, unless noted

Total (mn, ar)
%ch m/m
%oya (nsa)
Feb
109.0
3.4
5.0
Mar
110.7
1.6
3.2
Apr
116.3
5.1
2.9
Apr 16
Apr 23
Apr 30
May 7
May 14
May 21
May 28
Jun 4
Jun 11
Jun 18
Jun 25
May
114.0
-2.0
2.7
We look for the pending home sales index to decline 2.0%

in May. Pending home sales increased for three straight
months through April and the trends in many other indicators related to home sales have also been upbeat. But given
the normal ups and downs in the data, we look for a decline in the upcoming pending home sale report to undo
some of the recent improvement. Similarly, the separate
data on new home sales softened between May and June
after some earlier improvement. Even with the expected
decline in pending sales, the trend in the index should still
look solid.
New claims (wr.)

Wkly
4-wk avg
Continuing claims
Wkly
4-wk avg
248
257
274
294
278
268
268
264
277
259
265
2129
2124
2165
2153
2160
2172
2112
2162
2142
261
256
258
268
276
279
277
270
269
267
266
2157
2141
2138
2143
2151
2163
2149
2152
2147
Insured
Jobless,%
1.6
1.6
1.6
1.6
1.6
1.6
1.5
1.6
1.6
1. Payroll survey week
We forecast that initial jobless claims increased 6,000 to

265,000 during the week ending June 25. The claims data
have been choppy recently, with an increase of 13,000 reported for the week ending June 11 followed by a decrease
of 18,000 reported for the week ending June 18. We think
that some of this recent volatility was related to Memorial
Day because the claims series is often choppy around holidays, and we look for the level of claims to come in close
to the recent four-week moving average in the upcoming
report, which is typically a decent guide to the underlying
trend.
Fri
Jul 1
9:45am
Markit manufacturing PMI

Index, sa
Composite1
New orders (30%)
Output (25%)
Employment (20%)
Sup. del. (15%, inv.)
Stks of purch (10%)
New export orders
Backlogs of work
Output prices
Input prices
Stocks of finished goods
Quantity of purchases
ISM-weighted composite2
Apr
50.8
52.0
50.3
50.2
47.8
47.9
48.6
47.7
49.3
51.2
48.9
48.6
50.5
May
50.7
51.7
49.4
51.3
48.0
48.1
49.7
48.1
50.1
52.2
50.7
50.6
50.5
Flash
Jun
51.4
52.4
50.9
56.6
47.4
47.4
52.5
55.6
54.7
58.5
50.8
58.7
56.8
Final
Jun
51.5
1. Weights in parentheses
2. Attributes ISM-composite weights (equal weights) to corresponding PMI
We believe that the Markit manufacturing PMIs headline

will be revised up from 51.4 to 51.5 between the flash and
final June reports. This would represent an 0.8pt improvement relative to the final May reading.
30




The headline figure and many of the underlying details improved in the flash June report, suggesting that the manufacturing sector may be starting to turn the corner following a fairly
weak period. If this is the case, we should see the headline continue to improve. Modest upward revisions have also been fairly
common in the PMI data over the past year or so.
Fri
Jul 1
10:00am
ISM manufacturing survey

Sa
Overall index
Production
New orders
Inventories
Employment
Supplier deliveries
Export orders
Imports
Prices
Fri
Jul 1
10:00am
Jul 1
Apr
50.8
54.2
55.8
45.5
49.2
49.1
52.5
50.0
59.0
May
51.3
52.6
55.7
45.0
49.2
54.1
52.5
50.0
63.5
Jun
51.0
%m/m, sa
Feb
1.4
1.8
2.6
0.9
0.5
Mar
1.5
2.3
3.2
1.3
-0.6
Apr
-1.8
-1.5
-1.5
-1.5
-2.8
May
0.2
-0.1
-0.2
0.0
1.0
We estimate that nominal construction spending increased

0.2% in May. We think that a 1.0% increase in public construction spending will drive the headline figure higher.
Public spending declined in both March (-0.6%) and April
(-2.8%), but we think that the broader trend in the series
will likely move higher over time. We look for softer data
related to private construction spending, with residential
construction declining 0.2% and nonresidential construction basically unchanged.
Motor vehicle sales
Millions, saar
Light trucks and autos
Imports
Domestics
Autos
Light trucks
Mar
16.5
3.5
13.0
5.1
7.9
Apr
17.3
3.8
13.5
5.0
8.5
May
17.4
4.0
13.3
5.1
8.2
June 24, 2016
Review of past weeks data

Existing home sales (Jun 22)
Total (mn, saar)
%m/m
%oya nsa
Months supply (nsa)
Single-family
Median price (%oya)
Jun
17.3
We look for light vehicle sales of 17.3mn saar in June

based on available industry guidance. This would be
slightly below the pace of sales reported for May (17.4mn)
but slightly above the average pace of sales reported to
date (17.2mn).
Mar
5.36
5.7
4.0
4.4
4.3
5.1
Apr
5.45
1.7
4.9
4.7
4.7
6.3
5.43
1.3
4.7
May
5.55
1.8
4.9
5.6
5.53
6.3
4.7
4.7
4.7
FHFA home price indexes (Jun 22)

Purchase-only
%oya
%m/m (sa)
We forecast that the headline composite index for the ISM

manufacturing survey inched down 0.3pt to 51.0 in June. The
separate Markit manufacturing PMI improved between May
and June in the flash data already released for the month, and we
expect the manufacturing sector to improve over time following
a weak run. But the May ISM survey showed a sizable jump in
the supplier deliveries index, which we think will be reversed at
least partially in the June data. And this should drag on the headline composite, with the supplier deliveries index accounting for
20% of the headline.
Nominal
Private
Residential
Nonresidential
Public
Fri
Mar
51.8
55.3
58.3
47.0
48.1
50.2
52.0
49.5
51.5
Economic Research
Global Data Watch
Feb
5.7
0.5
Mar
6.1
0.7
6.2
0.8
Apr
6.1
0.5
5.9
0.2
Existing home sales increased 1.8% to 5.53mn saar in May.

This was close to expectations although the April figure was
revised down slightly. Existing home sales have now increased for three straight months and the May sales pace was
the strongest figure reported since February 2007. The existing home sales report also showed that prices continue to appreciate over time (the median sale price was up 4.7%oya)
and that the share of distressed sales in the market ticked
down to 6% in May (from 7% in April and 10% in May
2015). Overall, the home sale report combined with separate
related indicators suggests that the housing recovery is continuing.
In a separate report, the FHFA house price index increased
0.2% samr in April and 5.9% oya. This was a more modest
increase than expectations, but still shows the index trending
higher over time. This is a more reliable gauge of house prices
than the data in the existing home sale report that does not
control for changes in the mix of sales. But most house price
measures show similar paces of house price appreciation over
the past few years.
Markit manufacturing PMI (flash) (Jun 23)
Index, sa
Composite1
New orders (30%)
Output (25%)
Employment (20%)
Sup. del. (15%, inv.)
Stks of purch (10%)
New export orders
Backlogs of work
Output prices
Input prices
Stocks of fin. goods
Quantity of purchases
ISM-weighted comp.2
Apr
May
Jun
50.8
52.0
50.3
50.2
47.8
47.9
48.6
47.7
49.3
51.2
48.9
48.6
50.5
50.7
51.7
49.4
51.3
48.0
48.1
49.7
48.1
50.1
52.2
50.7
50.6
50.5
51.0
51.4
52.4
50.9
52.0
47.4
47.4
52.5
51.9
51.8
52.7
49.0
51.4
51.0
1. Weights in parentheses
2. Attributes ISM-composite weights (equal weights) to corresponding PMI series
The Markit manufacturing PMIs headline increased from

50.7 in May to 51.4 in the flash June report, coming out modestly above expectations.
31




This latest reading is not especially strong, but the PMI had
been trending lower for over a year, and the June report could
be a sign that we are finally starting to see activity improve in
the sector. The improvement in the PMI was fairly widespread in June, and included gains reported in the measures of
new orders, output, and employment.
The export orders index also jumped 2.8pts to 52.5, reaching
its highest level since September 2014. While one month of
data does not necessarily make a trend, we have been expecting the drag from the stronger dollar to fade.
New home sales (Jun 23)
Total (000s,saar)
%m/m
%oya nsa
Months supply
Median price (%oya)
Mar
531
-1.3
8.7
5.5
1.5
522
-0.6
6.5
5.6
1.6
Apr
619
16.6
27.1
4.7
9.7
586
12.3
18.8
4.9
9.4
May
565
-8.7
11.4
551
-6.0
8.5
5.3
1.0
Durable goods (Jun 24)

%m/m, sa
Mar
2.0
0.3
0.3
-0.7
0.0
-0.2
Apr
3.4
0.5
-0.6
0.5
0.4
-0.1
3.3
-0.4
0.4
0.6
-0.4
May
-0.2
0.5
0.0
-0.2
-0.3
June 24, 2016
Mays durable goods report was weaker than expected. Total durable goods orders declined 2.2%, with much of the
decline concentrated in a 34.1% drop in orders for military
aircraft. But durable goods orders excluding transportation
still declined 0.3%. Orders and shipments for the core capital goods categories, which are important source data for
GDP, were also disappointing, with orders down 0.7% and
shipments down 0.5%. However, with modest upward revisions to April, our already-pessimistic forecast for core
capital goods shipments, and a slight upward surprise on
aircraft shipments, implications for GDP tracking are
small. We now look for equipment spending to contract
at a 1.2% rate in 2Q, a modest upward revision to our 2.1% forecast before the report. We leave our forecast
for 2Q GDP growth at 2.0% and our tracking of 1Q
GDP growth at 0.9%.
Consumer sentiment (Jun 24)
New single-family home sales declined 6.0% to 551,000 saar

in May. The May sales pace was modestly below expectations
and there were downward revisions to the sales data reported
for April, March, and February totaling 55,000. While these
recent figures were disappointing, home sales still appear to
be trending higher and the average pace of new home sales in
April and May was up about 8% (not annualized) relative to
the 1Q average. The trend in separate data on existing home
sales has also been solid lately, and it looks like 2Q will be a
strong quarter for residential brokers commissions (which the
BEA bases in part on the sales data). However, the other main
components of residential investment look weak so far in 2Q,
and we expect real residential investment to decline modestly
during the quarter.
Elsewhere in the new home sales report, the inventory of
homes available for sale has been flattish in recent months
(seasonally adjusted), but still appears to be drifting higher
over time. The trend in prices also continues to show appreciation.
New orders
Ex transportation
Nondef cap. gds ex air
Shipments
Nondef cap. gds ex air
Inventories
Economic Research
United States
-2.2
-0.3
-0.7
-0.5
-0.3
Univ. of Mich. Index (nsa)

Current conditions
Expectations
Inflation expectations
Short term
Long term
Home buying conditions
May
94.7
109.9
84.9
Pre
Jun
94.3
111.7
83.2
2.4
2.5
156
2.4
2.3
155
Fin
Jun
94.0
93.5
110.8
82.4
2.6
2.6
154
Consumer expectations for inflation over the next 5-10

years were revised up from an all-time low of 2.3% in the
preliminary June report to 2.6% in todays final release.
And 1-year expectations also were revised up from 2.4% to
2.6%. These readings are still on the low end of the historical range, but should dampen concerns that inflation expectations are spiraling downward.
Meanwhile, the headline consumer sentiment index softened a bit more than expected, revising from 94.3 in the
preliminary release to 93.5 in the final. But the level of
sentiment remains noticeably above the levels that prevailed from mid-2015 through earlier this year. With the
weekly Bloomberg measure of sentiment also looking
healthy relative to levels seen over the last year, it seems
that consumer attitudes are holding up well thus far, despite signs of slowing in the business sector and the labor
market.
32

Economic Research
Global Data Watch
Focus: Collection rates only a

minor issue for May payrolls
Figure 2, the 74% collection rate for May 2016 is consistent

with a subsequent revision with an absolute value of about
26,000. This is only 14,000 more than the magnitude of the
revisions consistent with the approximately 82% collection
rate reported for May 2013, 2014, and 2015. This is not to say
that the revision to the May data in the June report will necessarily be small, but if there is a large revision, it likely will not
have been caused by the relatively low collection rate associated with the first print of the May data.
June 24, 2016
The May payroll report showed that only 38,000 jobs were
added during the month, a large disappointment relative to
expectations and the preceding trend. The first print of the
May payroll count was based on a smaller sample of firms
than used in the first print of the May reports in recent years,
raising the possibility that the revision to the May data released in the June payroll report adds to the currently-reported
May figure. While we find that there is a relationship between
the collection rates used in the payroll report and the magnitude of subsequent revisions, we do not think that the May
data are likely to be revised very meaningfully.
Collection rates represent the share of reports received to derive a monthly estimate of the payroll data relative to the total
number of actively reporting sample units on the registry. It is
intuitive that higher collection rates correspond with more
modest revisions in the payroll data; in Figure 1, we see that
collection rates used in the first prints of the payroll data have
tended to rise over time while the magnitude of revisions to
the payroll count following the first print has tended to decline. But while collection rates have generally trended higher, the collection rate for May 2016 (74%) was the lowest
initial response rate for May since 2012.
Figure 1: CES collection rates and first revision to payroll data
% of reports received compared to total sample
90
% of payroll employment
0.4
First print collection rates

(Mays shown with Xs)
80
0.3
70
Figure 2: CES collection rates and first revision to payroll data
000s, absolute value of revision, scaled to current level of payroll employment

300
All months
Mays only
250
y = -1.75x + 155.48 y = -2.95x + 229.38
R = 0.36
R = 0.14
200
150
100
50
0
40
50
60
70
CES collection rate, % (1981-present)
80
90
Source: BLS, J.P. Morgan
We should also not ignore the possibility that May payrolls

are revised lower. Revisions to the first prints of the payroll
data had tended to be favorable throughout much of the
expansion so far, but turned more neutral lately (Figure 3).
That said, we do not think that past revisions are a reliable
indicator of future payroll prints (not shown) or of revisions
released in subsequent payroll reports (Figure 4).
Figure 3: Revisions to nonfarm payrolls between 1st and 2nd prints
% of payroll employment, 12m average
0.04
0.02
60
0.2
50
Absolute value of
first revision
40
30
81
86
91
96
01
06
11
0.00
0.1
-0.02
0.0
-0.04
16
Figure 2 is an alternative illustration of the relationship from

Figure 1. And in addition to the relationship between collection rates and payroll revisions evident over the observed
sample, we find that the relationship between collection rates
and revisions to payrolls is stronger for May than for any other individual month.
With the disappointment in the first print of the May data as
well as the relatively low collection rate associated with that
figure, is it likely that the weakness currently evident in the
May data is revised away in the June report? While we think
that this may be true, we do not see any reason to expect a
very meaningful revision in terms of economic significance.
Using the relationship based on the full set of data shown in
-0.06
81
86
91
96
01
06
11
16
Figure 4: Revisions to nonfarm payrolls between 1st and 2nd prints

Given month, % of payroll employment
0.4
0.3
y = 0.30x - 0.00
R = 0.01
0.2
0.1
0.0
-0.1
-0.2
-0.3
-0.08
-0.06
-0.04
-0.02
0.00
0.02
Prior 12m average, % of payroll employment
0.04
33

Economic Research
Focus
June 24, 2016
34

Greg Fuzesi (44-20) 7134-8310 Raphael Brun-Aguerre (44-20) 7134-8308
raphael.x.brun-aguerre@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
Marco Protopapa (44-20) 7742 -7644

marco.protopapa@jpmorgan.com
Euro area
UK decision to leave the EU will hit the Euro area via
trade, confidence, and financial channels
We lower our Euro area GDP and inflation forecasts
and now expect additional ECB easing
Long period of uncertainty lies ahead, just as the Euro
area business cycle was becoming more robust
Backward-looking data remain positive, but this provides limited comfort at present
The UKs decision to leave the EU is a significant economic
and political shock to the Euro area. Direct trade spillovers
from the uncertainty hit to the UK are likely to hurt Euro area
growth even before any longer-term impacts become clear. In
addition, there is likely to be an impact on growth from lower
Euro area confidence and financial markets. It is far too early
to assess this drag with much confidence. Across Euro area
countries the impact is likely to operate through varying
channels. Germany may be affected mainly via trade and uncertainty channels. In France, the trade impact is likely to be
smaller but the uncertainty impact is likely to be amplified by
existing fragilities and by next years presidential election.
Trade channel effects are likely to be even smaller for Italy,
while uncertainty effects and financial pressures on the sovereign and the banks (already under stress due to the high level
of NPLs) may be more acute. In Spain, uncertainty and financial shocks are likely to add to a shaky political outlook. Outside of Ireland, which is likely to be hit most severely, our
inclination is to cut our growth forecasts by similar amounts
across most of the region (Table 1). Except in 2Q16 and
3Q16, where 0.25%-pt of the forecast downgrade relates to
tracking/momentum, the remainder is due entirely to the
Brexit shock. Hence, we now see the Euro area economy
growing at only a 1.25% pace for the next few quarters.
%q/q, saar
Euro area
Old
Germany
France
Italy
Spain
3Q16
1.25
2.00
1.25
1.00
0.75
1.75
4Q16
1.25
2.00
1.25
1.00
0.75
1.75
1Q17
1.25
1.75
1.25
1.00
1.00
2.00
2Q17
1.25
1.75
1.25
1.00
1.00
2.00
Table 2: J.P. Morgan Euro area official inflation forecasts

%oya
Headline
Core
Food
Energy
1Q16
0.0
1.0
0.8
-7.4
2Q16
-0.1
0.8
0.9
-7.8
3Q16
0.4
0.8
1.1
-3.6
4Q16
0.8
0.9
1.0
-0.2
1Q17
1.5
1.0
1.6
4.8
2Q17
1.3
1.1
1.5
3.1
3Q17
1.1
1.0
1.5
1.3
4Q17
1.2
1.1
1.4
1.0
Source: Eurostat and J.P. Morgan. Grey area represents forecasts.
Against this weaker growth and inflation backdrop, and with

risks clearly skewed to the downside, we now think that the
ECB will ease its policy stance even further. We had already
expected it to extend its QE purchases to the end of 2017. We
now expect an even longer extension to mid-2018, even if it is
likely to be announced in two stages. And we expect the ECB
to cut its deposit interest rate by another 10bp at the September meeting. Additional TLTROs are also possible, given that
these are relatively uncontroversial among ECB governors.
Solid June surveys provide little comfort

Given the huge uncertainties created by the UK vote to leave
the EU, backward-looking data provide limited comfort. Nevertheless, we note that these data were positive. The Euro area
composite PMI slipped 0.3pt to 52.8 in June (Figure 1). The
details were pretty solid, however, with only the French PMI
falling sharply by 1.6pts to 49.5. The decline in France could
in part reflect widespread strikes and flooding, while the European football championships likely came too late to provide
much of a boost (Figure 2).
Figure 1: Tracking Euro area GDP growth with the PMI
Table 1: J.P. Morgan forecasts for Euro area GDP

2Q16
1.25
1.50
1.25
1.25
0.75
2.50
left the 2H16 trajectory unchanged due to lags in the

growth/inflation relationship). We previously expected core
inflation to increase gradually to 1.3%oya in 4Q17 (Table 2).
We now think core inflation will rise more moderately to
1.1%oya, around two-tenths lower than the ECB forecast. We
now project that headline inflation will reach 0.8%oya in
4Q16, and 1.2%oya in 4Q17.
3Q17
1.50
1.75
1.50
1.25
1.00
2.00
4Q17
1.50
1.75
1.50
1.25
1.00
2.00
Source: Eurostat, J.P. Morgan
We also revised down our Euro area inflation forecast.

Movements in the price of Brent and the currency since we
released our latest forecast on June 16 look modest at present.
However, our new growth forecast implies that core inflation
will be lower during 2017 than we previously expected (we
%q/q saar
4
Tracking estimate based on

linear model (with dummies for
4Q08, 1Q09 and 3Q10-4Q12)
0
Actual GDP
-2
2010
2011
2012
2013
2014
2015
2016
2017
Source: Markit, Eurostat, J.P. Morgan estimates
35

Greg Fuzesi (44-20) 7134-8310
Raphael Brun-Aguerre (44-20) 7134-8308
Economic Research
Euro area
June 24, 2016

saar. The bigger issue with the June PMI is that, even before
the Brexit vote, it was not showing the rise we needed for it to
validate our 2% 2H16 GDP growth forecast. We had lowered
the growth forecast 0.25%-pt ar to create a less challenging
near-term trajectory. But, as noted above, the UK decision to
leave the EU is likely to cause additional weakness in 3Q16
and beyond, prompting a larger downward revision.
Figure 2: Euro area composite PMI

DI, sa
58
Rest of Euro area

Germany
54
50
Figure 4: Tracking Euro area 2Q16 GDP growth over time
France
46
%q/q saar
42
2013
2014
2015
2016
2017
2.0
PMI
J.P. Morgan forecast
DFM-Nowcast
(Underlying)
Source: Markit, J.P. Morgan
1.5
In light of the weak French PMI, the Euro area results were
actually very encouraging. The Euro area composite employment index rose 0.5pt to a solid 52.5, new orders 0.1pt to 52.5,
and the backlog of work jumped 1.4pts to 51.5. At the sector
level, the manufacturing details were particularly impressive,
with increases a 1.4pts increase in output to 53.8, a 1.7pts jump
in new orders to 53.4, a 0.9pt rise in the employment index to
52.1, and a higher order-inventory ratio. These manufacturing
results were helped by big jumps in Germany, where new export orders surged 4pts to a two-and-a-half-year high 54.8 and
total new orders are now even higher at 56.8 (Figure 3). In contrast, the service sector results were more mixed in the Euro
area. The activity index dropped 0.9pt to 52.4, employment
rose 0.3pt to 52.6, and new business declined 0.4pt to 52.2
while outstanding business jumped 1.5pts to 51.4. At the country level, only France was weak; the German composite PMI
declined 0.5pt but remains elevated at 54.1 and with strikingly
strong details, while the composite for the rest of the region
rebounded 1pt to 53.8, reversing Mays surprise fall.
Figure 3: German manufacturing PMI - new export orders
DI, sa
65
Bridge
1.0
DFM-Nowcast
(GDP tracker)
0.5
0.0
Apr 18, 16
May 8, 16 May 28, 16 Jun 17, 16
Jul 7, 16
Jul 27, 16
Source: J.P. Morgan
Other data broadly reinforced the PMIs message of an encouraging underlying trajectory through June. Consumer confidence was little changed, consolidating recent improvements
(Figure 5). And, in Germany, the IFO continued to recover
rapidly from the sharp falls seen at the start of the year (Figure 6).
Figure 5: Euro area consumer confidence
Consumer
confidence
Standard deviations from 2000-07 average

1.0
0.0
-1.0
Composite PMI
-2.0
60
-3.0
2011
55
2012
2013
2014
2015
2016
2017
Source: European Commission, Markit, J.P. Morgan
50
45
Figure 6: German IFO
40
Idx, sa
35
10
12
14
16
Source: Markit, J.P. Morgan
Of course, the modest fall of the Euro area composite output

index in June is a disappointment to us. It is not much of a
problem for 2Q16, given that the PMI remains consistent with
1.5%q/q, saar growth. More important for our 2Q16 tracking
estimate is that the official activity data in May lift it from
near 1%q/q, saar toward 1.5% (Figure 4). To balance the
risks, we lowered our 2Q16 tracking estimate to 1.25%q/q,
Business climate
124
118
Current conditions
112
106
100
94
2010
Expectations
2011
2012
2013
2014
2015
2016
2017
Source: IFO
36

Economic Research
Global Data Watch
June 24, 2016

Demand and labor markets
Week of June 27 July 1
Unemployment
Output and surveys

European Commission survey
Mar
Wed
Jun 29
11:00am
Euro area
% balance of responses, sa
Industrial confidence
Economic confidence
Recent production trend
Production expectations
Export order books
Stocks of finished products
Selling-price expectations
Construction confidence
Retail confidence
Service confidence
Consumer confidence
-4.1
103.0
-0.7
6.4
-13.3
6.5
-4.6
-20.4
1.8
9.6
-9.7
Apr
-3.6
104.0
-1.1
7.6
-12.6
5.8
-2.8
-19.2
1.3
11.7
-9.3
May
-3.6
104.7
2.1
6.1
-12.9
5.3
-0.7
-17.5
3.2
11.3
-7.0
Jun
104.5
Fri
Jul 1
11:00am
Euro area
Harmonized measure (Eurostat)
Unemployment rate (%, sa)
Thu
Jun 30
9:55am
Germany
Registered (ch m/m, 000s, sa)
000s, nsa
Unempl. rate (%, sa)
Thu
Jun 30
9:55am
May
10.3
10.2
10.2
10.1
Mar
Apr
May
Jun
-3
2844.9
6.2
-16
2743.9
6.2
-11
2664.0
6.1
-8
6.1
Germany
Change m/m, 000s, sa
Feb
Mar
Apr
May
44
47
41
35
Retail sales
Mar
Apr
May
102.2
102.7
102.1
Jun
Thu
Jun 30
8:00am
Purchasing managers index final (manufacturing)

Fri
Jul 1
10:00am
9:55am
9:50am
9:45am
9:15am
Apr
We expect the Euro area unemployment rate to have fallen

again in April, continuing a fairly solid trend in place since
late 2014. Declines in the number of unemployed should
be broad-based across countries, in line with the relevant
surveys. The separate labor market report for Germany
should also remain positive, given that the business surveys show solid hiring.
National business surveys

Italy (ISAE survey)
2000=100, sa
Producer confidence
Mar
Employment
Euro area economic sentiment fell in 1Q16, largely on account of financial market turmoil. As turmoil abated, business and consumer sentiment bounced back in April and
May. We expect sentiment to edge marginally lower in
June, mostly on account of prolonged strikes in France and
political uncertainty in Spain.
Tue
Jun 28
10:00am
Feb
Mar
Apr
May
Jun
Euro area
Overall region
51.6
51.7
51.5
52.6
Germany
France
Italy
Spain
50.7
49.6
53.5
53.4
51.8
48.0
53.9
53.5
52.1
48.4
52.4
51.8
According to the flash release, manufacturing PMI rose

above 1pt in June. The details were noteworthy, with solid
gains in output, new orders, and employment and higher
order-inventory ratios. Across countries, we expect confirmation of strong prints in Germany and a rebound in the
periphery, while France should reflect the effects of strikes
and flooding.
Feb
Germany
Sales ex. autos and petroleum, volumes, sa
%m/m
0.2
%oya
1.8
Mar
Apr
-1.2
0.3
-0.3
0.0
May
The German retail sales report was a big disappointment in

April, although it has now been revised to show a much
smaller monthly fall. Nevertheless, the April level is still
4.1% ar below the level in 1Q16. This suggests that retail
sales should improve again, given the solid labor market
fundamentals and despite the recent increases in oil prices.
Domestic consumption
Thu
Jun 30
8:45am
Feb
France
Consumption of goods, volumes, swda
%m/m
0.2
%oya
1.3
Mar
Apr
1.1
3.1
-0.2
2.5
May
Source: European Commission, Eurostat, ECB, FSO, Bundesbank, IFO, INSEE, ISAE, Istat, INE,
CBS, BNB, Markit, and J.P. Morgan forecasts
37

Greg Fuzesi (44-20) 7134-8310
Economic Research
Euro area
June 24, 2016

Inflation
Financial activity and public finance
Consumer prices
Mar
Thu
Jun 30
11:00am
Euro area (flash)

HICP (%oya, nsa)
HICP core (%oya, nsa)
Wed
Jun 29
8:00am
Germany (prelim)
%m/m, nsa
%oya
HICP (%oya)
Baden Wuerttemberg (%oya)
Bavaria (%oya)
Brandenburg (%oya)
Hesse (%oya)
North-Rhine West (%oya)
Saxony (%oya)
Thu
Jun 30
8:45am
France (prelim)
%m/m, nsa
%oya, nsa
HICP (%oya)
Thu
Jun 30
11:00am
Italy (prelim)
%m/m, nsa
%oya, nsa
HICP (%oya, nsa)
Wed
Jun 29
9:00am
Spain (flash)
%m/m, nsa
%oya, nsa
HICP (%oya, nsa)
Wed
Jun 29
8:00am
Belgium CPI
%m/m, nsa
%oya, nsa
Apr
May
0.0
1.0
-0.2
0.7
-0.1
0.8
0.1
0.9
Mar
Apr
May
Jun
0.8
0.3
0.1
0.1
0.3
0.0
0.1
0.4
0.3
-0.4
-0.1
-0.3
-0.3
0.0
-0.4
-0.3
0.0
-0.1
0.3
0.1
0.0
0.0
0.3
-0.2
0.0
0.2
0.1
0.2
0.4
0.3
0.4
0.7
0.0
0.3
0.5
0.5
Mar
Apr
May
Jun
0.7
-0.1
-0.1
0.1
-0.2
-0.1
0.4
0.0
0.1
0.3
0.4
0.3
Mar
Apr
May
Jun
0.2
-0.2
-0.2
-0.1
-0.5
-0.4
0.3
-0.3
-0.3
0.3
-0.2
-0.1
Mar
Apr
May
Jun
0.6
-0.8
-1.0
0.7
-1.1
-1.2
0.5
-1.0
-1.1
0.3
-0.9
-1.1
Mar
Apr
May
Jun
0.9
2.2
0.2
2.0
0.3
2.2
Producer prices
Thu
Jun 30
10:00am
France
%m/m, nsa
%oya, nsa
Italy
%m/m, nsa
%oya, nsa
Feb
Mar
Apr
-0.5
-4.2
0.3
-3.9
-0.5
-4.1
Feb
Mar
Apr
-0.5
-3.6
0.2
-3.4
-0.7
-4.1
Mon
Jun 27
10:00am
Euro area
M3 (%m/m, sa)
M3 (%oya)
M3 (%oya, 3mma)
Loans (%oya)1.
Loans (m/m, bn)1.
1.
Feb
Mar
Apr
0.4
4.9
4.9
0.9
41.0
0.5
5.0
5.0
0.9
0.7
0.3
4.6
4.8
0.9
10.3
May
Loans to nonbank private sector, adjusted for securitization

Output and surveys
Consumer confidence (prelim)
Apr
Euro area (European Commission survey)
% balance of responses
Consumer confidence
-9.3
May
Jun
-7.0
-6.5
-7.3
After the jump recorded in May (+2.3pt), Euro area consumer

confidence retraced marginally in June (-0.3pt to -7.3), according to this weeks flash release. While several sources of uncertainty remain in place (ranging from the migrant crisis to Brexit
to political wobbles in several countries), the healing of the labor market in a context of subdued price dynamics remains a
key support for consumer confidence in the region. At this level, consumer confidence holds above the pre-recession average
and points to consumption growth close to 2.0% ar (after the
2.2%q/q, ar recorded in 1Q16). No details have been disclosed
with the flash estimate.
Purchasing managers index flash (manufacturing)
Euro area inflation started to rebound in May. We expect a

0.2%-pt move up to follow in June. Indeed, the drag from
the energy component is gradually receding. We expect
this pattern to continue until the end of the year, when we
expect headline inflation to reach 1.1%oya.
Thu
Jun 30
8:45am
Money and credit data
Jun
May
Euro area
Overall region
Germany
France
Apr
May
Jun
51.7
51.8
48.0
51.5
52.1
48.4
52.0
Apr
May
Jun
53.1
54.5
50.6
53.3
55.2
51.6
53.8
52.6
54.4
47.9
Purchasing managers index flash (services)

Euro area
Overall region
Germany
France
52.4
53.2
49.9
Purchasing managers index flash (composite)

May
Euro area
Overall region
Germany
France
Apr
May
Jun
53.0
53.6
50.2
53.1
54.5
50.9
53.6
52.8
54.1
49.4
38

Economic Research
Global Data Watch
June 24, 2016

The Euro area composite PMI fell 0.3pt to 52.8 in June (consensus: 53.0; J.P. Morgan: 53.6). The details were pretty solid,
however, with only France falling sharply (-1.6pts to 49.5). The
decline in France could in part reflect widespread strikes and
flooding, while the European football championships likely
came too late to provide much of a boost. In light of the weak
French PMI, the Euro area results were actually very encouraging. Euro area composite employment rose 0.5pt to a solid 52.5,
new orders rose 0.1pt to 52.5, and backlog of work jumped
1.4pts to 51.5. At the sector level, the manufacturing details
were particularly impressive, with increases in output (+1.4pts
to 53.8), new orders (+1.7pts to 53.4), and employment (+0.9pt
to 52.1) and higher order-inventory ratios. These manufacturing
results were helped by big jumps in Germany, where new export orders surged 4pts to a two-and-a-half-year high of 54.8
and where total new orders are now even higher at 56.8. In contrast, the services sector was more mixed in the Euro area. The
activity index fell 0.9pt to 52.4, employment rose 0.3pt to 52.6,
and new business fell 0.4pt to 52.2 while outstanding business
jumped 1.5pts to 51.4. At the country level, only France was
weak, but the German composite PMI was still elevated (-0.5pt
to 54.1) and with strikingly strong details, while the rest of the
region rebounded (+1pt to 53.8), reversing Mays surprise fall.
Apr
May
106.7
100.5
113.2
107.7
101.6
114.2
113.3
Jun
107.8
101.7
108.0
102.1
114.2
108.7
103.1
114.5
The German IFO was solid in June, continuing its rapid recovery from the sharp falls at the start of the year. Encouragingly,
the manufacturing sector led the improvement in June, consistent with the German manufacturing PMI, which jumped in
June with key subcomponents hitting two-and-a-half-year highs.
Apr
France (INSEE survey - manufacturing)
Index
Composite index
104.9
Index of past production
10.2
Exp. output - personal
8.9
Exp. output - general
-1.3
104.5
12.4
7.8
6.0
Apr
May
-2.4
-4.9
-7.2
-3.2
-2.8
-6.3
-4.6
-2.6
Belgium (BNB survey)

% balance of responses, sa
Overall
Manufacturing
Commerce
Construction
May
3Q15
France (3rd estimate)
%q/q, sa
0.4
%q/q, saar
1.5
%oya
1.1
GDP components (%q/q, saar)
Private consumption
1.7
2.0
1.1
1.2
Fixed investment
0.4
0.3
Exports
-0.7
-1.2
Imports
6.6
7.2
Contribution to GDP growth (%q/q saar)
Domestic final sales
1.3
1.5
Inventories
2.6
2.7
Net trade
-2.3
-2.6
4Q15
1Q16
0.4
1.7
1.4
1.5
1.3
0.6
2.6
1.3
-0.1
1.7
4.7
3.3
10.3
0.3
1.9
4.2
3.4
11.5
4.5
1.9
5.9
-0.2
3.1
1.4
2.6
-2.2
1.5
4.2
-0.5
-1.1
-2.6
Inflation
Producer prices
Germany
%m/m, nsa
%m/m, sa
%oya, nsa
National business surveys

German IFO survey
2000=100, sa
Business climate
Current conditions
Real GDP
Mar
Apr
0.0
-0.1
-3.1
0.1
0.0
-3.1
May
0.4
0.4
-2.7
Jun
104.3
13.1
6.7
5.3
101.7
-0.6
9.0
1.0
Jun
0.7
-1.2
-5.0
-3.0
39

Greg Fuzesi (44-20) 7134-8310
Economic Research
Euro area
June 24, 2016

40
JPMorgan Securities Japan Co., Ltd.

Masamichi Adachi (81-3) 6736-1172
masamichi.x.adachi@jpmorgan.com
Economic Research
Global Data Watch
Japan
We do not think that there is substantial risk in either direction to our forecast for 1.0% annualized GDP growth in 2Q at
this stage; at the same time, we are less comfortable with our
projected 2H growth pickup to 1.5%q/q, saar in 3Q and 1.2%
in 4Q, because there is no sign of an improvement in business
confidence. Brexit likely will add to the caution weighing on
business and household spending.
June 24, 2016
JPY appreciated sharply and equity prices plunged on

the UK Brexit vote; we still expect BoJ easing in July
June flash PMI output and new orders rose but headline only edged up
Large firms sentiment fell further in June, while trade
activity remained downbeat in May
Busy week ahead: May IP report, retail sales, household
spending, CPI, BoJ Tankan
The unexpected result of the UK referendum to leave the EU
shocked Japanese markets. USD/JPY briefly fell below the
100 threshold (to 99.0) for the first time since November 2013,
and the 7.3% plunge in the TOPIX was the largest one-day
fall since March 2011 when the Great East Japan earthquake
hit. Minister of Finance Aso declined to comment on FX
market intervention but pledged to take action as needed to
calm markets. The direct impact from Brexit on the Japanese
economy should be limited as only 1.7% of Japans exports
was to the UK in 2015, but the indirect consequences from the
market turmoil (especially JPY appreciation) should be a significant concern for Japanese policymakers. We continue to
expect the BoJ to ease further on July 29, but do not rule out
an earlier move at an emergency meeting.
This weeks data were mixed, if not weak. The output and
new orders indexes rose in the June flash manufacturing PMI,
after consecutive monthly declines since January, suggesting
that the damage from the Kumamoto earthquakes has faded.
But, the headline index was roughly unchanged. And the levels of all the indices remain close to their lowest prints since
the beginning of the current recovery in early 2013 (Figure 1).
Also, large firms sentiment worsened again in May. Real
exports continued to rise on a 3m/3m sequential trend basis
but did not recover much in May after a decline in April,
while real imports continued to fall on a sequential trend basis,
despite a pickup in May.
Figure 1: PMI manufacturing
Index
65
Output
60
55
50
Headline
45
40
2012
New orders
2013
2014
2015
2016
Next weeks May data, especially the IP report, which includes manufacturers output projections for June and July,
will offer us more color on current economic momentum. The
2Q BoJ Tankan, a comprehensive business survey covering
not only business confidence, but also business plans for profits and capex will add insight on firms business outlook and
spending plans. Moreover, the expected slowdown in core
CPI inflation excluding energy should support our call that
the BoJ will deliver additional easing on July 29.
June PMI manufacturing: Not so bad, but

The June flash manufacturing PMI headline index disappointed, edging up to only 47.8 (J.P. Morgan forecast: 48.5) from
47.7 in the May final print. But the output index jumped
1.5pts to 47.8 and new orders rose 1.1pts to 45.8, while the
delivery time index fully recovered from its May fall. It seems
that the impact from the Kumamoto earthquakes has faded.
Still, the tone of the PMI is weak. The components remain at
low levels, and new export orders rose only 0.4pt to 45.2. The
indices for purchased stocks and backlogs declined while finished goods stocks jumped, leaving an impression that firms
have no intention to increase output in the near future. Moreover, the employment measure declined in June, although it
stayed above the neutral 50.
Large firms sentiment remained soft

In the June Reuters Tankan, the manufacturing DI edged up to
3 from 2 in May, when the DI fell a large 8pts partly due to
adverse effects from the Kumamoto earthquakes. The nonmanufacturing DI fell further to 17, the lowest reading since
April 2013, from 19 in May and 23 in April. Firms threemonth-ahead outlook remains cautious, with manufacturers
looking for a slight rise to 4 and nonmanufacturers predicting
a modest recovery to 20 in their business conditions DIs. We
expect the business conditions DIs in the quarterly BoJ
Tankan to decline further in the June report to be released on
July 1. We note, though, that sentiment is not as low as in the
past, especially in nonmanufacturing (Figure 2). Firms seem
not to be planning to retrench at this stage. It is worth watching how sentiment changes in the months to come, especially
after the shock to financial markets from Brexit.
2017
Source: Markit
41

Masamichi Adachi (81-3) 6736-1172
masamichi.x.adachi@jpmorgan.com
Economic Research
Japan
June 24, 2016
Trade surplus likely will stay
Figure 2: Large firms' business sentiment

Standard deviation from mean, shading shows recessions
Nonmanufacturing
2
1
0
-1
Manufacturing
-2
-3
-4
00
03
06
09
12
15
Source: Reuters, J.P. Morgan
The seasonally adjusted nominal trade surplus declined modestly to a 270billion, sa from a 397 billion post-Tohoku
earthquake high in April (Figure 4). Ahead, we expect the rise
in oil prices to raise the value of imports, but our forecast
looks for an offsetting rise in exports, offsetting the rise in
imports. Thus, we project a steady surplus around 1% of GDP
in coming quarters. However, export prices, which were
closely correlated to USD/JPY until 2014, have been relatively weak lately (Figure 5), suggesting that prices in local currency fell, so a larger-than-expected decline in the trade balance is possible.
Figure 4: Customs trade balance and mineral fuel imports
Weak trade activity

The BoJ real export index edged up only 0.1%m/m, sa in May
after a 1.4% fall in April, which, in part, reflected temporary
supply chain disruptions from the Kumamoto earthquakes.
While real exports continue to grow on a 3m/3m sequential
trend basis (Figure 3), the April-May average is 1.3% annualized below the monthly average in 1Q, when it declined a
modest 0.4%q/q, saar. Meanwhile, real imports rose a solid
4.9%m/m, sa last month following a 5.7% cumulative decline
in the previous two months. International trade this quarter
has tracked our GDP net trade forecast, which looks for a
0.6%-pt contribution to q/q annualized overall growth, reflecting weak exports and even weaker imports: our forecast calls
for a 1.0%q/q, saar decline in real GDP exports after 2.4%
growth in 1Q and a 5.0% imports fall after a 1.6% decline.
Yen bn, sa
Yen bn, nsa, reversed

Trade balance
1500
500
500
1000
1500
-500
2000
-1000
2500
-1500
3000
-2000
3500
05
07
09
11
15
17
Figure 5: Export prices and USD/JPY

2010=100
Yen
Export prices
140
130
125
%3m/3m, saar
120
115
Exports
20
13
Source: MoF, J.P. Morgan
135
Figure 3: Real exports and imports
110
100
106
10
USD/JPY
90
96
0
-20
2013
80
87
70
00
-10
Imports
2014
2015
2016
Source: BoJ
Exports of transport machinery (including autos) recovered,

rising 8.5%3m/3m, saar after falling 5.9% in April. At the
same time, shipments of industrial machinery appear to have
stabilized, rising 6.0% ar after a 0.7% gain in the previous
month and a string of declines in the 12 months through
March. In contrast, exports of electric machinery has weakened further, falling 5.3%3m/3m. saar after a 0.4% decline in
April. A breakdown of import data by type of goods suggests
that mineral fuel drove the recent rise and fall, and that chemical imports have been especially weak in the past few months.
Mineral fuel imports
1000
02
04
06
08
10
12
14
16
Source: BoJ, J.P. Morgan
BoJ hawk Kiuchis argument

Takahide Kiuchi, the only committee member to vote against
the majority since October 2014, when the BoJ expanded its
quantitative and qualitative easing, argued that it is time for
the Bank to shift focus from price stability to financial system
stability as the side effects of the current policy measures
would overwhelm their positive impact. We note that another
member, Takehiro Sato, is also against NIRP, but he was not
against the quantitative and qualitative easing measures at the
last policy meeting. Much domestic market commentary discusses the limits and side effects of the BoJs current policy
measures, echoing these two board members views.
42

Miwako Nakamura (81-3) 6736-1167
miwako.nakamura@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
We expect the nationwide core CPI to accelerate its oya

decline in May. While the energy CPI likely continued its
double-digit decline, the already-released preliminary Tokyo report suggest that inflation rates of nonperishable
food and core-core items slowed, with household durables
weighing heavily on the latter.

Commercial sales
Wed
Jun 29
8:50am
%m/m, sa
Wholesale sales
Total retail sales
%oya
Wed
Jun 29
2:00pm
May
-0.3
-2.0
Mar
48.8
47.9
49.5
Apr
47.8
46.1
49.2
May
45.6
44.7
46.4
Fri
Jul 1
8:30am
Mar
3.8
1.8
2.9
3.3
Apr
0.5
1.6
-1.7
-2.2
Fri
Jul 1
8:30am
May
0.0
We expect May production to stay near the April level.

Still, the trajectory for 2Q should be much stronger than
we thought earlier this quarter, as the April report showed
an unexpected rise in output even with some adverse effect
from the earthquakes.
Housing starts
Feb
7.8
11.6
0.97
Mar
8.4
2.0
0.99
Apr
9.0
0.2
0.99
May
4.0
-3.2
0.96
The report will probably continue suggesting that lower

mortgage rates triggered by the BoJs NIRP are prompting
housing demand.
Consumer prices
%oya
Tokyo
Overall
Core (ex fresh food)
Ex food and energy
Nationwide
Overall
Core (ex fresh food)
Ex food and energy
Mar
Apr
May
Jun
-0.1
-0.3
0.6
-0.4
-0.3
0.6
-0.5
-0.5
0.5
-0.6
-0.6
0.4
-0.1
-0.3
0.7
-0.3
-0.3
0.7
-0.4
-0.4
0.6
%m/m, sa
Feb
3.3
-0.8
0.9
1.9
1.28
Mar
3.2
-0.3
-0.2
-2.3
1.30
Apr
3.2
0.3
0.3
0.0
1.34
May
3.1
1.33
In the April reports, both employed workers and job offers

rose solidly, alongside a rebound in forward-looking new
job offers. Moreover, the May Employment DI in the
Economy Watchers survey rose higher than the level in
March, immediately before the earthquakes. These suggest
that the labor market is now tightening.
%m/m, sa, base year 2010

Feb
-5.2
-4.1
-0.4
5.7
Labor force survey

Unemployment rate (% sa)
Labor force (%m/m, sa)
Total employment (%m/m, sa)
Unemployed (%m/m, sa)
Job offers ratio (sa)
Jun
47.0
The June Reuters Tankan showed further deterioration in

large firm sentiment. Thus, we expect that the current conditions DI in this survey will not recover as much as predicted in the May report (47.6).
Industrial production - preliminary
Housing units %oya

%m/m, sa
Mn units saar
Fri
Jul 1
8:30am
Apr
2.8
-0.1
-0.9
Diffusion index
Production
Shipments
Inventories
Inventory/shipments ratio
Thu
Jun 30
2:00pm
Mar
-3.6
1.5
-1.0
May consumption indicators will probably come in soft,

given that the April readings surprised on the upside likely
due to temporary noise in some of the components, in addition to the Kumamoto earthquakes relatively mild impact.
Shoko Chukin small firm survey
Sentiment index
Manufacturing
Nonmanufacturing
Thu
Jun 30
8:50am
Feb
0.1
-2.3
0.4
Household survey of expenditures

%m/m, sa, incl. agricultural worker households
Feb
All households
Real spending
1.7
%oya
1.2
Core
1.2
%oya
1.9
Worker households
Real disposable income
-1.6
Propensity to spend (%)
74.6
Mar
Apr
May
0.5
-5.3
-0.7
-4.3
0.2
-0.4
2.9
0.4
0.0
-4.5
3.7
71.5
0.5
74.2
See above comment on Commercial sales.

Fri
Jul 1
8:50am
BoJ Tankan
DI, "good" minus "bad"
Large mfg
Large nmfg
Small mfg
Small nmfg
Capex plans, %oya
Large firms
Small firms
Current profit plans, %oya
Large firms
Small firms
Dec
12
25
0
5
FY2015
Mar
9.8
3.9
3.9
4.6
Mar
6
22
-4
4
Actual
9.0
1.5
Jun
3
17
-7
-1
FY2016
Mar
-0.9
-19.3
Sep
1
13
-10
-7
Jun
1.0
-18.0
4.2
7.0
-2.0
-5.4
-2.5
-7.0
We expect the June Tankan to show further worsening in

business sentiment amid uncertain overseas demand, intensified yen strength/stock market weakness, and lack
Source: METI, Shoko Chukin Bank, MLIT, Statistic Bureau, BoJ, J.P. Morgan forecast
43

Economic Research
Japan
June 24, 2016
-luster consumption, but by a magnitude similar to that

predicted by March survey respondents. More important to
watch is the inflation outlook of enterprises (to be released July 4), which may raise the probability of a July
hike with a lower inflation outlook.
Fri
Jul 1
2:00pm
Auto registrations
Mar
Total %oya
-3.2
Mn units saar
2.96
J.P. Morgan adjusted (incl. light vehicles)
Mn units saar
3.66
Apr
7.2
3.55
May
6.6
3.38
4.15
3.93
Jun
2.0
3.34
Indicators, including the May registration numbers, suggest that any adverse effects on the auto sector from the
earthquakes have been relatively mild and short-lived.
Consumer sentiment
Fri
Jul 1
DI, sa
2:00pm
Consumer sentiment
Standard of living
Income growth
Labor market conditions
Durable goods purchases
Mar
41.7
40.5
40.6
43.9
41.7
Apr
40.8
39.6
40.8
42.8
39.8
May
40.9
39.7
40.8
42.9
40.2
Jun
41.0
-1.8
Apr
427
-1.2
-3.6
823
-1.6
-4.0
397
-1.3
-3.8
May
396
-1.5
-1.0
161
-1.4
-3.8
270
-1.3
1.0
-41
0.1
4.9
See main essay.
The recent weakness in manufacturing sentiment was broadly

based across subsectors, as respondents noted a drag from the
strong yen on external demand, as well as sluggish domestic
demand from both consumers and corporates. For example,
electric machinery posted a below-neutral reading for the second consecutive month (marking -9 after -14 and 0), and petroleum products plunged to -40 from an already-weak -16.
Meanwhile, the auto sector, where the Kumamoto earthquakes
temporarily disrupted supply chains, recovered a part of the
May plunge (marking 7 compared to 0 in May and 21 in April).
Within nonmanufacturing, the important retail trading fell for the
third consecutive month to a neutral 0; respondents commented
on weaker sales to foreign visitors and wealthy consumers reduced motivation to buy as a result of the stock market, also noted
in the May department store sales report. Transport/ utilities
dropped to neutral as well (it was 15 in May and 4 in April), on
reportedly light physical distribution (see also main essay).
Feb
0.7
0.6
0.6
0.1
20.5
0.4
1.9
1.9
2.3
Total earnings per employee

Contract wages
Scheduled payments
Overtime payments
Special payments
Total hours worked
Regular employment
Full-time workers
Part-time workers
Mar
1.5
0.7
0.6
1.3
15.4
0.7
2.1
1.9
2.8
Apr
0.3
0.2
0.2
1.0
4.3
-1.4
1.9
1.8
2.3
0.0
0.0
0.0
1.1
-1.7
-1.5
2.0
1.5
3.3
Apr
48.2
Overall index
May
47.7
Jun
48.5
47.8
The final report for the June manufacturing PMI, where revisions will likely be minor as usual, is scheduled to be released
July 1 (see main essay for our assessment of the flash report).
Services producer prices (Jun 24)
Base year 2010
%oya
Nationwide department store sales (Jun 20)

Overall, %oya
%m/m sa by J.P. Morgan
3
17
Diffusion index
-2.0
Jun
Purchasing managers survey (manufacturing) - flash (Jun 23)
Customs-cleared international trade (Jun 20)

265
May
2
19
%oya
Consumer sentiment showed signs of stabilizing at not-solow levels in May, soon after the earthquakes. Although retail trading firms have recently been pointing to a drag from
weak stock prices on sentiment among wealthy consumers,
we think its impact on overall sentiment is fairly small.
Balance (bn sa)

Exports
Imports
Balance (bn nsa)
BoJ real exports
BoJ real imports
Apr
10
23
Manufacturing
Nonmanufacturing
Employers survey - final (Jun 22)
1. The DI asks whether a respondent thinks that now is a good time to purchase durables
Mar
295
0.1
-1.9
749
1.1
-2.1
Diffusion index
Mar
-3.0
0.0
Apr
-3.9
-1.5
May
-4.0
0.5
-5.3
-0.8
The JDSA attributes the further decline in department store

sales to weak stock prices, which are weighing on sentiment
among relatively wealthy domestic consumers, as well as to the
decline in the value of purchases per foreign visitor. That said,
given the high share of luxury goods sales, this indicator should
be more sensitive to of stock price movements than overall consumer spending.
Reuters Tankan survey (Jun 21)
Mar
0.2
Apr
0.2
0.3
May
0.2
Oya inflation of the May SPPI was the lower side of the 0.2%0.3% range seen since September 2015. The decline in leasing/rental accelerated, while transport extended a string of decline since autumn 2015. In contrast, advertising services and
real estate each further accelerated their oya rise, the latter driven by rental fees in Tokyo and surroundings. Information/
communication also remained firm, marking the fourth consecutive oya rise.
Source: JADA, CAO, MoF, BoJ, JDSA, MHLW, Markit, J.P. Morgan forecasts
44

Silvana Dimino (1-212) 834-5684
silvana.dimino@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016

Canada
Figure 1: Economic expectations and real retail sales
Activity indicators point to a partial 0.1%m/m real GDP

rebound in April
65
There is some downside risk to our 0.2%q/q, ar 2Q16

real GDP forecast
Real wholesale and retail sales both posted softer gains
than expected in April
Brexit raises risks on 2H16 growth
April economic activity indicators released this week were
somewhat disappointing and point to a sluggish start to the second quarter. Based on what we now know about April real
manufacturing output and real wholesale and real retail sales ,
we think that monthly real GDP posted only a partial rebound
after the 0.2%m/m decline in March. We estimate that real
monthly GDP increased only 0.1%m/m in April, a weak trajectory at the start of the current quarter. We already believe the
Alberta wildfires will be a marked drag on growth in May that
we estimate could subtract as much as 0.4% from growth.
There is now more downside risk to our 0.2%q/q, saar 2Q real
GDP forecast, but we prefer to await more clarity on May activity before revisiting our view. Our nowcaster is still tracking
a slight gain in real GDP in the current quarter, but its unaware
of the large hit to growth expected from the Alberta wildfires.
While we believe that the Brexit vote is more a regional than a
global shock, it still raises the specter of weaker global growth
and tighter financial conditions. We expect the largest impact on
Canada to be through the trade channel, since we expect US
growth to be modestly lower in the second half of the year, implying more limited demand for Canadian goods. We still expect
the ramping up of fiscal stimulus to boost economic growth and
job creation in the second half and monetary policy to remain
accommodative. Nevertheless, fresh downside risks to the second
half are likely to increase the Bank of Canadas sensitivity to any
significant deviation from its published forecasts. The Bank will
release new forecasts for the economy and inflation in the next
Monetary Policy Report on July 13.
Gasoline station sales fuel April retail sales

Retail sales increased 0.9%m/m in April, helped, as expected, by
a jump in gasoline station sales. After removing the effect of
higher prices, retail volumes were up a slight 0.1%m/m. There
were upward revisions to the March data with retail sales in both
real and nominal terms now less negative. All told, consumption
is tracking close to our 2.0% 2Q16 PCE growth forecast, but its
unclear whether that pace of spending growth will be sustained.
Its early in the quarter and improving sentiment seemed to be
supporting consumption through the first quarter and into April.
Sentiment has leveled off in recent weeks and may temper consumer spending in May and June (Figure 1).
diffusion index
% 3m/3m, saar
10
8
6
4
2
0
-2
-4
-6
Expectations
60
55
50
Retail sales
45
2012
2013
2014
2015
2016
2017
Source:Bloomberg/Nanos Research Corporation, Statisitcs Canada, J.P. Morgan
For a second month auto sales were a significant drag on retail sales in April. Excluding auto sales (-0.3%m/m), retail
sales were up 1.3%m/m. Gasoline station sales soared
6.0%m/m on higher prices at the pump. Moreover, higher
gasoline prices had little dampening effect on spending elsewhere. Sales of furniture, home furnishings, and electronics
bounced 3.2%m/m, a solid rebound after the 2%m/m decline
in March. Miscellaneous store retailers (3.7%m/m) and general merchandise stores (1.3%m/m) also gained in April.
Tepid rebound for wholesale sales in April

Wholesale sales edged up 0.1%m/m in April after two consecutive monthly declines; in volume terms, wholesale sales
increased 0.2%m/m. The miscellaneous subsector, a mix of
dealers in raw materials mostly, posted the largest gain with a
5.2%m/m increase. The large durable categories were mostly
disappointing. Wholesale sales of machinery and equipment
fell 1.9%m/m and building materials fell 2.0%m/m.
Figure 2: Real inventories
%, 3m/3m, saar
15
Wholesale
10
5
0
Manufacturing
-5
-10
2013
2014
2015
2016
Source:Statistics Canada, J.P. Morgan
The inventory correction that began in the second quarter of

last year looks to be fading, which bodes well for production.
The April report on wholesale inventories of autos hints at a
lift. Wholesale inventories of motor vehicles and parts posted
a large increase in April, bringing inventories in the subsector
to the highest level on record (Figure 2).
45

Economic Research
Canada
June 24, 2016


Thu
Jun 30
8:30am
Monthly GDP
Sa
Total, %m/m
%oya
Thu
Jun 30
8:30am
Jan
0.5
1.4
Feb
-0.1
1.4
Mar
-0.2
1.1
Apr
0.1
1.4
Feb
-0.9
-1.2
-0.6
1.8
Mar
-0.6
-2.0
-1.3
0.5
Apr
-0.5
-1.6
-0.8
0.3
May
0.2
-2.0
0.0
0.4
Industrial PPI
%m/m, nsa, unless noted
Total
%oya
Ex energy
%oya

Wholesale sales (Jun 20)
Sa
Total, %m/m
%oya
Feb
-2.3
3.3
-2.2
3.4
Mar
-1.0
1.3
-0.8
1.7
Apr
1.0
0.4
Mar
-1.0
3.2
-0.3
0.9
-0.2
3.0
-1.3
2.2
-0.8
3.5
-0.1
1.3
-0.1
3.2
-1.1
2.5
Apr
0.9
4.3
0.8
2.6
0.4
4.3
0.3
2.9
0.1
-0.2
Retail sales (Jun 22)

Total
%oya
Ex autos
%oya
Ex autos & gasoline
%oya
Real retail sales
%oya
Feb
0.6
5.7
0.3
2.7
0.9
4.9
1.4
4.2
5.8
0.4
2.9
5.0
4.6
1.3
3.4
0.6
4.7
0.1
Source: Statistics Canada, Richard Ivey School of Management, CMHC, RBC/Markit,

Teranet/National Bank of Canada, CREA, CFIB, Bank of Canada, J.P. Morgan forecasts
46
Banco J.P.Morgan, S.A., Institucin de Banca Mltiple,

J.P.Morgan Grupo Financiero
Gabriel Lozano (52-55) 5540-9558
gabriel.lozano@jpmorgan.com
Steven Palacio (52 55) 5382-9651
steven.palacio@jpmorgan.com
Economic Research
Global Data Watch
Mexico
to industrial activity in the form of rapidly declining oil output

and government spending cuts, which will weigh on mining
and construction activity. Manufacturing should partly offset
weakness in these two sectors, although signs of a clear
pickup in factory output remain elusive. As such, much will
depend on services actually regaining their footing underpinned by robust consumer fundamentals.
June 24, 2016
We revised down the 2016 GDP growth forecast after a

disappointing GDP proxy report in April
We now see growth at 2.4% from 2.5% previously
Inflation remained tame in 1H June but core prices continue to rise gradually
Banxicos monetary policy decision to reflect Brexit
concerns
The April GDP proxy came in well below our expectations.
Three percent annual growth might give the impression that activity expanded at a decent clip early in the quarter. However,
correcting for calendar effects, activity expanded a lackluster
0.7%oya, the weakest rate since late 2013 (Figure 1). Seasonally
adjusted data further stress the economys downbeat performance
early in the quarter: following a 0.2%m/m, sa decline in March,
activity slumped 1.2% in April, leaving the economy on a very
weak trajectory early in 2Q. Service-sector activitythus far the
main engine of growthunexpectedly contracted 1.4%m/m,
ending an eight-month streak of increases.
Figure 1: Economic activity index (IGAE)
%oya
5
4
3
2
1
0
-1
calendar-adjusted series
-2
13
14
15
16
Source: INEGI
We have argued that solid services growth should offset weak

industrial production as private consumption continues to fuel
domestic demand. As such, we do not see the 1.4% slump in
services as an inflection point and expect the sector to regain
its footing. Nevertheless, the weak activity trajectory early in
the quarter suggests 2Q growth is likely to be much lower
than we previously expected. We now think growth is likely
to stand at 1% annualized, instead of 2.2%, and believe the
risks are skewed toward an even weaker outcome. Factoring
in slower 2Q growth, we now think full-year GDP growth
will be a tenth below our earlier 2.5% forecast (Figure 2).
In other details, as already reported a couple of weeks ago,
industrial production dropped for the third straight month in
April, with broad-based declines across manufacturing, construction, and mining. We project continued strong headwinds
Figure 2: GDP Quarterly profile

%
8.0
6.0
%saar
%oya*
2.5
2.6
4.0
2.4
2.0
0.0
-2.0
-4.0
-6.0
Mar 12 Dec 12 Sep 13 Jun 14 Mar 15 Dec 15 Sep 16 Jun 17
Source: INEGI and J.P. Morgan forecasts. *Annual average
Inflation moving up gradually

Consumer prices increased 0.02%2w/2w in 1H June, bringing
annual inflation down to 2.6% from 2.7% in 2H May. We
expected a higher headline print (0.09%) after projections for
milder declines in raw food prices, combined with higher gasoline prices and increasing core inflation. However, unprocessed food prices declined more than expected. We still think
there is room for unprocessed food prices to mean-revert after
persistent declines this year, but the process has been more
gradual than expected. Yet, the deviation from its long-term
trend is not as marked as in previous cycles, suggesting the
correction could take longer than anticipated (Figure 3). Of
note, gasoline prices rose for the second month in a row, and
with oil prices rising steadily over the past few months we see
room for further increases, particularly during the drivingseason running between June and August.
Core inflation continues to move up in spite of the long-standing
declines in mobile phone service rates (the only non-food component in the top 10 price declines in 1H June), which is keeping
services inflation at bay. Annual core inflation came in at
2.98%oya, or 0.16%2w/2w. Core goods prices continued to firm,
reaching 3.6%oya (0.20%2w/2w) on the back of steady increases
in both processed food and non-food merchandise.
Processed food prices continued their ascending trend, reaching 3.8%oya while non-food merchandise inflation came in at
3.4%oya. A year ago, processed food inflation stood at 2.4%
and non-food merchandise inflation at 2.5%. We continue to
foresee nonfood and core goods prices trending up, driven by
a weak currency, firmer domestic demand, and higher commodity prices.
47

Gabriel Lozano (52-55) 5540-9558
gabriel.lozano@jpmorgan.com
Economic Research
Mexico
June 24, 2016
Fri
Jul 1
9:00am
Figure 3: Agricultural prices

%oya
12-month
rolling sum
14
Longterm
average
8
6
Index, sa
Mar
51.9
50.9
Manufacturing
Non-manufacturing
12
10
IMEF PMI survey
Fri
Jul 1
10:00am
4
2
Apr
51.6
50.9
May
51.9
51.3
Jun
52.4
51.6
Mar
2.2
-2.4
Apr
2.2
8.3
May
2.4
9.4
Remittances
Feb
2.1
13.0
Total (US$ bn)

%oya
0
04
05
06
07
08
09
10
11
12
13
14
15
Source: INEGI
Banxico to react to Brexit
Real GDP by type of expenditure
This week, the Ministry of Finance, Banxico, the Ministry of

the Economy, and the National Banking Commission held a
press conference following the referendum results confirming
the UK favored an exit from the European Union. The policymakers stressed that policy decisions cannot be rushed; by
avoiding hasty policy decisions in an out-of-calendar meeting,
we think the authorities sent a strong message of coordination
without creating confusion. We project a 50bp hike next week
(June 30), but we acknowledge that expectations of looser
monetary policy in Europe and a delay in rate hikes in the US
(we now see the next Fed hike in December) have increased
the odds of Banxico remaining on hold. Similar to the authorities, we believe it is appropriate to digest Brexit news before
revisiting our policy call. So far there are no major signs of
knock-on effects on inflation, but the lack of action on the FX
front has sparked risks of rate hikes sooner rather than later.
%oya, real terms
Mon
Jun 28
9:00am
2.4
Private consumption
3.0
3.5
Public consumption
1.5
1.8
Fixed investment
Feb
-783
29.0
-2.6
29.7
2.2
1Q15
2.3
1.9
2.3
2.5
3.6
3.3
1.0
-0.4
4.1
0.6
0.6
Exports
10.0
5.1
2.5
1.4
Imports
6.2
2.2
1.5
2.1
Jun 3
Jun 10
Jun 17
177.3
177.4
___
May 1H
-0.48
0.08
2.53
2.92
May 2H
0.17
0.11
2.66
2.94
Jun 1H
0.09
0.19
2.62
3.00
0.02
0.16
2.55
2.98
Apr
4.1
0.3
3.0
-1.2
Central bank foreign reserves

US$ bn
Gross reserves
Consumer prices
%2w/2w
Core
%oya
Core
%oya, unless noted

Feb
%oya
4.1
%m/m sa
0.1
Trade balance
Balance (US$ mn)
Exports (US$ bn)
%oya
Imports (US$ bn)
%oya
4Q15
3.6
Economic activity index (IGAE)
Week of June 27- July 1

Mon
Jun 27
9:00am
3Q15
Supply & demand
Mar
87
31.5
-7.9
31.4
-6.7
Apr
-2,080
30.4
-7.8
32.5
-1.7
May
-1,230
30.3
-3.0
31.5
2.6
Labor market report
Mar
1.2
0.1
0.0
-0.2
Retail sales
%oya
%m/m sa
Feb
9.6
0.3
0.4
Mar
6.4
3.0
3.2
Apr
8.0
-0.5
10.6
-1.4
Source: Banxico, INEGI, and J.P. Morgan forecasts
% of labor force
Unemp. rate
Sa
Feb
4.2
4.2
Mar
3.7
4.2
Apr
3.8
3.9
May
4.0
4.0
48
Banco J.P. Morgan S.A.

Cassiana Fernandez (55-11) 4950-3369
cassiana.fernandez@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
Cristiano Souza (55-11) 4950-3913

cristiano.souza@jpmorgan.com
Brazil
Government has been very active, proposing new
measures and addressing specific issues
Next weeks TJLP decision and Inflation Report should
be key to give further steps of the monetary policy
IPCA-15 inflation was lower than expected, but wholesale prices are rising substantially
Current account in surplus for a second consecutive
month in May, the first since August-September 2007
Developments in Brazil this week were less negative for the
government than in the past couple of weeks. The most important highlight is that, after a long discussion, the government
seems to have reached an agreement regarding states debts.
The states will interrupt their interest payments to the federal
government for six months and gradually resume them from
January 2017 until July 2018. The media have reported a
BRL50 billion impact on the central government interest revenues for the next three years. In exchange, the states will have
to put a cap on spending growth similar to the one Finance
Minister Henrique Meirelles has proposed for the central government and already sent to the Congress. While this can be
seen as a political victory for interim President Temer, the cost
is significant and opened room for further local government
claims for fiscal benefits. Of note, the local media have reported that the government could release the 2017 primary balance
target of around 1.6% of GDP in coming days.
The government and the Congress are also moving forward
with the economic agenda. First, at the beginning of the week
the Lower House approved removing the 20% limit on foreign investment in Brazilian airlines; the bill now moves to
the Senate. Meanwhile, the Senate approved a bill to improve
governance in state-owned companies mainly by creating
incentives for the nomination of market names to these companies boards; the bill will now be sent for the sanction of
interim President Temer. The government also indicated willingness to move forward with other changes, such as the reform of the rules for the exploration of deep water oil reserves, freeing Petrobras from the obligation to participate in
every project with a 30% stake, and allowing foreigners to
buy rural land. Also, the press reported that labor market reform could be sent to the Congress shortly, including the outsourcing bill, which would regulate activity in the country,
and the possibility of employer-employee deals prevailing
over the labor laws, making the labor market more flexible by
adapting to each sector or companys needs.
On the political front, the federal police arrested one former
Workers Party (PT) minister, Paulo Bernardo, and took an-
other, Carlos Gabas, for inquiry. Also, the police mounted

search operations at the PT headquarters in So Paulo and
Braslia, further tarnishing the partys image.
The impact of the UK Brexit vote on the BRL has been relatively benign so far. Although BCB has released a statement
that it could adopt measures to support functioning of the financial and FX markets, it took no action after the Brexit referendum. In our view, this event should have limited impact
on the domestic growth outlook, but the expected growth
downshift and additional monetary easing in DM would allow
an extended monetary easing cycle up to the first half of next
year. Still, we prefer to wait for the release of the 2Q inflation
report next Tuesday before we revisit our monetary policy
call. Also, the National Monetary Committee (CMN) decision, which will set the TJLP (the benchmark BNDES interest
rate) and the inflation target for 2018, is key to understanding
the next steps for monetary policy. We expect the CMN will
resume the TJLP tightening to reduce the implicit subsidies
on BNDES lending.
A more benign June IPCA-15

The IPCA-15 price index (a preview of the IPCA) rose only
0.40%m/m in June, well below our call for a 0.52% gain and
the 0.51% market consensus forecast. Surprises were widespread across price groups, as reflected in the lower-thanexpected 0.56% rise in the core IPCA-15. Annual headline
IPCA-15 inflation decelerated to 8.98%, falling below 9% for
the first time since mid-2015, and annual core inflation
reached 8.27%, falling 64bp and 18bp since May (Figure 1).
Figure 1: Headline and core CPI (IPCA-15)
%oya
Headline
11
10
9
8
7
Target ceiling
6
Core
5
4
2012
2013
2014
2015
2016
2017
Source: IBGE
In light of the incoming price information, we remain cautious

regarding the short-term inflation outlook. The IPCA-15 print,
in our view, erased the upside risk to the June IPCA from a
new food inflation shock, notably from beans prices, which
have surged up to 50%oya in our high-frequency price surveys. Therefore, we keep our 0.30%m/m forecast for the June
IPCA, which would imply annual inflation dipping to
8.8%oya, from 9.3% in May.
49
Banco J.P. Morgan S.A.

Cassiana Fernandez (55-11) 4950-3369
cassiana.fernandez@jpmorgan.com
Economic Research
Brazil
June 24, 2016
Cristiano Souza (55-11) 4950-3913

cristiano.souza@jpmorgan.com
Also, next months food inflation remains a concern. Agricultural

wholesale price increases gained momentum, to probably print
near 30%oya this month, a number not seen since 2008, while
industrial product prices have not decelerated even with the BRL
appreciating since the beginning of the year (Figure 2). With that
in mind, although we continue to believe that inflation will decelerate toward 7.3% by the end of this year, we must recognize that
short-term inflation prospects shifted up recently.
Figure 2: Wholesale price inflation*
%oya
40

Wed
Jun 29
7:00am
Wholesale prices (IGP-M)
Wed
Jun 29
8:00am
National unemployment rate
20
Wed
Jun 29
9:30am
10
0
08
10
12
14
May
0.8
11.1
Feb
10.2
16
Source: FGV and J.P. Morgan forecast * With June forecast
Rapid external account adjustment continued in May

The current account posted a US$1.2 billion surplus in May, the
second consecutive positive print since August-September 2007,
but disappointed analysts expectations as remittances of profits
and dividends came in stronger than expected. The current account
maintained the downward trend to 1.7% of GDP in line with our
expectation that it will shrink to 0.6% of GDP this year. On the
financial flows side, the picture remained positive as well. Net
foreign direct investment (FDI) inflows came in at US$6.1 billion,
surprising the market consensus to the upside again and adding up
to a solid US$79.4 billion (4.6% of GDP) over the past 12 months.
Figure 3: Current account deficit and FDI
Thu
Jun 30
Mar
10.9
Apr
11.2
May
11.3
Minus denotes surplus

Feb
Mar
Apr
May
23.0
10.6
-10.2
12.1
2.1
10.8
36.8
2.3
9.7
38.8
2.3
10.1
39.4
2.4
9.9
39.2
TJLP
3Q15
7.0
BNDES benchmark rate
Fri
Jul 1
8:00am
Jun
1.52
12.03
Fiscal sector
BRL bn
Primary
12-month sum, as % of GDP
Primary
Nominal
Net debt, % of GDP
Industrial
-10
Apr
0.3
10.6
Rate, 3-month average (nsa)
Agricultural
30
Mar
0.5
11.6
%m/m
%oya
4Q15
7.5
1Q16
7.5
2Q16
8.0
Feb
-2.9
-9.7
%m/m, sa
%oya, nsa
Mar
1.4
-11.5
Apr
0.1
-7.2
May
-1.0
-9.5
as % of GDP
FDI
4.8
Consumer prices (IPCA-15)

4.0
%m/m
%oya
3.2
Apr
0.5
9.3
May
0.9
9.6
Jun
0.52
9.11
0.40
8.98
CAD
2.4
1.6
2011
Current account balance

2012
2013
2014
2015
2016
2017
Source: BCB
The trade balance was the highlight, but profits and dividends
remained resilient. Mays US$6.3 billion trade surplus
brought the 12-month surplus to US$39.4 billion, aided by the
recent recovery in the terms of trade. Finally, we note that net
portfolio flows are heading further into negative territory,
with the fixed income outflow accelerating in the month.
Current account (CA)

CA, 12-month sum
CA, 12-month sum, %GDP
Foreign direct investment
Mar
-0.9
-41.4
-2.4
5.6
Apr
0.4
-34.1
-2.0
6.8
May
2.5
-28.2
-1.6
5.9
1.2
-29.5
-1.7
6.1
Source: IBGE, BCB, FGV, and J.P. Morgan forecasts
50

Diego W. Pereira (1-212) 834-4321
diego.w.pereira@jpmorgan.com
Economic Research
Global Data Watch
Argentina
unemployment, tax revenues do not yet suggest a material

jump in layoffs beyond the 48,000 jobs lost in the construction sector.
June 24, 2016
The primary fiscal balance is only ARS3.8bn wider

YTD, implying a 31.8% contraction in real terms
We see social security transfers and capital spending
growing in 2H16, and a 4.9% of GDP primary deficit
Despite our constructive view on 2017 growth (+3.4%),
the primary deficit will remain above the official target
BCRA trimmed the policy rate another 75bp
In May, the primary fiscal deficit reached ARS13.7bn, driving
the YTD fiscal shortfall to ARS76.1bn, only ARS3.8bn wider
than in the same period last year, a significant consolidation
given the recessionary environment in 1H16. However, we
project strong increases in pensions, social benefits, and capital spending in the second half of the year. If our 2H16 activity forecast is on the mark, revenues should start rising, helping the government come closer to its 4.8% of GDP primary
fiscal deficit target for this year. In all, we forecast the primary deficit at 4.9% of GDP this year, just above the official
target (Figure 1). That said, for 2017 we forecast the primary
deficit at 3.8% of GDP, above the 3.3% of GDP government
target.
Figure 1: Fiscal balance
ARS bn, 12-month sum
50
0
-50
-100
-150
-200
-250
Jan-07
Jan-09
Headline Balance
Primary Balance
Jan-11
Jan-13
Jan-15
Source MHyFP and J.P. Morgan
Real tax collection down 6.3%oya YTD

Primary revenues were up 30.7%oya in nominal terms YTD
in May, implying a 6.3% real contraction when deflated using
the Congress CPI, which rose 37.0%oya YTD in May. Tax
revenues, which were 59% of 2015 primary revenues, fell
9.2% YTD in real terms, as the government lost revenues due
to tax regime changes and, most importantly, subdued economic activity in 1H16.
Social security tax collection has outperformed, despite slackening job growth overall, and job destruction in some key
sectors. CPI inflation-adjusted social security revenues declined just 3.3% YTD by May. Despite concerns about rising
The spending side is usually more telling when gauging the

pace of fiscal consolidation in a recessionary environment.
Indeed, in light of the gradual fiscal consolidation strategy,
the effort does not look small. YTD, primary spending (including capital expenditures) is up 27.1% in nominal terms,
equivalent to a 9.9% real decline. The biggest effort has been
in capital spending, which is almost flat YTD in nominal
terms, implying a 37.4%oya real collapse. In our view, downtrend this will reverse in 2H16. We expect capital spending to
increase quickly in nominal terms as the government normalizes the administrative process (bear in mind that ongoing
corruption investigations are heavily concentrated in public
works programs). Moreover, the government has already announced several infrastructure investment plans. In May, capital spending was down 12.6%oya in real terms, a marginal
improvement when compared to the 37.7%oya 3mma plunge
through April.
Table 1: Fiscal balance YTD
ARS bn, unless noted
YTD*
2016
Primary revenues
Taxes
Social security
Non-Tax revenues
Other (ex BCRA & FGS)
Primary expenditures
Primary spending ex capital
Consumption
Social Security transfers
Transfers
Other (including SOE balance)
Capital spending
Primary balance
Rents
BCRA transfers
ANSES FGS transfers
Interests paid
Headline balance
579.0
341.7
211.3
13.7
12.3
655.1
589.9
116.8
260.4
187.1
25.6
65.2
-76.1
0.5
30.0
27.5
57.0
-75.6
Same
period
2015
443.0
267.3
158.0
11.3
6.4
515.4
449.9
94.8
186.3
146.1
22.7
65.5
-72.3
-14.8
12.0
13.8
40.6
-87.2
%oya
%oya real
terms**
30.7
27.8
33.7
20.8
91.9
27.1
31.1
23.3
39.7
28.1
12.7
-0.4
-6.3
-9.2
-3.3
-16.2
54.9
-9.9
-5.9
-13.8
2.7
-9.0
-24.3
-37.4
* through May
** Deflated CPI Congress
Source: MHyFP and J.P. Morgan
Public consumption also downshifted meaningfully falling

13.8% YTD in real terms. Consumption expenditures represented almost 20% of total primary expenditures in 2015, and
we believe the consolidation efforts will have a more lasting
impact on this front. Meanwhile, fiscal transfersincluding
subsidiesare down 9.0% in real terms YTD. But, similarly
to capital spending, we saw a bounce back in May, to
51

Diego W. Pereira (1-212) 834-4321
diego.w.pereira@jpmorgan.com
Economic Research
Argentina
14.7%oya growth in real terms in May, after an 11.2%oya

3mma contraction in April. Despite the correction of administered prices and tariffs in April, the May jump shows that further fiscal effort is needed to save near 1%-pt of GDP in subsidies. Finally, social security expenditures have been rising
in real terms YTD. We also note that, given the bill about to
be passed in Congress, pension spending will rise by around
1%-pt of GDP on annual basis (see Argentina: Views on the
pension reform and tax amnesty bill).
cycle, driving the policy rate to 30% by mid-July, with a

weekly easing pace in the 50-75bp range. We keep our call
for the policy rate to reach 24% by year-end, 400bp above our
2017 headline CPI forecast.
We forecast 2016 primary fiscal deficit at

4.9% of GDP, and absent further subsidy
cuts, the 2017 deficit at 3.8% of GDP
Our 2016 primary deficit forecast is just above the official
target, 4.9% vs 4.8% of GDP. We expect a bigger deviation
from target in 2017. Even incorporating 3.4% GDP growth,
absent further cuts in subsidies, our models suggest the primary deficit will be closer to 3.8% of GDP, 0.5%-pt above the
official target.
We believe the government will lower spending (in particular
subsidies). So far the market has been sanguine about permanent increases in social benefits and pensions. The strategy is
well understood: for the fiscal adjustment to succeed in the
four-year time frame, the government must prevent the political and social restrictions from becoming binding. Gradualism
is then the dominant strategy, alongside the correct sequencing of the policy measures. Thus, higher social spending does
not necessarily mean abandoning the quest for fiscal consolidation. We concur with the strategy, but we also note that the
effort to reduce subsidies must continue. Otherwise, activity
growth would have to be higher than the 3.4% we forecast for
2017 for tax revenues to increase in a manner consistent with
the fiscal target.
BCRA trimmed the policy rate another 75bp

Argentinas central bank (BCRA) cut the policy rate (35-day
Lebac rate) by 75bp to 31.5% this week. The monetary authority thus continued the easing cycle started in early May
(Figure 2), although it slowed the pace from the 100bp weekly easing weekly easing observed in the last three weeks. We
were expecting more gradual easing (see note).
June 24, 2016
Figure 2: Policy rate (35-d Lebac rate)

%
40
38
36
34
32
30
28
26-Jan-16
26-Mar-16
26-May-16
Source BCRA and J.P. Morgan
26-Jul-16

Tue
Jun 28
Policy rate
%
Wed
Jun 29
Jun-7
33.25
Jun-14
32.25
Jun-21
31.50
Jun-28
31.00
2Q15
0.4
3Q15
2.5
4Q15
-1.5
1Q16
-0.6
GDP
%oya
Source: Indec and J.P. Morgan forecasts

$mn
3Q15
-4.1
4Q15
-4.6
1Q16
-4.2
-4.0
Source: Indec and J.P. Morgan forecasts
In our view, the 75bp-weekly pace is consistent with the decline in 12-month inflation expectations. The University
Torcuato Di Tella (UTDT) published its survey of 12-month
inflation expectations this week, with the median down to
25%, 300bp below Mays print, and, thus, returning to Januarys levels. The expected fall in inflation reinforces our reading of the revamped core GBA-CPI print for May published
last week, and the expectation of more easing in the coming
weeks (see note). We believe BCRA will continue the easing
52

Ben Ramsey (1-212) 834-4308

Economic Research
Global Data Watch
June 24, 2016
Franco A Uccelli (1-305) 579-9415

franco.a.uccelli@jpmorgan.com
Colombia
Figure 2: Lower output, higher domestic consumption drive fall in

net oil exports
The trade deficit was almost unchanged in April
kbpd
1100
Exports remain weak, though imports continue to fade.
1000
BanRep hiked rates 25bp
Oil production
900
800
Barring any data surprises, we expect the tightening

cycle has reached its end
700
600
Net oil exports
Trade balance stabilizes, but at wide levels
500
2012
Colombias April trade balance was almost flat from March at

US$1.1bn. Exports are still showing few signs of a pickup,
rising to $2.4bn from $2.3bn in March, and were down
25%oya. Indeed, stronger domestic coffee production drove
most of the monthly increase. Imports came in at US$3.7bn in
April, contracting 17%oya. Volumes have remained buoyant,
which could point to resilient domestic demand, although we
identify sector-specific drivers. The 12-month trade balance is
tracking at US$15.6bn, unchanged from a month ago (Figure 1).
Source: DANE, ANH, and J.P.Morgan
Figure 1: Trade balance (FOB-FOB) flattening out

$bn, both axis
10
1
0.5
-0.5
-5
-1
-10
12-month trailing
trade balance
-15
Monthly
trade
balance
-20
10
11
12
13
14
15
-2
30
-2.5
20
On the export side, most categories remain weak, except coffee. Coffee exports rose 57%oya, driven by a 95% increase in
volumes, supporting an otherwise lackluster performance in
exports. Shipments of other traditional exports such as oil,
coal, and ferronickel are languishing, depressed mainly by
weak prices. And, despite the more competitive exchange rate,
weak regional trade partner demand is still weighing down
demand for Colombias nontraditional exports.
While oil prices have continued to recover since April, falling
volumes have undermined oil exports. Oil production is falling as capex (and FDI) in the sector collapsed. And domestic
consumption has increased, we believe due to greater domestic refinery intake (Reficar) and to an El Nio-related increased in thermal power generation. As such, petroleum export volumes fell 21%oya in April (Figure 2).
2015
2016
Figure 3: Capturing the price effect and resilient import volumes

oya%
40
Source: DANE and J.P. Morgan
2014
Imports continued their descent in April, contracting 17%oya,

following a 25% plunge in 1Q. We think the slowing in the
pace of imports compression in April in part reflects a calendar distortion: Easter fell in March this year and April last
year, thus March had fewer work days than last year and April
one more work day. This factor, combined with the COP appreciation in April, and to some extent the payback in economic activity during the month, helped keep the import bill
elevated. Nonetheless, capital goods imports continue to fall
rapidly, down 23%oya in April, led by depressed industrial,
transport, and construction goods imports, still reflecting a
strong price impact. Consumer goods imports fell 17%oya in
April.
-1.5
16
2013
Volume terms
10
0
-10
-20
Value terms
-30
Apr 12 Oct 12 Apr 13 Oct 13 Apr 14 Oct 14 Apr 15 Oct 15 Apr 16
Source: DANE and J.P.Morgan
El Nio dynamics largely explained Aprils robust 23%oya

(and 13% year-to-date) gain in import volumes. On the surface, it is tempting to attribute this growth to resilient demand.
However, higher agricultural, food, and beverages imports
together explain most of the increase in April. Raw agricultural imports alone contributed a full 21.6%-pts to the headline jump in volumes driven mainly by corn, wheat, and other
cereals linked, we think, to a lingering El Nio-related drag
on domestic supply. Of note, however, gasoline and other fuel
import volumes receded 21%oya, the largest decline since
May 2015. We have viewed strength in fuel import volumes,
which were still up 17%oya, year-to-date in April, as driven
by higher demand on an El Nio-related substitution of ther53

Ben Ramsey (1-212) 834-4308

Economic Research
Colombia
June 24, 2016
Franco A Uccelli (1-305) 579-9415

franco.a.uccelli@jpmorgan.com
mal generation for hydro power. Aprils figure suggests this

dynamic could be starting to ease. With El Nio expected to
end around midyear, both food and fuel import volumes
should fall back to normal levels. Construction import volumes also continued to gain traction, we think on the ramping
up of the first 4G infrastructure projects and domestic housing
sector activity. On the flip side, consumer durables and industry capital goods volumes fell close to 19%oya each in April
and are still showing signs of softening domestic demand.

Chile
Week of June 27-July 1
Thu
Jun 30
%oya
Thu
Jun 30
BanRep raised the policy rate by 25bp to 7.50% last week,

opting for 25bp moves in the last two meetings after a surprise 50bp hike in April. The Central Bank has now tightened
300bp since September 2015. While BanRep ostensibly remains data-dependent and did not send a clear signal that it is
done, we think the hiking cycle is over.
BanReps characterization of May inflation was largely unchanged, citing transitory shocks from food prices and FX
passthrough as behind the above-target inflation, while inflation
expectations moved slightly lower. Although 1Q growth was in
line with BanReps view at 2.5%, the communiqu had a slightly
more hawkish tone by characterizing the deceleration in domestic
demand as less than expected mainly due to more dynamism in
private spending. On the external side, exports accelerated more
than forecast, while imports contracted somewhat less. In this context, and with an eye on the incoming data for the second quarter,
BanRep maintained its full-year GDP growth forecast at 2.5%
The adjustment in the current account deficit was welcome.
BanRep recognizes that the 1Q current account deficit came
in lower than expected at 5.6% of GDP. BanRep now views
the current account as correcting gradually, and softened its
tone vis--vis previous statements, stating that the lower CAD
reduces vulnerability to external shocks. Affirming the role
of rate hikes in adjusting the current account, BanRep stated
that monetary policy will continue contributing to the correction of the external deficit.
We maintain our call for a pause at the next meeting and our
view that BanRep has space to cut rates before year-end. We see
headline inflation drifting higher until July, reaching 8.5% from
8.2% at present, keeping alive some risk of another hike if June
inflation comes in much higher than expected and inflation expectations take another leg higher. Nonetheless, BanRep seems
more confident that expectations have stabilized, and Governor
Uribe outlined a scenario where fading headline inflation in
2H16 would also drag expectations down toward the middle of
the target range, a view with which we are sympathetic. As such,
andcritically assuming market conditions remain benign in the
context the expected fiscal reformwe see room for 175bp cumulative easing between 4Q16 and 1Q17.
Thu
Jun 30
Mar
3.9
Apr
-3.4
May
1.5
Feb
7.3
Mar
1.4
Apr
7.9
May
3.2
Feb
5.9
Mar
6.3
Apr
6.4
May
6.6
Mar
10.10
Apr
9.0
May
Mar
-1.1
Apr
-1.0
April
7.00
May
7.25
Jun
7.50
Mar
0.6
4.3
Apr
0.0
3.9
May
0.2
3.5
Retail sales
%oya
BanRep should be done
Feb
1.8
Unemployment
%

No data released.
Source: INE and J.P. Morgan forecasts
Colombia
Thu
Unemployment
Jun 30
%
Feb
10.0

Trade balance
Feb
-1.0
US$bn
-1.1
BanRep monetary policy meeting

%
Source: DANE and J.P. Morgan forecasts
Peru
CPI inflation
Fri
Jul 1
%m/m
%oya
Jun
0.2
3.4

No data releases.
Source: INEI and J.P. Morgan forecasts
54

Allan Monks (44-20) 7134-8309
Economic Research
Global Data Watch
United Kingdom
Longer-run consequences for economic activity are less clear,

and will depend on the outcome of years of complex negotiations. Most likely in our view they will be negative relative to
the situation of having remained in the EU. Equally important
are the political consequences of this decision. The prime
minister has announced his resignation and will step down by
October. And there is the possibility of an early general election. In the rest of the EU, it will create more political stress
in the sense that it is likely to energize non-mainstream political parties even though we do not expect any further referenda
on EU or Euro area membership across the region.
UK votes to leave the European Union

UK result was 52-48 in favor of leave, with Scotland and
Northern Ireland voting to remain
We expect MPC to ease 50bp by the late summer
Political implications are extraordinary, with SNP already moving quickly to push for a referendum on Scottish independence
The UK has decided to leave the EU, after 43 years of membership. Turnout for the referendum was relatively high
(72.2%, compared to 66% at the last election), delivering a
51.9%-48.1% win for Leave.
This is a momentous decision for both the UK and the rest of
the EU. It has come about largely for two main reasons. First
is the disconnect between a frustrated population and the political establishment. Second is that UK citizens concern
about migration has overcome the concern about the economic disruption that a departure could generate. Although the
UK has often had an uncomfortable relationship with the rest
of the EU over the past four decades, it is the large migration
inflows of recent years that appear to have created the momentum for this decision.
From a legal point of view, nothing will change until either a
withdrawal agreement is reached using article 50 of the Lisbon Treaty or the UK government takes unilateral action in
repealing specific pieces of legislation. The former would take
several years; the latter could occur more quickly. Although
there is a desire in the Leave camp to do the latter, we believe
it is more likely that the UK government would follow a more
acceptable legal route to secession using article 50. This
means that, from a legal point of view, the UK is likely to
remain a member of the EU for several years to come.
Nevertheless, this decision represents a significant economic
and political shock to the UK, and to the rest of the region,
which will be felt immediately. Our baseline assumption is
that this is a regional rather than a global shock. Our analysis
of the impact of uncertainty suggests that UK growth will be
around 1%-pt lower than otherwise over the coming year (Table 1), while Euro area growth will be almost 0.5%-pt lower.
Importantly, we assume that the financial market response is
measured. It is possible, however, that financial markets act as
a significant amplifier, which would weigh on demand further.
June 24, 2016
On policy, the Bank of England has argued that the consequences of a decision to leave are not clear cut, because even
as growth slows and unemployment rises, the fall in sterling
will lift inflation. If the currency remains close to current levels, we would expect inflation to rise above the BoEs 2%
target next year. Nevertheless, we expect the BoE to be active.
Even though the labor market is relatively tight, we expect the
real economy effects to dominate the BoEs thinking. Thus,
we now expect the MPC to ease by the August meetingwe
project two 25bp cuts, at the July and August meetings. The
speed and magnitude of the MPC response will, however, be
sensitive to moves in financial markets.
The Bank of England has already planned emergency liquidity auctions and indicated in a statement that its stands ready to
provide more if neededan Indexed Long Term Repo
(ILTRO) had already been scheduled for June 28 and Carney
on Friday indicated the BoE is ready to provide 250bn of
additional funds through its normal facilities if necessary.
Table 1: GDP and CPI forecast changes
%ch over prior period, annualized
UK GDP
Old
1.6
1.0
2.5
2.5
1.9
2.0
2.0
2.1
1Q16
2Q16
3Q16
4Q16
2016
1Q17
2Q17
2017
UK CPI
New
1.6
1.0
0.5
0.5
1.5
1.0
1.5
1.1
Old
0.3
0.3
0.6
0.9
0.6
1.4
1.8
1.8
New
0.3
0.3
0.9
1.3
0.7
1.9
2.4
2.5
Source: J.P. Morgan

Tue
Jun 28
11:00am
CBI survey of distributive trades

% balance
Volume of retailer sales
Mar
7
Apr
-13
May
7
Jun
55

Allan Monks (44-20) 7134-8309
Wed
Jun 29
7:00am
Mar
0.7
5.7
5.9
Feb
0.6
5.6
1.0
2.2
0.9
2.4
Mar
0.4
6.4
-0.4
1.6
0.4
2.3
Apr
0.0
4.1
-0.1
1.0
-0.7
1.6
Business investment (final)

2000 = 100, sa
%q/q
%oya
May
Fri
Jul 1
9:30am
2Q15
0.7
3.6
3Q15
1.3
4.9
4Q15
-2.0
3.0
1Q16
Mar
50.8
Apr
49.4
May
50.1
Jun
49.8
PMI survey, manufacturing

% balance, sa
Overall index
Excludes the effect of securitization.
Around two-thirds of the sample period (June 13-27) fell

before the referendum, when uncertainty was high already.
In light of the referendum result, the remaining third of the
survey could be more adversely affected, so we look for
another drop in the survey from a level that was already
signaling a near 1% pace of contraction within the manufacturing sector.
Net lending to individuals (BoE release)

bn, average
Feb
1.4
72.5
3.7
Mar
1.8
70.3
7.4
Apr
1.3
66.3
0.3
May
GFK consumer confidence
Source: Rightmove, CBI, BBA, BCC, GFK, BRC Markit, SMMT, RICS, ONS, BoE, and J.P. Morgan forecasts
Nsa
Mar
0
Apr
-3
May
-1
Jun
Balance of payments (quarterly report)

Rightmove house price index
bn, sa
Trade in goods and services
Income
Current transfers
Current balance
Nsa
2Q15
-4.7
-8.1
-6.2
-19.0
3Q15
-8.9
-5.8
-5.4
-20.1
4Q15
-12.2
-13.1
-7.4
-32.7
1Q16
%m/m
May
0.4
Jun
0.8
bn, nsa
Mar
PSNCR
-17.8
PSNB
6.1
- ex. pub. banks
6.7
Current budget (ex. pub. banks) -0.7
Net debt to GDP (%)
98.8
- ex. pub. banks
83.7
Sa
3Q15
4Q15
1Q16
1Q16
0.4
2.2
1.8
0.6
2.1
2.4
0.4
2.0
1.4
0.4
2.0
1.4
0.6
0.7
0.4
-0.5
2.9
0.6
0.3
-1.1
0.1
0.9
0.7
0.4
0.5
-0.3
0.8
-17.7
5.7
6.3
-0.4
Apr
2.4
6.6
7.2
-5.6
98.4
83.3
May
2.0
7.6
8.2
-4.5
-3.4
9.1
9.7
-7.8
98.7
83.7
83.4
CBI industrial trends

% balance
Total order book
Output expectations
Output prices
Apr
-11
17
4
May
-8
20
2
Jun
Apr
0.3
40.1
May
-2
23
1
BBA lending
Index of services
Sa
Sa
%m/m
%oya
%3m/3m, saar
Apr
1.3
Public sector finance
Real GDP (national accounts)

Total GDP:
%q/q, sa
%oya, sa
%q/q, saar
Breakdown (%q/q, sa):
Private consumption
Public consumption
Fixed investment
Exports
Imports
1. Preliminary outcome
Thu
Jun 30
9:30am
Jun
Sa
% balance
Thu
Jun 30
9:30am
May
0.2
4.7
5.3
Thu
Jun 30
9:30am
Consumer credit (ch, m/m)

Mortgage approvals (000s, sa)
Secured lending (ch, m/m)
Thu
Jun 30
9:30am
Apr
0.2
4.8
5.8
Money supply
1.
Thu
Jun 30
12:05am
The small gain in services output we forecast in April

would leave output just 0.1% above the 1Q average. Our
current 2Q GDP forecast is for 1%q/q, saar growth, but if
our April forecast is realized it would leave our tracking of
2Q GDP closer to 1.5%.
Sa
M4 ex IOFCs (%m/m)
M4 ex IOFCs (%3m/3m, ar)
M4 (%m/m)
M4 (%oya)
M4 lending (%m/m)1
M4 lending (%oya)1
Wed
Jun 29
9:30am
June 24, 2016
Nationwide house price index

%m/m
%oya
%3m/3m, saar
Wed
Jun 29
9:30am
Economic Research
United Kingdom
Jan
0.2
2.8
3.8
Feb
0.2
2.7
3.2
Mar
-0.1
2.6
2.4
Apr
0.1
2.5
1.5
Secured lending (ch bn, sa)

Loan approvals (000s, sa)1
1.
Mar
3.7
43.9
3.8
44.3
40.0
1.7
42.2
For house purchase.
Source: Rightmove, CBI, BBA, BCC, GFK, BRC Markit, SMMT, RICS, ONS, BoE, and J.P. Morgan forecasts
56
J.P. Morgan Bank International LLC

Anatoliy A Shal (7-495) 937-7321
anatoliy.a.shal@jpmorgan.com
JPMorgan Chase Bank N.A, Istanbul Branch
Yarkin Cebeci (90-212) 319-8599
yarkin.cebeci@jpmorgan.com
J.P. Morgan Securities plc

Jos Cerveira (44-20) 7742-3556
jose.a.cerveira@jpmorgan.com
Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466
nicolaie.alexandru@jpmorgan.com
Emerging Europe
UK referendum impact to be felt through EU growth
ramifications and the financial/sentiment channel
Czech Republic and Romania: Central banks expected
to stay on hold
Inflation likely to tick up again in Poland in June
As expected, the CBRT cut its ON lending rate 50bp
and kept other rates unchanged
The short-term impact of the UK referendums outcome in the
EMEA EM will be determined by the financial/sentiment
channel and Euro area growth ramifications, rather than by
direct economic linkages. This is due to the fact that the UK is
a rather small trade partner and FDI investor for the region.
There are strong financial linkages between the UK and the
Anglophone Sub-Saharan Africa, with international lending
by UK banks worth 5% of GDP in Zambia, 3.8% in Ghana,
2.6% in Kenya and 1.7% in South Africa. Outside Africa,
only Turkey is meaningfully exposed to the UK banks, which
hold claims worth 2.4% of GDP. Central Europes financial
sector is mostly dependent on parent funding from core Euro
area parent banks. Despite all the market volatility, EMEA
EM FX depreciation has been limited thus far, hence there are
no significant implications for the inflation outlook yet.
For the regions central banks, growth likely will be a greater
source of concern, as J.P. Morgan has cut its Euro area growth
estimates by 0.75%pts saar in 2H16 and by 0.25-0.50%pts
saar in 2017, which implies growth revisions to the downside,
in particular in the CEE region. The countries with the most
open economiesCzech Republic and Hungaryare likely
to be most affected. Poland and Romania are less open and
also are benefiting from substantial fiscal stimulus. We look
for a limited impact on growth in 2016, but in 2017, the lower
Euro area imports should have a more meaningful influence.
With this in mind, we dont expect any immediate response
by CEE central banks, but a more dovish tone/additional unconventional easing are likely later this year. Such measures
may include a delay in the Czech Republics exit from the FX
floor, new unconventional easing measures in Hungary and
potentially the introduction of such instruments in Poland,
which the new governor prefers to rate cuts. In South Africa,
inflation is above target and on an upward trend while the CA
deficit remains wide, so we think the SARB will still hike
25bp one more time this year.
CNB and NBR on hold

Two CE-4 central banks meet next week: the Czech National
Bank and National Bank of Romania. We expect both to stay
on hold, but to emphasize different risks around their inflation
Economic Research
Global Data Watch
June 24, 2016
outlooks. Also, now that UK voted to leave the EU, the risk
that CNB delays the exit has increased; it is likely that implications for NBR are limited at this stage.
We think the CNB continues to see downside risks to its inflation outlook because of the global and domestic environment,
notably the declining Euro area PPI and spillover of longlasting low inflation. These downside risks may incentivize
the central bank to delay the exit from the exchange rate regime, which we currently expect around mid-2017. However,
we think next week is probably too soon for such a decision,
as we expect inflation to accelerate sharply starting in July;
until then, headline CPI inflation should remain close to zero,
making the central bank nervous. Last, Czech Republic is the
only country in the CE-4 region where core inflation is on a
mild upward trend as opposed to flat or downward. Under
normal conditions, this might have led to a hawkish shift, but
now that UK voted to leave the EU, the CNBs dovish bias
likely will intensify.
The NBR is facing a slightly different scenario: headline inflation is deep in negative territory (-3.6%oya for May), but
because of VAT cuts; also, growth in private consumption is
around 10%oya in Romania versus about 3% in the Czech
Republic. Fiscal risks remain significant because 2016 is an
election year. Finally, nominal wage growth has accelerated
to above 12%oya, while in the Czech Republic it picked up to
around 4%oya. These factors would suggest some response
from the Romanian central bank is required, but core inflation
remains flat (1.5% to 2% in May, depending on the measure)
and below the 2.5% target. In addition, the external environment largely remains disinflationary, so the NBR does not
feel powerful pressure to react immediately. The UK vote to
leave the EU will likely make the NBR more cautious in
terms of tightening monetary conditions. Our view remains
that tightening is likely in early 2017.
Energy prices should continue to push

Polish inflation closer to positive ground
Next weeks preliminary June CPI release for Poland should
reveal another step toward positive headline inflation, but the
details will be published only two weeks later in the final release. Another 4%-5%m/m increase in retail fuel prices is
likely to push Polish inflation up to -0.7%oya in June, from
-0.9% in May and -1.1% in April. Seasonally, food prices are
weak in June, but this year prices have been stronger than
usual patterns would imply, so that constraint on price growth
may be less severe than in previous years. On core CPI we
expect a 0.1%m/m increase in June, lifting annual core inflation to -0.2%oya terms from -0.4%. Strong domestic demand,
on the back of low unemployment, real wage gains, and increased social spending, will likely start feeding through to
core CPI more decisively in the next few months, bringing
57


Jos Cerveira (44-20) 7742-3556

Yarkin Cebeci (90-212) 319-8599

Nicolaie Alexandru-Chidesciuc (44 20) 77422466
core inflation to 0.2%oya by end-2016. Assuming some stabilization in Brent prices around the US$50 level, inflation
should fluctuate around -0.7%oya until September, accelerating quickly after that as base effects kick in, bringing overall
CPI inflation to 0.5%oya by end-2016.
Turkey: Getting close to the end of policy

simplification
As widely expected, the CBRT continued its policy simplification, cutting its ON lending ratethe ceiling of the interest
rate corridorby 50bp to 9.00% while keeping the 7.25% ON
borrowing rate (the floor) and the 7.50% 1-week repo rate
(policy rate) unchanged. Also as expected, the one-page interest rate announcement was not significantly different from the
previous notes, suggesting that the CBRT is planning to continue with policy simplification in the near future. We expect
a 25bp cut to the ceiling of the corridor in July, which likely
will be the last cut of the cycle. The CBRT may also hike the
policy rate by 50bp to 8.00% before finalizing the policy simplification. The actual policy outlook will depend on inflation
prospects at home and, more importantly, developments in
global financial markets.
Figure 1: CBRT rates
Interbank ON rate
%
14

Czech Republic:
Thu
Jun 30
Fri
Jul 1
9:00am
%oya unless otherwise stated

2Q15
4.5
4.9
2.8
8.6
3Q15
4.7
4.3
2.7
8.0
4Q15
4.0
1.4
3.0
8.5
1Q16
3.0
1.4
2.9
0.0
We expect that the final GDP reading will confirm the preliminary release.
0
2011
Real GDP, preliminary or final

Real GDP, nsa
%q/q saar
Private consumption
Gross fixed capital formation
Monetary policy announcement

The CNB is expected to keep policy rates on hold. See
main text for details
10
June 24, 2016
terest rate corridor with an 8.00% policy rate. This, in turn,

suggests that they will need to cut the ceiling by 25bp and
hike the policy rate by 50bp to get there. Although this plan
envisages only a 25bp cut in the ON lending rate, the actual
easing will be more because the CBRT will provide all of its
funding at the policy rate and hence the effective funding rate
(the blended cost of CBRT funding to the banks) will come
down to 8.00% from 8.40%. Finally, MPC members stated
that they were happy with the reserve option mechanism and
the macroprudential measures implemented to slow loan
growth, and that they had no plans of abolishing or reversing
these measures.
ON lending rate
12
Economic Research
Emerging Europe
ON borrowing rate
Source: CNB, National Statistics, Eurostat, J.P. Morgan forecasts
1-week repo rate

2012
2013
2014
2015
2016
Source: CBRT
At last weeks CBRT investor conference, MPC members

provided clear guidance on the future of policy simplification,
stating that 1) the end of the simplification was near; 2) at the
end, the CBRT would provide all of its financing to the banking system through a single rate (the policy rate) while a narrow interest rate corridor would still exist; 3) this final policy
rate would beceteris paribusbetween the 7.50% current
1-week repo rate and the 8.40% current effective funding rate.
The CBRT is aware that the lira will be more vulnerable to
shifts in global risk appetite with a narrower corridor but
thinks that the ceiling and the upper-upper ceiling (the 10.5%
late liquidity window rate will be enough to calm the markets
in extraordinary times.
Hungary:
Thu
Jun 30
10:00am
Producer prices
%oya
Producer prices
Domestic
Export
Thu
Jun 30
9:00am
Feb
-1.6
-4.8
0.0
Mar
-1.6
-5.1
0.1
Apr
-1.4
-4.7
0.2
May
__
__
__
Feb
978
1508
1571
8.0
7.4
Mar
952
2459
2581
-3.5
-3.2
Apr
959
3418
3013
5.1
-1.9
May
__
__
__
__
__
External trade
EUR mn
Trade balance
Ytd
Ytd a year ago
Exports, %oya
Imports, %oya
Source: MNB, National Statistics, Eurostat, J.P. Morgan forecasts
MPC members stated that the actual policy outlook is still

data-dependent but the scenario laid out in the investor meeting should still be their central scenario: a 7.25%-8.75% in58

Yarkin Cebeci (90-212) 319-8599

Jos Cerveira (44-20) 7742-3556
Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466
Poland:
Thu-Fri
Jun 30
%oya, unless otherwise stated

Mar
-0.9
0.1
Apr
-1.1
0.3
May
-0.9
0.1
Jun
-0.7
__
We expect inflation to tick higher to -0.7%oya, supported mainly by higher fuel prices. Please see main text.
Source: NBP, National Statistics, Eurostat, J.P. Morgan forecasts
Romania:
Thu
Jun 30

We expect no changes from the NBR, but the bank is
likely to sound worried about risks around inflation outlook given growing fiscal risks. See main text for details.
Source: NBR, National Statistics, Eurostat, J.P. Morgan forecasts
Russia:
Wed
Jun 29
2:00pm
Consumer prices, final
Fri
Jul 1
5:00pm
Fri-Mon
Jul 1
Mar
0.5
7.3
Apr
0.4
7.3
May
0.4
7.3
Jun
__
__
3Q15
8
28.9
-37.4
-38.1
-12
4Q15
15
30.3
-30.5
-31.7
-7
1Q16
12
21.6
-34.2
-15.3
-5
2Q16
__
__
__
__
__
Balance of payments
US$ bn
Goods balance
Exports %oya
Imports %oya
Service balance
%oya, 2008 prices

2Q15
-4.5
-4.6
3Q15
-3.7
1.7
4Q15
-3.8
-1.1
1Q16
__
__
Source: Rosstat, MinFin, AEB Russia, Markit, J.P. Morgan forecasts
Turkey:
Thu
Jun 30
10am
Foreign trade
US$ bn, except as noted
Trade balance
Exports
%oya
Imports
%oya
As expected, the Monetary Council (MC) rate meeting was

largely a non-event but rhetoric in the statement is less dovish
than in the May statement. The NBH revised the inflation forecast slightly higher relative to the March forecast and also mentioned that the real economys disinflationary impact is gradually decreasing over the policy horizon. The statement paints
an economy that is at or above potential: household consumption is expected to rise further, wage growth is strong, labor
demand remains strong, and the growth slowdown in 1Q16 followed strong temporary, one-off effects. Thus, we think the
probability of additional base rate cuts has decreased sharply.
The NBH kept the base rate and ON rates on hold (at 0.9%, 0.05%, and 1.15%, respectively) and reiterated its desire to keep
the base rate this low for an extended period. The MC was upbeat on the economy and the staff revised its inflation forecast
marginally higher for both 2016 and 2017.
EUR mn
Trade balance
Exports %oya
Imports %oya
Service balance
Income balance
Current transfers
Fin + cap balance
FDI, net
Portfolio investment
Other investment
3Q15
1492
964
8.1
7.3
1744
-1080
-137
2653
-589
1427
3959
1490
-1081
-137
2653
-558
3928
4Q15
1010
1134
7.5
4.4
859
-1005
22
4995
-602
1446
3907
1018
-997
5867
97
4081
1Q16
__
__
__
__
__
__
__
__
__
__
__
1740
1654
4.7
3.9
1155
-647
-423
1288
-238
2796
702
Source: MNB, National Statistics, Eurostat, J.P. Morgan forecasts
Real GDP
Real GDP, nsa
%q/q, saar
Balance of payments
%oya, unless otherwise stated

%m/m, nsa
%oya
June 24, 2016

Hungary:
Consumer prices, preliminary

All items
%m/m, nsa
Economic Research
Global Data Watch
Feb
-3.2
12.4
1.2
15.6
-8.1
Mar
-5.0
12.8
2.0
17.8
-5.2
Apr
-4.2
12.0
-10.2
16.2
-11.9
May
-5.1
12.1
9.5
17.2
-3.8
Russia:
Real economy indicators
Real terms, %oya
Construction
Agriculture
Transportation
Retail sales
Unemployment, %nsa
Average monthly wage
Industrial output
Mar
-1.4
2.7
-0.3
-5.8
6.0
1.5
-0.5
-6.2
Apr
-5.9
2.7
0.8
-4.8
5.9
-1.7
0.5
0.7
-4.9
-1.1
May
__
__
2.6
__
0.6
__ -6.1
__
5.6
__
-1.0
__
0.7
Source: Rosstat, MinFin, AEB Russia, Markit, J.P. Morgan forecasts
Turkey posted a foreign trade deficit of US$6.8 billion in

May 2015. So, Turkeys external balances should continue
improving in 12-month trailing terms. Lower energy prices
and deeper penetration into the EU market are the two key
factors behind this.
Source: Turkstat, CBRT, Ministry of Finance, J.P. Morgan forecasts
59


Jos Cerveira (44-20) 7742-3556

Yarkin Cebeci (90-212) 319-8599

Nicolaie Alexandru-Chidesciuc (44 20) 77422466
Economic Research
Emerging Europe
June 24, 2016
Turkey:
CBRT rate decision
%
CBRT 1-week repo rate
CBRT ON borrowing rate
CBRT ON lending rate
Apr
7.50
7.25
10.00
May
7.50
7.25
9.50
Apr
68.5
85.3
90.0
91.2
69.1
May
68.8
85.6
89.9
93.7
69.0
Jun
7.50
7.25
9.00
See main text.

Consumer confidence
Consumer confidence
Financial situation - current
Financial situation - future
Economic setting
Employment
Jun
69.5
86.0
90.3
92.5
72.5
69.4
87.5
91.2
91.3
70.6
%
Total manufacturing
Durables
Nondurable
Apr
75.3
71.0
71.6
May
75.7
71.4
72.1
Jun
75.8
72.8
72.5
76.1
71.5
72.0
Source: Turkstat, CBRT, Ministry of Finance, J.P. Morgan forecasts
60
JPMorgan Chase Bank, N.A., Johannesburg Branch

Sonja Keller (27-11) 507-0376
sonja.c.keller@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016

Yvette Babb (44-20) 7742-0634
yvette.babb@jpmorgan.com
South Africa & SSA
Figure 2: South Africa rand exchange rate
South Africa: Respite as May inflation dips to 6.1%

Nigeria: CBN devalues naira, but free float remains
elusive
South Africa: Food price risks remain but

inflation outlook improves on rise in ZAR
Headline inflation eased to 6.1%oya in May from 6.2% in April,
with food inflation unexpectedly easing rather than climbing.
Annual food inflation eased to 10.8%oya, from 11.3%, contrary
to our and consensus expectations of a rise to 12.4%. The surprise was mainly due to a drop in fruit and vegetables prices, and
follows hefty monthly food price hikes of 1.7%-2.2% in each of
the prior four months. Yet, food price increases are lumpy and
we remain concerned that meat prices pose a considerable upside
risk as farmers eventually begin to rebuild herds following one of
the most severe droughts on record. Already, the pace of slaughtering, which had tripled since late 2015 as farmers had to cut
cattle stocks, has begun to taper off somewhat and we expect this
trend to become clearer in late 3Q16, supporting prices. We now
expect food inflation to peak at 13% in October and decelerate to
5% by mid-2017. Core inflation remained flat at 5.5%oya, as
expected, and we project a small rise to year-end.
%oya
Headline
6
5
Core
4
3
2
10
11
12
13
Source: StatsSA, J.P.Morgan forecast
14
85
REER
14
80
15
75
16
17
Sep 15
USD/ZAR
70
65
Oct 15
Dec 15
Jan 16
Mar 16
Apr 16
Source: Bloomberg, J.P.Morgan, J.P.Morgan estimates
In our view, the rate tightening cycle is now very close to its
end: The Feds more dovish tone and the favorable shifts in
inflation risks from the rise in the trade-weighted rand, and
dismal domestic activity indicators suggest to us there is only
limited scope for further tightening. We expect the SARB to
remain on hold in July and likely September, but retain a 25bp
move in November on the premise of better-than-even chances that the inflation-focused SARB would hike at year-end if
the inflation outlook deteriorated again (e.g., if USD/ZAR
reaches 15.50-16.00).
Nigeria: Naira moves to 284 from 199

The central bank of Nigerias June 20 announcement of a
move to a floating exchange rate was bolder than markets
expected, but the execution thus far has been disappointing. In
its present form, the exchange rate system does not resemble a
free float, but rather a naira devaluation from USD/NGN at
197 to 280-284, while also unifying the official and the interbank rates. The central bank remains the sole supplier of dollars to the market and continues to determine the volume and
price at which foreign exchange is sold.
Figure 1: South Africa inflation outlook

7
DI, 2010=100
USD/ZAR
13
15
16
17
Our near-term inflation outlook is broadly unchanged, but next

years outlook could be more substantially impacted if the recent
gains in the trade-weighted currency are sustained (Figure 1). We
lower our currency input assumption to around USD/ZAR 15.25
over the next six months, but are mindful that potential rand depreciation risks could materialize with reported local unrest in parts of
Tshwane ahead of the August local government elections, a substantial 5% of GDP current account deficit in 1Q16, and prospects
of a ratings downgrade at year-end. Therefore, we continue to embed some currency weakness relative to the current 14.67
USD/ZAR spot rate (Figure 2). We now project that inflation will
pick up to 7.2%oya by year-end (previously 7.5%), averaging
6.6% in 2016 (previously 6.8%) before decelerating to 5.3%oya in
December 2017 to average 5.9% in 2017 (previously 6.1%).
On the first day of the new regime, the CBN sold US$4.02
billion in a special intervention aimed at clearing the backlog of demand for dollars; this amount largely was sold at 280
in 1- to 3-month forwards, while the US$532 million sold in
the spot market transacted at rates between 280 and 382. In
the days thereafter, the central bank sold approximately
US$150 million at 280-284. The depreciation pressure on the
naira rate remains substantial, with the parallel rate still trading at 343 on June 23 (Figure 3). FX sales by the central bank
over the past week have failed to clear the backlog of demand
for foreign exchange, while the current exchange rate fails to
provide an incentive for locals to reduce their long dollar positions or for foreign investors to buy naira assets. At the same
time, the central bank will very quickly deplete its international reserves if it attempts to continue selling foreign exchange at this pace: international reserves stood at US$26.4bn
on June 22 (30-day moving average).
61

Sonja Keller (27-11) 507-0376
Economic Research
South Africa & SSA
June 24, 2016

Yvette Babb (44-20) 7742-0634
South Africa
Figure 3: Nigeria naira exchange rate

USDNGN
400
Parallel market
350
Interbank rate
300
Official rate
Weeks of June 27 July 1

Thu
Jun 30
9:00am
250
Mar-15
Aug-15
Feb-16
Source: AbokiFX.com, Bloomberg, J.P. Morgan
We expect the naira to depreciate further, with USD/NGN

reaching 330 in the next quarter and 350 by year-end. Our
estimates show that it would need to move as far as 400 in the
second half of the year to reach the 304 fair value on average
in 2016, as determined by our error correction model for Nigeria, which is based on panel data for 58 countries.
Our near-term inflation outlook has shifted higher on the back
of this devaluation, with a third of the goods and services in
the CPI basket imported. Our forecast assumes that the cost of
imported goods and services to some degree already reflect
the naira depreciation in the parallel market before June. Imported food inflation, 13.2% of the CPI basket, for instance
rose to 2.6%m/m on average from 0.9% in the four months to
May. In May, transport prices also shifted more in line with
the costs of importing fuel at the parallel exchange rate (in
line with the increase in the regulatory limit on the petrol
price which was premised on a 298 exchange rate on May 11.
We do not expect this increase to be repeated in the short
term. We now project inflation to rise to 19.8%oya by yearend, to average 16.5% in 2016, and decelerate to 10.7% by
December 2017.
This inflation profile likely will elicit a more aggressive tightening cycle, after CBN raised rates by 100bp to 14.0% in February. We expect the CBN may look to mop up liquidity
through FX sales and open market operations ahead of the
July MPC meeting, where we expect it to raise the central
bank rate by 400bp to 16.0%, although a more meaningful
increase would be required to lift the real policy rate into positive territory.
%oya, except as noted

M3
M0
Private sector credit
%m/m, nsa
Credit to households
Total domestic credit
200
150
Sep-14
Monetary and credit aggregates
Thu
Jun 30
11:30am
May
__
__
__
__
__
__
Feb
8.1
0.8
Mar
7.1
0.7
Apr
7.0
0.8
May
__
__
Feb
-1.3
90.5
26.7
91.7
2.7
Mar
2.0
95.2
5.3
93.2
1.6
Apr
0.4
92.2
-3.2
91.8
-1.5
May
__
__
__
__
__
Mar
50.5
47.7
53.1
54.3
50.3
47.2
87.8
51.1
51.0
Apr
54.9
56.4
58.4
51.8
54.0
50.4
77.7
55.9
52.5
May
51.9
52.9
51.8
56.2
51.5
48.0
80.1
54.1
50.8
Jun
__
__
__
__
__
__
__
__
__
Mar
-14.2
-1.3
Apr
-9.2
-15.0
May
-10.3
6.3
Jun
__
__
Trade balance
R bn, except as noted
Barclays BER PMI

Index
PMI (% weights)
Business activity
New sales orders
Suppliers' performance
Inventories
Employment
Memo: prices paid
PMI nsa
Fri
Jul 1
11:00am
Apr
9.0
6.9
7.1
-1.1
2.3
7.3
Trade balance
Exports
%m/m
Imports
%m/m
Fri
Jul 1
11:00am
Mar
10.3
7.8
8.8
0.9
4.6
9.3
Producer prices
Total (%oya)
%m/m, nsa
Thu
Jun 30
2:00pm
Feb
10.3
9.1
9.0
1.3
4.8
9.5
New vehicle sales

Total vehicle sales
%m/m, nsa
62

Sonja Keller (27-11) 507-0376
Economic Research
Global Data Watch
June 24, 2016

Yvette Babb (44-20) 7742-0634

Consumer prices
Mar
6.3
0.8
5.4
CPI
%m/m, sa
Core
Apr
6.2
0.8
5.5
May
6.4
0.4
5.5
6.1
0.2
5.5
Source: Stats SA, SARB, SARS DTI, BER, National Statistics, J.P. Morgan forecasts
SSA
Data releases
Weeks of June 27 July 1
Kenya
GDP
Jun 22
%oya
Zambia
Consumer prices
June 15 - 30
%oya
Kenya
Consumer prices
Jun 30
%oya
2Q15
5.9
3Q15
6.0
4Q15
5.7
1Q16
__
Mar
22.2
Apr
21.8
May
21.3
Jun
__
Mar
6.5
Apr
5.3
May
5.0
Jun
__

Ghana: GDP
%oya
3Q15
2.7
4Q15
4.1
1Q16
__
4.9
Source: CBK, BOG, CBN, GSS, NBS, KNBS, J.P. Morgan
63

Sonja Keller (27-11) 507-0376
Economic Research
South Africa & SSA
June 24, 2016

Yvette Babb (44-20) 7742-0634
64
J.P. Morgan Securities Australia Limited

Sally M Auld (61-2) 9003-7904
sally.m.auld@jpmorgan.com
J.P. Morgan Australia Limited

Tom Kennedy (61-2) 9003-7981
tom.kennedy@jpmorgan.com

Ben K Jarman (61-2) 9003-7982
ben.k.jarman@jpmorgan.com

Henry St John (61-2) 9003-7980
henry.stjohn@jpmorgan.com

RBA minutes provided little in the way of forward
policy guidance
ABS house price index slipped 0.2%q/q in 1Q16, the
first quarterly price decline since late 2014
Private sector credit the headline release in an otherwise
quiet week
Kiwi trade surplus expected to narrow marginally following NZD strength and rebound in Brent crude prices
It was relatively quiet in the antipodean economies this past
week, with political events in the UK dominating the news
flow. In Australia, the highlight was the release of the minutes
from the RBA June Board meeting held two weeks ago. Back
then, officials left the cash rate unchanged as expected,
though surprised the market somewhat with a seemingly neutral outlook for policy. The minutes did not deviate from this
stance, providing little in the way of new forward policy
guidance. That said, we think the large downward revisions to
the Banks inflation forecast in the Statement on Monetary
Policy speak volumes, and imply the RBA still has more work
to do. We forecast a further 25bp cut in August, with an additional 50bp in the first half of 2017.
There is little in the way of data in the week ahead, with private sector credit the sole release of note. Housing credit
growth should garner most of the attention, with next weeks
print providing one of the first insights into mortgage demand
following Mays surprise rate cut. For the record, we expect
a modest uptick in mortgage credit growth, consistent with the
turn higher in auction clearance rates and price gains. We
remain optimistic on the outlook for business credit, and expect the annual run rate to remain close to the top of the recent
range.
It is also shaping up to be a quiet week across the Tasman,
with New Zealands trade balance for May the only top-tier
release. Exports have surprised to the upside in recent months,
with the headwinds facing the dairy sector less intense than
we had expected. Our base case is for next weeks print to
reveal a slightly smaller A$200 million monthly surplus, with
the month-on-month narrowing owing to a combination of
rising Brent crude prices, softening dairy price/volume dynamics, and rising NZD.
RBA minutes: Taking it one step at a time

After leaving rates unchanged two weeks ago, the RBAs accompanying Statement surprised the market with a seemingly
neutral outlook for policy, with the Board observing:
...Taking account of the available information, and having
Economic Research
Global Data Watch
June 24, 2016
eased monetary policy at its May meeting, the Board judged

that holding the stance of policy unchanged at this meeting
would be consistent with sustainable growth in the economy
and inflation returning to target over time."
The meeting minutes reiterated this theme, and provided little
in the way of new forward policy guidance. The RBA
acknowledged in the minutes that leaving policy unchanged in
June was consistent with returning inflation to target over
time. There is nothing in this observation that implies a particular path for the cash rate beyond June; it simply affirms
that: 1) unchanged policy in June was consistent with inflation outcomes sympathetic to the inflation target (and that the
easing in May provided the opportunity to pause); and 2) at
present, given heightened uncertainty around the inflation
outlook, the RBA is reverting to a less is more strategy in
its communications.
Figure 1: RBA cash rate and J.P. Morgan forecast
%
5
4
3
2
1
10
11
12
13
14
15
16
17
Source: RBA, J.P. Morgan
We think the magnitude of the RBAs revisions to its core

inflation outlook in the May Statement on Monetary Policy
implies that one 25bp easing will not be enough to deliver
inflation outcomes consistent with target and that the pause
will be relatively short-lived. We expect a further 25bp easing
from the RBA in August, once the Bank has had the opportunity to digest the 2Q inflation data. From there, we think the
RBA will adopt a more data-dependent approach, with the
next 50bp of easing due in 1H17 as policy makers grow more
confident that trends in inflation are more persistent and that
lower real rates are required to engineer inflation outcomes
consistent with the target.
House prices slipped in 1Q

The ABS house price index slipped 0.2%q/q in the March
quarter, the first quarter of aggregate dwelling price declines
since late 2012. Incorporating this weaker-than-expected outcome, annual price growth is now tracking at 6.8%oya, a considerable slowdown from 3Q15 when annual price increases
were running in the double digits.
65

Tom Kennedy (61-2) 9003-7981
tom.kennedy@jpmorgan.com
Henry St John (61-2) 9003-7980
henry.stjohn@jpmorgan.com
J.P. Morgan Securities Australia Limited

Sally M Auld (61-2) 9003-7904
sally.m.auld@jpmorgan.com
Ben K Jarman (61-2) 9003-7982
ben.k.jarman@jpmorgan.com
By region, the surprise relative to our forecast owes to weaker-than-forecast price gains in Sydney, an outcome that compounds the 1.6%q/q decline in the prior quarter. Prices in the
remaining capital cities played close to script, with Melbourne
and Brisbane both eking out modest gains, while Perth remains the laggard. The composition of price outcomes is unchanged, with established dwellings easily outpacing the
higher-density sector across most of the major regions. Part of
this outperformance owes to supply-side developments, with
an unprecedented number of dwellings currently under construction, the bulk of which are concentrated in the higherdensity sector.
Economic Research
June 24, 2016
Australia
Week of June 27 to July 1
Private sector credit
Thu
Jun 30
11:30am
Feb
0.6
%m/m
Mar
0.4
Apr
0.5
May
0.6
16Q1
1.0
-0.2
Review of prior weeks forecasts

House price index (Jun 21)
Figure 2: ABS house price growth
%q/q
15Q3
2.2
4.1
15Q4
0.2
4.2
%q/q
6
4
New Zealand
Week of June 27 to July 1
Mon
Jun 27
8:45am
-2
09
10
11
12
13
14
15
16
International merchandise trade

Trade balance (NZ$ mn)
Feb
366
Mar
189
Apr
292
May
200
Source: ABS, J.P. Morgan
Review of prior weeks forecasts

No data releases of note.
Source: ABS, Stats NZ, RBA, and J.P. Morgan forecasts
66
JPMorgan Chase Bank, N.A., Hong Kong

Haibin Zhu (852) 2800-7039
Marvin M Chen (852) 2800-7692
haibin.zhu@jpmorgan.com
marvin.m.chen@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
Grace Ng (852) 2800-7002

grace.h.ng@jpmorgan.com
Greater China
China: New home prices rose 0.9%m/m in May
Hong Kong: CPI inflation ticked lower to 2.6%oya in
May
Taiwan: Export orders rose moderately in May after
earlier disappointment
IP rebounded in May, rising 1.9%oya
The National Bureau of Statistics (NBS) 70-city house price
data for May showed that new home prices declined in four
cities in May (vs. five in April), increased in 60 cities, and
were flat in the rest. Based on the NBS data, national house
prices rose 0.9%m/m on average in May, marking the fourteenth consecutive monthly increase, but slowing modestly
from Aprils 1.1% rise. Annual national house price inflation
accelerated to 5.2%oya in May, the fastest pace since May
2014.
New home price increases in Tier 1 cities slowed further in
May. In Shenzhen, the best-performing city in the past year,
prices rose just 0.5%m/m in May, down from 2.3% in April.
Meanwhile, increases were more stable in some tier-2 and
tier-3 cities; prices in some tier-2 cities such as Nanjing and
Xiamen still rose over 5%m/m in May (Figure 1).
Figure 1: China house price inflation
%oya
Tier-2 cities
Tier-1 cities
25
National (100 cities)
Tier-3 cities
20
15
10
5
0
Source: Soufun
We expect real estate investment to grow 4.5% in 2016, accelerating from 1% in 2015, which is good news for Chinas
growth stabilization efforts (Figure 2).
Figure 2: FAI growth by industry
%oya
36
Total FAI
30
Infrastructure
24
18
12
6
Manufacturing
Real estate
-6
2013
2014
Source: NBS
2015
2016
The stronger momentum in lower-tier cities is also positive,

though it may reflect frontloading of future demand and thus
cause some mean-reversion in the coming years. We remain
cautious on oversupply in the property market in the medium
term, especially in tier-3 and tier-4 cities. At the end of 2015,
total floor space under construction reached 5.1 billion sqm,
which represents about 4.6 years of sales, down from 4.9
years at the end of 2014, but still above the 3.5 years historical average, and could imply further adjustment ahead (Figure
3).
Figure 3: Floor space under construction divided by 12-month sales
-5
-10
2012
Housing market performance has diverged across cities. Tier1 cities have led the housing market activity rebound, but the
strong momentum appears to have faded since the introduction of tightening measures (e.g., limiting non-local buyers
from purchasing homes, lowering LTV, suspending collective
home purchases, and restricting down payment loans through
finance companies). By contrast, activity in some tier-2 and
tier-3 cities has gained momentum.
years
2013
2014
2015
2016
5.0
4.5
According to NBS data, home sale area increased 22%oya in

May, moderating from 45.9% growth in April. In value terms,
home sales rose 32.9%oya in May, slowing from 63.5%
growth in April. The slowdown in housing transactions in
May is not surprising, given that the May 1 introduction of
VAT reform in the construction and real estate sector led to
front-loading of housing transactions and construction activity. While it was ambiguous whether the VAT reform would
increase or lower the tax burden, projects started before April
30 had the option to choose between the old business tax and
new tax rates, leading to an activity boost in March and April
followed by payback in May.
4.0
Average
3.5
3.0
2.5
00
02
04
06
08
10
12
14
16
Source: NBS, J.P. Morgan
67

Haibin Zhu (852) 2800-7039
Marvin M Chen (852) 2800-7692
Economic Research
Greater China
June 24, 2016
Grace Ng (852) 2800-7002

Hong Kong: May CPI inflation ticks lower to

2.6%oya
Hong Kongs May headline CPI inflation was in line with
expectations at 2.6%oya. Seasonally adjusted, the CPI rose
0.3%m/m, after falling 0.7% in April. Netting out the effects
of one-off relief measures, consumer prices rose 0.4%m/m,
sa, and 2.2%oya in May, (vs. 2.3%oya in April).
The government commented that the easing in May headline
inflation was reflected the slower rise in private housing rentals and continued normalization in food prices after the Lunar
New Year and cold weather at the beginning of the year. Indeed, private rental inflation, which accounts for about 30%
of the CPI index, has been relatively muted. We expect rentrelated price pressures to ease even more heading into 2H16,
as rental contracts are typically locked in for a 12-month period, and property price declines began in 3Q15 (Figure 4).
Figure 4: Hong Kong private housing rentals and housing CPI
%oya, 3mma, both scales
Private housing rental CPI
10
Property rentals index

advanced by 1 year
30
20
10
-10
-20
-2
-30
06
08
10
12
14
16
18
Source: HKC&SD, J.P. Morgan
Taiwan: May export orders up after earlier

disappointment
Taiwans April export orders (in US$ terms) were in line with
our expectations, dropping 5.8%oya, compared to the 11.1%
fall in April. Based on our seasonal adjustments, export orders
rose 2.7%m/m, sa in May, after a 7.1% fall in April and a
3.9% gain in March.
Recent export orders reports suggest that tech demand started
2Q on a soft footing after stabilizing during 1Q16, as seen in
the April plunge in orders and limited recovery in May. Tech
orders gained 4.4%m/m, sa in May, following Aprils 8.1%
dive. Non-tech orders rose 1.7% in May, after falling 6.3% in
April (Figure 5).
Figure 5: Taiwan export orders growth

%3m/3m saar
40
Nontech
Tech
20
0
-20
-40
2013
2014
2015
2016
2017
Source: MOEA, J.P. Morgan
Geographically, orders from a number of major markets, including the US, Europe, and China/Hong Kong, rose moderately in May.
Overall, the May increase in import orders after Aprils
plunge is somewhat reassuring. While near-term external demand conditions remain cloudy, demand does not seem as
weak as suggested by the disappointing April export orders.
Meanwhile, imports have picked up notably. Imports jumped
9.4%m/m, sa in real terms in May, adding to Aprils 1.7%
gain. In particular, capital goods imports, which had been
sluggish since 3Q15, jumped 14.0%, adding to the Aprils
8.6% increase, led-by tech-related capital goods imports. This
pickup hints at a recovery in corporate capex and tech exports
later in the year (Figure 6).
Figure 6: Taiwan tech exports and capital goods imports
%3m/3m saar, both scales
30
Tech exports
20
Capital goods
imports (leading
by 4-months)
10
0
-10
-20
-30
2013
2014
2015
2016
150
125
100
75
50
25
0
-25
-50
2017
Source: MOF, J.P. Morgan
IP rebounded in May, rising 1.9%oya

Following the disappointing April activity data, Taiwans
manufacturing sector recovered moderately in May. The May
IP report was stronger than expected, with headline IP rising
1.9%oya, following a 3.6%oya decline in April, marking the
first annual growth since April 2015. Our seasonal adjustment
process shows that IP increased 1.1%m/m in May, partially
reversing Aprils 1.6% drop. The underlying sequential trend
growth in IP accelerated to 3.0%3m/3m, saar from 1.6% in
April.
68

Haibin Zhu (852) 2800-7039
Marvin M Chen (852) 2800-7692
Economic Research
Global Data Watch
June 24, 2016
Grace Ng (852) 2800-7002

The pickup in industrial activity was broad-based across the

tech and non-tech sectors. IP for the broad category of information and electronics rose 0.4%m/m, sa in May while nontech manufacturing IP increased 2.7% (Figure 7).
Figure 7: Taiwan tech and nontech manufacturing IP
%3m/3m, saar
60
Nontech IP
Tech IP
40
20
0
-20
-40
2010
2011
2012
Source: MOEA, J.P. Morgan
2013
2014
2015
2016
2017
Looking ahead, while J.P. Morgan looks for the global economy to return to a trend-like growth in the middle quarters of
the year, Taiwans latest data, including the modest rise in
export orders in May, suggest that the external demand outlook may not be as gloomy as the April data had indicated.
Having said that, even after taking into account the May production data, IP is still tracking slightly softer than in 1Q16,
which is in line with our 1.8%q/q, saar GDP growth forecast
for 2Q16, vs 3.1% in 1Q16 (Figure 8).
Figure 8: Taiwan real GDP and IP
%q/q saar, both scales
15
10
IP
Real GDP
2Q16 GDP
forecast
20
15
10
0
-5
-5
-10
2012
2Q16 IP
forecast
2013
2014
Source: MOEA, DGBAS, J.P. Morgan forecasts
2015
2016
-10
-15
2017
Meanwhile, Taiwans domestic demand remains sluggish, as

the weakness in the external sector continues to feed through
to the domestic economy. Regarding the labor market, the
unemployment rate ticked down 3.96%, sa in May, but remains elevated compared to Februarys 3.73% trough. Industrial employment growth has slowed notably since mid-2015,
dragging on overall employment and household income.
Sluggish labor market conditions together with the recent rise
in headline CPI inflation should restrain household purchasing power and consumer expenditure growth in the near term.
With the 2Q monetary policy meeting set for June 30, we continue to expect a 12.5bp rate cut.
69

Haibin Zhu (852) 2800-7039
Marvin M Chen (852) 2800-7692
Economic Research
Greater China
June 24, 2016
Grace Ng (852) 2800-7002

China:
Taiwan:
Purchasing managers index
Fri
Jul 1
9:00am
Index
Mar
49.7
50.4
50.2
52.3
Overall (Markit)
Output
Overall (NBS)
Output
Apr
49.4
49.9
50.1
52.2
May
49.2
49.8
50.1
52.3
Jun
49.0
___
50.0
___
Thu
Jun 30
Central bank MPC meeting

%p.a.
15Q3
1.750
15Q4
1.625
16Q1
1.500
16Q2
1.375
Mar
51.1
51.2
Apr
49.7
49.3
May
48.5
47.0
Jun
49.0
___
-4.7
3.9
Apr
-11.1
-7.1
-11.1
-7.1
May
-5.7
2.0
-5.8
2.7
3.90
3.90
Apr
3.97
3.90
4.00
3.90
May
3.98
3.85
3.96
3.84
-3.6
1.1
Apr
-3.6
-1.6
-4.1
-1.9
May
1.1
0.5
1.9
1.1
Rediscount rate
Fri
Jul 1
10:00am
Markit manufacturing PMI

Index, sa
Overall
Output
No data released.
Source: NBS, Markit, China customs, J.P. Morgan forecasts
Hong Kong:
Export orders (Jun 20)

% change
%oya
%m/m, sa
Merchandise trade
Mon
Jun 27
4:30pm
Labor market survey (Jun 22)
HK$ bn
Feb
-33.1
204.5
-10.4
237.6
-10.1
Balance
Exports
%oya
Imports
%oya
Mar
-47.0
275.4
-7.0
322.4
-5.8
Apr
-31.0
285.3
-2.3
316.3
-4.5
May
-31.2
289.3
-0.9
320.5
-3.4
%
Unemployment rate, sa
Unemployment rate, nsa
% change
Feb
-19.5
0.5
%oya
%m/m, sa
Mar
-8.8
-2.0
Apr
-7.6
0.4
May
-7.6
2.4
Mar
3.92
3.90
Industrial production (Jun 23)

% change
%oya
%m/m, sa
Retail sales volume
Thu
Jun 30
4:30pm
Mar
-4.7
3.9
Mar
-3.6
1.1
Source: Taiwan Ministry of Economic Affairs, DGBAS, MoF, J.P. Morgan forecasts

Consumer prices (Jun 21)
% change
%oya
%m/m, sa
Mar
2.9
0.1
2.9
0.1
Apr
2.7
-0.7
2.7
-0.7
May
2.9
0.4
2.6
0.3
Source: Hong Kong Census and Statistics Department, J.P. Morgan forecasts
70
JPMorgan Chase Bank, N.A., Seoul Branch

Seok Gil Park (82-2) 758-5396
seok.g.park@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
Jiwon Lim (82-2) 758-5509

jiwon.c.lim@jpmorgan.com
Korea
Case for additional accommodative fiscal measures in
2H gains force
Producer prices declined May on utility gas price adjustments
Next week: IP, consumer goods sales, CPI inflation, and
customs exports
The data schedule was relatively light this week, but the UKs
vote to leave the EU hit financial markets significantly, with
KRW depreciating 2.5% against USD, the benchmark KOSPI
stock market index falling3.1%, and 3Y government bond
yields falling below the BoKs base rate. Koreas direct export direct exposure to the UK is limited (1.4% of total exports in 2015), but the second-round effect from the potential
negative impact of Brexit on the EU economy (the destination
of 9.1% of Koreas exports) and financial market moves will
be important to watch.
Meanwhile, the likelihood of a supplementary budget appears
to be rising in Korea, although political concerns remain a
wild card (see Korea: the case of supplementary budget,
June 20). The government is scheduled to release its official
2H economic outlook next week, likely accompanied by additional supportive fiscal measures. It remains uncertain if the
measures will include supplementary on-budget activity, but
officials have hinted that the government will maintain a
growth-friendly stance throughout 2016. In addition to downside risk from corporate sector restructuring, the rationale for
additional fiscal measures includes stronger-than-expected
fiscal revenues. That is, 1Q fiscal spending rose 6.8%oya (official plan of full-year growth: +0.5%), while revenues surged
17.0% (official projection of full-year growth: +3.7%), with
much of the revenue gains coming from real estate-related
taxes and housing transactions (Figure 1). That said, the unexpected gain in 1Q fiscal revenues provides room for the
government to increase its expenditures, without additional
bond issuance to finance the spending.
Figure 1: Government revenues and expenditures
20
Producer prices eased in May with utility

gas price adjustments
Producer prices rose in April after falling or staying flat for 11
consecutive months, but reversed direction again in May. Seasonally adjusted by J.P. Morgan, producer prices slipped
0.1%m/m, sa in May, partly reversing Aprils 0.2% gain. Recovering global oil prices together with KRW depreciation
should have been inflationary in May, but the governments
cuts in utility gas prices muted the upward pressure on producer prices. That is, taking into account utility gas prices and
oil product prices, energy prices edged up only 0.5%m/m, sa
in May despite the rise in global oil prices (Figure 2). Agricultural product prices also dragged down the headline, partly
reflecting delayed payback from unfavorable winter weather
conditions, similar to the May CPI reading.
Figure 2: Producer prices and crude oil price
%m/m sa
5
%m/m
10
0
Revenues
Expenditures
-5
2012
-20
2013
2014
2015
2016
Source: BoK and J.P. Morgan
10
5
Next weeks focus
Source: MoSF, and J.P. Morgan
-10
Brent crude oil price
15
-5
2014
20
Producer price, energy
%oya, consolidated basis

25
However, the unexpected increase in fiscal revenue is not a

sufficient condition for increasing expenditure, in our view.
Changes to fiscal expenditure are strictly limited to cases
where the economy is in deep recession or suffering a natural
disaster or some other unexpected event. And, Korean budget
law requires Congress to approve any changes of the official
budget plan, for both spending and revenue. With the ruling
party having lost its majority in the April election, the government may still prefer fiscal measures that do not require
congressional approval, such as tax cut/incentives, on-budget
lending, or off-budget activity. That said, the opposition parties do not sound very negative on the possibility of a supplementary budget, and could make a strategic move to include their preferred spending in the supplementary budget.
Thus, the likelihood is growing that the government will ultimately issue a supplementary budget, which typically has a
larger impact than off-budget activity, although the details
will still matter.
2015
2016
Next weeks data releases will shed light on whether our projection for 2Q growth is on track. We project that industrial
production edged up in May, supported by automobile pro71
JPMorgan Chase Bank, N.A., Seoul Branch

Seok Gil Park (82-2) 758-5396
seok.g.park@jpmorgan.com
Economic Research
Korea
June 24, 2016
Jiwon Lim (82-2) 758-5509

jiwon.c.lim@jpmorgan.com
duction benefiting from continued favorable tax treatment and

the launch of new models, and as exports volume increased
5.4%m/m, sa (adjusted by J.P. Morgan) in May after a 1.9%
loss in April. We also expect consumption goods sales and
service activity to turn up in May. Finally, the business sentiment index is likely to be mixed, as concerns about corporate
sector restructuring weigh on the outlook index.
100=neutral reading, nsa

Mar
100
Apr
101
May
99
Index, sa
Mar
92.5
85.6
Apr
96.0
92.9
May
94.7
94.7
Thu
Jun 30
8:00am
Fri
Jul 1
8:00am
%oya
%m/m, sa
Fri
Jul 1
8:00am
Mar
-0.6
-1.3
Apr
-2.8
-1.3
May
0.6
0.5
Fri
Jul 1
10:30am
Jun
9.8
41.9
32.1
% change
Mar
1.0
-0.2
Apr
1.0
0.1
May
0.8
0.0
Jun
0.9
0.2
Current account
US$ bn nsa
Feb
7.2
Mar
10.1
Apr
3.4
May
7.5
Mar
49.5
Apr
50.0
May
50.1
Jun
50.3
Purchasing Managers Index

Index, sa
We expect the manufacturing PMI to edge up modestly,

with the output index rising.
%oya
Feb
0.9
3.6
Mar
0.7
3.0
Apr
-1.9
-1.1
May
0.6
0.4
We expect the inventory correction continued, while shipments edged up with the recovery in exports and domestic
demand.
% change
%oya
Mar
-3.3
Apr
-3.1
-3.0
May
-3.1
See main story.
% change
2010=100, sa
Feb
135.9
Mar
136.7
Apr
137.7
May
138.3
Feb
2.8
Mar
2.6
Apr
2.1
May
2.9
Service activity
% change
%oya
Producer prices (Jun 20)
Stage of processing price index (Jun 20)
Composite leading indicator

Index
Thu
Jun 30
8:00am
May
7.1
39.8
32.7
Producer shipments and inventories

Shipments
Inventories
Thu
Jun 30
8:00am
Apr
8.8
41.0
32.2
Consumer prices
PMI - Manufacturing
We expect robust demand and new model launches to have

boosted the automobile production, partially offset by tech
production.
Thu
Jun 30
8:00am
Mar
9.9
43.0
33.2
We expect consumer prices to pick up modestly in June

with a gradual domestic passthrough of global oil prices.
Feb
2.3
3.2
May
5.0
US$ bn nsa
Balance
% change
Apr
4.2
Customs trade
%oya
%m/m, sa
Jun
93.5
95.0
While we expect concerns on corporate sector restructuring

to weigh on the outlook index, the current conditions index
should continue to recover with resilient demand conditions.
Mar
5.7
While a negative price effect is still dragging down exports

in the over-year-ago comparison, seasonally adjusted exports likely picked up in May from April.
Jun
98
FKI business survey

One-month outlook
Current conditions
Feb
3.2
Trade balance
Exports
Imports
The negative headlines from corporate sector restructuring

may have dragged down consumer sentiment.
Wed
Jun 29
% change
We expect durable goods sales to remain robust with the

tax cut on automobiles, while non-durable goods sales
should stay mostly flat.
Consumer survey
Index
Consumption goods sales

%oya
Fri
Jul 1
9:00am

Tue
Jun 28
6:00am
Thu
Jun 30
8:00am
We expect service activity to pick up modestly, continuing

the recent monthly gains.
%oya
Mar
-4.7
Apr
-4.1
May
-4.0
-3.5
If combining imported goods prices and producer prices, the

SPPI rose 0.6%m/m, sa (calculated by J.P. Morgan), following
a 0.2% gain in April. KRW depreciation boosted imported
goods prices.
Source: BoK, Customs office, FKI, Markit, NSO, and J.P. Morgan forecasts
72

Sin Beng Ong (65) 6882-1623
sinbeng.ong@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
ASEAN
Figure 1: Indonesia fiscal position
We pared back our 2016 Indonesian growth forecast to

5.0% from 5.4%
21
Fiscal policy traction hamstrung by weak revenues,

leaving monetary policy to do heavy lifting
Expect further monetary easing in 3Q16, with possible
cut in reserve requirements
Both supply and demand factors impaired credit transmission
Growth in Indonesia has come in weaker than expected and
the forecast fiscal impulse looks to have been pared back,
largely due to slowing revenues. As a result, we have pared
back our 2016 growth forecast 5%y/y from 5.4% and project
additional monetary easing to offset the fiscal constraints,
expecting another 25bp, with risk of more rather than fewer
cuts and also cuts to reserve requirements. The space for
monetary easing has opened up in part due to a more dovish
US Fed, which is embedded in our forecast for a US$11 billion balance of payments (BOP) surplus this year, from a
modest deficit last year, with around half of the surplus from
tax-amnesty-related inflows in late 2016. Aside from the
BOP, the benign inflation trend also provides room for BI to
ease, with CPI inflation expected to reach the lower bound of
the 3%-5%oya headline inflation target range.
While the BI rate cut should ease domestic monetary conditions, the transmission into easier credit conditions remains
unclear due to increasing non-performing loans (NPLs) in the
banking system, which is curtailing banks credit appetite.
State banks are the exception, having surpassed other banks in
terms of credit disbursement, but whether they alone can turn
the credit tide upwards remains to be seen.
Revenues dent fiscal impulse

Indonesia recently submitted the revised 2016 budget for approval. In it, the government projects that the deficit will
reach 2.5% of GDP, higher than the initially budgeted deficit
of 2.2% of GDP (Figure 1). The wider deficit mainly is due to
a downward revision in budgeted revenues, to 13.7% of GDP
from 14%. The 0.3%-pt of GDP reduction comprises a 0.5%pt GDP compression of non-tax revenues and a 0.2%-pt rise
in tax revenues. The rise in ex. oil and gas tax revenues accounts for the bulk of the increase in tax revenues, rising to
6.5% of GDP from 4.8% of GDP last year, and may reflect
the impact of the tax amnesty law (see Figure 1 and Indonesia: Revised 2016 budget prompts downward revisions to
2016 GDP, penciling in further BI easing, JPMM, June 6).
Should revenues disappoint, expenditures will likely be
trimmed, introducing downside risk to growth.
% of GDP, both scales

0
Expenditure
Balance
19
-1
17
-2
15
Revenue
13
-3
07
08
09
10
11
12
13
14
15
16
Source: MOF, shaded area is MOF forecast
The downside risks to growth, modest inflationary pressures, and

benign outlook for external conditions also prompt a revision to
the BI rate path; we project one more 25bp cut, with the BI rate
(pre-August 19 adjustment) to reach 6.25% from 6.75% currently. We now expect the next cut at the July 21 policy meeting. The
riskin view of the US Feds tone and downside risks to growth
in Indonesiasuggests more rather than less easing in the pipeline, which could also include a further reduction in bank reserve
requirements. We thus await the outcome of the July 21 monetary meeting before revisiting the BI rate path.
Credit channels gummed, limiting impact of

policy
Although Bank Indonesia has cut its policy rate 100bp this
year, we expect the impact on credit to be modest, due to a
combination of supply and demand bottlenecks. Until these
are resolved, we expect that credit growth will remain contained. For a start, the demand for credit has slowed, reflecting the slowing economy, with incremental credit growth easing to 0.7% of GDP in 1Q16 from a peak of 3.3% in 4Q12
(Figure 2). At a more granular level, the recent uptick in credit
Figure 2: Indonesia local currency bank credit
% GDP, sa
%pt. of GDP, change from year ago
30
28
Level
26
24
22
20
18
Impulse
16
07
09
11
13
-1
15
17
Source: BI
expansion has come almost exclusively from the big-4 banks,

which comprise three state banks and one private bank, with
the other banks likely paring back due to rising NPLs (Figures
3 and 4). This trend of NPLs impairing credit appetite echoes
the recent experience in India, which is more proactively recognizing and writing-off NPLs (see India banking: Revised
guidelines on NPL recognition, February 26).
73

Sin Beng Ong (65) 6882-1623
Economic Research
ASEAN
June 24, 2016
Figure 3: Indonesia bank credit
Figure 6: Indonesia local currency deposits and loans
%-pt contribution to overall %oya growth
%oya
25
40
20
Ex big-4 banks
30
15
Big-4 banks
Credit
20
10
10
Deposits
0
07
09
11
13
15
17
Figure 4: Indonesia banking sector non-performing loans

% of loans
6.5
%oya
60
Share of loans
Change
5.5
45
30
4.5
3.5
2.5
1.5
09
09
11
13
15
11
13
Figure 7: Indonesia sources of base money
IDR tn, change from year ago
-15
400
17
Source: BI
15
17
At an aggregate level, Indonesias base money tends to be

driven by an accumulation of net foreign assets, itself a function of the balance of payments (Figures 7 and 8). And in the
absence of stronger inflows, the outlook for overall base money creation and thus of M2 growth remains modest.
15
-30
07
07
Source: BI
Source: BI
Net foreign assets
300
Base money
200
100
0
Echoing this dichotomy, state banks are adjusting their lending rates more rapidly than the private banks (Figure 5).
09
11
13
15
17
Source: BI
16
10
15
Private banks
BI rate
14
13
12
6
State banks
09
Net domestic assets

07
%p.a., eop, both scales
07
-200
-300
Figure 5: Indonesia BI rate and working capital loan rates
11
-100
5
11
13
15
17
Source: BI
Liquidity constraints could affect lending

capacity
Aside from the constraints on credit appetite, Indonesia potentially faces a further constraint from the tightening in overall
liquidity, with overall deposit growth at a modest 8.8%oya in
April and below 11%oya overall loan growth of (Figure 6).
Figure 8: Indonesia net foreign assets and M0

%oya, both scales, IDR terms
60
50
NFA
40
M0
40
30
20
20
10
-20
-10
07
09
11
13
15
17
Source: BI
Given these constraints, we think there are effectively two

policy options to raise liquidity for the banks. The first would
be to cut reserve requirements to boost the available liquidity
in the system, and the second would be to allow banks to raise
time deposit rates to attract deposits given the historical sensitivity of time deposits to TD rates, which have driven deposit
growth in the recent past (Figures 9 and 10).
74

Sin Beng Ong (65) 6882-1623
Economic Research
Global Data Watch
June 24, 2016
Indonesia
Figure 9: Indonesia local currency deposits

%oya
40
Time deposits
Week of Jun 27 Jul 1
Savings and
current deposits
30
20
Thu
Consumer prices
Jul 1
% change
Mar
Apr
May
Jun
%oya
4.4
3.6
3.3
3.2
%m/m, sa
0.5
0.0
0.4
0.3
Food, %oya
9.1
8.9
7.7
__
Nonfood, %oya
3.2
2.2
2.2
__
Feb
Mar
Apr
May
1.8
2.8
2.3
2.5
13.6
16.4
15.7
15.9
11:00am
10
0
07
Source: BI
09
11
13
15
17
Review of past week's data
Figure 10: Indonesia 1-mo TD rate and local currency time deposits
No data released.
%p.a.
Malaysia:
%oya
11
1-mo TD rate
10
40
Time deposits
30
9
8
20
10
6
5

Fri
Merchandise trade
Jul 1
US$ bn, nsa
12:00pm
Trade balance
Exports
0
07
09
11
13
15
17
Source: BI
However, the latter option hinges on the idea that banks themselves would want to increase funding to expand credit. Given
the NPL overhang, this seems unlikely in the near term. This
option is also constrained by the recent deposit rate caps,
which limit the interest that banks can pay for deposits (see
Indonesia: Being mindful of the unintended consequences of
deposit rate caps, March 31).
%oya
-8.2
-9.3
-5.3
-5.2
Imports
11.8
13.6
13.4
13.5
%oya
-12.6
-14.5
-8.9
-11.8

No data released.
Philippines:
The upshot, in our view, is that until the NPL overhang is

resolved and banks are permitted to set their own deposit
rates, overall system credit growth could be constrained. And
even though the larger banks may be doing the heavy lifting
in extending credit, the risk is that this could be done under
moral suasion, which suggests that credit standards may have
been loosened. If this this is the case, this could soon lead to
rising NPLs even among the larger banks.
No data releases.

BSP monetary policy meeting (Jun 23)
% pa
Reverse repo rate
Mar
Apr
May
4.00
4.00
4.00
BSP kept both the policy rate and the Special Deposit Account
(SDA) rate unchanged today at 3.00% and 2.50%, respectively.
The reserve requirement rate was also left unchanged at 20%.
The inflation outlook remains manageable and growth conditions robust. Indeed, the near-term focus for the central bank
remains on implementing its liquidity framework to shift market
rates into the interest rate corridor.
Source: Central Bureau of Statistics, Indonesia; Department of Statistics, Malaysia; Coordination
Board and National Statistics Office, Philippines
75

Sin Beng Ong (65) 6882-1623
Economic Research
ASEAN
Merchandise trade (Jun 24)
Thu
Private consumption index
Jun 30
% change
June 24, 2016
US$ bn, nsa

Feb
Mar
Apr
Imports
5.4
6.4
6.2
6.5
%oya
-5.6
11.7
22.7
29.2
Feb
Mar
Apr
May
%oya
2.1
4.2
5.3
5.8
%m/m, sa
-0.5
2.3
-0.2
0.5
2:30pm
The April seasonally adjusted trade deficit in the Philippines

widened to US$2.0 billion, with the cumulative deficit reaching
US$7.4 billion in the year-to-April, marking the largest ever
deficit in the first four months of the year.
Thu
Private investment index
Jun 30
% change
Feb
Mar
Apr
May
%oya
0.9
1.2
1.4
2.0
%m/m, sa
-1.6
-0.3
0.0
0.5
May
2:30pm
Singapore:
Thu
Merchandise trade
Jun 30
US$ bn, nsa
No data releases.
2:30pm

% change
Mar
%oya
-1.0
%m/m, sa
0.1
Apr
-0.5
-0.2
-0.1
0.4
Feb
Mar
Apr
Trade balance
6.0
4.7
2.2
0.5
Exports, %oya
6.2
-1.0
-7.6
-5.3
Imports, %oya
-16.3
-9.1
-13.4
-5.9
May
Fri
Consumer prices
-0.7
-1.6
Jul 1
% change
0.1
-0.9
Singapores May CPI fell a larger-than-expected reflecting a rebate to occupants of government housing (this was a two-week
to 1-month S&CC rebate for the month of May). The effect of
this rebate on the CPI will be reversed in coming months and,
as such, does not suggest any change to the fundamental trajectory for inflation in Singapore.
Mar
Apr
May
Jun
Total, %oya
-0.5
0.1
0.5
0.5
%m/m, sa
0.1
0.2
0.3
0.1

BoT monetary policy meeting (Jun 22)
% pa
Industrial production (Jun 24)

% change
Mar
Apr
%oya
0.1
2.9
3.0
0.9
%m/m, sa
1.3
4.8
4.4
-1.7
1-day repo
May
-0.4
The smaller-than-expected drop in May IP left the sequential

trend up a robust 20.4%3m/3m, saar, suggesting upside risk to
our forecast of a small sequential expansion in GDP this quarter. A firm rise in biomedical output pulled the overall trend in
manufacturing higher; excluding this sector, IP was still up a
strong 12.1%3m/3m, saar. This in part reflects a consistent sequential rise in tech output over the past few months that has
left the electronics sector expanding 24.6%3m/3m, saar, likely
reflecting the impact of new smartphone product launches.
Apr
May
Jun
1.50
1.50
1.50
The Bank of Thailand held the benchmark policy rate at 1.50%

as we and consensus had expected, with the decision unanimous
as has been the case at each of the recent MPC meetings. The
central bank appears to have moved into a holding pattern over
the past several MPC meetings, with the tone of each statement
reflecting a balance between downside risks to growth, a gradual rise in inflation, and the need to preserve policy space to respond to potential future shocks.
Vietnam:
Thailand:
No data releases.

During
Manufacturing production
the week
% change

% change
Feb
Mar
Apr
May
%oya
-1.7
%m/m, sa
2.0
2.2
1.5
3.9
0.6
-0.1
0.2
%oya
%m/m, sa
Apr
1.9
0.5
May
2.3
0.6
Jun
2.4
0.4
Source: Coordination Board and National Statistics Office, Philippines; Office for Industrial Economics, Singapore, Bank of Thailand, Thailand; General Statistics Office of Vietnam; J.P. Morgan
forecasts
76
JPMorgan Chase Bank, N.A., Mumbai Branch

Sajjid Z Chinoy (91-22) 6157-3386
sajjid.z.chinoy@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
Toshi Jain (91-22) 6157-3387

toshi.jain@jpmorgan.com
India
In a surprise, RBI governor Rajan announced he would
return to academia at the end of his term in September
Finance minister indicated that a decision on Rajans
successor would be made soon
Government continues to liberalize FDI regime, eased
restrictions in nine sectors
Liberalization to give further fillip to FDI flows, which
have increased significantly in last two years
No second term for RBI governor Rajan

In a move likely to engender some nervousness in markets,
RBI governor Raghuram Rajanwidely credited with helping
restore macroeconomic stability in India and embarking on
financial sector reformindicated he will return to academia
when his term ends on September 4, 2016.
reforms (e.g., the monetary policy committee) along with a

completion of existing initiatives (e.g., cleaning up public
sector banks balance sheets saddled with non-performing
loans). Commitments to this effect likely will go some way in
reassuring investors about policy continuity and help soothe
market sentiment.
Government continues liberalizing FDI

In its bid to attract more foreign direct investment, the government continued to liberalize FDI norms across several sectors. The reforms included raising the FDI cap in some sectors, moving from governmental approval to automatic approval routes in others, and easing preconditions in some. The
governments latest set of measures covers nine sectors, including defense, pharmaceuticals, civil aviation, single-brand
retail, broadcasting carriage services, private security agencies, animal husbandry, and food processing, and the establishment of branch, liaison, and project offices.
The highlights of the measures, by sector, are:
In an email to the RBI staff, the governor stated that he accomplished all of his initial goals: moving to a new monetary
framework, bolstering FX reserves, licensing new banks, bolstering the payments system. However, the governor also noted I am an academic and I have always made it clear that my
ultimate home is in the realm of ideas. The approaching end
of my three-year term, and of my leave at the University of
Chicago, was therefore a good time to reflect on how much
we had accomplished. While all of what we laid out on that
first day is done, two subsequent developments are yet to be
completed. Inflation is in the target zone, but the monetary
policy committee that will set policy has yet to be formed.
Moreover, the bank clean-up initiated under the Asset Quality
Review, having already brought more credibility to bank balance sheets, is still ongoing. International developments also
pose some risks in the short term.
While I was open to seeing these developments through, on
due reflection, and after consultation with the government, I
want to share with you that I will be returning to academia
when my term as Governor ends on September 4, 2016. I will,
of course, always be available to serve my country when
needed.
The finance minister indicated in a statement that a decision
on Rajans successor would be made soon. Investors likely
had expected the governor to continue for a second term and,
given his role in restoring macroeconomic stability, the news
probably came as a negative surprise. It is therefore important
that policymakers manage the transition well, particularly
given the imminent uncertainties surrounding post UK vote to
leave EU and the FCNR outflow. In particular, investors
would expect continuity and an institutionalization of existing
Single Brand Retail Trading: Local sourcing norms that had

dis-incentivized investment in this sector have been relaxed
up to three years for all single-brand entities. Another fiveyear exemption has been added for trading of products that
have state-of-art and cutting edge technology.
Defense: The earlier cap of 49% FDI has been lifted, and
foreign investments beyond 49% are now permitted subject
to government approval and the condition that the FDI results in access to modern technology is needed for other
recorded reasons. The earlier conditionality of access to
state-of-the-art technology has been removed.
Pharmaceuticals: The extant policy provided for 100% FDI
but treated greenfield and brownfield pharma units differently. While FDI in greenfield units was allowed through
automatic approval, brownfield investments required government approvals. The new regime eases the restriction on
brownfield units, allowing 74% FDI through automatic approval, with only the rest attracting government scrutiny.
Civil Aviation: 100% FDI is now permitted under automatic approval for brownfield airport projects. For airlines, the
FDI limit has been raised from 49% to 100%, with 49%
permitted under automatic approval and the remaining requiring government approval. But the 49% restriction governing foreign airlines remains.
Broadcasting Carriage Services: Teleports, Direct to Home
(DTH), Cable Networks, Mobile TV, and Headend-in-theSky Broadcasting Service (HITS) have all been opened up
to 100% FDI through automatic approval.
77
JPMorgan Chase Bank, N.A., Mumbai Branch

Sajjid Z Chinoy (91-22) 6157-3386
sajjid.z.chinoy@jpmorgan.com
Economic Research
India
June 24, 2016
Toshi Jain (91-22) 6157-3387

toshi.jain@jpmorgan.com
Continued FDI liberalization is constructive, in our view, in

attracting both foreign capital and technology. FDI inflows
have increased sharply over the last two years (from US$22bn
in FY14 to US$36bn in FY16) and we expect the latest
measures to further boost inbound FDI.

No data releases.

No data released.
Source: Central Statistical Organization and Ministry of Commerce, Government of India; Markit;
Reserve Bank of India; and J.P. Morgan forecasts
78

Economic Research
Global Data Watch
Asia Focus: Oil and inflation
The asymmetry in the passthrough across the region in the

second period could reflect lags in price adjustments from
crude to pump, but our broader observation is that other factors may be at play (Figure 3, Table 1). Measures such as direct and indirect subsidies or energy-related taxes have
slowed the passthrough of oil price adjustments to retail pump
prices. While the rise in oil price since January may introduce
supply-side inflationary pressures, we do not expect the impulse to be powerful enough to raise inflation materially
across the region.
June 24, 2016
The inflation trajectory in EM Asia is heavily driven by supply-side factors, primarily global food and crude oil prices. In
this note, we examine the impact of crude oil price movements on retail gasoline prices over two periods since the start
of the dramatic oil price fall: June 2014 to January 2015,
when crude oil prices fell 57%, and January to May 2016,
when they rose 53%.
Interestingly, while we observe a general decline in pump
prices across the region during the first period, retail motor
fuel prices diverged during the second period despite the rise
in crude oil prices (Figures 1 and 2, Table 1). We attribute this
difference to the varying management of passthrough effects
via direct and indirect measures that resulted in mixed inflation trends across the region.
In general, oil price movements have had a greater impact in
the US than in EM Asia, except in Taiwan during the second
phase (Figures 1 and 2, Table 1). In the latest CPI-derived
data available across the region, Taiwan has seen the biggest
changes in pump prices across both periods (-30% and +17%,
respectively). This is largely due to the high degree of liberalization in domestic pump prices in recent years.
Figure 3: Coefficient of passthrough from crude to pump prices

%, asterisk to April
Jan'16 to May'16*
0.4
0.0
-0.4
US
10
0
-10
-20
-30
-40
-50
-57%
Brent US
TW
TH
SG
KR
HK
IN
CN
PH
MY
ID
Figure 2: Change in pump price of motor gasoline

%, Jan to May 2016, local currency terms, asterisk to April
53%
20
10
TW
TH
SG*
KR
HK*
IN
CN*
PH
MY*
ID
Table 1: Asia crude and pump fuel prices

May 2015=100, shaded area shows crude oil prices in local currency terms
Figure 1: Change in pump price of motor gasoline

%, June 2014 to January 2015, local currency terms
Jun'14 to Jan'15
0.8
Brent
US pump
China
Pump
Hong Kong
Pump
India
Pump
Indonesia
Pump
Korea
Pump
Malaysia
Pump
Philippines
Pump
Singapore
Pump
Taiwan
Pump
Thailand
Pump
Dec-15
58
75
56
102
54
93
56
89
57
100
58
92
64
101
57
96
57
93
58
82
58
85
Jan-16
48
72
45
106
43
91
45
88
45
95
47
90
51
95
45
94
46
90
47
76
46
82
Mar-16
61
72
58
103
56
91
59
91
56
95
60
86
63
83
58
93
57
89
59
82
59
85
Apr-16
65
78
64
104
61
91
64
95
61
89
64
87
66
88
63
95
62
88
64
83
64
86
May-16
73
83
73
..
70
..
73
99
71
89
75
89
78
..
73
96
71
..
74
89
73
91
Chg.1
53
15
62
-2
63
0
62
12
57
-7
59
-1
52
-8
60
3
56
-2
59
17
60
11
1. % change, latest since May. Pump prices derived from CPI.

Source: National statistics authorities and J.P. Morgan.
-10
MY*
ID
SG* CN* KR HK* PH
TH
IN
US
TW Brent
79

Economic Research
Global Data Watch
June 24, 2016
US economic calendar
Monday
Tuesday
Wednesday
Thursday
Friday
27 Jun
28 Jun
29 Jun
30 Jun
1 Jul
International trade (8:30am)

May adv -$56.9bn
Services PMI (9:45am)
Jun flash 51.5
Dallas Fed survey (10:30am)
Jun
Real GDP (8:30am)

1Q final 0.9%
S&P/Case-Shiller HPI (9:00am)
Apr 0.4% (5.3% oya)
Consumer confidence (10:00am)
Jun 95.0
Richmond Fed survey (10:00am)
Jun
Personal income (8:30am)

May 0.2%
Real consumption 0.3%
Core PCE deflator 0.18%
(1.7%oya)
Pending home sales (10:00am)
May -2.0%
Initial claims (8:30am)

w/e Jun 25 265,000
Chicago PMI (9:45am)
Jun
Manufacturing PMI (9:45am)

Jun final 51.5
ISM manufacturing (10:00am)
Jun 51.0
(10:00am) May 0.2%
Light vehicle sales
Jun 17.3mn
Fed Governor Powell speaks in Chicago

(7:00pm)
St. Louis Fed President Bullard speaks

in London (1:30pm)
Fed Chair Yellen participates in panel at

ECB conference (9:30am)
4 Jul
5 Jul
6 Jul
7 Jul
8 Jul
Independence Day, markets

closed
Factory orders (10:00am)

May

May
Services PMI (9:45am)
Jun final
ISM nonmanufacturing
(10:00am)
Jun
ADP employment (8:15am)

Jun
w/e Jul 2
Employment (8:30am)
Jun
Consumer credit (3:00pm)
May
Announce 3-year note $24bn

Announce 10-year note (r) $20bn
Announce 30-year bond (r) $12bn
FOMC minutes
11 Jul
12 Jul
13 Jul
14 Jul
15 Jul
Auction 3-year note $24bn
NFIB survey (6:00am)

Jun
JOLTS (10:00am)
May
Wholesale trade (10:00am)
May
Import prices (8:30am)

Jun
Beige book (2:00pm)
Federal budget (2:00pm)
Jun

w/e Jul 9
PPI (8:30am)
Jun
Retail sales (8:30am)

Jun
CPI (8:30am)
Jun
Empire State survey (8:30am)
Jul
Industrial production (9:15am)
Jun
Business inventories (10:00am)
May
Consumer sentiment (10:00am)
Jul preliminary
Announce 10-year TIPS $13bn

Auction 30-year bond (r) $12bn
Auction 10-year note (r) $20bn

Minneapolis Fed President Kashkari
speaks in Marquette, MI (5:30pm)
Philadelphia Fed President Harker

speaks on the economic outlook in
Philadelphia (1:15pm)
18 Jul
19 Jul
20 Jul
NAHB survey (10:00am)

Jul
TIC data (4:00pm)
May
Housing starts (8:30am)

Jun
Atlanta Fed President Lockhart speaks

on economy in Idaho (11:15am)
Kansas City Fed President George
speaks on US economy in Oklahoma
City (1:15pm)
21 Jul
22 Jul

w/e Jul 16
Philadelphia Fed survey
(8:30am)
Jul
FHFA HPI (9:00am)
May
Existing home sales (10:00am)
Jun
Leading indicators (10:00am)
Jun
Manufacturing PMI (9:45am)

Jul flash
Auction 10-year TIPS $13bn

Announce 2-year FRN $15bn
Times shown are EST.
80

Greg Fuzesi (44-20) 7134-8310
Economic Research
Global Data Watch
June 24, 2016
Euro area economic calendar

Monday
Tuesday
Wednesday
Thursday
Friday
27 Jun
28 Jun
29 Jun
30 Jun
1 Jul
Euro area:
M3 (10:00am) May
Germany:
Import prices (8:00am) May
France:
INSEE cons. conf. (8:45am) Jun
Italy:
ISAE bus. conf. (10:00am) Jun
ISAE cons. conf. (10:00am) Jun
Euro area:
EC cons. conf. final (11:00am) Jun
EC econ. sent. (11:00am) Jun
104.5
Germany:
GfK cons. conf. (8:00am) Jul
CPI 6 states and prelim (2:00pm)
Jun 0.4%oya
Spain:
CPI prelim (9:00am) Jun -0.9%oya
Belgium:
CPI (8:00am) Jun
Netherlands:
CBS bus. conf. (6:30am) Jun
Euro area:
HICP flash (11:00am) Jun
0.1%oya
ECB account of the June 2nd
monetary policy meeting (1:30pm)
Germany:
Retail sales (8:00am) May
Employment (9:55am) May
35k ch m/m, sa
Unemployment (9:55am) Jun
-8k ch m/m, sa
France:
Cons. of mfg goods (8:45am) May
CPI prelim (8:45am) Jun 0.4%oya
PPI (8:45am) May
Italy:
CPI prelim (11:00am) Jun
-0.2%oya
PPI (12:00pm) May
Euro area:
PMI mfg final (10:00am) Jun 52.6
Unemployment rate (11:00am)
May 10.1%
Germany:
PMI mfg final (9:55am) Jun
France:
PMI mfg final (9:50am) Jun
Italy:
PMI mfg (9:45am) Jun
Spain:
PMI mfg (9:15am) Jun
ECBs Draghi speaks in Sintra
4 Jul
5 Jul
6 Jul
7 Jul
8 Jul
Euro area:
PPI (11:00am) May
Euro area:
PMI serv. & comp final (10:00am)
Jun
MFI Interest Rates (11:00am) May
Germany:
Jun
France:
Jun
Italy:
PMI serv. & comp (9:45am) Jun
Spain:
PMI serv. & comp (9:15am) Jun
Germany:
Mfg orders (8:00am) May
Germany:
Industrial production (8:00am) May
France:
Foreign trade (8:45am) May
Netherlands:
CPI (6:30am) Jun
Germany:
France:
Monthly budget situation (8:45am)
May
11 Jul
12 Jul
13 Jul
14 Jul
15 Jul
Italy:
May
Germany:
CPI final (8:00am) Jun
Euro area:
May
France:
Italy:
Spain:
18 Jul
19 Jul
20 Jul
21 Jul
22 Jul
Euro area:
ECB bank lending survey
(10:00am) 2Q
Germany:
ZEW bus. survey (11:00am) Jul
Belgium:
BNB cons. conf. (3:00pm) Jul
Euro area:
Balance of Payments (10:00am)
May
Germany:
PPI (8:00am) Jun
Euro area:
ECB rate announcement (1:45pm)
France:
INSEE bus. conf. (8:45am) Jul
Euro area:
PMI mfg, serv & comp prelim
(10:00am) Jul
Germany:
(9:30am) Jul
France:
(9:00am) Jul
Euro area:
New car regs (8:00am) Jun
HICP final (11:00am) Jun
Italy:
Highlighted data are scheduled for release on or after the date shown. Times shown are local.
81

Economic Research
Global Data Watch
June 24, 2016
Japan economic calendar

Monday
27 Jun
Tuesday
28 Jun
Wednesday
5 Jul
Friday
29 Jun
30 Jun
1 Jul
Total retail sales

(8:50am) May -2.0%oya
Shoko Chukin small firm survey
(2:00pm) Jun 47.0, DI
IP
(8:50am) May 0.0%m/m, sa
Housing starts
(2:00pm) May 4.0%oya
Nationwide core CPI

(8:30am) May -0.4%oya
All household spending
(8:30am) May -4.5%oya
Unemployment rate
(8:30am) May 3.1%, sa
Job offers to applicants ratio
(8:30am) May 1.33, sa
BoJ Tankan
(8:50am) 2Q 3, large mfg DI
PMI manufacturing final
(11:00am) Jun
Auto registrations
(2:00pm) Jun 2.0%oya
Consumer sentiment
(2:00pm) Jun 41.0, DI
Auction 2-year note
4 Jul
Thursday
Auction 3-month bills
6 Jul
PMI services/ composite

(11:00 am) Jun
7 Jul
8 Jul
BoJ governor Kurodas address at

branch managers meeting
Bank lending
(8:50am) Jun
Current account
(8:50am) May
Employers survey preliminary
(9:00 am)May
Economy Watchers survey
(2:00pm) Jun
Auction 10-year bond
11 Jul
12 Jul
13 Jul
14 Jul
15 Jul
M3
(8:50am) Jun
Private machinery orders
(8:50am) May
Producer price index

(8:50am) Jun
Tertiary sector activity index
(1:30pm) May
IP final
(1:30pm) May
Auction 3-month bill

Auction 5-year note
Auction 1-year note

During the week: CAO private consumption index May
18 Jul
19 Jul
20 Jul
21 Jul
22 Jul
Holiday:Japan
(2:00 pm) May
BoJ loan officers survey

(8:50 am) 2Q
Reuters Tankan
(8:30am) Jul
Employers survey final

(9:00 am) May
PMI manufacturing flash
(11:00am) Jul
During the week: Nationwide department store sales Jun

Times shown are local.
82

Economic Research
Global Data Watch
June 24, 2016
Canada economic calendar

Monday
27 Jun
Tuesday
28 Jun
Wednesday
29 Jun
Thursday
30 Jun
Friday
1 Jul
CFIB Business Barometer Index

(8:30am)
Jun
Monthly GDP (8:30am)
Apr 0.1%
IPPI (8:30am)
May 0.2%
Ex. energy 0.0%

Payroll employment (8:30am)
Apr
4 Jul
5 Jul
RBC manufacturing PMI

(9:30am)
Jun
BoC Business Outlook Survey/
BoC Senior Loan Officer Survey
(10:30am)
2Q
11 Jul
12 Jul
Housing starts (8:15am)

Jun
18 Jul
19 Jul
International transactions in
securities (8:30am)
May
New vehicle sales (8:30am)

May
6 Jul
7 Jul
8 Jul

May
Building permits (8:30am)

May
Ivey PMI (10:00am)
Jun
Labor Force Survey (8:30am)

Jun
13 Jul
14 Jul
15 Jul
Teranet/National Bank HP Index

(8:30am)
Jun
Bank of Canada Rate announcement/Monetary Policy
Report (10:00am)
New housing price index

(8:30am)
May
Manufacturing sales (8:30am)

May
Nonresidential construction
(8:30am)
2Q
Existing home sales (9:00am)
Jun
20 Jul
21 Jul
22 Jul
Wholesale sales (8:30am)

May
CPI (8:30am)
Jun
Retail sales (8:30am)
May
All existing home sales are tentative. Times shown are local.
83

Economic Research
Global Data Watch
June 24, 2016
Latin America economic calendar

Monday
Tuesday
Wednesday
Thursday
Friday
27 Jun
28 Jun
29 Jun
30 Jun
1 Jul
Brazil:
FGV: consumer confidence Jun
BCB credit report May
Mexico:
Trade balance May US$1.2 bn
Argentina:
BCRA policy decision 31.0%
Brazil:
Central government budget May
BRL - 13.0bn
Mexico:
Unemployment rate May 3.95%
Central bank reserves (prior week)
Argentina:
Real GDP 1Q -0.6%oya
Brazil:
IGP-M Jun
1.52 m/m; 12.03% oya
National unemployment rate May
11.3%
Primary budget balance May
BRL -12.1bn
Net Debt as % of GDP May
39.2%
Chile:
Retail sales May 3.2%oya
IP May 1.5%oya
Unemployment rate May 6.6%
Colombia:
Unemployment rate May
Mexico:
Banxico meeting 4.25%
PS budget balance May
Commercial bank credit May
Uruguay:
Current account 1Q
PS budget balance May
Brazil:
IP May
-1.0% m/m sa
-9.5% oya
Manufacturing PMI Jun
Trade balance Jun
Colombia:
Economic activity index Apr
Exports May
Mexico:
IMEF manufacturing index Jun
52.4
IMEF nonmanufacturing index Jun
51.6
Remittances May US$2.4 bn
Banxico economic survey
Peru:
CPI Jun 0.2%m/m; 3.4%oya
Holiday: Chile
Holiday: Peru
During the week: Argentina: Govt tax collection Jun (1-6 Jul); Brazil: Vehicle sales Jun (1-5 Jul); Colombia: Current account 1Q (27-30 Jun)
4 Jul
5 Jul
6 Jul
7 Jul
8 Jul
Chile:
BCCh minutes
Argentina:
Auto report Jun
Brazil:
FIPE CPI Jun
Services PMI Jun
Chile:
Economic activity index May
Colombia:
CPI Jun
Mexico:
Gross fixed investment Apr
Uruguay:
CPI Jun
Brazil:
Auto production Jun
Uruguay:
Unemployment rate May
Brazil:
IGP-DI Jun
Chile:
Trade balance Jun
Mexico:
CPI Jun
Brazil:
IPCA Jun
Chile:
CPI Jun
Colombia:
BanRep minutes
Mexico:
Consumer confidence Jun
Nominal wages Jun
Holiday: Colombia
During the week: Brazil: BCB Commodity price index Jun (6-13 Jul); Mexico: Auto report Jun (6-8 Jul); Peru: Trade balance May (8-11 Jul)
11 Jul
12 Jul
13 Jul
14 Jul
15 Jul
Brazil:
Retail sales May
Mexico:
IP May
Uruguay:
IP May
Argentina:
CPI Jun
Chile:
BCCh meeting
Mexico:
Banxico minutes
Peru:
BCRP meeting
Brazil:
IGP-10 Jul
Colombia:
IP May
Retail sales May
Peru:
Economic activity index May
Unemployment rate Jun
During the week: Brazil: Tax collections Jun (15-22 Jul), Economic activity index May; Mexico: Formal job creation Jun (12-13 Jul)
18 Jul
19 Jul
20 Jul
21 Jul
22 Jul
Colombia:
Trade balance May
Mexico:
Brazil:
BCB meeting
Argentina:
Budget balance Jun
Brazil:
IPCA-15 Jun
Mexico:
CPI Jul 1H
Holiday: Uruguay
Holiday: Colombia
During the week: Brazil: Formal job creation Jun (18-22 Jul)
84

Malcolm Barr (44-20) 7134-8326
Allan Monks (44-20) 7134-8309
Economic Research
Global Data Watch
June 24, 2016
UK and Scandinavia economic calendar

Monday
27 Jun
Tuesday
Wednesday
Thursday
Friday
28 Jun
29 Jun
30 Jun
1 Jul
United Kingdom:
CBI distributive trades (11:00am)
Jun
Financial Policy Committee meeting
Sweden:
PPI (9:30am) May
Trade balance (9:30am) May
United Kingdom:
Nationwide HPI (7:00am) Jun
M4 & M4 lending final (9:30am)
May
Net lending to individuals (9:30am)
May
Sweden:
Household lending (9:30am) May
Norway:
United Kingdom:
Gfk cons. conf. (12:05am) Jun
BoP (9:30am) 1Q
Business inv. final (9:30am) 1Q
Index of services (9:30am) Apr
0.1%m/m, sa
Real GDP 3rd est. (9:30am) 1Q
1.4%q/q, saar
Sweden:
Wage stats (9:30am) Apr
Norway:
Credit indicator growth (10:00am)
May
United Kingdom:
PMI Mfg (9:30am) Jun 48.8
BoE quarterly bulletin (12:00pm)
2Q
Sweden:
PMI Mfg (8:30am) Jun
Norway:
PMI Mfg (9:00am) Jun
Labor directorate unemployment
(10:00am) Jun
4 Jul
5 Jul
6 Jul
7 Jul
8 Jul
United Kingdom:
PMI Construction (9:30am) Jun
United Kingdom:
PMI Services (9:30am) Jun
Financial stability report (10:30am)
Sweden:
PMI Services (8:30am) Jun
Industrial production & orders
(9:30am) May
Services production (9:30am) May
United Kingdom:
New car regs (9:00am) Jun
BoE housing equity withdrawal
(9:30am) 1Q
ONS economic review (9:30am)
Jul
Sweden:
PES unemployment (8:00am) Jun
Riksbank rate announcement
(9:30am)
United Kingdom:
Halifax HPI (8:30am) Jun
Quoted mortgage interest rates
(9:30am) Jun
Sweden:
Budget Balance (9:30am) Jun
House price data (9:30am) Jun
Norway:
IP Mfg (10:00am) May
United Kingdom:
Markit jobs report (12:01am) Jun
Sweden:
Household Consumption (9:30am)
May
11 Jul
12 Jul
13 Jul
14 Jul
15 Jul
Norway:
CPI (10:00am) Jun
PPI (10:00am) Jun
United Kingdom:
BRC retail sales monitor (12:01am)
Jun
BCC economic survey (9:30am)
2Q
Minutes of the June 28th FPC
meeting (9:30am)
Sweden:
CPI (9:30am) Jun
United Kingdom:
BoE credit conditions survey
(9:30am) 2Q
Sweden:
Prospera inflation expectations
(8:00am) Jul
Norway:
House prices (10:00am) 2Q
United Kingdom:
RICS HPI (12:01am) Jun
MPC rate announcement, asset
purchase target & minutes
(12:00pm) Jul
United Kingdom:
Construction output (9:30am) May
Norway:
Trade balance (10:00am) Jun
18 Jul
19 Jul
20 Jul
21 Jul
22 Jul
United Kingdom:
Rightmove HPI (12:01am) Jul
United Kingdom:
CPI (9:30am) Jun
PPI (9:30am) Jun
House price index (9:30am) May
Sweden:
Minutes from the July 6th monetary
policy meeting (9:30am)
United Kingdom:
Labor market report (9:30am) Jun
United Kingdom:
Public sector finances (9:30am)
Jun
Retail sales (9:30am) Jun
Norway:
Building statistics (10:00am) Jun
During the week: United Kingdom: CBI industrial trends Jul (21-26 Jul) Norway: Retail sales Jun (20-30 Jul), Credit indicator growth Jun (20-30 Jul)
Times shown are local
85
JPMorgan Securities plc

Jessica Murray (44-20) 7742-6325
Economic Research
Global Data Watch
June 24, 2016
Emerging Europe/Middle East/Africa economic calendar

Monday
Tuesday
Wednesday
27 Jun
28 Jun
Israel:
BoI rate decision (4:00pm)
On hold, 0.10%
Hungary:
Unemployment (9:00am) Apr
South Africa:
Quarterly employment statistics
(11:30am) 1Q
During the week:
29 Jun
Thursday
Friday
30 Jun
1 Jul
Czech Republic:
CNB rate decision (1:00pm)
On hold, 0.05%
Hungary:
PPI (9:00am) Apr
Trade balance final (9:00am) Apr
Poland:
NBP inflation expectations
(2:00pm) Jun
Romania:
NBR rate decision
On hold, 1.75%
Turkey:
-US$5.1bn
South Africa:
Private sector credit (8:00am) May
Budget (2:00pm) May
Trade balance (2:00pm) May
Czech Republic:
GDP final (9:00am) 2Q
PMI (9:30am) Jun
Hungary:
PMI (9:00am) Jun
Poland:
PMI (9:00am) Jun
Russia:
Manufacturing PMI (10:00am) Jun
Current account final (5:00pm) 2Q
Turkey:
PMI (10:00am) Jun
South Africa:
Vehicle sales Jun
Barclays PMI (11:00am) Jun
Poland: CPI prelim May (30-1 Jul)
Russia: GDP final 2Q (1-4 Jul)
4 Jul
5 Jul
6 Jul
7 Jul
8 Jul
Turkey:
CPI (10:00am) Jun
Hungary:
Romania:
Poland:
NBP rate decision
Czech Republic:
Hungary:
Industrial output (9:00am) May
South Africa:
Gross reserves (8:00am) Jun
Czech Republic:
Hungary:
CPI (9:00am) Jun
Romania: GDP final (9:00am) 2Q
During the week:
Russia: CPI Jun (5-6 Jul)
11 Jul
12 Jul
13 Jul
14 Jul
15 Jul
Poland:
CPI (2:00pm) Jun
Romania:
CPI (9:00am) Jun
Russia:
Current account (5:00pm) 2Q
Czech Republic:
CPI (9:00am) Jun
Poland:
Core inflation (2:00pm) Jun
Russia:
Foreign trade (5:00pm) May
South Africa:
Manufacturing output (1:00pm)
May
Romania:
South Africa:
Retail sales (1:00pm) May
Czech Republic:
Current account (10:00am) May
Poland:
Current account (2:00pm) May
Romania:
Current Account May
Turkey:
Current account (10:00am) May
Israel: CPI (2:00pm) Jun
Turkey:
Unemployment (10:00am) Apr
During the week:

South Africa: BER consumer confidence 2Q (11-22 Jul)
GDP final 2Q (15-20 Jul)
Poland: Budget balance Jun (15-28 Jul)
Russia: Industrial output Jun (15-18 Jul)
18 Jul
19 Jul
20 Jul
21 Jul
Poland:
Average gross wages and Employment (2:00pm) Jun
Poland:
Industrial output (2:00pm) Jun
PPI (2:00pm) Jun
Retail sales (2:00pm) Jun
Russia:
Retail sales, Unemployment &
Investment (5:00pm) Jun
Turkey: CBRT rate decision
Czech Republic:
PPI (9:00am) Jun
South Africa:
CPI (10:00am) Jun
South Africa:
SARB rate decision
During the week:
Russia: PPI Jun (19-20 Jul)
Israel:
22 Jul
Poland: Unemployment Jun (22-25 Jul)

.
86

Benjamin Shatil (65) 6882-2311
benjamin.shatil@jpmorgan.com
Economic Research
Global Data Watch
June 24, 2016
Non-Japan Asia economic calendar

Monday
Tuesday
Wednesday
Thursday
Friday
27 Jun
28 Jun
29 Jun
30 Jun
1 Jul
New Zealand:
Trade balance (10:45am)
May NZ$200mn
Hong Kong:
Trade balance (4:30pm)
May HK$31.2bn
Korea:
Consumer survey (6:00am) Jun
98, index
Korea:
FKI Business Survey (6:00am)
May 93.5, index
Australia:
Pvt. sector credit (11:30am)
May 0.6%m/m
New Zealand:
Building permits (10:45am) May
NBNZ business confidence
(1:00pm) Jun
Hong Kong:
-7.6%oya
Korea:
IP (8:00am) May 0.6%oya
Taiwan:
CBC monetary policy meeting
12.5bp rate cut
Thailand:
PCI (2:30pm) May 5.8%oya
PII (2:30pm) May 2.0%oya
May US$0.5bn
China:
PMI mfg. (NBS) (9:00am) Jun
50.0, index
PMI Mfg. (9:45am) Jul
49.0, index
India:
PMI mfg. (10:30am) Jul
Indonesia:
CPI Jun 3.2%oya
Korea:
CPI (8:00am) Jun 0.9%oya
Current account balance (8:00am)
Jun US$7.5bn
Trade balance (9:00am) Jun
US$9.8bn
PMI mfg. (10:30am) Jun
50.3, index
Malaysia:
May US$2.5bn
Taiwan:
PMI mfg. (10:30am) Jun
49.0, index
Thailand:
CPI Jun 0.5%oya
Holiday: Hong Kong, Thailand
During the week:
Thailand: IP May (27-29 Jun)
4 Jul
5 Jul
Australia:
ANZ job advertisements (11:30am)
Jun
Building approvals (11:30am) May
Singapore:
PMI (9:00pm) Jun
Australia:
RBA official rate announcement
New Zealand:
ANZ commodity price Jun
Philippines: CPI (9:00am) Jun
Taiwan: CPI (8:30am) Jun
6 Jul
Holiday: India, Indonesia, Malaysia, Singapore
During the week:

China: PPI, CPI Jun (10 Jul); Money supply/TSF Jun (10-15 Jul)
Singapore: GDP flash 2Q (7-14 Jul)
7 Jul
8 Jul
China:
Foreign Exchange Reserves Jun
Taiwan:
Trade balance (4:00pm) Jun
Holiday: Indonesia, Malaysia
India: Trade balance May (8-15 Jul)
Philippines: Budget balance Jun (7-15 Jul)
11 Jul
12 Jul
13 Jul
14 Jul
15 Jul
Australia:
Housing finance (11:30am) May
Australia:
NAB business confidence Jun
India:
CPI (5:30pm) Jun
IP (5:30pm) May
Malaysia:
IP (12:00pm) May
Philippines:
Exports (9:00am) May
China:
Trade balance Jun
Korea:
Export price index (6:00am) Jun
Import price index (6:00am) Jun
Unemployment rate (8:00am) Jun
Money supply (12:00pm) May
Malaysia:
BNM monetary policy meeting
Australia:
New motor vehicle sales Jun
New Zealand:
Business NZ PMI (10:30am) Jun
India:
WPI (12:00pm) Jun
Korea:
BOK monetary policy meeting
China:
FAI (10:00am) Jun
GDP (10:00am) 2Q
IP (10:00am) Jun
Retail sales (10:00am) Jun
Indonesia:
Trade balance Jun
Singapore:
18 Jul
19 Jul
20 Jul
21 Jul
22 Jul
Singapore:
NODX (8:30am) Jun
Hong Kong:
Unemployment rate (4:30pm) Jun
Korea:
PPI (6:00am) Jun
Malaysia:
CPI (12:00pm) Jun
Taiwan:
Export orders (4:00pm) Jun
Hong Kong:
CPI (4:30pm) Jun
Indonesia:
BI monetary policy meeting
Taiwan:
IP (4:00pm) Jun
During the week:
Singapore: IP Jun (20-27 Jul)
87

Olya Borichevska (1-212) 834-5398
Economic Research
Global Data Diary
June 24, 2016
Global Data Diary

Week / Weekend
25 Jun 1 Jul
Monday
27 June
Brazil
BCB credit report
Israel
BOI mtg: no chg
Mexico
Trade balance (May)
United States
Intl trade (May, adv)
Flash srv PMI (Jun)
2 8 July
India
Trade balance (May)
Russia
CPI (Jun)
Singapore
GDP (2Q, flash)
4 July
Turkey
CPI (Jun)
Tuesday
28 June
Mexico
Unemployment rate (May)
United States
Real GDP (1Q, fnl)
CB cons conf (Jun)
Case-Shiller HPI (Apr)
5 July
Australia
Retail sales (May)
RBA mtg: no chg
Euro area
Retail sales (May)
Taiwan
CPI (Jun)
United States
Factory orders (May)
Global
All-industry PMI (Jun)
Wednesday
29 June
Argentina
Real GDP (1Q)
Euro area
EC econ snt (Jun)
Germany
CPI (Jun)
Japan
Shoko Chukin svy (Jun)
United States
Personal income (May)
Pending hm sales (May)
6 July
Germany
Mfg orders (May)
Poland
NBP mtg: no chg
Sweden
Riksbank mtg: no chg
United States
Intl trade (May, fnl)
ISM non-mfg (Jun)
All-ind PMI (Jun)
FOMC minutes
Thursday
30 June
Friday
1 Jul
Czech Republic
CNB mtg: no chg
Euro area
HICP flash (Jun)
Germany
Unemployment (Jun)
Retail sales (May)
Japan: IP (May)
Korea: IP (May)
Mexico
Banxico mtg: +50bp
Romania
NBR mtg: no chg
South Africa
Trade balance (May)
Taiwan
CBC mtg: -12.5bp
United Kingdom
Real GDP (1Q, 3rd est)
Brazil
IP (May)
Trade balance (Jun)
Euro area
Unemployment rate (Jun)
Japan
Core CPI (May)
HH spending (May)
Unemployment rate (May)
BoJ Tankan (2Q)
Korea
CPI (Jun)
Trade balance (Jun)
United States
Light veh. sales (Jun)
ISM mfg (Jun)
7 July
China
FX reserves (Jun)
Germany
IP (May)
Mexico
CPI (Jun)
United Kingdom
IP (May)
United States
ADP employment (Jun)
Global
Manufacturing PMI (Jun)
8 July
Brazil
CPI (Jun)
Germany
Trade balance (May)
Japan
Employers srvy (May)
Taiwan
Trade balance (Jun)
United States
Labor mrkt report (Jun)
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Completed 24 Jun 2016 09:20 PM EDT

Disseminated 24 Jun 2016 09:21 PM EDT

Global Data Watch

US: Which indicators are most

EM fallout varies by region, but policy bias for further easing

useful on first print?

German Court's OMT ruling

Meanwhile, back at the ranch: global industry slowly waking up

strengthens ECB's policy tools

Colombia: Taking stock of

troublesome twin deficits

The UK decision to leave the EU after 43 years of membership represents a

DI, sa. Jun based on flash

St.dev from hist avg

Figure 2: G-3 mfg PMI & business confidence

May 14 May 28 Jun 10 Jun 24

Source: J.P. Morgan

Source: J.P. Morgan

EM Asia: Domestic demand comes

Global Economic Outlook Summary

Global Central Bank Watch

Now cast of global growth

Selected recent research from

J.P. Morgan Economics

Regional Data Calendars

Our latest Special Report, "Profit stall

JPMorgan Chase Bank NA

Joseph Lupton (1-212) 834-5735

David Hensley (1-212) 834-5516

You picked a fine time to leave, UK

lar has afforded some opportunity for EM policy ease.

Source: J.P. Morgan; MSCI earnings

Constraints on providing policy support. In the face of a

EM braces for uneven Brexit fallout

JPMorgan Chase Bank NA

Joseph Lupton (1-212) 834-5735

David Hensley (1-212) 834-5516

clined to make material changes to the EM outlook. Risks are

Source: J.P. Morgan; EM is the EMCI

Global industry edging up pre-Brexit

Rajans exit creates policy uncertainty

JPMorgan Chase Bank NA

Joseph Lupton (1-212) 834-5735

June 24, 2016

Carlton Strong (1-212) 834-5612

Global economic outlook summary

% over a year ago

% over previous period, saar

Global PPP weighted

JPMorgan Chase Bank NA

Joseph Lupton (1-212) 834-5735

June 24, 2016

G-3 economic outlook detail

JPMorgan Chase Bank NA

Olya E Borichevska (1-212) 834-5398

June 24, 2016

Joseph Lupton (1-212) 834-5735

Global Central Bank Watch

Change since (bp)

United Kingdom Bank rate

16 Dec 15 (+25bp) 27 Jul 16 14 Dec 16 (+25bp)

18 Feb 16 (+50bp) 30 Jun 16

17 Dec 15 (+25bp) 14 Jul 16