8 February 2016 US Equity Insights No fed hikes in 1H16, but slow hikes will come eventually Strong jobs and falling UE despite still slow GDP justifies Fed hikes by Sept. This likely boosts the dollar a bit more, keeps US inflation very low and flattens the yield curve. If a strong dollar and some slow hikes stave off rising unit labor costs, then, given scant long-term real interest rates globally, the FF rate and 10yr yield are likely plateau well below historical norms this cycle. This supports S&P PE upside. Figure 41: Unemployment rate and labor partici! tio rate riggg A AAA —P•succatcn an 64d 166n pop. In) igAgrne edidopx1 d entiodd Mn Sat * BLS. ?—Ammo. Olascli• &eat I Figure 43: Consumer price inflation.. Core CPI and Core PCE 3.0% 2.7% 2.4% 2.1% 18% 1.5% 1.2% 0.9% 0.6% 0.3% 0.0% Recession Con PCE Core CPI Settee flaw MOS dab* ISM Page 18 3.0% 2.7% 2.4% 2.1% LS% 15% 1.2% 09% 0.6% 1. 0.3% 0.0% 'Figure 42: Productivity and unit labor cost 10% 6% 6% 4% 2% 0% Room 2yr average. y ig gig '8' 12% 10% 8% ;AC,/ an 6% 28%n4' 201S • • - 0% Fkad001 -Ural lotxr cons — Proluahrty tOUpLLM/. an) Sage* 0LS. saw /****LL Daresch• Barg r-:- iFsgure 44: Less labor slack signals wage inflation 16% SO% 4.5% 40% 25% 10% 25% 20% 25% 20% Recession —coonsofinin nee mops CS01446%11661460. nmod•cl 164) ---- Avg badly gangly> 1RedsOm one inn.JP(rvinn. "Pt MO San BZ S, doer Adegeg; Onalvese Deutsche Bank Securities Inc. CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0120200 CONFIDENTIAL SDNY_GM_00266384 EFTA01459636