HOUSE OVERSIGHT 014861 Chart 1: The gap between hard and soft data is a concern to investors Chart 2: Mediocre US Q1 data partly down to seasonal adjustments Residual seasonality in GDP growth from 1985 to 2015 25 2 08 15 06 1 04 05 0 02 -0 5 0 -1 -1 5 -0 2 -2 -0 4 -2 5 01 00 01/02 01104 01/06 0108 01/10 01/12 01/14 01/16 -0 6 -0 8 —Surveys & Business Cycte Indicators —Hard Data -1 Scs,oce SoM Mend Lynch Glcbal Research Bloortf-ri 01 Source Cleveland Federal Reserve • GDP • Pnvate Investment • Government consumptron & investment 02 03 04 We continue to believe in the reflation theme because: 1. Strength in the global economy is genuine - European PMIs are at 6 year highs, Chinese and Japanese PMIs continue to improve too. In fact —90% of PMIs globally are above 50 and 60% have increased in the last 3 months. 2. Earnings revisions and Global Wave point to continued upturn - earnings revisions now above 1.0 for the first time since 2011. 3. We expect Trump to deliver on tax, even if it is smaller than hoped for - should such a package be put together it would likely support the Trump trade once again after the failure to reform Obamacare 4. Bond markets are being too sanguine about the likely pace of Fed tightening - the Fed funds curve is once again well below the dot plot. We continue to see upside in yields if and when the market becomes more convinced that the soft data is right. Chart 7: Bond yields have pulled back from FOMC highs 2.7 - 2.5 2.3 2.1 1.9 1.7 1.5 1.3 fAINA CO CO CO CD GO tO CD CO CO CO CO CO N.- N.- —UST 10y yield C 9.4. 5, 1 .7 3-3 <-81A Source Btoombero Chart 8: As the market refuses to price the dot plot 250- 200 - 150 100 - 50 1 0 —Current market pncmg Median dot. Mar-17 SEP —BofAML forecast # of meetings into tightening cycle 4 8 12 16 20 24 Source SofA !item' Lynch 7,PRearcti Bloomberg European Banks holding up better than US Peers on pull back In Banks, the reoccurr