Chart 19: The SX7E 6m implied-realised correlation spread has been Chart 20: The decline in SX7E 6M realised correlation appears to be high throughout 2017 and remains in the 88 5-year percentile mainly due to company-specific rather than region-specific divergence —— 6m implied correlation ——— 6m realised correlation implied-realised spread 90% 50% 100% ~ 55th percentile 40% a Aa, call —_ ay oy 70% om, ——™ hee ° 30% ° 8th percentile 40% 50% 20% 20% 10% 0% rr rr er a a i 30% 0% 0% 12 13 14 15 16 47 ew N o ise) st =t Rs) Lo ee) oO Spread (rhs) © © &£ 8 © GS E B FE % —— Average inter-regional SX7E 6M realised correlation** 5S & 38 4&4 38 & 838 4&4 83 & ——S\X7E 6M realised correl* Source: BofA Merrill Lynch Global Research. Data: 16-Jan-12 to 16-Jun-17. Implied and realised Source: BofA Merrill Lynch Global Research. Data: 16-Jan-12 to 16-Jun-17. *Calculated based on correlations are calculated using current weights. current weights of French, German, Italian and Spanish banks with enough price history. *We construct theoretical portfolios consisting of SX7E names from a given country (France, Germany, Italy and Spain) and compute the average pairwise correlation of their daily returns Chart 21: ESTX50 3M put skew is near 5yr highs, in stark contrast to ESTX50 put 3M 90-100 (%fwd) put skew has re-steepened to ‘SXEP (European Oil & Gas equity) put skew which is close to Syrlows near 5 year highs following the flattening which ensued after 6.5% the first round of the French presidential elections (23-Apr). The 400th ; recent ESTX50 skew dynamics are in stark contrast to what has 9 — — 100thpercentile 9 ___ . : , . 5.5% been witnessed in the SXEP (European Oil & Gas equity), where the 3M 90-100 volatility spread has been trending lower and is 45% currently near-flattest in 5 years. 3.5% 25% +t = — a Ss ed 2nd percentile 1.5% Jun12 Jun13 Jun14 Jun15 Jun16 Junt7 ——SX5E 3M 90-100 put skew ———SXEP 3M 90-100 put skew Source: BofA Merrill Lynch Global Research. Data: 16-Jun-12