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16 November 2016

Global Economic Perspectives

Global Economics

Global EconomicPerspectives

Date16 November 2016

Deutsche BankResearch

Trump and the pace of Fed rate hikesin 2017

■ Donald Trump's surprise election victory raises a number of questions forthe Fed in the year ahead. In this week's piece we focus on the relativelynarrow question of what Trump's policies could mean for appropriateFed policy in 2017. We provide an assessment of the different inputsinto this calculus, including the neutral fed funds rate, GDP growth,unemployment and inflation.

■ We find that the mix of policies under consideration by the newadministration could imply that a much faster pace of rate hikes isappropriate. Under a relatively conservative assessment that Trump'spolicies help boost growth into the 2.25-2.5% range, we find that Yellen'spreferred Taylor rule would imply that the Fed should pursue one morerate hike next year than they currently expect – about 10bp due to a higherneutral fed funds rate and the remainder due to better growth, lowerunemployment, and somewhat faster inflation. Under a more optimisticscenario, consistent with the recent revision to our US growth forecast,in which US growth rises to around 3% in 2017, the appropriate fed fundsrate would be about 75bp higher than the Fed's current expectations –25-30bp due to a higher neutral fed funds rate and the remainder due tobetter economic conditions.

■ While a substantially faster pace of rate hikes in 2017 than the Fedcurrently anticipates is a risk, this is not our base case. Inflation is likelyto moderate early next year, and the full growth benefits of these policiesmay not begin to be felt until the second half of 2017. As a result, theFed is likely to initially keep to their expectations for a gradual pace ofrate increases. The greater risk for faster rate hikes is in late-2017 and2018 when the growth impact of these policies will be more evidentand inflation pressures have a better opportunity to build, especially asunemployment potentially falls well below current estimates of NAIRU.

Peter Hooper, Ph.D

Chief Economist

+1-212-250-7352

Michael Spencer, Ph.D

Chief Economist

+852-2203 8303

Torsten Slok, Ph.D

Chief Economist

+1-212-250-2155

Matthew Luzzetti, Ph.D

Senior Economist

+1-212-250-6161

Deutsche Bank Securities Inc.

DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016.

Distributed on: 16/11/2016 12:03:15 GMT

16 November 2016


Introduction

Donald Trump's surprise election victory raises a number of questions for the Fedin the year ahead. Among these uncertainties are who will be appointed to theBoard of Governors, what will Trump's policies mean for growth, inflation andunemployment, and what are the implications for the pace of Fed normalizationof interest rates?

At this point, only a week beyond the election, it remains difficult to assessmany of these questions with any precision. In this week's piece we focus on therelatively narrow question of what Trump's policies could mean for appropriateFed policy in the year ahead. We provide an assessment of the different inputs intothis calculus, including the neutral fed funds rate, GDP growth, unemploymentand inflation.

To briefly summarize our findings, under a relatively conservative assessment thatTrump's policies help boost growth into the 2.25-2.5% range, we find that Yellen'spreferred Taylor rule would imply that the Fed should pursue one more rate hikenext year than they currently expect – about 10bp due to a higher neutral fedfunds rate and the remainder due to better growth, lower unemployment, andsomewhat faster inflation. Under a more optimistic scenario, consistent with therecent revision to our US growth forecast, in which US growth rises to around3% in 2017, the appropriate fed funds rate would be about 75bp higher than theFed's current expectations – 25-30bp due to a higher neutral fed funds rate andthe remainder due to better economic conditions.

Implications for the Fed

There are two key elements to how a Trump presidency could impact theappropriate path of Fed policy over the next year. The first is how thesepolicies affect the inputs into the Fed's dual mandate: growth, inflation and theunemployment rate. The second channel is through the impact on the neutralfed funds rate – the rate that would keep the economy at full employment andinflation on target. The new president will also have two vacancies to fill on theBoard of Governors next year, and potentially many more, including the Board'sleadership during 2018. But we do not expect these impending changes to havemuch impact on policy during 2017.

Growth, unemployment and inflationIt is difficult to calibrate the growth impact of Trump’s policies at this pointgiven how little is known about what those policies actually will be. Thus, weconsider two possibilities as examples. First, as a conservative estimate, weassume that the fiscal expansion Trump proposed for 2017 is scaled down enoughto boost real GDP growth next year by 0.25-0.5 percentage point. This magnitudewould be consistent, for example, with a tax cut on the order of 0.5-1% of GDPcombined with a tax multiplier that falls well short of 1.0. It is also roughly inline with what we expect will be the upward revision to the consensus of USprivate sector forecasts. Second, as a more optimistic scenario consistent with therecent revision to our US growth forecast, we consider the implications of growthrising to around 3% in 2017--ie. roughly in line with our recently revised above-consensus House US forecast. In both cases, we assume that growth moves upto these levels in a persistent fashion over the next several years. For context, areasonable baseline for US growth prior to these events was in the 1.8-2% range.


16 November 2016


To translate these high-level GDP figures into quantities that matter for the Fed,we use the Fed's model of the US economy (FRB/US) to infer what these policiescould mean for the unemployment rate and inflation. In the past, we have usedthe FRB/US model to compute "rules of thumb" for how the economy responds tovarious shocks.1 One of the shocks we considered was a 1% of GDP permanentincrease in federal government purchases. FRB/US finds that this stimulus booststhe level of GDP by about 1% in the first year, reduces the unemployment rateby about 0.5 percentage points, and has a very limited impact on inflation (seeFigure 1).

Figure 1: FRB/US-based rules of thumb for government spending shock

year 1 year 3 Year 1 Year 3

Permanent increase in federal government

purchases by 1% of GDP

1.1 1.4 1.0 0.6

-0.5 -0.7 -0.5 -0.4

0.0 0.2 0.0 0.1

0.5 0.7Fed funds rate

Constant fed funds rate Taylor rule

Unemployment rate

GDP

PCE inflation

Source: FRB, Deutsche Bank Research

Using these findings as a guide, under the assumption that growth rises intothe 2.25-2.5% range in 2017, the unemployment rate would fall by about 0.2percentage points more than in the absence of these policies and inflation wouldbe largely unchanged. The muted impact on inflation is likely due to the factthat the positive effects from a tighter labor market and economy are offset by adepressing impact on inflation from a stronger dollar on import prices. Under themore optimistic scenario in which US real GDP growth rises to 3% over the nextyear, the unemployment rate could fall by about 0.5 percentage points more thanpreviously expected and inflation would rise modestly.

Neutral fed funds rate

Figure 2: Neutral fed funds rateplunged to record lows followingfinancial crisis

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1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

% % Laubach-Williams, real neutral fed funds rate

Source: Laubach-Williams (2003), Haver Analytics, Deutsche Bank

The second key consideration for assessing how much faster the fed fundsrate could rise next year is the neutral fed funds rate. By most measures, thereal neutral fed funds rate fell to historically low levels following the crisis. Forexample, the measure from two senior Fed officials Thomas Laubach and JohnWilliams, which receives considerable attention, fell from around 2% in realterms prior to the crisis to near 0% over the past five years (see Figure 2).2 Thispronounced decline is due to both slower potential GDP growth and persistentheadwinds from the financial crisis that have exerted a negative drag on growth.Among these headwinds, the Fed has highlighted in the past private sectordeleveraging, fiscal drag, tight credit conditions, and more recently a surge in theUS dollar and weak global growth.

Government policies on spending, tax, trade, and regulation can affect the neutralfed funds rate through a number of channels. As we wrote in some detail recently,faster growth could help lift the potential growth rate of the economy by reversingnegative hysteresis effects that were brought about by the financial crisis.3 Theidea behind negative hysteresis effects is that a negative shock to the economy

1 See Deutsche Bank Global Economic Perspectives (14 November 2014), "Rules of thumb based on FRB/US simulations."

2 See Laubach, Thomas and John C. Williams (November 2003), "Measuring the Natural Rate of Interest."The Review of Economics and Statistics, Vol. 85, No. 4, pp. 1063-1070.

3 See Deutsche Bank Global Economic Perspectives (21 October 2016), "US macro puzzles and a high-pressure economy."


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driven solely by demand can have adverse effects on the long-term supply-side ofthe economy. Examples of these negative hysteresis effects could be individualsthat lose their jobs and find that their skills and connections with the labor marketatrophy could become persistently detached from the labor market. In addition,an upward adjustment to the assessment of uncertainty in the macroeconomicoutlook following a large shock like the financial crisis could cause risk aversionto remain persistently elevated. For businesses this has meant weaker capexspending. For households this could mean greater reluctance to take on debt tohelp finance large purchases such as autos and houses.

Faster growth could help reverse some of these trends to an extent. While we donot believe a high-pressure economy would lead to large inflows into the laborforce – given the importance of structural trends that imply labor market slackis relatively limited – capex spending and productivity growth could get a boostfrom a faster growth environment. Indeed, very weak capital deepening has beena key driver of historically slow productivity growth over the past several years(see Figure 3).

Figure 3: Weak capex spendinghas been key driver of depressedproductivity growth

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

%Chg annual rate

Utilization Labor quality Innovation Capital deepening(capex)

Breakdown of 2004-present

Source: FRBSF, Haver Analytics, Deutsche Bank Research

Beyond simply the direct growth impact, policies aimed at stimulating publicand private infrastructure investment could increase productivity and potentialgrowth. Moreover, some degree of regulatory easing may also help boost growthby raising banks' ability to lend.

To be sure, there is the potential that some of the proposed policies could havenegative effects on growth and the supply-side of the economy. More restrictiveimmigration policies could exacerbate already-negative demographic trendsthat point to slower labor force growth over the coming decades. Meanwhile,significant trade restrictions could act as a negative supply shock to the economythat raises inflation and lowers growth and could intensify headwinds from slowglobal growth.

We use the Laubach-Williams model to assess how much the neutral fed fundsrate could rise over the next year due to these policies.4 With growth in the2.25%-2.5% range, instead of 1.8-2%, over the next several years, the Laubach-Williams model suggests that the real neutral fed funds rate is likely to be about10bp higher by end-2017 and 25bp higher by end-2020 (see Figure 4). Underthe more optimistic scenario in which growth rises to 3%, the real neutral fedfunds rate would be 25-30bp higher by end-2017 and as much as 60bp higherby end-2020.

4 For more discussion of this model and our replication see: Deutsche Bank Global Economic Perspectives(23 August 2016), "Lower for longer? The outlook for the neutral fed funds rate.


16 November 2016


Figure 4: Real neutral fed funds rate could be on a much higher trajectory ifgrowth picks up

0.0

0.5

1.0

1.5

2.0

2016 2017 2018 2019 2020

DB LW: Growth = 1.8-2% Fed long-run DB LW: Growth = 2.25% DB LW: Growth = 2.5% DB LW: Growth = 3%

%, Real neutral rate

Source: Deutsche Bank Research

What would these policies mean for the long-run level of the neutral fed fundsrate? The answer to this question relies critically on the extent to which thepolicies enhance the long-run growth potential of the economy by raising thepotential labor force growth rate and / or boosting the productive capacity oflabor and capital. This question is very difficult to assess at this point. If thesepolicies lead to only a short-term burst in growth and have limited implicationsfor the long-term supply-side of the economy, the impact on the long-run neutralrate should be limited. In order to implement the Laubach-Williams filteringmethodology we do not need to take a stance on whether faster growth comesfrom the demand or supply side of the economy or from some mix. Instead, themethodology identifies these different forces and attributes some portion of thefaster growth to the supply side based on how inflation reacts given movementsin the fed funds rate.

If we take an extreme scenario in which the US economy permanently transitionsto these higher-growth regimes, the long-run level of the neutral fed funds ratecould also shift up by as much as 50bp if growth is 2.25-2.5% and could even riseby more than 1 percentage point if real economic growth remains permanentlynear 3% (see Figure 5). This could undo much of the downward drift in theFed's assessment of the long-run neutral fed funds rate that has occurred sincelate-2012.


16 November 2016


Figure 5: Long-term neutral fed funds rate could also rise if growth picks up,especially if driven by supply-side improvements

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Dec-12 Dec-13 Dec-14 Dec-15 Jun-16 Sep-16 1.8-2% growth

2.25-3% growth

%, Real long-term neutral fed funds rate FOMC Projections DB LW Projections

Note: DB LW baseline projection is the range of projections we calculate using a real GDP growth range of 1.8-2% and also accounting for the fact that our replication has been slightly above the L-W methodology recently.

Source: FRB, Deutsche Bank Research

Putting it all together

To get a complete assessment of how much faster the fed funds rate could risein 2017 following Trump's election, we use the above analysis and a Taylor rulethat Chair Yellen specified in a March 2015 speech.5 This rule sets the prescribednominal fed funds rate equal to the sum of the real neutral fed funds rate, corePCE inflation, one-half times the gap between actual core PCE inflation and theFed's 2% inflation target, and the unemployment gap. Thus, changes in the realneutral fed funds rate and the unemployment gap feed through one-for-one intothe prescribed nominal fed funds rate.

Under the more conservative scenario in which real US growth rises to 2.25-2.5%next year, the prescribed nominal fed funds rate from Yellen's preferred Taylor rulewould be about 30bp higher – 10bp from a higher neutral fed funds rate and 20bphigher from a lower unemployment rate (Figure 6). Under the more optimisticscenario, which is consistent with the recent revision to our US growth forecast,in which real US growth rises to around 3% next year, the prescribed nominal fedfunds rate would be about 75bp higher – 25-30bp from a higher real neutral fedfunds rate and the remainder from a lower unemployment rate. In both cases, theimpact of changes in inflation on the fed funds rate is minimal.

5 See Yellen, Janet L. (27 March 2015), "Normalizing monetary policy: Prospects and perspectives." Remarksat "The new normal monetary policy," a research conference sponsored by the Federal Reserve Bank ofSan Francisco.


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Figure 6: Higher growth scenarios prescribe a much higher fed funds rate

0.0

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2.0

2011 2012 2013 2014 2015 2016 2017

% Fed funds rate

Actual FOMC Sep 2016 dots

Fed funds futures Fed funds futures on Nov 7

2.25-2.5% growth scenario 3% growth scenario

Source: FRB, Bloomberg, Deutsche Bank Research

Will the Fed hike faster in 2017?

While our analysis suggests that there could be considerable upside risk tothe Fed's current expectations for only two rate increases in 2017, severalfactors augur for caution in making this assessment. First, there is uncertaintyabout whether and when these policies will be implemented. The likely delaysassociated with passing legislation and ultimately observing the impact of thatlegislation on the economy could mean that any effects are not visible untilwell after the first quarter of next year. In addition, strong inflation prints at thebeginning of this year make for difficult base effects early next year, suggestingthat inflation could moderate a bit in Q1. The extent to which the pick up ingrowth is demand versus supply driven is also important. Faster productivitygrowth would help keep inflation pressures in check, allowing the Fed to continuealong its more gradual path of tightening. Finally, stronger US growth andthe prospects of additional Fed rate hikes will cause the dollar to appreciate,potentially substantially. Dollar appreciation will in turn tend to diminish growthand reduce the immediacy of Fed rate hikes.

As a result, there may be limited reason for the Fed to change their expectationsfor only two rate increases before Q2 2017, though it will be interesting to seehow the Fed dots evolve in the coming meetings. The upside risk to rate hikesis thus most likely for three rate increases next year. This timeline suggests thatthe greater risk for faster rate increases is in H2 2017 and 2018 when the growthimpact of these policies will be more evident and inflation pressures have a betteropportunity to build, especially as unemployment potentially falls well belowcurrent estimates of NAIRU.

Peter Hooper, (1) 212 250 7352

Matthew Luzzetti, (1) 212 250 6161

Torsten Slok, (1) 212 250 2155


16 November 2016


Central Bank WatchG3

US

Figure 7: G3 policy rates

Source: Deutsche Bank


With financial conditions resilient following the US election surprise and dataremaining supportive, we continue to expect the Fed to raise rates by 25bp inDecember. Two rate hikes are expected in 2017, but our analysis suggests thatthere is upside risk to this expectation if economic activity accelerates as stronglyas we now forecast.

JapanAs expected, the Monetary Policy Board kept its short-term and long-term interestrate targets unchanged earlier this month. The Board's median GDP growthforecast was lowered by 0.2% in each year of the outlook and the timing of hittingthe 2% inflation target was again delayed – to FY 2018. The Board continues toexpress a view on how much the Bank's bond holdings will rise, which we thinkconfuses many market participants about their intentions. If global bond yieldscontinue to rise, it may require substantially less JGB purchases to achieve thestated aim of keeping bond yields at around current levels (or around 0%). How theBank would respond to market concerns that they are 'tapering' is a key questionwe will want to observe in the coming months.

EurolandAt the October meeting Draghi reaffirmed our expectations for an easing inDecember. He did not give away much on the possible extension of QE or theoptions to ensure sufficient eligible assets. We expect a 9-12 month QE extension.Removing the yield floor and raising the issue limit are the two likely options toaddress the bond scarcity problem.

Other European countries

UK

Figure 8: Key European policy rates



The BoE shifted to a more neutral stance in November. Brexit is still considereda negative shock to growth but it is “balanced” against the sterling impact oninflation. We still see risks slightly skewed towards easing but a further rate cutis no longer a baseline.

SwedenIn February, the Riksbank cuts rates 15bp to -0.50%. It's profile suggests rateswill remain at current levels with no hike before end-2017 at the earliest.

SwitzerlandThe SNB left policy on hold at its latest meeting with rates well below zero. Wesee further gradual depreciation of CHF vs. EUR going forward.


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Dollar bloc

Canada

Figure 9: Dollar Bloc policy rates



Following the BOC’s October meeting, the CAD OIS curve is now pricingin roughly 2 additional bps of easing through 2017. In short, the Octobermonetary policy report points to heightened concerns that the ongoing structuraladjustment of the Canadian economy may require further monetary stimulus—and relatively soon for that matter. The performance of the housing and exportssectors over the next several months will be critical in this regard.

AustraliaWe think that the May and August moves will likely mark the end of the RBA’sactions for this year. That said, we do retain the view which we have held sincethe May RBA Board meeting that the Bank will end up taking the cash rate lowerstill as we expect inflation to eventually undershoot the RBA’s current publishedforecasts. Specifically we look for a 1.25% cash rate come mid-2017.

New ZealandThe policy tone of the RBNZ’s November MPS took a turn towards neutral, but amodest easing bias persists, in our view. The shift in tone reduces the probabilitythat further easing will be delivered, but we maintain for now our call for a further25bp reduction in the OCR in Q2-2017. We are persisting with our call becausewe think the depreciation in the currency projected by the RBNZ may yet provetoo optimistic. Added to this, the US presidential election result throws up arange of possibilities about the outlook for the global economy and the globalrate structure. Amid this heightened uncertainty we think it prudent to leave ourrates call unchanged for now.

BRICs

China

Figure 10: BRIC policy rates



Government tightened property sector policy in some cities. We expect growthto slow in Q4 and Q1 to below 6.5%, and the government to cut interest rate inQ2. We expect RMB to depreciate 20% against the USD by end of 2018.

IndiaWe think that the near-term growth-inflation mix would support a continuation ofthe RBI's accommodative stance in the coming months, opening up room for atleast one more policy interest rate cut in this cycle. Consequently, we maintainthat RBI will likely cut the repo rate again by 25bps in the December policymeeting, taking the repo rate to 6% by year end.

BrazilAs inflation has decelerated due to a severe recession and the impeachment ofthe President has reduced political risk, the BCB initiated an easing cycle with a25bp rate cut in October, in line with our forecast. We project a total easing cycleof 450bps, but believe the risk is now tilted towards a smaller cycle due to theadverse effect of the US election on risk premium and FX.

RussiaWe expect the CBR to bring the policy rate to 7.5 within a corridor system thatis +/-100bps by end-2017. The CBR cut the policy rate by 50bps in September,as expected, but committed to no further cuts until end-2016. As a result we arekeeping our call for cumulative cuts of 250 by end-2017, most likely back-loaded.We will also be looking out for the CBR to switch to 25bps cuts per meeting.


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Figure 11: Central Bank Policy Rate Monitor

Source: Deutsche Bank, Central Banks, Haver Analytics

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Figure 12: Key Economic Forecasts

Source: See below

Figure 13: Forecasts: G7 quarterly GDP growth

Source: Haver Analytics, National authorities, Deutsche Bank Research


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Appendix 1

Important Disclosures

*Other information available upon request

*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced fromlocal exchanges via Reuters, Bloomberg, and other vendors. Other information is sourced from Deutsche Bank, subjectcompanies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other thanthe primary subject of this research, please see the most recently published company report or visit our global disclosurelook-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition,the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendationor view in this report. Peter Hooper, Michael Spencer, Torsten Slok, Matthew Luzzetti

?


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Additional Information

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16 November 2016


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Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financialinstruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, TypeII Financial Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks involvedin stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying thetransaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a resultof share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming fromforeign exchange fluctuations. We may also charge commissions and fees for certain categories of investment advice,products and services. Recommended investment strategies, products and services carry the risk of losses to principaland other losses as a result of changes in market and/or economic trends, and/or fluctuations in market value. Beforedeciding on the purchase of financial products and/or services, customers should carefully read the relevant disclosures,prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are notregistered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the name of the entity.Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank Group's analysts withthe coverage companies specified by DSI. Some of the foreign securities stated on this report are not disclosed accordingto the Financial Instruments and Exchange Law of Japan. Target prices set by Deutsche Bank's equity analysts are basedon a 12-month forecast period.

Korea: Distributed by Deutsche Securities Korea Co.

South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch RegisterNumber in South Africa: 1998/003298/10).??Singapore: by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One RafflesQuay #18-00 South Tower Singapore 048583, +65 6423 8001), which may be contacted in respect of any matters arisingfrom, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is not anaccredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations),they accept legal responsibility to such person for its contents.

Taiwan: Information on securities/investments that trade in Taiwan is for your reference only. Readers shouldindependently evaluate investment risks and are solely responsible for their investment decisions. Deutsche Bank researchmay not be distributed to the Taiwan public media or quoted or used by the Taiwan public media without written consent.Information on securities/instruments that do not trade in Taiwan is for informational purposes only and is not to beconstrued as a recommendation to trade in such securities/instruments. Deutsche Securities Asia Limited, Taipei Branchmay not execute transactions for clients in these securities/instruments.??Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial CentreRegulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall withinthe scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower, WestBay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financialproducts or services are only available to Business Customers, as defined by the Qatar Financial Centre RegulatoryAuthority.

Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute,any appraisal or evaluation activity requiring a license in the Russian Federation.

?Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated bythe Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities thatfall within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al OlayaDistrict, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia.??


16 November 2016


United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulatedby the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial servicesactivities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai InternationalFinancial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been distributed byDeutsche Bank AG. Related financial products or services are only available to Professional Clients, as defined by theDubai Financial Services Authority.

Australia: Retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial productreferred to in this report and consider the PDS before making any decision about whether to acquire the product. Pleaserefer to Australian specific research disclosures and related information at https://australia.db.com/australia/content/research-information.html??Australia and New Zealand: This research is intended only for "wholesale clients" within the meaning of the AustralianCorporations Act and New Zealand Financial Advisors Act respectively.

?Additional information relative to securities, other financial products or issuers discussed in this report is available uponrequest. This report may not be reproduced, distributed or published without Deutsche Bank's prior written consent.Copyright © 2016 Deutsche Bank AG


David Folkerts-LandauGroup Chief Economist and Global Head of Research

Raj HindochaGlobal Chief Operating Officer

Research

Michael SpencerHead of APAC Research

Global Head of Economics

Steve PollardHead of Americas Research

Global Head of Equity Research

Anthony KlarmanGlobal Head ofDebt Research

Paul ReynoldsHead of EMEA

Equity Research

Dave ClarkHead of APAC

Equity Research

Pam FinelliGlobal Head of

Equity Derivatives Research

Andreas NeubauerHead of Research - Germany

Stuart KirkHead of Thematic Research

International locations

Deutsche Bank AGDeutsche Bank PlaceLevel 16Corner of Hunter & Phillip StreetsSydney, NSW 2000AustraliaTel: (61) 2 8258 1234

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Deutsche Securities Inc.2-11-1 NagatachoSanno Park TowerChiyoda-ku, Tokyo 100-6171JapanTel: (81) 3 5156 6770

Deutsche Bank AG London1 Great Winchester StreetLondon EC2N 2EQUnited KingdomTel: (44) 20 7545 8000

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