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Chart 19: The SX7E 6m implied-realised correlation spread has been high throughout 2017 and remains in the 88 5-year percentile Chart 20: The decline in SX7E 6M realised correlation appears to be mainly due to company-specific rather than region-specific divergence 6m implied correlation implied-realised spread 6m realised correlation 90% 50% 100% 80% 40% , Oe 30% 60% ° 40% 50% 20% 20% 10% 0% 30% 0% 70% 12 13 14 15 16 17 Spread (rhs) Average inter-regional SX7E 6M realised correlation** SX7E 6M realised correl* Source: BofA Merrill Lynch Global Research. Data: 16-Jan-12 to 16-Jun-17. *Calculated based on 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 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Source: BofA Merrill Lynch Global Research. Data: 16-Jan-12 to 16-Jun-17. Implied and realised correlations are calculated using current weights. Chart 21: ESTX50 3M put skew is near 5yr highs, in stark contrast to SXEP (European Oil & Gas equity) put skew which is close to 5yr lows ESTX50 put 3M 90-100 (%fwd) put skew has re-steepened to near 5 year highs following the flattening which ensued after 6.5% the first round of the French presidential elections (23-Apr). The 400th percentile recent ESTX50 skew dynamics are in stark contrast to what has 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% 2.5% ——— _— 2nd percentile 1.5% Jun12 Junt3 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 to 16-Jun-17. Bankof America Merrill Lynch Global Equity Volatility Insights | 20 June 2017 13 HOUSE_OVERSIGHT_014984