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The GESI Risk Allocator favours being underweight risk assets given the distribution of stresses within the GFSI. The percentages of Bullish, Bearish and Neutral GFSI components (as used in the Risk Allocator) were 8.7%, 13.0% & 78.3%, respectively as of 5-Aug. The Risk Allocator (using Bull, Bear & Neutral weights of 2, 0, 1) suggests reducing the underweight position to 4.3% UW from last week’s 17.4% UW. Chart 3: Stress across assets (Rates & FX are the most stressed asset classes — credit stress declined the most last week 0.6 0.5 0.4 0.3 0.2 0.1 0.0 of 0.01 0.01 0.05 0.2 -~0.12 Commodities Rates FX Equities Credit m Latest stress (05-Aug-16) = Change in stress Source: BofA Merrill Lynch Global Research. 1wk change (22-Jul-16 to 29-Jul-16). Chart 5: Top 10 movers in stress (1-week abs chg %-ile vs history*) Chart 4: Stress across regions (Europe is the most stressed region in the GFSI while EM is the least stressed) m@m Stress fall 9 6 Gm Stress rise 00%, 100% 99% 95% 9394 90% 80% 70% 60% 50% 85% 81% 80% 79% 779% 69% Basis Swap EURUSD %-ile of abs chg in stress vs history* Copper Libor-OlS JPY Comdty Imp Vol Da 3s ao 5 © ao 2 —£ 9 > rom {=} (so) no 2 i = oO x w 2s oc oO 5 eo Q a oO IG Foreign Sovrn Bond Spread Sub IG Foreign Libor-OlS USD Libor-OIS EUR GBPUSD Imp Vol Source: BofA Merrill Lynch Global Research. * %-ile of weekly mave in stress vs all historical weekly moves (earliest 3-Jan-00). Bar colours represent rise (red) or fall (green) in stress. 1wk change (22-Jul- 16 to 29-Jul-16). 0.1 0.1 0.0 -0.11 -0.11 0.11 US Japan Europe EM mLatest stress (05-Aug-16) © Change in stress Source: BofA Merrill Lynch Global Research. Iwk change (22-Jul-16 to 29-Jul-16). Chart 6: Global volatility & credit spread stress in the GFSI 0.4 mLatest stress (05-Aug-16) = Change in stress 0.2 0.04 0.01 0.0 = 0.2 0.4 -0.6 0.8 -1.0 -1.2 HY CDS IG CDS FX Vol Equity Vol Sovrn risk So > n 2 oO a Commodity Vol Source: BofA Merrill Lynch Global Research. Iwk change (22-Jul-16 to 29-Jul-16). Bankof America Merrill Lynch Global Equity Volatility Insights | 09 August 2016 3 HOUSE_OVERSIGHT_025980