Citigroup Releases Annual Prospects for Financial Markets Report: "Opportunity and Risk in a Low-Volatility World"

Business Wire, Nov 27, 2006

NEW YORK -- Citigroup has just released the 2007 edition of its flagship annual Economic and Market Analysis research report, Prospects for Financial Markets, entitled "Opportunity and Risk in a Low-Volatility World." In addition to presenting detailed discussions of our market and economic views, the report discusses trends in macro economic volatility and their impact on financial markets and presents alternative scenarios for financial markets and the factors that might drive them. A brief summary of the report is given below.

Key Elements of the Overview:

-- The most likely scenario for global financial markets in 2007 is
   relatively benign.

    -- Our base case envisions that interest rates in most major
       markets do not move much in 2007, the dollar gradually weakens,
       and equities in many markets perform well.
    -- However, recent experience suggests that we should consider
       other possible outcomes for financial markets.

-- Risk premiums could fall further.

    -- We expect a number of near-term economic risks - the drag from
       U.S. housing, elevated core inflation - to dissipate over the
       course of 2007.
    -- China and other countries are expected to continue to
       accumulate foreign exchange reserves thereby continuing to
       support global liquidity.
    -- Under these circumstances, it is plausible that risk premiums
       could move lower still.

-- On the other hand risk premiums could move back toward their
   historic norms. There are many ways this could happen.

    -- Central bank mistakes.
    -- Supply shocks, such as a major disruption to oil supplies from
       the middle east.
    -- Emerging protectionism.

-- The potential for a broad-based rise in risk premium is certainly a
   plausible concern, but more so over an extended horizon.

    -- A portion of the current depressed level of risk premiums is
       likely to normalize over a number of years.
    -- But a part of current depressed level of risk premiums is
       likely to be durable.
        -- The volatility of inflation and economic growth in most
           industrial countries has declined substantially over the
           past two decades. We expect these trends to continue.
        -- The persistent low economic volatility probably has
           increased investors' confidence in their fundamental
           judgments, thereby boosting risk appetites. This is being
           reflected across a variety of asset classes.

Key Elements of our Outlook:

-- We expect the U.S. economy to return to trend growth by the middle
   of next year.

    -- We think we are experiencing the most intense part of the
       correction in residential construction right now.
    -- Easing core inflation should give the Federal Reserve scope to
       cut short-term rates one time in the second quarter of next
       year. In the near-term long-term rates should also remain close
       to current levels.
    -- Over a longer horizon, however, we expect the yield curve to
       steepen modestly with movement at both ends.

-- Growth in Japan has slowed somewhat in recent months.

    -- We think, however, that the current weakness in some Japanese
       data is not fully reflective of the underlying strength of the
       economy.
    -- We expect the Bank of Japan to raise rates in January, and two
       more times in 2007, somewhat more than markets expect. Japanese
       long-term interest rates should rise as well, but by less than
       short-term rates.

-- Euro-area growth should slow in early 2007 in response to fiscal
   tightening in Germany and Italy.

    -- There are hints that the euro-area economy may be more robust
       with domestic demand showing signs of resilience and
       productivity growth picking up modestly.
    -- The ECB should raise rates again next month, but we do not look
       for any action after that for some time.

-- Growth in China appears to have slowed modestly in recent months in
   response to previous policy tightening.

    -- We expect China to accommodate somewhat more rapid currency
       appreciation in order to contain the growth of external
       surpluses.
    -- Nonetheless China appears unlikely to take actions in the next
       couple of years that will reduce its external surplus
       substantially.

-- The dollar should continue to drift lower on a trade-weighted
   basis.

    -- The locus of dollar depreciation should shift, however, from
       the euro and other G-10 currencies toward emerging Asia.

-- Equities should outperform most other asset classes.

    -- We expect earnings growth to slow, but profit margins remain
       high.
    -- Underlying growth expectations embedded in equity prices appear
       modest, leaving equities well positioned, particularly relative
       to other assets where valuations are more stretched.

For a copy of the 64-page report, please inquire with the press contact listed below.

Citigroup (NYSE: C), the leading global financial services company, has some 200 million customer accounts and does business in more than 100 countries, providing consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. Major brand names under Citigroup's trademark red umbrella include Citibank, CitiFinancial, Primerica, Smith Barney and Banamex. Additional information may be found at www.citigroup.com.