Morning Report

21.09.2012

France and Germany on different paths

NOK & 3m NIBOR 7.50 7.40 7.30 7.20
3m ra.

2.50 2.35 2.20 2.05 1.90

EURNOK

The activity decline in France has accelerated, while the situation in Germany is improving. The market is currently lifted by rumors of ongoing negotiations between Spain and the European Commission regarding an application to the rescue fund. Purchasing managers in the euro zone report about a further deterioration in the September PMI. The composite index dropped from 46.3 to 45.9, the lowest level in three years. Consensus expected a small rise. The index points to a GDP decline of 0.4 percent q/q in Q3, worse than the -0.2 percent in Q2. The service sector was the source of the decline, dropping by 1.2 points to 46.0. Manufacturing PMI rose by 0.9 point to 46.0, indicating that the activity falls less steeply than before. France was a solid disappointment, with a decline of more than three points in both the manufacturing and the service index. The composite index is down to 44.1, the lowest since April 2009. Germany, on the other hand, exceeded expectations, with a gain of about 2.5 points in the manufacturing as well as the service sector PMI. The two indices rose to 47.3 and 50.6 respectively. The euro depreciated in response to the news, but has rebounded afterwards. 10-year US government bond yields have risen slightly since yesterday afternoon. Mainly negative developments on global stock exchanges yesterday have turned to a rise in Asian markets today. The reason for renewed optimism is rumors about negotiations between the Spanish authorities and the European Commission regarding structural reforms, as a preparation for an application to the European crisis fund. According to the Financial Times the results will be presented next Thursday, the day before Spain presents the results of the bottom-up review of Spanish banks by independent auditors. Backed by expectations of ECB interventions, Spain's debt auction yesterday was a success. EUR 4.8 billion was raised, which was more than expected. Most of it (3.9 billion) was done in 3-year bonds, while the remainder was done in 10-year bonds. The yield on the latter fell to 5.67 percent, and the bids were three times higher than the amount offered. The pound has appreciated slightly as a result of positive macro news. UK retail sales fell in July, but the 0.2 percent m/m decline was smaller than expected (-0.4 percent). Moreover, CBIs survey reported that manufacturing orders had risen more than expected in September. US manufacturers are experiencing difficult times, albeit to a lesser extent than their European peers. Manufacturing PMI was unchanged at 51.5 in September, the lowest level in two years. The level indicates an annualized growth rate of 1-2 percent. The regional manufacturing index from the Philly Fed increased from -7.1 in August to -1.9 in September, the highest level in five months. With a steep decline in New York's index earlier this week, the signals ahead of the important national ISM index are mixed. The latter is released in early October. Norways central bank governor Olsen discussed the use of unconventional monetary policy tools in his speech yesterday. He stated that the Norwegian economy is in a completely different situation than the euro zone, the US and UK, and that Norges Bank hence will stick to the conventional tool: the key policy rate. He repeated his message that a krone that is too strong, which can lead to too low inflation and too sluggish growth, will be met with rate cuts. FX interventions is not in principle an instrument suited to influencing the krone exchange rate over a longer period. However Olsen did not rule out interventions altogether. It would only be relevant should the krone exchange rate move significantly out of line with fundamentals, and if the credibility of the inflation target is treathened. In addition, the interest rate weapon must have already been exhausted. The Swedish central government budget for 2013 will provide valuable input into the exportsensitive Swedish economy, where growth is set to slow markedly as a result of the downturn in Europe. The measures, which add up to SEK 22.7 billion include solid cuts in corporate taxes, increased investment in research and infrastructure, and measures directed towards bringing down youth unemployment. Note that the finance ministry is far more optimistic than consensus (as well as us). It projects a growth rate of 2.7 percent next year, while consensus expects 1.8 percent. The Government's assessment is that the measures in the budget for 2013 will result in approximately 0.4 per cent higher GDP growth and approximately 17 000 more people employed in 2014 than if these measures had not been taken. kjersti.haugland@dnb.no As of Unit Prior Poll Actual Yesterday's key economic events (GMT) 07:58 EMU PMI, flash Sep Index 46.3 46.6 45.9 08:30 UK Retail sales Aug m/m % 0.3 -0.4 -0.2 12:30 USA Initial claims Week 37 1000 385 375 382 As of Unit Prior Poll DNB Todays key economic events (GMT) 07:30 Switzerland SNBs quarterly report 09:00 Norway Central bank governor Olsen speech

13-Aug 31-Aug 20-Sep

SEK & 3m STIBOR 8.8 8.6 8.4 8.2 8.0

3m ra.

2.40 1.60 0.80 0.00

EURSEK

13-Aug 31-Aug 20-Sep

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850

Sales Oslo (+47) Equity Fixed Income

22 94 89 40 22 01 78 20

Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

56 13 27 20 75 52 9910 69 39 41 50 62 54 14 82 52 72 09 06 61 24 79 56 38 07 28 62 22 01 76 50 51 84 04 30 77 62 96 80 73 58 74 89 33 01 73 80 70 11 69 85

Research Regional Sales (+47) Eirik Larsen 22 01 76 55

Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 77 41 22 01 76 57 22 01 76 67

Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 78 37 22 01 77 62 22 01 76 77 22 01 77 36 22 01 78 15

Morning Report
21.09.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 85 13-Aug
NOK TWI ra.

94 93 92 91 90 31-Aug 20-Sep
$/b

EUR vs GBP & CHF 1.22 1.22 1.21 1.21 1.20

GBP r.a

0.82 0.80 0.78 0.76

CHF

FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK

Prior 78.26 1.297 0.800 1.210 7.445 8.466 7.456 5.739 7.334 0.881 9.316 6.532 8.346 1.138 10.587

Last 78.16 1.300 0.800 1.211 7.432 8.477 7.455 5.721 7.321 0.876 9.299 6.525 8.357 1.141 10.606

% -0.1% 0.2% -0.1% 0.1% -0.2% 0.1% 0.0% -0.3% -0.2% -0.5% -0.2% -0.1% 0.1% 0.3% 0.2%

In 1 m ...3 m 78 76 1.27 1.15 0.79 0.76 1.20 1.20 7.30 7.20 8.40 8.40 7.45 7.45 5.75 6.26 7.37 8.24 0.87 0.86 9.2 9.5 6.61 7.30 5.16 5.55 1.15 1.17 10.63 11.05

...6 m ...12 m 76 78 1.15 1.20 0.78 0.80 1.20 1.20 7.30 7.40 8.50 8.50 7.45 7.45 6.35 6.17 8.35 7.91 0.86 0.87 9.4 9.3 7.39 7.08 5.62 5.53 1.16 1.15 10.90 10.63

FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB

USD 1.0470 0.9752 0.9321 19.13 5.7390 1.6256 7.7533 123.38 0.2807 2.6575 0.5362 0.8304 3.1913 1.2235 31.1722

% 0.32% -0.19% -0.14% -0.59% -0.18% 0.24% -0.01% -0.20% -0.06% -0.21% -0.17% 0.13% -0.28% -0.05% -0.25%

13-Aug 31-Aug 20-Sep

EURSEK & OMXS 8.7 8.5 8.3 8.1

OMXS ra. EURSEK

575 500 425 350

13-Aug 31-Aug 20-Sep

1m 3m 6m 12m 3y 5y 7y 10y

NIBOR Prior 1.85 1.96 2.21 2.35 2.30 2.62 2.94 3.28

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.81 1.52 1.50 0.07 1.92 1.62 1.61 0.16 2.17 1.83 1.82 0.39 2.32 1.93 1.92 0.54 2.29 1.47 1.49 0.57 2.64 1.69 1.69 0.97 2.97 1.94 1.95 1.37 3.30 2.19 2.19 1.82

Last 0.07 0.15 0.39 0.54 0.59 0.97 1.38 1.83

USD LIBOR Prior Last 0.22 0.22 0.38 0.37 0.66 0.66 0.82 0.82 0.47 0.49 0.82 0.84 1.26 1.28 1.76 1.80

Gov. Bonds, 10y 1.60 1.40 1.20 1.00

NOK, ra.

3.00 2.50 2.00 1.50

SEK

13-Aug 31-Aug 20-Sep

10y 10y yield vs bund

NORWAY Prior Last 97.55 97.50 2.26 2.27 0.67 0.65

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 117.51 117.55 99.342 98.98 98.734375 1.54 1.54 1.59 1.61 1.76 -0.05 -0.08 0.18

Last 98.55 1.79 0.18

81 14.0 13.5 79 13.0 77 12.5 75 12.0 13-Aug 31-Aug 20-Sep

USDJPY ra. DowJones, 1000

JPY and DowJones

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 1.90 3.25 1.65 2.25 0.25 1.75 1.90 3.25 1.65 2.25 0.25 1.75 2.05 3.50 1.65 2.50 0.25 2.00

US 3m libor 10y swap 0.45 1.75 0.45 1.75 0.45 2.25

USD and gold 1820 1720 1620 1.32 1.28 1.24

1.20 1520 13-Aug 31-Aug 20-Sep

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today DEC 1.87 1.87 0.00 NOK 92.96 MAR 1.85 1.87 -0.02 SEK 112.83 JUN 1.89 1.88 0.01 EUR 100.96 SEP 1.92 1.93 -0.01 USD 79.28 FRA SEK 3m Prior chg GBP 0.00 DEC 1.45 1.45 0.00 Comm. Today MAR 1.34 1.33 0.01 Brent spot 109.6 JUN 1.33 1.32 0.02 Brent 1m 110.5 SEP 1.33 1.32 0.02 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% - 0.02 0.11 0.05 - 0.14 - 100.0 Last 109.6 110.0 1758.5

Stock ex. Today Dow Jones 13,596.9 Nasdaq 3,176.0 FTSE100 5,854.6 Eurostoxx50 2,553.0 Dax 7,389.5 Nikkei225 9,110.0 Oslo 450.50 Stockholm 516.60 Copenhagen 647.31

% 0.1% -0.2% -0.6% -0.6% 0.0% 0.0% -0.6% -0.6% 1.1%

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