Morning Report

26.10.2012

Riksbanken opens door for further cuts

NOK & 3m NIBOR 7.50 2.00 7.45 1.95 7.40 1.90 7.35 7.30 1.85 17-Sep 5-Oct 25-Oct
3m ra. EURNOK

The Riksbank lowers its interest rate path. USDJPY is above 80 for the first time since June, while the pound sterling strengthens in the wake of strong UK GDP figures. Stock market performance was mixed yesterday. Today Asian markets have fallen due to weak corporate reports and weak South Korean GDP figures. Asia's fourth largest economy grew by 0.2 percent q/q in Q3, the lowest growth rate since Q4 2009. Interest rate movements are quite flat. In FX markets GBP has strengthened on strong GDP figures. The yen depreciation, driven by expectations of further BoJ easing next week, continues. USDJPY has reached 80.07. The Swedish and Norwegian krone both weakened after the dovish Riksbank message yesterday. The British economy rebounded in Q3, after three consecutive quarters of decline. The increase of 1.0 percent q/q was significantly higher than expected (0.6 percent, according to Reuters). It is hardly a sign of underlying strength in the economy though. Summer Olympics offered large positive (but transitory) impetus to the economy. The Office for National Statistics estimates that the sale of Olympic tickets alone contributed with 0.2 percent to GDP. In addition there are vast indirect effects for hotels, transportation, the entertainment sector etc. So far, we have no details on demand drivers in Q3. Stronger-than-expected GDP figures reinforced the pound strengthening that began on Tuesday, after Governor Mervyn King said that that the MPC had to think long and hard before expanding the asset purchase programme further. Also, Deputy Governor Charlie Bean said in an interview with the Welsh newspaper Daily Mail that the effects of BoEs "Funding for lending" programme have started to show. The programme offers cheap funding to banks, provided that they lend the money out to businesses and households. Bean emphasized that it may take months before the effect shows up in economic data. The Riksbank decided to keep interest rates unchanged at 1.25 percent at yesterdays meeting. After being surprised by a strong decline in consumer and business confidence the day before, the market had priced in a 50/50 chance of a cut at the meeting. Even though the Riksbank stood still this time, the interest rate path was lowered. It indicates that the likelihood of an interest rate cut during the winter is greater than the probability of a hike (we expect a cut in December). The repo rate is expected to rise again during the second half of 2013, but not as much and as fast as announced in September. The new interest rate path is up to 50 basis points lower than the September path, and the difference is greatest at the end of the forecast period (autumn 2015). The 2012 GDP forecast is reduced significantly, to 0.9 percent, but this is due to downward revisions by Statistics Sweden in September. The GDP forecasts are largely unchanged for the coming years: 1.8 percent in 2013 and 2.7 percent in 2014. The 2013 CPIF (core inflation) forecast is lowered by 0.5 percentage point, to 1.1 percent. As so many times before, committee members Svensson and Ekholm dissented. They both wanted to cut interest rates at this meeting; Svensson by 50 basis points (and another 25 in December), Ekholm by 25 basis points (and another 25 in December). While the October interest rate path ends at 2.6 percent by the end of 2015, Svensson wanted the endpoint to be 1.5 percent, while Ekholm voted for an endpoint of 1.75 percent. The first estimate of US Q3 GDP is released today. We expect an increase of 2.0 percent q/q annual rate (consensus is 1.9 percent, according to Reuters). In the previous quarter growth came to 1.3 percent. Consumer spending rose by 1.5 percent, while investment increased by 4.5 percent. This time consumers and the housing sector are likely to be key growth drivers, while the contribution of investments will be lower. Yesterday's US durable orders statistics was a signal of the latter. Excluding defense and transportation orders (aviation orders has fluctuated substantially in recent months) new capital orders remained unchanged from August to September, while shipments fell by 0.3 percent. Other US macro releases yesterday: Initial claims came to 388' last week, slightly lower than the week before. Statistics have been very volatile recently, but the overall impression is that the number of claims has fluctuated around 370' ever since last fall. Pending home sales disappointed with a growth of 0.3 percent m/m in September, after falling 2.6 percent in August. kjersti.haugland@dnb.no Yesterdays key economic events (GMT) 07:30 Sweden Riksbank MP Meeting 08:30 UK GDP, pre 12:30 USA Durable Orders Todays key economic events (GMT) 12:30 USA Core PCE Deflator 12:30 USA GDP, first estimate As of 3. kv Sep As of 3. kv 3. kv Unit % q/q % m/m % Unit q/q ar % q/q ar % Prior 1.25 -0.4 -13.1 Prior 1.7 1.3 Poll 1.25 0.6 7.1 Poll 1.3 1.9 Actual 1.25 1.0 9.9 DNB 1.3 2.0

SEK & 3m STIBOR 8.7 8.6 8.5 8.4 17-Sep 5-Oct

3m ra.

1.70 1.60 1.50 1.40 25-Oct

EURSEK

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
26.10.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 120 115 110 105 17-Sep 5-Oct
NOK TWI ra.

94 93 92 91 25-Oct
$/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

17-Sep 5-Oct 25-Oct

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

Prior 80.31 1.294 0.803 1.210 7.473 8.683 7.459 5.776 7.195 0.861 9.327 8.353 1.163 10.824

Last 79.92 1.293 0.802 1.210 7.467 8.693 7.458 5.774 7.228 0.859 9.316 6.723 8.418 1.166 10.845

% -0.5% 0.0% -0.1% 0.0% -0.1% 0.1% 0.0% 0.0% 0.5% -0.2% -0.1% #VALUE! 0.8% 0.3% 0.2%

In 1 m ...3 m 78 76 1.27 1.20 0.80 0.78 1.20 1.20 7.30 7.25 8.55 8.55 7.45 7.45 5.75 6.04 7.37 7.95 0.85 0.85 9.1 9.3 6.73 7.13 5.25 5.42 1.17 1.18 10.69 10.96

...6 m ...12 m 76 78 1.20 1.25 0.78 0.80 1.20 1.20 7.25 7.40 8.50 8.60 7.45 7.45 6.04 5.92 7.95 7.59 0.85 0.86 9.3 9.3 7.08 6.88 5.38 5.37 1.17 1.16 10.90 10.75

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

USD 1.0328 0.9956 0.9358 19.35 5.7696 1.6122 7.7508 127.46 0.2819 2.6702 0.5387 0.8191 3.2220 1.2218 31.4560

% -0.20% 0.07% 0.02% 0.18% -0.02% 0.01% 0.00% -0.02% 0.27% -0.02% 0.00% 0.10% 0.22% -0.03% 0.23%

EURSEK & OMXS 8.9 8.7 8.5 8.3 8.1 17-Sep 5-Oct
OMXS ra. EURSEK

575 500 425 350 25-Oct

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

NIBOR Prior 1.72 1.87 2.08 2.19 2.31 2.62 2.93 3.28

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.73 1.39 1.40 0.06 1.88 1.48 1.49 0.13 2.08 1.63 1.62 0.29 2.19 1.73 1.72 0.43 2.30 1.42 1.41 0.65 2.61 1.63 1.61 1.03 2.93 1.88 1.84 1.42 3.25 2.10 2.08 1.86

Last 0.06 0.13 0.28 0.42 0.63 1.00 1.39 1.83

USD LIBOR Prior Last 0.21 0.21 0.31 0.31 0.55 0.55 0.72 0.72 0.53 0.53 0.92 0.91 1.36 1.34 1.87 1.83

Gov. Bonds, 10y 1.70 1.60 1.50 1.40

NOK, ra.

2.40 2.20 2.00 1.80

SEK

17-Sep 5-Oct 25-Oct

10y 10y yield vs bund

NORWAY Prior Last 99.02 98.80 2.10 2.13 0.51 0.57

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 116.68 116.71 99.11 99.47 98.328125 1.61 1.61 1.59 1.56 1.81 0.01 0.05 0.22

Last 98.44 1.81 0.25

14.0 13.5 13.0 12.5 12.0 17-Sep

JPY and DowJones

81 79 77

5-Oct

75 25-Oct

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 1.30 2.25 0.35 1.75 1.90 3.25 1.30 2.25 0.25 1.75 2.15 3.50 1.30 2.50 0.25 2.00

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

USDJPY ra. DowJones, 1000

USD and gold 1820 1720 1620 1.32 1.28 1.24

1.20 1520 17-Sep 5-Oct 25-Oct

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today DEC 1.86 1.86 -0.01 NOK 93.37 MAR 1.86 1.86 0.00 SEK 115.66 101.44 JUN 1.89 1.91 -0.02 EUR SEP 1.93 1.95 -0.02 USD 80.08 FRA SEK 3m Prior chg GBP 84.10 DEC 1.42 1.43 -0.01 Comm. Today 1.26 1.27 -0.01 Brent spot 108.4 MAR JUN 1.22 1.24 -0.02 Brent 1m 107.7 SEP 1.23 1.24 -0.01 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% - 0.02 0.16 - 0.15 - 0.01 - 0.0 Last 108.4 108.5 1715.5

Stock ex. Today Dow Jones 13,103.7 Nasdaq 2,986.1 FTSE100 5,805.1 Eurostoxx50 2,483.4 Dax 7,200.2 Nikkei225 8,933.1 Oslo 445.03 Stockholm 499.92 Copenhagen 652.71

% 0.2% 0.1% 0.0% -0.3% 0.1% 0.0% 1.1% 0.6% 0.5%

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