Morning Report

21.12.2012

Fiscal Cliff looms after Plan B failure

NOK & 3m NIBOR
7.50 2.00

There now seem that the U.S. Congress will take Christmas break with no solution to "Fiscal Cliff." It is however likely the negotiations continue over Christmas and that an agreement can be adopted by the new Congress early next year. Yesterday's U.S. figures came out on the positive side. Yet several reports point out the U.S. budget negotiations as a main reason for the rise in the U.S. stock market yesterday. The idea is probably that market participants know quite a lot about developments in the U.S. economy, while "Fiscal Cliff" is the major element of uncertainty that can flip the image. The day before yesterday the spokesman for the Republicans in the House said that he would put forward a proposal to prevent tax increases that would otherwise take effect from the beginning of the year (and where the President would veto). Republicans have a majority in the House, and such a decision would strengthen the Republican position in the negotiations with the president. The House did approve spending cut yesterday, while Republicans ran an intense campaign internally to provide enough support to "plan B". Around 8 pm ET, after the exchanges were closed, however, it became clear that not enough Republican representatives backed the proposal, which was drawn. It thus appears that the negotiations have gone one step back. This is claimed to be a major reason why Asian stock markets have fallen today. Long U.S. Treasury yields were little changed during the U.S. session, but during the night fell around 5 basis points (for 10y Trs). In currency markets EURUSD rose to just under 1.33, but fell in the night down below 1.32. Currently EURUSD is quoted around 1.32, 0.1 per cent down from yesterday morning. EURNOK has declined 0.2 percent, while EURSEK is down 0.5 per cent compared to yesterday morning. It came as mentioned above several positive figures from the U.S. yesterday. The Philly Fed index rose 19 points, to 8.1 in December. Expectations were for an increase to -3. The expectation index rose 11 points to 30.9. At a first glance this is a very strong report and consistent with a boost in the December ISM at 3 points. But the figures primarily reflect the recovery after Hurricane Sandy. The index covers precisely the areas that were hardest hit by the hurricane. In the housing market the activity increases. Yesterdays sales figures for existing homes in November showed an increase of 6 per cent from October. It was well above expectations and the highest since the summer of 2007, if we exclude a tax motivated jump late 2009. The number of unsold homes fell 3.8 per cent from October and the stock is now down to under 5 months turnover. It is the lowest since September 2005 and at a level which indicate a further rise in prices and housing starts. Yesterday the second revision of U.S. GDP figures was released. It now turns out that the growth in the third quarter was 3.1 per cent, versus expected 2.8 per cent and 2.7 per cent in the previous release. Higher net exports contributed most to the upward adjustment. The labor market seems to be stable. The initial claims showed an annualized increase of 361 'last week. After Sandy has disturbed the numbers in some weeks, the initial claims are back where they've been the past year. The leading indicator for the U.S. was probably the only macro number that was on the negative side. The benchmark index fell 0.2 per cent from October to November. Still, it was as expected. In the UK, retail sales were unchanged from October to November. It was expected a rise of 0.3 per cent after falling 0.8 percent in October. Three-month growth on an annual basis was -0.5 per cent in November. There was some growth of household items, possibly related to increased residential construction, but a decrease for most other groups, including department store sales. Budget cuts, sluggish income growth, higher energy prices and weak consumer confidence point to continued weak growth in consumption going forward. In the UK, retail sales explain about half of the y/y rate variability in private consumption, which is 66 percent of GDP. In the Euro zone the consumer confidence moved broadly sideways in December, still far below the long-term average. In Germany the Gfk consumer confidence fell from 5.9 to 5.6, in UK the confidence fell from -22 to -29. When typing the French INSEE business confidence indicator climbed anemic 1 point to 89. Today the UK releases revised figures for GDP in the third quarter. In Norway NAV releases figures for unemployment in December. It is expected little change in the unemployment picture. In the U.S numbers for private income and spending will be released, including the consumption deflator, which is a key inflation indicator. Also, the orders of durable goods in November and final Michigan University consumer confidence for December will be out. kyrre.aamdal@dnb.no Yesterdays key economic events (GMT) 09:30 UK Retail Sales 13:30 USA BNP, 2. rev. 15:00 USA Philly Fed Todays key economic events (GMT) 09:00 Norway Registered unemployment 09:30 UK GDP, final 13:30 USA Core PCE Deflator As of Nov 3. kv Dec As of Dec 3. kv Nov Unit Y/y % Q/q an% Index Unit % Q/q % M/m % Prior 0.6 2.7 -10.7 Prior 2.3 1.0 0.1 Poll 2.8 -1.2 Poll 2.3 1.0 0.1 Actual

7.40 7.30 7.20

12Nov
3m ra.

1.90 1.80 1.70

30Nov 20Dec
EURNOK

SEK & 3m STIBOR

9.0 1.50

8.8 8.6 8.4

12Nov
3m ra.

1.40 1.30 1.20

30Nov
EURSEK

20Dec

Headquarters Dronning Eufemias gate 30 0191 Oslo Offices Abroad New York London Singapore Stockholm Sales Oslo (+47) Equity Fixed Income Regional Sales (+47) Bergen Bod Fredrikstad Hamar Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund Private Clients Research Regional Sales (+47) Eirik Larsen Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Martin Brter Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen Kristina Solbakken

+47 03000

+ 1 212 681 2550 +44 207 283 0050 +65 6220 6144 +46 84 73 48 50

22 94 89 40 24 16 90 30

56 13 27 20 75 52 99 10 69 39 41 50 62 54 14 82 61 24 79 56 38 14 61 64 24 16 90 80 51 84 04 30 77 62 96 80 73 87 49 73 33 01 73 80 70 11 69 85 24 16 90 90

24 16 90 77

24 16 90 08 24 16 90 03 24 16 90 07 24 16 90 04 24 16 90 01 24 16 90 06 24 16 90 02

24 16 90 48 24 16 90 46 24 16 90 47 24 16 90 49 24 16 90 44 24 16 90 45 24 16 90 51

DNB 2.3

Morning Report
21.12.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 1.00 0.50 0.00 12-Nov
30-Nov

94 92 90 20-Dec
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.22 1.21 1.20 1.19 12Nov

GBP r.a

0.82 0.81 0.80 0.79 30Nov 20Dec

CHF

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

Prior 84.40 1.325 0.814 1.208 7.362 8.619 7.461 5.559 6.593 0.856 9.050 6.511 7.717 1.173 10.597

Last 84.05 1.321 0.813 1.207 7.363 8.634 7.461 5.577 6.639 0.853 9.059 6.541 7.790 1.175 10.628

% -0.4% -0.3% -0.1% 0.0% 0.0% 0.2% 0.0% 0.3% 0.7% -0.3% 0.1% 0.5% 0.9% 0.2% 0.3%

In 1 m ...3 m 82 81 1.27 1.25 0.80 0.79 1.20 1.20 7.30 7.25 8.65 8.60 7.45 7.45 5.75 5.80 7.01 7.16 0.84 0.84 9.1 9.1 6.81 6.88 5.59 5.57 1.18 1.19 10.81 10.82

...6 m ...12 m 81 82 1.25 1.30 0.79 0.80 1.20 1.20 7.25 7.40 8.60 8.70 7.45 7.45 5.80 5.69 7.16 6.94 0.84 0.85 9.1 9.1 6.88 6.69 5.57 5.49 1.19 1.18 10.82 10.73

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

USD 1.0443 0.9904 0.9141 19.09 5.6531 1.6252 7.7505 126.31 0.2819 2.6145 0.5275 0.8287 3.0774 1.2208 30.7425

% -0.39% 0.28% 0.25% 0.23% 0.34% -0.18% 0.00% 0.32% 0.06% 0.24% 0.25% -0.65% 0.42% 0.17% 0.11%

EURSEK & OMXS

9.0 8.8 8.6 8.4 12-Nov 550

500 30-Nov
450 20-Dec
EURSEK

OMXS ra.

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

NIBOR Prior 1.70 1.81 1.96 2.10 2.22 2.53 2.84 3.19

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.75 1.29 1.28 0.05 1.83 1.31 1.30 0.12 1.97 1.40 1.40 0.22 2.12 1.52 1.51 0.33 2.22 1.32 1.33 0.49 2.53 1.56 1.56 0.84 2.84 1.83 1.82 1.20 3.19 2.11 2.10 1.65

Last 0.05 0.12 0.22 0.33 0.50 0.82 1.19 1.64

USD LIBOR Prior 0.21 0.31 0.51 0.69 0.51 0.88 1.34 1.84

Last 0.21 0.31 0.51 0.69 0.51 0.88 1.31 1.80

Gov. Bonds, 10y 1.80 1.60 1.40 1.20 12Nov 30Nov 20Dec
SEK NOK, ra.

2.30 2.20 2.10 2.00 1.90

10y 10y yield vs bund

NORWAY Prior Last 98.5 98.07 2.16 0.75 2.21 0.81

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 116.39 116.43 100.715 100.93 1.61 0.19 1.61 0.21 1.42 1.40

US Prior 98.42188 1.80 0.38

Last 98.80 1.77 0.37

JPY and Dow Jones 13.5 85 13.0 80 12.5 12.0 75 123020Nov Nov Dec
USDJPY ra. DowJones, 1000

USD and gold 1800 1700 1600 12Nov 30Nov 20Dec

Gold

1.35 1.30 1.25 1.20

EURUSD ra.

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY US 3m nibor 10y sw ap 3m stibor 10y sw ap 3m euribor 10y sw ap 3m libor 10y In 3m 1.90 3.25 1.30 2.25 0.15 1.75 0.35 6m 1.90 3.25 1.30 2.25 0.15 1.75 0.35 12m 1.90 3.50 1.30 2.50 0.15 2.00 0.35 MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today MAR 1.86 1.86 0.00 NOK 92.07 - 0.03 Dow Jones 13,311.7 JUN 1.86 1.85 0.01 SEK 114.72 0.15 Nasdaq 3,050.4 SEP 1.87 1.87 0.00 EUR 103.81 - 0.26 S&P 500 1,443.7 DEC 1.91 1.92 -0.01 USD 79.39 0.18 Eurostoxx50 2,658.3 FRA SEK 3m Prior chg GBP 83.80 Dax 7,672.1 MAR 1.19 1.19 0.00 Comm. Today Last Nikkei225 9,940.1 JUN 1.14 1.15 -0.01 Brent spot 112.4 Invalid field(s). Oslo 446.64 SEP 1.13 1.15 -0.02 Brent 1m 109.8 110.2 Stockholm 526.92 DEC 1.16 1.18 -0.02 Spot gold 0.0 1650.5 Copenhagen 648.29 Sources to all tables and graphics: Reuters and DNB Markets

sw ap 1.75 1.75 2.25

% 0.5% 0.2% 0.5% 0.1% 0.0% 0.0% -0.7% -0.2% 0.4%

Morning Report
21.12.2012
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