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Morning Report

15.05.2013

US govt debt to stabilize at a high level


NOK & 3m NIBOR
7.70 7.60 7.50 7.40 7.30 1.90

The independent Congressional Budget Office (CBO) yesterday published revised, and slightly lower, estimates for the US federal budget deficit and national debt. But debt remains high. CBO now projects a deficit for the fiscal year 2013 of $ 642 billion, equivalent to 4.0% of GDP. For the next ten years, the accumulated total deficit is estimated to $ 6340 billion, which on average equals 3.0% of GDP, with a low of 2.1% of GDP in 2015. Compared to its February estimates, this years deficit is now assumed to be $ 203 billion lower, while the accumulated deficit over the next ten years is now forecast $ 618 billion lower. Most of the revisions are caused to what the CBO call technical factors, but in addition lower debt levels lead to somewhat lower interest expenditure. CBO now estimates that the federal debt held by the public will reach an astonishing 19 trillion dollars by the end of 2023, equivalent to almost 74% of GDP. On a positive note, this is just a percentage point above current levels. And in February, the debt ratio was estimated at 77% in 2023. Thus, government finances are taking small steps in the right direction. But debt seems to be stuck at historically high levels. US public finances will remain vulnerable to weakened investor confidence and higher government bond rates a risk that the CBO also expresses concern about. Moreover, as previously observed, a smaller deficit may lead to less fiscal discipline. Therefore, one should not rule out the possibility that the Fed may be forced to continue buying government bonds even after the state of the economy is normalized, just to keep government borrowing rates at low levels to prevent public debt from accelerating. Yesterdays Eurozone industrial production data surprised on the upside: From February to March, production increased by 1.0%, compared with an expected increase of 0.4%. Thus, output increased by 0.2% from the fourth to the first quarter. This will give a weak, but positive contribution to GDP growth in the first quarter - in stark contrast to the fourth quarter when industrial production fell by 2.0% q/q and thus accounted for two-thirds of the 0.6% GDP decline that quarter. Yet, it is too early to celebrate. The largest contributions to growth came from energy production (cold winter) and consumer durables (e.g. cars, which is probably more transient). Besides these factors, production was anemic, which unfortunately correspond all too well with weak PMI indices for both manufacturing and services, both of which were 47.5 in the first quarter. Throughout the morning, flash estimates of first quarter GDP for Germany, France, Italy and, at 1100, for the eurozone as a whole will be published. A decline of 0.1% from the previous quarter is expected. Given yesterday's figures, we should now be able to hope for a little more than this. Also, the OECD leading indicator came out slightly on the positive side. The indicator, which ideally should say something about turning points in economic activity in the future, continues to show a slight improvement in economic activity. Growth is firming in the US, above trend in Japan, returning to trend in Germany, close to trend in France, and picking up in Italy. In the BRIC countries, growth is close to trend in Brazil and Russia, returning to trend in China, but below trend in India. The Swedish consumer price figures provided another surprise. From March to April, consumer prices fell by 0.2%. Normally, they rise in April. Thus, the twelve-month rate hit -0.5%, the lowest since November 2009, and well below what the market and the central bank had expected. The main reasons for the decline in headline inflation were the absence of a rise in prices for clothing and footwear and a fall in transport prices. Underlying inflation also surprised on the downside, with the y/y-rate falling from 0.9% in March to 0.5% in April, compared with Riksbanken's forecasts of 0.8%. Riksbanken will hold its next interest rate meeting on 2 July. If May inflation also hovers well below Riksbanken's forecasts, a rate cut may be on the table. The Swedish krona weakened against the euro after the CPI data, and dragged the NOK down along with it. Logically enough, since a Swedish rate cut should increase the likelihood of a Norwegian interest rate cut. But while EURSEK fell 5 re, EURNOK only fell 2 re, and most of the latter was reversed later on. In addition, market developments continue to be dominated by the couplet weaker yen stronger Japanese equities. This morning, the Nikkei has risen 2.3% d/d, partly on expectations that a weaker yen will lift exports and exporting enterprises revenues. Faith is Abenomics is also high in households, with consumer confidence staying at high levels, according to data released this morning. oystein.dorum@dnb.no Yesterdays key economic events (GMT) 08:30 Sweden CPI 10:00 Germany ZEW index 10:00 EZ Industrial production Todays key economic events (GMT) 10:00 EZ GDP 10:30 UK BoE Inflation Report 14:15 US Industrial production As of April May March As of Q1 April Unit y/y % Index m/m % Unit q/q, % m/m % Prior 0.0 36.3 0.3r Prior -0.6 0.4 Poll -0.2 38.3 0.4 Poll -0.1 -0.2 Actual -0.5 36.4 1.0 DNB -0.1

1.80
1.70

12-Apr

29-Apr

1.60 15-May
3m (rha)

EURNOK

Norw ay: 10y Gov't Bond


2.2 2.2 2.1 2.1 2.0 12-Apr
Rate

95

85
75 29-Apr

65 15-May
Diff (bp, rha)

Headquarter 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 Magnus Vie Sundal

+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 64 76 30 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 24 16 91 23

Morning Report
15.05.2013

3m LIBOR
0.135 0.130 0.125 0.120 0.115 0.28 0.28 0.27 0.27 0.27 15-May
USD (rha)

12-Apr
EUR

29-Apr

Oil price & NOK TWI


95 94 93 92 91 90 110

105
100

FX 0700 USD/JPY EUR/USD EUR/GBP EUR/DKK EUR/SEK EUR/CHF EUR/NOK USD/NOK JPY/NOK SEK/NOK DKK/NOK GBP/NOK CHF/NOK

Last 101.42 1.3006 0.8492 7.4534 8.5778 1.2407 7.5369 5.7970 5.72 87.93 101.14 8.878 6.075

Today 102.33 1.2910 0.8483 7.4534 8.6187 1.2486 7.5425 5.8432 5.71 87.54 101.26 8.895 6.045

Spot rates and forecasts In 1m Jul-13 Oct-13 Apr-14 FX 0700 0.9 100 100 105 110 AUD -0.7 1.30 1.32 1.33 1.34 CAD -0.1 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.5 8.50 8.45 8.50 8.60 RUB 0.6 1.22 1.22 1.25 1.27 GBP 0.1 7.55 7.50 7.45 7.40 HKD 0.8 5.81 5.68 5.60 5.52 KWD 0.0 5.93 5.68 5.33 5.02 LTL -0.4 88.8 88.8 87.6 86.0 LVL 0.1 101.3 100.7 100.0 99.3 NZD 0.2 8.88 8.82 8.66 8.51 SEK -0.5 618.85 614.75 596.00 582.68 SGD

USD NOK 0.989 5.776 1.019 5.731 0.967 604.095 20.069 29.111 31.435 18.585 1.522 8.891 7.761 0.753 0.286 20.417 2.674 2.185 0.542 10.779 0.820 4.791 6.676 87.511 1.244 4.696

12-Apr

29-Apr

95 15-May
USD/b (rha)

NOK TWI

US dollar 6.0 5.9 5.8 5.7 5.6 5.5


12-Apr 29-Apr
USDNOK

1.33 1.31 1.29 1.27 1.25 15-May


EURUSD(rha)

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

Prior 1.72 1.79 1.86 2.02 2.06 2.34 2.67 3.03

Last 1.71 1.78 1.87 2.04 2.03 2.34 2.66 3.02

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

Prior 1.14 1.20 1.25 1.32 1.61 1.89 2.17

Interest rates Last USD 1.14 1m 1.20 3m 1.25 6m #N/A 12m 1.34 3y 1.62 5y 1.90 7y 2.17 10y

Prior 0.20 0.28 0.43 0.70 0.48 0.95 1.43 2.02

Last 0.20 0.27 0.42 0.70 0.51 0.98 1.49 2.06

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

Prior 0.06 0.12 0.20 0.39 0.49 0.80 1.16 1.60

Last 0.06 0.12 0.20 0.39 0.50 0.82 1.17 1.62

104.0 102.0 100.0 98.0 96.0 94.0

Japanese yen

12-Apr
USDJ PY

29-Apr

7.0 6.5 6.0 5.5 5.0 15-May

Norw ay Prior NST475 99.35 10y yld 2.07 - US spread 0.15 3m nibor 1.80 1.80 1.80

Norw ay Jul-13 Oct-13 Apr-14

Governm ent bonds Last SEK Prior Last US Prior 99.32 10y 97.56 97.28 10y 98.39 2.08 10y yld 1.76 1.79 10y yld 1.93 0.11 - US spread -0.17 -0.18 30y yld 3.13 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 Jul-13 Oct-13 Apr-14 1.20 1.20 1.20 2.25 2.25 2.50 Jul-13 Oct-13 Apr-14 0.35 0.35 0.35

Last Germany Prior Last 98.02 10y 101.27 100.93 1.97 10y yld 1.36 1.40 3.17 - US spread -0.57 -0.57 10y sw ap 2.00 2.00 2.50 3m euribor 0.25 0.25 0.25 10y sw ap 1.75 1.75 2.00

Germany Jul-13 Oct-13 Apr-14

JPYNOK(rha)

SEKNOK & CHFNOK


91 90 89 88 87 6.3 6.2 6.1 6.0 5.9 15-May
CHFNOK (rha)

12-Apr
SEKNOK

29-Apr

Equities
15700 15200 14700 14200 13700 12-Apr 500

480 460
440 29-Apr 15May
Os lo (rha)

NOK sov. NST20 NST21 NST22 NST471 NST472 NST475 NST475 NST475 NOK FRA JUN SEP DEC MAR

Dow Jones

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.58 1.50 -7 18.09.2013 0.35 Last 92.08 92.04 1.52 1.49 -2 18.12.2013 0.59 Oil price: (Ldn,cl) 1m 1.57 1.52 -5 19.03.2014 0.84 SPOT 102.49 102.39 1.27 1.25 -2 15.05.2015 2.00 Gold price 14.05.2013 PM 1.41 1.39 -2 19.05.2017 4.01 AM: 1430.8 1433.8 0.00 0.00 0 24.05.2023 10.03 Equities Today 0700 % last 2.08 2.06 -2 24.05.2023 10.03 Dow Jones 15215.25 0.8% 2.07 2.08 0 24.05.2023 10.03 Nasdaq C. 3462.61 0.7% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6686.06 0.8% 1.80 1.89 1m 1.80 1.71 Eurostoxx50 2795.63 0.7% 1.77 1.88 3m 1.87 1.78 DAX 8339.11 0.7% 1.77 1.89 6m 1.93 1.87 Nikkei 225 15096.03 2.3% 1.79 1.91 12m 2.08 2.04 OSEBX 488.87 -0.1% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
15.05.2013
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