Morning Report

15.07.2013

Slower growth in China

GDP growth in China slowed to 7.5 percent in Q2, in line with expectations.
NOK & 3m NIBOR
8.10 1.90 1.80 1.70 1.60 1.50 15-Jul
3m (rha)

7.90
7.70

7.50 17-Jun

01-Jul

EURNOK

Economic growth in China is slowing down. In Q2 growth slowed to 7.5 percent, which is 0.2 percentage points lower than growth in the first quarter. This was as expected according to Reuters. If growth remains stable for the remainder of the year, GDP will record its slowest growth in 23 years. The slowdown seems to be hitting the economy on a broad basis although some sectors, especially in consumer related industries, are reporting that growth is accelerating. Data from June showed that growth in industrial production slowed to 8.9 percent, which is somewhat weaker than the preceding months. Investments slowed as well, with growth declining to 20.3 percent in June, from 20.5 percent in May. Consumption growth, however, seems to be holding up quite well, with retail sales accelerating to 13.3 percent, up 0.4 percentage points from May. In total the incoming data released today were broadly as expected, which means that the markets shouldnt be very disappointed. In addition, the data gives a very good picture of the development in the Chinese economy these days. The economy is changing. Growth is being rebalanced. The authorities are gradually implementing new rules to prevent credit from expanding too fast, which in turn is limiting growth in investments. Input prices are being adjusted upwards, which has a negative effect on profitability and output, especially in the manufacturing sector. In light of this, it seems that the slowdown in China has been intentional by the central government. The pattern is even clearer when we dig into the sector-specific data. Investment growth in manufacturing has been halved, to 15 percent this year from an historical average of 30 percent. Investments in construction are slowing even more: In June construction investments increased by 5 percent y/y, compared to an historical average of 29 percent. In comparison, investments in retail trade have been accelerating by 10 percentage points. In other words: The 1.3 billion Chinese are gradually becoming more important not just for the Chinese economy, but also globally. It will, however, take a few years before we can say that the economy has become consumer-driven, but the process has undoubtedly started. In contrast with most years this century, consumption has been the most important source of growth in GDP in both 2012 and in the first half of 2013. An important question related to this is how much growth will slow. Last week, Finance Minister Lou Jiwei said that the authorities do not consider growth of 6.5 to7 percent as a major problem and the expectations for growth this year is about 7 percent. This compares to the official target of 7.5 percent set in March earlier this year. We have long believed that growth in China is slowing, and estimates that GDP growth will decline from 7.5 percent this year to about 7.0 percent in 2014. The markets have remained rather stable since Friday. Equities in Asia are drifting somewhat higher this morning, with Shanghai up 1.5 percent so far today. In the US and Europe stocks remained flat during Fridays trade. Also in FX there has been only minor movements, but the Japanese yen has been weakening on a broad basis, albeit moderately. Industrial production in the euro zone tumbled in May. After increasing 0.5 percent m/m in May, production fell back 0.3 percent in May. The decline is driven by a fall in consumer goods, but also capital goods fell somewhat back. Moreover, the overall decline in industrial output in May is driven by lower production in the core economies. German output contracted by 0.8 percent, while French production declined by 0.5 percent. Thus, the report supports other data incoming from the core in past few weeks, indicating that economic activity is weakening once again, especially in Germany. This should, however, not be completely surprising given that Germanys exposure to the Chinese economy is larger than most other euro zone economies. Around 5 percent of German shipments abroad are sent to China, compared to about 3 percent in France, 2 percent in Italy and just 1 percent in the Netherlands. This week well have several interesting economic events on the agenda. On Tuesday the Riksbank will publish the minutes from the monetary policy meeting on July 3, which was Cecilia Skingsley and Martin Flodns first meeting as deputy governors. In addition, on Tuesday we will also get an update on inflation (CPI) in the euro zone and the US. On Wednesday Bank of England will publish the minutes from the MPC-meeting on July 4, which was Mark Carneys first. Ben Bernanke will on Wednesday attend his semi-annual testimony before the House Finance Service Committee. ole.kjennerud@dnb.no Yesterdays key economic events (GMT) As of Unit Prior Poll Actual 09:00 EMU Industrial production May m/m % 0.4 -0.2 13:55 US Michigan consumer conf. Jul Index 77.8 76.0 Todays key economic events (GMT) 02:00 China GDP 12:30 USA Retail sales (ex. vehicles) 12:30 USA Empire state (NY Fed) As of Q2 Jun Jul Unit y/y % m/m % Index Prior 7.7 0.3 7.8 Poll 7.5 0.4 5.0 DNB

Norw ay: 10y Gov't Bond

2.8 2.6 2.4 2.2 2.0 17-Jun
Rate

01-Jul

105 95 85 75 65 15-Jul
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
15.07.2013

3m LIBOR
0.160 0.150 0.140 0.130 0.120 0.110 17-Jun
EUR

01-Jul

0.28 0.28 0.27 0.27 0.26 15-Jul

USD (rha)

Oil price & NOK TWI

98 96 94 92 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 98.86 1.3079 0.8622 7.4579 8.7231 1.2395 7.9271 6.0620 6.13 90.93 106.27 9.198 6.396

Today 99.27 1.3076 0.8647 7.4583 8.7243 1.2370 7.9307 6.0627 6.11 90.92 106.32 9.166 6.408

Spot rates and forecasts In 1m Oct-13 Jan-14 Jul-14 FX 0700 0.4 98 102 107 110 AUD 0.0 1.30 1.26 1.30 1.32 CAD 0.3 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.0 8.55 8.45 8.50 8.60 RUB -0.2 1.24 1.25 1.27 1.30 GBP 0.0 7.80 7.70 7.70 7.70 HKD 0.0 6.00 6.11 5.92 5.83 KWD -0.5 6.12 5.99 5.54 5.30 LTL 0.0 91.2 91.1 90.6 89.5 LVL 0.0 104.7 103.4 103.4 103.4 NZD -0.3 9.18 9.06 8.95 8.85 SEK 0.2 629.03 616.00 606.30 592.31 SGD

USD NOK 0.911 5.527 1.038 5.841 0.946 641.068 19.896 30.481 32.640 18.580 1.512 9.171 7.758 0.782 0.285 21.243 2.640 2.297 0.537 11.286 0.782 4.741 6.671 90.910 1.264 4.798

17-Jun

01-Jul

95 15-Jul
USD/b (rha)

NOK TWI

US dollar 6.4 6.2 6.0 5.8 5.6 5.4

17-Jun 01-Jul
USDNOK

1.35 1.33 1.31 1.29 1.27 1.25 15-Jul

EURUSD(rha)

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

Prior 1.59 1.66 1.74 1.92 2.14 2.58 2.95 3.28

Last 1.59 1.68 1.75 1.92 2.12 2.54 2.91 3.24

Interest rates SEK Prior Last USD 1m 1.11 1.11 1m 3m 1.20 1.20 3m 6m 1.27 1.27 6m 12m Invalid Invalid RIC(s): RIC. STISEK1YDFI= 12m 3y 1.62 1.62 3y 5y 2.01 2.01 5y 7y 2.29 2.29 7y 10y 2.56 2.56 10y

Prior 0.19 0.27 0.40 0.69 0.79 1.55 2.16 2.77

Last 0.19 0.27 0.40 0.69 0.79 1.55 2.16 2.77

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

Prior 0.07 0.14 0.25 0.45 0.68 1.11 1.49 1.94

Last 0.07 0.14 0.25 0.45 0.68 1.09 1.45 1.88 Last 99.51 1.55 -1.04 10y sw ap 1.75 1.75 2.00

105.0 100.0
95.0

Japanese yen

90.0 17-Jun
USDJ PY

01-Jul

7.0 6.5 6.0 5.5 5.0 15-Jul

Norw ay Prior NST475 94.81 10y yld 2.60 - US spread 0.05 3m nibor 1.55 1.55 1.55

Norw ay Oct-13 Jan-14 Jul-14

Governm ent bonds Last SEK Prior Last US Prior 95.20 10y 94.61 94.61 10y 93.05 2.56 10y yld 2.09 2.09 10y yld 2.55 -0.03 - US spread -0.47 -0.50 30y yld 3.60 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.00 3.00 3.25 Oct-13 Jan-14 Jul-14 1.25 1.25 1.25 2.25 2.25 2.50 Oct-13 Jan-14 Jul-14 0.30 0.35 0.35

Last Germany Prior 92.73 10y 99.07 2.59 10y yld 1.60 3.63 - US spread -0.95 10y sw ap 2.25 2.25 2.50 3m euribor 0.20 0.25 0.20

Germany Oct-13 Jan-14 Jul-14

JPYNOK(rha)

SEKNOK & CHFNOK

92 91 90 89 88 87 6.6

6.4
6.2

17-Jun
SEKNOK

01-Jul

6.0 15-Jul
CHFNOK (rha)

Equities 15700 15200 14700 14200 13700 17-Jun 01-Jul

Dow Jones

500

480 460
440 15-Jul
Os lo (rha)

NOK sov. NST21 NST22 NST23 NST471 NST472 NST475 NST475 NST475 NOK FRA SEP DEC MAR JUN

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.44 1.45 1 18.12.2013 0.43 Last 96.19 96.23 1.45 1.46 1 19.03.2014 0.68 Oil price: (Ldn,cl) 1m 1.52 1.52 0 18.06.2014 0.93 SPOT 109.24 108.87 1.41 1.39 -2 15.05.2015 1.83 Gold price 12.07.2013 PM 1.72 1.70 -2 19.05.2017 3.85 AM: 1285.0 1279.8 2.57 2.56 -1 24.05.2023 9.86 Equities Today 0700 % last 2.57 2.56 -1 24.05.2023 9.86 Dow Jones 15464.30 0.0% 2.60 2.56 -5 24.05.2023 9.86 Nasdaq C. 3600.08 0.6% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6544.94 0.0% 1.69 1.79 1m 1.73 1.59 Eurostoxx50 2674.87 -0.2% 1.69 1.80 3m 1.82 1.68 DAX 8212.77 0.7% 1.70 1.83 6m 1.87 1.75 Nikkei 225 14506.25 0.2% 1.76 1.91 12m 2.00 1.92 OSEBX 491.90 -0.3% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
15.07.2013
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Morning Report
15.07.2013

3m LIBOR
0.160 0.150 0.140 0.130 0.120 0.110 17-Jun
EUR

01-Jul

0.28 0.28 0.27 0.27 0.26 15-Jul

USD (rha)

Oil price & NOK TWI

98 96 94 92 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 98.86 1.3079 0.8622 7.4579 8.7231 1.2395 7.9271 6.0620 6.13 90.93 106.27 9.198 6.396

Today 99.27 1.3076 0.8647 7.4583 8.7243 1.2370 7.9307 6.0627 6.11 90.92 106.32 9.166 6.408

Spot rates and forecasts In 1m Oct-13 Jan-14 Jul-14 FX 0700 0.4 98 102 107 110 AUD 0.0 1.30 1.26 1.30 1.32 CAD 0.3 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.0 8.55 8.45 8.50 8.60 RUB -0.2 1.24 1.25 1.27 1.30 GBP 0.0 7.80 7.70 7.70 7.70 HKD 0.0 6.00 6.11 5.92 5.83 KWD -0.5 6.12 5.99 5.54 5.30 LTL 0.0 91.2 91.1 90.6 89.5 LVL 0.0 104.7 103.4 103.4 103.4 NZD -0.3 9.18 9.06 8.95 8.85 SEK 0.2 629.03 616.00 606.30 592.31 SGD

USD NOK 0.911 5.527 1.038 5.841 0.946 641.068 19.896 30.481 32.640 18.580 1.512 9.171 7.758 0.782 0.285 21.243 2.640 2.297 0.537 11.286 0.782 4.741 6.671 90.910 1.264 4.798

17-Jun

01-Jul

95 15-Jul
USD/b (rha)

NOK TWI

US dollar 6.4 6.2 6.0 5.8 5.6 5.4

17-Jun 01-Jul
USDNOK

1.35 1.33 1.31 1.29 1.27 1.25 15-Jul

EURUSD(rha)

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

Prior 1.59 1.66 1.74 1.92 2.14 2.58 2.95 3.28

Last 1.59 1.68 1.75 1.92 2.12 2.54 2.91 3.24

Interest rates SEK Prior Last USD 1m 1.11 1.11 1m 3m 1.20 1.20 3m 6m 1.27 1.27 6m 12m Invalid Invalid RIC(s): RIC. STISEK1YDFI= 12m 3y 1.62 1.62 3y 5y 2.01 2.01 5y 7y 2.29 2.29 7y 10y 2.56 2.56 10y

Prior 0.19 0.27 0.40 0.69 0.79 1.55 2.16 2.77

Last 0.19 0.27 0.40 0.69 0.79 1.55 2.16 2.77

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

Prior 0.07 0.14 0.25 0.45 0.68 1.11 1.49 1.94

Last 0.07 0.14 0.25 0.45 0.68 1.09 1.45 1.88 Last 99.51 1.55 -1.04 10y sw ap 1.75 1.75 2.00

105.0 100.0
95.0

Japanese yen

90.0 17-Jun
USDJ PY

01-Jul

7.0 6.5 6.0 5.5 5.0 15-Jul

Norw ay Prior NST475 94.81 10y yld 2.60 - US spread 0.05 3m nibor 1.55 1.55 1.55

Norw ay Oct-13 Jan-14 Jul-14

Governm ent bonds Last SEK Prior Last US Prior 95.20 10y 94.61 94.61 10y 93.05 2.56 10y yld 2.09 2.09 10y yld 2.55 -0.03 - US spread -0.47 -0.50 30y yld 3.60 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.00 3.00 3.25 Oct-13 Jan-14 Jul-14 1.25 1.25 1.25 2.25 2.25 2.50 Oct-13 Jan-14 Jul-14 0.30 0.35 0.35

Last Germany Prior 92.73 10y 99.07 2.59 10y yld 1.60 3.63 - US spread -0.95 10y sw ap 2.25 2.25 2.50 3m euribor 0.20 0.25 0.20

Germany Oct-13 Jan-14 Jul-14

JPYNOK(rha)

SEKNOK & CHFNOK

92 91 90 89 88 87 6.6

6.4
6.2

17-Jun
SEKNOK

01-Jul

6.0 15-Jul
CHFNOK (rha)

Equities 15700 15200 14700 14200 13700 17-Jun 01-Jul

Dow Jones

500

480 460
440 15-Jul
Os lo (rha)

NOK sov. NST21 NST22 NST23 NST471 NST472 NST475 NST475 NST475 NOK FRA SEP DEC MAR JUN

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.44 1.45 1 18.12.2013 0.43 Last 96.19 96.23 1.45 1.46 1 19.03.2014 0.68 Oil price: (Ldn,cl) 1m 1.52 1.52 0 18.06.2014 0.93 SPOT 109.24 108.87 1.41 1.39 -2 15.05.2015 1.83 Gold price 12.07.2013 PM 1.72 1.70 -2 19.05.2017 3.85 AM: 1285.0 1279.8 2.57 2.56 -1 24.05.2023 9.86 Equities Today 0700 % last 2.57 2.56 -1 24.05.2023 9.86 Dow Jones 15464.30 0.0% 2.60 2.56 -5 24.05.2023 9.86 Nasdaq C. 3600.08 0.6% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6544.94 0.0% 1.69 1.79 1m 1.73 1.59 Eurostoxx50 2674.87 -0.2% 1.69 1.80 3m 1.82 1.68 DAX 8212.77 0.7% 1.70 1.83 6m 1.87 1.75 Nikkei 225 14506.25 0.2% 1.76 1.91 12m 2.00 1.92 OSEBX 491.90 -0.3% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets