Morning Report

17.07.2013

Household debt a concern for the Riksbank

NOK & 3m NIBOR
8.10

7.90
7.70

7.50 18-Jun

02-Jul

1.90 1.80 1.70 1.60 1.50 16-Jul

3m (rha)

The minutes from the interest rate meeting on 3 July indicate the Riksbank is still concerned about household debt. Minutes published yesterday by the Riksbank revealed that the monetary policy board still is concerned about household debt. Before the meeting, which was held on 3 July, there was an interest for how the newly-appointed deputy governors Martin Flodn and Cecilia Skingsley would vote regarding the repo rate. At the meeting Flodn wanted to cut the repo rate by 25 bp, while Skingsley made no reservations against the decision to maintain the repo rate unchanged at 1.0 percent. The minutes showed that Skingsley in particular was nervous about two risks to the economic outlook in relation to monetary policy. The first was inflation expectations, which may decline due to lasting low price-pressure. In isolation, Skingsley meant that a rate-cut would support inflation, thus preventing inflation expectations to drop. However, Skingsley was concerned about household indebtedness , which she found to be more important , a view she seems to share with most of the other board members in the Riksbank. According to the minutes, she saw a potential for indebtedness to worsen as Swedish banks has limited opportunities for volume growth, which means that there is now potential for fiercer price competition [which] would [drive] up indebtedness, irrespective of what the Riksbank does with the repo rate. Based on this view, Skingsley found it most appropriate to leave the repo rate unchanged for the time-being. Flodn, who wanted to cut the repo rate, did not rule out that low mortgage rate expectations have resulted in an increase in household indebtedness. But where Skinglsey seemed to emphasize more on the risk related to indebtedness, Flodn seemed to be more focused on how monetary policy could bring inflation up to the Rik sbanks target faster than the Riksbank is now aiming at. According to Flodn, an imminent rate-cut would have positive effects on inflation, which, in his view, meant that interest rates could be raised faster in the future than what the Riksbank now forecasts. The bi-effects of doing this, he admitted, would be that household debt would increase in the short-term, but due to a more upwards-sloping rate curve, household debt would be more balanced in the medium term . Based on the discussion in the minutes, it seems likely that the Riksbank is done with cutting rates in the current cycle. We maintain our view that the repo will remain unchanged at least until late 2014, which is about the same as the Riksbank signals in its current rate path. Yesterdays incoming data from the euro zone were a bit on the weak side. The trade balance increased more than expected in May due a large decline in exports. The weak development in trade was then underlined by a somewhat weaker than expected ZEW-index, which dropped by 2.2 points to 36.3 in July. The data from the US were somewhat better. Industrial output increased by 0.3 percent m/m in June, somewhat better than expected. This led to a 0.6 percent annualized rise in Q2, which was considerably weaker than growth in Q1. Thus, both industrial output and household consumption data indicate that GDP growth will weaken from Q1 to Q2. Still, growth is supported by an improving housing market. In July, the NAHB-index which is a good leading indicator for housing starts, rose by 6 points to 57. Since April the index has added 13 points combined, which is the biggest twomonth increase since March 1991. The dollar weakened on a broad basis yesterday on expectations that Ben Bernanke in todays hearing will have a more dovish tone. EURUSD is up 0.5 percent, while USDJPY is down 0.4 percent. The Norwegian krone strengthened in thin markets. EURNOK fell by 0.6 percent while USDNOK fell by 1.1 percent. Equities were somewhat weaker globally, which most likely is related to investors being a bit more cautious ahead of Bernankes speech today. Today Bank of England will release the minutes from the MPC-meeting on 4 July, which was Mark Carneys first as Governor at the BoE. Later, and more important, Ben Bernanke will hold his semiannual testimony in the House Finance Committee , where he is expected to face some pressure regarding the Feds plans to taper its asset purchases. About half of the FOMCs 19 members thought the Fed should end its purchase program by the end of the year at the last FOMC-meeting. However, since only 12 of the members have voting rights, it is likely that the Fed will wind down the program a bit more gradually than this. We expect tapering to begin in September, albeit very gradually. ole.kjennerud@dnb.no Yesterdays key economic events (GMT) As of Unit Prior Poll Actual 07:30 Sweden Riksbanken publish minutes from MPC meeting on July 3 09:00 Germany ZEW-index Jul Index 38.5 39.6 36.3 13:15 USA Industrial output Jun m/m % 0.0 0.2 0.3 As of Unit Prior Poll DNB Todays key economic events (GMT) 08:30 UK BoE minutes from MPC meeting on 4 July 14:00 USA Bernankes semi-annual hearing in the House Finance Committee 18:00 USA Beige Book

EURNOK

Norw ay: 10y Gov't Bond

2.8 2.6 2.4 2.2 2.0 18-Jun
Rate

02-Jul

115 105 95 85 75 65 16-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
17.07.2013

3m LIBOR
0.160 0.150 0.140 0.130 0.120 0.110 18-Jun
EUR

02-Jul

0.28 0.28 0.27 0.27 0.26 16-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 99.28 1.3075 0.8647 7.4583 8.7246 1.2370 7.9260 6.0640 6.11 90.92 106.31 9.171 6.410

Today 99.76 1.3074 0.8654 7.4579 8.7228 1.2397 7.9380 6.0719 6.09 91.05 106.46 9.173 6.402

Spot rates and forecasts In 1m Oct-13 Jan-14 Jul-14 FX 0700 0.5 98 102 107 110 AUD 0.0 1.30 1.26 1.30 1.32 CAD 0.1 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 0.2 7.80 7.70 7.70 7.70 HKD 0.1 6.00 6.11 5.92 5.83 KWD -0.4 6.12 5.99 5.54 5.30 LTL 0.1 91.2 91.1 90.6 89.5 LVL 0.1 104.7 103.4 103.4 103.4 NZD 0.0 9.18 9.06 8.95 8.85 SEK -0.1 629.03 616.00 606.30 592.31 SGD

USD NOK 0.916 5.561 1.043 5.817 0.948 640.075 19.878 30.534 32.593 18.622 1.511 9.170 7.758 0.782 0.286 21.247 2.641 2.298 0.537 11.293 0.783 4.749 6.671 90.984 1.262 4.811

18-Jun

02-Jul

95 16-Jul
USD/b (rha)

NOK TWI

US dollar 6.4 6.2 6.0 5.8 5.6 5.4

18-Jun 02-Jul
USDNOK

1.35 1.33 1.31 1.29 1.27 1.25 16-Jul

EURUSD(rha)

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

Prior 1.59 1.68 1.75 1.92 2.12 2.54 2.91 3.24

Last 1.61 1.69 1.76 1.92 2.13 2.58 2.95 3.28

Interest rates SEK Prior Last USD 1m 1.11 1.11 1m 3m 1.20 1.20 3m 6m 1.28 1.28 6m 12m Invalid Invalid RIC(s): RIC. STISEK1YDFI= 12m 3y 1.63 1.63 3y 5y 2.03 2.03 5y 7y 2.32 2.32 7y 10y 2.58 2.58 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 0.81 1.56 2.18 2.76

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

Prior 0.07 0.14 0.25 0.45 0.68 1.09 1.45 1.88

Last 0.07 0.14 0.25 0.45 0.69 1.10 1.47 1.90 Last 99.35 1.57 -0.98 10y sw ap 1.75 1.75 2.00

105.0 100.0
95.0

Japanese yen

90.0 18-Jun
USDJ PY

02-Jul

7.0 6.5 6.0 5.5 5.0 16-Jul

Norw ay Prior NST475 95.20 10y yld 2.56 - US spread -0.03 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 94.48 10y 94.29 94.29 10y 92.73 2.64 10y yld 2.12 2.12 10y yld 2.59 0.10 - US spread -0.47 -0.42 30y yld 3.63 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 93.09 10y 99.51 2.55 10y yld 1.55 3.60 - US spread -1.04 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

18-Jun
SEKNOK

02-Jul

6.0 16-Jul
CHFNOK (rha)

Equities 15700 15200 14700 14200 13700 18-Jun 02-Jul

Dow Jones

500 480 460 440 420 16-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 1.45 1.41 -4 18.12.2013 0.42 Last 96.28 96.19 1.46 1.45 -1 19.03.2014 0.67 Oil price: (Ldn,cl) 1m 1.52 1.52 0 18.06.2014 0.92 SPOT 108.91 108.86 1.39 1.45 6 15.05.2015 1.83 Gold price 15.07.2013 PM 1.70 1.76 6 19.05.2017 3.84 AM: 1279.8 1284.8 2.56 2.62 6 24.05.2023 9.86 Equities Today 0700 % last 2.56 2.62 6 24.05.2023 9.86 Dow Jones 15484.26 0.1% 2.56 2.64 9 24.05.2023 9.86 Nasdaq C. 3607.49 0.2% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6586.11 0.6% 1.69 1.78 1m 1.73 1.61 Eurostoxx50 2686.69 0.4% 1.70 1.81 3m 1.82 1.69 DAX 8234.81 0.3% 1.72 1.85 6m 1.87 1.76 Nikkei 225 14578.95 0.5% 1.77 1.93 12m 2.00 1.92 OSEBX 494.26 0.5% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
17.07.2013
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Morning Report
17.07.2013

3m LIBOR
0.160 0.150 0.140 0.130 0.120 0.110 18-Jun
EUR

02-Jul

0.28 0.28 0.27 0.27 0.26 16-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 99.28 1.3075 0.8647 7.4583 8.7246 1.2370 7.9260 6.0640 6.11 90.92 106.31 9.171 6.410

Today 99.76 1.3074 0.8654 7.4579 8.7228 1.2397 7.9380 6.0719 6.09 91.05 106.46 9.173 6.402

Spot rates and forecasts In 1m Oct-13 Jan-14 Jul-14 FX 0700 0.5 98 102 107 110 AUD 0.0 1.30 1.26 1.30 1.32 CAD 0.1 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 0.2 7.80 7.70 7.70 7.70 HKD 0.1 6.00 6.11 5.92 5.83 KWD -0.4 6.12 5.99 5.54 5.30 LTL 0.1 91.2 91.1 90.6 89.5 LVL 0.1 104.7 103.4 103.4 103.4 NZD 0.0 9.18 9.06 8.95 8.85 SEK -0.1 629.03 616.00 606.30 592.31 SGD

USD NOK 0.916 5.561 1.043 5.817 0.948 640.075 19.878 30.534 32.593 18.622 1.511 9.170 7.758 0.782 0.286 21.247 2.641 2.298 0.537 11.293 0.783 4.749 6.671 90.984 1.262 4.811

18-Jun

02-Jul

95 16-Jul
USD/b (rha)

NOK TWI

US dollar 6.4 6.2 6.0 5.8 5.6 5.4

18-Jun 02-Jul
USDNOK

1.35 1.33 1.31 1.29 1.27 1.25 16-Jul

EURUSD(rha)

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

Prior 1.59 1.68 1.75 1.92 2.12 2.54 2.91 3.24

Last 1.61 1.69 1.76 1.92 2.13 2.58 2.95 3.28

Interest rates SEK Prior Last USD 1m 1.11 1.11 1m 3m 1.20 1.20 3m 6m 1.28 1.28 6m 12m Invalid Invalid RIC(s): RIC. STISEK1YDFI= 12m 3y 1.63 1.63 3y 5y 2.03 2.03 5y 7y 2.32 2.32 7y 10y 2.58 2.58 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 0.81 1.56 2.18 2.76

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

Prior 0.07 0.14 0.25 0.45 0.68 1.09 1.45 1.88

Last 0.07 0.14 0.25 0.45 0.69 1.10 1.47 1.90 Last 99.35 1.57 -0.98 10y sw ap 1.75 1.75 2.00

105.0 100.0
95.0

Japanese yen

90.0 18-Jun
USDJ PY

02-Jul

7.0 6.5 6.0 5.5 5.0 16-Jul

Norw ay Prior NST475 95.20 10y yld 2.56 - US spread -0.03 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 94.48 10y 94.29 94.29 10y 92.73 2.64 10y yld 2.12 2.12 10y yld 2.59 0.10 - US spread -0.47 -0.42 30y yld 3.63 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 93.09 10y 99.51 2.55 10y yld 1.55 3.60 - US spread -1.04 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

18-Jun
SEKNOK

02-Jul

6.0 16-Jul
CHFNOK (rha)

Equities 15700 15200 14700 14200 13700 18-Jun 02-Jul

Dow Jones

500 480 460 440 420 16-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 1.45 1.41 -4 18.12.2013 0.42 Last 96.28 96.19 1.46 1.45 -1 19.03.2014 0.67 Oil price: (Ldn,cl) 1m 1.52 1.52 0 18.06.2014 0.92 SPOT 108.91 108.86 1.39 1.45 6 15.05.2015 1.83 Gold price 15.07.2013 PM 1.70 1.76 6 19.05.2017 3.84 AM: 1279.8 1284.8 2.56 2.62 6 24.05.2023 9.86 Equities Today 0700 % last 2.56 2.62 6 24.05.2023 9.86 Dow Jones 15484.26 0.1% 2.56 2.64 9 24.05.2023 9.86 Nasdaq C. 3607.49 0.2% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6586.11 0.6% 1.69 1.78 1m 1.73 1.61 Eurostoxx50 2686.69 0.4% 1.70 1.81 3m 1.82 1.69 DAX 8234.81 0.3% 1.72 1.85 6m 1.87 1.76 Nikkei 225 14578.95 0.5% 1.77 1.93 12m 2.00 1.92 OSEBX 494.26 0.5% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets