Morning Report

25.07.2013

Euro zone recession coming to an end?

Yesterdays PMIs from the euro zone are an early indication that the economy may have bottomed out. Meanwhile, Chinese authorities have announced a small-scale stimulus package to support economic growth.
NOK & 3m NIBOR
8.10 1.90 1.80 1.70 1.60 1.50 25-Jul
3m (rha)

7.90
7.70

7.50 27-Jun

11-Jul

EURNOK

Norw ay: 10y Gov't Bond

2.8 2.6 2.4 2.2 2.0 27-Jun
Rate

125

105
85 11-Jul

65 25-Jul
Diff (bp, rha)

According to the latest PMI indices the recession in the euro zone may have come to an end. The composite index, which covers both the manufacturing and the service sector, rose by 1.7 points to 50.4 in July, thus beating expectations by 1.3 points (Reuters). For the first time since January 2012, which was the last time the index was above 50, activity in the euro zone may increase. An index level above 50 normally indicates expansion, while levels below 50 indicate contraction. The increase is due to improvements in both manufacturing and the service sector. It is particularly encouraging that the index for manufacturing orders for the first time since May 2011 rose above 50. This may be an early signal of activity growth picking up further in the coming months. Another positive outcome of yesterdays surveys was that both the German and the French PMIs rose more than expected in July. In particular, the German service sector index surged 2.1 points to 52.5, versus an expected increase to 50.8. But the manufacturing index rose as well, and both indices are now indicating that activity in the largest economy in the euro zone is about to pick up. Thus, it seems that the euro zone economy is about bottom out, after six consecutive quarters in recession. Admittedly, despite activity prospects now improving gradually, it looks inevitable that GDP in 2013 will contract. This, however, is mostly a result of negative growth rates at the beginning of the year, as we expect growth to move into positive territory from Q3 and onwards. Chinese authorities announced yesterday measures to stimulate the economy, which in the second quarter grew by 7.5 percent y/y. Although the package is relatively small, it is still a signal that the government has begun to be concerned about economic growth. The package consists of three different measures, all intended to stimulate the supply side of the economy, in particular by simplifying the activity in smaller businesses. As of August the authorities will suspend the value-added tax (VAT) and turnover tax on small businesses with monthly sales of less than 20,000 yuan. According to People's Daily, this will affect around 6 million companies. In addition, the authorities will simplify approval procedures and reduce administrative costs for exporters. The last part of the package is to enhance finance of railway projects, where private investors will be encouraged to invest in future projects. At the same time the authorities emphasized that the yuan, which so far this year has increased by about 1.5 percent against the dollar, is to be kept "basically stable at a reasonable and balanced level." The PMIs from the euro zone lifted EURUSD up to 1.326 during yesterday's session, which is the highest level for the euro in about a month. But the movement was of the temporary kind, and later EURUSD corrected down again. Today the euro is about unchanged versus the dollar compared to yesterday morning. The Norwegian krone has weakened against the euro and the dollar, with EURNOK up 0.8 percent to 7.83. Thus, the krone has reversed the entire gain it recorded on Tuesday. In fixed income the positive data from the euro zone and the US, where new housing sales surged 8.3 per cent m/m in June, led to higher bonds yields. 10 year US Treasury yield is up 8 points, while the German Bund yield is up 10 points. Todays calendar is rather full compared to the previous days this week. From the UK, where we have seen an underlying improvement in the monthly data in the last couple of months, we get figures for GDP growth in Q2. According to Reuters, it is expected that growth will pick up from 0.3 percent q/q in Q1 to 0.6 percent in Q2. From Germany we the IFO index, which is expected to increase marginally in July. The IFO index is often referred to as "Europe's most important index", as it explains almost 80 percent of the variation in the German industrial production, which accounts for about 20 percent of German GDP, which again comprise nearly 30 percent of the euro zone GDP. In addition we get durable goods orders from the US, which are expected up 1.3 percent from May to June, after a sharp increase of 3.7 percent in the previous month. From Sweden we also have a series of incoming data. Consumer confidence is expected to rise by 0.8 points to 99 in July. In addition, it is expected that the unemployment rate rises from 8.2 percent in May to 9.2 percent in June. Note that the unemployment figures are unadjusted, and that such an increase in the unemployment rate from May to June is normal (on average for the last ten years the unemployment rate increased by 1.1 percentage points from May to June). Thus the increase should only be temporary, as unemployment tends to normalize again in July. ole.kjennerud@dnb.no Yesterdays key economic events (GMT) As of Unit Prior Poll Actual 01:45 China PMI manuf. (flash) Jul Index 48.2 48.2 47.7 08:00 EMU PMI Composite (flash) Jul Index 48.7 49.3 50.4 14:00 USA New home sales Jun Mn 0.459 0.482 0.497 As of Unit Prior Poll DNB Todays key economic events (GMT) 08:00 Germany Ifo Businnes climate Jul Index 105.9 106.1 08:30 UK GDP (prel.) Q2 q/q % 0.3 0.6 12:30 USA Durable goods orders Jun m/m % 3.7 1.3

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
25.07.2013

3m LIBOR
0.155 0.150 0.145 0.140 0.135 0.130 27-Jun
EUR

11-Jul

0.28 0.28 0.27 0.27 0.26 0.26 25-Jul

USD (rha)

Oil price & NOK TWI

98 97 96 95 94 93 110

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 99.71 1.3211 0.8602 7.4586 8.5312 1.2363 7.7737 5.8850 5.90 91.17 104.28 9.038 6.289

Today 100.09 1.3209 0.8615 7.4580 8.5958 1.2378 7.8335 5.9333 5.93 91.25 105.11 9.098 6.329

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 0.2 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.8 8.55 8.45 8.50 8.60 RUB 0.1 1.24 1.25 1.27 1.30 GBP 0.8 7.80 7.70 7.70 7.70 HKD 0.8 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 0.8 104.7 103.4 103.4 103.4 NZD 0.7 9.18 9.06 8.95 8.85 SEK 0.6 629.03 616.00 606.30 592.31 SGD

USD NOK 0.915 5.427 1.031 5.754 0.937 632.759 19.589 30.268 32.468 18.261 1.533 9.091 7.758 0.764 0.285 20.799 2.615 2.268 0.532 11.150 0.798 4.732 6.506 91.129 1.267 4.678

27-Jun

11-Jul

95 25-Jul
USD/b (rha)

NOK TWI

US dollar 6.4 6.2 6.0 5.8 5.6

27-Jun 11-Jul
USDNOK

1.33 1.31 1.29 1.27 1.25 25-Jul

EURUSD(rha)

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

Prior 1.63 1.72 1.79 1.94 2.11 2.53 2.90 3.24

Last 1.66 1.71 1.78 1.93 2.13 2.57 2.93 3.28

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

Prior 1.11 1.20 1.28 1.68 2.09 2.37 2.63

Interest rates Last USD 1.11 1m 1.20 3m 1.28 6m #N/A 12m 1.68 3y 2.09 5y 2.37 7y 2.63 10y

Prior 0.19 0.27 0.40 0.68 0.72 1.46 2.10 2.69

Last 0.19 0.26 0.40 0.68 0.79 1.54 2.16 2.76

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

Prior 0.08 0.15 0.26 0.46 0.70 1.10 1.47 1.88

Last 0.08 0.15 0.26 0.47 0.74 1.18 1.55 1.97 Last 98.60 1.66 -0.95 10y sw ap 1.75 1.75 2.00

102.0 100.0 98.0 96.0 94.0

Japanese yen

27-Jun
USDJ PY

11-Jul

7.0 6.5 6.0 5.5 5.0 25-Jul

Norw ay Prior NST475 94.91 10y yld 2.59 - US spread 0.07 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 94.55 10y 93.77 93.77 10y 93.34 2.64 10y yld 2.18 2.18 10y yld 2.52 0.03 - US spread -0.34 -0.42 30y yld 3.59 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 92.64 10y 99.52 2.60 10y yld 1.55 3.66 - US spread -0.97 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

93 6.6

91
89

6.4
6.2

87 27-Jun
SEKNOK

11-Jul

6.0 25-Jul
CHFNOK (rha)

Equities 15700 15200 14700 14200 13700 27-Jun 11-Jul

Dow Jones

520 500 480 460 440 25-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 1.55 1.56 1 18.12.2013 0.40 Last 95.13 94.87 1.43 1.44 1 19.03.2014 0.65 Oil price: (Ldn,cl) 1m 1.52 1.52 0 18.06.2014 0.90 SPOT 107.65 107.04 1.45 1.45 0 15.05.2015 1.81 Gold price 24.07.2013 PM 1.72 1.73 2 19.05.2017 3.82 AM: 1333.5 1335.0 2.57 2.61 4 24.05.2023 9.84 Equities Today 0700 % last 2.57 2.61 4 24.05.2023 9.84 Dow Jones 15542.24 -0.2% 2.59 2.64 4 24.05.2023 9.84 Nasdaq C. 3579.60 0.0% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6620.43 0.3% 1.71 1.80 1m 1.73 1.66 Eurostoxx50 2752.25 1.1% 1.71 1.82 3m 1.78 1.71 DAX 8379.11 0.8% 1.73 1.86 6m 1.83 1.78 Nikkei 225 14591.69 -1.0% 1.77 1.93 12m 1.98 1.93 OSEBX 498.03 0.1% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
25.07.2013
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Morning Report
25.07.2013

3m LIBOR
0.155 0.150 0.145 0.140 0.135 0.130 27-Jun
EUR

11-Jul

0.28 0.28 0.27 0.27 0.26 0.26 25-Jul

USD (rha)

Oil price & NOK TWI

98 97 96 95 94 93 110

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 99.71 1.3211 0.8602 7.4586 8.5312 1.2363 7.7737 5.8850 5.90 91.17 104.28 9.038 6.289

Today 100.09 1.3209 0.8615 7.4580 8.5958 1.2378 7.8335 5.9333 5.93 91.25 105.11 9.098 6.329

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 0.2 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.8 8.55 8.45 8.50 8.60 RUB 0.1 1.24 1.25 1.27 1.30 GBP 0.8 7.80 7.70 7.70 7.70 HKD 0.8 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 0.8 104.7 103.4 103.4 103.4 NZD 0.7 9.18 9.06 8.95 8.85 SEK 0.6 629.03 616.00 606.30 592.31 SGD

USD NOK 0.915 5.427 1.031 5.754 0.937 632.759 19.589 30.268 32.468 18.261 1.533 9.091 7.758 0.764 0.285 20.799 2.615 2.268 0.532 11.150 0.798 4.732 6.506 91.129 1.267 4.678

27-Jun

11-Jul

95 25-Jul
USD/b (rha)

NOK TWI

US dollar 6.4 6.2 6.0 5.8 5.6

27-Jun 11-Jul
USDNOK

1.33 1.31 1.29 1.27 1.25 25-Jul

EURUSD(rha)

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

Prior 1.63 1.72 1.79 1.94 2.11 2.53 2.90 3.24

Last 1.66 1.71 1.78 1.93 2.13 2.57 2.93 3.28

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

Prior 1.11 1.20 1.28 1.68 2.09 2.37 2.63

Interest rates Last USD 1.11 1m 1.20 3m 1.28 6m #N/A 12m 1.68 3y 2.09 5y 2.37 7y 2.63 10y

Prior 0.19 0.27 0.40 0.68 0.72 1.46 2.10 2.69

Last 0.19 0.26 0.40 0.68 0.79 1.54 2.16 2.76

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

Prior 0.08 0.15 0.26 0.46 0.70 1.10 1.47 1.88

Last 0.08 0.15 0.26 0.47 0.74 1.18 1.55 1.97 Last 98.60 1.66 -0.95 10y sw ap 1.75 1.75 2.00

102.0 100.0 98.0 96.0 94.0

Japanese yen

27-Jun
USDJ PY

11-Jul

7.0 6.5 6.0 5.5 5.0 25-Jul

Norw ay Prior NST475 94.91 10y yld 2.59 - US spread 0.07 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 94.55 10y 93.77 93.77 10y 93.34 2.64 10y yld 2.18 2.18 10y yld 2.52 0.03 - US spread -0.34 -0.42 30y yld 3.59 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 92.64 10y 99.52 2.60 10y yld 1.55 3.66 - US spread -0.97 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

93 6.6

91
89

6.4
6.2

87 27-Jun
SEKNOK

11-Jul

6.0 25-Jul
CHFNOK (rha)

Equities 15700 15200 14700 14200 13700 27-Jun 11-Jul

Dow Jones

520 500 480 460 440 25-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 1.55 1.56 1 18.12.2013 0.40 Last 95.13 94.87 1.43 1.44 1 19.03.2014 0.65 Oil price: (Ldn,cl) 1m 1.52 1.52 0 18.06.2014 0.90 SPOT 107.65 107.04 1.45 1.45 0 15.05.2015 1.81 Gold price 24.07.2013 PM 1.72 1.73 2 19.05.2017 3.82 AM: 1333.5 1335.0 2.57 2.61 4 24.05.2023 9.84 Equities Today 0700 % last 2.57 2.61 4 24.05.2023 9.84 Dow Jones 15542.24 -0.2% 2.59 2.64 4 24.05.2023 9.84 Nasdaq C. 3579.60 0.0% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6620.43 0.3% 1.71 1.80 1m 1.73 1.66 Eurostoxx50 2752.25 1.1% 1.71 1.82 3m 1.78 1.71 DAX 8379.11 0.8% 1.73 1.86 6m 1.83 1.78 Nikkei 225 14591.69 -1.0% 1.77 1.93 12m 1.98 1.93 OSEBX 498.03 0.1% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets