Morning Report

22.08.2013

Marked weakening of the NOK

NOK & 3m NIBOR
8.30 8.10 7.90 7.70 7.50 1.90

The Norwegian krone continued to weaken markedly on a broad basis yesterday. The NOK fell most against the dollar, which gained ground due to the Fed minutes and strong U.S. housing data yesterday. After the disappointing GDP figures gave rise to a weaker NOK on Monday, the trend continued yesterday. Since Tuesday morning the NOK has depreciated the most against the dollar (2%), but there has also been a marked weakening against the pound and the euro. Last night EURNOK was e.g. traded at around 8.12 - while GBPNOK traded well above 9.50. There was no new negative news about the Norwegian economy out yesterday. The depreciation may, however, have been exacerbated by the fact that some important levels have been broken, which may have triggered more selling of NOK and provided technical signs of a further decline. Our new forecast, which was published in yesterday's semi-iannual report, implies that the depreciation will be temporary and that the NOK will recover during the autumn. However, in the very short run we cannot rule out a further depreciation. The minutes from the Fed's monetary policy meeting in late July produced no new clear signals that the reductions of QE will start at the next monetary policy meeting on 18 September. The FOMC seems divided on when the process should begin. According to the minutes a few believed that it is important to be patient and evaluate more information before making changes to the quantitative easing. On the other hand a few others stated that the conditional plan that was outlined earlier this summer should be followed, which means that reductions should be reduced fairly soon. The plan which was put forward by Bernanke in June implied that reductions would begin in the second half of this year and completed by summer next year. Despite the disagreement, we still think a majority will be able to decide on tapering as early as September, given that the data continue to show strong progress towards the meeting. The most important is the labor market, where the payroll report is due early in September. Although the signals from the Fed did not give any clear signals on tapering, the market reacted by sending long-term rates further up yesterday. The 10-year U.S. government bond yield rose 10 basis points to 2.93%, the highest since July 2011. Rates were also lifted by the strong outcome for sales of existing homes, which rose far more than expected in July. The increase was 6.5%, whereas it was only expected that to rise by 1.6%. There have only been a few data releases from other countries. Yesterday British CBI orders surprised on the upside, rising to 0. The Chinese PMI (HSBC) for manufacturing rose markedly, increasing from 47.7 to 50.1. This was a positive surprise and counteract recent evidence that the Chinese economy is about to slow. We made several adjustments to our interest rate and currency forecasts in conjunction with the release of our bi-annual report yesterday. While, we previously assumed that Norges Bank will cut interest rates in September, we now believe interest rates will remain unchanged until the beginning of 2015. The main reason for the change is that the crown has weakened considerably since June and that inflation has come up significantly and is approaching the target. This more than offsets the effect of growth in the Norwegian economy appears to be slowing faster than we have assumed. For 10-year swap rates, we have made upward adjustments for most countries in view of the sharp rise in interest rates since mid-May. In general, we believe the long-term rates have now overreacted and are pricing in a slightly too quick rise in short rates. In the short term we hence foresee a certain correction downwards for long rates. However, in one years time, we expect interest rates to rise to the current level. The exception is the Japanese bond yield, which is expected to rise substantially in the coming year, given that inflation finally seems to be on the rise in Japan. In the currency market, we believe that the dollar will gradually strengthen against the euro and the yen in the coming year. U.S. monetary policy will gradually become somewhat less expansionary, while both the ECB and the Bank of Japan is likely to continue its expansionary policies. Growth in the U.S. will also be significantly stronger than in the euro zone and Japan according to our macro forecasts. knut.magnussen@dnb.no Yesterdays key economic events (GMT) 10:00 UK CBI Orders 14:00 USA Existing Home Sls FOMC Minutes from July18:00 USA meeting Todays key economic events (GMT) 01:45 China PMI-industri (flash) 07:58 EMU PMI Total, flash 12:30 USA Initial Claims As of Aug Jul As of Aug Aug W 32 Unit Index mn Unit Index Index 1000 Prior -12.0 5.080 Prior 47.7 50.5 320 Poll 5.100 Poll 51.0 Actual 0 5.36 DNB 50.1

1.80
1.70

25-Jul

08-Aug

1.60 22-Aug
3m (rha)

EURNOK

Norw ay: 10y Gov't Bond

3.0 2.8 2.6 2.4 2.2 2.0 25-Jul
Rate

08-Aug

115 105 95 85 75 65 22-Aug

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
22.08.2013

3m LIBOR
0.154 0.152 0.150 0.148 0.146 0.144 0.27 0.27 0.26 0.26 0.26 0.26 22-Aug
USD (rha)

25-Jul
EUR

08-Aug

Oil price & NOK TWI

100 98 96 94 92 110

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 97.45 1.3422 0.8568 7.4587 8.7193 1.2309 7.9955 5.9596 6.12 91.75 107.26 9.336 6.499

Today 98.21 1.3341 0.8554 7.4580 8.7797 1.2326 8.1043 6.0763 6.19 92.37 108.70 9.479 6.579

Spot rates and forecasts In 1m Nov-13 Feb-14 Aug-14 FX 0700 0.8 98 100 102 105 AUD -0.6 1.30 1.28 1.26 1.26 CAD -0.2 0.85 0.84 0.83 0.83 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.7 8.70 8.70 8.80 8.90 RUB 0.1 1.24 1.25 1.27 1.30 GBP 1.4 7.75 7.75 7.80 7.90 HKD 2.0 5.96 6.05 6.19 6.27 KWD 1.2 6.08 6.05 6.07 5.97 LTL 0.7 89.1 89.1 88.6 88.8 LVL 1.3 104.0 104.0 104.7 106.0 NZD 1.5 9.12 9.23 9.40 9.52 SEK 1.2 6.25 6.20 6.14 6.08 SGD

USD 0.899 1.049 0.924 19.316 33.188 1.560 7.756 0.285 2.588 0.527 0.784 6.582 1.284

NOK 5.459 5.790 6.579 31.449 18.304 9.479 0.783 21.328 2.347 11.527 4.762 92.370 4.731

25-Jul

08-Aug

95 22-Aug
USD/b (rha)

NOK TWI

US dollar 6.1 6.0 5.9 5.8 5.7

25-Jul 08-Aug
USDNOK

1.35 1.33 1.31 1.29 1.27 1.25 22-Aug

EURUSD(rha)

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

Prior 1.63 1.72 1.79 1.96 2.26 2.70 3.07 3.40

Last 1.64 1.72 1.81 1.98 2.28 2.72 3.10 3.42

Interest rates SEK Prior Last USD 1m 1.09 1.09 1m 3m 1.21 1.21 3m 6m 1.30 1.30 6m 12m Invalid Invalid RIC(s): RIC. STISEK1YDFI= 12m 3y 1.83 1.83 3y 5y 2.27 2.27 5y 7y 2.57 2.57 7y 10y 2.84 2.84 10y

Prior 0.18 0.26 0.39 0.67 0.87 1.70 2.37 2.97

Last 0.18 0.26 0.39 0.67 0.91 1.77 2.43 3.02

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

Prior 0.08 0.15 0.27 0.48 0.81 1.29 1.69 2.14

Last 0.08 0.15 0.27 0.48 0.83 1.32 1.71 2.16 Last 96.75 1.87 -1.05 10y sw ap 2.00 2.00 2.00

102.0 100.0 98.0 96.0 94.0

Japanese yen

25-Jul
USDJ PY

08-Aug

7.0 6.5 6.0 5.5 5.0 22-Aug

Norw ay Prior NST475 92.58 10y yld 2.88 - US spread 0.06 3m nibor 1.80 1.80 1.80

Norw ay Nov-13 Feb-14 Aug-14

Governm ent bonds Last SEK Prior Last US Prior 92.55 10y 91.89 91.89 10y 97.20 2.89 10y yld 2.41 2.41 10y yld 2.82 -0.03 - US spread -0.42 -0.51 30y yld 3.86 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 Nov-13 Feb-14 Aug-14 1.25 1.25 1.25 2.75 2.75 2.75 Nov-13 Feb-14 Aug-14 0.30 0.35 0.35

Last Germany Prior 96.38 10y 96.94 2.92 10y yld 1.85 3.93 - US spread -0.98 10y sw ap 2.75 2.75 3.00 3m euribor 0.20 0.25 0.25

Germany Nov-13 Feb-14 Aug-14

JPYNOK(rha)

SEKNOK & CHFNOK

93

91
89

87 25-Jul 08-Aug
SEKNOK

6.8 6.6 6.4 6.2 6.0 22-Aug

CHFNOK (rha)

Equities
16200 15700 15200 14700 14200 13700 25-Jul
Dow Jones

505 500 495 490 485 08Aug 22Aug

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 1.57 1 18.12.2013 0.32 Last 98.11 96.79 1.52 1.60 8 19.03.2014 0.57 Oil price: (Ldn,cl) 1m 1.62 1.63 0 18.06.2014 0.82 SPOT 110.67 109.52 1.71 1.71 0 15.05.2015 1.73 Gold price 21.08.2013 PM 2.01 2.01 0 19.05.2017 3.74 AM: 1372.5 1363.0 2.86 2.87 1 24.05.2023 9.76 Equities Today 0700 % last 2.86 2.87 1 24.05.2023 9.76 Dow Jones 14897.55 -0.7% 2.88 2.89 0 24.05.2023 9.76 Nasdaq C. 3599.79 -0.4% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6465.73 -1.0% 1.75 1.84 1m 1.75 1.64 Eurostoxx50 2823.35 -1.1% 1.75 1.87 3m 1.80 1.72 DAX 8366.29 -0.3% 1.80 1.95 6m 1.88 1.81 Nikkei 225 13328.76 -0.7% 1.89 2.06 12m 2.05 1.98 OSEBX 498.25 0.0% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
22.08.2013
IMPORTANT/DISCLAIMER
This note (the Note) must be seen as marketing material and not as an investment recommendation within the meaning of the N orwegian Securities Trading Act of 2007 paragraph 3-10 and the Norwegian Securities Trading Regulation 2007/06/29 no. 876. The Note has been prepared by DNB Markets, a division of DNB Bank ASA, a Norwegian bank organized under the laws of the Kingdom of Norway (th e Bank), for information purposes only. The Note shall not be used for any unlawful or unauthorized purposes. The Bank, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (individually, each a DNB Party; collectively, DNB Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Note. DNB Parties are not responsible for any errors or omissions, regardless of the cause, nor for the results obtained from the use of the Note, nor for the security or maintenance of any data input by the user. The Note is provided on an as is basis. DNB PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE NOTES FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE NOTE WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall DNB Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Note, even if advised of the possibility of such damages. Any opinions expressed herein reflect the Banks judgment at the time the Note was prepared and DNB Parties ass ume no obligation to update the Note in any form or format. The Note should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. No DNB Party is acting as fiduciary or investment advisor in connection with the dissemination of the Note. While the Note is based on information obtained from public sources that the Bank believes to be reliable, no DNB Party has performed an audit of, nor accepts any duty of due diligence or independent verification of, any information it receives. Confidentiality rules and internal rules restrict the exchange of information between different parts of the Bank and this may prevent employees of DNB Markets who are preparing the Note from utilizing or being aware of information available in DNB Markets/the Bank which may be relevant to the recipients of the Note. The Note is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. Distribution of material like the Note is in certain jurisdictions restricted by law. Persons in possession of the Note should seek further guidance regarding such restrictions before distributing the Note. The Note is for clients only, and not for publication, and has been prepared for information purposes only by DNB Markets - a division of DNB Bank ASA registered in Norway with registration number NO 984 851 006 (the Register of Business Enterprises) under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet), The Monetary Authority of Singapore, and on a limited basis by the Financial Conduct Authority and the Prudential Regulation Authority of the UK, and the Financial Supervisory Authority of Sweden. Details about the extent of our regulation by local authorities outside Norway are available from us on request. Additional information for clients in Singapore The Note has been distributed by the Singapore branch of DNB Bank ASA. It is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of any product referred to in the Note, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product. You have received a copy of the Note because you have been classified either as an accredited investor, an expert investor or as an institutional investor, as these terms have been defined under Singapores Financial Advisers Act (Cap. 110) (FAA) and/or th e Financial Advisers Regulations (FAR). The Singapore branch of DNB Bank ASA is a financial adviser exempt from licensing under t he FAA but is otherwise subject to the legal requirements of the FAA and of the FAR. By virtue of your status as an accredited investor or as an expert investor, the Singapore branch of DNB Bank ASA is, in respect of certain of its dealings with you or services rendered to you, exempt from having to comply with certain regulatory requirements of the FAA and FAR, including without limitation, sections 25, 27 and 36 of the FAA. Section 25 of the FAA requires a financial adviser to disclose material information concerning designated investment products which are recommended by the financial adviser to you as the client. Section 27 of the FAA requires a financial adviser to have a reasonable basis for making investment recommendations to you as the client. Section 36 of the FAA requires a financial adviser to include, within any circular or written communications in which he makes recommendations concerning securities, a statement of the nature of any interest which the financial adviser (and any person connected or associated with the financial adviser) might have in the securities. Please contact the Singapore branch of DNB Bank ASA at +65 6212 0753 in respect of any matters arising from, or in connection with, the Note. The Note is intended for and is to be circulated only to persons who are classified as an accredited investor, an expert investor or an institutional investor. If you are not an accredited investor, an expert investor or an institutional investor, please contact the Singapore branch of DNB Bank ASA at +65 6212 0753. We, the DNB group, our associates, officers and/or employees may have interests in any products referred to in the Note by acting in various roles including as distributor, holder of principal positions, adviser or lender. We, the DNB group, our associates, officers and/or employees may receive fees, brokerage or commissions for acting in those capacities. In addition, we, the DNB group, our associates, officers and/or employees may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in the Note. Additional Information, including for Recipients in the In the United States: The Note does not constitute an offer to sell or buy a security and does not include information, opinions, or recommendations with respect to securities of an issuer or an analysis of a security or an issuer; rather, it is a market letter, as the term is defined in NASD Rule 2211.