Morning report

Expect rate cut in Norway

07-Nov-2011
Payrolls from the US came in on the positive side, a new Greek unity government without Papandreou, and we expect that Norges Bank lowers the interest rate. Friday's payrolls report from the US came in on the positive side, albeit weak. Despite an increase of only 80 000 in October, the report contained some positive news. First, September numbers were revised by 55 000 to 158 000, while august number now has been revised up from 0 to 104 000 in total. Second, unemployment rate fell from 9.1 per cent to 9.0 per cent. In total we are left with a report which mainly should be interpreted as positive news. However, it does not give any substantial indication of improvement in labour market conditions in the US, which is consistent with other reports, such at jobless claims and the ADP report. American payrolls are close to a parenthesis compared to the recent turmoil in Europe nowadays. Papandreou's announcement from last week to arrange a Greek referendum was offset by major market fluctuations and pressure from Merkel and Sarkozy. In the aftermath we now know that the referendum is cancelled while Papandreou has resigned as prime minister. A new unity government will, according to Financial Times immediately come to power, and today it will be announced who the new prime minister will be. One candidate is the present finance minister, Evangelos Venizelos, another is the former vice president of ECB, Lucas Papademos. Independently of which one it will be, the most important issue looking forward is to exercise a political consensus and unity in order to calm the markets. If this is not achieved and the political turmoil persists, it seems more likely than ever that EU-17 will be reduced to EU-16. Until then, it appears that the new government is ready to implement the new crisis package which was passed on October 26th. The news of a new Greek government has not been able to calm Asian markets during the morning hours. Through the night euro weakened against dollar while Asian stock markets have opened downwards. However, since Friday morning the Euro has strengthened against dollar, probably due to the cancellation of the Greek referendum. Apparently the market is currently more nervous about Italy and Silvio Berlusconi. Interest on Italian debt is now almost 6.4 per cent, close to the highest level we have seen for Italy since the country joined the euro. Berlusconi, who in the aftermath of the G20 meeting last week said that "Italy does not feel the crisis", now faces substantial pressure from both within and outside Italy. IMF has put the country under monitoring, while finance minister Tremonti said last Friday, according to Financial Times, that "I am saying that on Monday there will be disaster on the markets if you, Silvio, stay at your post and do not go. Because the problem for Europe and the markets, correct or not as it may be, is in fact you." It is somewhat reassuring that some official represents in the depressed country understands the seriousness of the situation. In light of the last week's incidences and news, we have adjusted our interest rate forecasts. First, we expect that ECB and Mario Draghi will follow last week's rate cut, by an additional cut of 25 bp at the next meeting in December. We are then back at the low level we had before ECB started to hike interest rates earlier this year. Second, we expect that Norges Bank will cut back the rate by 25 bp to 2,0 per cent on the upcoming meeting in December. We expect that this level will withstand until second half of 2012. After that we think Norges Bank will increase rates by 50 bp in total towards the end of 2012. Isolated we believe that the conditions in the Norwegian economy stands to a somewhat higher interest rate. However, the turmoil in financial markets has been more persistent than previously assumed and economic activity at our trading partners has been lower than expected. The sum of lower activity and interest rates abroad explains why we believe that Norges Bank will keep the rate low longer than previously assumed. Third, we expect that the Swedish Riksbank to cut the repo rate by 25 bp on the upcoming month in December, and an additional cut of 25 bp in February 2012. The Swedish economy has proven to be more vulnerable to international fluctuations, and several industrial indicators has markedly fallen back lately. ole.kjennerud@dnbnor.no Yesterday's key economic events (GMT) 09:00 Norway C2, credit growth 11:30 USA Non-farm payrolls 11:30 USA Unemployment Todays key economic events (GMT) 09:00 Norway Industrial production 10:00 EMU Retail sales 11:00 Germany Industrial production (prel.) As of Sep Oct Oct As of Sep Sep Sep Unit y/y % 1000 % Unit m/m % m/m % m/m % Prior 6.5 1583 9.1 Prior 3.3 -0.3 -1.0 Actual 6.7 95 80 9.1 9.0 Poll DnB NOR -0.1 0.3 Poll

NOK & 3m NIBOR

8.00 7.80 7.60 7.40 27-Sep 17-Oct 3m ra. 3.20 3.10 3.00 2.90 4-Nov EURNOK

SEK & 3m STIBOR

9.3 9.2 9.1 9.0 8.9 27-Sep 17-Oct 2.50 2.45 4-Nov EURSEK 2.60 2.55

3m ra.
Headquarters 0021 Oslo Stranden 21 Offices Abroad New York London Shanghai Singapore Stockholm Sales Oslo (+47) Equity Fixed Income FX/IR Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund +47 03000

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850 22 94 89 40 22 01 78 20 22 01 76 50 55 75 69 61 52 61 38 22 51 77 73 33 73 21 55 39 05 72 27 07 01 84 62 58 37 84 95 87 41 14 09 32 28 76 04 96 74 13 60 80 60 50 69 06 27 62 50 30 80 89 00 09

Research Regional Sales (+47) Eirik Larsen 22 01 76 55 Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Maren Romstad Camilla Viland Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen 22 22 22 22 22 22 22 22 22 22 22 22 22 01 01 01 01 01 01 01 01 01 01 01 01 01 76 78 78 76 76 77 76 78 77 76 76 77 78 56 03 24 63 64 41 67 37 62 93 77 36 15

07-Nov-2011

Morning report

Oil spot & NOK TWI

120 115 110 105 100 27-Sep 17-Oct NOK TWI ra. 96 94 4-Nov $/b 100 98

SPOT RATES AND FORECASTS (Source: Reuters and DnB NOR Markets)
FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK Prior 78.24 1.380 0.861 1.220 7.740 9.071 7.444 5.611 7.173 0.854 8.991 6.581 8.413 1.174 10.552 Last 78.17 1.372 0.857 1.233 7.745 9.088 7.442 5.651 7.227 0.853 9.043 6.628 8.480 1.174 10.609 % -0.1% -0.6% -0.5% 1.0% 0.1% 0.2% 0.0% 0.7% 0.8% -0.1% 0.6% 0.7% 0.8% 0.0% 0.5% In 1 m ...3 m 80 80 1.40 1.35 0.88 0.86 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 5.57 6.96 0.85 8.9 6.57 5.26 1.18 10.45 5.78 7.22 0.86 9.1 6.74 5.39 1.17 10.58 ...6 m ...12 m 80 90 1.30 1.25 0.84 0.82 1.23 1.25 7.70 7.70 9.00 9.00 7.45 7.45 5.92 7.40 0.86 9.2 6.92 5.54 1.17 10.71 6.16 6.84 0.86 9.4 7.20 6.48 1.17 10.98 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 1.0305 1.0197 0.8988 18.25 5.4260 1.6010 7.7705 115.31 0.2763 2.5172 0.5131 0.7928 3.1925 1.2728 30.6630 % -0.70% 0.07% 1.56% 0.61% 0.58% -0.15% 0.03% 0.37% 0.02% 0.50% 0.57% -0.19% 0.57% 0.55% 0.46%

EUR vs GBP & CHF

1.25 1.20 1.15 1.10 27-Sep 17-Oct GBP r.a 0.89 0.88 0.87 0.86 0.85 4-Nov CHF

Gov. Bonds, 10y

2.25 2.00 1.75 1.50 27-Sep 3.00 2.80 2.60 2.40 2.20 2.00 4-Nov SEK

17-Oct

NOK, ra.

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

JPY and DowJones

13 12 11 10 27-Sep 17-Oct USDJPY ra. DowJones, 1000 79 77 75 4-Nov

SWAP AN D MON EYMARKET RATES (Source: Reuters) N IBOR STIBOR EURIBOR Prior Last Prior Last Prior Last 2.87 2.86 2.35 2.35 1.30 1.20 3.14 3.12 2.58 2.58 1.52 1.44 3.37 3.35 2.62 2.62 1.73 1.66 3.45 3.45 2.68 2.69 1.89 1.83 3.02 3.01 2.14 2.11 1.57 1.53 3.34 3.34 2.29 2.23 1.92 1.86 3.60 3.58 2.47 2.47 2.20 2.19 3.82 3.79 2.56 2.57 2.51 2.50 GOVERNM ENT BON DS (Source: Reuters) N ORWAY SWEDEN GERMANY Prior 113.86 2.56 0.69 Last 110.01 2.55 0.77

USD LIBOR Prior 0.25 0.44 0.63 0.78 0.70 1.21 1.71 2.18 US

Last 0.25 0.44 0.63 0.78 0.71 1.22 1.71 2.17

10y 10y yield vs bund

N ORWAY In 3m 6m 12m
1.47 1.42 1.37 1.32

Prior Last Prior Last Prior 116.263 116.26 103.744 104.21 100.76563 1.80 1.80 1.87 1.78 2.04 -0.07 0.02 0.17 INTEREST RATE FORECASTS SWEDEN GERMANY US

Last 100.94 2.03 0.25

USD and gold

2000 1900 1800 1700 1600 1500 27-Sep 17-Oct EURUSD ra.

3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 3.15 4.25 2.50 3.00 1.50 3.00 3.15 4.50 2.55 3.25 1.50 3.25 3.35 4.50 2.65 3.25 1.50 3.25

3m libor 10y swap 0.45 2.75 0.35 3.00 0.35 3.25

4-Nov Gold

EU RSEK & OMXS

9.3 9.2 9.1 9.0 8.9 8.8 27-Sep 17-Oct OMXS ra. 500 450 400 350 4-Nov EURSEK

FRA NOK DEC MAR J UN SEP FRA SEK DEC MAR J UN SEP

3m 2.88 2.60 2.43 2.42 3m 2.50 2.11 1.94 1.89

Prior 2.87 2.60 2.43 2.43 Prior 2.51 2.13 1.96 1.91

chg 0.01 0.00 0.00 -0.01 chg 0.00 -0.02 -0.02 -0.02

TWI NOK SEK EUR USD GBP Comm. Brent spot Brent 1m Spot gold

Today 96.90 120.09 106.77 77.24 80.50 Today 112.8 112.4 1749.0

% 0.16 0.13 - 0.30 0.43 Last 112.8 112.0 1749.0

Stock ex. Today Dow Jones 11,983.2 Nasdaq 2,686.2 FTSE100 5,527.2 Eurostoxx50 2,291.5 Dax 5,966.2 Nikkei225 8,767.1 Oslo 382.84 Stockholm 451.16 Copenhagen 472.24

% -0.5% -0.4% -0.3% -2.4% -2.7% 0.0% -0.5% 0.7% 0.2%

Morning report
07-Nov-2011
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