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Morning Report

14.03.2012

NOK & 3m NIBOR 7.80 7.60 7.40


3m ra.

Unchanged Policy Rates Expected from Norges Bank


2.90 2.60 2.30

1-Feb 21-Feb 12-Mar


EURNOK

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 1-Feb


3m ra.

2.60 2.40 2.20 2.00 21-Feb 12-Mar


EURSEK

Headquarters 0021 Oslo Stranden 21

+47 03000

No change in monetary policy in the U.S. yesterday and Norges Bank will probably also keep interest rates steady for a while. At yesterday's monetary policy meeting, the Federal Reserve kept policy rates unchanged, as expected, and proceed as before its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgagebacked securities and of rolling over maturing Treasury securities at auction. Fed indicates that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months. Fed still noted that unemployment is still elevated, the housing market is depressed and inflation has been subdued. Higher oil and gasoline prices will push inflation up temporarily, but the Fed anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate. Given the strength of the incoming economic data, including the upward revisions to retail sales and inventories reported yesterday, it would be hard for the Fed to justify more bond buying now. Just as interesting as the FOMC meeting was the presentation of the Fed's stress tests of banks. The Fed was forced to release the results of its latest bank stress tests yesterday, which were originally scheduled to be released on Thursday, because some of the banks involved had started to leak out the news that they had passed. A total of 19 banks were tested and 15 passed. Among those who had failed the test was Citigroup. The test was pretty rigorous with the unemployment rate up 13 per cent, 50 per cent decline in share prices and a 21 per cent decline in house prices from the current low levels. The core capital of the 19 banks declined from 10.1 percent to 6.3 percent. It is still higher than the requirement of 5 percent. Fed's assessments of the economy together with the results of stress tests are mentioned as explanations for the rise in U.S. stock prices, where the S&P 500 ended up 1.8 per cent. Strong growth in retail sales also contributed positively. 10-year Treasury yield rose 12 basis points. Increased risk appetite would normally have contributed to the stronger euro against the dollar, but the EURUSD has fallen 1 per cent since yesterday morning. Missing signals of further easing of monetary policy may have underpinned the dollar. The Norwegian krone has remained unchanged versus the Euro since yesterday morning, while higher inflation figures in Sweden than expected contributed to a stronger Swedish krone. Today at 13 GMT Norges Bank's Executive Board presents its decision on the monetary policy and the bank released it Monetary Policy Report with an expected path for the key policy rate. We think Norges Bank will keep policy rates unchanged this time and keep rate stable during this year. Thus the new rate path will be 50-60 bps below the path from the October MPR. Looking back at the previous MPR in October, Norges Bank presented a rate path showing unchanged policy rates et 2.25 per cent until late 2012. In December Norges Bank decided to lower the key policy rate to 1.75 per cent. The current outlook should be compared to the outlook in October and the October rate path to see if the outlook justifies the lowered policy rates. Forward interest rates abroad have fallen substantially since October, roughly down 20 bps in the short term and up to 60 bps in the long term. Also Norwegian forward rates have declined, but the spread has widened 15 to 30 bps. NOK money market premiums have been in the range 85-90 most of the time, are higher than the forecast of 75 bps. The import weighted FX-rate, I44, has on average been close to the Q1 forecast, but the spot rate is currently 2 -3 per cent stronger and will affect the outlook for Q2. The strong NOK dampens exports and inflation. Core inflation has on average been 0.1 percentage points below forecast since October. Global outlook is weaker now compared to October, and Norwegian Mainland-GDP growth will most likely be revised downwards. In October Norges Bank expected a 3 per cent growth in Mainland GDP this year, versus Consensus Forecast in February at 2.3 per cent. But existing home prices still increase and the turnover in the housing market is high. Households' credit growth remains strong. Unemployment has declined slightly during the last months, and the regional network indicated quite normal growth ahead, though quite different for various parts of the economy. We think Norges Bank's assessment of all these developments will result in unchanged policy rates now and for the rest of the year. kyrre.aamdal@dnb.no Yesterday's key economic events (GMT) 08:30 Sweden CPIF 12:30 USA Retail sales ex. cars 18:15 USA FOMC-meeting Todays key economic events (GMT) 10:00 EMU Industrial production 13:00 Norway Norges Bank rate meeting As of Feb Feb As of Jan Unit y/y % m/m % % Unit m/m % Folio % Prior 0.9 0.7 0.25 Prior -1.1 1.75 Poll 1.0 0.6 0.25 Poll 0.2 1.75 Actual 1.1 0.9 0.25 DNB 1.75

Offices Abroad New York London Shanghai Singapore Stockholm

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850

Sales Oslo (+47) Equity Fixed Income FX/IR

22 94 89 40 22 01 78 20 22 01 76 50

Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

56 13 27 20 75 52 9910 69 39 41 50 62 54 14 82 52 72 09 06 61 24 79 56 38 07 28 62 22 01 76 50 51 84 04 30 77 62 96 80 73 58 74 89 33 01 73 80 70 11 69 85

Research Regional Sales (+47) Eirik Larsen 22 01 76 55

Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Kyrre Aamdal

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 77 41 22 01 76 67

Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 78 37 22 01 77 62 22 01 76 93 22 01 76 77 22 01 77 36 22 01 78 15

Morning Report
14.03.2012

SPOT RATES AND FORECASTS


Oil spot & NOK TWI 130 120 110 100 1-Feb 102 100 98 96 94 92 21-Feb 12-Mar
$/b

NOK TWI ra.

1.25 1.20 1.15

EUR vs GBP & CHF 0.87 0.85 0.83

1.10 0.81 1-Feb 21-Feb 12-Mar


GBP r.a CHF

FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK

Prior 82.29 1.316 0.842 1.206 7.473 8.951 7.435 5.679 6.902 0.836 8.882 6.808 8.272 1.200 10.635

Last 83.50 1.305 0.830 1.209 7.473 8.878 7.434 5.730 6.864 0.842 9.010 6.802 8.152 1.190 10.704

% 1.5% -0.8% -1.3% 0.3% 0.0% -0.8% 0.0% 0.9% -0.5% 0.8% 1.4% -0.1% -1.4% -0.8% 0.6%

In 1 m ...3 m 77 77 1.30 1.30 0.83 0.83 1.23 1.23 7.60 7.75 8.90 9.20 7.45 7.45 5.85 5.96 7.59 7.74 0.85 0.84 9.2 9.3 6.85 7.08 5.27 5.45 1.17 1.19 10.72 11.08

...6 m ...12 m 80 85 1.35 1.40 0.85 0.87 1.23 1.30 7.65 7.65 9.00 9.00 7.45 7.45 5.67 5.46 7.08 6.43 0.85 0.85 9.0 8.8 6.67 6.43 5.33 5.46 1.18 1.18 10.59 10.34

FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB

USD 1.0503 0.9918 0.9264 18.87 5.6969 1.5725 7.7622 127.63 0.2794 2.6460 0.5341 0.8167 3.1680 1.2644 29.5170

% -0.09% -0.07% 1.05% 1.01% 0.77% 0.53% 0.05% 0.65% 0.20% 0.78% 0.58% -0.18% 1.27% 0.24% -0.22%

EURSEK & OMXS 9.0 8.9 8.8 8.7 1-Feb 550 500 450 400 350 21-Feb 12-Mar
OMXS ra. EURSEK

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

N IBOR Prior 2.18 2.56 2.89 3.09 2.95 3.19 3.41 3.61

SWAP AN D MON EYM ARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.18 1.98 1.99 0.42 2.57 2.29 2.30 0.80 2.90 2.48 2.49 1.16 3.09 2.60 2.61 1.35 3.01 1.91 2.02 1.15 3.25 2.07 2.20 1.51 3.48 2.26 2.39 1.88 3.68 2.42 2.56 2.25

Last 0.40 0.78 1.14 1.33 1.23 1.59 1.95 2.33

USD LIBOR Prior 0.24 0.47 0.74 0.89 0.72 1.16 1.61 2.08

Last 0.24 0.47 0.74 0.89 0.79 1.27 1.75 2.24

Gov. Bonds, 10y 2.00 1.75 1.50


NOK, ra.

3.00 2.50 2.00 1.50


SEK

10y 10y yield vs bund

N ORWAY Prior Last 114.8 110.40 2.38 0.61 2.47 0.57

GOVERNM ENT BON DS SWEDEN GERMANY US Prior Last Prior Last Prior 116.077 114.66 102.177 100.91 99.671875 1.77 0.00 1.91 0.01 1.77 1.90 2.04 0.27

Last 98.34 2.20 0.30

1-Feb 21-Feb 12-Mar

JPY and DowJones 14 83 82 13 81 80 79 12 78 77 11 76 75 10 1-Feb 21-Feb 12-Mar


USDJPY ra. DowJones, 1000

In 3m 6m 12m

INTEREST RATE FORECASTS N ORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.65 3.50 2.15 2.25 1.05 2.50 2.55 3.75 2.10 2.50 1.05 2.75 2.60 4.25 2.00 3.00 1.05 3.25

US 3m libor 10y 0.50 0.50 0.50

swap 2.25 2.50 3.00

USD and gold 1900 1800 1700 1600 1500


EURUSD ra.

1.42 1.38 1.34 1.30 1.26


Gold

1-Feb 21-Feb 12-Mar

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % MAR 2.59 2.59 0.00 NOK 93.47 0.06 JUN 2.50 2.48 0.02 SEK 117.67 - 0.69 SEP 2.48 2.47 0.01 EUR 103.99 - 0.56 DEC 2.53 2.50 0.03 USD 80.35 0.61 FRA SEK 3m Prior chg GBP 0.00 - 100.0 MAR 2.33 2.27 0.06 Comm. Today Last JUN 2.04 1.95 0.09 Brent spot 129.7 128.9 SEP 1.84 1.73 0.11 Brent 1m 125.8 125.3 DEC 1.78 1.67 0.11 Spot gold 0.0 1697.5 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 12,959.7 Nasdaq 2,983.7 FTSE100 5,892.8 Eurostoxx50 2,515.0 Dax 6,901.4 Nikkei225 10,050.5 Oslo 422.43 Stockholm 500.77 Copenhagen 590.57

% 0.3% -0.2% 0.1% 0.0% 0.3% 0.0% -0.8% 0.1% 0.0%

Morning Report
14.03.2012
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