Morning Report

21.03.2012

The krone weakened yesterday

NOK & 3m NIBOR 7.70 2.80 7.60 2.60 7.50 2.40 7.40 7.30 2.20 9-Feb 29-Feb 20-Mar
3m ra. EURNOK

The Norwegian krone depreciated and the oil price dropped. Since yesterday, the krone has depreciated broadly. EURNOK has risen 0.7 percent to 7.63, while USDNOK rose 0.5 percent to 5.75. The dollar has weakened slightly against both the euro and yen. Against the former, the dollar depreciated by 0.3 percent since yesterday morning, while it against the latter has declined by 0.4 percent. USDJPY is currently traded at 83.76. Long US Treasury yields, which have increased substantially lately, were stable yesterday. Stock exchanges around the world have dropped in value. In the US stock markets fell by 0.1 to 0.5 per cent while European markets fell by over 1 percent. Also in Asia was stocks dropped throughout yesterday and the fall has been extended to the morning hours today. On Monday, Saudi officials indicated that they were willing to implement measures to bring the oil price down. Yesterday these signals were followed up by the country's oil minister, Ali Naimi, who at a conference in Doha said he did not find support for the current price level. Based on supply and demand Naimi meant that oil price is too high, a view we share with him. According to Naimi, Saudi Arabia has the capacity to produce 2.5 million barrels per day in addition to the 9.9 million which they expect to produce in April. Since yesterday, the movements in the oil price have been small in light of Naimis statements, and the oil price has fell by 0.5 percent to $124.5 per barrel. The small movements can probably imply that the markets instead are focusing on the Saudi spare capacity, which will fall significantly if they increase production further. Christine Lagarde said at a conference in Asia yesterday that the IMF considers the high oil price as the biggest downside risk for global growth. In another part of the world, namely Italy, concerns are tilted towards the domestic economy. GDP falls and the economy is in a recession. The conclusion for last years GDP growth was 0.2 percent, where growth fell in the last two quarters. Consensus for this year is that GDP will contract by 1.6 percent. The Prime Minister Mario Monti has previously presented plans which in time will improve the country's competitiveness. One such instrument is the reform of the labor market, and the change of the 40year-old Article 18. The article gives legal protection to workers who are dismissed by their employer for economic reasons. In addition, Monti wants to liberalize the country's rigid labor contracts which have protected the elderly by offering them lifetime contracts, while the younger workers have had to pay the cost in terms of the correspondingly little protection. This dual development has also contributed to the country's high youth unemployment, which is about 30 percent. The challenge to Monti now is to gain acceptance from the country's trade unions. According to Reuters, the country's largest union, the leftwing CGIL, have opposed the reforms. Susanna Camusso, leader of the CGIL, said yesterday that "We will mobilise, we will do everything necessary to counter the reform." If it turns out that Monti is not able to the reforms through, investors' confidence in the country may fall and interest rates on Italian government bonds again increase. The yield on ten-year bonds has fallen to about 4.8 percent this year. Inflation in the UK was 3.4 percent in February, down from 3.6 percent in January, but slightly higher than expected (3.3 per cent, according to Reuters). The decrease is slightly weaker than previously, and it appears that the impact from increased VAT and rising energy prices from last year are now abating in the current inflation data. Higher oil prices in February, however, did not prevent a further decline in inflation, which has fallen from 5.2 percent in September. The recent high oil prices could still contribute to inflation falling somewhat slower than Bank of England envisioned in the Inflation Report in February this year. The British central bank's target is for inflation to be 2 percent, but expects that inflation will fall below this target at the end of 2012. Low capacity utilization and rising unemployment suggests that wage and price pressures will decline going forward. In January, wage growth was 1 percent, indicating a decline in real wages of 2.6 percent. Today Statistics Norway will publish the Labour Force Survey for January (average DecemberFebruary). Last report showed that both employment and the labor force increased by 16'. Unemployment was 3.3 percent, which is the same as we are expecting now. A little later in the day Bank of England will publish minutes from the monetary policy meeting on 7-9 March, before we get to use housing sales from the US. The latter is expected to increase by 1.8 percent from January to February. ole.kjennerud@dnb.no As of Unit Yesterday's key economic events (GMT) 09:30 UK CPI Feb / % 12:30 USA Housing starts Feb Mn 12:30 USA Build permits Feb Mn As of Unit Todays key economic events (GMT) 09:00 Norway LFS unemployment Jan % 09:30 UK BoE Minutes from meeting on 7-9 March 14:00 USA Home sales Feb mill Prior 3.6 0.706 0.682 Prior 3.3 4.57 Poll 3.3 0.695 0.695 Poll Actual 3.4 0.698 0.717 DNB 3.3

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 9-Feb 2.60 2.40 2.20 2.00 29-Feb 20-Mar
EURSEK

3m ra.

Headquarters 0021 Oslo Stranden 21

+47 03000

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

4.61

Morning Report
21.03.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 135 125 115 105 9-Feb 29-Feb 96 94 92 90 20-Mar
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.22 1.21 0.86 0.85 0.84 1.21 0.83 0.82 1.20 9-Feb 29-Feb 20-Mar
GBP r.a CHF

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

Prior 83.72 1.323 0.834 1.206 7.625 8.916 7.435 5.767 6.894 0.857 9.146 6.743 8.064 1.170 10.692

Last 83.68 1.326 0.835 1.207 7.628 8.920 7.436 5.757 6.881 0.856 9.136 6.732 8.045 1.170 10.690

% 0.0% 0.2% 0.1% 0.1% 0.0% 0.0% 0.0% -0.2% -0.2% 0.0% -0.1% -0.2% -0.2% 0.0% 0.0%

In 1 m ...3 m 83 84 1.30 1.30 0.83 0.83 1.23 1.23 7.60 7.60 8.90 9.20 7.45 7.45 5.85 5.85 7.04 6.96 0.85 0.83 9.2 9.2 6.85 7.08 5.68 5.94 1.17 1.21 10.72 11.08

...6 m ...12 m 85 85 1.35 1.40 0.85 0.87 1.23 1.30 7.60 7.60 9.00 9.00 7.45 7.45 5.63 5.43 6.62 6.39 0.84 0.84 8.9 8.7 6.67 6.43 5.67 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 1.0508 0.9885 0.9104 18.44 5.6092 1.5881 7.7641 125.86 0.2786 2.6054 0.5260 0.8208 3.1143 1.2620 29.2250

% 0.26% -0.36% -0.16% -0.34% -0.26% 0.12% 0.01% -0.16% -0.10% -0.22% -0.25% 0.43% -0.16% -0.25% -0.13%

EURSEK & OMXS 9.0 8.9 8.8 8.7 9-Feb 550 500 450 400 350 29-Feb 20-Mar
OMXS ra. EURSEK

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

NIBOR Prior 1.93 2.32 2.65 2.81 2.91 3.25 3.52 3.75

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.95 2.01 2.03 0.38 2.34 2.30 2.31 0.74 2.64 2.50 2.51 1.10 2.82 2.60 2.61 1.29 2.90 2.13 2.12 1.30 3.24 2.35 2.33 1.72 2.55 2.07 3.52 2.56 3.75 2.74 2.73 2.43

Last 0.38 0.73 1.09 1.28 1.30 1.71 2.07 2.43

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.74 0.74 0.89 0.89 0.87 0.87 1.44 1.45 1.94 1.95 2.44 2.44

Gov. Bonds, 10y 2.25 2.00 1.75 1.50

NOK, ra.

3.00 2.50 2.00 1.50

SEK

10y 10y yield vs bund

NORWAY Prior Last 113.5 109.40 2.60 0.56 2.58 0.56

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 112.609 112.72 99.622 99.74 2.12 0.08 2.10 0.07 2.04 2.03

US Prior 96.8125 2.36 0.32

Last 96.94 2.36 0.33

9-Feb 29-Feb 20-Mar

13.5 13.0 12.5 12.0

JPY and DowJones

85 80 75

9-Feb

29-Feb 20-Mar
USDJPY ra. DowJones, 1000

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y s wap 3m stibor 10y swap 3m euribor 10y swap 2.30 3.50 2.15 2.75 0.80 2.50 3.75 2.10 2.75 0.80 2.75 2.45 2.60 4.25 2.00 3.00 0.80 3.25
% 0.04 - 0.08 0.12 - 0.20 - 0.0 Last 125.6 124.1 1656.8

US 3m libor 10y 0.50 0.50 0.50

swap 2.50 2.50 3.00

% -0.5% -0.1% -1.2% -1.2% -1.4% : -1.6% -1.6% -0.3%

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 9-Feb 29-Feb 20-Mar
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today JUN 2.26 2.26 0.00 NOK 95.40 SEP 2.27 2.27 0.00 SEK 118.15 DEC 2.34 2.34 0.00 EUR 105.05 MAR 2.42 2.42 0.00 USD 79.45 FRA SEK 3m Prior chg GBP 81.60 JUN 2.07 2.07 0.00 Comm. Today SEP 1.88 1.90 -0.02 Brent spot 125.6 DEC 1.85 1.87 -0.02 Brent 1m 124.2 MAR 1.89 1.89 0.00 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 13,170.2 Nasdaq 3,074.2 FTSE100 5,891.4 Eurostoxx50 2,576.6 Dax 7,054.9 Nikkei225 10,086.5 Oslo 429.08 Stockholm 505.62 Copenhagen 591.52

Morning Report
21.03.2012
IMPORTANT/DISCLAIMER This note (the Note) must be seen as marketing material and not as an investment recommendation within the meaning of the Norwegian 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 (the 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 assume 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), Monetary Authority of Singapore, the Chilean Superintendent of Banks, and on a limited basis by the Financial Services Authority of UK. Information about DNB Markets can be found at dnb.no. 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. Recipients of the Note should note that, by virtue of their status as accredited investors or expert investors, the Singapore branch of DNB Bank ASA will be exempt from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the FAA), the Financial Advisers Regulations and associated regulations there under. In particular, it will be exempt from: - Section 27 of the FAA (which requires that there must be a reasonable basis for recommendations when making recommendations on investments). 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. 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: This note (the Note) is a market letter, as the term is defined in NASD Rule 2211, and, thus, does not constitute a research report within the meaning of U.S. securities laws and regulations, including, without limitation, SEC Rule 15a-6, NASD Rule 2711 and Regulation AC.