Morning Report

14.03.2013

Rate Decision in Norway

Norges Bank had a monetary policy meeting yesterday, but the announcement comes at 09:00 GMT. We expect, like virtually everyone else, unchanged policy rate now. We also expect that the interest rate path is adjusted downwards. The S&P500 index fell just after opening but recovered gradually during yesterday and closed up 0.1 percent. DJIA rose very marginally, but had its ninth straight day of recovery. In currency markets, the Euro fell back 0.7 per cent against the dollar and the Norwegian and Swedish krona weakened against the euro, respectively 0.2 and 0.7 per cent. It seems that investors are a little cautious with NOK position before the announcement from Norges Bank.

Today at. 09:00 GMT Norges Bank holds press conference where it will present the interest rate decision and expectations of interest rate developments. The monetary policy meeting was held 2.8 150 yesterday. In a Bloomberg survey, none of the sixteen respondents expect interest rate change now. In 2.6 100 the market, prices indicate unchanged rates until the summer of next year. Also we expect that Norges 2.4 2.2 50 Bank keeps key rate at rest now. We expect the new interest rate path that the Bank presents to be 2.0 lower than the last. There are reasons to expect that the Bank will adjust downwards the growth 1.8 0 estimates internationally, particularly for the Euro zone, the UK and Sweden. This suggests weaker 14-Feb 28-Feb 14-Mar demand for Norwegian goods and services and lower inflation impulses. The domestic growth has rente Diff(bp,rha) been slightly lower than Norges Bank projected in October last year, and capacity utilization has declined rather than increasing as Norges Bank thought. These are factors that mitigate future inflation impulses, and dampen the basis for interest rate increases. Tighter credit conditions and increased Headquarter +47 03000 capital requirements for banks contribute to higher lending rates to the public and subdued loan Dronning Eufemias gate 30 0191 Oslo growth. In isolation, it is an argument for a lower interest rate. We believe these factors will weigh heavily in the preparation of the new interest rate path. Moreover, inflation has been slightly lower Offices Abroad than projected in October and the NOK has at times been significant stronger. It is still the main picture New York + 1 212 681 2550 London +44 207 283 0050 that inflation has largely been between 1 and 1 per cent and not tended any way other than Singapore +65 6220 6144 forecasted. The NOK has also declined slightly in the past and is close to the Norges Bank assumption Stockholm +46 84 73 48 50 for the quarter. It is difficult to find factors that would indicate a higher interest rate path. The Sales Oslo (+47) markets forward interest rates, both at home and abroad, are little changed since October. The Equity 22 94 89 40 increases in existing home prices and household credit growth have been steady. In the current interest Fixed Income 24 16 90 30 rate scenario it is already taken into account the risks to financial stability arising from developments in Regional Sales (+47) house prices and debt. At the press conference, Norges Bank will present a new monetary policy Bergen 56 13 27 20 Bod 75 52 99 10 report. New in the sense that the reviews, figures and estimates are new, but also because the report Fredrikstad 69 39 41 50 will now include both monetary policy report and the report on financial stability. Traditionally, Norges Hamar 62 54 14 82 Bank has reported and discussed monetary policy and financial stability developments in separate Lillehammer 61 24 79 56 Kristiansand 38 14 61 64 reports. But as Norges Bank writes: "The financial crisis demonstrated clearly that developments in the Oslo 24 16 90 80 real economy and financial markets are closely interwoven." Norges Bank has therefore found it Stavanger 51 84 04 30 Troms 77 62 96 80 appropriate to merge the reports. Moreover, the new report will form a decision basis for monetary Trondheim 73 87 49 73 policy and advice on countercyclical capital buffers for banks. Currently there are no regulations for this Tnsberg 33 01 73 80 lesund 70 11 69 85 new buffer in place, but we expect Norges Bank provides an indication of how such an advice will look. It will also be interesting to see Norges Bank's own assessments of bank lending interest rates as a Private Clients 24 16 90 90 result of changes in capital requirements, if such forecasts will be provided.
Norsk 10y sov.
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 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

In the U.S., February retail sales rose by 1.1 per cent from the month before. It was the highest growth rate since September. If cars, gasoline and building materials are excluded, the increase was 0.4 per cent. It thus seems as if consumption remains high, despite tax increases from the New Year and higher gasoline prices. Car sales contributed positively. After a relatively long period of low car sales, it seems now that the household pent-up demand is coming through. An improvement in the labor market and rising housing and stock prices elevates mood among U.S. households and contribute to funding ability. In the euro zone, we got however disappointing numbers. Industrial production ex. construction fell 0.4 per cent from December to January, versus an expected fall of 0.1 per cent (Reuters). The decline came after strong growth in December, and this growth was revised up slightly. Thus the annual growth came out better than expected. Production has fallen in four of the last five months and the trend is clearly negative. PMI under 50 indicates that the decline may continue, which point to a fall in GDP in the first quarter. In this case, GDP has declined for six consecutive quarters. [email protected] Yesterdays key economic events (GMT) 10:00 EMU Industrial Production 12:30 US Retail sales 12:30 US Retail sales ex autos Todays key economic events (GMT) 08:30 Sweden Unemployment 09:00 Norway Key policy rate 12:30 USA PPI x food/energy As of Jan Feb Feb As of Feb Feb Unit m/m % m/m% m/m% Unit % ua. % % m/m % Prior 0.7 0.1 0.2 Prior 8.4 1.5 0.2 Poll -0.1 0.3 0.3 Poll 8.4 1.5 0.2 Actual -0.4 1.1 1.0 DNB 8.4 1.5

Morning Report
14.03.2013

3m LIBOR
0.20 0.15 0.10 0.05 0.00 14-Feb
EUR

28-Feb

0.30 0.29 0.29 0.28 0.28 0.27 14-Mar

NOK & 3m NIBOR 7.60 1.95 7.50 1.90 7.40 1.85 7.30 1.80 7.20 1.75 14-Feb 28-Feb 14-Mar
EURNOK 3m(rha)

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 95.70 1.3042 0.8730 7.4583 8.2668 1.2342 7.4331 5.7007 5.96 90.00 99.66 8.515 6.024

Today 96.41 1.2965 0.8672 7.4580 8.3332 1.2352 7.4537 5.7476 5.96 89.44 99.91 8.595 6.035

Spot rates and forecasts In 1m Jun-13 Sep-13 Mar-14 FX 0700 0.7 95 92 94 97 AUD -0.6 1.30 1.32 1.34 1.37 CAD -0.7 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.8 8.40 8.45 8.45 8.60 RUB 0.1 1.22 1.22 1.25 1.27 GBP 0.3 7.40 7.30 7.35 7.40 HKD 0.8 5.69 5.53 5.49 5.40 KWD 0.1 5.99 6.01 5.84 5.57 LTL -0.6 88.1 86.4 87.0 86.0 LVL 0.3 99.3 98.0 98.7 99.3 NZD 0.9 8.71 8.59 8.55 8.51 SEK 0.2 606.56 598.36 588.00 582.68 SGD

USD NOK 1.036 5.956 1.026 5.599 0.953 603.263 19.726 29.133 30.789 18.665 1.495 8.594 7.757 0.741 0.285 20.197 2.663 2.158 0.541 10.624 0.819 4.704 6.427 89.416 1.250 4.599

US dollar

5.8 5.6 5.4 5.2 14-Feb

1.35 1.30
28-Feb

1.25 14-Mar
EURUSD(rha)

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

Prior 1.75 1.84 1.95 2.20 2.20 2.54 2.90 3.24

Last 1.78 1.84 1.96 2.19 2.18 2.52 2.87 3.23

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

Prior 1.17 1.25 1.32 #N/A 1.57 1.86 2.12 2.39

Interest rates Last USD 1.17 1m 1.25 3m 1.32 6m #N/A 12m 1.57 3y 1.86 5y 2.13 7y 2.39 10y

Prior 0.20 0.28 0.45 0.73 0.53 0.99 1.49 2.08

Last 0.20 0.28 0.44 0.73 0.53 0.99 1.49 2.08

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

Prior 0.06 0.13 0.23 0.43 0.57 0.92 1.29 1.74

Last 0.06 0.13 0.23 0.43 0.57 0.92 1.29 1.74

USDNOK

Japanese yen

100.0 95.0
90.0

7.0 6.0
28-Feb

Norw ay Prior NST475 97.11 10y yld 2.32 - US spread 0.31 3m nibor 1.85 1.85 1.85

85.0 14-Feb
USDJ PY

5.0 14-Mar
JPYNOK(rha)

Norw ay Jun-13 Sep-13 Mar-14

Governm ent bonds Last SEK Prior Last US Prior 97.25 10y 112.98 112.69 10y 99.88 2.31 10y yld 1.95 1.98 10y yld 2.01 0.25 - US spread -0.07 -0.08 30y yld 3.21 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 Jun-13 Sep-13 Mar-14 1.20 1.20 1.20 2.25 2.25 2.50 Jun-13 Sep-13 Mar-14 0.35 0.35 0.35

Last Germany Prior Last 99.52 10y 100.16 100.00 2.05 10y yld 1.48 1.50 3.25 - US spread -0.53 -0.55 10y sw ap 2.00 2.00 2.25 3m euribor 0.25 0.25 0.25 10y sw ap 1.75 1.75 2.00

Germany Jun-13 Sep-13 Mar-14

SEKNOK & CHFNOK 91 90 89 88 87 86 85 84 83 14-Feb 28-Feb

6.2 6.1 6.0 5.9 14-Mar

Equities 14700 14200 13700 13200 12700 12200 14-Feb 28-Feb

485 480 475 470 465 460 14-Mar

NOK sov. NST19 NST20 NST21 NST471 NST472 NST473 NST475 NST475 NOK FRA MAR JUN SEP DEC

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 2.24 2.27 2 19.06.2013 0.27 Last 91.58 91.40 2.40 2.42 1 18.09.2013 0.52 Oil price: (Ldn,cl) 1m 1.69 1.66 -2 18.12.2013 0.76 SPOT 107.75 108.77 1.37 1.36 -1 15.05.2015 2.17 Gold price 13.03.2013 PM 1.57 1.54 -2 19.05.2017 4.18 AM: 1594.0 1589.3 1.81 1.78 -2 22.05.2019 6.19 Equities Today 0700 % last 2.32 2.31 -2 24.05.2023 10.20 Dow Jones 14455.28 0.0% 2.32 2.31 -2 24.05.2023 10.20 Nasdaq C. 3245.12 0.1% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6510.62 -0.4% 1.88 2.00 1m 1.78 1.78 Eurostoxx50 2711.85 -0.3% 1.87 1.98 3m 1.90 1.84 DAX 7966.12 -0.2% 1.86 1.99 6m 2.02 1.96 Nikkei 225 12381.19 1.2% 1.88 2.03 12m 2.25 2.19 OSEBX 478.51 0.3% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
14.03.2013
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