Morning Report

06.01.2012

Will US pull EU up? Or EU drag US down?

3.40 3.20 3.00 2.80 2.60

The US economy continues to surprise positively. Thus, it is becoming more tempting to discuss also the upside scenarios, and not only repeat the list of possible downside risks. Lets take the good news first. According to the ADP report, US private sector employment rose by 325,000 in December, compared to 204,000 the preceding month and an expected 180,000. The rise is the largest in the series' twelve year history, and indicates that the payrolls figures this afternoon will also be strong. Historically, the actual private employment data have deviated on average by 60,000 from the ADP estimate. Also, the ADP does not include public employees, which the last six months has fallen by 20,000 a month. But even a fairly conservative estimate suggests that some 250,000 new jobs were created in December. We acknowledge that the ADP report overestimated considerably the payrolls data last December, but on average the deviation in December has not been larger than the overall deviation. In addition, a strong service-PMI (52.6 in December vs 52.0 in November) and a gradual decline in initial claims supports the view of an underlying improvement in the labor market. Then over to the not so good news. On Wednesday I wrote that the Germans should start spending. To no use, one could add. In November, German retail sales fell by 0.9%, and have thus remained unchanged since June. The numbers fit nicely with Wednesdays French consumption data which showed a decrease of 0.1% in November, and, yes, standstill since June. Manufacturing orders for the Eurozone as a whole rose by 1.8% in October, but was still 6% lower than in the second quarter. And we could of course go on. At the beginning of 2012, the US is probably cruising at a speed around 2%, while the Eurozone has come to a complete halt. Part of the upswing in the US reflects a reversal of the decline in activity last summer due to higher oil prices and the Japanese triple shock. But much is also due to improved fundamentals. The financial position of banks, households and businesses is significantly strengthened. Financial conditions are overall good. Enterprise investments are increasing. Homes are dirt cheap if measured against disposable income and borrowing rates. A turnaround in housing demand, home prices and home construction is probably not far away. After all, its 5-6 years since the correction in the housing market began. We now expect US GDP to grow by 2% this year, but may be surprised on the upside. Conversely, we expect a GDP drop of % this year in the Eurozone, due to tight budgets and a decline in private sector demand due to weak labour markets, tighter credit markets and a worsened outlook. Much of the risk also seems to be on the downside. If Italy should fail, and the currency union collapse, the downturn will be much worse. But the Eurozone only accounts for 15% of global GDP. Also, the US economic cycle historically leads the European cycle. If politicians manage to avert an Italian debt crisis, too large budget cuts in the US, a hard landing in China and higher oil prices due to more unrest in the Middle East, 2012 may well turn out to be a very enjoyable year. An enjoyable year is not priced into current interest rates. The yield on 5-year US inflation-protected government bonds (TIPS) is now minus %. The German government currently borrows for two years below 0.2%. In Norway, the ten-year government bond rate is fast approaching 2%, to its lowest level in at least 50 years. Rates are declining as international investors are seeking safe havens outside the Euro area. The ten-year swap rate has declined to 3.45%, also the lowest in at least 50 years. The market is currently expecting three-month interest rates to remain below 4% for the next ten years. This is modest in an economy that in real terms is expected to grow by 2% and in nominal terms twice as much. In the markets, the euro plunge continues. Since yesterday morning, the sound fell 1.4 cents (1.1%) against the USD, and noted now at 1.2780. And good numbers were not NOK to lift the ceiling on the stock exchange. Eurstoxx-50 fell 1.5%, S & P 500 fell 0.8%, and Asia, it continues into the morning hours. Have a nice weekend!. [email protected] Yesterday's key economic events (GMT) 07:00 Germany Retail sales 13:15 US ADP employment 15:00 US ISM services Todays key economic events (GMT) 09:00 Norway Retail sales 11:00 Germany Manufacturing orders 13:30 US Non-farm payrolls 13:30 US Unemployment As of Nov Dec Dec As of Nov Nov Ded Dec Unit m/m % 1000 Index Unit m/m % m/m % 1000 % Prior -0.2r 204 52.0 Prior 0.8 5.2 120 8.6 Poll 0.0 178 53.0 Poll -1.7 150 8.7 Actual -0.9 325 52.6 DNB -0.4

28-Nov 16-Dec 5-Jan

SEK & 3m STIBOR 9.4 9.2 9.0 8.8 28-Nov 16-Dec

2.80 2.75 2.70 2.65 2.60 5-Jan

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Morning Report
06.01.2012

SPOT RATES AND FORECASTS

100 98 96 94 5-Jan
$/b

EUR vs GBP & CHF 0.88 0.86 0.84 1.22 0.82 1.20 0.80 28-Nov 16-Dec 5-Jan 1.26 1.24
GBP r.a CHF

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

Prior 77.25 1.278 0.826 1.219 7.700 8.869 7.437 6.024 7.807 0.869 9.333 6.941 8.995 1.153 10.749

Las t 77.24 1.279 0.825 1.219 7.692 8.862 7.437 6.014 7.798 0.870 9.329 6.932 8.979 1.152 10.746

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

In 1 m ...3 m 80 80 1.30 1.30 0.84 0.84 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 6.00 6.00 7.50 7.50 0.85 0.86 9.3 9.3 7.08 7.00 5.66 5.60 1.18 1.17 10.95 10.83

...6 m ...12 m 80 90 1.25 1.25 0.82 0.82 1.23 1.30 7.70 7.70 9.00 9.00 7.45 7.45 6.16 6.16 7.70 6.84 0.86 0.86 9.4 9.4 7.20 7.20 5.76 6.48 1.17 1.17 10.98 10.98

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

USD 1.0246 1.0194 0.9539 20.23 5.8191 1.5500 7.7666 123.92 0.2793 2.7009 0.5469 0.7808 3.5242 1.2949 32.0807

% -0.08% -0.06% 0.04% -0.12% 0.01% 0.08% 0.01% 0.02% -0.08% -0.04% -0.02% 0.05% -0.17% 0.22% 0.08%

EURSEK & OMXS 9.4 9.2 9.0 8.8 28-Nov 16-Dec 500 450 400 350 5-Jan

OMXS ra. EURSEK

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

NIBOR Prior 2.37 2.81 3.11 3.28 2.75 3.02 3.25 3.45

SWAP AN D MONEYM AR KET RATES STIBOR EUR IBOR Las t Prior Last Prior 2.28 2.37 2.37 0.91 2.74 2.65 2.65 1.26 3.07 2.71 2.72 1.53 3.26 2.77 2.78 1.71 2.76 1.95 1.96 1.37 3.02 2.05 2.05 1.73 3.25 2.26 2.26 2.07 3.45 2.38 2.38 2.41

Last 0.89 1.24 1.52 1.70 1.38 1.74 2.09 2.41

USD LIBOR Prior 0.30 0.58 0.81 0.97 0.82 1.24 1.68 2.12

Last 0.30 0.58 0.81 0.97 0.83 1.26 1.71 2.12

Gov. Bonds, 10y 2.00 1.75 3.00 2.50

2.00 1.50 1.50 28-Nov 16-Dec 5-Jan

10y 10y yield vs bund

NORW AY Prior Las t 117.2 113.60 2.16 2.13 0.29 0.26

GOVERNM ENT BONDS SW EDEN GERMANY US Prior Last Prior Last Prior 117.169 117.17 101.191 101.18 100.03125 1.70 1.68 1.87 1.87 2.00 -0.17 -0.19 0.13

Last 100.11 2.00 0.13

13 12 11

JPY and DowJones

10 28-Nov

16-Dec

79 78 77 76 75 5-Jan

In 3m 6m 12m

INTEREST RATE FORECASTS NORW AY SW EDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.60 3.50 2.25 2.25 1.05 2.50 2.40 3.75 1.95 2.50 0.90 2.75 2.30 4.25 1.75 3.00 0.90 3.25

US 3m libor 10y s wap 0.55 2.25 0.55 2.50 0.50 3.00

USDJPY ra. DowJones, 1000

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 28-Nov 16-Dec 5-Jan
EURUSD ra. Gold

FRA NOK MAR JUN SEP DEC FRA SEK MAR JUN SEP DEC

3m 2.55 2.28 2.22 2.24 3m 2.36 1.96 1.74 1.70

Prior 2.54 2.26 2.20 2.23 Prior 2.37 1.96 1.74 1.71

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

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 96.24 - 0.06 Dow Jones 12,415.7 0.0% SEK 117.53 0.07 Nasdaq 2,669.9 0.8% EUR 101.29 - 0.03 FTSE100 5,624.3 -0.8% USD 80.94 0.04 Eurostoxx50 2,315.8 -1.5% GBP 81.50 Dax 6,096.0 -0.3% Comm. Today Last Nikkei225 8,390.4 0.0% Brent spot 114.7 114.7 Oslo 393.25 0.5% Brent 1m 112.6 112.7 Stockholm 459.59 -0.3% 1.4% Spot gold 1599.0 1599.0 Copenhagen 515.56 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
06.01.2012
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