Morning Report

02.03.2012

Global recovery slows in February

2.90 2.60 2.30

American industry experienced - like most other industrialized countries - slower growth in February than in January. Norwegian manufacturers are an exception. Positive news from the US labour market and prolonged effects of Wednesday's LTRO-allocation contributed to lifting most global stock markets yesterday, and Asian markets have continued up during the night. Long "safe" government bond yields have pulled up, while Italian 10-year yields have dipped below 5 per cent. The dollar has strengthened at the expense of the yen, the euro and the pound. Oil prices have risen by a further 2 USD from yesterday morning to 127 USD/barrel, but has touched 129 dollars at times. This has contributed to a further strengthening of the Norwegian krone. The krone also strengthened immediately on the news that Norwegian manufacturing PMI rose further in February, by 2.2 points to 56.9. Consensus was for a slight decline, after the record-strong leap in January. The strong reading is due to high activity on the Norwegian continental shelf, which pulls up the growth pace of the Norwegian economy at the moment. Oil companies' investment plans were reported yesterday, and investments are expected to be NOK 186 billion this year, which is 20.9 billion 27 per cent - more than last year. Our investment volume estimate of just below 20 per cent thus stands on firm ground. Unemployment remained unchanged at a low level in February, after the biggest drop in six years the previous month. The rise in house prices took a break in February after a sharp rise the previous month, but activity in the housing market remains high. We expect today's January retail sales release to show an increase of 0.5 per cent m/m, after dropping by 0.3 per cent in Decemer. So what about the future developments of the NOK? In sum, our monthly scorecard on EURNOK, which includes the traditional drivers, is pointing towards a neutral development. Our expectations for the Norwegian and international economy are presently close to consensus. The interest rate differential between Norway and the euro zone has increased to about 1.70 percentage points, but is not expected to increase further. A low risk premium for the NOK at the moment points to a stronger NOK, but net purchases by foreign investors is already so high that it - in our eyes limits how much it can drive the NOK even stronger. Our expectations of a decline in the oil price to 100 USD/barrel in Q2 points to weaker NOK. The oil price has been a dominant theme during February. Its correlation with the NOK has been high and rising correlation. At the same time the correlation between the interest rate differential and the NOK has been virtually absent. We believe that oil will continue to be a dominant theme, which explains why we expect EURNOK to reach 7.75 this spring. Investors chose to emphasize the good news from the US economy yesterday: Initial claims remained at around 350 ', a pre-crisis level consistent with a further decline in unemployment. Other news was more discouraging. Manufacturing ISM fell (as did the UK and Swedish PMI indices yesterday) with 0.7 p to 52.4 in February. Regional indices had pointed to a further rise in the national index, which is an important indicator of the state of the US economy. The drop was far from dramatic though, and the level remains high enough to indicate a GDP growth of 3 per cent, the same as in Q4 2011. At that time, strong consumption growth in the early autumn was the main contributor. By the end of 2011, however, consumption growth had completely gone disappeared. Yesterday's private consumption release showed that real consumption growth remained flat in January. Income growth was also slightly weaker than expected. We do expect both income and consumption to pick up ahead, due to positive signals from consumer confidence indicators as well as labour statistics. Yesterday's figures from Europe were not encouraging. Unemployment rose from 10.6 per cent in December to 10.7 per cent in January (expected 10.4 per cent). It rose in all countries, including Germany (although the German level of 5.8 per cent is significantly lower than in other countries). 16.9 million unemployed euro area residents is the highest amount ever. Inflation rose to 2.7 per cent y/y in February, as expected and probably due to the rise in oil prices. In Brussels, euro zone finance ministers are gathered. They have decided that 71.5 billion euros of the 130 billion bail-out plan will be withheld until the Greeks have presented evidence that the tightening and reform measures are being implemented. The payout is still large enough to secure that the debt swap can take place as planned. [email protected] Yesterday's key economic events (GMT) 08:00 Norway PMI 09:00 Norway Gross unemployment 15:00 US ISM, manufacturing Todays key economic events (GMT) 09:00 Norway Retail sales As of Feb Feb Feb As of Jan Unit Index 1000 Index Unit % m/m Prior Poll 54.7 53.8 81.6 53.1 54.5 Prior Poll -0.3 0.3 Actual 56.9 82.3 52.4 DNB 0.5

23-Jan 10-Feb 1-Mar

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 23-Jan 10-Feb

2.70 2.60 2.50 2.40 2.30 1-Mar

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

55 21 95 80 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
02.03.2012

SPOT RATES AND FORECASTS

102 100 98 96 94 92 1-Mar

EUR vs GBP & CHF 1.25 1.20 1.15 1.10

0.87 0.85 0.83 0.81

23-Jan 10-Feb 1-Mar

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

Prior 81.08 1.331 0.835 1.206 7.425 8.816 7.434 5.577 6.882 0.843 8.902 6.624 8.173 1.189 10.570

Last 81.63 1.327 0.834 1.206 7.439 8.828 7.434 5.603 6.867 0.843 8.928 6.655 8.153 1.187 10.600

% 0.7% -0.3% -0.1% 0.0% 0.2% 0.1% 0.0% 0.5% -0.2% 0.1% 0.3% 0.5% -0.2% -0.1% 0.3%

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 1.0769 0.9876 0.9089 18.69 5.6014 1.5930 7.7572 125.85 0.2782 2.6022 0.5267 0.8355 3.0973 1.2503 29.3340

% -0.32% 0.14% 0.31% 0.44% 0.29% -0.16% 0.02% 0.24% 0.11% 0.32% 0.32% -0.48% 0.41% 0.07% 0.37%

EURSEK & OMXS 9.0 8.9 8.8 8.7 23-Jan 10-Feb

550 500 450 400 350 1-Mar

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

NIB OR Prior 2.21 2.60 2.93 3.13 2.90 3.18 3.40 3.62

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.23 2.04 2.03 0.49 2.63 2.35 2.35 0.90 2.91 2.53 2.53 1.24 3.12 2.65 2.64 1.43 2.91 2.02 2.01 1.19 3.18 2.19 2.18 1.56 3.40 2.40 2.38 1.92 3.61 2.58 2.56 2.27

Last 0.48 0.88 1.23 1.42 1.19 1.55 1.92 2.27

USD LIBOR Prior 0.24 0.48 0.75 0.89 0.68 1.14 1.64 2.11

Last 0.24 0.48 0.75 0.89 0.70 1.16 1.62 2.11

Gov. Bonds, 10y 2.00 1.75 1.50

3.00 2.50 2.00 1.50

23-Jan 10-Feb 1-Mar

10y 10y yield vs bund

NORWAY Prior Last 115 111.45 2.34 2.35 0.49 0.51

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 114.471 114.60 101.122 101.38 99.734375 1.93 1.92 1.85 1.85 2.03 0.08 0.07 0.18

Last 99.77 2.04 0.19

JPY and DowJones 82 14 81 13 80 79 12 78 77 11 76 10 75 23-Jan 10-Feb 1-Mar

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY 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 swap 0.50 2.25 0.50 2.50 0.50 3.00

USD and gold 1.42 1900 1.38 1800 1.34 1700 1.30 1600 1.26 1500 23-Jan 10-Feb 1-Mar
EURUSD ra. Gold

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

3m 2.58 2.39 2.38 2.41 3m 2.30 2.01 1.82 1.76

Prior 2.59 2.41 2.40 2.41 Prior 2.30 2.01 1.82 1.78

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

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 93.02 0.18 Dow Jones 12,980.3 0.2% SEK 116.99 0.19 Nasdaq 2,989.0 0.7% 104.49 - 0.09 FTSE100 5,931.3 1.0% EUR USD 79.05 0.34 Eurostoxx50 2,548.7 1.5% GBP 81.50 0.1 Dax 6,941.8 1.2% Comm. Today Last Nikkei225 9,777.0 0.0% Brent spot 127.4 127.4 Oslo 428.37 -0.3% Brent 1m 125.2 126.2 Stockholm 505.14 0.2% 0.7% Spot gold 0.0 1714.0 Copenhagen 590.92 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
02.03.2012
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