Morning Report

20.06.2012

Market lifted by hope of measures

Monetary policy meetings are due in the US and in Norway today.

After disturbing signals from the German ZEW index and continued unrest in sovereign debt markets, equity markets gained and German bond yields rose yesterday due to increased hope of stimulating action on both sides of the Atlantic. Asian markets continues upwards today. In FX markets the euro has rebounded, against both the dollar and the pound. One of the hopes is associated with the Fed's monetary policy decision tonight. The central bank's growth forecasts are likely to be reduced after signs of slowdown recently. We might see a delay in plans of the first interest rate increase from 2014 to 2015, but the markets focus primarily on the possible extension of "Operation Twist", which is scheduled to end in June. Hopes of more quantitative easing in the UK are also rising, after inflation in May slid to 2.8 percent y/y in May, from 3.0 percent in April (consensus was 3.0 percent in May as well). The largest contributor to the decline was a 3.0 percent drop in gasoline prices from the previous month as well as a fall in food price inflation. Inflation is still above the target of 2 percent, as it has been since December 2009, but the trend has been decreasing rapidly since the peak of 5.2 percent in September. Thus, the Bank of England will have more leeway for another round of quantitative easing, as Governor Mervyn King hinted about last week. Minutes from the monetary policy meeting in early June will be released today, and may give further hints about the support of new measures among the board members. Europe must also deliver "something" very soon. In the final communiqu from the G20 meeting it was assured that Europe will take all necessary measures to safeguard the integrity and stability of the area, improve the functioning of financial markets and break the feedback loop between sovereigns and banks. It also stated that Europe will "take concrete steps towards a more integrated financial architecture, encompassing banking supervision, resolution and recapitalization, and deposit insurance. This will take time, and more immediate action should now be taken to reduce market turmoil. The situation is very difficult ahead of Spanish debt auctions (2, 3 and 5 -year bonds) tomorrow. Yesterday Spain had to pay a 5 percent interest rate to borrow money for one year, compared to 3 percent in May. In secondary markets the interest rate on 10-year Spanish government bonds edged down, but the level remains above 7 percent. Confidence plunges in Germany as a result of the euro crisis. The ZEW index, a confidence survey conducted among German experts, fell from 10.8 in May to -16.9 in June. This is the steepest decline since October 1998, and a far weaker outcome than was expected in advance. The current conditions index also fell more than expected (from 44.1 to 33.2), but the level remains above the historical average. Note that the ZEW index is quite unreliable as an indicator of economic growth in Germany and also quite volatile. It is widely expected that Norges Bank will keep its policy rate unchanged at 1.5 percent at today's meeting. The Monetary Policy Report, which will be published simultaneously, will contain an updated interest rate path that will receive more attention. The current path (from March) implies a flat interest rate until the summer of 2013. Since March it has become increasingly clear that the Norwegian economy needs a higher interest rate. Growth has been stronger, the labor market tighter and wage growth higher than Norges Bank had projected. On the other hand: Uncertainty in Europe is approaching the levels of November last year, and international interest rates have fallen markedly. This limits the scope of action of the central bank, which fears a sharp NOK appreciation that might come in the wake of a rate increase. So far this spring, the NOK has been weaker than the central bank expected, despite a widening interest rate differential. Norges Bank may assume that the turmoil in financial markets will decline as a result of action by European governments. Then the current interest rate scenario may indicate a 50 percent chance of hike in August. Today a new Greek government could be put in place. New Democracy is in the final stages of negotiations with PASOK and Democratic Left. [email protected] Yesterdays key economic events (GMT) 08:30 UK CPI 09:00 Germany ZEW index 12:00 USA Housing starts Todays key economic events (GMT) 07:15 Sweden CCI 08:30 UK Minutes, Boe meeting 12:00 Norway Interest rate decision 16:30 US Interest rate decision As of May Jun May As of Jun Jun Unit y/y % Index Mill Unit Index % % Prior 3.0 10.8 0.744 Prior 5.9 1.5 0.25 Poll 3.0 4.0 0.720 Poll 4.0 1.5 0.25 Actual 2.8 -16.9 0.708 DNB 6.5 1.5 0.25

10-May 30-May 19-Jun

SEK & 3m STIBOR 9.3 9.1 8.9 8.7

2.20

2.00
E URSEK

10-May 30-May 19-Jun

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

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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 Magne stnor 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 57 22 01 76 67

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

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

Morning Report
20.06.2012

SPOT RATES AND FORECASTS

96 94 92 90

10-May 30-May 19-Jun

1.20 1.20 1.20 1.20

EUR vs GBP & CHF 0.82 0.81 0.80 0.79

10-May 30-May 19-Jun

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

Prior 78.96 1.269 0.807 1.201 7.544 8.841 7.433 5.946 7.535 0.855 9.354 6.969 8.829 1.173 10.962

Last 78.91 1.268 0.806 1.201 7.541 8.846 7.434 5.948 7.542 0.854 9.356 6.981 8.847 1.174 10.979

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

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.60 7.50 9.10 9.00 7.45 7.45 6.18 5.77 7.72 6.87 0.84 0.83 9.6 9.0 7.40 6.92 5.92 5.82 1.20 1.20 11.52 10.84

...6 m ...12 m 85 85 1.35 1.40 0.85 0.87 1.20 1.30 7.50 7.60 9.00 9.00 7.45 7.45 5.56 5.43 6.54 6.39 0.83 0.84 8.8 8.7 6.67 6.43 5.67 5.46 1.20 1.18 10.59 10.34

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

USD 1.0190 1.0190 0.9475 20.04 5.8643 1.5730 7.7588 124.95 0.2797 2.7230 0.5504 0.7956 3.3442 1.2682 32.3675

% 0.00% 0.06% 0.07% -0.13% 0.06% 0.01% -0.01% 0.07% -0.09% -0.01% 0.13% -0.34% -0.20% 0.09% -0.07%

EURSEK & OMXS 9.3 9.1 8.9 8.7

500 450 400 350

10-May 30-May 19-Jun

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

NIBOR Prior 2.09 2.33 2.63 2.78 2.74 2.97 3.18 3.38

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.10 1.90 1.91 0.33 2.36 2.14 2.14 0.57 2.63 2.40 2.40 0.88 2.83 2.53 2.53 1.04 2.73 1.89 1.88 1.01 2.96 2.07 2.06 1.35 3.17 2.24 2.23 1.67 3.39 2.40 2.38 1.98

Last 0.33 0.57 0.87 1.04 0.98 1.34 1.65 1.96

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.74 0.74 0.91 0.91 0.62 0.63 0.98 0.97 1.36 1.35 1.77 1.77

Gov. Bonds, 10y 1.75 1.50 1.25 3.00 2.50 2.00

1.50 1.00 10-May 30-May 19-Jun

10y 10y yield vs bund

NORWAY Prior Last 117.6 99.55 2.06 2.05 0.55 0.51

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 118.16 118.18 101.996 101.99 1.52 1.52 1.51 1.53 0.01 -0.02

US Prior 101.1875 #VALUE!

Last 101.17 1.63 0.09

13.0 12.5

JPY and DowJones

81 79 77

12.0 75 10-May 30-May 19-Jun

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.50 3.50 2.10 2.75 0.65 2.50 2.45 3.75 2.05 2.75 0.65 2.75 2.75 4.25 2.15 3.00 0.65 3.25

US 3m libor 10y 0.50 0.50 0.50

swap 2.50 2.50 3.00

USD and gold 1670 1620 1570 1.30 1.25

1.20 1520 10-May 30-May 19-Jun

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % SEP 2.28 2.28 0.00 NOK 94.29 0.05 DEC 2.28 2.29 -0.01 SEK 117.62 0.18 MAR 2.28 2.30 -0.02 EUR 100.39 - 0.09 JUN 2.29 2.30 -0.01 USD 81.42 0.02 FRA SEK 3m Prior chg GBP 83.20 SEP 1.92 1.92 0.00 Comm. Today Last DEC 1.76 1.77 -0.01 Brent spot 95.4 95.4 MAR 1.71 1.70 0.01 Brent 1m 96.0 95.8 JUN 1.69 1.69 0.00 Spot gold 0.0 1625.5 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 12,837.3 Nasdaq 2,929.8 FTSE100 5,586.3 Eurostoxx50 Dax 6,363.4 Nikkei225 8,756.5 Oslo 396.02 Stockholm 472.18 Copenhagen 575.99

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