Morning report

Greek shock-move
01-Nov-2011
The European debt fear is back with a vengeance, after the news that Greece will arrange a referendum in January to approve the package agreed on last week. The Greek prime minister shocked markets when he announced in a speech to his party colleagues last night that there will be a referendum on the outcome of Thursday's rescue plan. Papandreou wishes for, and expects, the people's support. The market is far more pessimistic. According to Financial Times an opinion poll conducted on Sunday showed that 6 out of 10 Greeks are opposed to the plan, which entails severe cuts in jobs and pensions. The referendum will be held in January next year. At that time, the government will be about to run out of money again, after having received an 8 bn tranch in mid-November. Weak PMI readings from China, the global growth locomotive, are not helping to brighten investors' mood. The state index edged down from 51.2 in September to 50.4 in October, the lowest level since February 2009. The private index (often regarded as more reliable) shows a somewhat more positive momentum. It has recovered to 50.4, after having been slightly below 50 since July. With market unrest came the traditional safe haven effects: long-term US and German government bond yields fell, as did stock markets worldwide. The euro weakened, as did small, illiquid currencies like the Scandies. The developments during the night clearly show that the market forces trumps the effect of interventions from the Japanese authorities. Despite a massive sale of yen (according to a Japanese newspaper the amount spent is at record-high 10 000 bn) the Japanese currency has strengthened by 1.6% against the US dollar since yesterday morning. Mario Draghi took over as ECB governor yesterday, and will have his debut at Thursday's monetary policy meeting. Yesterday's European macro releases were an excellent illustration of (one of) ECB's current dilemmas: The combination of high inflation and a weak economic development. Inflation increased to 3.0% y/y in October (expected 2.9%). This was the 11th consecutive month of inflation above target in the euro zone. At the same time, unemployment climbed further, to 10.2% in September (expected 10.0%). The number of unemployed persons, 16.2 million, is the highest ever. The real economy clearly calls for a lower interest rate, but Draghi will surely find it difficult to start his carrier by cutting the rate in a situation where inflation is high and on the rise. Norges Bank surprised the market yesterday by announcing that the central bank's FX purchases for the Government's Pension Fund Abroad will be record-high in November. The daily purchases will amount to NOK 1 600 million. Government income from the oil sector compared to the amount needed to cover the budget deficit has clearly exceeded expectations. The NOK weakened immediately after the announcement. Norwegian retail sales fell by 0.7% m/m in September, which matches well with the marked drop in consumer confidence lately. Weak sales may imply that consumers want to step carefully in today's uncertain economic climate, despite solid income growth and low interest rate costs. We doubt that the prudence will show in today's house price release, where we expect a 0.8% m/m rise in October. Today's most important macro release is the US manufacturing ISM, which is expected to edge up from 51.6 in September to 52.0 in October. UK Q3 GDP will also be released today, and is expected to reveal that the British economy has recovered from the terribly weak 0.1% q/q in Q2 to still-weak 0.4% in Q3. The Norwegian and the Swedish PMIs are expected to fall slightly (to 53.0 and 47.0, respectively). kjersti.haugland@dnbnor.no Yesterday's key economic events (GMT) 08:00 Norway Norges Banks FX purchases 09:00 Norway Retail sales 10:00 EMU CPI, flash 01:00 China PMI (public) Todays key economic events (GMT) 08:00 Norway PMI 09:30 UK GDP 13:00 USA ISM, manufacturing As of Nov Sep Oct Oct As of Oct Q3 Oct Unit Mill. % y/y % index Unit index q/q % index Prior 550 1.7 3.0 51.2 Prior 54.8 0.1 51.6 Poll 0.2 2.9 51.6 Poll 53.7 0.4 52.2 Actual 1600 -0.7 3.0 50.4 DnB NOR 53.0

NOK & 3m NIBOR

8.00 7.80 7.60 7.40 21-Sep 11-Oct 3m ra. 3.20 3.10 3.00 2.90 31-Oct EURNOK

SEK & 3m STIBOR

9.4 9.3 9.2 9.1 9.0 8.9 21-Sep 2.60 2.55 2.50 2.45 31-Oct EURSEK

11-Oct

3m ra.
Headquarters 0021 Oslo Stranden 21 Offices Abroad New York London Shanghai Singapore Stockholm Sales Oslo (+47) Equity Fixed Income FX/IR Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund +47 03000

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850 22 94 89 40 22 01 78 20 22 01 76 50 55 75 69 61 52 61 38 22 51 77 73 33 73 21 55 39 05 72 27 07 01 84 62 58 37 84 95 87 41 14 09 32 28 76 04 96 74 13 60 80 60 50 69 06 27 62 50 30 80 89 00 09

Research Regional Sales (+47) Eirik Larsen 22 01 76 55 Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Maren Romstad Camilla Viland Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen 22 22 22 22 22 22 22 22 22 22 22 22 22 01 01 01 01 01 01 01 01 01 01 01 01 01 76 78 78 76 76 77 76 78 77 76 76 77 78 56 03 24 63 64 41 67 37 62 93 77 36 15

01-Nov-2011

Morning report

Oil spot & NOK TWI

120 115 110 105 100 21-Sep 11-Oct NOK TWI ra. 96 94 31-Oct $/b 100 98

SPOT RATES AND FORECASTS (Source: Reuters and DnB NOR Markets)
FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK Prior 78.21 1.386 0.862 1.216 7.701 9.016 7.441 5.556 7.105 0.855 8.931 6.507 8.320 1.172 10.459 Last 78.14 1.378 0.859 1.215 7.722 9.037 7.442 5.605 7.180 0.855 8.995 6.564 8.403 1.171 10.523 % -0.1% -0.6% -0.3% 0.0% 0.3% 0.2% 0.0% 0.9% 1.0% 0.0% 0.7% 0.9% 1.0% -0.1% 0.6% In 1 m ...3 m 80 80 1.40 1.35 0.88 0.86 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 5.57 6.96 0.85 8.9 6.57 5.26 1.18 10.45 5.78 7.22 0.86 9.1 6.74 5.39 1.17 10.58 ...6 m ...12 m 80 90 1.30 1.25 0.84 0.82 1.23 1.25 7.70 7.70 9.00 9.00 7.45 7.45 5.92 6.16 7.40 6.84 0.86 0.86 9.2 9.4 6.92 7.20 5.54 6.48 1.17 1.17 10.71 10.98 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 1.0401 1.0042 0.8825 18.10 5.4030 1.6035 7.7683 115.18 0.2754 2.5073 0.5115 0.8025 3.2275 1.2673 30.6795 % -1.30% 0.45% 0.55% 0.69% 0.61% -0.36% -0.01% 0.30% 0.04% 0.63% 0.63% -0.52% 1.65% 0.98% 1.48%

EUR vs GBP & CHF

1.25 1.20 1.15 1.10 21-Sep 11-Oct GBP r.a 0.89 0.88 0.87 0.86 0.85 31-Oct CHF

Gov. Bonds, 10y

2.25 2.00 1.75 1.50 21-Sep 11-Oct NOK, ra. 3.00 2.80 2.60 2.40 2.20 2.00 31-Oct SEK

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

JPY and DowJones

13 12 11 10 21-Sep 11-Oct USDJPY ra. DowJones, 1000 79 78 77 76 31-Oct

SWAP AND MONE YM ARKET RATES (Source: Reuters) NIBOR STIBOR EURIBOR Prior Last Prior Last Prior Las t 2.90 2.77 2.33 2.34 1.31 1.31 3.13 3.04 2.54 2.56 1.53 1.53 3.34 3.27 2.57 2.59 1.74 1.74 3.56 3.49 2.63 2.65 1.90 1.90 3.14 3.09 2.25 2.19 1.63 1.57 3.42 3.33 2.39 2.30 1.93 1.90 3.63 3.53 2.56 2.44 2.27 2.19 3.84 3.71 2.64 2.51 2.56 2.48 GOVE RNMENT BONDS (Source: Reuters) NORWAY SWEDEN GERMANY Prior 113.05 2.73 0.67 Last 108.65 2.71 0.84

USD LIBOR P rior 0.25 0.43 0.62 0.77 0.73 1.28 1.79 2.27 US

Last 0.25 0.43 0.62 0.77 0.72 1.29 1.80 2.28

10y 10y yield vs bund

2000 1900 1800 1700 1600 1500 21-Sep

USD and gold

In 3m 6m 12m
1.47 1.42 1.37

NORWAY 3m nibor 10y swap 3.15 4.25 3.15 4.50 3.35 4.50

Prior Last Prior Las t P rior Last 114.792 114.86 101.981 103.43 100.07813 100.13 1.95 1.93 2.06 1.87 2.12 2.12 -0.12 0.07 0.05 0.26 INTEREST RATE FORECASTS SWEDEN GERMANY US 3m s tibor 10y swap 3m euribor 10y swap 3m libor 10y swap 2.50 3.00 1.50 3.00 0.45 2.75 2.55 3.25 1.50 3.25 0.35 3.00 2.65 3.25 1.50 3.25 0.35 3.25

11-Oct

1.32 31-Oct Gold

EURUSD ra.

EURSEK & OMXS

9.4 9.2 9.0 8.8 21-Sep 11-Oct OMXS ra. 500 450 400 350 31-Oct EURSEK

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

3m 2.89 2.68 2.55 2.53 3m 2.52 2.17 2.06 2.01

Prior 2.93 2.71 2.60 2.58 Prior 2.54 2.21 2.11 2.06

chg -0.04 -0.03 -0.05 -0.05 chg -0.02 -0.04 -0.04 -0.06

TWI NOK SEK EUR USD GBP Comm. Brent spot Brent 1m Spot gold

Today 96.57 119.35 106.85 76.85 80.30 Today 109.0 108.7 1722.0

% 0.31 0.15 - 0.43 0.45 - 0.00 Last 109.0 109.6 1722.0

Stock ex. Today Dow Jones 11,955.0 Nasdaq 2,684.4 FTSE100 5,544.2 Eurostoxx50 2,385.2 Dax 6,141.3 Nikkei225 8,835.5 Oslo 384.22 Stockholm 452.53 475.19 Copenhagen

% -2.3% -1.9% -2.8% -3.1% -3.2% 0.0% -1.5% -3.2% -3.2%

Morning report
01-Nov-2011
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