Morning Report

10.09.2012

Non-farm payrolls disappointed

NOK & 3m NIBOR 7.50 7.40 2.35 2.20 7.30 2.05 1.90 7.20 31-Jul 20-Aug 7-Sep
3m ra. EURNOK

U.S. employment rose by almost 100,000 in August, weaker than expected. The result was lower long term interest rates and a marked weakening of the dollar. Today Statistic Norway will release Norwegian inflation figures for August. U.S. employment rose by only 96,000 in August. It was expected an increase of 125,000 people, but a good ADP report had probably raised expectations further. In addition, the increase in June and July were revised down around 40,000 in total. A seemingly positive decline in the unemployment rate to 8.1% was caused by a large drop in the labor force. Hence this was no good news. The markets reacted negatively to the report and sent the long rates sharply down, while the dollar weakened against the euro. EURUSD was Friday traded at 1.2818 - the highest in almost four months, but the euro has fallen slightly over the weekend. There is little doubt that the U.S. labor market has weakened this year. Unemployment has leveled off at just over 8%, while employment from April to August increased by less than 100,000 per month on average. The trend is clearly related to sluggish growth in the economy, something Fed chief Bernanke addressed in his opening speech at the Jackson Hole conference recently. He also said that analysis indicated that the quantitative easing performed by the Fed so far has had a positive effect on economic growth. We therefore assume that the Fed will announce another round of quantitative easing (QE3) at the monetary policy meeting on Thursday. Norwegian industrial production continues to increase, despite the weak economic conditions in Europe and a strong NOK. Production rose by 0.3% from June to July, while it was a decline in the same order of magnitude was expected. Annual growth has now reached 7.6% - the highest growth rate since May 2007. The increase, which is not reflected in the PMI index, is probably driven by increased activity in the industry supplying the petroleum sector. Today, inflation figures for August are due. We expect core inflation to show a rise of 1.4% ie slightly more than in July. Consensus is 1.5%. Overall, inflation is expected to rise from 0.2% to 0.4%. In the aftermath of Norges Bank's monetary policy report in June, inflation has surprised on the downside and inflation expectations have fallen. If this trend continues, it points at a lowering of the interest rate path at the next monetary policy meeting on 31 October. Both Governor Olsen and his deputy Qvigstad will hold speeches on Thursday this week, but only figures will be published. The NOK strengthened brodaly, as did the SEK, on Friday. The gain was strongest vs the dollar (2.2%), while the NOK also gained vs sterling (2.0%), the yen (1.5%) and the euro (1.0%). German industrial production rose 1.3% in July. This was a good start to the third quarter. In addition, the decline in June, was revised from -0.9% to -0.4%. Despite a relatively marked decline of the ifo-index and the purchasing manager indices, production has not yet shown clear signs of decline. However, it is probably only a matter of time before we see that the weak performance of the major trading partners will have a negative effect on German production. One of the week's major events is the decision by the German Constitutional Court on the Fiscal Compact and ESM on Wednesday. We believe the court will conclude that both schemes are compatible with German law. It is also expected that the European Commission will present its plans for a new joint banking supervision governed by the ECB the same day. On Wednesday, there will be parliamentary elections in the Netherlands and Greeces coalition partners will try to reach agreement on new austerity measures as the demands of the troika are not met. British manufacturing rose at 3.2% from June to July. This must be seen in light of the decline of 2.5% in the previous month, due to the extra day off in conjunction with Queen Diamond Jubilee. The increase was, however, significantly higher than expected (2.0%) and manufacturing is likely to make a positive contribution to UK GDP in the third quarter. On the other hand, the PMI index for manufacturing is still weak, and suggests that the industry is still struggling. The pound weakened slightly against the euro on Friday. In China, a number of key figures for August were during the weekend. Most importantly, inflation rose from 1.8% in July to 2.0% in August. This was as expected, and the main contribution came from food prices. Inflation is still low and gives room for further stimulus to the economy. Investments increased by more than 20%, goods production rose almost 9%, retail sales increased by 13.2% and exports by 2.7%. Apart from exports, there are no strong signs of slower growth in these figures. knut.magnussen@dnb.no Yesterdays key economic events (GMT) 08:00 Norway Industrial production 12:30 USA Non-farm payrolls 12:30 USA Unemployment Todays key economic events (GMT) 09:30 Sweden Industrial production 10:00 Norway CPI 10:00 Norway CPI-ATE As of Jul Aug Aug As of Jul Aug Aug Unit m/m % m/m, 1000 % Unit y/y % y/y % y/y % Prior 0.8 163 8.3 Prior 1.1 0.2 1.3 Poll -0.3 125 8.3 Poll Actual 0.3 94 8.1 DNB 0.4 1.4

SEK & 3m STIBOR 2.20 8.8 2.00 8.6 1.80 8.4 1.60 8.2 1.40 8.0 31-Jul 20-Aug 7-Sep
3m ra. EURSEK

Headquarters 0021 Oslo Stranden 21

+47 03 000

Offices Abroad

New York London Singapore Stockholm Regional Sales (+47) Bergen Bod Fredrikstad Hamar Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

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

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Morning Report
10.09.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 85 31-Jul 94 93 92 91 90 7-Sep
$/b

20-Aug

NOK TWI r a.

EUR vs GBP & CHF 1.22 1.21 1.21 0.82 0.80 0.78

0.76 1.20 31-Jul 20-Aug 7-Sep

GBP r.a CHF

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

Prior 78.30 1.282 0.801 1.211 7.332 8.456 7.451 5.722 7.315 0.868 9.178 6.599 8.437 1.154 10.569

Last 78.28 1.278 0.799 1.209 7.336 8.475 7.452 5.740 7.334 0.866 9.182 6.630 8.474 1.156 10.607

% 0.0% -0.3% -0.2% -0.2% 0.1% 0.2% 0.0% 0.3% 0.3% -0.2% 0.1% 0.5% 0.4% 0.2% 0.4%

In 1 m ...3 m 80 76 1.23 1.15 0.79 0.76 1.20 1.20 7.30 7.20 8.30 8.40 7.45 7.45 5.93 6.26 7.42 8.24 0.88 0.86 9.2 9.5 6.75 7.30 5.40 5.55 1.14 1.17 10.51 11.05

...6 m ...12 m 76 78 1.15 1.20 0.78 0.80 1.20 1.20 7.30 7.40 8.50 8.50 7.45 7.45 6.35 6.17 8.35 7.91 0.86 0.87 9.4 9.3 7.39 7.08 5.62 5.53 1.16 1.15 10.90 10.63

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

USD 1.0356 0.9782 0.9454 19.25 5.8295 1.5997 7.7556 122.41 0.2820 2.7010 0.5451 0.8112 3.2094 1.2362 31.7560

% -0.30% -0.07% 0.10% 0.24% 0.24% -0.07% -0.01% 0.15% -0.01% 0.20% 0.29% -0.20% 0.33% 0.01% 0.27%

EURSEK & OMXS 8.7 8.5 8.3 8.1 31-Jul 20-Aug 575 500 425 350 7-Sep

OMXS ra. EURSEK

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

NIBOR Prior 1.82 2.01 2.28 2.39 2.38 2.66 2.96 3.29

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.81 1. 66 1.63 0.07 2.01 1. 77 1.75 0.17 2.27 1. 98 1.96 0.44 2.40 2. 09 2.06 0.59 2.38 1. 58 1.56 0.65 2.65 1. 75 1.76 1.04 2.96 1. 97 1.98 1.43 3.29 2. 18 2.19 1.86

Last 0.07 0.16 0.43 0.58 0.64 1.01 1.40 1.82

USD LIBOR Prior Last 0.23 0.23 0.41 0.41 0.70 0.69 0.86 0.86 0.48 0.48 0.81 0.81 1.26 1.24 1.77 1.74

Gov. Bonds, 10y 3.00 2.50 2.00 1.20 1.50 1.00 1.00 31-Jul 20-Aug 7-Sep 1.60 1.40
NOK, ra. SEK

NORWAY Prior Last 10y ot be found 99.00 10y yield 2.09 2.11 vs bund 0.51 0.60

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 118. 17 118.20 99.753 99.93 99.609375 1. 48 1.48 1.57 1.51 1.67 -0. 09 -0.03 0.10

Last 99.88 1.65 0.14

13.5 13.0

JPY and DowJones

81 79

12.5 12.0 31-Jul

20-Aug

77 75 7-Sep

In 3m 6m 12m

I NTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.10 3.25 1. 90 2.25 0.50 1.75 2.10 3.25 1. 90 2.25 0.50 1.75 2.15 3.50 1. 90 2.50 0.50 2.00
% - 0.16 0.03 - 0.18 0.17 - 0.0 Last 113.4 114.3 1728.0

US 3m libor 10y swap 0.45 1.75 0.45 1.75 0.45 2.25

% 0.1% 0.0% 0.3% 0.5% 0.7% 0.0% 0.4% 1.3% -0.5%

USDJPY ra. DowJones, 1000

USD and gold 1820 1720 1620 1520

EURUSD ra.

1.32 1.28 1.24 1.20

Gold

31-Jul 20-Aug 7-Sep

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today SEP 2. 04 2. 04 0.00 NOK 91.75 DEC 1. 97 1. 96 0.01 SEK 112.78 MAR 1. 94 1. 94 0.00 EUR 100.12 JUN 1. 96 1. 97 -0.01 USD 80.31 FRA SEK 3m Prior chg GBP 84.10 SEP 1. 73 1. 72 0.01 Comm. Today DEC 1. 58 1. 58 -0.01 Brent spot 113.4 MAR 1. 47 1. 46 0.01 Brent 1m 114.4 JUN 1. 45 1. 43 0.02 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 13,306.6 Nasdaq 3,136.4 FTSE100 5,794.8 Eurostoxx50 2,538.6 Dax 7,214.5 Nikkei225 8,869.4 Oslo 444.86 Stockholm 504.02 Copenhagen 648.36

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