Morning Report

25.07.2012

German manufacturing slows

NOK & 3m NIBOR 7.60 7.50 7.40 7.30 14-Jun 4-Jul 2.40 2.35 2.30 2.25 2.20 24-Jul
EURNOK

The German PMI index for manufacturing fell markedly in July and is now below the similar French. Today, the key IFO index is to be released, and is also expected to fall. The markets were weak yesterday, but not as bad as Monday. Stock markets fell both in Europe (Eurostoxx50 down 1.3%) and U.S. (S&P 500 down 0.9%). In Asia, the decline continued last night, with a fall of 1.7% so far for the Nikkei, despite the fact that Japanese exports fell less than expected (-2.3%) in June according to new figures. In the foreign exchange market there have only been minor changes since yesterday morning, but the euro has trended slightly weaker against the dollar. EURUSD is now trading at around 1.2080. The focus is still in Spain, which is facing ever higher interest rates, but still manages to raise money in the market. In yesterday's auctions of three-and six-month treasury bills brought the Spanish state for a total of about 3 billion euros. The demand was good, but the interest rate was clearly higher than at the previous auction in June. The interest rate on three-month loan was 2.43% while the rate for six-month loan ended up at 3.69%, up 50 and 40 basis points respectively since the last auction. The long-term government bond yields rose further on Tuesday and five-year interest rate is now higher than the ten-year interest rate. This is often interpreted as a signal of increased risk of default. The level of interest rates is now so high that this is not sustainable over time. How long Spain can live with the high interest rates, it is however difficult to be specific on. The problem is that interest rates may continue to rise rapidly, as was the case in the small crisis countries. In this case, the situation will become more acute and raise the need for a rescue package. If such a package should secure funding for two years, the need is estimated at around 300 billion euros. Since the banking package has already eaten 100 billion from the total capacity of the ESM, it will not be much left for other purposes. Yesterday's PMI index for the euro zone as a whole ended up roughly in line with expectations. The main index for the euro zone was unchanged at 46.4. Manufacturing index fell to 44.1 and pulled down, while the index for services increased to 47.6 and pulled up. Country-wise, there has been a clear deterioration for German industry in recent months. In July, fell the German industrial index during the French. This is worrisome for several reasons. German economy has long kept the pace up and prevented a more marked slowdown in the euro zone. In addition, the German industry a greater share of the economy than the manufacturing sector in the other countries. A marked slowdown of German industry will thus provide clear negative spillover effects to the rest of the countries in the euro zone. Also the service is the German index is now lower than the French, after the latter rose sharply in July. The French INSEE index fell from 91 to 90 - that is, as expected. It was especially the general production outlook that pulled down. The index is now about one standard deviation below its historical average. The indicator thus points in the direction of weaker production development in the future. Today the influential German IFO index is released, which is expected to fall from 105.3 in June to 104.8 in July. Yesterday the troika (ie ECB, EU and IMF) was once again back in Greece. The country has once again ended up missing the requirements, but this is related to the unclear political situation around the elections in May and June. Prime Minister Samaras said yesterday that he will continue with strong spending cuts. Nevertheless, the recession continues, and Samaras expects that GDP will fall by 7% this year and that there will be positive growth until about two years. The troika points out the lack of implementation of the necessary growth-promoting measures, such as privatization, a comprehensive tax reform and opening of closed markets. Samaras is scheduled to meet the leader of the troika on Friday. Yesterday's good news was that U.S. house prices rose 0.8% from April to May. The increase was thus almost as strong as the previous month (0.7%) and prices have gone up by 3.5% in the period from February to May. The figures suggest that prices are now rising again after the heavy bust through the crisis. This is important for private consumption in the United States, currently burdened by weak income growth for households. Today, the figures for sales of new homes are released. China is always first with the quarterly GDP figures, but the countries number two is the United Kingdom, which release their preliminary estimates today. After two quarters of decline, the UK economy is already technically in recession. It is expected, however, declined in the second quarter, this time by 0.2%. knut.magnussen@dnb.no Yesterday's key economic events (GMT) 07:58 EMU PMI, flash 14:00 USA House prices (FHFA) Todays key economic events (GMT) 08:00 Germany Ifo 08:30 UK GDP As of July May As of July Q2 Unit Index m/m, % Unit Index q/q, % Prior 46.4 0.7 Prior 105.3 -0.3 Poll 46.6 Poll 104.8 -0.2 Actual 46.4 0.8 DNB

3m ra.

SEK & 3m STIBOR 9.0 8.6 8.2 14-Jun 2.20 2.10 2.00 24-Jul
EURSEK

4-Jul

3m ra.

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

22 94 89 40 22 01 78 20

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
25.07.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 115 105 95 85 14-Jun 4-Jul 96 94 92 90 24-Jul
$/b

NOK TWI r a.

EUR vs GBP & CHF 0.82 1.20 1.20 0.80 1.20 0.78 1.20 0.76 1.20 14-Jun 4-Jul 24-Jul
GBP r.a CHF

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

Prior 78.20 1.206 0.778 1.201 7.379 8.420 7.439 6.118 7.825 0.878 9.487 6.982 8.933 1.143 10.824

Last 78.15 1.208 0.779 1.202 7.381 8.427 7.439 6.117 7.825 0.877 9.485 6.983 8.938 1.143 10.831

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

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.60 7.50 8.80 9.00 7.45 7.45 6.18 5.77 7.72 6.87 0.86 0.83 9.6 9.0 7.15 6.92 5.72 5.82 1.16 1.20 11.14 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 1.0230 1.0220 0.9950 21.21 6.1640 1.5512 7.7581 124.97 0.2828 2.8599 0.5770 0.7828 3.4924 1.2617 32.9434

% 0.06% -0.04% -0.12% 0.02% -0.09% 0.03% 0.00% -0.06% -0.02% -0.01% -0.09% -0.24% -0.22% -0.09% -0.04%

EURSEK & OMXS 8.9 8.7 8.5 8.3 14-Jun 4-Jul 550 500 450 400 350 24-Jul

OMXS ra. EURSEK

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

NIBOR Prior 1.92 2.24 2.49 2.61 2.36 2.60 2.84 3.09

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.92 1.87 1.87 0.12 2.23 2.08 2.08 0.32 2.47 2.33 2.33 0.62 2.60 2.44 2.43 0.81 2.36 1.64 1.65 0.75 2.60 1.77 1.77 1.06 1.95 1.40 2.84 1.95 3.10 2.12 2.12 1.76

Last 0.11 0.31 0.62 0.80 0.75 1.06 1.39 1.76

USD LIBOR Prior Last 0.25 0.24 0.45 0.45 0.73 0.73 0.90 0.90 0.51 0.51 0.79 0.79 1.12 1.14 1.54 1.53

Gov. Bonds, 10y 1.30 1.20 1.10 1.00 14-Jun 4-Jul 3.00 2.50 2.00 1.50 1.00 24-Jul
SEK

NORWAY Prior Last /A No Data 102.80 10y 10y yield 1.71 1.71 vs bund 0.47 0.49

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 120.74 120.84 104.67 104.84 103.28125 1.25 1.24 1.24 1.23 1.39 0.01 0.01 0.15

Last 103.33 1.39 0.16

NOK, ra.

13.0 12.5

JPY and DowJones

81 79

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.40 3.50 2.10 2.50 0.50 2.25 2.75 0.50 2.75 2.50 3.75 2.05 2.85 4.25 2.20 3.00 0.50 3.25

US 3m libor 10y swap 0.50 2.25 0.50 2.50 0.50 3.00

12.0 14-Jun

4-Jul

77 75 24-Jul

USDJPY ra. DowJones, 1000

USD and gold 1670 1620 1570 1520 14-Jun 4-Jul

EURUSD ra.

1.28 1.26 1.24 1.22 1.20 24-Jul

Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today SEP 2.09 2. 09 0.00 NOK 92.21 DEC 1.91 1. 91 0.00 SEK 112.50 MAR 1.91 1. 91 -0.01 EUR 96.35 JUN 1.92 1. 93 -0.01 USD 83.96 FRA SEK 3m Prior chg GBP 84.50 SEP 1.89 1. 89 -0.01 Comm. Today DEC 1.60 1. 60 0.01 Brent spot 104.3 MAR 1.50 1. 48 0.02 Brent 1m 103.2 JUN 1.47 1. 47 0.00 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% - 0.00 0.18 0.04 - 0.05 Last 104.3 103.4 1583.3

Stock ex. Today Dow Jones 12,617.3 Nasdaq 2,863.0 FTSE100 5,499.2 Eurostoxx50 2,151.5 Dax 6,390.4 Nikkei225 8,347.7 Oslo 411.45 Stockholm 481.13 Copenhagen 605.70

% -0.8% -0.9% -0.6% -1.3% -0.5% 0.0% -0.3% 0.0% 0.3%

IMPORTANT/DISCLAIMER This note (the Note) must be seen as marketing material and not as an investment recommendation within the meaning of the Norwegian Securities Trading Act of 2007 paragraph 3-10 and the Norwegian Securities Trading Regulation 2007/06/29 no. 876. The Note has been prepared by DNB Markets, a division of DNB Bank ASA, a Norwegian bank organized under the laws of the Kingdom of Norway (the Bank), for information purposes only. The Note shall not be used for any unlawful or unauthorized purposes. The Bank, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (individually, each a DNB Party; collectively, DNB Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Note. DNB Parties are not responsible for any errors or omissions, regardless of the cause, nor for the results obtained from the use of the Note, nor for the security or maintenance of any data input by the user. The Note is provided on an as is basis. DNB PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE NOTES FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE NOTE WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall DNB Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Note, even if advised of the possibility of such damages. Any opinions expressed herein reflect the Banks judgment at the time the Note was prepared and DNB Parties assume no obligation to update the Note in any form or format. The Note should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. No DNB Party is acting as fiduciary or investment advisor in connection with the dissemination of the Note. While the Note is based on information obtained from public sources that the Bank believes to be reliable, no DNB Party has performed an audit of, nor accepts any duty of due diligence or independent verification of, any information it receives. Confidentiality rules and internal rules restrict the exchange of information between different parts of the Bank and this may prevent employees of DNB Markets who are preparing the Note from utilizing or being aware of information available in DNB Markets/the Bank which may be relevant to the recipients of the Note. The Note is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. Distribution of material like the Note is in certain jurisdictions restricted by law. Persons in possession of the Note should seek further guidance regarding such restrictions before distributing the Note. The Note is for clients only, and not for publication, and has been prepared for information purposes only by DNB Markets - a division of DNB Bank ASA registered in Norway with registration number NO 984 851 006 (the Register of Business Enterprises) under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet), Monetary Authority of Singapore, the Chilean Superintendent of Banks, and on a limited basis by the Financial Services Authority of UK. Information about DNB Markets can be found at dnb.no. Additional information for clients in Singapore The Note has been distributed by the Singapore branch of DNB Bank ASA. It is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of any product referred to in the Note, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product. You have received a copy of the Note because you have been classified either as an accredited investor, an expert investor or as an institutional investor, as these terms have been defined under Singapores Financial Advisers Act (Cap. 110) (FAA) and/or the Financial Advisers Regulations (FAR). The Singapore branch of DNB Bank ASA is a financial adviser exempt from licensing under the FAA but is otherwise subject to the legal requirements of the FAA and of the FAR. By virtue of your status as an accredited investor or as an expert investor, the Singapore branch of DNB Bank ASA is, in respect of certain of its dealings with you or services rendered to you, exempt from having to comply with certain regulatory requirements of the FAA and FAR, including without limitation, sections 25, 27 and 36 of the FAA. Section 25 of the FAA requires a financial adviser to disclose material information concerning designated investment products which are recommended by the financial adviser to you as the client. Section 27 of the FAA requires a financial adviser to have a reasonable basis for making investment recommendations to you as the client. Section 36 of the FAA requires a financial adviser to include, within any circular or written communications in which he makes recommendations concerning securities, a statement of the nature of any interest which the financial adviser (and any person connected or associated with the financial adviser) might have in the securities. Please contact the Singapore branch of DNB Bank ASA at +65 6212 0753 in respect of any matters arising from, or in connection with, the Note. The Note is intended for and is to be circulated only to persons who are classified as an accredited investor, an expert investor or an institutional investor. If you are not an accredited investor, an expert investor or an institutional investor, please contact the Singapore branch of DNB Bank ASA at +65 6212 0753. We, the DNB group, our associates, officers and/or employees may have interests in any products referred to in the Note by acting in various roles including as distributor, holder of principal positions, adviser or lender. We, the DNB group, our associates, officers and/or employees may receive fees, brokerage or commissions for acting in those capacities. In addition, we, the DNB group, our associates, officers and/or employees may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in the Note. Additional Information, including for Recipients in the In the United States: The Note does not constitute an offer to sell or buy a security and does not include information, opinions, or recommendations with respect to securities of an issuer or an analysis of a security or an issuer; rather, it is a market letter, as the term is defined in NASD Rule 2211.