Morning Report

20.08.2012

Merkels support to ECB lifts markets

NOK & 3m NIBOR 7.60 7.50 7.40 7.30 7.20
3m ra.

2.40 2.30 2.20 2.10 2.00

EURNOK

Merkel support to the ECB's plan to save the euro zone helped improve sentiment in the market, also on Friday. Der Spiegel wrote yesterday that the ECB is considering putting a ceiling on interest rates in the countries applying for assistance. Optimism rises among U.S. households. Rising stock markets, signs of accelerating employment growth, low mortgage rates and retail sales contributed to the University of Michigan's consumer confidence index rising from 72.3 in July to 73.6 in August, its highest level in three months. Higher gasoline prices are pulling the index down. The level is still lower than it was at the beginning of the year, and under its long-term average. An increase in equity markets would normally have led to the sub-index for the economic outlook being pulled up, but this was not the case this time. It was the assessment of the current situation that contributed to a rise in the index. Higher gasoline prices and fears that the drought in the U.S. will contribute to higher food prices meant that inflation expectations one year ahead, rose 0.6 percentage points, from 3.0% in July to 3.6% in August. Also the long-term inflation expectations 5 to 10 years ahead rose from 2.7% to 3.0%. Another indicator of future growth, the Conference Board's leading indicator, showed an increase. From June to July, the index rose by 0.4% to 95.8, after falling by the same amount from May to June. Despite the increase, the level indicates moderate growth in the second half. The fall in housing prices in China seems to be coming to an end. The price for both new and existing homes rose 0.1% from June to July. While prices for existing units declined in 20 out of 70 measured cities, prices fell in only 9 of the 70 cities for new homes. The latter was down from 21 cities in June. Continued weak demand and many vacant homes means we are still expecting stable housing prices in the next few months. Der Spiegel wrote yesterday that the ECB is considering putting a ceiling on interest rates to the vulnerable countries in the euro zone that seeks assistance. This should, according to Der Spiegel, be settled at the ECB monetary policy meeting in early September. If the market is confident that the ECB always will buy when interest rates rise above a certain level which is known in the market, ECB will most likely have to buy less to have the desired effect. The purchases of government securities will be published immediately in the market, and not several days after as has been the case on previous occasions where the ECB has bought government securities. Chancellor Merkels support on Thursday to the ECB's plan to set demands on national budgets if the ECB should be able to provide support purchases of government securities, contributed to positive sentiment in markets also on Friday. Stock markets in Europe and the U.S. rose, and European markets closed at its highest level in 13 months after the biggest weekly rise in seven years. S&P was near the highest levels in four years, after Apple shares soared to record levels. This morning, Asian stock markets opened down after the house price figures from China made investors take profit in housing stocks. The euro continued to strengthen in the early hours on the back of Merkel's statements, but better figures from the U.S. than expected contributed to a reversal of the trend later in the day, and EURUSD is virtually unchanged since Friday morning. Also the Swedish and Norwegian krone weakened early in the day after an article in the Wall Street Journal pointed out that the likelihood of an interest rate cut in both countries had increased after the recent appreciation of the exchange rates. But the krone and the krona reached levels seen as attractive for new short positions against the euro, which made both the Swedish and Norwegian kroner appreciate since Friday morning. Today we get the monthly activity index from the Chicago Fed. The next day comes order numbers for August from the UK, as well as retail figures from the previous week from the U.S. Wednesday, the LFS unemployment from Norway and trade figures from Japan will be published. From the United States on the same day we get the minutes of the Fed's monetary policy meeting in July / August and the number of existing home sales in July. In addition, DNB Markets publishes the "Economic Outlook" with new macro, interest rate and currency forecasts. On Thursday SSB puts forward GDP figures for the 2 quarter in Norway. We expect that the growth rate will remain unchanged from 1 quarter of 1.2% k / k There will also be published flash PMI's from a number of countries for the manufacturing and service sectors comes on Thursday. On the last day of the week we get revised GDP figures for the 2nd quarter in the UK, and the order numbers for July from the U.S. magne.ostnor@dnb.no

10-Jul 30-Jul 17-Aug

SEK & 3m STIBOR 9.0 8.6 8.2 10-Jul

3m ra.

2.20 2.10 2.00 30-Jul 17-Aug

EURSEK

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

Yesterday's key economic events (GMT) 07:30 Sweden Capacity utilization 08:00 Norway Construction statistics 13:55 US Michigan confidence Todays key economic events (GMT) 12:30 US Chicago Fed

As of Q2 Q2 Aug As of Jul

Unit % Index Unit Index

Prior 0.7 72.3 Prior -0.2

Poll

Actual 0.0 73.6 DNB

72.4 Poll

Morning Report
20.08.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 85 10-Jul 30-Jul
NOK TWI ra.

94 93 92 91 90 17-Aug
$/b

EUR vs GBP & CHF 1.20 1.20 1.20 1.20

GBP r.a

0.80 0.79 0.78 0.77 0.76

CHF

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

Prior 79.59 1.234 0.786 1.201 7.299 8.231 7.445 5.917 7.441 0.889 9.294 6.671 8.385 1.129 10.464

Last 79.52 1.234 0.786 1.201 7.291 8.224 7.445 5.912 7.437 0.887 9.282 6.675 8.400 1.128 10.469

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

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.35 7.50 8.40 9.00 7.45 7.45 5.98 5.77 7.47 6.87 0.88 0.83 9.3 9.0 6.83 6.92 5.46 5.82 1.14 1.20 10.63 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 1.0451 0.9891 0.9740 20.29 6.0390 1.5696 7.7569 119.93 0.2830 2.7998 0.5650 0.8091 3.3068 1.2540 32.0425

% 0.29% -0.04% 0.04% 0.24% 0.00% -0.04% 0.00% 0.01% 0.03% 0.05% 0.00% 0.14% 0.20% -0.01% 0.00%

10-Jul 30-Jul 17-Aug

EURSEK & OMXS 8.7 8.5 8.3 8.1 10-Jul 30-Jul

OMXS ra. EURSEK

550 500 450 400 350 17-Aug

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

NIBOR Prior 1.82 2.10 2.37 2.49 2.38 2.66 2.97 3.29

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.80 1.82 1.81 0.08 2.09 2.02 2.01 0.21 2.37 2.27 2.26 0.50 2.50 2.38 2.37 0.66 2.37 1.80 1.81 0.68 2.67 1.95 1.95 1.07 2.97 2.14 2.15 1.46 3.29 2.34 2.34 1.87

Last 0.08 0.20 0.49 0.66 0.69 1.08 1.47 1.88

USD LIBOR Prior Last 0.24 0.24 0.43 0.43 0.72 0.72 0.88 0.88 0.61 0.63 0.99 1.02 1.43 1.45 1.91 1.93

Gov. Bonds, 10y 1.60 1.40 1.20 1.00

NOK, ra.

3.00 2.50 2.00 1.50 1.00

SEK

10-Jul 30-Jul 17-Aug

NORWAY Prior Last /A No Data 99.15 10y 10y yield 2.07 2.09 vs bund 0.56 0.58

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 117.81 117.93 102.324 102.22 1.52 1.51 1.52 1.51 0.01 0.01

US Prior 98.28125 1.81 0.30

Last 98.27 1.82 0.32

13.5 13.0 12.5

JPY and DowJones

81 79 77

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 2.50 3.75 2.05 2.75 0.50 2.75 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 10-Jul

30-Jul

75 17-Aug

USDJPY ra. DowJones, 1000

USD and gold 1670 1620 1570 1.26 1.24 1.22

1.20 1520 10-Jul 30-Jul 17-Aug

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today SEP 2.09 2.09 0.00 NOK 91.20 DEC 1.96 1.96 0.00 SEK 109.67 MAR 1.93 1.93 0.00 EUR 97.82 JUN 1.93 1.93 0.00 USD 82.54 FRA SEK 3m Prior chg GBP 84.20 SEP 1.96 1.98 -0.02 Comm. Today DEC 1.77 1.78 -0.01 Brent spot 116.0 MAR 1.66 1.65 0.01 Brent 1m 114.1 JUN 1.63 1.63 0.00 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% Stock ex. Today - 0.16 Dow Jones 13,275.2 - 0.41 Nasdaq 3,076.6 - 0.03 FTSE100 5,852.4 0.01 Eurostoxx50 2,471.5 Dax 7,040.9 Last Nikkei225 9,199.4 116.0 Oslo 439.65 113.7 Stockholm 512.35 1614.8 Copenhagen 644.07

% 0.2% 0.5% 0.3% 0.6% 0.6% 0.0% 0.8% 1.2% -0.6%

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