Morning Report

12.09.2012

Politics and law will move markets today

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

2.50 2.35 2.20 2.05 1.90

EURNOK

Three important events on today's agenda: The German Constitutional Court will rule on whether the EU's permanent crisis fund (ESM) is in violation of the German constitution or not, the Dutch will elect a new parliament, and the EU Commission will launch its proposal for a banking union. Far most important, is the ruling of the German Constitutional Court (Bundesverfassungsgericht) on the question of whether the EU's permanent crisis fund (ESM) and the "Fiscal Compact" is in violation of the German constitution or not. Potentially, this is explosive stuff. If the court should find that the ESM and Fiscal Compact lead to an unconstitutional loss of German sovereignty, the German parliament can not ratify the two. Then, the ESM and the Fiscal Compact must be put on hold, and the Eurozone is left with its already substantially depleted temporary emergency fund (EFSF). If so, it will be difficult to meet any demands for emergency funds to Spain, which would also undermine the conditions set by the ECB for buying shorter-dated government bonds under its fresh Outright Monetary Transactions (OMT) scheme. Then, Spanish government bond yields most certainly would surge, and the eurozone nations would again face an acute crisis. Seen this way, the five men and three women who make up the Constitutional Courts second chamber now hold the euro's fate in their hands. This is a rather huge responsibility to put on the shoulders of eight fairly anonymous judges. Especially since the German Bundestag approved both the ESM and the Fiscal Compact with a two-thirds majority. The Constitutional Court is independent, but it is established to safeguard and defend democracy and human rights, and not override them. Therefore, everybody expects that the court will accept both the ESM and the Fiscal Compact. But the court may decide to formulate guidelines for future German loss of sovereignty, e.g. by requiring stronger democratic processes - referendums and/or broader treatment in the Bundestag. Such guidelines will reduce the democratic deficit and strengthen the euro's legitimacy, but will also reduce the scope for transferring more power to the community. It will hit Merkel's mantra that we need "more, not less Europe", and weaken the vigor needed when (not if!) new crises arise. So even though the conclusion is given, there is still power in the conditions given by the court.
th Second, Netherlands, the Eurozones 5 largest economy, will hold parliamentary elections. Recent polls indicate almost a dead heat between the conservative VVD and the labour party (PvdA). The two are expected to obtain, respectively, 35 and 34 seats of the 150 in Parliament, which for both are 4 more than in the present parliament. Both are pro-euro, but not traditional allies. And the third and fourth largest will probably be the euro skeptical Socialist Party with 21 (+6) and Geert Wilders right-wing PVV with 17 (-7). Thus, the polls indicate yet another unstable political coalition. While the PvdA and Socialist Party's are opposed to further austerity measures, the PVV wants Netherlands out of the euro. Although it is likely that euro supporters will lead a new government, an unstable coalition government could prove inadequate to deal with a Europe that goes from crisis to crisis.

2-Aug 22-Aug 11-Sep

SEK & 3m STIBOR 8.8 8.6 8.4 8.2 8.0 2-Aug

3m ra.

2.40 1.60 0.80 0.00 22-Aug 11-Sep

EURSEK

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The third point has less market impact: The EU Commission is working tirelessly with their plans for a socalled "banking union", whose long-term aim is a common deposit guarantee schemes and shared responsibility for resolving banking crises. First on the table, are plans that the ECB already by 2014 will get oversight responsibility for all 6000 banks in the eurozone. Germany is skeptical. Not towards a common financial supervisor, but that it should oversee all eurozone banks and not just the 60 most systemically important. Germany also believes that the time schedule is unrealistic. Last week's ECB decision on the implementation of OMT has reduced the likelihood of the tail risk that a country is forced out of the euro due to lack of funding. A smaller risk that loans made in euros later on are paid back in pesetas or lire has re-opened a window for corporate loans. So far in September, it has been issued Spanish and Italian investment grade corporate bonds for a total of 7 billion euros. If this should continue at the same pace for the rest of September, this will be the best month for corporate bond issuances for Italy and Spain since 2009. Similarly, market appetite for euros has picked up. The euro now trades it to 1.2883 against the USD, 6 cents higher than a month ago. A "wrong" decision by the German Constitutional Court today will immediately turn this around, however. oystein.dorum@dnb.no

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

22 01 78 37 22 01 78 34 22 01 77 62 22 01 76 77 22 01 77 36 22 01 78 15

Yesterdays key economic events (GMT) 08:30 UK Trade balance 12:30 US Trade balance Todays key economic events (GMT) 06:45 France Current account 08:30 UK ILO unemployment 09:00 EZ Industrial production

As of Jul Jul As of jul jul jul

Unit Bn Bn Unit Bn % m/m %

Prior -10.1 -42.9 Prior -4.9 8.0 -0.6

Poll -44.0 Poll 8.0 0.0

Actual

DNB

Morning Report
12.09.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 85 2-Aug 22-Aug
NOK TWI ra.

93 92 91 90 11-Sep
$/b

EUR vs GBP & CHF 1.22 1.21 1.21 0.82 0.80 0.78

0.76 1.20 2-Aug 22-Aug 11-Sep

GBP r.a CHF

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

Prior 77.78 1.286 0.800 1.208 7.418 8.498 7.452 5.769 7.419 0.874 9.273 6.617 8.502 1.147 10.631

Last 77.88 1.288 0.800 1.209 7.420 8.497 7.452 5.764 7.404 0.874 9.272 6.602 8.486 1.145 10.620

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

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 1.0473 0.9729 0.9387 18.92 5.7881 1.6090 7.7559 121.96 0.2818 2.6815 0.5413 0.8208 3.1680 1.2294 31.4800

% 0.34% -0.05% -0.04% -0.10% -0.18% 0.11% 0.02% -0.12% 0.01% -0.16% -0.13% 0.33% -0.13% -0.05% -0.16%

EURSEK & OMXS 8.7 8.5 8.3 8.1 2-Aug 575 500 425 350 22-Aug 11-Sep
OMXS ra. EURSEK

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

NIBOR Prior 1.78 1.97 2.22 2.35 2.33 2.62 2.91 3.23

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.78 1.62 1.61 0.07 1.98 1.74 1.74 0.16 2.22 1.95 1.93 0.42 2.35 2.05 2.03 0.57 2.36 1.57 1.59 0.63 2.63 1.74 1.77 1.01 2.93 1.97 1.98 1.40 3.25 2.18 2.21 1.83

Last 0.07 0.16 0.42 0.57 0.64 1.03 1.42 1.85

USD LIBOR Prior Last 0.23 0.23 0.40 0.40 0.69 0.69 0.86 0.85 0.49 0.49 0.82 0.84 1.28 1.30 1.79 1.81

Gov. Bonds, 10y 1.60 1.40 3.00 2.50

2.00 1.20 1.50 1.00 2-Aug 22-Aug 11-Sep

NOK, ra. SEK

NORWAY Prior Last ot be found 98.80 10y 10y yield 2.10 2.13 vs bund 0.56 0.55

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 118.36 118.38 99.612 99.30 1.46 1.46 1.53 1.58 -0.08 -0.12

US Prior 99.3125 1.70 0.17

Last 99.19 1.72 0.15

13.5 13.0 12.5

JPY and DowJones

81 79 77

12.0 2-Aug

75 22-Aug 11-Sep
USDJPY ra. DowJones, 1000

In 3m 6m 12m

INTEREST 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
% 0.10 - 0.02 0.16 - 0.13 - 100.0 Last 114.6 115.4 1736.8

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

% 0.5% 0.0% 0.0% 1.2% 1.3% 0.0% 0.1% 0.8% 0.1%

USD and gold 1820 1720 1620 1.32 1.28 1.24

1520 1.20 2-Aug 22-Aug 11-Sep

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today SEP 2.02 2.01 0.01 NOK 92.78 DEC 1.93 1.94 -0.01 SEK 113.08 MAR 1.92 1.92 0.00 EUR 100.45 JUN 1.95 1.95 0.00 USD 79.79 FRA SEK 3m Prior chg GBP 0.00 SEP 1.72 1.72 0.00 Comm. Today DEC 1.58 1.57 0.02 Brent spot 114.6 MAR 1.46 1.45 0.01 Brent 1m 115.8 JUN 1.44 1.43 0.01 Spot gold 0.0 Sources to all tables and graphic s: Reuters and DNB Markets

Stock ex. Today Dow J ones 13,323.4 Nas daq 3,104.5 FTSE100 5,792.2 Eurostoxx50 2,557.7 Dax 7,310.1 Nikkei225 8,960.0 Os lo 446.18 Stockholm 506.51 Copenhagen 646.82

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