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Morning Report

25.10.2012

Germany affected by the crisis in the south


NOK & 3m NIBOR 7.50 2.00 7.45 1.95 7.40 1.90 7.35 7.30 1.85 14-Sep 4-Oct 24-Oct
3m ra. EURNOK

Weak figures for the eurozone and especially for Germany weakened the euro yesterday, while the Fed, as expected, did not come up with new signals at its monetary policy meeting. Today's main event is the Riksbank's monetary policy meeting and GDP figures for the third quarter from the UK. Yesterday's data from the euro zone was weaker than expected in advance, and contributed to a (temporary) weakening of the euro against the dollar. The preliminary purchasing manager index (PMI) for the euro zone fell more than estimates indicated for both manufacturing and services. PMI for German manufacturing fell markedly to 45.7 after two months of recovery. The weak situation of German industry was confirmed by the ifo index which also fell more than expected. The benchmark index fell from 101.4 in September to 100.0 in October. The level is the lowest since February 2010 and confirms that the German business cycle is deteriorating. Moreover, it is not just the manufacturing sector that is struggling. The figures show a clear deterioration also for trade and the construction sector. The decline is maybe not surprising in light of what happens in the important trading partners in the rest of Europe, but it is undoubtedly negative. First, Germany is known as the engine in the European economy and a slowdown will exacerbate the problems in crisis countries through less demand from abroad. Second, it is will hardly be easier for German politicians to support the crisis countries if Germany enters a recession with rising unemployment. We are not there yet, but if we consider the very clear cyclical patterns in the ifo index over time, the decline will continue. During the crisis in 2008, the index reached a trough at 84.6, while the trough in 2001 was 91.6. Fasten your seat belts! Governor Mario Draghi yesterday defended the ECB's government bonds program (OMT) in front of German politician. Not surprisingly, he argued that the purpose of the program is to improve the transmission mechanisms in the money market, so that the low central bank rates can better feed through to households and enterprises in the wider euro zone. He also said that the only way to reduce the fear of eurozone disintegration, was to establish a credible backstop at the OMT. It was not surprising that Draghi had to use some time to convince the Germans that the ECB's policy will not lead to higher inflation. Overall, it seems that Draghi came well out of the session and that he was able to remove some of the German disregard for the ECB's purchases of government bonds. From Sweden weak figures were also reported yesterday. Both businesses and households have become noticeably more pessimistic in October. This reinforces the impression that the Swedish economy is cooling down. Along with declining inflation this means that we can expect a new interest rate cuts from the central bank. Not at today's meeting, but more likely at the next meeting in December. Even at today's meeting there may be signals that the central bank is considering to lower the signal rate from the current 1.25%. The Riksbank publishes new interest rate path at each meeting, and the new path will probably indicate the possibility of another cut. The two dows Svensson and Ekholm will obviously vote for lower interest rates, while others probably will hesitate to do so this time, due to the risk of financial instability. The U.S. central bank's interest rate committee, FOMC, came as expected with no new signals at the meeting which ended yesterday. After the Fed launched a new round of quantitative easing in September and simultaneously changed its communication to a large extent, no significant news was expected this time. Only two sentences in the press release were adjusted slightly. It was pointed out that consumption grows slightly faster and that inflation has picked up somewhat recently. However, the Fed remains equally concerned about the labor market and the overall policy remains unchanged. Housing figures that arrived yesterday once again turned out to be positive. New home sales rose 5.7% from August to September, while prices of existing homes rose 0.7% in August. Today's figures for durable goods are expected to correct some of the sharp decline in August. Volatility is caused by large airplane orders from Boeing and it is more interesting to follow orders exclusive of transport. For these orders there is expected an increase of 0.8%. The orders have been weak in recent months, probably to fear of the "fiscal cliff." UK preliminary GDP data for the third quarter is released today. As usual, the numbers are released somewhat earlier than in the US where the numbers are due tomorrow. After three consecutive quarters of decline, an increase of 0.6% is expected for the third quarter. Some of the increase is related to the summer Olympics in London. knut.magnussen@dnb.no Yesterdays key economic events (GMT) 07:58 EMU PMI Total, flash 08:00 Germany IFO 14:00 USA New Home Sales Todays key economic events (GMT) 07:30 Sweden Riksbank MP Meeting 08:30 UK GDP, pre 12:30 USA Durable Orders As of Oct Oct Sep As of 3. kv Sep Unit Index Index Mill Unit % q/q % m/m % Prior 46.1 101.4 0.373 Prior 1.25 -0.4 -13.2 Poll 46.4 101.5 0.380 Poll 1.25 0.6 5.7 Actual 45.8 100.0 0.389 DNB 1.25

SEK & 3m STIBOR 8.7 8.6 8.5 8.4 14-Sep 4-Oct 1.80 1.70 1.60 1.50 1.40 24-Oct
EURSEK

3m ra.

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Morning Report
25.10.2012

SPOT RATES AND FORECASTS


Oil spot & NOK TWI 120 115 110 105 14-Sep 4-Oct 94 93 92 91 24-Oct
$/b

NOK TWI r a.

EUR vs GBP & CHF 0.82 1.22 1.22 0.80 1.21 0.78 1.21 0.76 1.20 14-Sep 4-Oct 24-Oct
GBP r.a CHF

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

Prior 79.81 1.298 0.809 1.210 7.461 8.673 7.459 5.752 7.209 0.861 9.240 6.688 8.383 1.163 10.725

Last 80.07 1.299 0.809 1.210 7.451 8.664 7.460 5.737 7.165 0.860 9.207 6.673 8.337 1.164 10.710

% 0.3% 0.1% 0.0% 0. 0% -0.1% -0.1% 0.0% -0.3% -0.6% -0.1% -0.4% -0.2% -0.6% 0.1% -0.1%

In 1 m ...3 m 78 76 1.27 1.20 0.80 0.78 1.20 1.20 7.30 7.25 8.55 8.55 7.45 7.45 5.75 6.04 7.37 7.95 0.85 0.85 9. 1 9.3 6.73 7.13 5.25 5.42 1.17 1.18 10.69 10.96

...6 m ...12 m 76 78 1.20 1.25 0.78 0.80 1. 20 1.20 7.25 7.40 8. 50 8.60 7.45 7.45 6.04 5.92 7.95 7.59 0. 85 0.86 9.3 9.3 7. 08 6.88 5. 38 5.37 1.17 1.16 10. 90 10.75

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

USD 1.0369 0.9928 0.9318 19.27 5.7444 1.6050 7.7508 126.61 0.2812 2.6586 0.5366 0.8225 3.2004 1.2214 31.3550

% 0.11% -0.08% -0.13% -0.08% -0.11% 0.07% -0.01% -0.10% -0.14% -0.15% -0.11% 0.24% -0.25% -0.07% -0.27%

EURSEK & OMXS 575 8.9 8.7 500 8.5 425 8.3 350 8.1 14-Sep 4-Oct 24-Oct
OMXS ra. EURSEK

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

NIBOR Prior 1.72 1.88 2.08 2.20 2.30 2.61 2.94 3.26

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.72 1.41 1.39 0.06 1.87 1.50 1.48 0.13 2.08 1.65 1.63 0.29 2.19 1.75 1.73 0.43 2.29 1.40 1.40 0.63 2.60 1.62 1.62 1.01 2.92 1.86 1.86 1.40 3.26 2.11 2.11 1.84

Last 0.06 0.13 0.29 0.43 0.66 1.04 1.43 1.86

USD LIBOR Prior Last 0.21 0.21 0.32 0.31 0.55 0.55 0.73 0.72 0.51 0.51 0.87 0.89 1.31 1.33 1.83 1.84

Gov. Bonds, 10y 1.70 1.60 1.50 2.40 2.20 2.00

1.80 1.40 14-Sep 4-Oct 24-Oct


NOK, ra. SEK

10y 10y yield vs bund

NORWAY Prior Last 99.11 98.95 2.09 2.11 0.53 0.55

GOVERNMENT BONDS US SWEDEN GERMANY Prior Last Prior Last Prior 117.01 117.08 99.36 99.44 98.484375 1.57 1.57 1.57 1.56 1.79 0.01 0.00 0.23 INTEREST RATE FORECASTS SWEDEN GERMANY 3m stibor 10y swap 3m euribor 10y swap 1.30 2.25 0.35 1.75 1.30 2.25 0.25 1.75 1.30 2.50 0.25 2.00

Last 98.38 1.82 0.25

JPY and DowJones 81 14.0 13.5 79 13.0 77 12.5 75 12.0 14-Sep 4-Oct 24-Oct
USDJPY ra. DowJones, 1000

In 3m 6m 12m

NORWAY 3m nibor 10y swap 1.90 3.25 1.90 3.25 2.15 3.50

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

USD and gold 1820 1720 1620 1520


EURUSD ra.

1.32 1.28 1.24 1.20


Gold

14-Sep 4-Oct 24-Oct

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % DEC 1.85 1.85 0.00 NOK 93.31 MAR 1.86 1.86 0.00 SEK 115.16 - 0.11 JUN 1.89 1.88 0.00 EUR 101.93 0.15 SEP 1.92 1.92 0.00 USD 79.89 - 0.10 FRA SEK 3m Prior chg GBP 83.50 Last DEC 1.41 1.41 0.00 Comm. Today MAR 1.26 1.26 0.00 Brent spot 108.4 108.4 JUN 1.22 1.22 0.00 Brent 1m 108.2 107.9 SEP 1.22 1.22 0.00 Spot gold 0.0 1706.5 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 13,077.3 Nasdaq 2,981.7 FTSE100 5,804.8 Eurostoxx50 2,490.6 Dax 7,192.9 Nikkei225 9,029.0 Oslo 440.37 Stockholm 496.84 Copenhagen 649.59

% -0.2% -0.3% 0.1% 0.5% 0.3% 0.0% 1.4% 0.3% -0.2%

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