Morning Report

13.12.2012

Even more stimulus from Fed
NOK & 3m NIBOR
7.40 2.00

As expected, the Fed chose to expand QE3 with the purchase of government bonds for 45 billion per month. In addition, monetary policy is now related to specific targets for unemployment and inflation. At yesterday's monetary policy meeting Fed maintained the assessments of the economic situation from the previous meeting in October, stating the there is only a moderate increase in activity. It was also pointed out that even and unemployment had fallen, it remains elevated. In order to maintain a downward pressure on long term interest rates, the central bank chose as expected to replace operation twist by purchasing government bonds with long maturities of 45 billion dollars per month. (27% of purchases will be bonds with maturities of 20-30 years, 29% of 7-10 years, 39% will have maturities ranging from 4-7 years). This will thus add to the 40 billion in mortgage bonds that the Fed started buying earlier in the fall. Fed will thus buy bonds for 1020 billion dollars per year, which would mean that the Fed's balance sheet will increase by almost 40% in 2013. As for mortgage bonds there is no upper limit on purchases. It is the economy that will determine when the Fed will stop its bond purchases. According to Bernanke's press conference, the purchases will end when you a substantial improvement in employment is recorded. Moreover, the Fed will not begin to hike the signal rate before the unemployment rate has fallen below 6 ½%. According to new forecasts by the central bank presented yesterday this will not happen until the middle of 2015. (The forecast is that unemployment will be between 6.0% and 6.6% in the fourth quarter of 2015). However, there is an additional criterion that must be met: Expected inflation 1-2 years ahead must remain below 2 ½%. (A temporary increase in inflation will therefore not lead to earlier interest rate hikes). Fed's new forecasts for inflation are below 2.5% over the entire forecast period. Thus, the expected timing of the first hike is the same as indicated in the preceding two meetings, i.e. in the middle of 2015. Bernanke also pointed out that the economic criteria do not mean that the rate hikes will be performed automatically. Fed will, for instance. make an overall assessment of the labor market, and not just let the unemployment rate control policy. It will also be important whether a fall in unemployment is due to increased employment, or a decrease in the labor force. A large majority of FOMC members (13 of 19) also believes the first hike should come in 2015. Two hawks believe that rates should be raised as early as next year, three in 2014, but only one (Yellen) wants to postpone the first elevation to 2016. The market reaction after the Fed's press release and press conference was relatively small, indicating that the message was about as expected. The dollar weakened against the euro and EURUSD traded in the morning hours up towards 1.31. Stock markets reacted by a small extent to the Fed's new message, while long-term U.S. interest rates rose 6-7 basis points. In Europe, the continued decline in government bond yields for Italy and Spain continued yesterday, and thus the entire increase from Monday has been reversed. In Europe, finance ministers last night agreed a joint supervision of banks in the euro zone. ECB will from 2014 be responsible for the direct supervision of banks with more than 30 billion euros in assets, which include between 150 and 200 banks. This is the first step in the direction of a banking union, but probably also the simplest. Industrial production in the euro zone disappointed markedly and fell by 1.4% in October. The estimate of 0.2% seemed in any case too high in light of the sharp decline in large countries such as Germany and France. The previous month's decline was revised up slightly to -2.3%. It was the production of consumer durables and capital goods that fell most in October, reflecting weak demand for this type of goods, eg. cars. Production is 3.8% lower than a year ago and the decrease is the strongest since 2009. In Germany, production has fallen as much as the average over the past year, while the decline has been smaller in France (3.0%) and Spain (3.3%) and Greece (1.8%). The decline has been the highest in Ireland (-16.2%), while Lithuania can show the strongest increase (10.3%). The British labor market showed some signs of improvement in the report that was released yesterday. The registered unemployment rate fell unexpectedly by 3,000 people in November, and the increase for October was revised down from 10,100 to 6,000. The LFS unemployment rate remained unchanged at 7.8%. Unemployment in Britain has actually increased surprisingly little light of how weak production trends have been. knut.magnussen@dnb.no Yesterday’s key economic events (GMT) 08:30 UK Unemployment 09:00 EMU Ind. production 16:30 USA Fed funds rate Today’s key economic events (GMT) 08:30 Sweden CPI 08:30 Sweden Unemployment (sa) 12:30 USA Retail Sales As of Nov Oct As of Nov Nov Nov Unit 1000 m/m % % Unit y/y % % m/m % Prior 10.1 -2.3 0.25 Prior 0.4 7.7 -0.3 Poll 7.0 0.2 0.25 Poll 0.1 0.3 Actual -3.0 -1.4 0.25 DNB 0.0 7.9

7.35 7.30 7.25
02Nov
3m ra.

1.90 1.80 1.70
22Nov 12Dec
EURNOK

SEK & 3m STIBOR
8.8 8.7 8.6 8.5 8.4 02Nov
3m ra.

1.50 1.40

1.30
22Nov
EURSEK

12Dec

Headquarters Dronning Eufemias gate 30 0191 Oslo Offices Abroad New York London Singapore Stockholm Sales Oslo (+47) Equity Fixed Income Regional Sales (+47) Bergen Bodø Fredrikstad Hamar Lillehammer Kristiansand Oslo Stavanger Tromsø Trondheim Tønsberg Ålesund Private Clients Research Regional Sales (+47) Eirik Larsen Research FX/IR (+47) Øystein Dørum Kjersti Haugland Ole André Kjennerud Knut A. Magnussen Camilla Viland Magne Østnor Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Martin Børter Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rønningen Kristina Solbakken

+47 03000

+ 1 212 681 2550 +44 207 283 0050 +65 6220 6144 +46 84 73 48 50

22 94 89 40 24 16 90 30

56 13 27 20 75 52 99 10 69 39 41 50 62 54 14 82 61 24 79 56 38 14 61 64 24 16 90 80 51 84 04 30 77 62 96 80 73 87 49 73 33 01 73 80 70 11 69 85 24 16 90 90

24 16 90 77

24 16 90 08 24 16 90 03 24 16 90 07 24 16 90 04 24 16 90 01 24 16 90 06 24 16 90 02

24 16 90 48 24 16 90 46 24 16 90 47 24 16 90 49 24 16 90 44 24 16 90 45 24 16 90 51

Morning Report
13.12.2012

SPOT RATES AND FORECASTS
Oil spot & NOK TWI 1.00 0.50 0.00 02-Nov
22-Nov

94 92 90 12-Dec
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.22 1.21 1.20 1.19 02Nov
GBP r.a

0.82 0.81 0.80 0.79 0.78 22Nov 12Dec
CHF

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

Prior 83.26 1.308 0.810 1.211 7.349 8.697 7.461 5.622 6.762 0.845 9.076 6.655 8.005 1.184 10.759

Last 83.48 1.308 0.811 1.212 7.353 8.706 7.460 5.619 6.733 0.845 9.074 6.662 7.982 1.186 10.740

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

In 1 m ...3 m 82 80 1.27 1.20 0.80 0.78 1.20 1.20 7.30 7.25 8.60 8.55 7.45 7.45 5.75 6.04 7.01 7.55 0.85 0.85 9.1 9.1 6.77 7.13 5.55 5.70 1.18 1.18 10.75 10.76

...6 m ...12 m 78 80 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 7.75 7.40 0.85 0.86 9.1 9.1 7.08 6.88 5.53 5.50 1.17 1.16 10.70 10.60

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

USD 1.0559 0.9837 0.9264 19.32 5.7043 1.6134 7.7503 126.64 0.2817 2.6395 0.5325 0.8447 3.1280 1.2211 30.6305

% 0.02% -0.09% 0.01% -0.02% -0.05% -0.11% 0.00% -0.19% -0.23% -0.09% -0.11% 0.11% -0.07% -0.02% 0.24%

EURSEK & OMXS
8.8 8.7 8.6 8.5 8.4 02-Nov 550

500 22-Nov
450 12-Dec
EURSEK

OMXS ra.

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

NIBOR Prior 1.82 1.87 2.05 2.19 2.19 2.46 2.74 3.10

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.82 1.40 1.39 0.05 1.87 1.40 1.39 0.12 2.04 1.49 1.47 0.21 2.17 1.60 1.59 0.32 2.21 1.30 1.30 0.46 2.47 1.51 1.51 0.81 2.76 1.76 1.76 1.18 3.11 2.03 2.03 1.63

Last 0.05 0.12 0.22 0.32 0.46 0.80 1.18 1.63

USD LIBOR Prior 0.21 0.31 0.52 0.69 0.44 0.78 1.22 1.74

Last 0.21 0.31 0.51 0.69 0.46 0.79 1.22 1.74

Gov. Bonds, 10y 1.60 1.50 1.40 1.30 02Nov 22Nov 12Dec
SEK NOK, ra.

2.40 2.20 2.00 1.80

10y 10y yield vs bund

NORWAY Prior Last 98.85 98.44 2.12 0.78 2.17 0.82

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 117.87 117.93 101.468 101.39 1.46 0.12 1.46 0.11 1.34 1.35

US Prior 99.29688 1.70 0.36

Last 99.30 1.71 0.36

JPY and Dow Jones 13.5 85 13.0 80 12.5 12.0 75 022212Nov Nov Dec
USDJPY ra. DowJones, 1000

USD and gold 1800 1750 1700 1650 02Nov 22Nov 12Dec
Gold

1.35 1.30 1.25

EURUSD ra.

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY US 3m nibor 10y sw ap 3m stibor 10y sw ap 3m euribor 10y sw ap 3m libor 10y In 3m 1.90 3.25 1.30 2.25 0.30 1.75 0.35 … 6m 1.90 3.25 1.30 2.25 0.25 1.75 0.35 … 12m 2.15 3.50 1.30 2.50 0.25 2.00 0.35 MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today DEC 1.90 1.89 0.01 NOK 91.95 - 0.01 Dow Jones 13,248.4 MAR 1.88 1.88 0.00 SEK 115.71 0.33 Nasdaq 3,013.8 JUN 1.87 1.87 -0.01 EUR 103.24 0.16 S&P 500 1,427.8 SEP 1.86 1.86 -0.01 USD 79.86 - 0.04 Eurostoxx50 2,630.3 FRA SEK 3m Prior chg GBP 0.00 - 100.0 Dax 7,614.8 DEC 1.40 1.40 0.00 Comm. Today Last Nikkei225 9,742.7 MAR 1.22 1.22 0.00 Brent spot 111.1 Invalid field(s). Oslo 447.33 JUN 1.16 1.15 0.01 Brent 1m 109.4 109.5 Stockholm 525.42 SEP 1.13 1.13 0.00 Spot gold 0.0 1716.3 Copenhagen 655.06 Sources to all tables and graphics: Reuters and DNB Markets

sw ap 1.75 1.75 2.25
% 0.6% -0.3% 0.7% 0.2% 0.3% 0.0% 0.5% -0.4% -0.2%

Morning Report
13.12.2012
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