Morning Report

27.02.2013

Italian elections rocked markets
NOK & 3m NIBOR
7.60 7.50 7.40 7.30 7.20 30-Jan 2.00 1.95 1.90 1.85 1.80 1.75 27-Feb

The election outcome in Italy was worse than expected and may provide a longer period of political uncertainty. The market reaction was thus very negative yesterday.

The outcome of the Italian elections was worse than expected. After it became clear that no constellation would achieve a majority in both chambers, the fear of a prolonged period of increased political instability rose. Since the election winner, Grillo did not want to cooperate with others and outgoing Prime Minister Monti received very low support, it may end with cooperation between the two largest coalitions lead by Berlusconi and Bersani. If this is not possible, the result may be a new 13-Feb election within short time. However, it is far from obvious that a new election would provide a better EURNOK 3m(rha) basis for a new government either. And, the Italian people have said 'no' to new austerity measures and necessary structural reforms. The impact on the market was clearly negative yesterday: Interest rates on Italian government bonds with ten year yields rose above 50 bp. during the day and credit Norsk 10y sov. insurance premiums on Italian government rose nearly as much. Today's auction of five and ten2.8 150 year government bonds may therefore turn out to be challenging. Developments in Italy also contributed 2.6 100 to a rise in Spanish yields: The rise was around 30 bp. for the ten year yield yesterday. Stock markets 2.4 2.2 50 fell sharply in Europe and volatility soared. In the currency market the main reactions came already late 2.0 Monday night, with the strengthening of the yen and a weakening of the euro. Yesterday the currencies 1.8 0 stabilized somewhat, and the EURUSD is currently trading around 1.3060, while the USDJPY is traded 30-Jan 13-Feb 27-Feb at around 91.80.
rente Diff(bp,rha)

Headquarter 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

In it its semi-annual address to Congress had Fed chief Bernanke had opportunity to clarify the Fed's somewhat blurry vision with regard to the reduction of the quantitative easing. Not surprisingly, Bernanke reiterated the message that purchases of securities will continue until the outlook for the labor market is significantly improved, given price stability. This was well received by the stock market. He also said that the Fed not yet see signs that low interest rates lead to economic agents take on too much risk. And, he also said that the automatic tightening of fiscal policy (the sequester), which could begin as early as Friday this week, may provide an unwanted slowdown of the economy. Bernanke noted that the fiscal policy this year could dampen GDP growth by 1 ½% points, with budget cuts representing 0.6%-points of the overall tightening. He recommends to reduce the budget deficit more cautiously in the short term, but more powerful in the long term in order to obtain a more sustainable long-term path. There were several good macroeconomic data from the U.S. yesterday. Home prices as measured by the Case-Shiller index rose 0.9% in December. This was the eleventh consecutive month of expansion and stronger growth than expected. During 2012 the index rose 6.8% for the country as a whole. The increase varies a lot regionally. The rise in house prices is positive for future consumption, both because it can boost mortgage refinancing and because the increased value of assets normally have a positive effect on consumption. Sales of new homes in the U.S. accelerated in January. The increase from December, was 15.8%. The stock of unsold new homes fell further and also accounted for only 4.1 months of sales in January. At its peak, it took over a year to sell the entire inventory. Consumer confidence picked up again in February. The Conference Boards indicator went up from 58.4 to 69.6, while a rise to 62.0 was expected. The rise in equity markets may also have helped lift the index. The increase was also positive in light of the fact that gasoline prices have increased lately. The minutes of Riksbanken’s monetary policy meeting showed once again that Svensson and Ekholm wanted lower interest rates because inflation is well below target and unemployment is high. Svensson also wanted to shed light on what might have happened if the repo rate had been left unchanged at 0.25% from June 2010 until now. The majority of four (including the Governor) seemed more unified than at the previous meeting. They put all the emphasis on high household debt and did not want to cut rates more because it may fuel credit growth. In addition, the majority stressed the positive signs in the markets and questioned the effect of further decline in rates. It is difficult to interpret the minutes in a different direction than the central bank is finished with cutting interest rates, although the interest rate path has a certain probability of a cut at the upcoming meeting of 17 April. This is in line with our forecasts, indicating unchanged interest rates in the coming year. knut.magnussen@dnb.no Fridays/this morning’s key economic events (GMT) Minutes from Riksbanken 08:30 Sweden meeting 12 sales 15:00 USA New home February 15:00 USA Bernanke testimony Today’s key economic events (GMT) 09:00 Norway LFS Unemployment 10:00 EMU Sentiment Index 13:30 USA Durable Orders As of Jan As of Dec Feb Jan Unit Mill. Unit % Index M/m % Prior 0.369 Prior 3.5 89.2 4.3 Poll 0.380 Poll 3.4 89.8 -4.4 Actual 0.437 DNB 3.3

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
27.02.2013

3m LIBOR
0.16 0.15 0.14 0.13 0.12 0.11 30-Jan
EUR

13-Feb

0.31 0.30 0.30 0.29 0.29 0.28 0.28 27-Feb
USD(rha)

NOK & 3m NIBOR 7.60 2.00 1.95 7.50 1.90 7.40 1.85 7.30 1.80 7.20 1.75 30-Jan 13-Feb 27-Feb
EURNOK 3m(rha)

FX 0700 USD/JPY EUR/USD EUR/GBP EUR/DKK EUR/SEK EUR/CHF EUR/NOK USD/NOK JPY/NOK SEK/NOK DKK/NOK GBP/NOK CHF/NOK

Last 91.97 1.3063 0.8601 7.4613 8.4511 1.2139 7.4465 5.6993 6.20 88.19 99.85 8.664 6.138

Today 91.78 1.3079 0.8668 7.4577 8.4452 1.2190 7.4580 5.7020 6.22 88.39 100.01 8.605 6.120

%

Spot rates and forecasts In … 1m May-13 Aug-13 Feb-14 FX 0700 -0.2 90 92 94 97 AUD 0.1 1.30 1.32 1.34 1.37 CAD 0.8 0.84 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK -0.1 8.50 8.45 8.45 8.60 RUB 0.4 1.22 1.22 1.25 1.27 GBP 0.2 7.30 7.30 7.35 7.40 HKD 0.0 5.62 5.53 5.49 5.40 KWD 0.2 6.24 6.01 5.84 5.57 LTL 0.2 85.9 86.4 87.0 86.0 LVL 0.2 98.0 98.0 98.7 99.3 NZD -0.7 8.69 8.59 8.55 8.51 SEK -0.3 598.36 598.36 588.00 582.68 SGD

USD NOK 1.022 5.825 1.026 5.557 0.932 611.655 19.555 29.150 30.630 18.610 1.509 8.601 7.758 0.735 0.283 20.116 2.639 2.160 0.535 10.656 0.826 4.706 6.456 88.300 1.238 4.604

US dollar

5.8 5.6 5.4 5.2
30-Jan 13-Feb
USDNOK

1.40 1.35 1.30 1.25 27-Feb
EURUSD(rha)

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

Prior 1.76 1.86 2.01 2.23 2.31 2.71 3.05 3.39

Last 1.76 1.90 2.03 2.27 2.27 2.63 2.97 3.31

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

Prior 1.17 1.21 1.30 1.57 1.50 1.81 2.08 2.35

Interest rates Last USD 1.17 1m 1.21 3m 1.30 6m 1.57 12m 1.50 3y 1.80 5y 2.07 7y 2.34 10y

Prior 0.20 0.29 0.46 0.75 0.51 0.95 1.44 2.03

Last 0.20 0.29 0.46 0.75 0.50 0.90 1.37 1.94

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

Prior 0.06 0.13 0.24 0.46 0.64 1.00 1.37 1.82

Last 0.06 0.13 0.24 0.45 0.60 0.95 1.32 1.77 Last 100.41 1.46 -0.42 10y sw ap 1.75 1.75 2.00

Japanese yen

96.0 94.0 92.0 90.0 88.0
30-Jan
USDJ PY

7.0 6.0
13-Feb

Norw ay Prior NST475 95.36 10y yld 2.52 - US spread 0.67 3m nibor 1.85 1.85 1.85

5.0 27-Feb
JPYNOK(rha)

Norw ay May-13 Aug-13 Feb-14

Governm ent bonds Last SEK Prior Last US Prior 96.05 10y 113.14 113.08 10y 101.31 2.44 10y yld 1.93 1.94 10y yld 1.85 0.57 - US spread 0.08 0.07 30y yld 3.05 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 May-13 Aug-13 Feb-14 1.20 1.20 1.20 2.25 2.25 2.50 May-13 Aug-13 Feb-14 0.35 0.35 0.35

Last Germany Prior 101.14 10y 99.63 1.87 10y yld 1.54 3.06 - US spread -0.31 10y sw ap 2.00 2.00 2.25 3m euribor 0.25 0.25 0.25

Germany May-13 Aug-13 Feb-14

SEKNOK & CHFNOK 89 88 87 86 85 84 83 30-Jan 13-Feb
SEKNOK CHFNOK(rha)

6.2 6.1 6.0 5.9 5.8 27-Feb

Equities 14200 13700 13200 12700 12200 30-Jan 13-Feb
Dow J.I.

480 475 470 465 460 455 27-Feb
Os lo(rha)

NOK sov. NST19 NST20 NST21 NST471 NST472 NST473 NST475 NST475 NOK FRA MAR JUN SEP DEC

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.94 1.96 2 19.06.2013 0.31 Last 91.54 91.48 2.22 2.23 1 18.09.2013 0.56 Oil price: (Ldn,cl) 1m 1.69 1.68 -1 18.12.2013 0.81 SPOT 112.73 112.56 1.54 1.50 -5 15.05.2015 2.21 Gold price 26.02.2013 PM 1.77 1.72 -6 19.05.2017 4.22 AM: 1586.3 1590.5 2.05 1.96 -9 22.05.2019 6.23 Equities Today 0700 % last 2.52 2.42 -10 24.05.2023 10.24 Dow Jones 13900.13 0.8% 2.52 2.44 -8 24.05.2023 10.24 Nasdaq C. 3129.65 0.4% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6270.44 -1.3% 1.91 2.03 1m 1.83 1.76 Eurostoxx50 2570.52 -3.1% 1.90 2.01 3m 1.95 1.90 DAX 7597.11 -2.3% 1.90 2.01 6m 2.08 2.03 Nikkei 225 11253.97 -1.3% 1.92 2.06 12m 2.28 2.27 OSEBX 471.84 -0.6% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
27.02.2013
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