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Morning Report


FOMC minutes indicate slowing of QE3

Bernanke is still in doubt when the Fed will slow down its asset purchases, while the FOMC minutes indicate a slowdown within a few months.
7.70 7.60 7.50 7.40 7.30 1.90




1.60 23-May
3m (rha)

In his testimony to the Congress yesterday Ben Bernanke appeared as somewhat dowish, as he began by emphasizing that the labor market is still weak, despite that the economic recovery has been moderate and that there has been some improvement in job creation and the unemployment rate. He is obviously right in this. Unemployment is still above what we might call a natural level, the number of involuntary part-time workers is well above pre-crisis levels, and the participation rate is still declining. The cautious tone in Bernanke's speech was initially interpreted in the markets as it will still take some time before the Fed starts to taper its asset purchase program (QE3). Equities in the US opened up, but the increase was of the temporary kind. For later in the day, when the minutes of the last FOMC meeting were published, it seemed much more likely that a slowing of QE is just around the corner. Although "many" participants meant that it is necessary to see i) continued economic progress, and ii) more confidence in the outlook, or iii) diminished downside risks, before slowing the pace of purchases , "a number" of participants wanted to reduce the scale of purchases already in June. It is not entirely new that several participants in the FOMC want to reduce the Feds monthly purchases over the next few months. In April, John Williams, governor of the San Francisco Fed, said that he wanted to scale back the program already this summer. Also Bernanke and NY Fed's William Dudley has called for a reduction of QE, but without being as specific to when this will happen as Williams has been. The vagueness around how the Fed will taper QE is probably related to uncertainty about several factors. Firstly, there is uncertainty about how hard fiscal tightening resulting from the automatic spending cuts will hit the economy later this the year. This was, among others, highlighted by William Dudley in an interview with Bloomberg recently, when he stated that " Im uncertain about whats going to happen to the economic outlook over the near term because I dont really understand really well how the tug-of-war between the fiscal drag and the improving economy are going to sort of work their way out over the next couple months." Secondly, the economic recovery in the US is largely affected by the expansive monetary policy, and it may be that a too soon and/or too fast reduction of QE will weaken the economic momentum. In his session with the congress Bernanke still appeared somewhat uncertain about when the Fed will scale down QE3. When asked about the reductions will take place before September this year, Bernanke simply answered "I do not know, it's going to depend on the data." The Swiss franc yesterday broke through 1.26 against the euro - the highest level for EURCHF in two years - after the Swiss central bank governor, Thomas Jordan, yesterday stated that the peg may be changed. According to Reuters, Jordan has neither excluded negative interest nor a change in the floor in EURCHF: "Adjustment of the minimum exchange rate belongs, just like negative interest rates, as a basic principle to possibilities, when it is necessary." We do not, however, believe that it is necessary for Jordan to implement such measures. Going forward, we expect a further improvement in the sentiment, which will lead to a further depreciation of the Swiss franc. Otherwise in the markets the dollar strengthened slightly against the euro, while the Norwegian krone has weakened moderately on a broad basis. U.S. stock markets ended in red yesterday, while Asian stock markets have opened significantly down today (Nikkei down 6% percent!) on a very disappointing PMI report from China. For the first time since September last year the index fell below 50, particularly due to a fall in the index for new orders. Growth in China has disappointed the markets so far this year, and we expect GDP growth in 2013 will be 7.5 percent, which is slightly below consensus (7.9 percent). Martin Flodn and Cecilia Skingsley were yesterday appointed as deputy governors in Riksbanken. They will replace Lars Svensson and Barbro Wickman-Parak and will begin in their new jobs immediately. While Flodn is professor of economics at Stockholm University, Skingsley is chief economist at Swedbank. Both have, according, called for rate cuts from the central bank. After the April meeting Skingsley stated that she did not understand why interest rates were not cut. Flodn has previously praised Svensson for his clear argument for lower interest rates. Thus, it appears that a hawk (Wickman-Parak) and a dove (Svensson) have been replaced by two doves, which may indicate that there is an increased likelihood of a rate cut in Sweden. Yesterdays key economic events (GMT) As of 08:30 UK Minutes BoE meeting 14:00 US Bernanke testifies in Congress 18:00 US FOMC minutes As of Todays key economic events (GMT) 01:45 China PMI manuf. (flash) May 09:00 MU PMI composite (flash) May 15:00 USA New home sales Apr Unit Prior Poll Actual


Norw ay: 10y Gov't Bond

2.3 2.2 2.2 2.1 2.1 2.0 18-Apr


75 06-May

65 23-May
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 Bod Fredrikstad Hamar Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund Private Clients Research Regional Sales (+47) Eirik Larsen Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Martin Brter Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen Kristina Solbakken Magnus Vie Sundal

+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 64 76 30 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 24 16 91 23

Unit Index Index Mn

Prior 50.4 46.9 0.417

Poll 49.6 47.2 0.425


Morning Report

0.140 0.130 0.120 0.110 0.100 0.28 0.28 0.27 0.27 0.27 23-May
USD (rha)



Oil price & NOK TWI

95 94 93 92 91 90 110



Last 102.62 1.2911 0.8527 7.4525 8.5503 1.2542 7.4866 5.7995 5.65 87.57 100.49 8.782 5.971

Today 102.16 1.2847 0.8539 7.4537 8.5534 1.2540 7.4960 5.8346 5.72 87.66 100.58 8.780 5.980

Spot rates and forecasts In 1m Aug-13 Nov-13 May-14 FX 0700 -0.4 102 105 107 110 AUD -0.5 1.27 1.26 1.30 1.32 CAD 0.1 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.0 8.55 8.45 8.50 8.60 RUB 0.0 1.24 1.25 1.27 1.30 GBP 0.1 7.55 7.50 7.45 7.40 HKD 0.6 5.94 5.95 5.73 5.61 KWD 1.1 5.83 5.67 5.36 5.10 LTL 0.1 88.3 88.8 87.6 86.0 LVL 0.1 101.3 100.7 100.0 99.3 NZD 0.0 8.88 8.82 8.66 8.51 SEK 0.2 608.87 600.00 586.61 569.23 SGD

USD NOK 0.964 5.624 1.037 5.625 0.976 597.595 20.360 28.649 31.415 18.567 1.505 8.776 7.763 0.751 0.287 20.352 2.688 2.170 0.545 10.703 0.803 4.685 6.657 87.617 1.268 4.598



95 23-May
USD/b (rha)


US dollar 6.0 5.9 5.8 5.7 5.6

18-Apr 06-May

1.33 1.31 1.29 1.27 1.25 23-May


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

Prior 1.63 1.74 1.83 2.01 2.02 2.35 2.69 3.07

Last 1.65 1.75 1.84 2.03 1.99 2.31 2.65 3.02

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

Prior 1.15 1.20 1.25 1.32 1.60 1.87 2.17

Interest rates Last USD 1.15 1m 1.20 3m 1.25 6m #N/A 12m 1.32 3y 1.60 5y 1.87 7y 2.17 10y

Prior 0.20 0.27 0.42 0.69 0.51 0.96 1.47 2.05

Last 0.20 0.27 0.42 0.69 0.53 1.03 1.55 2.13

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

Prior 0.06 0.12 0.20 0.38 0.49 0.83 1.18 1.64

Last 0.06 0.12 0.20 0.38 0.49 0.82 1.19 1.66

104.0 102.0 100.0 98.0 96.0 94.0

Japanese yen



7.0 6.5 6.0 5.5 5.0 23-May

Norw ay Prior NST475 98.30 10y yld 2.19 - US spread 0.26 3m nibor 1.80 1.80 1.80

Norw ay Aug-13 Nov-13 May-14

Governm ent bonds Last SEK Prior Last US Prior 98.35 10y 97.36 97.39 10y 98.38 2.19 10y yld 1.78 1.78 10y yld 1.93 0.17 - US spread -0.15 -0.24 30y yld 3.13 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 Aug-13 Nov-13 May-14 1.20 1.20 1.45 2.25 2.25 2.50 Aug-13 Nov-13 May-14 0.35 0.35 0.35

Last Germany Prior Last 97.63 10y 101.03 101.00 2.01 10y yld 1.39 1.39 3.19 - US spread -0.54 -0.62 10y sw ap 2.00 2.00 2.50 3m euribor 0.25 0.25 0.25 10y sw ap 1.75 1.75 2.00

Germany Aug-13 Nov-13 May-14



91 90 89 88 87 6.3 6.2 6.1 6.0 5.9 5.8 23-May
CHFNOK (rha)




15700 15200 14700 14200 13700 18-Apr
Dow Jones

500 480 460 440 420 06May 23May

Os lo (rha)


Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.50 1.41 -9 18.09.2013 0.32 Last 91.58 91.44 1.36 1.37 1 18.12.2013 0.57 Oil price: (Ldn,cl) 1m 1.46 1.46 0 19.03.2014 0.82 SPOT 100.76 101.96 1.17 1.16 -1 15.05.2015 1.98 Gold price 22.05.2013 PM 1.42 1.39 -3 19.05.2017 3.99 AM: 1360.8 1408.5 0.00 0.00 0 24.05.2023 10.01 Equities Today 0700 % last 2.17 2.17 0 24.05.2023 10.01 Dow Jones 15307.17 -0.5% 2.19 2.19 -1 24.05.2023 10.01 Nasdaq C. 3463.30 -1.1% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6840.27 0.5% 1.77 1.86 1m 1.78 1.65 Eurostoxx50 2835.02 0.5% 1.73 1.84 3m 1.85 1.75 DAX 8530.89 0.7% 1.73 1.84 6m 1.92 1.84 Nikkei 225 14690.09 -6.0% 1.74 1.87 12m 2.07 2.03 OSEBX 494.45 0.0% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
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