Morning Report

28.06.2013

We didnt mean it that way

NOK & 3m NIBOR
8.10

7.90
7.70

7.50 30-May

14-Jun

1.90 1.80 1.70 1.60 1.50 28-Jun

3m (rha)

EURNOK

Norw ay: 10y Gov't Bond 2.8 95 2.6 85 2.4 75 2.2 2.0 65 30-May 14-Jun 28-Jun
Rate Diff (bp, rha)

Another Fed chief attempted to calm markets yesterday. Under the more peripheral title "Are recent college graduates finding good jobs?, William C. Dudley, New York Fed President, still found room to say that the Fed's signals of tapering (reduced asset purchases) of course was conditional on economic developments, and not the calendar. If growth should be lower than Fed currently expects, would further acquisitions in progress. Continued purchases, even if they occurred at a slower pace, would also continue to push down long rates. In addition, Dudley said that there is now a large majority in the Fed's market committee (FOMC) in favour of not selling off assets when conditions improve. Finally, a rise in short-term rates is still a long way off. In light of this, it seems reasonable to argue that the Fed has been surprised by the large market reactions after Bernanke's Congressional Hearing 22 May and FOMC meeting on 19 June. Higher bond yields lift the general level of interest rates, and may halt the ongoing recovery in the housing market. Now, Fed officials seem to distance themselves from the notion that bond purchases are to slow at some point this autumn, a perception the Fed has helped to develop. A paradox may have occurred: Those who were most worried about the effects of the substantial money printing and managed the other FOMC members to signal an end to asset purchases, have seen what market unrest such signals may cause, and may now have to accept that purchases have to continue longer than before assumed, since a premature halt can lead to more market turmoil. Feds signals over the last month increasingly appear as a communication-blunder. The crisis is slowly loosening its grip on the Eurozone. Yesterday's release of sentiment indices for June mostly pointed in the right direction. Consumer confidence jumped 3 points, while sentiment in manufacturing, construction and retail sales improved 1-2 points. Only the service sector disappointed slightly, with about unchanged sentiment. The composite index, ESI, rose nearly 2 points to its highest level since last May. But the ESI is still one standard deviation below its historical average, consistent with around zero growth in GDP. In Germany, unemployment fell unexpectedly by 12,000 people in June, with the overall picture now about unchanged unemployment, suggesting growth close to trend. Cyprus yesterday offered its borrowers a "voluntary" exchange of government bonds with shortterm maturities (maturities over the next three years) against government bonds with the same coupon, but a 5-10 year maturity. The aim is to improve the governments cash flow as long as the restructuring program is ongoing, and ensure long-term financing on reasonable terms. The swap in line with previous signals, and is supported by the European Commission and the IMF. Here we have the recipe for dealing with euro public debt challenges: Continue to swap away short-term, expensive loans in favour of longer, less expensive, until the debt eventually become perpetual, and interest-free. This is "voluntary" because the alternative is worse. A bright set of data from Japan this morning. Industrial production increased by 2.0% from April to May and by 7.2% from the previous to the last three month period. Manufacturing PMI rose to 52.3, the highest in three years. Housing starts rose by 15% over the last year and construction orders by 26%. Abe has certainly been rewarded for his Abenomics, albeit not everywhere yet: Consumer prices fell 0.3% last year. The Nikkei index has risen 3.5% since yesterdays close. Other Asian equity indices have also picked up. This takes place on the back of higher stock markets in the US and Europe yesterday, driven by soothing signals, see above, and better macroeconomic data. For the Eurozone, the agreement at the EU summit on how future bank failures should be handled also contributed to the improved mood. Symptomatically, yields on longer-dated Spanish and Italian government bonds fell. Increased risk appetite is probably also the main reason for the sharp depreciation of the Japanese yen, which has declined 1.2% against the USD since yesterday morning. The crown seems to have begun the correction we have foreseen. EURNOK has strengthened 4 re since yesterday morning, to 7.89, and we expect to see 7.65 before August. At 10 today several key figures that will color our view of the state of the Norwegian economy will be released. We expect to see a 500 persons rise in the seasonally adjusted gross unemployment (the sum of wholly unemployed and people on ordinary labour market measures) from May to June. After a fall in April, we believe that retail sales will rise by 0.8% in May, consistent with an underlying growth rate of moderate 2%. Also, Norges Bank will publish its foreign exchange purchases planned for the Pension Fund in July. We expect that the bank will continue to buy NOK 200 mill./day. oystein.dorum@dnb.no Yesterdays key economic events (GMT) 07:55 Germany Unemployment 09:00 EZ Economic sentiment 12:30 US Private consumption Todays key economic events (GMT) 08:00 Norway Gross unemployment 08:00 Norway Retail sales 08:00 Norway FX purchases to oil fund As of June June May As of June May July Unit m/m k index m/m % Unit 1000 % Mill./day Prior 17r 89.5r -0.2 Prior 86.3 -0.6 200.0 Poll 8 90.3 0.3 Poll 87.5 Actual -12 91.3 0.3 DNB 86.8 0.8 200.0

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

Morning Report
28.06.2013

3m LIBOR
0.200 0.150 0.100 0.050 0.000 30-May
EUR

14-Jun

0.28 0.28 0.27 0.27 0.27 0.27 28-Jun

USD (rha)

Oil price & NOK TWI 98 110 96 105 94 92 100 90 88 95 30-May 14-Jun 28-Jun
NOK TWI USD/b (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 97.74 1.3034 0.8501 7.4593 8.7725 1.2267 7.9388 6.0928 6.23 90.57 106.49 9.343 6.472

Today 98.95 1.3046 0.8550 7.4587 8.7471 1.2345 7.8827 6.0420 6.11 90.14 105.69 9.218 6.384

Spot rates and forecasts In 1m Sep-13 Dec-13 Jun-14 FX 0700 1.2 98 102 107 110 AUD 0.1 1.30 1.26 1.30 1.32 CAD 0.6 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK -0.3 8.55 8.45 8.50 8.60 RUB 0.6 1.24 1.25 1.27 1.30 GBP -0.7 7.65 7.70 7.70 7.70 HKD -0.8 5.88 6.11 5.92 5.83 KWD -2.0 6.00 5.99 5.54 5.30 LTL -0.5 89.5 91.1 90.6 89.5 LVL -0.8 102.7 103.4 103.4 103.4 NZD -1.3 9.00 9.06 8.95 8.85 SEK -1.4 616.94 616.00 606.30 592.31 SGD

USD NOK 0.925 5.587 1.048 5.764 0.946 638.394 19.915 30.334 32.806 18.415 1.526 9.217 7.757 0.779 0.285 21.178 2.647 2.283 0.538 11.229 0.780 4.712 6.705 90.103 1.263 4.782

US dollar 6.2 6.0 5.8 5.6 5.4 30-May 1.35 1.33 1.31 1.29 1.27 1.25 28-Jun
EURUSD(rha)

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

Prior 1.61 1.67 1.73 1.87 2.13 2.58 2.90 3.25

Last 1.61 1.69 1.77 1.90 2.12 2.54 2.87 3.19

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

Prior 1.14 1.21 1.27 1.70 2.14 2.43 2.69

Interest rates Last USD 1.14 1m 1.21 3m 1.27 6m #N/A 12m 1.70 3y 2.14 5y 2.43 7y 2.69 10y

Prior 0.20 0.28 0.42 0.70 0.83 1.57 2.17 2.72

Last 0.20 0.27 0.42 0.69 0.79 1.52 2.09 2.65

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

Prior 0.08 0.15 0.27 0.48 0.80 1.26 1.64 2.05

Last 0.07 0.15 0.26 0.47 0.76 1.22 1.58 2.00 Last 98.15 1.71 -0.75 10y sw ap 1.75 1.75 2.00

14-Jun

USDNOK

105.0 100.0
95.0

Japanese yen

90.0 30-May
USDJ PY

14-Jun

7.0 6.5 6.0 5.5 5.0 28-Jun

Norw ay Prior NST475 94.60 10y yld 2.63 - US spread 0.09 3m nibor 1.55 1.55 1.55

Norw ay Sep-13 Dec-13 Jun-14

Governm ent bonds Last SEK Prior Last US Prior 95.20 10y 93.77 93.80 10y 93.13 2.55 10y yld 2.18 2.17 10y yld 2.54 0.10 - US spread -0.36 -0.29 30y yld 3.59 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.00 3.00 3.25 Sep-13 Dec-13 Jun-14 1.25 1.25 1.25 2.25 2.25 2.50 Sep-13 Dec-13 Jun-14 0.30 0.35 0.35

Last Germany Prior 93.80 10y 97.57 2.46 10y yld 1.77 3.53 - US spread -0.77 10y sw ap 2.25 2.25 2.50 3m euribor 0.20 0.25 0.20

Germany Sep-13 Dec-13 Jun-14

JPYNOK(rha)

SEKNOK & CHFNOK 92 6.6 91 6.4 90 89 6.2 88 87 6.0 30-May 14-Jun 28-Jun
SEKNOK CHFNOK (rha)

Equities
15700 15200 14700 14200 13700 30May 14-Jun
Dow Jones

500 480 460 440 420 28-Jun

Os lo (rha)

NOK sov. NST21 NST22 NST23 NST471 NST472 NST475 NST475 NST475 NOK FRA SEP DEC MAR JUN

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.38 1.42 4 18.12.2013 0.47 Last 95.73 96.49 1.44 1.45 2 19.03.2014 0.72 Oil price: (Ldn,cl) 1m 1.49 1.50 1 18.06.2014 0.97 SPOT 103.03 103.17 1.44 1.42 -2 15.05.2015 1.88 Gold price 27.06.2013 PM 1.73 1.68 -5 19.05.2017 3.89 AM: 1236.3 1232.8 0.00 0.00 0 24.05.2023 9.91 Equities Today 0700 % last 2.60 2.57 -4 24.05.2023 9.91 Dow Jones 15024.49 0.8% 2.63 2.55 -7 24.05.2023 9.91 Nasdaq C. 3401.86 0.8% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6243.40 1.3% 1.69 1.78 1m 1.77 1.61 Eurostoxx50 2619.86 0.7% 1.69 1.80 3m 1.79 1.69 DAX 7990.75 0.6% 1.71 1.86 6m 1.87 1.77 Nikkei 225 13677.32 3.5% 1.79 1.95 12m 2.00 1.90 OSEBX 470.63 0.3% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
28.06.2013
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