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Morning Report

21.08.2013

GDP-growth disappointed in Q2
NOK & 3m NIBOR
8.10 1.90

Mainland GDP rose less than expected in the second quarter. This led to a marked depreciation of 10 cents against the euro. Today released the minutes from the Fed's monetary policy meeting in late July. Norwegian mainland GDP rose by only 0.2% from the first to the second quarter. This was much weaker than expected. Norges Bank's estimate from the monetary policy report in June was 0.7%, as also was expected by consensus and ourselves. Growth in the two previous quarters was also revised down slightly. Total GDP rose by 0.8 percent from the first to the second quarter, lifted by the petroleum industry and shipping. The details showed that consumer spending rose by only 0.1%, which was far weaker than we expected. Consumption of goods fell 0.2%, following an increase of 1.8 in the first quarter, while spending on services increased by 0.6%, slightly more than in the previous two quarters. Mainland business investment rose by 5.8% after a decline of 5.4% in the previous quarter, while public investment fell by 2.1% and residential investment remained almost unchanged. Oil investments surprised with a rise of 7.4%, while the first quarter was revised down. Foreign trade made a small positive contribution to growth. Since growth was far weaker than Norges Bank's projections, there was no surprise that the market impact was significant. The krone depreciated markedly against the euro, pushing EURNOK up 7.90 to almost 8.00. The FRAs fell by 2-3 basis points. After the sharp rise in inflation in July reduced the likelihood of interest rate cuts from Norges Bank, the probability increased gain due to the weak GDP growth. Besides the NOK weakening the currency market was dominated by a stronger euro yesterday. EURUSD rose to 1.3450 yesterday afternoon, which is the highest quotation in six months. The euro was also stronger against the pound and EURGBP is up 0.4% since yesterday morning. Part of the explanation seems to be that European investors repatriating a portion of their investments in emerging economies. In the stock market the main U.S. indices recovered a bit yesterday, after four days of decline, while European markets fell. In Asia, the Nikkei has risen slightly today, while the Hang Seng is clearly down. The rise in long rates in the United States and Germany took a break yesterday and rates fell slightly. Yesterday's only American figure of some importance was Chicago Fed Activity Index. The indicator, which is based on 85 other key indicators, rose slightly in July and is now close to its long-term average. This indicates a growth close to trend for the U.S. economy. This afternoon data for existing home sales in the United States are due. After a fall of 1.2% in June, it is expected that sales will pick up slightly again in July. Tonight Fed publishes minutes of its monetary policy meeting in late July. Ever since the Fed began its open ended QE round last September, there has been much focus on the minutes. This is because all FOMC members are united and because every time there is a debate about whether and when the purchases should be reduced. The theme is if possible even more relevant now, as many (including us) expect that tapering will be announced at the next monetary policy meeting 18 September. Later this week the annual central bank conference in Jackson Hole begins. Normally both central bankers and a number of academics attend the conference. Last year, for example, professor Woodford put forward his views on interest rate policy in the United States, and probably contributed greatly to the introduction of "forward guidance", which was implemented in December. However, Bernanke, Draghi and Carney are all absent this year. As a reward the man who really has speeded up its economy in the past year, namely Kuroda from the Bank of Japan will take part. Probably the attendance will resume again the next year, when the Fed has put in place its new governor. Today we present our biannual report, with new forecast on interest rates, exchange rates and the macroeconomic variables. We will present some of the highlights of tomorrow's report. knut.magnussen@dnb.no Yesterday’s key economic events (GMT) As of 08:00 Norway Mainland GDP Q2 08:00 Norway GDP Q2 12:30 USA Chicago Fed Activity Index Jul As of Today’s key economic events (GMT) 10:00 UK CBI Orders Aug 14:00 USA Existing Home Sls Jul 18:00 USA FOMC Minutes from July-meeting Unit q/q % q/q % Index Unit Index mn Prior 0.7 -0.2 -0.23 Prior -12.0 5.080 Poll 0.7 1.0 Poll 5.100 Actual 0.2 0.8 -0.15 DNB

7.90
7.70

1.80
1.70

7.50 24-Jul 07-Aug
EURNOK

1.60 21-Aug
3m (rha)

Norw ay: 10y Gov't Bond
3.0 2.8 2.6 2.4 2.2 2.0 24-Jul
Rate

07-Aug

115 105 95 85 75 65 21-Aug
Diff (bp, rha)

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+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

81 1.63 1.31 1.26 0.26 0.25 2.25 2.71 0 15.18 0.55 1.25 2.25 Oct-13 Jan-14 Jul-14 1.30 GBP 7.0 98 102 107 0.06.331 0.07 3.768 20.9570 6.05 3m nibor 1.2 104.150 0.86 0.55 Norw ay Oct-13 Jan-14 Jul-14 Governm ent bonds Last SEK Prior Last US Prior 92.3% 1.82 3y 5y 2. NST21 NST22 NST23 NST471 NST472 NST475 NST475 NST475 NOK FRA SEP DEC MAR JUN Miscellaneous Prior Last Change Maturity year rem.2324 7.9933 5.51 1.50 3m euribor 0.05 1.9025 5.566 7.54 0.12.0 1372.88 -1 24.2017 3.62 2 18.2023 9.25 2.73 1.39 0.93 6m 1.3421 0.4 0.26 21-Aug USD (rha) Oil price & NOK TWI 97 96 95 94 93 110 105 100 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 97.85 -0.8 91.84 1m 1.95 1.20 3m 6m 1.6 6.96 OSEBX 498.0 7.20 Germany Oct-13 Jan-14 Jul-14 JPYNOK(rha) SEKNOK & CHFNOK 93 6.2014 0.30 0.071 9.87 2.155 0.90 1.1 90.01 -2 19.05.79 1.84 95.25 1.96 2.08 0.1% 2.1 1.06 .70 HKD 5.76 1.09 1.942 2.4584 8.75 2.755 0.370 4.904 1. NOK-index TWI Prior 1.6 91 89 6.58 Oil price: (Ldn.5 1.6929 1.5 2.25 1.0 96.5 5.16 6.70 0.45 7.20 9.46 1.15 0.494 % Spot rates and forecasts In … 1m Oct-13 Jan-14 0.75 1.50 10y yld 2.06 8.86 3m 1.85 0.55 8.0 5.5 LVL 103.30 LTL 89.26 1.84 0.27 0.25 2.2312 7.86 .9 5.82 10y yld 1.0 100.43 1.20 1.80 1.00 105.92 0.60 1.25 21-Aug EURUSD(rha) NOK 1m 3m 6m 12m 3y 5y 7y 10y Prior 1.40 Interest rates SEK Prior Last USD 1m 1.0 Japanese yen 24-Jul USDJ PY 07-Aug 7.94 10y sw ap 2.284 2. STISEK1YDFI= 12m 3y 1.140 24-Jul EUR 07-Aug 0.9190 6.720 4.2013 3m LIBOR 0.2015 1.12 92.29 1.27 0.09 1m 3m 1.89 .384 5.30 0.0 98.2023 9.85 0.71 2.263 6.4582 8.2013 PM 2.03.7 103.88 1.72 107.85 1.20 0.9 5.4 NZD 8.77 109.0 6.27 1.45 0.70 2.72 DAX 8300.662 24-Jul 07-Aug 95 21-Aug USD/b (rha) NOK TWI US dollar 6.76 Equities Today 0700 % last 2.19 Last 0.26 0.11 91.85 SEK 5.29 6.8533 7.05.714 6.45 30y yld 3.958 1.82 SPOT 110.4 103.97 9.87 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.232 32.00 3.0 6.97 EUR 1m 3m 6m 12m 3y 5y 7y 10y Prior 0.5 6.09 3.7 9.2014 0.32 CAD 0.968 18.05.50 -0.12 5.5 6.26 -1.494 30.497 1.59 0.50 Oct-13 Jan-14 Jul-14 0.17 10y 96.278 NOK 5.8568 7.86 -1 24.90 3.2013 0.75 AM: 1365.06 Jul-14 FX 0700 110 AUD 1.cl) 1m 1.2 87 24-Jul 07-Aug SEKNOK 6.99 5.315 11.72 1.69 2.70 3.45 8.98 10y sw ap 1.38 10y yld 2.918 19.1 7.63 1.75 1.46 -0.30 1.00 6.67 0.45 7.08.41 Last 1.0 21-Aug Norw ay Prior NST475 92.70 3.08.331 6.4 0.27 1.18 9.26 2.76 Dow Jones 15002.35 0.46 -0.3 8.70 7.34 1.0 21-Aug CHFNOK (rha) Equities 16200 15700 15200 14700 14200 13700 24-Jul Dow Jones 505 500 495 490 485 07Aug 21Aug Os lo (rha) NOK sov.US spread 0.33 Last 96.97 Last 0.87 1.4 6.88 10y yld 2.415 Today 97.26 2.37 2.48 2.2 6.81 1.83 10y Prior 0.48 0.55 7y 10y 2.73 1.8 24-Jul 07-Aug USDNOK 1.75 1.2 91.87 CHF 7.12 10y 97.3% 1. Thomson Datastream and DNB Markets .25 2.25 5y 7y 2.08 91.75 2.58 10y 92.18 0.52 6 19.29 6m 12m Invalid Invalid RIC(s): RIC.7198 1.0 94.38 2.26 0.67 0.Morning Report 21.76 Nasdaq C.87 2.11 5.39 0.US spread -0.0% Sources to all tables and graphics: Thomson Reuters.26 0.27 0.15 0.0 5.01 0.US spread -0.86 -1 24.87 2.8% 1.48 0.82 1.145 0.63 Eurostoxx50 2787.14 Last 96.794 6.25 0.89 2.43 2.92 SGD USD 0.83 2.7% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6453.2023 9.99 -0.73 Gold price 20.94 1.71 1.35 1.24 1.97 2.60 RUB 1. 3613.98 -1.78 1.35 Last Germany Prior 97.00 102.79 Nikkei 225 13432.55 2.33 1.05.29 1.08 0.05 2.729 91.042 0.91 1.55 1.83 KWD 5.524 0.03 2.2% 1.80 7.25 1.27 0.55 4 18.45 CZK 8.05.6 1.29 1.03 12m 2.3353 0.573 0.47 1.00 3.03 -0.

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