Investment Research

01 October 2010

Weekly Focus
Global tensions on the rise
Market Movers ahead

The key event next week will be US non-farm payrolls. We look for a report on the soft side with private payrolls rising 50k. The main event in the euro area will be the ECB meeting. Focus will be on comments about the liquidity situation and the ECB’s asset purchase programme. The Bank of England is expected to increase its quantitative easing programme by GBP50bn at its meeting on Thursday. Industrial data in Sweden is expected to stay strong. In Norway the budget for 2011 is due to be presented.

Contents Market movers ahead ........................................... 2 Global Update: Tensions on the rise ....... 5 Scandi Update ................................................................ 7 Equities: On shaky ground .................................. 9 Fixed Income: Tensions on the rise again ......................................................................................10 FX: In the midst of a currency war..........11 Commodities: Strong September .........12 Credit ...................................................................................13 Financial views...........................................................14 Macroeconomic forecast ..............................15 Financial forecast ...................................................16 Calendar ...........................................................................17

Global Update

This week was dominated by rising tensions on the global scene with fears of a growing ‘currency war’. US-Chinese relations took a turn for the worse with the US House voting for a bill allowing the US to put duties on countries with undervalued currencies. Tensions have also risen in Irish and Portuguese debt markets. The spill-over effects to other markets have been limited, though, and it has not stopped the ECB from moving on with its exit strategy. US consumers continue to be very downbeat. On a positive note, however, Chicago PMI was much better than expected. More signs of recovery in China as PMI rose for second month in a row. Hopes are rising that German consumers are finally coming to life. This week unemployment fell further and a wage deal was struck giving engineering workers a 3.6% wage rise.

• •

US payrolls to continue at slow pace
117 115 113 111 << US private payrolls, level 109 107 105 US private payrolls, chng >> 05 06 07 08 09 10 Mn Monthly chng, '000 300 100 -100 -300 -500 -700 -900

Ireland and Portugal under pressure
5,0 4,0 3,0 Ireland 2,0 1,0 0,0 jan Portugal apr jul 09 okt jan apr 10 jul 2,0 1,0 0,0 10y gov spread to Germany, % point 5,0 4,0 3,0

Editors Allan von Mehren +45 4512 8055 alvo@danskebank.dk Steen Bocian +45 45 12 85 31 steen.bocian@danskebank.dk

Source: Reuters Ecowin

Source: Reuters Ecowin

www.danskeresearch.com

Weekly Focus

Market movers ahead
Global

Next week’s US calendar will be dominated by non-farm payrolls. We look for a rise in private payrolls of 50k following last month’s rise of 67k. We are slightly below consensus at 82k for private payrolls. Total payrolls are still affected by the census so this number is still not very interesting. The labour market indicators continue to be mixed with ISM manufacturing employment index being strong, but jobless claims, jobs-hard-to-get from consumer confidence and ISM non-manufacturing employment being soft. The unemployment rate is expected to rise from 9.6% in August to 9.7% in September as payroll growth is too slow to keep up with labour force growth. Pending home sales for August will give more input to the state of the labour market following the expiry of the first-time buyer credit. ISM service will give more input to activity in the service sector. The index weakened last month and points to slowing in the service sector. Since 70% of jobs are to be found in the service sector it is important we don’t see much further decline. In Euroland the biggest scheduled event is the ECB Governing Council meeting on Thursday. We do not expect the wording on growth and inflation to have changed much, but we will look for hints that the sharp decline in excess liquidity following this week’s refinancing operations has led the ECB to conclude that banking sector healing is progressing well and that it can shift to fixed allotment on the three-month auctions early next year. We have projected a shift to fixed allotment from Q2 11. There will also be attention on German industrial orders (Wednesday) and German industrial production (Thursday) for August. German orders fell in July and could rebound somewhat in September. Industrial production is projected to increase slightly in September. In June-July production was dragged down by declining car production, which is probably not going to continue.

US non-farm payrolls still weak
55 50 45 40 35 30 01 << ISM composite, employment 02 03 04 05 06 07 08 09 10 Non farm private payrolls >> Index Mth chng, '000 persons 300 100 -100 -300 -500 -700 -900

Source: Reuters Ecowin

German industrial production takes a breather
120 115 110 105 100 95 90 85 06 << German industrial production 07 08 09 10 German factory orders >> 2005=100 133 123 113 103 93 83 73

Source: Reuters Ecowin

BoE’s monetary policy meeting is likely to take centre stage in UK markets next week. Last week, several MPC members flagged a dovish stance with external member Posen in the lead with his ‘case for doing more’ (QE, red.). As UK data has undershot expectations and UK prospects are deteriorating fast, we believe BoE will opt for additional GBP50bn and thereby bring asset purchases to GBP250bn. The rate decision is trivial; the base rate is widely expected to be kept unchanged at 0.50%. We think UK yields will decline on the announcement and EUR/GBP will rise further. There are high hopes for industrial and manufacturing production data and we see scope for disappointments after declines in PMIs. In Switzerland, the spotlight will be on the inflation figures for September released on Tuesday. Inflation has been surprisingly low in recent months, which probably contributed to the SNB’s rather soft tone at its September meeting. We expect inflation to edge up from 0.3% in August to 0.4% in September, which is scarcely enough to worry the SNB, and at the time of writing we do not expect a first rate increase until Q2 11. In Japan, the main focus will be on BoJ’s monetary meeting on 4-5 October. For Japan’s recent intervention in the FX market to be effective in stemming the recent

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appreciation in the yen, it is at least necessary that BoJ backs it up with further quantitative easing. In addition, the latest economic data suggests growth could slow substantially in Q4 and there is increasing downside risk to the economy, see Flash Comment – Japan: Tankan suggests growth could slow substantially and Flash Comment – Japan: Industrial recovery is losing steam. Hence, we expect BoJ to expand its quantitative easing further in connection with next week’s monetary meeting. It will probably will expand the size of its new three- and six-month credit facilities further. The total size of the programme currently stands at JPY30trn and could be expanded by another JPY10trn. We do not expect BoJ to increase its purchase of government bonds.

Chinese service PMI expected to improve further
60 55 50 Diffusion

HSBC PMI
<<Manufacturing

Diffusion

Service>>
45 40 06 07 08 09 10

58 57 56 55 54 53 52 51 50 49

Source: Reuters Ecowin and Danske Marjkets

In China markets will be closed from 1 October to 7 October in connection with the celebration of China’s National Day. Nonetheless, there will be a couple on minor releases next week. Most interesting is the release of HSBC service PMI on Tuesday. In line with the HSBC manufacturing PMI, HSBC service PMI has in recent months also suggested that the Chinese economy is again improving, see Flash Comment – China: PMI improves for the second month in a row. However, as service PMI has tended to lead manufacturing PMI in recent months, it might also give an indicator about where manufacturing PMI will go in October.

Danish exports recovering fast
85 80 75 70 65 60 55 50 01 02 03 04 Exports - Purchaces and sales by industri 05 06 07 08 09 10 Exports - official DKK bn DKK bn 85 80 75 70 65 60 55 50

Scandi

There are no big releases in Denmark during the week. Monday brings figures for foreign exchange reserves in September, which we expect to show a small net inflow. On the macro front, attention will centre on export data for August in Wednesday’s statistics for firms’ purchases and sales, which will also contain information on movements in domestic demand. The same day brings figures for bankruptcies and forced sales of property in September, while Thursday sees industrial production for August. Finally it is worth noting that we will be releasing our new forecasts for the Danish economy on Monday. We look forward to industrial data from Sweden late in the week – both industrial orders and production are expected to hold up well, since all survey information is pointing solely in that direction. Service production index is also due to be released and September government net borrowing need is being made public. For service production, the chances are that it will reveal the same trend as industrial data, i.e. another strong reading. Furthermore, we are somewhat curious to see whether the developments in government borrowing are continuing to post outcomes a tad worse than projected by the Swedish National Debt Office. The week’s main event in Norway is the unveiling of the government budget for 2011. Although we expect the government to be able to move closer to the ‘action rule’ of spending 4% of the oil fund, this does not mean that fiscal policy will be tighter. The budget’s effect on the economy can be measured as the change in the structural non-oil budget deficit as a percentage of mainland GDP. Measured in this way, we expect the budget for 2011 to be slightly expansionary: in the range 0.1-0.3% of GDP. In this case the budget will not have a notable impact on Norges Bank’s ratesetting and should not therefore have any great market impact. It is also worth keeping an eye on the actual non-oil budget deficit, which could provide information

Source: Reuters EcoWin

Production volumes heading north
120 Index (2005=100) 115 Service Sector Production (SA) 110 105 100 95 90 85 Industrial Production (SA) 80 07 08 09 10 120 115 110 105 100 95 90 85 80

Source: Statistics Sweden

Norwegian industrial production takes off
120 2005=100 115 << Manufacturing production 110 105 100 95 90 00 01 02 03 04 05 06 07 08 09 10 2005=100 120 115 110 105 100 95 90

Source: Reuters EcoWin

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Weekly Focus

on the need for foreign exchange purchases by Norges Bank in 2011. Otherwise, the week brings industrial production for August. After a sharp increase of 3.9% m/m in June and a further slight rise in July, it appears that industrial production took off over the summer. Even only moderate growth in August would pave the way for industrial production to grow by more than 2% in Q3.
Market movers ahead
Global movers
Mon Tue Wed Thur Fri 04-Oct 05-Oct 06-Oct 07-Oct 08-Oct 16:00 16:00 12:00 12:00 14:30 14:30 USD USD DEM DEM EUR USD

Event
Pending home sales ISM non-manufacturing Factory Orders Industrial production ECB Press Conference Nonfarm payroll 1000 m/m Index m/m|y/y mm/|y/y

Period
Aug Sep Aug Aug Oct Sep

Danske
51.9

Consensus
2.1%|… 52.0 1.0%|… 0.5%|…

Previous
5.2%|-20.1% 51.5 -2.2%|17.7% 0.1%|10.9% -54

-20

5

Scandi movers
Mon Thur Fri 04-Oct 07-Oct 08-Oct 16:00 10:00 9:30 DKK NOK SEK

Event
Currency reserves (Change) Manufacturing Production, sa. Industrial production DKK bn m/m|y/y m/m|y/y

Period
Sep Aug Aug

Danske

Consensus

Previous
429.2 (0.5) 0.1%|6.6%

…|19.5%

2.9%|14.4%

Source: Bloomberg and Danske Markets

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Weekly Focus

Global Update: Tensions on the rise
China recovering while US consumer stays downbeat
It has been quite a mixed week with some markets performing well while others have been under pressure. Equity markets have kept a positive tone as positive PMI data out of China and a stronger-than-expected Chicago PMI eased double-dip fears further. At the same time, worries over debt developments in Ireland and Portugal sent bond yields in these countries sky-rocketing. In Germany, a continued decline in unemployment added to hopes that the German consumer may finally be stirred into action and help sustain the recovery in Germany and give important support to the euro economy. IG Metall struck a deal with employers of wage increases of 3.6% for engineering workers. This is a further sign of positive sentiment in the German industry. Higher wage increases will also underpin consumption growth. On a more negative note, US consumer confidence fell further in September, raising further doubts as to the strength of the domestic economy. Compared with previous recoveries, consumer confidence is at its lowest level at this point of the recovery. A further decline in house prices from Case/Shiller added to a picture of a still downbeat housing market which is probably part of the explanation for consumers staying so subdued. Overall, the development over the past week did not change our outlook for the global economy as positive and negative surprises were fairly balanced.
Ireland and Portugal under pressure
10 8 6 4 2 0 jan feb mar apr maj 10 jun jul Spain aug sep Greece Ireland Portugal 10y gov spread to Germany, % point 10 8 6 4 2 0

Source: Reuters Ecowin

eco

US consumers still incredibly downbeat
160 Index US consumer confidence (Conf. Board) 140 120 100 80 60 40 20 65 70
Current level of consumer conf.

Index

160 140 120 100 80 60 40 20

75

80

85

90

95

00

05

10

Global tensions on the rise
Tensions between China and the US reached another level as the US House of Representatives this week approved a bill which would allow the US to use estimates of currency undervaluation to calculate countervailing duties on imports from China and other countries that keep their currencies undervalued. China hit back at the US saying that it violates the WTO rules and could damage the relations between the two countries. The issue of currency war was also brought to the surface by Brazil this week as it raised a ‘currency war alert’. Brazil is concerned that its economy will be hurt by other countries’ attempt to lift their exports by weakening their currencies. Things are heating up as we approach the mid-term elections in early November in the US and will most likely be high on the agenda at the coming G20 meeting in Korea – also in November. We believe global tensions will be with us for a long time. The US is increasingly concerned about growth falling back with unemployment being stuck at close to 10%. And with not much fuel left to fight any slowdown, politicians are likely to increase focus on protectionist measures and increase their voices against Chinese currency manipulation.

Source: Reuters Ecowin

Strong US pressure for further strengthening of the CNY
6,850 6,825 6,800 6,775 6,750 6,725 6,700 6,675 okt dec 09 feb apr jun 10 aug USD/CNY 6,850 6,825 6,800 6,775 6,750 6,725 6,700 6,675

Source: Reuters Ecowin

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Weekly Focus

Euro debt problems in focus again
Spain lost its last AAA rating on Thursday. Moody’s downgraded Spain’s rating to Aa1 with stable outlook. A downgrade of one or two notches was expected. Moody’s said that the government’s determination to cut the government deficit was key to just a one-notch downgrade. In Ireland, the central bank put a EUR29.3bn (18% of GDP) price tag on bailing out Anglo Irish Bank and EUR34bn (21% of GDP) under a worst-case scenario. As a result of the large bank restructuring costs, the government deficit is set to reach 32% of GDP in 2010. We project the debt will peak at c120% of GDP in 2014 if everything goes well. In an alternative ‘no growth’ scenario, debt could peak at 147% of GDP in 2016. There are negative risks to these estimates as no bank restructuring costs are accounted for beyond 2010. Ireland is fully funded until late June 2011 and has decided not to proceed with the bond auctions scheduled for October and November, but will return to the market in early 2011. The European Commission presented its proposal for a strengthening of the Stability and Growth Pact – including both deposits and fines. The proposal has an increased focus on prevention and avoiding macroeconomic imbalances. The Commission’s proposal needs to be accepted by EU ministers and the European Parliament before it can come into force, so there is still a risk that the reform could become somewhat toothless than what has been put on the table today. The ECB only allotted EUR29.4bn in Thursday’s six-day bridge auction. As a result, excess liquidity is declining from around EUR100bn to around EUR20bn. This has put upward pressure on short rates. The ECB is likely to see the small amount requested as a sign of banks returning to better health. If anything, this speeds up the ECB exit. We expect the ECB to move to fixed allotment on 3M LTRO in March 2011.
Irish debt increases sharply
160 140 120 100 80 60 40 20 0
Government debt in % of GDP

"No growth" scenario Best case scenario

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: Reuters Ecowin and Danske Markets

Short end yields rising on tighter liquidity in the Euro area
0,80 % 0,75 0,70 EUR 6m eonia rate 0,65 0,60 0,55 0,50 0,45 0,40 apr maj jun jul 10 % 0,80 0,75 0,70 0,65 0,60 0,55 0,50 0,45 0,40

aug

sep

Source: Reuters Ecowin and Danske Markets

Further signs that the Chinese economy has bottomed out
Both of China’s manufacturing PMIs in September improved for the second month in a row, suggesting that the Chinese economy bottomed out in Q3 and growth will improve in Q4, see Flash Comment – China: PMI improves for the second month in a row. That said, the sharp improvement in the NBS manufacturing PMI was to a large degree due to seasonality and hence we would not be surprised if it declines slightly in October. In the rest of Asia, manufacturing PMIs continue to decline. However, as China’s manufacturing PMIs have tended to lead the rest of Asia, we expect manufacturing PMIs in the rest of Asia to start bottoming out in the coming months. In Japan, the Tankan business survey was actually slightly better than expected. Nonetheless, a sharp deterioration in the outlook component suggests growth could slow substantially in Q4, see Flash Comment – Japan: Tankan suggests growth could slow substantially. Weakness is now also evident in industrial production. Industrial production declined in August and more worryingly Japan’s manufacturers also plan to cut production in September and October, see Flash Comment – Japan: Industrial recovery is losing steam. The main message from the past week’s data in Japan is that while GDP growth has remained resilient in Q3 (probably above 2% q/q AR), it could slow substantially in Q4 (possibly below 1% q/q AR). While we expect GDP growth to pick up again in 2011, this will be enough for Bank of Japan to expand its quantitative easing further this week and continue intervention to stem the appreciation of the yen.
Chinese PMI bouncing further
65 Diffusion << New Orders, HSBC PMI 55 % y/y 25,0 22,5 20,0 17,5 15,0 12,5 10,0 7,5 5,0 2,5

45 Industrial production>> 35 05 06 07 08 09 10

Source: Reuters Ecowin and Danske Markets

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2020

Weekly Focus

Scandi Update
Denmark – Upswing more robust than previously thought
The revised national accounts data for Q2 brought a few pleasant surprises. Quarterly GDP growth was revised up from 1.0% to 1.7%, meaning that the Danish economy has grown by no less than 3.7% over the past year, up from the previous estimate of 2.8%. GDP itself was revised up by around DKK2.7bn. Drilling down into the data, we can see that this was due to stronger investment and private consumption: growth in gross fixed capital formation was revised up from 3.2% to 8.1%, and growth in private consumption from -0.3% to 0.4%. The revised GDP data therefore suggests a more robust upswing in the Danish economy than previously thought, and it is also good to see that consumers are very much alive and kicking, lifting consumption by 3% from H1 09 to H1 10. However, despite these strong figures for the Danish economy and the high rate of economic growth over the past year, output is still almost 4% below its peak before the crisis struck. Similarly, these figures do not change the fact that there are still challenges ahead – neither public spending nor stock building will help shore up the economy in the same way in the coming quarters, and there is still uncertainty about the sustainability of the economic recovery. Although economic activity was revised up, employment was revised down slightly by 3,000 people. Most importantly, though, there was still a rise in employment of 5,000 people from Q1 to Q2, confirming that the labour market has stabilised after a record downturn. Further evidence came from the week’s unemployment data for August, which showed a fall in gross unemployment of 5,100 people from July after strong growth in June and July. This volatility is probably due to the techniques used for seasonal adjustment during the summer period. The overall picture on the unemployment front therefore now ties in slightly better with the latest trends in employment. There is much to suggest that the tendency towards relatively flat employment and unemployment will persist for some time to come. The high levels of economic uncertainty indicate that companies will bide their time before they start to recruit again, and data for businesses’ employment expectations released during the week also suggest close to flat growth in employment over the next three months.
Danish growth bouncing back fast
5 3 1 -1 -3 -5 -7 Denmark 98 99 00 01 02 03 04 05 06 07 08 09 Euroland GDP, % y/y GDP, % y/y USA 5 3 1 -1 -3 -5 -7

Source: EcoWin

Swedish economy defying gravity
The Swedish economy is by and large defying gravity through a series of incomprehensibly strong outcomes . The latest bout of (strong) data was retail sales and the Consumer and Business Confidence surveys produced by the National Institute for Economic Research (NIER). Also, we received the lowest trade balance since before our own financial crisis at the beginning of the 1990s. However, exports grew briskly, while imports made an even stronger appearance – that in turn is not a signal of weakness, but rather one of very strong momentum in the domestic economy and a continued need to replenish stocks. For some time we have asked ourselves how long Sweden – with a 60% exports share of GDP – can continue to develop this way when the world around us is developing in a
Standardised Confidence data
1.5 0.5 -0.5 -1.5 -2.5 -3.5 07 Manufacturing Confidence 08 09 10 Consumer Confidence STD Service (incl retail) Confidence STD 1.5 0.5 -0.5 -1.5 -2.5 -3.5

Source: NIER. Danske Calculations

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much less convincing manner. Of course, we all know that should global demand continue to weaken, Sweden will eventually suffer. Recent developments, however, suggest that ‘eventually’ is still some time away. Even though it is not our main scenario, we would not be completely surprised to see any of the monetary policy board members airing the subject on an even more aggressive rate hike near term.

Norway – A more mixed picture
Retail sales fell back in August after the very strong growth of 1.8% m/m in July, but private consumption seems to be trending up again and probably rose by 0.8-0.9% q/q in Q3, which is more or less what we would consider the trend rate for consumption growth in Norway. However, there are still no signs of low interest rates fuelling a consumer boom in Norway. In isolation, this will buy Norges Bank time in a period when interest rates abroad look set to stay very low. On the other hand, the lending data for August showed that aggregate credit growth is now accelerating. Particularly worth noting is that underlying growth (3M rolling average, annualised) in household debt is up above 7%. It therefore seems likely that the ratio of household debt to disposable income will climb for a third successive quarter in Q3. This goes to show that interest rates are now low enough for household debt to grow at an unsustainable rate. With the debt-to-income ratio still as high as it was before the financial crisis, this would support Norges Bank’s desire to gradually raise interest rates in Norway.
Interest rates are too low
200 190 180 170 160 150 140 130 02 03 04 05 06 07 08 09 % av disp. inntekt % av disp. inntekt 200 190 180 170 160 150 140 130 << Husholdningenes gjeldsgrad

Source: Statistics Norway, Danske Markets

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Equities: On shaky ground
More uncertainty
Equity markets are still being dominated by the cyclical slowdown, with the past week seeing a mixed bag of signals as to the direction of the global economy. One of the most important sentiment indicators was US consumer confidence, which plunged below 50. At this point after a recession, confidence would normally be hovering around 80, which clearly illustrates the depth of the current crisis in US society. Looking into the details of the index, it showed that home purchase plans and access to the job market were still the problem areas. The gloom of the consumer can be translated directly into investor confidence in the equity market, which supports our expectation that it will take more time for the equity market to overcome the cyclical as well as the structural challenges that characterise this post-finance-crisis period. We therefore believe that global equities will remain trapped in the trading range we have seen in the major markets in Europe and the US.
Key events of the week

US
• ICSC Chain Store Sales (Thursday) • Consumer Credit (Thursday) • Non-farm Payrolls (Friday) • Avg. Hourly Earnings (Friday) • Avg. Weekly Hours (Friday)

Has China’s economy bottomed out?
China’s PMI manufacturing index showed renewed strength in September. If other signs appear to suggest that Chinese industrial production has turned around and is on its way up, this might, as in early 2009, be a signal of renewed global expansion. Further positive signals from the Chinese industrial cycle would undoubtedly indicate a new upswing for materials, capital goods and energy equities – and here energy equities in particular look undervalued. A budding Chinese turnaround would also have a positive effect on freight rates and therefore shipping equities. The coming week may see more focus on the longer-term conditions for shipping, energy and commodity related companies via the annual commodity conferences (see box right).

Europe
• Eurozone Retail Sales (Tuesday) • German Exports (Friday)

A week with focus on commodities
• Iron Ore & Coal World Shipping

Summit 2010 (Monday)
• Iraq Oil & Gas Summit (Thursday

to Friday)
Source: Danske Markets Equities

We remain positive on banks in Q4
Moody’s downgrade of Spain in the past week was not unexpected, but coupled with the turmoil in Ireland, where CDS spreads are now higher than at the peak of the finance crisis in 2008, it has once again highlighted the problems for European financials. We remain basically positive on banks for a number of reasons: (a) the Eurozone Stability Fund provides a solid guarantee against the consequences of sovereign bankruptcies among the PIIGS nations for the next three years, (b) investors are clearly underweighted in the financials sector, but given that future regulation issues are largely settled, we expect that more investors will close their underweights, and (c) H2 10 earnings could still surprise positively. The banking sector is therefore a good bet as a sector that could perform despite the current slowdowns in the economy and the profit cycle.

New upswing requires US job creation to pick up
The key macroeconomic data in the coming week will be September’s job report (8 October). This report is an important barometer of the sustainability of the recovery that has been under way since Q1 09. Earlier in the week, attention will be on consumer data, with US consumer loans for August (7 October), ICSC Chain Store Sales for September (7 October) and Eurozone Retail Sales for August (5 October). Finally German exports for August (8 October) will provide an indication of how hard the European economy is being hit by the global slowdown and the 15% appreciation of the euro against the dollar since June 2010.

Analyst Rikke Michaela Greve +45 45128056 rikg@danskebank.com Chief Analyst Morten Kongshaug +45 45128057 mokon@dabnskebank.com

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Fixed Income: Tensions on the rise again
Long bond yields continue lower
Following a three-week correction in bond markets through September, German 10-year yields headed lower again last week and this week. Already, the German 10-year bond has recovered more than half of the losses during early September. The change in sentiment was triggered by the fact that the Fed is now moving closer to QEII and European PMI data showed clear evidence of weaker growth ahead. Going forward, the evidence of a slowing European economy is likely to materialise further. Moving through the autumn, more weakness in European PMIs and the US ISM will continue to add support to the long end of the bond market along with the Fed, which we expect to resume quantitative easing. On top of this, tensions in the PIIGS debt markets are on the rise, with spreads widening considerably in Ireland and Portugal, and Spain losing its last AAA rating. In the long end, risks have also risen. Basically, the 30s remain much too low compared with both 5s and 10s. However, as yields move lower, the duration pain is returning to the life and pension sector and the risk of a new wave of hedging flows is increasing. All these factors suggest that the risk remains for lower bond yields in the near term.
Key events of the week ahead

Data and events
• • • •

Global service PMIs (Tuesday) German factory orders (Wednesday) ECB meeting (Thursday) Non-farm payrolls (Friday)

Auctions
• • •

AUS: ’21 & ’37 bonds (Tuesday) DEM: EUR2bln 2y Schatz (Wednesday) ESP: ’13 bonds (Thursday)

Short rates higher on declining excess liquidity
However, in the short end, rates have been rising due to tighter liquidity in the Eonia market following the expiry of EUR225bn in liquidity. In the subsequent tenders, demand for liquidity was much less than expected. On the three-month LTRO, EUR104bn was allocated. In the six-day fine-tuning operation, only EUR29.4bln was allocated. This has reduced excess liquidity, which effectively implies that the ECB is moving on with its exit. Consequently, money market rates have increased with rub-off effects on the curve all the way out to the five-year segment.
Short yields up, long yields down
1.4 % %' 1.3 10-year Bunds yield >> 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 << 2-year Schatz yield Jan Feb Mar Apr May Jun Jul Aug Sep 10 3.50 3.25 3.00 2.75 2.50 2.25 2.00

ECB meeting and payrolls next week
The upcoming ECB meeting is unlikely to be a big event. The central bank had already extended non-standard liquidity measures through Q4 at the previous meeting and we do not expect any decision on Q1 measures to be announced before the November meeting. However, it will be interesting to see how the central bank is interpreting the low demand for liquidity. If the ECB argues that it is a sign of increasing health in the European banking sector, it might fuel market fears that the full allotment tenders will not be carried into next year. We do not believe Trichet will change much in his assessment of the economy. Apart from the ECB meeting, the main event will be the US non-farm payrolls report. We look for another moderate reading and see a risk of a rise in unemployment. This could be a thorn in the side of the Fed and increase the conviction in the market that QEII will soon arrive.

Source: Ecowin and Danske Bank

3M Eonia sky-rockets
0.75 0.70 0.65 0.60 0.55 0.50 0.45 0.40 0.35 Jan Mar May 10 Jul Sep % 3M eonia rates % 0.75 0.70 0.65 0.60 0.55 0.50 0.45 0.40 0.35

Source: Ecowin and Danske Bank

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FX: In the midst of a currency war
Brazilian Finance minister, Guido Mantega, said this week that the world is “in the midst of an international currency war”. Mantega made his comments as the Brazilian real continued to appreciate against major currencies including the Chinese yuan. His comment also came just one week after the Federal Reserve hinted about a new round of quantitative easing, two weeks after BoJ intervened in the FX market and incidentally at the same time as gold hit a new record high on financial jitters and dollar concerns. Mantega is understandably annoyed with the currency policy of his ‘neighbours’. ‘Deficit’ countries like the US and the UK try more or less openly to ‘devalue’ themselves out of the problems by adopting an exceptionally aggressive monetary policy stance. Whereas ‘surplus’ countries on the other than – most notably China – build up FX reserves in an unprecedented way to mitigate the unavoidable appreciation that comes with a huge trade surplus. Brazil rightly feels that this is not a level playing field. The US also argues that China is not playing by the rules. In the spring, China agreed to let the yuan appreciate, but the move has, according to Washington, been far too modest. In the past week, the House of Representatives voted in favour of approving new penalties against countries that deliberately undervalue their currencies to gain an unfair trade advantage. The bill would let the Commerce Department impose tariffs on imported goods from countries that keep their respective currencies undervalued. The Obama administration has not taken an official position on the bill and is trying – for now at least – to take a more diplomatic approach to the issue. But international currency movements are definitely going to be an important issue over the next two months ahead of the November mid-term election in the US and the November G20 meeting in Seoul. We might not yet be in the middle of a currency war, but it definitely looks like an exciting autumn in the global FX market.
Weekly changes against EUR, %
SEK JPY AUD CHF NZD NOK USD GBP CAD
Source: Bloomberg

Strong Brazilian real

Source: Ecowin

BoE and BoJ to introduce more quantitative easing
Mantega’s mood might not improve much in the coming week. Next week, BoE is expected to kick off a new round of quantitative easing. We believe BoE will opt for an additional GBP50bn and thereby bring asset purchases to a total of GBP250bn. It is not part of the official policy to weaken sterling, but we would not be surprised to see EUR/GBP moving higher on the announcement. BoJ is also expected to engage in a new round of quantitative easing at its policy meeting. It is most likely that BoJ will expand the size of its new three- and six-month credit facilities further. The total size of the programme currently stands at JPY30trn and will probably be expanded by another JPY10trn. Contrary to BoE, we doubt Japan will have any success in depreciating its currency. In fact, as we argue in FX Strategy: Prepare for fresh lows in USD/JPY, the JPY will continue to appreciate despite BoJ efforts. Finally we recommend keeping an eye on two distinct scandi events. In Sweden, the last fixed repo facility of SEK95bn will expire on 6 October; fears of a tighter liquidity situation have already pushed SEK rates higher giving support to the SEK. In Norway, watch out for the 2011 budget on 5 October. It might give an idea of how much foreign currency Norges Bank will purchase next year on behalf of the Petroleum Fund.

Sterling to suffer on new QE from BoE
0.92 EUR/GBP 0.91 0.90 0.89 0.88 0.87 0.86 0.85 0.84 0.83 0.82 0.81 0.80 Jan Feb EUR/GBP 0.92 0.91 0.90 0.89 0.88 0.87 0.86 0.85 0.84 0.83 0.82 0.81 0.80

Mar

Apr

May 10

Jun

Jul

Aug

Sep

Source: Ecowin

Chief Analyst Arne Lohmann Rasmussen +45 45 12 8532 arr@danskebank.dk

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Weekly Focus

Commodities: Strong September
Strong gains in September
Cyclical metals in particular led the way in September. Aluminium, lead and nickel all gained more than 10% during the month. Copper, on the other hand, climbed just 8%, but did in fact pass USD8,000/t for the first time since 2008, and prices are now just 8% below the 2008 record. Energy and agriculturals also gained. Brent crude is above USD80/bbl for the first time since April, and diesel prices in particular shot up, climbing almost 10% in Europe. Within agricultural products, though, wheat has lost a little ground, although prices are still well above the levels seen in the spring. On the other hand, the market has woken up to the fact that rapidly rising wheat prices can squeeze the supply of other crops. In the past month alone, corn prices in the US have climbed almost 20% and soybeans almost 10%.
Weekly changes
Matif Wheat Gold Copper Aluminium API2 coal ICE Brent -10 0 10

Renewed faith in China and a weaker USD
Commodity prices have risen against the background of fresh optimism about Chinese growth. The latest PMI data indicates that the Chinese economy is moving up a gear after the slowdown in Q2. Commodities have also been favoured by a weaker USD after the Fed took a big step towards further easing during the week. Although the commodity market looks fairly strong, we still believe that the coming months will bring regular setbacks. There is still the prospect of European and US manufacturing slowing further in the next few months. We can therefore see the US ISM index heading down towards 50 in the coming months. This means that we have to expect the market to focus on the risk of a more serious economic slowdown at regular intervals.

Five-day change, %
Source: Ecowin

Copper close to all-time high…

Rumours abound of copper and aluminium ETFs
Recent months have seen rumours circulating in the metal market of the introduction of exchange-traded funds (ETFs) based on physical metals. This type of ETF is already familiar from the gold market, where ETFs and similar products accounted for almost 30% of aggregate demand for gold in Q2. ETFs have become popular because they make investment in the likes of gold particularly easy for non-professional investors. The special thing about physical ETFs is that they have a direct impact on the physical market, as they are based on the physical commodity, unlike commodity investments based on financial contracts. Gold ETFs have worked well for many years, and one or more aluminium ETFs now seem to be on the way. As stocks of aluminium are already high, however, the market impact of a new buyer in the physical market should not be that great. When it comes to copper, though, the picture is very different. The value of current LME stocks is around USD3bn. By way of comparison, more than USD11bn was invested in gold ETFs in Q2. If the rumours of a copper ETF are true, this could therefore have a major impact on the copper market. It would potentially remove a large chunk of today’s physical metal and lead to particularly high prices, as copper stocks are only modest even now.

Source: EcoWin

…and stocks are falling

Source: EcoWin

Chief Analyst Arne Lohmann Rasmussen +45 4512 8532 arr@danskebank.dk

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Weekly Focus

Credit
Market commentary
Ireland and Spain have been top of the agenda during the week. Moody’s downgraded Spain’s sovereign rating from Aaa to Aa1 – i.e. by one notch. The outlook on the rating is stable. The move was largely expected and brings the Moody’s rating more in line with S&P and Fitch (with ratings of AA and AA+ respectively) and the fact that Moody’s has assigned a stable outlook may actually mean that the news is positive. Of more concern are the developments in the Irish banking sector and in the Irish economy in general. On Thursday, the Irish Central Bank announced that EUR29bn (18% of GDP) is needed to bail out Anglo Irish Bank in a base case scenario and EUR34bn under a worst case scenario. The latter number is more or less in line with the estimate made by S&P. Furthermore, it has been announced that arrangements will be made in order to make sure that subordinated debt holders carry their part of the burden of the bail-out (in line with the “burden sharing” concept that was introduced by the EU Commission last year). In other words, significant capital writedowns must be expected on Anglo Irish subordinated debt. On the other hand, senior debt is still to be guaranteed by the Irish government. Despite the ongoing tensions concerning sovereign debt, CDS indices are largely unchanged. The investment grade and high yield indices currently trade at 112bp and 514bp respectively.
iTraxx Europe (investment grade)
250 bp

200

150

100

50

0 Sep/07

Mar/08

Sep/08

Mar/09

Sep/09

Mar/10

Sep/10

Source: Bloomberg & Danske Markets

The primary market
After some very busy weeks in the primary market, activity has levelled off a bit this week. Yet again we have seen a new corporate hybrid reaching the market with Glencore’s USD350m issue. In our view, yield hungry retail investors are currently very supportive for the corporate hybrid market.
Table 1. Selected new issues during the week
Bond spread on Name Glencore (hybrid) Nordea Continental Gummi ABN Amro Alstom Rating Baa2/BBBAa2/AAB1/NR Aa3/A Baa1/NR Coupon Maturity Currency Fixed Fixed Fixed Fixed Fixed 5Y 3 & 20Y 6 & 8Y 7Y 5 & 8Y USD USD EUR EUR EUR Size 0.35 2.75bn 0.75bn 1.0bn issue date, (bp)* Yield 7.5% Gov +115&135 137 Gov +166&151

iTraxx Crossover (high yield)
1,400 bp 1,200

1,000

800

1.25bn Yield 6.5&7,125%

600

400

200

Note: Ratings are Moody's and S&P. * Mid-Swaps for Fixed, Discount Margin for floating Source: Danske Markets & Bloomberg

0 Sep/07

Mar/08

Sep/08

Mar/09

Sep/09

Mar/10

Sep/10

Source: Bloomberg & Danske Markets

Senior Analyst Henrik Arnt +45 4512 8504 Henrik.arnt@danskebank.dk

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Weekly Focus

Financial views
Equities

The stock market is striving for direction as it normally does in slowdown phases. There are two very different scenarios on the horizon, which, as long as they keep each other in check, should keep the stock market range-bound. We believe that the situation will soon become pivotal and that the greatest question for 2010’s risk investors is, what does 2011 hold – a double-dip recession or ‘the new recovery’? We expect a new recovery phase to emerge in 2011 with performance of 10% for the US and 20% for Nordic stocks in our base case. Until further proof of direction, we reiterate financials and defensives as overweight against cyclicals.

Equities and US 10Y yield
Index 4.00 3.75 3.50 3.25 3.00 << S&P500 US 10-year gov bond >> Apr May Jun 10 Jul Aug Sep 2.75 2.50 2.25

1275 1225 1175 1125 1075 1025 975 925

%

Fixed Income

Tighter liquidity in the EONIA has been pushing short rates higher – there is a risk that this technical upward pressure could continue in the near term. In the long term, we expect lower rates as the Fed moves on to QEII and European/US PMI data weakens further. On top of this, a return of the hedging flows from the life and pension sector could add further downward pressure on long yields. The risk is for flatter curves. Intra-Euroland and Scandi: We are long Germany and Italy versus Spain and France. We are overweight Scandinavia versus Euroland. We remain of the opinion that credit is a good place to be invested in over the coming months. Companies are still acting conservatively with modest investments and focus on cost-cutting although the challenging economic outlook will pose a challenge for top-line growth. Primary market activity is high and we expect more in the coming months. As such, we are positive on credit for the moment. In the longer term, however, it is inevitable that companies will feel the negative effect from the austerity measures currently being undertaken around Europe. EUR/USD continues its uptrend and but the euro is not cheap relative to the dollar anymore. With the outlook of additional quantitative easing from the Fed, we expect EUR/USD to head modestly higher though. The European debt crisis is also preventing a sharp move higher in EUR/USD. The pound is, in our view, set to underperform due to a soft BoE and a rapidly deteriorating outlook for the UK economy. We think the markets will try to push USD/JPY towards 80 despite BoJ’s attempts to weaken the yen. SEK is performing well and a test of 9.00 is in the pipeline. The Riksbank raising rates and strong Swedish data is most important NOK is beginning to look cheap and Norwegian data has surprised on the upside lately. DKK is going slightly weaker against EUR and this trend could continue if EONIA rates continue to rise. Commodities have received a strong boost from the weakening dollar and upbeat Chinese numbers lately. We expect the autumn to see a large degree of volatility and thus look for occasional sell-offs in the commodities spectrum. However, we see potential for prices to move higher in 2011 as the global economy regains its footing.

Source: Reuters Ecowin

EUR/USD and USD/JPY
165 155 145 135 125 115 105 Sep 09 Jan Mar USD/JPY >> May 10 Jul Sep << EUR/USD 95 93 91 89 87 85 83

Credit

Source: Reuters Ecowin

Credit spreads
27.5 % points 22.5 17.5 12.5 7.5 2.5 07 US credit spread (Baa) >> << Eur high yield spread 08 09 10 % points 6.5 5.5 4.5 3.5 2.5 1.5

FX outlook

Source: Reuters Ecowin

Commodity prices
87.5 USD/barrel 82.5<< Oil (WTI) 77.5 72.5 67.5 62.5 Sep 09 LME metal prices >> Jan Mar May 10 Jul Sep Index 3700 3500 3300 3100 2900 2700

Commodities

Source: Reuters Ecowin

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Weekly Focus

Macroeconomic forecast
Macro forecast, Scandinavia
Year Denmark 2009 2010 2011 2009 2010 2011 2009 2010 2011 GDP 1 -4.7 1.5 1.8 -5.1 2.7 1.5 -1.6 1.8 3.1 Private cons.1 -4.6 2.8 2.3 -0.8 2.2 1.4 0.2 3.9 4.2 Public cons.1 3.4 1.6 0.5 1.7 1.5 1.3 4.8 2.7 2.3 Fixed inv.1 -13.0 -6.9 1.2 -16.0 2.3 1.8 -7.9 -7.2 3.8 Stock build.2 -1.7 0.8 0.2 -1.5 1.1 0.0 -2.1 0.8 0.1 Exports1 -10.2 2.6 3.9 -12.4 9.1 3.3 -3.9 1.1 0.3 Imports1 -13.2 1.4 3.9 -13.2 11.3 3.2 -10.3 1.9 5.5 Inflation1 1.3 2.2 1.8 -0.3 1.3 2.1 2.1 2.5 1.7 Unemploym.3 3.6 4.1 4.0 8.4 9.3 10.1 3.1 3.3 3.2 Public budget4 -3.0 -5.6 -4.5 -2.1 -3.5 -4.1 8.0 12.0 10.0 Public debt4 38.0 42.1 46.5 38.9 43.6 47.2 26.0 26.0 Current acc.4 3.9 4.1 4.1 7.2 6.3 6.6 19.0 24.9 17.0

Sweden

Norway

Macro forecast, Euroland
Year Euroland 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 GDP 1 -4.0 1.7 2.0 -4.7 3.2 2.5 -2.5 1.7 2.1 -5.1 1.2 2.0 -3.7 -0.2 0.7 -7.8 1.8 2.5 Private cons.1 -1.1 0.8 1.2 -0.1 0.0 1.9 0.6 1.7 1.7 -1.6 0.9 1.0 -4.3 1.6 0.7 -2.1 1.0 1.5 Public cons.1 2.5 1.1 1.0 2.9 3.0 1.4 2.8 1.6 1.2 1.6 1.3 1.0 3.2 0.6 0.3 0.7 0.5 0.0 Fixed inv.1 -11.3 -0.5 3.2 -12.0 9.7 6.9 -7.0 -1.3 4.2 -13.1 0.1 5.2 -15.5 -6.0 0.5 -13.4 -3.0 4.0 Stock build.2 -0.7 1.2 0.1 0.4 0.1 0.0 -1.9 0.4 0.2 -0.3 0.2 0.1 0.0 0.1 0.0 0.0 0.0 0.0 Exports1 -12.8 9.6 5.9 -14.3 14.0 7.6 -12.2 9.5 7.0 -19.2 8.0 8.4 -11.6 8.8 5.6 -24.3 4.0 8.0 Imports1 -11.5 10.0 5.2 -9.4 13.2 8.6 -10.6 7.6 6.8 -15.2 6.0 7.2 -17.8 7.1 4.5 -22.3 3.5 5.0 Inflation1 0.3 1.5 1.6 0.2 1.0 1.2 0.1 1.2 1.5 0.7 1.9 2.0 -0.3 0.9 1.9 0.0 1.4 2.0 Unemploym.3 9.4 10.0 9.8 7.5 8.1 7.6 9.4 10.0 9.7 7.8 8.6 8.3 18.1 20.1 19.8 8.2 9.0 8.6 Public budget4 -6.3 -6.7 -6.0 -3.5 -5.0 -3.0 -8.3 -8.5 -7.0 -5.3 -5.0 -4.5 -11.2 -10.0 -8.5 -2.2 -3.9 -3.3 Public debt4 78.7 84.8 88.5 73.0 76.5 79.0 78.0 82.0 87.0 114.6 116.0 117.5 54.3 66.0 73.0 44.0 49.5 52.0 Current acc.4 -0.7 -0.3 -0.2 4.0 3.7 3.2 -2.3 -2.5 -2.2 -2.2 -2.0 -1.7 -5.2 -4.1 -3.2 1.4 1.4 2.2

Germany

France

Italy

Spain

Finland

Macro forecast, Global
Year USA 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 2009 2010 2011 GDP 1 -2.6 2.6 2.3 -5.2 3.1 1.8 8.7 9.9 9.0 -4.9 1.1 1.7 -1.5 2.0 1.7 Private cons.1 -1.2 1.6 2.3 -1.1 2.2 1.7 -3.2 1.9 1.2 1.2 1.8 1.6 Public cons.1 1.6 0.8 -0.2 1.6 1.6 1.0 2.8 1.0 0.5 2.5 0.5 1.0 Fixed inv.1 -18.3 3.3 6.6 -14.4 -1.1 2.5 -14.9 -2.0 2.2 -3.7 2.1 1.5 Stock build.2 -0.6 1.3 -0.2 -0.3 -0.1 0.0 -1.2 1.1 1.3 1.0 -0.7 -0.2 Exports1 -9.5 11.6 7.9 -24.1 23.7 5.4 -10.6 6.0 3.5 -9.3 7.0 4.0 Imports1 -13.8 12.6 5.9 -16.9 2.6 5.4 -13.3 0.9 5.0 -5.7 5.0 4.0 Inflation1 -0.3 1.7 1.7 -1.4 -1.2 -0.3 -0.7 3.1 3.2 2.2 2.9 2.3 -0.5 1.0 1.2 Unemploym.3 9.3 9.7 9.3 4.7 4.3 4.3 4.3 4.0 4.0 7.6 8.0 7.8 3.7 3.8 3.5 Public budget4 -10.0 -10.3 -8.8 -8.0 -5.2 -5.2 -3.3 -2.2 -2.2 -10.4 -10.7 -8.8 1.4 -1.0 -0.5 Public debt4 84.6 91.0 95.7 220.0 220.4 220.4 23.6 20.5 20.5 68.6 80.3 88.2 38.8 40.0 39.0 Current acc.4 -2.7 -3.4 -3.3 2.8 2.8 2.1 5.8 6.2 6.5 -1.3 -2.0 -1.2 8.3 9.0 10.0

Japan

China

UK

Switzerland

Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.

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Weekly Focus

Financial forecast
Bond and money markets
USD 01-Oct +3m +6m +12m 01-Oct +3m +6m +12m 01-Oct +3m +6m +12m 01-Oct +3m +6m +12m 01-Oct +3m +6m +12m 01-Oct +3m +6m +12m 01-Oct +3m +6m +12m 01-Oct +3m +6m +12m Key int. rate 0.13 0.13 0.13 0.13 1.00 1.00 1.00 1.00 0.10 0.10 0.10 0.10 0.50 0.50 0.50 0.50 0.25 0.25 0.25 0.75 1.05 1.05 1.05 1.05 0.75 1.25 1.50 2.00 2.00 2.25 2.50 2.75 3m interest rate 0.29 0.35 0.35 0.35 0.89 0.90 0.90 1.10 0.22 0.24 0.24 0.24 0.73 0.70 0.70 0.75 0.18 0.25 0.25 0.75 1.15 1.15 1.15 1.35 1.28 0.80 1.30 1.90 2.60 2.90 3.15 3.40 2-yr swap yield 0.62 0.65 0.75 1.05 1.50 1.30 1.35 1.75 0.39 0.40 0.40 0.55 1.29 1.15 1.10 1.50 0.54 0.70 0.90 1.50 1.83 1.65 1.65 2.05 2.02 2.60 2.65 2.60 3.12 3.45 3.70 3.95 10-yr swap yield 2.59 2.60 2.85 3.10 2.61 2.55 2.60 3.05 1.03 1.10 1.20 1.40 3.03 2.80 2.80 3.10 1.81 1.92 2.07 2.57 2.78 2.70 2.75 3.20 3.20 2.95 3.25 3.30 3.97 4.20 4.30 4.40 Currency vs EUR 136.8 136 136 138 114.1 116 120 130 86.8 88.0 88.0 84.0 133.9 130 132 136 745.2 745 745 745 916.0 910 890 910 800.8 780 775 775 Currency vs USD 136.8 136 136 138 83.4 85 88 94 157.7 155 155 164 97.9 96 97 99 544.7 548 548 540 669.6 669 654 659 585.4 574 570 562 Currency vs DKK 544.7 548 548 540 745.2 745.0 745.0 745.0 6.53 6.42 6.21 5.73 859.0 847 847 887 556.4 573 564 548 81.4 81.9 83.7 81.9 93.1 95.5 96.1 96.1

EUR

JPY

GBP

CHF

DKK

SEK

NOK

Commodities
2010
NYMEX WTI ICE Brent Copper Zinc Nickel/1000 Steel Aluminium Gold Matif Mill Wheat CBOT Wheat CBOT Corn CBOT Soybeans 24-Sep 75 78 7,885 2,250 23 465 2,292 1,294 223 704 500 1,096 Q1 81 79 7,274 2,307 20 464 2,199 1,110 126 518 389 969 Q2 81 81 7,072 2,067 23 491 2,131 1,194 131 490 379 932 Q3 77 78 7,200 2,020 21 480 2,090 1,220 205 675 425 1,000 Q4 79 80 7,700 2,000 22 475 2,100 1,200 200 659 500 1,050 Q1 82 82 8,000 2,100 23 500 2,150 1,200 175 594 510 1,075

2011
Q2 86 85 8,400 2,150 24 510 2,200 1,100 170 586 520 1,100 Q3 89 88 8,600 2,200 24 530 2,250 1,050 160 560 530 1,125 Q4 91 90 8,700 2,250 24 550 2,300 1,000 165 577 540 1,150 2010 79 80 7,311 2,099 21 478 2,130 1,181 165 585 423 988

Average
2011 87 86 8,425 2,175 24 523 2,225 1,088 168 579 525 1,113

*Interest rate forecasts will be revised mid August. Source: Danske Markets

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Weekly Focus

Calendar
Key Data and Events in Week 40 Monday, October 4, 2010
1:50 10:30 11:00 16:00 16:00 11:00 JPY GBP EUR USD DKK EUR Monetary Base PMI construction Euroland PPI Pending home sales Currency reserves (Change) y/y Index m/m|y/y m/m DKK bn Period Sep Sep Aug Aug Sep 2.1%|… 51.8 Danske Bank

Consensus

Previous 5.4% 52.1 0.2%|4.0% 5.2%|-20.1% 429.2 (0.5)

ECB's Stark speaks on "The euro's stability: Lesson learnt from the Greek crisis" Period % Index m/m|y/y Index Index Index Index Index Index Index EUR bn. m/m|y/y Index Aug Sep Period EUR bn. q/q|y/y m/m|y/y index Sep Aug 2nd quarter Aug Sep Period Index EUR bn. m/m|y/y bn. m/m|y/y m/m|y/y m/m|y/y m/m|y/y % mm/|y/y Bln. % % 1000 Aug Aug Aug Sep Aug Aug Aug Aug Sep Aug Oct Oct Oct Oct 455 453 0.3%|… 250 0.5 1.00 0.5%|… 200 0.5 1.00 0.1%|3.5% 0.0%|5.2% 0.3%|4.0% 0.1%|5.6% Danske Bank 1.0%|… 1.5%|… 1.0%|… 1.0%|… 62.0 1.0%|1.9% -2.2%|17.7% -0.8% 65.9 Previous 100.0 -4.2 1.4%|… 8.4 0.1%|6.6% -2.9%|-7.8% 0.3%|1.9% 0.3%|4.9% 0.7 0.1%|10.9% 200 0.5 1.00 0.3%|… 51.9 Danske Bank 52.0 0.1%|1.1% 51.5 Previous 218.1 Sep Sep Aug Sep Sep Sep Sep Sep Sep 0.1%|0.4% 48.9 50.8 58.8 54.6 53.7 53.5 51.2 54.6 50.7 0.0%|0.3% Danske Bank 0.10

Tuesday, October 5, 2010
4:30 9:15 9:15 9:45 9:50 9:55 10:00 10:00 10:30 11:00 11:00 16:00 JPY CNY CHF ESP ITL FRF DEM EUR EUR GBP EUR EUR USD BoJ Monetary Policy Announcement Services PMI CPI PMI services PMI Services French PMI Services, final German PMI Services, final PMI composite, final Euroland Service PMI PMI services ECB Announces Allotment in 7-Day Refinancing Tender Retail sales ISM non-manufacturing

Consensus
0.10

Previous 0.10 57.6 0.0%|0.3% 49.2 51.4 58.8 54.6 53.8 53.6 51.3

Wednesday, October 6, 2010
9:00 9:30 11:00 12:00 13:00 16:00 CHF DKK EUR DEM USD CAD Foreign Currency Reserves Purchases and sales GDP, s.a. Factory Orders MBA mortgage applications Ivey PMI

Consensus

Thursday, October 7, 2010
7:00 8:45 9:30 9:30 10:00 10:00 10:30 10:30 10:30 12:00 13:00 13:00 13:45 14:30 14:30 19:20 19:30 21:00 JPY FRF DKK SEK NOK NOK GBP GBP GBP DEM GBP GBP EUR EUR USD USD USD USD Leading Economic Index, preliminary Trade Balance Industrial production Budget balance Manufacturing Production, sa. Industrial Production Industrial Production Manufacturing production NIESR GDP Estimate Industrial production BoE Asset Purchase Target BoE rate announcement ECB Announces Interest Rates ECB Press Conference Initial jobless claims Fed's Fisher (non-voter, hawk) speaks Fed's Hoenig (voter, hawk) speaks Consumer credit bn. USD

Consensus
99.1

Aug

-3.0

-3.6

Source: Danske Markets

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Weekly Focus

Calendar - continued

Friday, October 8, 2010
1:50 7:00 8:00 9:30 9:30 10:30 13:00 13:00 14:30 14:30 14:30 JPY JPY DEM SEK SEK GBP CAD CAD USD USD USD Current account s.a. Eco Watchers Survey: Current Trade balance Industrial production Industrial orders PPI - Output Unemployment rate Net change in employment Nonfarm payroll Private payrolls Unemployment 1000 1000 % JPY bn Index EUR bn m/m|y/y m/m|y/y m/m|y/y

Period Aug Sep Aug Aug Aug Sep Sep Sep Sep Sep Sep Period

Danske Bank

Consensus
1023.0 44.5 11.3

Previous 1675.9 45.1 13.5 2.9%|14.4% 5.6%|12.3%

…|19.5% 0.1%|4.3% 8.0% 10000 -20 50 5 75 9.7% Danske Bank

0.0%|4.7% 8.1% 35800 -54 67 9.6% Previous 0.2%|4.6%

During the week
Fri 01 - 07 Fri 08 - 10 GBP OTH Halifax house prices IMF/World Bank annual meetings m/m|y/y

Consensus

Sep Oct

Source: Danske Markets

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Weekly Focus

Disclosure
This report has been prepared by Danske Research, which is part of Danske Markets, a division of Danske Bank. Danske Bank is under supervision by the Danish Financial Supervisory Authority. Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high quality research based on research objectivity and independence. These procedures are documented in the Danske Bank Research Policy. Employees within the Danske Bank Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and to the Compliance Officer. Danske Bank Research departments are organised independently from and do not report to other Danske Bank business areas. Research analysts are remunerated in part based on the over-all profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or dept capital transactions. Danske Bank research reports are prepared in accordance with the Danish Society of Investment Professionals’ Ethical rules and the Recommendations of the Danish Securities Dealers Associations. Financial models and/or methodology used in this report Calculations and presentations in this report are based on standard econometric tools and methodology. Risk warning Major risks connected with recommendations or opinions in this report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. First date of publication Please see the front page of this research report. Expected updates This report is updated on a weekly basis

Disclaimer
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01 October 2010

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