Morning report

New Forecasts
19-Sep-2011
We now expect Norges Bank to postpone the first rate hike to March next year. In Europe we expect a Greek default followed by recapitalization of the banking sector and massive support buying of Italian bonds. In line with our monthly evaluation of our forecasts we present today revised prognosis. While we based our August forecasts on modest improving financial markets, the situation has worsened. The Greek funding situation is still a problem. Market confidence regarding Italy and Spain has impaired. The increasing turmoil has raised various risk premiums in the markets in general and tightened funding possibilities for banks. Additional unrest and higher pressure on bank funding may enforce political action. The conflicts of interests between European leaders (and voters) are large and we expect the financial situation to worsen further before a solution is found acceptable. It is highly uncertain what may be done and when. A possible outcome may be a Greek default followed by a plan for recapitalization and restructuring of the banking sector in each Euro area country. A Greek default will likely be based on a view that Greece in the long term is insolvent. It will be important for European governments to ring fence the Greek situation. Market funding of Italian debt may disappear, and it is important to establish a plan for securing funding of Italian debt. This may involve massive support buying of Italian government bonds. With such a development we expect the ECB to cancel further rate hikes. On the other hand it will be important to secure confidence to the inflation target. We thus do not expect any rate cut from ECB, even though that would help debt loaded countries. With unchanged rates from ECB, a turbulent fall and tighter lending standards we expect both Norges Bank and the Riksbank to postpone the next rate hike until next year. For the major central banks (USA, UK, Japan and Switzerland) we expect unchanged policy rates at least until mid-2013. Increased turmoil and a Greek default may bring long-term rates further down. But if the markets have confidence in the ring fence of the Greek debt failure and the recapitalization of the banking sector, long-term rates may raise significantly. In the foreign exchange markets EURUSD may decline on increased turmoil, but raise on a credible solution. On the longer term we expect EURUSD to decline on better growth perspectives for the US economy. Both the NOK and the SEK may suffer from increased turmoil in the short term. The NOK and the SEK are no safe havens but we might see the currencies strengthen versus the Euro over time due to increased interest rate differential. US stocks increased for the fifth day in a row Friday. With an increase by 0.6 per cent for the S&P 500 Friday, the benchmark index was up 5.4 per cent on the week. This was the best week since early July. Also in Europe the stock markets generally improved on Friday. Long-term Treasury yields however fell further Friday. Fixed income and stock markets thus may have viewed the risk situation differently. The EURUSD was relatively stable during the weekend, but fell in Asian trading this morning. When typing, the EURUSD is down 1.3 per cent from Friday morning. The EURNOK is roughly unchanged from Friday morning, but has strengthened 0.8 per cent versus the SEK. This morning European stock markets opened down. Today there are no important key macro economic figures. Later in the week we have monetary policy meeting both in the Fed and in Norges Bank. We will return with previews on those meeting, but we do not expect rate changes in any of those meetings. Norges Bank, however, may signal that the Board have assessed an alternative with lower interest rates. kyrre.aamdal@dnbnor.no

NOK & 3m NIB OR

8.00 7.80 7.60 7.40 9-Aug 29-Aug 3m ra. 3.20 3.10 3.00 2.90 16-Sep EURNOK

SEK & 3m STIBOR

9.5 9.3 9.1 8.9 8.7 9-Aug 29-Aug 3m ra.
Headquarters 0021 Oslo Stranden 21 Offices Abroad New York London Shanghai Singapore Stockholm Sales Oslo (+47) Equity Fixed Income FX/IR Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund +47 03000

2.65 2.60 2.55 2.50 2.45 16-Sep EURSEK

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850 22 94 89 40 22 01 78 20 22 01 76 50 55 75 69 61 52 61 38 22 51 77 73 33 73 21 55 39 05 72 27 07 01 67 62 58 37 84 95 87 41 14 09 32 28 76 92 96 74 13 60 80 60 50 69 06 27 62 50 69 80 89 00 09

Research Regional Sales (+47) Eirik Larsen 22 01 76 55 Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Maren Romstad Camilla Viland Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen 22 22 22 22 22 22 22 22 22 22 22 22 22 01 01 01 01 01 01 01 01 01 01 01 01 01 76 78 78 76 76 77 76 78 77 76 76 77 78 56 03 24 63 64 41 67 37 62 93 77 36 15

Yesterday's key economic events (GMT) 13:00 USA Capital inflow (TICS) 13:55 USA Michigan consumer conf.

As of Jul Sep

Unit bn Index Unit Index

Prior 55.7 Prior 15

Poll 56.5

Actual 57.8

As of Todays key economic events (GMT) 14:00 USA NAHB Housing Market Index Sep

Poll DnB NOR 15

19-Sep-2011

Morning report

Oil spot & N OK TWI

130 110 90 70 9-Aug 100 98 96 94 29-Aug 16-Sep $/b

SPOT R ATES AND FORECASTS (Source: Reuters and DnB NOR Markets)
FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK Prior 76.82 1.380 0.874 1.209 7.693 9.135 7.449 5.573 7.260 0.845 8.816 6.603 8.601 1.189 10.439 Last 76.72 1.369 0.871 1.207 7.720 9.182 7.448 5.636 7.351 0.842 8.872 6.701 8.742 1.190 10.552 % -0.1% -0.8% -0.4% -0.2% 0.3% 0.5% 0.0% 1.1% 1.3% -0.4% 0.6% 1.5% 1.6% 0.1% 1.1% In 1 m ...3 m 80 80 1.35 1.35 0.86 0.86 1.20 1.20 8.00 7.80 9.30 9.10 7.45 7.45 5.93 5.78 7.41 7.22 0.86 0.86 9.3 9.1 6.89 5.51 1.16 10.81 6.74 5.39 1.17 10.58 ...6 m ...12 m 80 90 1.30 1.25 0.84 0.82 1.20 1.25 7.70 7.70 9.00 9.00 7.45 7.45 5.92 6.16 7.40 6.84 0.86 0.86 9.2 9.4 6.92 5.54 1.17 10.71 7.20 6.48 1.17 10.98 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 1.0254 0.9828 0.8812 17.89 5.4392 1.5735 7.7955 116.77 0.2757 2.5218 0.5186 0.8240 3.1625 1.2590 30.8510 % -1.08% 0.49% 0.59% 1.24% 0.71% -0.35% 0.04% 0.46% -0.08% 0.76% 0.84% -0.75% 1.72% 1.42% 0.97%

NOK TWI ra.

EUR vs GBP & CHF

1.30 1.20 1.10 1.00 0.90 9-Aug 29-Aug GBP r.a 0.89 0.87 0.85 0.83 0.81 16-Sep CHF

Gov. Bonds, 10y

2.00 3.00 2.80 2.60 2.40 2.20 2.00 29-Aug 16-Sep SEK NOK, ra.

1.75 9-Aug

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

JPY and DowJones

14 12 10 8 9-Aug 29-Aug USDJPY ra. DowJones, 1000 78 77 76 75 16-Sep

10y 10y yield vs bund

SWAP AN D MON EYMARKET RATES (Source: Reuters) N IBOR STIBOR EURIBOR USD LIBOR Prior Last Prior Last Prior Last Prior Last 2.95 2.94 2.32 2.32 1.28 1.29 0.23 0.23 3.13 3.09 2.50 2.50 1.48 1.48 0.35 0.35 3.35 3.27 2.53 2.53 1.69 1.70 0.52 0.52 3.48 3.39 2.59 2.59 1.85 1.86 0.67 0.67 3.07 3.03 2.11 2.00 1.61 1.54 0.65 0.67 3.41 3.39 2.30 2.22 1.97 1.92 1.21 1.23 3.63 3.62 2.51 2.42 2.25 2.21 1.73 1.72 3.81 3.79 2.60 2.53 2.54 2.50 2.23 2.20 GOVERNM ENT BON DS (Source: Reuters) US N ORWAY SWEDEN GERMANY Prior Last Prior Last Prior Last Prior Last 115.4 112.00 115.524 115.52 103.512 103.99 100.60938 100.97 2.40 0.49 2.35 0.54 1.88 1.91 1.81 0.08 INTEREST RATE FORECASTS SWEDEN GERMANY 3m stibor 10y swap 3m euribor 10y swap 2.50 3.00 1.50 3.00 2.75 3.25 1.50 3.25 2.90 3.25 1.50 3.25 2.06 0.15 US 3m libor 10y 0.35 0.35 0.35 2.03 0.22

In 3m 6m 12m
1.49 1.44 1.39 1.34

N ORWAY 3m nibor 10y swap 3.05 4.25 3.20 4.50 3.50 4.50

swap 3.00 3.25 3.25

USD and gold

2000 1900 1800 1700 1600 1500

9-Aug 29-Aug 16-Sep EURUSD ra. Gold

EU RSEK & OMXS

9.4 9.2 9.0 8.8 9-Aug 500 450 400 350 16-Sep EURSEK

FRA NOK DEC MAR J UN SEP FRA SEK DEC MAR J UN SEP

3m 3.05 2.81 2.56 2.55 3m 2.23 1.98 1.83 1.88

Prior 3.09 2.84 2.61 2.60 Prior 2.51 2.26 2.00 1.89

chg -0.04 -0.03 -0.05 -0.05 chg -0.29 -0.28 -0.17 -0.01

TWI NOK SEK EUR USD GBP Comm. Brent spot Brent 1m Spot gold

Today 96.53 121.07 106.66 77.01 79.10 Today 118.4 111.5 1794.0

% 0.38 0.22 - 0.49 0.61 - 0.00 Last 118.4 112.2 1794.0

Stock ex. Today Dow Jones 11,509.1 Nasdaq 2,622.3 FTSE100 5,368.4 Eurostoxx50 2,159.3 Dax 5,573.5 Nikkei225 8,864.2 Oslo 367.07 Stockholm 427.11 Copenhagen 453.81

% 0.7% 0.6% 0.6% 0.2% 1.2% 0.0% 0.4% 0.3% -0.3%

29-Aug

OMXS ra.

Morning report
19-Sep-2011
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