Morning report

Weaker euro
04-Oct-2011
Mildly encouraging macro figures were not enough to turn the sour mood in financial markets yesterday. More are expecting a Greek default and investors were again seeking safe havens. The euro has weakened on a broad basis. Sundays news that Greece will fail to meet its budget targets for this year sent financial markets plunging from start on Monday. The development continued throughout the day and a better ISM index than expected was not enough to turn markets around. The ISM index rose from 50.6 to 51.6 in September. Consensus was expecting an unchanged index. Sub indices for production and employment contributed to the gain this month. The latter could raise investors expectations regarding Fridays payrolls. A rebound in construction spending was also good news. However, mildly encouraging macro figures didnt help calming nervous financial markets. The debt crisis in Europe is dominating and the fear of a Greek bankruptcy increases. Euro leaders are now reviewing the size of the private sectors involvement in the second bailout package for Greece, which in the worst case could undermine the program and hasten a Greek default. Furthermore, Greece could have to wait until mid-November until it receives the next payment. This was an important reason why the stock markets plunged yesterday and S&P500 ended at its lowest level in 13 months. Investors dumped banking shares, due to the feared consequences of a Greek default. Investors were again looking for safe havens yesterday, which meant that the gold price rose and the dollar strengthened. Furthermore, the common European currency weakened on a broad basis, weighed down by the uncertainty surrounding the Greek government debt situation. The Norwegian krone has strengthened against the euro over the past day, even if both oil prices and stock markets were down. Yesterday's euro weakness was an important cause, as the krone has weakened against both the dollar and the yen. Due to autumn holiday in Norway, markets can be characterized as relatively thin, which imply that macro figures could have a larger influence than normal. There is still a good pace in the Norwegian housing market and prices rose 1.0 per cent seasonally adjusted from August to September. House prices are continuing to reach record levels and we expect them to grow further in coming years. The reason is twofold. After several years of weak construction activity, combined with high population growth, the supply of housing is too low and new units must be built. In addition, demand for housing high, as Norwegian households are benefiting from strong income growth, an improved labour market and low interest rate costs. The Norwegian PMI index fell, however, somewhat from August to September, but the outcome was still better than expected. The index now stands out in an international comparison. For the rest of the world the indices are around the neutral level of 50, while in Norway the index remains around 55. In Sweden, the corresponding index has been at very high levels for years, but the recent decline has been sudden and dramatic. In five months, the PMI has fallen from 60 to well below 50. Hence, the majority of the Swedish industrial companies are now experiencing a decline in production. The level is one standard deviation lower than the average for the past ten years. The outcome in September, however, was stronger than expected and similar to the Norwegian krone, the Swedish currency strengthened. Both the Scandinavian currencies are expected to weaken against the euro in the short run. The reason for our view is the ongoing market turbulence. Before a solution for Greece is in place, we believe financial markets remain unsettled, which normally weakens the two crowns. In addition, the two currencies are most likely to be more volatile than that observed in the past two years, which we also have witnessed in recent months. The greatest risk for this view is that the euro weakness is broad as yesterday. If increased turbulence in Europe has greater negative consequences for the euro than the two peripheral Scandinavian currencies the expected weakening will not occur. Increased turmoil will, however, still result in a wakening of scandies against other major currencies. maren.romstad@dnbnor.no As of Yesterday's key economic events (GMT) 06:30 Sweden PMI Sep 07:00 Norway PMI Sep 09:00 Norway Housing prices Sep 14:00 US ISM, manufacturing Sep As of Todays key economic events (GMT) 09:00 EMU PPI Aug 14:00 US Manufacturing orders Aug 14:00 US Speech by Fed Governor Bernanke Unit Index Index m/m % Index Unit y/y % y/y % Prior 48.7 55.5 0.6 50.6 Prior 6.1 2.4 Actual 47.5 54.0 54.0 1.05 50.5 51.6 Poll DnB NOR 5.7 0.1 Poll

NOK & 3m NIBOR

8.00 7.80 7.60 7.40 24-Aug 13-Sep 3m ra. 3.20 3.10 3.00 2.90 3-Oct EURNOK

SEK & 3m STIBOR

9.5 9.3 9.1 8.9 8.7 24-Aug 13-Sep 2.50 2.45 3-Oct EURSEK 2.60 2.55

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

+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 84 62 58 37 84 95 87 41 14 09 32 28 76 04 96 74 13 60 80 60 50 69 06 27 62 50 30 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

04-Oct-2011

Morning report

Oil spot & NOK TWI

130 110 90 70 24-Aug 13-Sep NOK TWI ra. 100 98 96 94 3-Oct $/b

SPOT RATES 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 76.61 1.317 0.854 1.214 7.809 9.148 7.442 5.928 7.745 0.855 9.143 6.950 9.076 1.173 10.708 Last 76.70 1.321 0.855 1.215 7.793 9.115 7.442 5.902 7.699 0.856 9.118 6.904 9.004 1.171 10.669 % 0.1% 0.3% 0.1% 0.1% -0.2% -0.4% 0.0% -0.5% -0.6% 0.2% -0.3% -0.7% -0.8% -0.1% -0.4% 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 7.41 0.86 9.3 6.89 5.51 1.16 10.81 5.78 7.22 0.86 9.1 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 7.20 5.54 6.48 1.17 1.17 10.71 10.98 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 0.9513 1.0523 0.9198 18.85 5.6361 1.5454 7.7861 119.72 0.2781 2.6147 0.5373 0.7571 3.3431 1.3117 32.7550 % -0.07% -0.25% -0.17% -0.21% -0.27% 0.18% -0.02% -0.27% 0.09% -0.26% -0.30% 0.69% -0.26% -0.60% 0.15%

EUR vs GBP & CHF

1.25 1.20 1.15 1.10 1.05 24-Aug 13-Sep GBP r.a 0.89 0.87 0.85 0.83 0.81 3-Oct CHF

Gov. Bonds, 10y

2.25 2.00 1.75 1.50 24-Aug 13-Sep NOK, ra. 3.00 2.50 2.00 1.50 3-Oct SEK

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

JPY and DowJones

14 12 10 8 24-Aug 13-Sep USDJPY ra. DowJones, 1000 78 77 76 75 3-Oct

SWAP AND MONE YM ARKET RATES (Source: Reuters) NIBOR STIBOR EURIBOR Prior Last Prior Last Prior Las t 2.74 2.76 2.32 2.32 1.30 1.30 3.03 3.00 2.51 2.51 1.50 1.50 3.26 3.28 2.54 2.53 1.71 1.71 3.35 3.35 2.58 2.58 1.87 1.87 2.84 2.82 2.00 1.99 1.59 1.53 3.15 3.15 2.21 2.21 1.92 1.87 3.38 3.38 2.38 2.37 2.20 2.20 3.59 3.59 2.46 2.46 2.47 2.47 GOVE RNMENT BONDS (Source: Reuters) NORWAY SWEDEN GERMANY Prior 116 2.36 0.54 Last 111.90 2.35 0.54

USD LIBOR P rior 0.24 0.37 0.56 0.70 0.73 1.20 1.59 1.99 US

Last 0.24 0.38 0.56 0.71 0.76 1.22 1.63 2.00

10y 10y yield vs bund

2000 1900 1800 1700 1600 1500 24-Aug 13-Sep EURUSD ra.

USD and gold

In 3m 6m 12m
1.49 1.44 1.39

NORWAY 3m nibor 10y swap 3.05 4.25 3.20 4.50 3.50 4.50

Prior Last Prior Las t P rior Last 117.557 117.56 103.911 103.89 103.39063 103.09 1.69 1.69 1.82 1.82 1.75 1.79 -0.13 -0.13 -0.07 -0.03 INTEREST RATE FORECASTS SWEDEN GERMANY US 3m s tibor 10y swap 3m euribor 10y swap 3m libor 10y swap 2.50 3.00 1.50 3.00 0.35 3.00 2.75 3.25 1.50 3.25 0.35 3.25 2.90 3.25 1.50 3.25 0.35 3.25

1.34 3-Oct Gold

EURSEK & OMXS

9.4 9.2 9.0 8.8 24-Aug 13-Sep OMXS ra. 450 430 410 390 370 350 3-Oct EURSEK

FRA NOK DEC MAR JUN SEP FRA SEK DEC MAR JUN SEP

3m 2.71 2.39 2.34 2.34 3m 2.11 1.81 1.73 1.73

Prior 2.71 2.39 2.34 2.34 Prior 2.12 1.81 1.74 1.73

chg 0.00 0.00 0.00 0.00 chg -0.01 0.00 -0.01 0.00

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

Today 97.47 120.44 104.16 79.50 79.80 Today 105.9 101.2 1655.5

% Stock ex. Today - 0.12 Dow Jones 10,655.3 - 0.09 Nasdaq 2,335.8 0.05 FTSE100 5,075.5 - 0.12 Eurostoxx50 2,138.2 - 0.00 Dax 5,376.7 Last Nikkei225 8,444.1 105.9 Oslo 334.75 101.7 Stockholm 410.65 456.58 1655.5 Copenhagen

% -2.4% -3.3% -1.0% -1.9% -2.3% 0.0% -3.9% -0.9% -0.1%

Morning report
04-Oct-2011
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