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Morning report

At least it isnt worsening!


10-Oct-2011
Last Fridays US employment report was met with a sigh of relief in the markets: At least conditions arent worsening! But the data are far from good enough. The US economy created 103,000 new jobs in September, 43,000 more than expected. Also, 99,000 more jobs were created in July and August than originally reported. While this is certainly better than nothing, it is far from what is needed to rebalance the economy. Over the last 20 years, underlying jobs growth has had to surpass 1.2%, i.e. 130,000/month, to make any inroads in the queue of unemployed. Over the last year, employment growth has averaged 124,000/month, which clearly has been insufficient to reduce unemployment to any degree. In September, almost 14 million Americans were jobless. This is equal to 9.1% of the labour force, and has remained more or less unchanged since the start of the year. Unemployment is still 3 percentage points higher than its 20-year average. If unemployment is to be brought down to 6% in, lets assume, four years, monthly jobs growth must average 300,000. Given historical relationships, this requires an underlying GDP growth of 5%. Not in just one quarter, but in 16 consecutive quarters! Currently, this seems relatively unrealistic. The high jobless ratio may therefore have come to stay. Close to half of the unemployed have been without a job for more than six months. The average unemployment span is now over 40 weeks, vs. a 50year average of 15 weeks. Also, labour supply is reduced. Three years ago, 66% of the workingage population was either employed or seeking paid work. Currently, the share is 64%. If the share had remained at 66%, the supply of labour would have been 5 million higher. Both higher longterm unemployment and reduced labour supply has long-term consequences. Long unemployment spans reduces working abilities and employability. Accordingly, it also reduces the economys potential growth rate. Fed Governor Ben Bernanke regards this as one of the main arguments for stimulating the economy, to maintain activity and contain unemployment. High unemployment and weak jobs growth also has short-term consequences, however. High unemployment pulls wage growth down. Over the last year, wages have only risen by a meagre 2.0%, while consumer prices are up by 3.8% (2.0% excl. food and energy). With low jobs growth, income growth is modest. Since private consumption represents 70% of demand, this leads to weak GDP and employment growth. This unhealthy circle must therefore be broken, but how? Some factors are already pointing in the right direction: Households have reduced their debt, from 130% of disposable income in late 2007, to 115% now. With reduction continuing at this speed, their debt will reach the pre-boom trend in two years. Then savings may be gradually lowered, contributing to faster consumption growth. Secondly, housing starts are historically low. Only one new home is constructed for every five new inhabitants. The 50-year average is three times higher. In some time, housing starts will have to pick up to cover the shortfall. Finally, authorities need to strike the right balance between short-term stimulus (low interest rate/budget deficit) and longterm balance (avoid accelerating inflation/too high public debt). This requires some consensus about the right policy mix, something which seemingly is lacking in the current US political landscape. However, our main view remains that the US economy will gradually pull itself out of the post-crisis ditch, with GDP growth averaging 1% in 2011-12, and 2% in 2013-14. Even though the employment data could have been stronger, they were well received by markets, with an initial rise in equities and interest rates, which lost some if its strength after Fitch downgraded Italian and Spanish government debt. Nothing specific came out of the week-ends meeting between Sarkozy and Merkel, but they stated that they would seek a solution for the Eurozone before the end of October and would do whatever judged as necessary to recapitalize their banks. There were speculations that France is about to accept a Greek default (good!) if French banks may obtain funds from the Eurozone crisis fund (EFSF). The euro is currently trading around 1.35 against the USD, 1.0% stronger than on Friday afternoon. oystein.dorum@dnbnor.no As of Yesterday's key economic events (GMT) 10:00 Germany Industrial production Aug 12:30 US Payrolls Sep 12:30 US Unemployment rates Sep As of Todays key economic events (GMT) 07:30 Sweden Manufacturing production Aug 08:00 Norway CPI-ATE (core inflation) Sep US Columbus Day Markets closed Unit m/m % 1000 % Unit m/m % y/y % Prior 3.9r 57r 9.1 Prior 2.8 0.8 Poll Actual -1.3 -1.0 73 103 9.1 9.1 Poll DnB NOR -1.5 1.0

NOK & 3m NIBOR


8.00 7.80 7.60 7.40 30-Aug 19-Sep 3m ra. 3.20 3.10 3.00 2.90 7-Oct EURNOK

SEK & 3m STIBOR


9.4 9.3 9.2 9.1 9.0 8.9 30-Aug 2.60 2.55 2.50 2.45 7-Oct EURSEK

19-Sep

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

10-Oct-2011

Morning report

Oil spot & NOK TWI


125 120 115 110 105 100 30-Aug 19-Sep NOK TWI ra. 100 98 96 94 7-Oct $/b

SPOT RATES AN D FORECASTS (Source: Reuters and DnB NOR Markets)


FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK Prior 76.75 1.338 0.860 1.241 7.805 9.111 7.446 5.835 7.606 0.858 9.089 6.814 8.883 1.168 10.599 Las t 76.71 1.349 0.863 1.242 7.812 9.105 7.445 5.792 7.555 0.859 9.049 6.752 8.804 1.166 10.545 % -0.1% 0.8% 0.4% 0.1% 0.1% -0.1% 0.0% -0.7% -0.7% 0.2% -0.4% -0.9% -0.9% -0.2% -0.5% 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 7.40 0.86 9.2 6.92 5.54 1.17 10.71 6.16 6.84 0.86 9.4 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 0.9843 1.0320 0.9209 18.37 5.5211 1.5621 7.7826 117.27 0.2770 2.5611 0.5261 0.7758 3.2306 1.2865 32.0060 % 0.71% -0.74% -0.70% -1.42% -0.88% 0.37% 0.00% -0.52% -0.18% -0.79% -0.75% 0.65% -1.30% -0.99% -0.47%

EUR vs GBP & CHF


1.25 1.20 1.15 1.10 30-Aug 19-Sep GBP r.a 0.89 0.88 0.87 0.86 0.85 7-Oct CHF

Gov. Bonds, 10y


2.25 2.00 1.75 1.50 30-Aug 19-Sep NOK, ra. 3.00 2.80 2.60 2.40 2.20 2.00 7-Oct SEK

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

JPY and DowJones


14 12 10 8 30-Aug 19-Sep 78 77 76 75 7-Oct

SWAP AND M ON EYM ARKET RATES (So urce: Reuters) NIBOR STIBOR EUR IBOR Prior Las t Prior Last Prior Last 2.80 2.80 2.32 2.32 1.30 1.30 3.01 3.04 2.51 2.51 1.50 1.50 3.25 3.31 2.52 2.52 1.71 1.71 3.36 3.43 2.57 2.57 1.87 1.87 2.97 2.97 2.14 2.11 1.69 1.67 3.28 3.28 2.31 2.32 2.01 2.04 3.50 3.50 2.49 2.45 2.32 2.35 3.70 3.70 2.58 2.56 2.60 2.63 GOVERN MENT BOND S (So urce: Reuters) NORWAY SWEDEN GERMANY Prior 114.21 2.52 0.57 Las t 110.21 2.54 0.55 Prior 115.854 1.83 -0.12 Last 115.85 1.84 -0.14 Prior 102.179 1.96 Last 102.33 1.99

USD LIBOR Prior 0.24 0.39 0.58 0.73 0.87 1.41 1.87 2.27 US Prior 100.4375 2.08 0.12

Last 0.24 0.39 0.58 0.73 0.88 1.42 1.88 2.26

10y 10y yield vs bund

Last 100.44 2.09 0.10

USDJPY ra. DowJones, 1000

USD and gold


2000 1900 1800 1700 1600 1500 30-Aug 19-Sep EURUSD ra. 1.47 1.42 1.37 1.32 7-Oct Gold

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 3.05 4.25 2.50 3.00 1.50 3.00 3.20 4.50 2.75 3.25 1.50 3.25 3.50 4.50 2.90 3.25 1.50 3.25

US 3m libor 10y s wap 0.35 3.00 0.35 3.25 0.35 3.25

EUR SEK & OMXS


9.4 9.2 9.0 8.8 30-Aug 19-Sep OMXS ra. 450 430 410 390 370 350 7-Oct EURSEK

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

3m 2.82 2.52 2.46 2.46 3m 2.25 1.98 1.91 1.90

Prior 2.82 2.52 2.46 2.46 Prior 2.25 1.96 1.88 1.89

chg 0.00 0.00 0.00 0.00 chg 0.00 0.02 0.03 0.01

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

Today 97.67 120.16 105.82 78.25 79.60 Today 108.9 106.1 1652.0

% 0.09 - 0.25 0.53 - 0.64 - 0.00 Last 108.9 105.9 1652.0

Stock ex. Today Dow Jones 11,103.1 Nasdaq 2,479.4 FTSE100 5,303.4 Eurostoxx50 2,269.2 Dax 5,675.7 Nikkei225 8,605.6 Oslo 345.43 Stockholm 418.75 Copenhagen 449.78

% -0.2% -1.1% 0.2% 0.9% 0.5% 0.0% 0.0% -0.2% 0.3%

Morning report
10-Oct-2011
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