Morning report

A final solution delayed

24-Oct-2011
The EU summit this weekend was expected to come up with a solution to the crisis. Important steps towards a solution have been made, but the details have been postponed to Wednesday. Despite the delay, Asian stock markets are up this morning. However, the stock rebound my as well be due to higher PMIs. Financial markets improved in advance of the EU summit on Sunday. Global stock markets rose on Friday, the euro strengthened vs the dollar, while long US and German rate rose. Expectations had been building over some time and many seemed to expect a final solution at this meeting. But, once again we will have to be patient. Even if many signals from the meeting are pointing at a solution, the announcement of details is delayed until Wednesday. According to the French president Nicolas Sarkozy, the agreement involves a stronger EFSF, which at present has a limit at 440 bill. Euro. There is widespread agreement that this facility has been to small in order to save the larger debt ridden countries and the banks, while Germany and France have been sharply divided on how the fund should be expanded. It now seems as the German solution has been chosen, implying that the EFSF will only be guaranteeing for the government bonds in the debt ridden countries. In this way the balance of the EFSF is leveraged, but without involving the ECB as the French proposed. A solution for the European banks also seems closer, which is vital in advance of a Greek default. At this point the parties have been most divided, in particular on the size of the haircut for private investors (PSIs). There now seems to be an agreement that this haircut should be at least 50%. Finally there is some information pointing at a recapitalization of European banks amounting to 108 bill. Euro. Despite the delay, there seems to be some relief in Asian stock markets. However, the rally may also be partly due to the improvement of the Chinese PMIs. The private index is again over the 50 benchmark. The German ifo index came out as expected for October on Friday while the French INSEE index surprised negatively, falling to 97. On Friday we updated our FX and interest rate forecasts. Due to the recent developments in the markets and the weakening of the macroeconomic prospects we have undertaken some adjustments. The signal rates for the euro zone, the US, the UK, Switzerland and Japan is still expected to stay unchanged in the coming year. Even if we now expect fewer rate hikes in Norway and in Sweden, rates are still going to be lifted. Norges Bank last week issued a new rate path, indicating that the first hike will not take place until the autumn of 2012. The downward adjustment is mostly due to international developments, such as lower expected interest rates and growth prospects abroad and continued high money market rates. The weaker international outlook has also lead to somewhat weaker expectations for the Norwegian economy. In fact the changes implies that the central bank could have reduced the signal rate this autumn, but in stead the new path indicate an unchanged rate for a longer period. Our new forecasts are based on more positive expectations for the European outlook and we think that a European solution will impose a positive surprise to the central bank. Hence we think that the rate path will have to be lifted substantially in March, indicating that the signal rate will be hiked in May. A European solution also point in direction of still strong Nordic currencies. In addition our rate expectations are far higher than market expectations for Norway and Sweden, also pointing at strong currencies. This week will most likely also be dominated by news on the European crisis. In particular the focus will be high on Wednesday. Some important key US indicators will be released, such as consumer confidence, durable goods orders and personal consumption. The US data have surprised on the positive side over recent weeks, but the ECRI weekly leading indicator fell below -10 on Friday, pointing at a new recession. On Thursday Riksbanken will have a rate meeting. We expect that the Swedish central bank will adjust the rate path significantly downwards. knut.magnussen@dnbnor.no Yesterday's key economic events (GMT) 06:45 France INSEE 08:00 Germany IFO 16:30 US ECRI Todays key economic events (GMT) 07:28 Germany PMI total 07:58 Eurozone PMI total 09:00 Eurozone Ind. orders As of Oct Oct As of Oct Oct Aug Unit Index Index Index Unit Index Index m/m % Prior 99.0 107.5 -9.6 Prior 50.8 49.1 -2.1 Poll 98.0 106.3 Poll 48.7 0.5 Actual 97.0 106.4 -10.1 DnB NOR

NOK & 3m NIBOR

8.00 7.80 7.60 7.40 13-Sep 3-Oct 3m ra. 3.20 3.10 3.00 2.90 21-Oct EURNOK

SEK & 3m STIBOR

9.4 9.3 9.2 9.1 9.0 8.9 13-Sep 2.55 2.50 2.45 21-Oct EURSEK

3-Oct

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

24-Oct-2011

Morning report

Oil spot & NOK TWI

120 115 110 105 100 13-Sep 3-Oct NOK TWI ra. 96 94 21-Oct $/b 100 98

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 76.32 1.390 0.871 1.227 7.730 9.118 7.447 5.581 7.318 0.853 8.839 6.549 8.587 1.182 10.474 Last 76.28 1.389 0.871 1.229 7.713 9.109 7.445 5.550 7.281 0.847 8.862 6.561 8.603 1.182 10.467 % -0.1% 0.0% -0.1% 0.2% -0.2% -0.1% 0.0% -0.5% -0.5% -0.7% 0.3% 0.2% 0.2% -0.1% -0.1% In 1 m ...3 m 80 80 1.40 1.35 0.88 0.86 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 5.57 6.96 0.85 8.9 6.57 5.26 1.18 10.45 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 1.23 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 1.0404 1.0059 0.8849 18.01 5.3605 1.5967 7.7786 114.92 0.2766 2.4854 0.5082 0.8067 3.1557 1.2710 31.0450 % 0.26% -0.13% 0.18% 0.04% 0.00% 0.07% -0.04% 0.03% 0.30% 0.02% 0.04% 0.30% -0.27% -0.19% -0.19%

EUR vs GBP & CHF

1.25 1.20 1.15 1.10 13-Sep 3-Oct GBP r.a 0.89 0.88 0.87 0.86 0.85 21-Oct CHF

Gov. Bonds, 10y

2.25 2.00 1.75 1.50 13-Sep 3.00 2.80 2.60 2.40 2.20 2.00 21-Oct SEK

3-Oct

NOK, ra.

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

JPY and DowJones

12 11 10 13-Sep 3-Oct USDJPY ra. DowJones, 1000 78 77 77 76 21-Oct

SWAP AN D MON EYMARKET RATES (Source: Reuters) N IBOR STIBOR EURIBOR Prior Last Prior Last Prior Last 2.89 2.92 2.32 2.32 1.31 1.31 3.13 3.13 2.51 2.51 1.51 1.52 3.35 3.38 2.53 2.53 1.72 1.73 3.50 3.51 2.58 2.58 1.89 1.89 3.11 3.12 2.19 2.19 1.73 3.44 3.43 2.40 2.40 2.11 2.09 3.66 3.64 2.56 2.56 2.36 2.39 3.83 3.83 2.65 2.65 2.64 2.66 GOVERNM ENT BON DS (Source: Reuters) N ORWAY SWEDEN GERMANY Prior 114.12 2.56 0.49 Last 110.15 2.54 0.44

USD LIBOR Prior 0.24 0.42 0.60 0.75 0.83 1.41 1.93 2.40 US

Last 0.24 0.42 0.61 0.76 0.85 1.44 1.96 2.43

10y 10y yield vs bund

N ORWAY In 3m 6m 12m
1.40 1.38 1.36 1.34 1.32

Prior Last Prior Last Prior 114.631 114.63 101.172 101.33 99.203125 1.96 1.96 2.07 2.10 2.22 -0.12 -0.14 0.14 INTEREST RATE FORECASTS SWEDEN GERMANY US

Last 99.06 2.24 0.15

USD and gold

2000 1900 1800 1700 1600 1500 13-Sep 3-Oct EURUSD ra.

3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 3.15 4.25 2.50 3.00 1.50 3.00 3.15 4.50 2.55 3.25 1.50 3.25 3.35 4.50 2.65 3.25 1.50 3.25

3m libor 10y swap 0.45 2.75 0.35 3.00 0.35 3.25

21-Oct Gold

EU RSEK & OMXS

9.4 9.2 9.0 8.8 13-Sep 3-Oct OMXS ra. 450 430 410 390 370 350 21-Oct EURSEK

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

3m 2.93 2.67 2.56 2.55 3m 2.39 2.07 1.98 1.97

Prior 2.95 2.68 2.56 2.56 Prior 2.39 2.07 1.98 1.97

chg -0.02 -0.01 0.00 -0.01 chg 0.00 0.00 0.00 0.00

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

Today 96.44 120.12 107.45 76.28 79.80 Today 112.4 110.3 1642.5

% Stock ex. Today - 0.13 Dow Jones 11,808.8 - 0.09 Nasdaq 2,637.5 - 0.02 FTSE100 5,488.7 0.00 Eurostoxx50 2,337.5 - 0.00 Dax 5,971.0 Last Nikkei225 8,827.3 112.4 Oslo 377.88 109.6 Stockholm 439.39 1642.5 Copenhagen 458.29

% 2.3% 1.5% 1.9% 2.9% 3.5% 0.0% 3.2% 3.0% 2.0%

Morning report
24-Oct-2011
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