You are on page 1of 3

Morning report

Towards a solution to the debt crisis


26-Oct-2011
A new round of uncertainty emerged yesterday and US consumer confidence fell to the third lowest level ever. Today all focus will turn to the EU summit which hopefully will be able to conclude on the details of the final solution to the debt crisis. Expectations are probably high in front of what is expected to be the final solution for the European debt crisis today. Markets have improved over recent days with a stronger euro and higher bond yields in the US and Germany. Yesterday the US stock market fell back again and the euro weakened. This was caused by increased uncertainty as the proposed Ecofin meeting today was postponed. However, this seems to be misplaced fear as all the important meetings will go as planned today. A disappointing US consumer confidence also dampened markets yesterday. Asian stock markets have been fairly stable overnight. Still there is much uncertainty related to the details of the final solution. It remains to be seen whether this really will be a final solution or simply a new, temporary package. However, it seems that at least this will be an important step in the right direction. All details will probably not be available until after the euro zone summit which is scheduled to start at 1730. During the day there will probably be leakages ie. as Angela Merkels is going to speak to the Bundestag. In addition there will be a meeting for all EU leaders due to start at 1500 and earlier in the day the so called Working Group (consisting of central bank leaders and other financial officials) will be meeting. What seems clear is that there will be a substantial Greek haircut of some 50%. According to FT euro leaders have asked the banks to accept a 60% haircut, while the banks have offered 40%. An important task is whether this haircut will be regarded as a credit event, affecting ratings and forcing CDS-contracts to be implemented (which is up to an ISDA committee to decide). Most likely one will, which was the case in the July agreement, try to make the restructuring voluntary, so that this is not regarded as a credit event. According to Reuters two different solutions will be evaluated in order to scale up the size of the EFSF. One will be to let the fund guarantee for (let say 20% of) new government debt in the crisis countries. The other will be to set up a so called SPV (Special Purpose Vehicle), with core capital is used to attract capital from outside investors. Germany has ruled out a solution with the ECB lending to the EFSF. In addition, Germany would not like to urge the ECB to continue buying debt from the crisis countries. The final element is a need for a recapitalization of the private European banks. It seems that there is a consensus of a need for 110 bill euro. but it remains unclear how this solution will be implemented. Yesterday the US consumer confidence fell markedly in October. The index dropped to the third lowest level ever, while it was expected to stay unchanged since September. The level now points at falling consumer demand (of around 1 %), but luckily the correlation between the two has been low during recent months. And consumer data were strong in September. US home prices continue to develop poorly, after the FHFA index has proved somewhat better recently. The Case-Shiller index has now been falling for the last three months. While signal rates will remain low for a long period in industrialized countries, rates in emerging markets are high due to rising inflation. The Reserve Bank of India yesterday hiked the repo rate once more by 25 bp. to 8.5%. The reason for the high level is that headline inflation is close to 10%. However, the central bank now indicates that inflation will start to fall and hence the peak for the repo rate may have been reached. knut.magnussen@dnbnor.no

NOK & 3m NIBOR


8.00 7.80 7.60 7.40 15-Sep 5-Oct 3m ra. 3.20 3.10 3.00 2.90 25-Oct EURNOK

SEK & 3m STIBOR


18.9 16.9 14.9 12.9 10.9 8.9 15-Sep 2.55 2.50 2.45 25-Oct EURSEK

5-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

Yesterday's key economic events (GMT) 13:00 Canada Interest rate decision 14:00 US Consumer confidence, CB 14:00 US Housing prices (FHFA) Todays key economic events (GMT) 12:30 US Orders durable goods 12:30 US Orders, ex transport 14:00 US New home sales

As of Oct Oct Aug As of Sep Sep Sep

Unit % Index m/m % Unit m/m % m/m % mio

Prior 1.0 45.4 0.8 Prior -0.1 -0.1 0.295

Poll 1.0 46.0 Poll -0.4 0.7 0.300

Actual 1.0 39.8 0.1 DnB NOR

26-Oct-2011

Morning report

Oil spot & NOK TWI


120 115 110 105 100 15-Sep 5-Oct NOK TWI ra. 96 94 25-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 76.08 1.391 0.869 1.221 7.700 7.445 5.537 7.283 0.844 8.862 6.569 8.630 1.188 10.509 Last % 76.02 -0.1% 1.391 0.0% 0.868 -0.2% 1.223 0.1% 7.696 -0.1% 9.115 #VALUE! 7.446 0.0% 5.534 7.281 0.846 8.869 6.555 8.620 1.185 10.508 -0.1% 0.0% 0.2% 0.1% -0.2% -0.1% -0.2% 0.0% 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 1.0375 1.0150 0.8787 17.94 5.3523 1.6037 7.7748 114.52 0.2751 2.4817 0.5067 0.7974 3.1435 1.2675 30.5470 % -0.51% -0.16% 0.00% -0.04% -0.03% 0.22% -0.01% -0.09% -0.11% -0.05% -0.08% 0.06% 0.21% 0.28% -0.04%

EUR vs GBP & CHF


1.25 1.20 1.15 1.10 15-Sep 5-Oct GBP r.a 0.89 0.88 0.87 0.86 0.85 25-Oct CHF

Gov. Bonds, 10y


2.25 2.00 1.75 1.50 15-Sep 3.00 2.80 2.60 2.40 2.20 2.00 25-Oct SEK

5-Oct

NOK, ra.

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

JPY and DowJones


13 12 11 10 15-Sep 5-Oct USDJPY ra. DowJones, 1000 78 77 77 76 25-Oct

SWAP AN D MON EYMARKET RATES (Source: Reuters) N IBOR STIBOR EURIBOR Prior Last Prior Last Prior Last 2.91 2.92 2.32 2.32 1.31 1.31 3.15 3.16 2.51 2.51 1.52 1.52 3.39 3.41 2.53 2.53 1.73 1.73 3.53 3.55 2.58 2.58 1.89 1.90 3.13 3.14 2.20 2.17 1.68 1.63 3.43 3.43 2.38 2.38 2.03 2.00 3.64 3.65 2.54 2.54 2.31 2.31 3.83 3.84 2.63 2.63 2.59 2.59 GOVERNM ENT BON DS (Source: Reuters) N ORWAY SWEDEN GERMANY Prior 114.16 2.54 0.45 Last 110.11 2.54 0.50

USD LIBOR Prior 0.24 0.42 0.61 0.76 0.77 1.33 1.84 2.29 US

Last 0.24 0.42 0.61 0.76 0.79 1.35 1.86 2.32

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 114.727 114.74 101.639 101.79 100.09375 1.95 1.95 2.09 2.05 2.11 -0.14 -0.10 0.02 INTEREST RATE FORECASTS SWEDEN GERMANY US

Last 100.02 2.14 0.09

USD and gold


2000 1900 1800 1700 1600 1500 15-Sep 5-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

25-Oct Gold

EU RSEK & OMXS


18.8 16.8 14.8 12.8 10.8 8.8 15-Sep 5-Oct OMXS ra. 500 450 400 350 25-Oct EURSEK

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

3m 2.99 2.73 2.60 2.60 3m 2.42 2.11 2.01 1.97

Prior 2.97 2.71 2.56 2.56 Prior 2.42 2.10 2.00 1.98

chg 0.02 0.02 0.04 0.04 chg 0.00 0.01 0.01 -0.01

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

Today 96.23 120.23 107.31 76.18 79.70 Today 112.8 111.3 1656.0

% 0.09 0.09 0.07 0.06 Last 112.8 110.9 1656.0

Stock ex. Today Dow Jones 11,706.6 Nasdaq 2,638.4 FTSE100 5,525.5 Eurostoxx50 2,344.0 Dax 6,046.8 Nikkei225 8,759.5 Oslo 381.98 Stockholm 444.70 Copenhagen 466.29

% -1.7% -2.3% -0.4% -1.1% -0.1% 0.0% -0.9% -0.3% 0.3%

Morning report
26-Oct-2011
IMPORTANT/DISCLAIMER This email, and any files attached with it, must be seen as marketing material unless the criteria for preparing investment research, according to the Norwegian Securities Trading Regulation 2007/06/29 no. 876, are met. The information contained in this e-mail, and any files attached with it, is confidential and intended solely for the use of the individual they are addressed to. If the reader of this message is not the intended recipient you are hereby notified that you have received this document in error, and that any review, distribution or copying of this message is strictly prohibited. If you have received this communication in error, please contact the sender by return email and destroy all copies of the original message. Please advise the sender immediately if you or your employer do not consent to Internet e-mail messages of this kind. Any attached report is based on information obtained from public sources that DnB NOR Markets believes to be reliable but which DnB NOR Markets has not independently verified, and DnB NOR Markets makes no guarantee, representation or warranty as to its accuracy or completeness. Any opinions expressed herein reflect DnB NOR Markets judgment at the time the report was prepared and are subject to change without notice. Confidentiality rules and internal rules restrict the exchange of information between different parts of DnB NOR Markets/DnB NOR Bank ASA and this may prevent employees of DnB NOR Markets who are preparing this report from utilizing or being aware of information available in DnB NOR Markets/DnB NOR Bank ASA which may be relevant to the recipients decisions. This report is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. No liability whatsoever is accepted for any direct or indirect (including consequential) loss or expense arising from the use of this report. Distribution of research reports is in certain jurisdictions restricted by law. This report is for clients only, and not for publication, and has been prepared for information purposes only by DnB NOR Markets - a division of DnB NOR Bank ASA registered in Norway number NO 984 851 006 (the Register of Business Enterprises) under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet) and the Monetary Authority of Singapore, and on a limited basis by the Financial Services Authority of UK. Further information about DnB NOR Markets can be found at website dnbnor.no. Additional information for clients in Singapore This email, and any materials attached with it, has been distributed by the Singapore branch of DnB NOR Bank ASA. It is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of any product referred to in any attached report, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product. Recipients of this report should note that, by virtue of their status as accredited investors or expert investors, the Singapore branch of DnB NOR Bank ASA will be exempt from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the FAA), the Financial Advisers Regulations and associated regulations there under. In particular, it will be exempt from: - Section 27 of the FAA (which requires that there must be a reasonable basis for recommendations when making recommendations on investments). Please contact the Singapore branch of DnB NOR Bank ASA at +65 6212 0753 in respect of any matters arising from, or in connection with, any attached report. We, the DnB NOR Group, our associates, officers and/or employees may have interests in any products referred to in this email, and any materials attached with it, by acting in various roles including as distributor, holder of principal positions, adviser or lender. We, the DnB NOR Group, our associates, officers and/or employees may receive fees, brokerage or commissions for acting in those capacities. In addition, we, the DnB NOR Group, our associates, officers and/or employees may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in this email, and any materials attached with it. In the United States Each research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the views expressed in this report accurately reflect that research analysts personal views about the company and the securities that are the subject of this report; and (ii) no part of the research analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in this report. This email, any files attached with it, is being furnished upon request and is primarily intended for distribution to Major U.S. Institutional Investors within the meaning of Rule 15a-6 of the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934. To the extent that this report is being furnished, or will be disseminated, to non-Major U.S. Institutional Investors, such distribution is being made by DnB NOR Markets, Inc., a separately incorporated subsidiary of DnB NOR that is a U.S. broker-dealer and a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Any U.S. recipient of this report seeking to obtain additional information or to effect any transaction in any security discussed herein or any related instrument or investment should call or write DnB NOR Markets, Inc., 200 Park Avenue, New York, NY 10166-0396, telephone number 212-681-3800 or fax 212-681-4119.