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Morning Report

15.12.2011

50 bps rate cut from Norges Bank


NOK & 3m NIBOR 8.00 7.80 7.60 3.50 3.30 3.10

Norges Bank yesteday lowered its key policy rate by 50 basis points to guard against an adverse outcome for the Norwegian economy. Today SNB has its monetary policy meeting. No interest rate change is expected, but there are speculations of whether they will raise their EURCHF minimum target. Norges Bank yesterday lowered its key policy rate by 50 basis points, to 1.75 per cent. This was somewhat, but not very surprising. (Most analysts expected a 25 bps cut.) The central banks says that the activity in the Norwegian economy remains robust, primarily driven by petroleum investments and housing construction. Capacity utilisation is assessed to be close to normal. In this light one may ask if the Norwegian economy need lower rates now. However, the economic outlook has weakened compared to the estimates given in the October report. Sovereign debt problems in the euro area have led to serious problems for the European banking system and in money and credit markets. Market funding has become more expensive and less available also for Norwegian banks. As a consequence, the central bank says it wishes to mitigate effects of a particularly adverse outcome on the economy, guarding against an economic setback and even lower inflation by cutting rates now. Norwegian interest rates fell and the Norwegian krone weakened as a response to Norges Banks rate decision. Today, the Swiss national bank (SNB) meets. The interest rate is already at zero and no rate change is expected in the foreseeable future. The uncertainty regarding what the SNB will do with the EURCHF minimum level at 1.20 is far greater. Since September EURCHF has been trading just above 1.20 and the SNB does not appear to have had to intervene heavily to hold the floor. Thus, the measure has been a success. However there are signs that 1.20 will not be enough to prevent an economic recession and deflation. In Q3, real GDP growth was only 0.2 per cent q/q, the lowest reading since Q2 2009. And confidence indicators, like the PMI and the KOF-index, point towards even weaker growth going forward. Furthermore prices have fallen over the last two months. As a result, the SNB is likely to revise down its growth and inflation forecasts. SNB has previously said it might have to act to loosen monetary conditions further if economic prospects. Thus, many now believe they will raise the EURCHF minimum level today. It is a clear probability that they will do so. We, however, think the central bank will await further developments and keep the floor unchanged today and rather keep warning that new measures may come, if necessary. We believe the European leaders eventually will succeed in easing the euro area debt crisis. As a result we expect market turmoil and fear of a deep European recession gradually to abate. If so, the risk for a severe Swiss recession and a long period of deflation also will decline. In addition EURCHF is currently trading around 1.24 and the central bank does in this respect not have much to gain to raise the floor to 1.25, which is what most analysts believe in. If the SNB is to make a move that would have a substantial impact, a larger adjustment of the peg would be warranted. The market seems far from sure that the European debt crisis will abate. In a 5 year auction, Italy yesterday had to pay a record high yield of 6.47 per cent. In comparison the yield on a similar auction was 6.29 per cent a month ago. Furthermore, the euro continues to weaken. Yesterday, EURUSD fell below 1.30, and is now trading at its lowest levels in almost one year. Besides the disappointing Italian auction, fear of more credit downgrades of euro zone countries in the near term seem to have weighed on the European currency. At the same time the dollar benefits from its safe haven status. Risk aversion in general seems to have been an important market driver the last 24 hours. Yields on "safe" German and US government bonds have gone down. Furthermore both US and European stocks fell yesterday. Asian shares have followed this morning. Weak manufacturing data from both Japan and China (Tankan and Chinese PMI) also weighs on the Asian markets. camilla.viland@dnb.no

2.90 7.40 4-Nov 24-Nov 14-Dec


3m ra. EURNOK

SEK & 3m STIBOR 2.80 2.70 2.60 9.1 2.50 8.9 2.40 4-Nov 24-Nov 14-Dec 9.5 9.3
3m ra. EURSEK

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850

Sales Oslo (+47) Equity Fixed Income FX/IR

22 94 89 40 22 01 78 20 22 01 76 50

Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

55 21 95 80 75 55 87 60 69 39 41 50 61 05 14 69 52 72 09 06 61 27 32 27 38 07 28 62 22 01 76 50 51 84 04 30 77 62 96 80 73 58 74 89 33 01 73 80 70 11 69 85

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

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 76 64 22 01 77 41 22 01 76 67

Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 78 37 22 01 77 62 22 01 76 93 22 01 76 77 22 01 77 36 22 01 78 15

As of Unit Prior Yesterday's key economic events (GMT) 10:00 EMU Goods production okt m/m % -2.0 13:00 Norway Monetary policy decision des % 2.25 As of Unit Prior Todays key economic events (GMT) DNB Markets presents new forecasts for 2012 08:30 08:58 EMU PMI, total (flash) des Index 47.0 09:30 UK Retail trade nov m/m % 0.6 13:30 US Empire state (NY Fed) des Index 0.6 14:15 US Goods production nov m/m % 0.7

Poll 0.0 2.00 Poll 46.5 -0.2 2.2 0.2

Actual -0.1 1.75 DNB

Morning Report
15.12.2011

SPOT RATES AND FORECASTS


Oil spot & NOK TWI 118 100 112 98 106 96 100 94 4-Nov 24-Nov 14-Dec
NOK TW I ra. $/b

EUR vs GBP & CHF 1.25 0.87 0.86 1.20 0.85 1.15 0.84 0.83 1.10 4-Nov 24-Nov 14-Dec
GBP r.a CHF

FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK

Prior 78.06 1.298 0.840 1.238 7.773 9.090 7.433 5.990 7.679 0.857 9.265 7.004 8.978 1.171 10.830

Last 78.08 1.299 0.841 1.239 7.786 9.097 7.434 5.994 7.680 0.857 9.260 7.004 8.969 1.170 10.819

% 0.0% 0.1% 0.2% 0.1% 0.2% 0.1% 0.0% 0.1% 0.0% 0.0% -0.1% 0.0% -0.1% -0.1% -0.1%

In 1 m ...3 m 80 80 1.35 1.35 0.86 0.86 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 5.78 5.78 7.22 7.22 0.85 0.86 9.1 9.1 6.81 6.74 5.45 5.39 1.18 1.17 10.70 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 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 0.9879 1.0392 0.9541 19.79 5.7240 1.5447 7.7846 122.31 0.2792 2.6584 0.5376 0.7476 3.5117 1.3122 31.9175

% -0.32% -0.03% 0.05% -0.12% -0.05% -0.14% 0.02% -0.02% -0.09% -0.12% -0.07% -0.41% -0.09% 0.15% 0.04%

EURSEK & OMXS 9.4 9.2 9.0 8.8 4-Nov 500 450 400 350 24-Nov 14-Dec
OMXS ra. EUR SEK

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

NIBOR Prior 3.04 3.15 3.26 3.36 2.79 3.09 3.31 3.49

SWAP AND MONEYM ARKET RATES STIBOR EURIBOR Last Prior Last Prior 3.09 2.45 2.45 1.06 3.18 2.76 2.76 1.36 3.24 2.78 2.78 1.61 3.32 2.82 2.83 1.80 2.80 1.82 1.81 1.52 3.09 1.92 1.92 1.88 3.31 2.10 2.10 2.19 3.52 2.19 2.19 2.49

Last 1.06 1.35 1.62 1.80 1.49 1.85 2.19 2.49

USD LIBOR Prior 0.28 0.55 0.77 0.93 0.81 1.26 1.67 2.06

Last 0.28 0.56 0.78 0.94 0.84 1.26 1.67 2.03

Gov. Bonds, 10y 2.00 1.75 3.00 2.50 2.00

1.50 1.50 4-Nov 24-Nov 14-Dec


NOK, ra. SEK

10y 10y yield vs bund

NORWAY Prior Last 117.37 113.45 2.19 2.16 0.22 0.23

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 118.546 118.56 100.663 100.64 100.85938 1.56 1.56 1.97 1.93 1.90 -0.40 -0.37 -0.06

Last 101.06 1.89 -0.04

JPY and DowJones 79 13 78 12 77 11 76 10 75 4-Nov 24-Nov 14-Dec


USDJPY ra. DowJones, 1000

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 3.00 4.25 2.20 3.00 1.30 3.00 2.80 4.50 2.10 3.25 1.10 3.25 3.10 4.50 2.00 3.25 1.05 3.25

US 3m libor 10y swap 0.55 2.75 0.55 3.00 0.50 3.25

USD and gold 1900 1.46 1800 1.42 1700 1.38 1600 1.34 1500 1.30 4-Nov 24-Nov 14-Dec
EURU SD ra. Gold

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

3m 3.04 2.63 2.29 2.20 3m 2.77 2.27 1.80 1.55

Prior 3.04 2.63 2.32 2.22 Prior 2.78 2.27 1.80 1.55

chg 0.00 0.00 -0.03 -0.02 chg -0.01 0.00 0.01 0.00

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 97.17 Dow Jones 11,823.5 -1.1% SEK 120.34 - 0.07 Nasdaq 2,539.3 -1.5% EUR 103.32 0.07 FTSE100 5,366.8 -2.2% USD 80.54 0.01 Eurostoxx50 2,205.9 -2.4% GBP 80.90 Dax 5,675.1 -1.7% Comm. Today Last Nikkei225 8,377.4 0.0% Brent spot 106.4 106.4 Oslo 358.54 -3.1% Brent 1m 105.9 105.0 Stockholm 428.03 -1.8% Spot gold 1603.0 1603.0 Copenhagen 479.60 -2.6% Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
15.12.2011
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