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Morning Report

04.07.2012

Riksbank Meeting Today


NOK & 3m NIBOR 7.70 7.60 7.50 7.40 7.30 24-May 13-Jun
3m ra.

We expect the Riksbank to leave policy rates unchanged today, but the risk is biased downwards.
2.50 2.40 2.30 2.20

3-J ul
EURNOK

SEK & 3m STIBOR 9.1 9.0 8.9 8.8 8.7 24-May 13-J un
3m ra.

In the FX markets, there have been just minor movements since yesterday morning. Long government bond yields in the U.S. and Germany rose 2-3 basis points. 10-year rate in Spain and Italy fell 9 bp yesterday. Stock markets in Europe rose roughly one per cent, while the benchmark index on the Oslo Stock Exchange was up 2 per cent. In the United States both the DJIA and S & P500 increased by about 0.6 per cent and the stock price appreciation has continued in Asia today. Despite signs that the players are more positive and willing to take on more risk Norwegian FRAs fell 6-7 basis points from the December contract and beyond. Since shortly after the monetary policy meeting in June, these FRAs fell 11-20 bp. The decline yesterday is probably partly a result of increased expectations of rate cuts and that markets are now relatively thin.The level of FRAs and based on forward rates, it seems that markets are pricing in a probable rate cut in Norway during the autumn. Riksbanken is likely to leave its policy rate unchanged at 1.5 per cent at todays meeting. The decision is due at 07:30 GMT. At the previous meeting 25 April the central bank changed neither the current repo rate nor the interest rate path. The latter implied that the repo rate should remain unchanged until spring/summer 2013. The Riksbank recognized some positive signs for the Swedish economy, more specifically an improvement of sentiment among households and enterprises, as well as a pick-up in exports demand. GDP was projected to increase by 0.4 per cent this year and 1.9 per cent in 2013. Unemployment was expected to increase and peak at 7.9 per cent in Q1 2013. Since the previous meeting international forward interest rates have dropped further, due to turmoil connected to the sovereign debt crisis in Europe. Q1 GDP increased 0.8 per cent, remarkably (and suspiciously?) strong, and significantly higher than the Riksbanks estimate. Hence, projected 2012-GDP is likely to be upwardly revised. The most important contributor to growth was foreign trade, with exports rising by 1.1 percent q/q and imports falling by 0.4 percent. The trade balance has improved so far in Q2, with exports increasing by 0.3 per cent in April/May. But the activity momentum is fading. The European crisis has hit consumer and business sentiment, which has edged down again, to levels below the historical averages. Manufacturing production and orders are showing a stronger negative trend. Manufacturing PMI is well below 50. The unemployment rate rose markedly, from 7.4 per cent in April to 7.8 per cent, in May. This was in line with the Riksbanks expectations. Private consumption grew by 1.1 per cent q/q in the first quarter. Retail sales jumped by 1.5 per cent in the same period. In the two first months of Q2, retail sales have risen by 0.3 per cent compared to Q1, implying a still-positive, but significantly weaker GDPcontribution from private consumption in Q2. Businesses interviewed by the Riksbank in May saw no clear course for economic activity, and said they expected an improvement in activity and increase in investments, but that they were ready to make rapid adjustments in the workforce if demand were to weaken. Core inflation (CPIF) has edged down to 0.9 percent y/y in May, in line with the Riksbanks expectations. Domestic economic developments have in sum been more or less in line with the Riksbanks expectations. The majority of the Board, including the two new members, are concerned that a very low repo rate over a long period of time might entail risks for the functioning of the economy, through increased household indebtedness. We therefore expect the Riksbank to signal a flat repo rate path until the summer of 2013 (as in April), but then a somewhat lowered path compared to the current, due to lower international forward rates. The downside risk to our forecast is significant, due to the current crisis in Europe.

2.20

2.00 3-J ul
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

22 94 89 40 22 01 78 20

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

56 13 27 20 75 52 9910 69 39 41 50 62 54 14 82 52 72 09 06 61 24 79 56 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 Camilla Viland Magne stnor Kyrre Aamdal

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 77 41 22 01 76 57 22 01 76 67

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

kyrre.aamdal@dnb.no
22 01 78 37 22 01 77 62 22 01 76 77 22 01 77 36 22 01 78 15

Yesterdays key economic events (GMT) 04:30 Australia RBA, rate meeting 09:00 EMU PPI 14:00 USA Industrial orders Todays key economic events (GMT) 07:30 Sverige Riksbanken rate meeting 07:58 EMU PMI, services 09:00 EMU Ratail sales

As of July May May As of June May

Unit % y/y % % Unit % index m/m %

Prior 3.50 2.6 -0.6 Prior 1.50 46.8 -1.0

Poll 3.50 2.5 -0.3 Poll 1.50 46.8 0.4

Actual 3.50 2.3 0.7 DNB 1.50

Morning Report
04.07.2012

SPOT RATES AND FORECASTS


Oil spot & NOK TWI 115 105 95 85 24-May 13-Jun 96 94 92 90 3-Jul
$/b

NOK TWI ra.

1.20 1.20 1.20

EUR vs GBP & CHF 0.82 0.81 0.80 0.79 3-J ul


CHF

1.20 24-May 13-Jun


GBP r.a

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

Prior 79.86 1.261 0.804 1.202 7.521 8.740 7.435 5.965 7.473 0.861 9.358 6.932 8.683 1.164 10.878

Last 79.77 1.260 0.804 1.201 7.517 8.751 7.435 5.971 7.486 0.860 9.363 6.954 8.710 1.166 10.892

% -0.1% -0.1% 0.0% -0.1% 0.0% 0.1% 0.0% 0.1% 0.2% -0.1% 0.1% 0.3% 0.3% 0.1% 0.1%

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.60 7.50 9.10 9.00 7.45 7.45 6.18 5.77 7.72 6.87 0.84 0.83 9.6 9.0 7.40 6.92 5.92 5.82 1.20 1.20 11.52 10.84

...6 m ...12 m 85 85 1.35 1.40 0.85 0.87 1.20 1.30 7.50 7.60 9.00 9.00 7.45 7.45 5.56 5.43 6.54 6.39 0.83 0.84 8.8 8.7 6.67 6.43 5.67 5.46 1.20 1.18 10.59 10.34

FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB

USD 1.0293 1.0135 0.9537 20.23 5.9036 1.5675 7.7543 125.88 0.2806 2.7414 0.5535 0.8045 3.3339 1.2636 32.1810

% 0.11% 0.11% 0.08% -0.17% 0.08% -0.10% -0.01% 0.13% 0.07% 0.07% 0.11% 0.06% 0.06% -0.02% -0.14%

EURSEK & OMXS 9.1 9.0 8.9 8.8 8.7 24-May 13-Jun 500 450 400 350 3-Jul

OMXS ra. EURSEK

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

NIBOR Prior 1.95 2.31 2.64 2.79 2.59 2.86 3.11 3.36

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.99 1.90 1.90 0.32 2.30 2.14 2.14 0.56 2.64 2.39 2.40 0.86 2.79 2.52 2.53 1.03 2.59 1.91 1.91 0.91 2.86 2.05 2.05 1.26 3.11 2.20 2.21 1.60 3.36 2.35 2.35 1.97

Last 0.32 0.55 0.86 1.03 0.91 1.25 1.59 1.96

USD LIBOR Prior Last 0.24 0.25 0.46 0.46 0.73 0.73 0.91 0.91 0.62 0.62 0.95 0.95 1.34 1.34 1.77 1.77

Gov. Bonds, 10y 1.75 1.50 1.25 1.00 24-May 13-Jun


NOK, ra.

3.00 2.50 2.00 1.50 3-J ul


SEK

NORWAY Prior Last 10y /A No Data 99.90 10y yield 2.02 2.01 vs bund 0.48 0.47

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 117.94 117.96 101.96 101.93 101.10938 1.53 1.53 1.54 1.54 1.63 0.00 -0.01 0.09

Last 101.11 1.64 0.10

13.0 12.5

JPY and DowJones

81 79 77

12.0 24-May 13-Jun

75 3-Jul

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.40 3.50 2.10 2.50 0.65 2.25 2.50 3.75 2.05 2.75 0.65 2.75 2.85 4.25 2.20 3.00 0.65 3.25
% 0.09 - 0.03 0.05 Last 100.1 100.7 1617.5

US 3m libor 10y 0.50 0.50 0.50

swap 2.25 2.50 3.00


% 0.6% 0.8% 0.8% 1.2% 1.3% 0.0% 2.0% 1.5% 1.4%

USDJPY ra. DowJones, 1000

USD and gold 1670 1620 1570 1520 24-May 13-Jun


EURUSD ra.

1.28 1.26 1.24 1.22 1.20 3-Jul


Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today SEP 2.22 2.23 -0.01 NOK 94.04 DEC 2.17 2.16 0.01 SEK 116.40 MAR 2.15 2.16 -0.01 EUR 100.08 JUN 2.16 2.16 0.00 USD 81.86 FRA SEK 3m Prior chg GBP 83.20 SEP 1.93 1.92 0.01 Comm. Today DEC 1.82 1.81 0.01 Brent spot 100.2 MAR 1.78 1.77 0.01 Brent 1m 100.3 JUN 1.76 1.75 0.00 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 12,943.8 Nasdaq 2,976.1 FTSE100 5,687.7 Eurostoxx50 2,320.4 Dax 6,578.2 Nikkei225 9,104.2 Oslo 419.15 Stockholm 490.26 Copenhagen 598.84

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