Morning Report

28.09.2012

Sentiment Improved on Spanish Budget

NOK & 3m NIBOR 7.50 7.40 7.30 7.20
3m ra.

Despite weak key figures from Europe and the U.S. the stock markets rose. The main reason was probably the news about the Spanish government budget.
2.50 2.35 2.20 2.05 1.90

20-Aug 7-Sep 27-Sep

EURNOK

SEK & 3m STIBOR 8.8 8.6 8.4 8.2 8.0 20-Aug 7-Sep
3m ra.

2.40 1.60 0.80 0.00 27-Sep

EURSEK

Headquarters 0021 Oslo Stranden 21

+47 03000

The Spanish government held a press conference yesterday about the main budget proposal for 2013, after a six-hour long cabinet meeting. The proposals include expenditure cuts of 7.3 percent excluding social security and four percent increase in revenues primarily through increased VAT. The salaries of public employees are kept unchanged for the third consecutive year. The country's 17 autonomous regions are also faced demands for spending cuts to meet over all public deficit reduction goals. Along with the budget the government will also add a number of laws aimed at reforming the economy. In particular, labor market, public administration, energy sector and telecommunications are affected. EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday that Spain with this goes beyond what the European Commission has requires and is an ambitious step forward. In particular, he welcomed the proposal to establish an independent council to oversee state finances and consider the need for reform. Currently few concrete figures on how the budget deficit will grow is released, but the government says that it will reach earlier targets for deficits in 2013. The target for 2013 is a deficit at 4.5 per cent of GDP for 2013, down from 9 per cent last year. Figures released earlier this week signaled the government had slipped behind the 2012 target it agreed with Brussels. The Government forecast a 0.5 decrease in GDP for 2013. The budget will first be presented to parliament tomorrow and debates may last for weeks. The initial reactions in the markets were modest, but eventually the news from Spain contributed to improve the market mood. In the United States the S & P 500 ended up 1 percent. In the currency markets, the euro has appreciated by 0.3 percent against the U.S. dollar since yesterday morning. But both the Swedish and Norwegian krone have appreciated against the Euro by respectively 0.6 percent and 0.5 percent. Japan released several key figures this morning. Employment figures were essentially marginally better than expected. Inflation figures were mixed, with slightly less deflation than expected for the country in August and somewhat larger than expected fall in Tokyo in September. Retailers clearly surprised on the upside, while industrial production was significantly weaker than expected. Also car production was weak in August. Production figures seem to have been most important for the stock market, where the Nikkei 225 index was down 0.9 percent despite the rise in the United States. Yesterday several key figures from Europe and USA were released. Among the most surprising were the final GDP figures for the U.S. for the second quarter. The first estimates showed a growth of 1.5 percent. It was later revised up to 1.7 percent. But yesterday's figures showed a rise of only 1.3 percent, versus expectations of unchanged growth at 1.7 percent. Also, the U.S. durable goods orders were weak with a decline of more than 13 percent. It was expected a decline of 5 percent and the trend is clearly declining. The drop in air transport orders and defense orders explain the fall in August. Besides these, there was an increase, but the trend is still weak. In the euro zone the broad money growth slowed. The sentiment index ESI fell in September for the sixth consecutive month and is at its lowest level since August 2009. Spain could indeed note an increase, but it was after a sharp fall in August. Consumer confidence in the euro zone also fell further in September. Today, Norges Bank releases daily currency purchases for October. According to the estimates given in the Revised National Budget, it seemed reasonable to buy currency for 350 million NOK per day on average for the first 11 months. In the first half, however, Norges Bank foreign currencies from SDFI and purchases totaled 158bn NOK. The allocations to the Pension Fund were only 132bn NOK. The rest went to boost buffer fund, which at the end of June was at its highest since 2004. There has been a tendency for currency purchases increases during the autumn. Norges Bank has stated that it wants to smooth currency purchases throughout the year. The level of the buffer fund and the increase in foreign exchange purchases in September suggests that the Bank expects an increase in transfers to the SPU in the second half of the year. We assume therefore that the currency purchase for 500 million/day to be continued in October. Statistics Norway presents retail sales figures for August. After a boost in sales in the spring the sales have leveled off. We believe in zero growth for August, but the consensus estimate is 0.6 percent kyrre.aamdal@dnb.no Yesterday's key economic events (GMT) 09:00 Eurozone Sentiment index 12:30 US GDP, final 12:30 US Durable goods orders Todays key economic events (GMT) 08:00 Norway Retail sales 08:00 Norway Reg.unemployment, ua 13:45 US Chicago PMI As of Sep Q2 Aug As of Aug Sep Sep Unit index q/q y.r. % m/m % Unit % % index Prior 86.1 1.7 4.1 Prior 0.2 2.6 53.0 Poll 86.1 1.7 -5 Poll 0.6 2.4 53.2 Actual 85 1.3 -13.2 DNB 0.0 2.4

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

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

Morning Report
28.09.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 85 20-Aug 94 93 92 91 90 27-Sep
$/b

7-Sep

NOK TWI ra.

EUR vs GBP & CHF 1.22 0.82 1.22 0.80 1.21 0.78 1.21 1.20 0.76 20-Aug 7-Sep 27-Sep
GBP r.a CHF

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

Prior 77.63 1.292 0.795 1.210 7.375 8.434 7.456 5.712 7.363 0.877 9.275 6.528 8.416 1.144 10.606

Last 77.51 1.293 0.796 1.210 7.374 8.429 7.456 5.703 7.366 0.876 9.264 6.519 8.422 1.144 10.598

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

In 1 m ...3 m 78 76 1.27 1.15 0.79 0.76 1.20 1.20 7.30 7.20 8.40 8.40 7.45 7.45 5.75 6.26 7.37 8.24 0.87 0.86 9.2 9.5 6.61 7.30 5.16 5.55 1.15 1.17 10.63 11.05

...6 m ...12 m 76 78 1.15 1.20 0.78 0.80 1.20 1.20 7.30 7.40 8.50 8.50 7.45 7.45 6.35 6.17 8.35 7.91 0.86 0.87 9.4 9.3 7.39 7.08 5.62 5.53 1.16 1.15 10.90 10.63

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

USD 1.0461 0.9792 0.9361 19.43 5.7683 1.6254 7.7540 124.01 0.2810 2.6707 0.5391 0.8344 3.1915 1.2252 30.9550

% 0.11% -0.15% -0.16% 0.20% -0.10% 0.09% -0.01% -0.16% 0.01% -0.14% -0.11% 0.32% -0.16% -0.15% -0.15%

EURSEK & OMXS 8.7 8.5 8.3 8.1 20-Aug 7-Sep 575 500 425 350 27-Sep

OMXS ra. EURSEK

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

NIBOR Prior 1.80 1.89 2.16 2.28 2.29 2.59 2.90 3.24

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.84 1.47 1.47 0.07 1.96 1.59 1.60 0.15 2.19 1.78 1.78 0.36 2.32 1.88 1.88 0.52 2.28 1.50 1.49 0.60 2.58 1.68 1.67 0.96 2.89 1.91 1.91 1.34 3.22 2.14 2.13 1.76

Last 0.07 0.15 0.36 0.51 0.58 0.94 1.32 1.73

USD LIBOR Prior Last 0.22 0.21 0.36 0.36 0.64 0.64 0.81 0.81 0.48 0.47 0.78 0.77 1.21 1.19 1.77 1.69

Gov. Bonds, 10y 1.60 1.40 1.20 1.00

NOK, ra.

3.00 2.50 2.00 1.50

SEK

20-Aug 7-Sep 27-Sep

10y 10y yield vs bund

NORWAY Prior Last 98.52 98.57 2.16 2.15 0.70 0.70

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 118.06 117.96 100.426 100.48 1.48 1.49 1.46 1.45 0.02 0.04

US Prior 99.71875 1.66 0.20

Last 99.92 1.64 0.19

14.0 13.5 13.0 12.5 12.0 20-Aug

JPY and DowJones

81 79 77

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 1.90 3.25 1.65 2.25 0.25 1.75 1.90 3.25 1.65 2.25 0.25 1.75 2.05 3.50 1.65 2.50 0.25 2.00

US 3m libor 10y swap 0.45 1.75 0.45 1.75 0.45 2.25

7-Sep

75 27-Sep

USDJPY ra. DowJones, 1000

USD and gold 1820 1720 1620 1520

EURUSD ra.

1.32 1.28 1.24 1.20

Gold

20-Aug 7-Sep 27-Sep

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % DEC 1.89 1.90 -0.01 NOK 92.21 - 0.05 MAR 1.88 1.89 -0.01 SEK 112.24 - 0.01 JUN 1.89 1.89 0.00 EUR 100.34 0.04 SEP 1.91 1.92 -0.01 USD 79.46 - 0.11 FRA SEK 3m Prior chg GBP 0.00 - 100.0 DEC 1.53 1.54 -0.01 Comm. Today Last MAR 1.39 1.40 -0.02 Brent spot 111.9 111.9 JUN 1.35 1.37 -0.01 Brent 1m 112.5 112.0 SEP 1.34 1.36 -0.01 Spot gold 0.0 1763.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 13,486.0 Nasdaq 3,136.6 FTSE100 5,779.4 Eurostoxx50 2,506.1 Dax 7,290.0 Nikkei225 8,870.2 Oslo 447.32 Stockholm 510.16 Copenhagen 646.29

% 0.5% 1.4% 0.2% 0.3% 0.2% 0.0% 0.4% -0.2% 0.0%

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