Morning Report

02.10.2012

Lack of bad news lifted markets

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

Both the European and the US PMI index increased somewhat in September. This contributed to somewhat better mood in the financial markets yesterday.
2.50 2.35 2.20 2.05 1.90

Yesterday's PMI indices indicate that the global economy may be stabilizing. It started in Asia with both the Chinese and the Japanese index increasing slightly, albeit still at levels that indicate a deterioration of conditions in the respective countries' manufacturing sectors. In other words: A tiny notch better, but still not very good prospects for the world's second-largest and third-largest economies. After the Asian indices were released, we got data from Norway and Sweden, which were slightly worse than the Asian figures. The Norwegian index rose by 0.1 points to 48.9 in September, compared with an expected increase to 49.5. Of the various sub-indices, it is worth noting that the new orders index fell by 3.1 points to 46.9 in September. The production index is also below 50, which indicates a decline in industrial production. However, it is not a given that conditions in the Norwegian manufacturing sector are as poor as the PMI has indicated in recent months. Both Norges Bank's regional network and SSBs Konjunkturbarometer has remained at positive levels and are more aligned with actual manufacturing production which has increased significantly over the last few months. Compared to the Swedish economy it appears that Norwegian manufacturers are faring well despite international turmoil and a strong krone. Where the Norwegian index has been moving right below the 50-threshold, the Swedish index fell by 0.4 points to 44.7 in September. The decline is a signal of an unexpected weakness, after the index fell by 5.5 points last month. It now appears that the Swedish economy to a much greater extent is affected by the weak economic development in the Eurozone, and the level of the PMI index is consistent with a fall in GDP in the third quarter of 0.2 percent. This does not necessarily mean that the Riksbank will reduce the key interest rate further, as the central bank in its estimates for Q3 also has a decline in GDP. We believe that the central bank will keep interest rates steady going forward. Elsewhere in Europe it appears that the rate of contraction in the manufacturing sector is declining somewhat, as both German (+2.8) and the Italian PMI index (+2.1) edged up in September. Also, Spain, Netherlands, Greece and Ireland rose slightly in September, while France and Austria fell to the lowest level in 41 months and 39 months, respectively. Overall for the Eurozone the index rose by 1.0 points in September, a small sign that the Eurozone is about to reach its trough. It should, however, be noted that the average reading for Q3 is the lowest quarterly reading for the Eurozone in three years, and the level is consistent with an outright fall in manufacturing output of 1.0 percent annualized. It thus appear that the manufacturing will be a drag on GDP in the third quarter. Yesterday's positive surprise was the ISM index from the US, which rose by 1.9 points to 51.5 in September. According to Reuters, it was expected a rise to 49.7. The increase was driven by a boost in the new orders component, which rose by 5.2 points to 52.3. It is the first time since May this year the index is above 50, and despite the fact that the index points to continued weak growth, between 1.5 to 2.0 percent annualized in Q3, it is a positive signal that the manufacturing sector now is in expansionary territory. The markets seemed to react positively to the absence of negative news in yesterday's PMI indexes. In Europe, bourses rose by about 1 per cent, while equities in the US increased slightly less, with the S&P 500 up 0.3 percent. In the Asian markets volumes are reported to be thin, as the markets in both China and Hong Kong are closed. In FX markets it also seems that there is more "risk on". The euro strengthened broadly and EURUSD is up about half a percent to 1.29. Meanwhile, the dollar strengthened slightly against the yen, but the USDJPY remains around 78, a level that the finance ministry in Japan obviously is little comfortable with. The newly installed Japanese Finance Minister Koriki Jojima, said yesterday that the Japanese government will take the necessary measures to support the economy if they find it necessary. ole.kjennerud@dnb.no Yesterday's key economic events (GMT) 07:00 Norway PMI 07:58 EMU PMI, manufacturing 14:00 USA ISM, manufacturing Todays key economic events (GMT) 04.30 Australia RBA int. rate decisision USA Vehicle sales As of Sep Sep Sep As of Sep Unit Index Index Index Unit % Mn Prior Poll Actual 48.7 49.5 48.9 46.0 46.0 46.1 49.6 49.8 51.5 Prior Poll DNB 3.50 3.5 3.25 14.5 14.5

22-Aug 11-Sep 1-Oct

EURNOK

SEK & 3m STIBOR 8.8 8.6 8.4 8.2 8.0 22-Aug 11-Sep
3m ra.

2.40 1.60 0.80 0.00 1-Oct

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

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

Morning Report
02.10.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 85 22-Aug 94 93 92 91 90 1-Oct
$/b

11-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 22-Aug 11-Sep 1-Oct
GBP r.a CHF

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

Prior 78.02 1.289 0.799 1.210 7.392 8.501 7.457 5.729 7.350 0.870 9.267 6.597 8.458 1.151 10.645

Last 78.08 1.290 0.799 1.210 7.382 8.500 7.456 5.720 7.329 0.869 9.239 6.587 8.440 1.152 10.640

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

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 1.0309 0.9821 0.9376 19.44 5.7787 1.6154 7.7542 123.83 0.2812 2.6759 0.5398 0.8316 3.1845 1.2285 31.1350

% -0.57% -0.03% -0.10% -0.28% -0.13% 0.12% -0.01% -0.15% 0.00% -0.13% -0.13% 0.42% -0.10% -0.09% -0.22%

EURSEK & OMXS 8.7 8.5 8.3 8.1 22-Aug 11-Sep 575 500 425 350 1-Oct

OMXS ra. EURSEK

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

NIBOR Prior 1.83 1.97 2.18 2.30 2.28 2.58 2.89 3.22

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.84 1.46 1.45 0.07 1.98 1.59 1.59 0.15 2.18 1.77 1.77 0.36 2.31 1.88 1.87 0.51 2.27 1.45 1.45 0.60 2.58 1.65 1.65 0.96 2.89 1.89 1.89 1.34 3.23 2.12 2.12 1.76

Last 0.07 0.15 0.36 0.51 0.60 0.96 1.33 1.76

USD LIBOR Prior Last 0.21 0.21 0.36 0.36 0.64 0.63 0.81 0.80 0.46 0.45 0.76 0.76 1.18 1.18 1.69 1.69

Gov. Bonds, 10y 1.60 1.40 1.20 1.00

NOK, ra.

3.00 2.50 2.00 1.50

SEK

22-Aug 11-Sep 1-Oct

10y 10y yield vs bund

NORWAY Prior Last 98.69 98.55 2.14 2.15 0.68 0.71

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 117.83 117.85 100.189 100.47 1.50 1.50 1.46 1.45 0.04 0.05

US Prior 100.0625 1.62 0.16

Last 100.08 1.62 0.18

14.0 13.5 13.0 12.5 12.0 22-Aug 11-Sep

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

75 1-Oct

USDJPY ra. DowJones, 1000

USD and gold 1820 1720 1620 1.32 1.28 1.24

1520 1.20 22-Aug 11-Sep 1-Oct

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % DEC 1.88 1.89 -0.01 NOK 0.01 - 99.99 MAR 1.86 1.87 -0.01 SEK 113.11 0.19 JUN 1.87 1.88 -0.01 EUR 100.57 0.09 SEP 1.89 1.91 -0.02 USD 79.74 - 0.11 FRA SEK 3m Prior chg GBP 84.20 DEC 1.48 1.49 -0.01 Comm. Today Last MAR 1.36 1.36 0.00 Brent spot 113.0 113.0 JUN 1.31 1.31 -0.01 Brent 1m 112.2 112.2 SEP 1.30 1.31 -0.02 Spot gold 0.0 1787.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 13,515.1 Nasdaq 3,113.5 FTSE100 5,820.5 Eurostoxx50 2,498.8 Dax 7,326.7 Nikkei225 8,786.1 Oslo 452.23 Stockholm 511.41 Copenhagen 653.35

% 0.6% -0.1% 1.4% 1.8% 1.5% 0.0% 1.4% 1.2% 1.2%

IMPORTANT/DISCLAIMER This note (the Note) must be seen as marketing material and not as an investment recommendation within the meaning of the Norwegian Securities Trading Act of 2007 paragraph 3-10 and the Norwegian Securities Trading Regulation 2007/06/29 no. 876. The Note has been prepared by DNB Markets, a division of DNB Bank ASA, a Norwegian bank organized under the laws of the Kingdom of Norway (the Bank), for information purposes only. The Note shall not be used for any unlawful or unauthorized purposes. The Bank, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (individually, each a DNB Party; collectively, DNB Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Note. DNB Parties are not responsible for any errors or omissions, regardless of the cause, nor for the results obtained from the use of the Note, nor for the security or maintenance of any data input by the user. The Note is provided on an as is basis. DNB PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE NOTES FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE NOTE WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall DNB Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Note, even if advised of the possibility of such damages. Any opinions expressed herein reflect the Banks judgment at the time the Note was prepared and DNB Parties assume no obligation to update the Note in any form or format. The Note should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. No DNB Party is acting as fiduciary or investment advisor in connection with the dissemination of the Note. While the Note is based on information obtained from public sources that the Bank believes to be reliable, no DNB Party has performed an audit of, nor accepts any duty of due diligence or independent verification of, any information it receives. Confidentiality rules and internal rules restrict the exchange of information between different parts of the Bank and this may prevent employees of DNB Markets who are preparing the Note from utilizing or being aware of information available in DNB Markets/the Bank which may be relevant to the recipients of the Note. The Note is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. Distribution of material like the Note is in certain jurisdictions restricted by law. Persons in possession of the Note should seek further guidance regarding such restrictions before distributing the Note. The Note is for clients only, and not for publication, and has been prepared for information purposes only by DNB Markets - a division of DNB Bank ASA registered in Norway with registration number NO 984 851 006 (the Register of Business Enterprises) under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet), Monetary Authority of Singapore, the Chilean Superintendent of Banks, and on a limited basis by the Financial Services Authority of UK. Information about DNB Markets can be found at dnb.no. Additional information for clients in Singapore The Note has been distributed by the Singapore branch of DNB 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 the Note, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product. You have received a copy of the Note because you have been classified either as an accredited investor, an expert investor or as an institutional investor, as these terms have been defined under Singapores Financial Advisers Act (Cap. 110) (FAA) and/or the Financial Advisers Regulations (FAR). The Singapore branch of DNB Bank ASA is a financial adviser exempt from licensing under the FAA but is otherwise subject to the legal requirements of the FAA and of the FAR. By virtue of your status as an accredited investor or as an expert investor, the Singapore branch of DNB Bank ASA is, in respect of certain of its dealings with you or services rendered to you, exempt from having to comply with certain regulatory requirements of the FAA and FAR, including without limitation, sections 25, 27 and 36 of the FAA. Section 25 of the FAA requires a financial adviser to disclose material information concerning designated investment products which are recommended by the financial adviser to you as the client. Section 27 of the FAA requires a financial adviser to have a reasonable basis for making investment recommendations to you as the client. Section 36 of the FAA requires a financial adviser to include, within any circular or written communications in which he makes recommendations concerning securities, a statement of the nature of any interest which the financial adviser (and any person connected or associated with the financial adviser) might have in the securities. Please contact the Singapore branch of DNB Bank ASA at +65 6212 0753 in respect of any matters arising from, or in connection with, the Note. The Note is intended for and is to be circulated only to persons who are classified as an accredited investor, an expert investor or an institutional investor. If you are not an accredited investor, an expert investor or an institutional investor, please contact the Singapore branch of DNB Bank ASA at +65 6212 0753. We, the DNB group, our associates, officers and/or employees may have interests in any products referred to in the Note by acting in various roles including as distributor, holder of principal positions, adviser or lender. We, the DNB group, our associates, officers and/or employees may receive fees, brokerage or commissions for acting in those capacities. In addition, we, the DNB 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 the Note. Additional Information, including for Recipients in the In the United States: The Note does not constitute an offer to sell or buy a security and does not include information, opinions, or recommendations with respect to securities of an issuer or an analysis of a security or an issuer; rather, it is a market letter, as the term is defined in NASD Rule 2211.