Morning Report

18.10.2012

Still solid growth in Norway

NOK & 3m NIBOR 7.50 7.40 7.30 2.10 2.00 1.90

Norges Bank's Regional Network indicates solid growth in the Norwegian economy. And growth in China seems to be about to pick up. Yesterday's report from Norges Bank's Regional Network confirms the picture of a Norwegian economy which is still doing well, but with significant differences between industries. Compared with the previous report from May, businesses signal that growth in the Norwegian economy has slowed slightly. Expected growth over the next 6 months is expected to be slightly lower compared to May. The petroleum industry, construction and surprisingly enough export industry expects higher growth than in May, while the domestic industry has the weakest outlook. Capacity problems are growing in construction, while there is a stable development for manufacturing, services and retail trade. Labour supply severely limits production in construction, but not for the other sectors. The pressure is clearly highest in Western Norway, while there is significant spare capacity in eastern parts of the country and in Northern Norway. Inflation expectations are slightly lower compared to the previous report. The export industry has not been significantly affected by developments in Europe and the strong NOK, while the construction sector is heading for pre-crisis activity levels. Overall, the report does not imply that the interest rate path from June will be changed at the upcoming interest rate meeting on 31 October. The U.S. housing market has appeared to be improving for a while, but housing starts have been long in coming. In September however, housing starts totaled 872', the highest level since July 2008 which is up 15 percent since September and 35 percent since last September. The number of building permits also increased more than expected in September. Thus, it appears that the recovery that we have seen in the confidence indices and house prices materialize in construction activity. This can provide important contribution to growth going forward. Despite the growth in China slowing down for the seventh consecutive quarter, it may seem as if the government's stimuli contribute to growth. While GDP growth fell from 7.6% y / y in the second quarter to 7.4% y / y in the third, below the government's target of 7.5%, quarterly growth has increased for two consecutive quarters and reflects an increased momentum in the economy. Moreover, figures for investment, industrial output and retail sales for September surprised positively, and strengthen the impression that growth is about to pick up. The decision of no change to asset purchases was unanimous, according to the minutes from the last monetary policy meeting of the Bank of England. The previous increase in the amount was in July, and will be completed by the next meeting in November. The minutes showed that there was disagreement in the MPC of whether additional QE would be positive. Despite the fact that unemployment is declining somewhat, wage growth is still well below normal levels even though inflation is falling. Which in turn keeps the growth in household purchasing power down, and suggest that today's retail sales for September won't impress anyone. Better than expected data from the U.S. and China contributed to the Asian stock markets reaching the highest level in seven months. U.S. stocks rose as housing data outweighed weak corporate results. Long-term interest rates have risen in the U.S., Germany and Norway. With one exception there have been small changes in the currency market since yesterday morning. Rumors that the BoJ will cut its growth forecast and further stimulate the economy contributed to a weakening of the Japanese yen. Not surprisingly, the Australian dollar has appreciated on the back of good figures from China. Norwegian and Swedish krona remains within the relatively narrow intervals they have been inside the last week, and the market seems directionless and interest is limited. We expect Norges Bank's quarterly lending survey to show a tightening of credit to the corporate sector, while banks in the light of new regulatory requirements shift more of their lending to households. The previous report pointed to tighter credit for companies and first time buyers of homes. Credit standards for households as a whole was then virtually unchanged. In addition to the weekly figures for initial claims for unemployment insurance in the U.S., the Philly Fed sentiment index is expected to rise slightly from September to October. magne.ostnor@dnb.no

7.20 1.80 7-Sep 27-Sep 17-Oct

3m ra. EURNOK

SEK & 3m STIBOR 8.8 8.6 8.4 8.2 8.0 7-Sep

3m ra.

2.40 1.60 0.80 27-Sep 17-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

As of Yesterday's key economic events (GMT) 08:00 Norway Norges Bank Regional network 12:30 USA Housing starts Sep 02:00t China GDP Q3 As of Todays key economic events (GMT) 07:30 Sweden Unemployment Sep 08:30 UK Retail Sales Sep 14:00 US Philly Fed Okt

Unit mn y/y % Unit % % y/y Index

Prior 0.750 7.6 Prior 7.2 2.1 -1.9

Poll 0.770 7.4 Poll 7.4 2.7 1.0

Actual 0.872 7.4 DNB 7.3

Morning Report
18.10.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 85 7-Sep 27-Sep
NOK TWI ra.

94 93 92 91 90 17-Oct
$/b

EUR vs GBP & CHF 1.22 1.22 1.21 1.21 1.20

GBP r.a

0.82 0.80 0.78 0.76

CHF

7-Sep 27-Sep 17-Oct

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

Prior 78.95 1.312 0.813 1.210 7.397 8.648 7.460 5.636 7.137 0.856 9.104 6.591 8.354 1.170 10.648

Last 79.14 1.311 0.813 1.210 7.384 8.620 7.460 5.635 7.125 0.857 9.093 6.577 8.321 1.169 10.618

% 0.2% -0.1% 0.0% 0.0% -0.2% -0.3% 0.0% 0.0% -0.2% 0.2% -0.1% -0.2% -0.4% -0.1% -0.3%

In 1 m ...3 m 78 76 1.27 1.15 0.79 0.76 1.20 1.20 7.30 7.20 8.55 8.40 7.45 7.45 5.75 6.26 7.37 8.24 0.85 0.86 9.2 9.5 6.73 7.30 5.25 5.55 1.17 1.17 10.82 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 1.0384 0.9778 0.9233 18.90 5.6924 1.6136 7.7517 122.61 0.2810 2.6346 0.5319 0.8213 3.1265 1.2182 30.7750

% -0.01% -0.02% 0.09% 0.06% 0.10% -0.08% 0.00% 0.09% -0.01% 0.06% 0.13% -0.23% -0.05% 0.14% 0.03%

EURSEK & OMXS 8.9 8.7 8.5 8.3 8.1 7-Sep

OMXS ra. EURSEK

575 500 425 350 27-Sep 17-Oct

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

NIBOR Prior 1.77 1.92 2.11 2.22 2.29 2.61 2.93 3.25

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.76 1.41 1.41 0.06 1.92 1.49 1.48 0.14 2.12 1.64 1.63 0.30 2.22 1.73 1.72 0.45 2.29 1.41 1.41 0.67 2.60 1.64 1.64 1.06 2.91 1.90 1.91 1.45 3.26 2.17 2.18 1.90

Last 0.06 0.14 0.30 0.44 0.68 1.07 1.46 1.91

USD LIBOR Prior Last 0.21 0.21 0.32 0.32 0.58 0.57 0.75 0.74 0.50 0.51 0.90 0.89 1.34 1.33 1.86 1.85

Gov. Bonds, 10y 1.60 1.40 1.20 1.00

NOK, ra.

3.00 2.50 2.00 1.50

SEK

7-Sep 27-Sep 17-Oct

10y 10y yield vs bund

NORWAY Prior Last 99.35 99.05 2.07 2.10 0.45 0.45

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 116.3 116.31 98.839 98.61 98.234375 1.65 1.65 1.62 1.65 1.82 0.03 0.00 0.20

Last 98.31 1.82 0.17

14.0 13.5 13.0 12.5 12.0 7-Sep

JPY and DowJones

81 79 77

75 27-Sep 17-Oct
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 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

USD and gold 1820 1720 1620 1.32 1.28 1.24

1.20 1520 7-Sep 27-Sep 17-Oct

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today DEC 1.88 1.88 0.00 NOK 92.34 MAR 1.87 1.87 0.00 SEK 114.53 102.27 JUN 1.89 1.89 0.00 EUR SEP 1.93 1.94 -0.01 USD 79.11 FRA SEK 3m Prior chg GBP 83.50 DEC 1.40 1.40 0.00 Comm. Today 1.24 1.24 0.00 Brent spot 114.3 MAR JUN 1.22 1.22 0.00 Brent 1m 113.6 SEP 1.23 1.23 0.00 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% Stock ex. Today - 0.14 Dow Jones 13 557.0 - 0.48 Nasdaq 3 104.1 - 0.04 FTSE100 5 910.9 0.04 Eurostoxx50 2 569.8 Dax 7 394.6 Last Nikkei225 8 989.7 114.2 Oslo 451.83 113.2 Stockholm 508.47 1749.0 Copenhagen 654.13

% 0.0% 0.1% 0.7% 0.9% 0.2% 0.0% -0.1% 0.4% -0.2%

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.