Morning Report

24.10.2012

Signs of stabilization in China

NOK & 3m NIBOR 7.50 2.00 7.45 1.95 7.40 1.90 7.35 7.30 1.85 13-Sep 3-Oct 23-Oct
3m ra. EURNOK

An improved PMI index in the world's second largest economy may help to curb the negative sentiment that prevailed in yesterday's markets. Disappointing Q3 company reports cast a shadow over markets yesterday. Among the disappointments were DuPont, 3M and United Technologies. Dow Jones fell by 1.8 percent, while the Euro Stoxx 50 and the German DAX index fell by 2.1 percent. Moodys downgrade of five Spanish regions, including Catalonia and Andalucia the day before served as a further drag on sentiment. Lower risk appetite also explains movements in fixed income and FX markets. Long-term German and US bond yields edged down, while Spanish and Italian bonds rose. The Spanish 10-year bond yield is currently at 5.7 percent, up from 5.35 percent on Thursday. The corresponding Italian yield is up from 4.8 to 5.0 during the same period. The yen depreciation came to a halt yesterday. The euro has depreciated by 0.5 percent against the dollar since yesterday morning, and is currently trading just below 1.30. The Scandies have depreciated on a broad basis. Asian markets have rebounded somewhat today, after signs of improvement in China. The effects of stimulus, in the form of two rate cuts in the summer, lower reserve requirements for banks, support for export companies and public spending on infrastructure (infrastructure projects amounting to USD 157 billion USD were approved in September) and social housing has had an effect on growth. The Chinese flash PMI (HSBC) rose from 47.9 in September to 49.1 in October. This is the highest level in three months, but the indices are still below 50 (indicating growth below trend) as it has been since December 2011. The two main sub-indices, production and orders, both rose, the latter to its highest level since April (49.7). The rising PMI is, along with encouraging strong exports in September and increasing lending growth, an indication that GDP growth will pick up in Q4, after Q3 growth at 7.4 percent y/y. The Chinese government growth target for 2012 is 7.5 percent. We believe 2012 growth will end at just below 8 percent. More PMIs will be released today. Firstly, the French index at 7AM, secondly the German index at 7.30AM, and thereafter the euro zone PMI at 10AM. All indices, both from the manufacturing and the service sector, are expected to improve slightly, albeit to still- low levels. The euro zone composite PMI is expected to increase from 46.1 to 46.4. The levels of the German indices are the highest, and it is expected that Germanys manufacturing PMI will rebound to 50 again in October (to compare, the expected level of the corresponding French index is 44.0). The German IFO index is also released today. It is normally a reliable indicator of GDP growth. In September the IFO signaled a downturn, having fallen for five consecutive months to the lowest level seen since February 2010. The future expectations index is expected to rise slightly, from 93.2 to 93.7. Swedish consumer and business confidence indices are also released today. Both are expected to edge down. Note that we are expecting a significantly stronger decrease in consumer confidence than consensus (-1.5 vs. 1.4). Today ECB Governor Mario Draghi meets in the Bundestag to answer questions regarding the launch of OMT (Outright Monetary Transactions) in September. The central banks willingness to buy distressed government bonds in the secondary market (provided that certain criteria are met) have led to concerns among many German politicians, as it can be regarded as central bank financing of government debt. The head of the Bundesbank, Jens Weidmann, has openly criticized the measure. Chancellor Merkel and other prominent German politicians have supported Draghis decision. The two-day FOMC meeting ends today and a press release will be issued at 18:15. There will be neither new forecast nor a press conference at this meeting. As noted in our morning reports earlier this week no news are expected after an eventful meeting in September. It may be worth noting that the New York Times writes that Ben Bernanke is unlikely to serve a third term as governor when his term expires in January 2014. Mitt Romney has already said that he will not appoint Bernanke if he becomes president. Now it appears that Bernanke will also be replaced if Obama wins the election in November. Other US data today: Manufacturing PMI is expected to be unchanged at 51.5, a level that indicates continued growth. New home sales are expected to rise to 385 in September. kjersti.haugland@dnb.no Todays key economic events (GMT) 07:30 Sweden Consumer confidence 07:58 EMU PMI, composite (flash) 08:00 Germany IFO, expecations 14:00 US New home sales 18:15 US Interest rate meeting As of Oct Oct Oct Sep Unit Index Index Index Mill % Prior 2.0 46.1 93.2 0.373 0-0.25 Poll 1.4 46.4 93.7 0.385 0-0.25 DNB -1.5

SEK & 3m STIBOR 8.7 8.6 8.5 8.4 13-Sep 3-Oct

3m ra.

1.80 1.70 1.60 1.50 1.40 23-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

0-0.25

Morning Report
24.10.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 120 115 110 105 13-Sep 3-Oct
NOK TWI ra.

94 93 92 91 23-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

13-Sep 3-Oct 23-Oct

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

Prior 79.87 1.299 0.815 1.211 7.441 8.636 7.459 5.731 7.176 0.863 9.139 6.651 8.330 1.161 10.610

Last 79.80 1.299 0.813 1.210 7.430 8.630 7.458 5.719 7.171 0.862 9.150 6.643 8.328 1.162 10.626

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

In 1 m ...3 m 78 76 1.27 1.20 0.80 0.78 1.20 1.20 7.30 7.25 8.55 8.55 7.45 7.45 5.75 6.04 7.37 7.95 0.85 0.85 9.1 9.3 6.73 7.13 5.25 5.42 1.17 1.18 10.69 10.96

...6 m ...12 m 76 78 1.20 1.25 0.78 0.80 1.20 1.20 7.25 7.40 8.50 8.60 7.45 7.45 6.04 5.92 7.95 7.59 0.85 0.86 9.3 9.3 7.08 6.88 5.38 5.37 1.17 1.16 10.90 10.75

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

USD 1.0316 0.9913 0.9316 19.17 5.7426 1.5994 7.7512 125.94 0.2813 2.6574 0.5361 0.8137 3.1781 1.2231 31.2940

% 0.49% -0.14% -0.11% -0.15% -0.03% 0.25% 0.01% -0.06% -0.06% -0.11% -0.09% 0.22% -0.04% -0.22% -0.32%

EURSEK & OMXS 8.9 8.7 8.5 8.3 8.1 13-Sep 3-Oct
OMXS ra. EURSEK

575 500 425 350 23-Oct

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

NIBOR Prior 1.75 1.89 2.10 2.22 2.29 2.60 2.91 3.26

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.72 1.42 1.41 0.06 1.88 1.51 1.50 0.14 2.08 1.66 1.65 0.29 2.20 1.76 1.75 0.43 2.29 1.44 1.45 0.66 2.61 1.66 1.67 1.04 2.92 1.92 1.89 1.42 3.27 2.16 2.17 1.85

Last 0.06 0.13 0.29 0.43 0.65 1.03 1.42 1.86

USD LIBOR Prior Last 0.21 0.21 0.32 0.32 0.56 0.55 0.73 0.73 0.52 0.53 0.88 0.89 1.30 1.32 1.80 1.82

Gov. Bonds, 10y 1.70 1.60 1.50 1.40

NOK, ra.

2.40 2.20 2.00 1.80

SEK

13-Sep 3-Oct 23-Oct

10y 10y yield vs bund

NORWAY Prior Last 99 98.90 2.11 2.12 0.52 0.53

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 116.48 116.52 99.376 99.17 1.63 1.63 1.59 1.59 0.04 0.03

US Prior 98.78125 1.76 0.17

Last 98.59 1.79 0.20

14.0 13.5 13.0 12.5 12.0 13-Sep

JPY and DowJones

81 79 77

3-Oct

75 23-Oct

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 1.30 2.25 0.35 1.75 1.90 3.25 1.30 2.25 0.25 1.75 2.15 3.50 1.30 2.50 0.25 2.00

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

USDJPY ra. DowJones, 1000

USD and gold 1820 1720 1620 1.32 1.28 1.24

1.20 1520 13-Sep 3-Oct 23-Oct

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today DEC 1.86 1.86 0.00 NOK 92.93 MAR 1.86 1.86 0.00 SEK 114.66 101.99 JUN 1.89 1.89 -0.01 EUR SEP 1.92 1.94 -0.02 USD 79.84 FRA SEK 3m Prior chg GBP 83.10 DEC 1.44 1.43 0.01 Comm. Today 1.28 1.29 -0.01 Brent spot 108.3 MAR JUN 1.27 1.27 0.00 Brent 1m 108.8 SEP 1.28 1.28 0.00 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% 0.15 0.03 0.06 0.09 0.0 Last 108.3 108.3 1711.0

Stock ex. Today Dow Jones 13,102.5 Nasdaq 2,990.5 FTSE100 5,797.9 Eurostoxx50 2,477.9 Dax 7,173.7 Nikkei225 8,954.3 Oslo 434.42 Stockholm 495.48 Copenhagen 650.63

% -1.8% -0.9% -1.4% -2.1% -2.1% 0.0% -2.7% -1.7% -1.1%

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