Morning Report

10.12.2012

US unemployment continue to fall

NOK & 3m NIBOR
7.50 2.00

Friday's U.S. employment report for November was better than expected, leading to slightly higher interest rates and a stronger dollar. Today, Norwegian inflation is expected to increase slightly in November. The market reaction was positive but moderate after the U.S. employment report was released Friday afternoon. The American ten-year government bond yield rose by around 5 basis points, while the dollar strengthened slightly against the euro, but more markedly against the yen. The euro weakened on Friday after Bundesbank released new estimates for the German economy, where growth was substantially reduced (from 1.6% to only 0.4%) for 2013. The U.S. stock market rose moderately on Friday while Asian markets are up only marginally this morning. The U.S. labor market report was at first glance, better than expected. Employment rose more than expected, while the unemployment rate (which was expected unchanged) fell to 7.7%. The details show that the report still was not as strong. Employment increased by 146,000, while an increase of 93,000 was expected. The increase was slightly smaller than average so far this year. The hurricane Sandy had according to the BLS no negative impact on employment and unemployment data in November. In addition, employment growth was revised down by almost 50,000 in the previous two months. The decline in the unemployment rate (as measured by the "household survey") was due to a reduction of the work force rather than job creation. The decline in the labor force was 350,000 in November. The long-term downward trend in unemployment continues, and the level is now the lowest since December 2008. The decline has come despite the low growth in the economy. This suggests that the potential growth in the U.S. economy has slowed since the financial crisis. Thus, unemployment may continue to fall next year, although most estimates indicate growth of only about 2%. While the labor data surprised positively, U.S. consumer confidence weakened in the first poll of December. The Michigan index fell from 82.7 in November to 74.5 in December. It was particularly negative that the future index, which shows the highest correlation with actual spending, fell the most. The level of this index (64.6) is the lowest in a year, indicating consumption growth of only about 1%. One reason for the decline may be that the fiscal cliff is now approaching and that households fear the consequences of increasing taxes and budget cuts. From Europe new, weak macroeconomic figures were released on Friday. Both German and British industrial production disappointed. German production fell by 2.6% from September to October, while only a drop of 0.5% was expected. In light of the strong orders data, the decline was even more surprising. On the other hand, the PMI index for German industry points at further fall in German production going forward. British goods production fell by 0.8% in October, while an increase of 0.7% was expected. The level is the lowest since May 1992. Norwegian industrial production also fell in October. The decline of 0.3% was, however, moderate and is following a period of strong expansion in production. China released a bunch of data yesterday, but most were in line with expectations. Chinese inflation ended at 1.9% in November, slightly lower than projected. This morning disappointing figures for exports were due. The increase in total exports was only 2.9% (y/y), while an increase of 9% was expected. In particular, exports to Europe, which fell by 18% was dragging the total down. This was the weakest month since August 2009. Exports to the U.S. were sluggish as well. Norwegian inflation is the most important event today. We expect core inflation (ie excluding taxes and energy prices) to increase by 1.3% from November last year until November this year. The estimate is the same as Reuters reports, while Norges Bank projected 1.2% in its Monetary Policy Report in October. If our projection is realized, core inflation will be higher than in October, but still far below Norges Bank's inflation target and close to the central bank forecast. Hence the inflation data will most likely not affect the monetary policy meeting next week. On Friday Norges Bank will publish its regional network survey. This report can provide important information in advance of the monetary policy meeting on 19 December, but it is unlikely to show that the Norwegian economy has changed significantly from the previous report in September. Internationally, the focus will be directed at the monetary policy meeting of the Federal Reserve, which ends on Wednesday. The question is whether the central bank will expand its QE3 program in light of the still weak labor market. knut.magnussen@dnb.no Yesterdays key economic events (GMT) 13:30 US Non-farm payrolls 13:30 US Non-farm payrolls 14:55 US Michigan cons.confidence Todays key economic events (GMT) 08:30 Sweden Manfacturing Production 09:00 Norway CPI-ATE 09:00 Norway CPI-ATE 09:00 Norway CPI As of Nov Nov Dec As of Oct Nov Nov Nov Unit 1000 % Index Unit m/m % y/y % m/m % y/y % Prior 171 7.9 82.7 Prior -4.1 1.1 0.0 1.1 Poll 95 7.9 82.4 Poll 0.0 1.3 0.0 1.2 Actual

7.40 7.30 7.20

30Oct
3m ra.

1.90 1.80 1.70

19Nov 07Dec
EURNOK

SEK & 3m STIBOR

8.7 1.50

8.6 8.5 8.4 30-Oct

19Nov 07Dec

1.45 1.40 1.35

EURSEK

3m ra.

Headquarters Dronning Eufemias gate 30 0191 Oslo Offices Abroad New York London Singapore Stockholm Sales Oslo (+47) Equity Fixed Income Regional Sales (+47) Bergen Bod Fredrikstad Hamar Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund Private Clients Research Regional Sales (+47) Eirik Larsen Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Martin Brter Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen Kristina Solbakken

+47 03000

+ 1 212 681 2550 +44 207 283 0050 +65 6220 6144 +46 84 73 48 50

22 94 89 40 24 16 90 30

56 13 27 20 75 52 99 10 69 39 41 50 62 54 14 82 61 24 79 56 38 14 61 64 24 16 90 80 51 84 04 30 77 62 96 80 73 87 49 73 33 01 73 80 70 11 69 85 24 16 90 90

24 16 90 77

24 16 90 08 24 16 90 03 24 16 90 07 24 16 90 04 24 16 90 01 24 16 90 06 24 16 90 02

24 16 90 48 24 16 90 46 24 16 90 47 24 16 90 49 24 16 90 44 24 16 90 45 24 16 90 51

DNB 0.0 1.3 0.0 1.4

Morning Report
10.12.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 1.00 0.50 0.00 30-Oct
19-Nov

94 92 90 07-Dec
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.22 1.21 1.20 1.19 30Oct

GBP r.a

0.82 0.81 0.80 0.79 0.78 19Nov 07Dec

CHF

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

Prior 82.51 1.293 0.806 1.209 7.338 8.639 7.460 5.677 6.888 0.852 9.116 6.687 8.096 1.176 10.725

Last 82.40 1.289 0.805 1.208 7.337 8.636 7.459 5.689 6.908 0.850 9.120 6.696 8.129 1.179 10.726

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

In 1 m ...3 m 82 80 1.27 1.20 0.80 0.78 1.20 1.20 7.30 7.25 8.60 8.55 7.45 7.45 5.75 6.04 7.01 7.55 0.85 0.85 9.1 9.1 6.77 7.13 5.55 5.70 1.18 1.18 10.75 10.76

...6 m ...12 m 78 80 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 7.75 7.40 0.85 0.86 9.1 9.1 7.08 6.88 5.53 5.50 1.17 1.16 10.70 10.60

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

USD 1.0482 0.9884 0.9366 19.54 5.7868 1.6024 7.7504 127.07 0.2823 2.6782 0.5406 0.8336 3.2014 1.2229 30.9262

% -0.10% -0.03% 0.20% 0.12% 0.26% -0.11% 0.00% 0.19% 0.11% 0.31% 0.30% 0.08% 0.19% 0.13% 0.30%

EURSEK & OMXS

8.7 8.6 8.5 8.4 30-Oct 540 520 500 480 460 07-Dec
EURSEK

19-Nov

OMXS ra.

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

NIBOR Prior 1.87 1.89 2.08 2.21 2.16 2.42 2.72 3.06

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.86 1.42 1.42 0.05 1.88 1.42 1.42 0.13 2.06 1.50 1.50 0.23 2.20 1.61 1.61 0.35 2.17 1.30 1.28 0.43 2.43 1.50 1.49 0.76 2.71 1.75 1.73 1.13 3.06 2.02 2.00 1.59

Last 0.05 0.12 0.22 0.33 0.43 0.75 1.12 1.56

USD LIBOR Prior 0.21 0.31 0.52 0.70 0.43 0.75 1.17 1.67

Last 0.21 0.31 0.52 0.69 0.44 0.74 1.15 1.66

Gov. Bonds, 10y 1.60 1.50 1.40 1.30 30Oct 19Nov 07Dec
SEK NOK, ra.

2.40 2.20 2.00 1.80

10y 10y yield vs bund

NORWAY Prior Last 98.93 98.90 2.11 0.82 2.12 0.86

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 117.99 118.05 101.848 102.15 1.45 0.15 1.45 0.18 1.30 1.26

US Prior 100.0156 1.62 0.33

Last 100.20 1.61 0.35

JPY and Dow Jones 13.5 84 82 13.0 80 12.5 78 12.0 76 30-Oct 1907Nov Dec
USDJPY ra. DowJones, 1000

USD and gold 1800 1750 1700 1650 30Oct 19Nov 07Dec
Gold

1.35 1.30 1.25

EURUSD ra.

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY US 3m nibor 10y sw ap 3m stibor 10y sw ap 3m euribor 10y sw ap 3m libor 10y In 3m 1.90 3.25 1.30 2.25 0.30 1.75 0.35 6m 1.90 3.25 1.30 2.25 0.25 1.75 0.35 12m 2.15 3.50 1.30 2.50 0.25 2.00 0.35 MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today DEC 1.90 1.89 0.01 NOK 91.75 - 0.05 Dow Jones 13,155.1 MAR 1.87 1.86 0.00 SEK 114.80 0.08 Nasdaq 2,978.0 JUN 1.83 1.83 -0.01 EUR 101.89 - 0.21 S&P 500 1,418.1 SEP 1.82 1.83 -0.01 USD 80.54 0.17 Eurostoxx50 2,601.4 FRA SEK 3m Prior chg GBP 83.70 Dax 7,517.8 DEC 1.42 1.41 0.01 Comm. Today Last Nikkei225 9,533.8 MAR 1.22 1.21 0.01 Brent spot 108.1 Invalid field(s). Oslo 441.05 JUN 1.15 1.15 0.00 Brent 1m 107.4 107.0 Stockholm 522.60 SEP 1.12 1.13 0.00 Spot gold 0.0 1701.5 Copenhagen 652.16 Sources to all tables and graphics: Reuters and DNB Markets

sw ap 1.75 1.75 2.25

% 0.6% -0.4% 0.3% -0.1% -0.2% 0.0% -0.1% 0.1% 0.3%

Morning Report
10.12.2012
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