Morning Report

19.12.2012

Monetary Policy Meeting in Norges Bank

NOK & 3m NIBOR
7.50 2.00

Today the Executive Board at Norges Bank meets to discuss monetary policy. The policy rate decision is due at 13 GMT. In the markets, there is increasing belief that the U.S. Congress will conclude on a budget deal and thus avoid the Fiscal Cliff. This is at least a common explanation for the movements in several markets the last 24 hours. In the U.S. the S&P500 rose 1.1 per cent from the day before. 10-year U.S. Treasury yields rose to 1.83 per cent in the U.S. session, the highest level since October. In the Asian session the yield fell two basis points. In currency markets, the Euro has appreciated 0.3 per cent against the U.S. Dollar. EURUSD is currently 1.325, the highest rate of about seven months according to Reuters. The Norwegian krone has depreciated 0.3 per cent against the euro since yesterday morning. EURSEK however, is down 0.4 percent at the same time. Today Norges Bank holds this years last monetary policy meeting. According to Bloomberg all sixteen surveyed analysts expect unchanged key policy rate this time. At its last meeting on 31 October the central bank indicated that it intends to raise rates sometime between March and August next year. Since October, interest rates abroad have declined further, although not as much as before. The Norwegian money market rates have also declined, but the interest rate differential to our trading partners has increased somewhat. The NOK has strengthened further against the trade-weighted currency basket. Internationally, the growth picture changed somewhat since October. Positive signs have been vivble for the U.S., but many have lowered growth expectations for the euro zone, and Norges Bank now seems to be a little optimistic here. The same is true for Sweden. The Norwegian economy is still growing at a solid pace, but the consumption trend is weaker than Norges Bank projected in October. According to the regional network, output growth has slowed slightly. Expected production growth is also more subdued. Regional network point towards a growth that is slightly lower than Norges Bank projected for 2013 in October. Capacity utilization has increased a bit further since September and employment growth has picked up. Home price inflation has eased slightly, while credit growth for households remains unchanged. Core inflation has been about as expected. All in all, several indicators have been weaker than expected, while there are few surprises that help to strengthen the case for interest rate increases. Deviations from expectations are however small, and probably not sufficient for Norges Bank to cut interest rates. Yesterday, the Swedish Riksbank decided to lower its key policy rate by 25 basis points to 1.00 per cent with effect from today. The new interest rate path suggests that the central bank considers it more likely that the interest rate may be cut than raised before autumn next year. Interest rate cut was in line with expectations in the market and among analysts. The interest rate path bottoms at 0.96 percent for the repo rate in the second and third quarter of next year. Thereafter, interest rates rise gradually to 2.5 per cent in the fourth quarter of 2015. The Riksbank justifies the cut as follows: The weak developments in the euro area are clearly affecting the Swedish economy, which is now slowing down. Household consumption is weak, unemployment is rising and inflationary pressures are low". The estimate of GDP growth in 2013 was revised down from 1.8 per cent to 1.2 per cent and underlying inflation was lowered two tenths to 0.9 per cent. Unemployment was now expected to rise to 8.1 per cent. For 2014, the projections for GDP growth and inflation were unchanged. For 2015, the growth forecast was adjusted upwards. Based on our evaluation of the Swedish economy the Riksbank's forecasts appears a bit optimistic. If we are right in our assessment, the central bank may lower interest rates further. Ekholm and Svensson still disagree with the majority of the comittee: they have long desired a more expansionary monetary policy. Karolina Ekhom supported yesterday's interest rate decision, but would have an interest rate path that meant probably a cut in the beginning of 2013 and an increase to 1.75 per cent by the end of 2015. Lars EO Svensson wanted a cut of 50 basis points at this meeting, a further interest rate cut to 0.5 per cent in the winter, and a scenario where interest rates are going up to 1.5 per cent in late 2015. The markets probably expected signals of a further interest rate cuts, the EURSEK fell immediately 2-3 re after the decision was known. U.S. home builders got even more optimistic. The NAHB.index rose to 47. But with a still very low level of activity there is no wonder that more and more home builders expect increased activity. Today the Bank of Japan begins its two-day meeting. After Abe won the election and wants a more expansionary monetary policy this meeting is important than usual. kyrre.aamdal@dnb.no Yesterdays key economic events (GMT) 08:30 Sweden Riksbank MP Meeting 09:30 UK CPI 15:00 USA NAHB Housing Mkt. Idx Todays key economic events (GMT) 09:00 Germany IFO 13:00 Norway Policy rate meeting 13:30 USA Housing Starts As of n/a Nov Dec As of Dec Nov Unit % Y/y % Index Unit Index Folio % Mill Prior 1.25 2.7 46 Prior 101.4 1.50 0.894 Poll 1.00 2.7 47 Poll 102.1 1.50 0.875 Actual 1.00 2.7 47 DNB 1.50

7.40 7.30 7.20

08Nov
3m ra.

1.90 1.80 1.70

28Nov 18Dec
EURNOK

SEK & 3m STIBOR

9.0 8.8 8.6 8.4 8.2 08Nov
3m ra.

1.50

1.40 1.30 1.20

28Nov
EURSEK

18Dec

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

Morning Report
19.12.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 1.00 0.50 0.00 08-Nov
28-Nov

94 92 90 18-Dec
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.22 1.21 1.20 1.19 08Nov

GBP r.a

0.82 0.81 0.80 0.79 0.78 28Nov 18Dec

CHF

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

Prior 84.21 1.323 0.814 1.208 7.406 8.765 7.460 5.599 6.650 0.849 9.114 6.608 7.845 1.182 10.742

Last 84.33 1.325 0.814 1.208 7.408 8.736 7.460 5.593 6.637 0.848 9.098 6.601 7.830 1.180 10.731

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

In 1 m ...3 m 82 81 1.27 1.25 0.80 0.79 1.20 1.20 7.30 7.25 8.65 8.60 7.45 7.45 5.75 5.80 7.01 7.16 0.84 0.84 9.1 9.1 6.81 6.88 5.59 5.57 1.18 1.19 10.81 10.82

...6 m ...12 m 81 82 1.25 1.30 0.79 0.80 1.20 1.20 7.25 7.40 8.60 8.70 7.45 7.45 5.80 5.69 7.16 6.94 0.84 0.85 9.1 9.1 6.88 6.69 5.57 5.49 1.19 1.18 10.82 10.73

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

USD 1.0521 0.9860 0.9124 19.03 5.6342 1.6267 7.7502 125.78 0.2815 2.6072 0.5259 0.8398 3.0733 1.2193 30.7700

% -0.17% 0.02% -0.09% -0.08% -0.12% 0.08% 0.00% -0.11% -0.12% -0.15% -0.17% -0.24% -0.22% 0.17% 0.08%

EURSEK & OMXS

9.0 8.8 8.6 8.4 8.2 08-Nov 550

500 28-Nov
450 18-Dec
EURSEK

OMXS ra.

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

NIBOR Prior 1.79 1.87 2.02 2.15 2.21 2.50 2.81 3.16

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.77 1.33 1.29 0.05 1.85 1.34 1.31 0.12 2.00 1.44 1.41 0.22 2.13 1.55 1.53 0.32 2.20 1.30 1.31 0.50 2.50 1.54 1.53 0.84 2.81 1.79 1.79 1.21 3.16 2.07 2.06 1.66

Last 0.05 0.12 0.22 0.32 0.51 0.84 1.21 1.66

USD LIBOR Prior 0.21 0.31 0.51 0.69 0.50 0.90 1.35 1.87

Last 0.21 0.31 0.51 0.69 0.52 0.90 1.34 1.86

Gov. Bonds, 10y 1.60 1.50 1.40 1.30 08Nov 28Nov 18Dec
SEK NOK, ra.

2.40 2.20 2.00 1.80

10y 10y yield vs bund

NORWAY Prior Last 98.7 98.20 2.14 0.74 2.19 0.77

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 117 116.97 100.739 100.71 1.55 0.15 1.55 0.13 1.40 1.42

US Prior 98.23438 1.82 0.42

Last 98.33 1.82 0.40

JPY and Dow Jones 13.5 85 13.0 80 12.5 12.0 75 082818Nov Nov Dec
USDJPY ra. DowJones, 1000

USD and gold 1800 1750 1700 1650 08Nov 28Nov 18Dec
Gold

1.35 1.30 1.25 1.20

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 0.15 1.75 0.35 6m 1.90 3.25 1.30 2.25 0.15 1.75 0.35 12m 1.90 3.50 1.30 2.50 0.15 2.00 0.35 MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today MAR 1.85 1.85 0.00 NOK 92.62 0.01 Dow Jones 13,235.4 JUN 1.85 1.85 0.00 SEK 116.05 0.13 Nasdaq 3,054.5 SEP 1.86 1.86 -0.01 EUR 104.21 0.03 S&P 500 1,446.8 DEC 1.89 1.89 0.00 USD 79.27 - 0.05 Eurostoxx50 2,643.5 FRA SEK 3m Prior chg GBP 83.80 Dax 7,653.6 MAR 1.19 1.19 0.00 Comm. Today Last Nikkei225 10,160.4 JUN 1.15 1.15 0.00 Brent spot 111.8 Invalid field(s). Oslo 445.73 SEP 1.14 1.14 0.00 Brent 1m 108.9 108.8 Stockholm 527.20 DEC 1.16 1.15 0.01 Spot gold 0.0 1694.0 Copenhagen 644.28 Sources to all tables and graphics: Reuters and DNB Markets

sw ap 1.75 1.75 2.25

% 0.8% 1.5% 1.1% 0.6% 0.6% 0.0% 0.5% 0.5% -0.2%

Morning Report
19.12.2012
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