Morning Report

20.12.2012

The Steadfast Central Bank

NOK & 3m NIBOR
7.50 2.00

Norges Bank still assumes that the interest rate will be increased next year.
1.90 1.80 1.70

7.40 7.30 7.20

09Nov
3m ra.

29Nov

19Dec
EURNOK

SEK & 3m STIBOR

9.0 8.8 8.6 8.4 8.2 09Nov
3m ra.

Optimism about a budget deal in the U.S slowed yesterday. It now appears Republicans in the U.S. House of Representatives may vote on a "Plan B" tax bill that House Speaker John Boehner said would extend low tax rates, except on income of $1 million and above. The White House said President Barack Obama would veto the proposal because it does not do enough to balance spending cuts and tax increases. S&P500 fell 0.8 per cent yesterday and the long U.S. Treasury yields fell a few bps. EURUSD is down 0.2 percent since yesterday morning. The euro also fell against the GBP, NOK and SEK. In Japan, the BoJ ended its monetary policy meeting. The central bank kept interest rates unchanged, as expected, but will increase purchases of government securities by 10 trillion yen from 66 trillion yen. The inflation target will be up for discussion at the next meeting. USDJPY is down 0.3 percent from yesterday morning. At yesterday's monetary policy meeting at Norges Bank the policy rate was kept unchanged as broadly expected. According to the Deputy Governor Jan Qvigstad this was not a difficult decision and no options were discussed. Norges Bank expects that inflation will gradually pick up and that implies that the key rate may gradually be increased, but not yet. Norges Bank stood by its policy rate path from October which means that the policy rate will be raised "either in March, May, June or September." Since the meeting in October Norges Bank assessed that growth outlook for Europe is somewhat weakened and market participants now expect that it takes a little longer before interest rates increase. On the other hand, the risk premiums in credit markets have eased and the euro area have agreed on several measures to improve the situation in Europe. The Norwegian economy has developed broadly as expected. Certainly, the growth expectations in regional network is a bit lower, but capacity utilization have increased. At the moment the Norwegian Krone is stronger than Norges Bank predicted for this quarter, but the bank claims that the average exchange rate so far in the fourth quarter were in line with projections. At the press conference Norges Bank stated that it was only a few years since the last time inflation was on target to support that the expectations of higher inflation was reasonable. The last time core inflation was 2.5 percent was in July 2009. At that time the import-weighted exchange rate (i-44) stood at 96 and on the way down from 102 the previous December. When typing, the same rate stands at 85.1 and has declined gradually from 88.5 at the turn of the year. Norges Bank expects a slightly lower I-44 rate (i.e. strong NOK) in the next two years. It should thus not be in import prices we will see higher inflation in the coming year. We believe that Norges Bank will keep interest rates unchanged throughout next year. The market had perhaps expected that the Bank should be a bit less steadfast, at least krone appreciated 2-3 re versus the Euro immediately after the decision and FRA rates rose a few points for the second half of next year. In Germany the IFO index rose slightly in December and came out marginally better than expected. It thus became the second consecutive month of expansion and thus mirrored trends in the overall PMI index and the ZEW index. Two issues are worth noting. One is that the increase is due to an improvement in the expectations index, while the index for the current situation fell to its lowest level since June 2010. The second is that the IFO index is still at a low level and points to GDP growth of 0.5 per cent y/y in the fourth quarter. If so, the GDP may decline from the third to the fourth quarter. It now appears that the IFO index and the other indices have painted a too negative picture of the German economy. But overall, the levels are still weak and are consistent with a broadly flat trend in activity. Yesterday the Bank of England presented minutes from the monetary policy meeting on 5 and 6 December. It stated, as most expected, that eight of nine members would keep monetary policy unchanged. The last member, David Miles, reiterated the proposal to increase government bonds purchases by 25 billion GBP Moreover, there was more talk about the exchange rate than usual. It was pointed out that the pound had weakened the financial crisis and was still significantly lower than before the crisis. On the other hand, the real exchange rate based on the relative unit labor costs only was five percent lower than in the decade before the crisis. The Committee therefore concluded that it is possible that the real exchange rate must fall further in order to be consistent with current account balance in the long term. This could mean that the pound exchange rate gets something greater importance in determining monetary policy going forward. kyrre.aamdal@dnb.no Yesterdays key economic events (GMT) 09:00 Germany IFO 13:00 Norway Policy rate meeting 13:30 USA Housing Starts Todays key economic events (GMT) 09:30 UK Retail Sales 13:30 USA BNP, 2. rev. 15:00 USA Philly Fed As of Dec Nov As of Nov 3. kv Dec Unit Index Folio % Mill Unit Y/y % Q/q an% Index Prior 101.4 1.50 0.894 Prior 0.6 2.7 -10.7 Poll 102.1 1.50 0.875 Poll 2.8 -1.2 Actual 102.4 1.50 0.861 DNB

1.50

1.40 1.30 1.20

29Nov
EURSEK

19Dec

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
20.12.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 1.00 0.50 0.00 09-Nov
29-Nov

94 92 90 19-Dec
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.22 1.21 1.20 1.19 09Nov

GBP r.a

0.82 0.81 0.80 0.79 0.78 29Nov 19Dec

CHF

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

Prior 84.42 1.323 0.814 1.209 7.371 8.670 7.461 5.575 6.602 0.851 9.066 6.554 7.766 1.178 10.648

Last 84.04 1.322 0.813 1.208 7.375 8.673 7.460 5.579 6.643 0.851 9.067 6.563 7.813 1.178 10.668

% -0.5% 0.0% -0.1% 0.0% 0.0% 0.0% 0.0% 0.1% 0.6% 0.0% 0.0% 0.1% 0.6% 0.1% 0.2%

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 1.0494 0.9884 0.9140 19.04 5.6436 1.6259 7.7503 125.87 0.2814 2.6110 0.5270 0.8364 3.0831 1.2199 30.7730

% 0.10% -0.06% 0.04% -0.12% 0.04% 0.07% 0.00% -0.01% -0.33% -0.02% 0.04% 0.24% 0.08% 0.10% 0.01%

EURSEK & OMXS

9.0 8.8 8.6 8.4 8.2 09-Nov 550

500 29-Nov
450 19-Dec
EURSEK

OMXS ra.

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

NIBOR Prior 1.77 1.85 2.00 2.13 2.21 2.53 2.84 3.19

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.70 1.29 1.29 0.05 1.81 1.31 1.31 0.12 1.96 1.41 1.40 0.22 2.10 1.53 1.52 0.32 2.23 1.32 1.32 0.50 2.53 1.57 1.56 0.84 2.85 1.82 1.82 1.22 3.20 2.10 2.10 1.67

Last 0.05 0.12 0.22 0.33 0.50 0.84 1.21 1.66

USD LIBOR Prior 0.21 0.31 0.51 0.69 0.50 0.87 1.31 1.83

Last 0.21 0.31 0.51 0.69 0.51 0.89 1.30 1.82

Gov. Bonds, 10y 1.80 1.60 1.40 1.20 09Nov 29Nov 19Dec
SEK NOK, ra.

2.40 2.20 2.00 1.80

10y 10y yield vs bund

NORWAY Prior Last 98.26 97.89 2.19 0.76 2.23 0.81

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 116.44 116.51 100.678 100.72 1.61 0.18 1.60 0.18 1.43 1.42

US Prior 98.35938 1.81 0.38

Last 98.58 1.79 0.37

JPY and Dow Jones 13.5 85 13.0 80 12.5 12.0 75 092919Nov Nov Dec
USDJPY ra. DowJones, 1000

USD and gold 1800 1750 1700 1650 1600 09Nov 29Nov 19Dec
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 1.84 1.84 0.00 NOK 92.23 0.02 Dow Jones 13,351.0 JUN 1.85 1.86 -0.01 SEK 115.24 0.03 Nasdaq 3,044.4 SEP 1.88 1.88 0.00 EUR 103.96 0.05 S&P 500 1,435.8 DEC 1.93 1.93 0.00 USD 79.31 - 0.11 Eurostoxx50 2,654.7 FRA SEK 3m Prior chg GBP 83.70 Dax 7,668.5 MAR 1.19 1.20 -0.01 Comm. Today Last Nikkei225 10,039.3 JUN 1.15 1.16 -0.01 Brent spot 113.2 Invalid field(s). Oslo 449.76 SEP 1.15 1.15 0.00 Brent 1m 109.9 110.4 Stockholm 527.80 DEC 1.18 1.18 0.00 Spot gold 0.0 1665.0 Copenhagen 645.85 Sources to all tables and graphics: Reuters and DNB Markets

sw ap 1.75 1.75 2.25

% 0.9% -0.3% -0.8% 0.4% 0.2% 0.0% 0.9% 0.1% 0.2%

Morning Report
20.12.2012
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