Morning Report

21.01.2013

Will Abe deliver?

NOK & 3m NIBOR
7.50 2.00

7.40 7.30 7.20

11Dec
3m ra.

1.90 1.80 1.70

31Dec 18Jan
EURNOK

Consumer confidence declined further in the US in January, while weak consumer sentiment depresses consumption in the UK. The highlight on this weeks agenda is the monetary policy meeting in Japan. Shinzo Abe wants major changes in monetary policy, and the question is whether he manages to meet markets expectations. Since November, when the prior Japanese Prime Minister, Noda, called for a new election, the Japanese yen has weakened. The trade weighted yen has depreciated by about 11 per cent over the last two months and has as a result been the biggest loser in the foreign exchange market. The weakening intensified in December when it was known that Shinzo Abe, who wants large changes in monetary policy, won the election. First and foremost Abe wants more cooperation between Bank of Japan and the Treasury Department and that politicians will get more influence over monetary policy decisions. In addition Abe wants an inflation target of 2 per cent (up from 1 per cent). To achieve this he wants monetary policy to become even more expansive. Among other things, he wants unlimited asset purchases, and the deposit rate on excess reserves to be cut from the current level of 0.1 per cent. These signals from Abe have come at a time when the US central bank seems to be moving in the opposite direction. Federal Reserve has previously said that they wont raise the interest rate until the unemployment rate has come down to 6.5 per cent. Fed expects this to happen in mid- 2015. According to our forecasts this will happen sooner, and we thus foresee a first interest rate hike during the fall next year. Furthermore Fed will end its asset purchases when they see a substantial improvement in the labor market. According to the minutes from the latest monetary policy meeting, this may be already before year end. The combination of Abes desire for more expansive monetary policies while Fed signals that tightening of monetary policy may move closer, has been an important force pushing USDJPY higher lately. However, the market does not seem to be convinced that Abe will manage carry out his ambitious plans. The outcome of this weeks monetary meeting in Japan will therefore be very important. If Abe delivers further yen depreciation may be in the cards. However, if he does not manage to meet market expectations, we may see a stronger yen. We do however see such a development only as a correction, and do not expect it to turn the trend of a weakening yen. There are several reasons why we see the yen weakening over the next twelve months. Firstly a general improvement in market sentiment reduces demand for JPY as safe haven. Less focus on market turmoil does also make room for more attention on domestic conditions in Japan, which historically has been yen negative. Furthermore expansive monetary policy from BoJ will make the yen less attractive. If investor sentiment continues to improve, we may also see renewed interest in JPY financed carry trades. Lastly, the yen seems overvalued at current levels. This normally indicates at weaker currency, at least long term. Besides the Japanese monetary policy meeting, there are few interesting key figures on the agenda this week. On Friday we did however get disappointing consumer confidence figures. Sentiment deteriorated, for the second month in a row, to its lowest levels in a year. Also the forward looking expectations index declined. The drop in sentiment has coincided with the budget negotiations between the Democrats and Republicans that have led to higher taxes for many Americans. Consumer confidence is also at low levels in the UK and this is probably an important reason why retail sales fell by 0.1 per cent in December. Consensus had expected an increase of 0.2 per cent. Looking at the different sectors, household goods did particularly poorly. It posted a 3.0 per cent decline, the biggest monthly drop since January 2010. The annual consumption growth declined to from 1.1 to 0.3 per cent, the lowest since April. The weak consumption prevents the UK economy from recovering. And unfortunately, there are still several factors indicating that retail sales will remain subdued. Many households still worries over their large debt burdens. Thus, savings remain high. Furthermore the real income growth is weak and there are no signs of it picking up shortly. As result we only expect private consumption to grow by 0.6 per cent this year, in line with the growth rate seen last year. GDP is expected to increase by a modest 0.7 per cent. camilla.viand@dnb.no

SEK & 3m STIBOR

9.0 8.8 8.6 8.4 8.2 11Dec
3m ra.

1.60

1.40 1.20
31Dec

1.00 18-Jan
EURSEK

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

Fridays key economic events (GMT) 09:30 UK Retail trade 14:55 US Michigan cons.confidence Todays key economic events (GMT) 07:00 Germany Producer Prices US Markets closed

As of Dec Jan As of Dec

Unit y/y % Index Unit m/m %

Prior 0.9 63.8 Prior -0.1

Poll 1.1 65.2 Poll 0.0

Actual 0.3 62.7 DNB

Morning Report
21.01.2013

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 1.00 0.50 0.00 11-Dec
31-Dec

94 92 90 18-Jan
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.30 1.25 1.20 1.15 11Dec

GBP r.a

0.86 0.84 0.82 0.80 0.78 31Dec 18Jan

CHF

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

Prior 90.12 1.332 0.839 1.245 7.459 8.683 7.464 5.605 6.224 0.860 8.905 6.523 7.241 1.165 10.353

Last 89.60 1.333 0.839 1.244 7.470 8.683 7.464 5.604 6.260 0.861 8.906 6.515 7.281 1.163 10.347

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

In 1 m ...3 m 88 90 1.33 1.32 0.82 0.81 1.20 1.20 7.30 7.25 8.65 8.65 7.45 7.45 5.49 5.49 6.24 6.10 0.84 0.84 8.9 8.9 6.50 6.55 5.72 5.90 1.18 1.19 10.55 10.62

...6 m ...12 m 91 93 1.36 1.37 0.85 0.86 1.20 1.25 7.25 7.40 8.60 8.70 7.45 7.45 5.33 5.40 5.86 5.81 0.84 0.85 8.9 8.9 6.32 6.35 5.75 5.91 1.19 1.18 10.56 10.47

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

USD 1.0518 0.9919 0.9341 19.22 5.6010 1.5880 7.7532 128.49 0.2820 2.5910 0.5238 0.8362 3.1178 1.2302 30.2988

% 0.04% 0.00% -0.16% -0.22% -0.09% 0.06% 0.01% -0.18% -0.11% -0.04% -0.08% -0.16% -0.22% 0.18% 0.06%

EURSEK & OMXS

9.0 8.8 8.6 8.4 8.2 11-Dec 560 540 520 500 18-Jan
EURSEK

31-Dec

OMXS ra.

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

NIBOR Prior 1.81 1.86 2.00 2.13 2.33 2.65 2.93 3.27

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.80 1.18 1.17 0.05 1.85 1.22 1.21 0.14 1.97 1.32 1.31 0.24 2.07 1.44 1.43 0.35 2.33 1.49 1.50 0.72 2.65 1.74 1.77 1.03 2.93 1.99 2.01 1.36 3.28 2.24 2.27 1.75

Last 0.06 0.14 0.25 0.37 0.73 1.03 1.36 1.76

USD LIBOR Prior 0.20 0.30 0.49 0.66 0.53 0.91 1.35 1.88

Last 0.20 0.30 0.48 0.66 0.53 0.91 1.37 1.90

Gov. Bonds, 10y 2.00

1.00

0.00 11Dec 31Dec 18Jan

NOK, ra.

2.60 2.40 2.20 2.00 1.80

10y 10y yield vs bund

NORWAY Prior Last 96.42 96.49 2.39 0.82 2.39 0.83

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 114.41 114.49 99.462 99.48 1.81 0.24 1.80 0.25 1.58 1.56

US Prior 98.07813 1.84 0.26

Last 98.08 1.85 0.29

SEK

JPY and Dow Jones 14.0 95 90 13.5 85 13.0 80 12.5 75 113118-Jan Dec Dec
USDJPY ra. DowJones, 1000

USD and gold 1750 1700 1650 1600 11Dec 31Dec 18Jan
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 1.85 3.25 1.10 2.25 0.25 1.75 0.35 6m 1.85 3.25 1.10 2.25 0.25 1.75 0.35 12m 1.85 3.50 1.10 2.50 0.25 2.00 0.35 MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today MAR 1.88 1.87 0.01 NOK 93.40 0.04 Dow Jones 13,649.7 JUN 1.89 1.89 0.00 SEK 114.93 - 0.11 Nasdaq 3,134.7 SEP 1.95 1.93 0.02 EUR 107.02 - 0.06 S&P 500 1,486.0 DEC 2.01 2.00 0.01 USD 79.94 - 0.12 Eurostoxx50 2,709.6 FRA SEK 3m Prior chg GBP 81.90 Dax 7,702.2 MAR 1.16 1.15 0.01 Comm. Today Last Nikkei225 10,747.7 JUN 1.17 1.14 0.03 Brent spot 112.5 Invalid field(s). Oslo 467.57 SEP 1.20 1.18 0.02 Brent 1m 111.6 111.9 Stockholm 540.53 DEC 1.28 1.27 0.02 Spot gold 0.0 1688.5 Copenhagen 692.72 Sources to all tables and graphics: Reuters and DNB Markets

sw ap 2.00 2.00 2.25

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

Morning Report
21.01.2013
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