Morning Report

20.02.2013

ZEW-jump lifted stocks. But!

NOK & 3m NIBOR 7.60 2.00 1.95 7.50 1.90 7.40 1.85 7.30 1.80 7.20 1.75 23-Jan 06-Feb 20-Feb

Yesterday's ZEW index contributed to a more positive mood in stock markets. The expectations index rose almost 17 points to its highest level since April 2010. Equities reacted positively: The DAX index rose 1.6%, the Eurostoxx-50 1.0%, and Asian equities continue to rise this morning.

2.8 2.6 2.4 2.2 2.0 1.8

The German Zentrum fr Europische Wirtschaftsforschung (ZEW) each month asks financial analysts in the German banking and insurance industry about their views on the German economy, the euro zone in general and other indicators, such as inflation, interest rates, exchange rates and stock prices. The most focused indicator of the survey is the analysts' expectations for the German economy. In EURNOK 3m(rha) January 43% of the respondents expected the German economy to improve over the next six months, in February 57% expected improvement. Conversely, less than 9% now expects a deterioration, against 11% in January. The balance - the difference between the two - rose from just 32 in January to 48.2 in Norsk 10y sov. February, the highest since April 2010. Then, analysts' optimism coincided with strong growth in the 150 German economy. In the second quarter of 2010, German GDP rose 4.7% year/year.
100 50
0 20-Feb
Diff(bp,rha)

23-Jan
rente

06-Feb

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+47 03000

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

Analysts' optimism is not limited to the German economy. The expectations balance is positive for all major industrial countries, and generally larger in February than in January. The only exception is Italy, where analysts are slightly less positive now than in January. The reason is probably Silvio Berlusconi's rising star among the Italian people ahead of the election 24-25 February (more on that below). Consistent with a more optimistic macro view, a growing number of analysts expect higher inflation and higher interest rates ahead. In January, only 14% expected higher interest rates in the euro zone in the next six months, now the proportion is twice as high. Only 6% expect lower short-term rates. Similarly, an increasing overweight of analysts (two in three) expects higher long rates. Close to no one believes that long yields will decline. About half expect higher stock prices, one in three unchanged, and one in five lower. Analysts are most bullish on the German DAX.index, and least bullish on the French CAC index. Finally, analysts expect the euro to rise further, and most against the Japanese yen. It's easy to get carried away. Therefore, worth mentioning is that while the ZEW present conditions tracks actual GDP fairly well, the expectations index is not a good leading indicator. Unlike the IFO index, which is based on responses from people actually producing, the ZEW index is more based upon perceptions of those who invest in or analyze financial assets. Therefore, the ZEW index is more inclined to reflect financial market developments, and not necessarily the real economy. More optimism should also be seen in light of a weak current situation. Eurozone GDP fell by a surprisingly strong 0.6% in the fourth quarter. Thus, it's not so surprising that an improvement is expected. Finally, and regrettably, the recovery has not yet started. Excluding Germany and USA, an solid majority of analysts regard the situation as "bad." For Italy, no one regards current conditions as good. Although the worst is probably behind us, the road ahead is still long and painful. Back to Italy election on Sunday and Monday. Opinion polls differ significantly, but the trend is clear: Support for the rightwing alliance, Centrodestra, consisting of Silvio Berlusconi's Popolo della Liberta ', Lega Nord and several small parties, is increasing, from 23-24% before Christmas, to almost 30% now. Meanwhile, the Social Democratic Alliance Italy Bene Comune has dropped from 37-38% to 35%, while Con Monti Per L'Italia has strengthened from 8% to 13%. And if the picture is complicated enough, 15% of Italians still desire comedian Beppe Grillos Movimento 5 Stelle in the Parliament. The most likely outcome is still that Italy ends up with a center-left government with Social Democrat Pier Luigi Bersani as Prime Minister. But he may end up fronting an alliance with 5-6 different parties, maybe more. This will not be the strong government Italy needs. And it is not unlikely that Berlusconi may lose the election, but may be called upon should the government collapse. Markets must have taken this into account. Or rather, markets remain confident that the government will be strong enough to pursue policies that can maintain German support for Mario Draghis promise to use the money printing press if necessary. This remains an obvious uncertainty. A good day for equities: The S&P500 rose 0.7% d/d. Safe-haven interest rates rose slightly. The US ten-year bond yield rose 3 bps to 2.03%. Italian and Spanish ten-year bond yields fell about as much. And the euro has appreciated 0.5% against the USD since yesterday morning. Everything more or less according to the book, in other words. oystein.dorum@dnb.no Yesterdays key economic events (GMT) 08:30 Sweden CPI 10:00 Germany ZEW 15:00 USA NAHB Todays key economic events (GMT) 07:45 France INSEE industrial sentiment 09:30 UK Minutes MPC meeting 19:00 USA Minutes FOMC meeting As of Jan Feb Feb As of Feb Unit y/y % Index Index Unit Index Prior -0.1 31.5 47 Prior 86.0 Poll 0.2 35.0 48 Poll 87.0 Actual 0.0 48.2 46 DNB

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
20.02.2013

3m LIBOR
0.16 0.15 0.14 0.13 0.12 23-Jan
EUR

06-Feb

0.31 0.30 0.30 0.29 0.29 0.28 20-Feb

USD(rha)

NOK & 3m NIBOR 7.60 2.00 1.95 7.50 1.90 7.40 1.85 7.30 1.80 7.20 1.75 23-Jan 06-Feb 20-Feb
EURNOK 3m(rha)

FX 0700 USD/JPY EUR/USD EUR/GBP EUR/DKK EUR/SEK EUR/CHF EUR/NOK USD/NOK JPY/NOK SEK/NOK DKK/NOK GBP/NOK CHF/NOK

Last 93.69 1.3356 0.8626 7.4593 8.4869 1.2331 7.4161 5.5560 5.93 87.53 99.51 8.603 6.021

Today 93.31 1.3422 0.8697 7.4596 8.4524 1.2343 7.4161 5.5273 5.93 87.84 99.47 8.533 6.012

Spot rates and forecasts In 1m May-13 Aug-13 Feb-14 FX 0700 -0.4 92 90 91 93 AUD 0.5 1.34 1.32 1.36 1.37 CAD 0.8 0.84 0.81 0.85 0.86 CHF 0.0 7.45 7.45 7.45 7.45 CZK -0.4 8.65 8.65 8.60 8.70 RUB 0.1 1.20 1.20 1.20 1.20 GBP 0.0 7.35 7.25 7.25 7.40 HKD -0.5 5.49 5.49 5.33 5.40 KWD -0.1 5.96 6.10 5.86 5.81 LTL 0.4 85.0 83.8 84.3 85.1 LVL 0.0 98.7 97.3 97.3 99.3 NZD -0.8 8.75 8.95 8.53 8.60 SEK -0.1 612.50 604.17 604.17 592.00 SGD

USD NOK 1.036 5.724 1.012 5.462 0.920 600.824 18.893 29.245 30.045 18.390 1.544 8.529 7.754 0.713 0.282 19.579 2.573 2.148 0.521 10.600 0.841 4.646 6.297 87.747 1.236 4.470

US dollar

5.7 5.6 5.5 5.4 5.3

23-Jan 06-Feb
USDNOK

1.40 1.35 1.30 1.25 20-Feb

EURUSD(rha)

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

Prior 1.81 1.89 2.00 2.24 2.32 2.71 3.04 3.37

Last 1.81 1.90 2.02 2.26 2.33 2.71 3.04 3.35

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

Prior 1.15 1.19 1.29 1.56 1.58 1.92 2.19 2.44

Interest rates Last USD 1.15 1m 1.19 3m 1.29 6m 1.56 12m 1.58 3y 1.91 5y 2.18 7y 2.44 10y

Prior 0.20 0.29 0.46 0.76 0.54 0.98 1.47 2.03

Last 0.20 0.29 0.46 0.76 0.54 0.98 1.47 2.03

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

Prior 0.06 0.14 0.26 0.47 0.70 1.06 1.44 1.88

Last 0.06 0.14 0.26 0.47 0.71 1.06 1.44 1.86 Last 98.70 1.64 -0.38 10y sw ap 1.75 1.75 2.00

Japanese yen

95.0 90.0 85.0

23-Jan
USDJ PY

7.0 6.0

Norw ay Prior NST475 94.97 10y yld 2.56 - US spread 0.56 3m nibor 1.85 1.85 1.85

Norw ay

06-Feb

5.0 20-Feb
JPYNOK(rha)

Governm ent bonds Last SEK Prior Last US Prior 95.00 10y 112.17 112.07 10y 99.95 2.56 10y yld 2.05 2.06 10y yld 2.00 0.54 - US spread 0.04 0.03 30y yld 3.18 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 May-13 Aug-13 Feb-14 1.10 1.10 1.10 2.25 2.25 2.50 May-13 Aug-13 Feb-14 0.35 0.35 0.35

Last Germany Prior 99.80 10y 98.84 2.02 10y yld 1.63 3.21 - US spread -0.38 10y sw ap 2.00 2.00 2.25 3m euribor 0.25 0.25 0.25

Germany May-13 Aug-13 Feb-14

May-13 Aug-13 Feb-14

SEKNOK & CHFNOK 89 88 87 86 85 84 83 23-Jan 06-Feb

SEKNOK CHFNOK(rha)

6.1 6.0 5.9 20-Feb

Equities 14200 13700 13200 12700 12200 23-Jan 06-Feb

Dow J.I.

480 475 470 465 460 455 20-Feb

Os lo(rha)

NOK sov. NST19 NST20 NST21 NST471 NST472 NST473 NST475 NST475 NOK FRA MAR JUN SEP DEC

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.83 1.84 2 19.06.2013 0.33 Last 89.98 90.66 2.15 2.16 1 18.09.2013 0.58 Oil price: (Ldn,cl) 1m 1.70 1.70 0 18.12.2013 0.82 SPOT 117.69 117.38 1.60 1.61 1 15.05.2015 2.23 Gold price 19.02.2013 PM 1.84 1.83 -1 19.05.2017 4.24 AM: 1610.8 1607.8 2.08 2.09 1 22.05.2019 6.25 Equities Today 0700 % last 2.54 2.56 2 24.05.2023 10.26 Dow Jones 14035.67 0.4% 2.56 2.56 0 24.05.2023 10.26 Nasdaq C. 3213.59 0.7% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6379.07 1.0% 1.91 2.03 1m 1.90 1.81 Eurostoxx50 2662.37 1.7% 1.91 2.02 3m 2.02 1.90 DAX 7752.45 1.6% 1.92 2.04 6m 2.10 2.02 Nikkei 225 11468.28 0.8% 1.94 2.10 12m 2.28 2.26 OSEBX 474.92 0.9% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
20.02.2013
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