Morning Report

04.03.2013

Strong ISM lifted the sentiment

Some solid indicators were reported for the U.S. economy on Friday. The ISM index for manufacturing surprised positively in February and the benchmark index rose to 54.2 - the highest level since June 2011. It was particularly encouraging that the sub-index for new orders rose 4.5 points, but there were also significant increases in the order book and in the production index. Historical experience suggests that the ISM index now points at growth in GDP of 3%, and was EURNOK 3m(rha) therefore well received by the markets. Despite the negative effects of tax increases in January, consumption rose in the U.S. this month. The increase was, however, only 0.2% in nominal and 0.1% in real terms. The increase came despite a sharp drop (3.6%) in revenues ie significantly more Norsk 10y sov. than expected. Revenues fell as a result of higher tax rates, but also because many businesses for tax 2.8 150 purposes expedited payment of dividends and bonuses in December. Consumers adjusted savings in 2.6 100 order to avoid a cut back in spending. Hence, the savings rate fell from 6.4% to 2.4%. In the absence 2.4 2.2 50 of an agreement on fiscal policy by 1 March, the automatic budget cuts (sequester) will now 2.0 start to dampen growth in the U.S. economy. The effects are likely to be strongest in late summer. 1.8 0 Public employment will be affected, but the impact may be greater in the form of reduced hours than 04-Feb 18-Feb 04-Mar downsizing. The CBO has estimated that the total effect on GDP growth this year will be around 0.6% rente Diff(bp,rha) points. In our estimate of 2.5%, we took into account that the budget cuts would be halved, which could mean that we will have to reduce our forecasts by 2-3 tenths.
Headquarter 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 Magnus Vie Sundal +47 03000

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 04-Feb 18-Feb 04-Mar

The ISM surprised positively in February, indicating higher growth in the U.S. economy. Stock markets reacted positively and the dollar strengthened.

+ 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

The Norwegian figures released on Friday were of mixed quality. The registered unemployment rate from NAV rose in February. During the month there were 400 more than unemployed people (seasonally adjusted). Thus, the decline in January was almost reversed. Unemployment now stands at 2.7 percent of the labor force (unadjusted). Gross unemployment which includes people on labour market measures, also increased by 400. Thus the NAV figures do not confirm the clear upturn in unemployment from the LFS figures from Statistics Norway. The NOK weakened slightly against the euro after the figure was announced. House prices continued to rise in February. Seasonally adjusted prices on existing homes rose by 0.5% from January to February. On average, prices have risen 8.5% over the past year. There are still no signs that growth is about to slow down. Sales are still fast, especially in the big cities. On average it took 29 days to sell a home in February, down from 32 days in January. The Norwegian PMI disappointed markedly in February. The index was expected to rise to 51.0, but instead fell to 48.3. The decline suggests weaker activity in industry, but we put little weight in this index since the correlation with actual industrial production has been weak historically. Today the investment survey for manufacturing is released. Furthermore the Norges Bank Watch report will be published today. Deputy Governor Qvigstad will comment on the report at a seminar. A handful of weak figures from Europe were also published Friday. Unemployment in the euro zone rose from revised up 11.8% in January to a record high of 11.9% in February. In Germany, the unemployment rate was unchanged at 5.3%, while unemployment rose to 10.6% in France, to 11.7% in Italy and to 26.2% for the whole of Spain. Higher unemployment implies low wage growth and inflation ahead. Friday's inflation figures showed a decline from 2.0% to 1.8% - well in line with the ECB's target. PMI indexes were little revised and declined in February. In the UK fell CIPS index for manufacturing from 50.5 to 47.9. This was disappointing since a rise to 51.0 was expected. Swedish GDP surprised positively in the fourth quarter. While a decline of 0.7% was expected from the third to the fourth quarter, GDP remained unchanged. Private consumption increased clearly and private investment also rose slightly in the fourth quarter. The market reaction was strong. The SEK strengthened considerably (from 8.43 to 8.39) after the release of the data. In Brazil, GDP increased by 0.6% in the fourth quarter. GDP growth from 2011 to 2012 thus ended at 0.9% - far lower than most imagined a year ago. This week there will be a number of key figures and several central banks (Bank of England, ECB, Bank of Japan and Bank of Bank of Canada), will hold their monetary policy meetings. Statistics Norway publishes its economic outlook on Thursday and an oil investment survey on Wednesday. This weeks main numbers, U.S. employment and unemployment are due Friday afternoon. knut.magnussen@dnb.no Yesterdays key economic events (GMT) 08:00 Norway PMI 08:30 Sweden GDP 15:00 USA ISM, manufacturing Todays key economic events (GMT) 08:00 Norway Manuf. Investment Survey 08:00 Norway Norges Bank Watch 09:00 EMU PPI As of Feb Q4 Feb As of Q1 Jan m/m, % -0.2 0.3 Unit Index Q/q % Index Unit Prior 50.1r 0.5 53.1 Prior Poll 51.0 -0.7 52.8 Poll Actual 48.3 0.0 54.2 DNB

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 24 16 91 23

Morning Report
04.03.2013

3m LIBOR
0.20 0.15 0.10 0.05 0.00 04-Feb
EUR

18-Feb

0.30 0.30 0.29 0.29 0.28 0.28 04-Mar

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 04-Feb 18-Feb 04-Mar
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 92.57 1.3080 0.8616 7.4581 8.4312 1.2245 7.4862 5.7229 6.18 88.81 100.38 8.688 6.113

Today 93.38 1.3001 0.8653 7.4564 8.3717 1.2260 7.4811 5.7557 6.17 89.45 100.39 8.651 6.105

Spot rates and forecasts In 1m May-13 Aug-13 Feb-14 FX 0700 0.9 90 92 94 97 AUD -0.6 1.30 1.32 1.34 1.37 CAD 0.4 0.84 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK -0.7 8.50 8.45 8.45 8.60 RUB 0.1 1.22 1.22 1.25 1.27 GBP -0.1 7.30 7.30 7.35 7.40 HKD 0.6 5.62 5.53 5.49 5.40 KWD -0.3 6.24 6.01 5.84 5.57 LTL 0.7 85.9 86.4 87.0 86.0 LVL 0.0 98.0 98.0 98.7 99.3 NZD -0.4 8.69 8.59 8.55 8.51 SEK -0.1 598.36 598.36 588.00 582.68 SGD

USD NOK 1.012 5.823 1.031 5.581 0.943 610.177 19.744 29.140 30.800 18.680 1.503 8.645 7.756 0.742 0.284 20.262 2.655 2.167 0.539 10.678 0.820 4.716 6.438 89.374 1.248 4.611

US dollar

5.8 5.6 5.4 5.2 04-Feb

18-Feb

1.40 1.35 1.30 1.25 04-Mar

EURUSD(rha)

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

Prior 1.72 1.86 1.99 2.23 2.25 2.60 2.93 3.26

Last 1.73 1.86 1.99 2.25 2.22 2.58 2.92 3.25

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

Prior 1.17 1.23 1.32 1.59 1.57 1.85 2.11 2.36

Interest rates Last USD 1.17 1m 1.23 3m 1.32 6m 1.59 12m 1.58 3y 1.85 5y 2.11 7y 2.36 10y

Prior 0.20 0.29 0.46 0.75 0.49 0.91 1.38 1.95

Last 0.20 0.28 0.46 0.75 0.49 0.91 1.38 1.95

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

Prior 0.06 0.13 0.24 0.45 0.57 0.91 1.29 1.74

Last 0.06 0.13 0.23 0.44 0.54 0.88 1.25 1.70

USDNOK

Japanese yen

96.0 94.0
92.0

7.0 6.0
18-Feb

Norw ay Prior NST475 96.10 10y yld 2.44 - US spread 0.56 3m nibor 1.85 1.85 1.85

90.0 04-Feb
USDJ PY

5.0 04-Mar
JPYNOK(rha)

Norw ay May-13 Aug-13 Feb-14

Governm ent bonds Last SEK Prior Last US Prior 96.35 10y 113.60 113.61 10y 101.13 2.41 10y yld 1.88 1.88 10y yld 1.87 0.58 - US spread 0.01 0.05 30y yld 3.08 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 1.20 1.20 1.20 2.25 2.25 2.50 May-13 Aug-13 Feb-14 0.35 0.35 0.35

Last Germany Prior Last 101.52 10y 100.45 100.84 1.83 10y yld 1.45 1.41 3.04 - US spread -0.42 -0.42 10y sw ap 2.00 2.00 2.25 3m euribor 0.25 0.25 0.25 10y sw ap 1.75 1.75 2.00

Germany May-13 Aug-13 Feb-14

SEKNOK & CHFNOK 90 89 88 87 86 85 84 83 04-Feb 18-Feb

SEKNOK CHFNOK(rha)

6.2 6.1 6.0 5.9 04-Mar

Equities 14200 13700 13200 12700 12200 04-Feb 18-Feb

Dow J.I.

480 475 470 465 460 455 04-Mar

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 2.03 2.05 2 19.06.2013 0.29 Last 92.27 91.94 2.28 2.29 1 18.09.2013 0.54 Oil price: (Ldn,cl) 1m 1.69 1.70 1 18.12.2013 0.79 SPOT 109.87 110.40 1.49 1.47 -2 15.05.2015 2.20 Gold price 01.03.2013 PM 1.68 1.66 -2 19.05.2017 4.21 AM: 1588.5 1582.3 1.93 1.90 -3 22.05.2019 6.22 Equities Today 0700 % last 2.40 2.41 0 24.05.2023 10.23 Dow Jones 14089.66 0.3% 2.44 2.41 -3 24.05.2023 10.23 Nasdaq C. 3169.74 0.3% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6360.81 0.6% 1.89 2.01 1m 1.83 1.73 Eurostoxx50 2633.55 0.8% 1.88 1.99 3m 1.95 1.86 DAX 7741.70 0.9% 1.89 1.99 6m 2.08 1.99 Nikkei 225 11652.29 0.4% 1.89 2.06 12m 2.27 2.25 OSEBX 471.86 -0.3% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
04.03.2013
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