Morning Report

07.03.2013

Will BoE increase QE today?

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 07-Feb 21-Feb 07-Mar
EURNOK 3m(rha)

At todays board meeting the Bank of England may provide more quantitative easing, while the ECB is not expected to come with new signals today. Statistics Norway will release new forecasts this morning. As a prelude to today's monetary policy meetings the Polish central bank surprisingly lowered its key rate by 50 basis points to a record low of 3.25% yesterday. Bank of Canada kept interest rates unchanged as expected at 1.0% yesterday while Bank of Japan did not change its policy stance this morning. It is expected that the newly appointed Governor Kuroda will be in place at the next meeting in early April. More uncertainty is linked to the two monetary policy meetings of the ECB and the Bank of England today, especially the latter. Most people expect (like us) that the ECB will keep interest rates unchanged at today's meeting. Only 4 out of 76 according to Reuters think that interest rates will be lowered to 0.5% today. Inflation has continued falling, while GDP disappointed in the fourth quarter. Italian elections had a negative impact on markets, but the ECB's balance sheet continues to be downsized. For the Bank of England, there is considerable uncertainty about whether the MPC will decide to increase the quantitative easing today. At the last meeting both Governor King, his deputy Tucker and the external member Miles voted to do just that. The economy is still weak, but not weaker than one month ago, ie. the important CIPS services index for February rose. Hence, we believe that there will not a majority for higher QE at todays meeting, but that such a change will take place later this spring. According to a survey by Reuters there is a probability of 40% for an increase in QE today and 60% for an increase during the year. If QE will be lifted today, we expect the pound will weaken. The U.S. ADP report indicated an increase of 198,000 for private employment in February. For the second month in a row it was the small businesses that accounted for most of the increase in hiring, with 76,000. The report is good news ahead of tomorrow's non-farm payrolls, which we estimate will show an increase of 200,000 for total employment. The U.S. stock market did not react much to the ADP-report. So time ago the method of ADP was adjusted in order for the number to better predict the outcome of the private employment in non-farm payrolls usually issued two days later. On average, the ADP-growth was 19,000 below payrolls on average in 2012. Although this indicates that payrolls may rise by 220,000 tomorrow, we still stick our original estimate. The Fed's Beige Book," which was released last night, still described the recovery in the U.S. as moderate, with few signs of inflationary pressures. Private consumption and the housing market are positive factors, but several districts reported less momentum in consumption in the past. Today the trade balance for January and weekly figures for initial claims will be released. The survey for Norwegian oil and gas investments showed that oil companies have reduced their estimates from 207.8 billion in November to 198.7 billion in February. Nevertheless, the estimate is 12.6 billion higher than the similar estimate for 2012 given a year ago implying a growth of 6.8% in nominal terms. By comparison, Norges Bank estimated the increased to 9% (real) in its monetary policy report in October. This could mean that the central bank will adjust this estimate somewhat in the report by next Thursday. Isolation, in the direction of lower growth in the Norwegian economy - but the effect is small. Normally, it is true that the final investment differs a great deal from the estimates coming in February of the same year. Given this uncertainty, it is not obvious that the Bank will adjust its estimate at all. Today Statistics Norway will release its first economic report for the year, called "Economic Perspectives". The forecasts have for long painted a very positive picture of the Norwegian economy. We expect that the picture is somewhat less rosy this time. Credit growth for January is also published today. Revised figures for GDP in the euro zone in the fourth quarter confirmed the decrease of 0.6% (k/k) from the preliminary estimates. Details showed that there was a drop for all demand components. Private consumption fell by 0.4%, while investment fell by 1.1%. The indicators so far in the first quarter, is suggesting a smaller decline than in Q4. It is particularly Germany which seems to curb the decline in the current quarter. Today, German industrial orders for January are due. A small increase of 0.5% is expected. In Italy Grillo still refuses to support other governments, even a technocrat-led. Grillo probably wants a new election and polls show he would win such an election now. knut.magnussen@dnb.no Yesterdays key economic events (GMT) 09:00 Norway Investment survey, oil&gas 13:15 US ADP employment 19:00 US Beige Book Todays key economic events (GMT) 09:00 Norway C2, credit growth 12:00 UK BoE interest rate decision 12:45 EMU ECB meeting As of Feb As of Jan Mar Mar Unit 1000 Unit y/y % % % Prior 192 Prior 6.5 0.5 0.75 Poll 170 Poll 0.5 0.75 Actual 198 DNB 6.3 0.5 0.75

Norsk 10y sov.

2.8 2.6 2.4 2.2 2.0 1.8 07-Feb
rente

21-Feb

105 100 95 90 85 80 07-Mar

Diff(bp,rha)

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

+ 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 24 16 91 23

Morning Report
07.03.2013

3m LIBOR
0.20 0.15 0.10 0.05 0.00 07-Feb
EUR

0.30

0.29 0.28
21-Feb 0.27 07-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 07-Feb 21-Feb 07-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 93.20 1.3063 0.8628 7.4561 8.3316 1.2292 7.4416 5.6965 6.11 89.37 99.80 8.625 6.055

Today 93.91 1.2996 0.8662 7.4561 8.3233 1.2322 7.4260 5.7140 6.09 89.27 99.62 8.579 6.031

Spot rates and forecasts In 1m Jun-13 Sep-13 Mar-14 FX 0700 0.8 90 92 94 97 AUD -0.5 1.30 1.32 1.34 1.37 CAD 0.4 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK -0.1 8.40 8.45 8.45 8.60 RUB 0.2 1.22 1.22 1.25 1.27 GBP -0.2 7.40 7.30 7.35 7.40 HKD 0.3 5.69 5.53 5.49 5.40 KWD -0.4 6.32 6.01 5.84 5.57 LTL -0.1 88.1 86.4 87.0 86.0 LVL -0.2 99.3 98.0 98.7 99.3 NZD -0.5 8.71 8.59 8.55 8.51 SEK -0.4 606.56 598.36 588.00 582.68 SGD

USD NOK 1.024 5.853 1.031 5.540 0.948 602.576 19.652 29.072 30.756 18.575 1.501 8.573 7.756 0.737 0.284 20.102 2.657 2.150 0.539 10.591 0.828 4.728 6.403 89.217 1.248 4.576

US dollar

5.8 5.6 5.4 5.2 07-Feb

21-Feb

1.40 1.35 1.30 1.25 07-Mar

EURUSD(rha)

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

Prior 1.74 1.85 1.99 2.24 2.24 2.60 2.95 3.27

Last 1.74 1.84 1.98 2.23 2.23 2.59 2.93 3.27

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

Prior 1.19 1.26 1.36 #N/A 1.63 1.93 2.19 2.45

Interest rates Last USD 1.19 1m 1.26 3m 1.36 6m #N/A 12m 1.63 3y 1.94 5y 2.20 7y 2.46 10y

Prior 0.20 0.28 0.45 0.74 0.49 0.90 1.39 1.95

Last 0.20 0.28 0.45 0.74 0.50 0.94 1.43 1.99

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

Prior 0.06 0.12 0.23 0.43 0.58 0.93 1.29 1.75

Last 0.06 0.12 0.23 0.43 0.55 0.89 1.27 1.73

USDNOK

Japanese yen

96.0 94.0
92.0

7.0 6.0
21-Feb

Norw ay Prior NST475 96.22 10y yld 2.42 - US spread 0.52 3m nibor 1.85 1.85 1.85

90.0 07-Feb
USDJ PY

5.0 07-Mar
JPYNOK(rha)

Norw ay Jun-13 Sep-13 Mar-14

Governm ent bonds Last SEK Prior Last US Prior 96.76 10y 112.51 112.51 10y 100.86 2.36 10y yld 2.00 2.00 10y yld 1.90 0.43 - US spread 0.10 0.07 30y yld 3.11 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 Jun-13 Sep-13 Mar-14 1.20 1.20 1.20 2.25 2.25 2.50 Jun-13 Sep-13 Mar-14 0.35 0.35 0.35

Last Germany Prior Last 100.63 10y 100.43 100.35 1.93 10y yld 1.45 1.46 3.14 - US spread -0.45 -0.47 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 Jun-13 Sep-13 Mar-14

SEKNOK & CHFNOK 90 89 88 87 86 85 84 83 07-Feb 21-Feb

SEKNOK CHFNOK(rha)

6.2 6.1 6.0 5.9 07-Mar

Equities 14700 14200 13700 13200 12700 12200 07-Feb 21-Feb

Dow J.I.

485 480 475 470 465 460 455 07-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 2.09 2.11 2 19.06.2013 0.28 Last 91.40 91.64 2.32 2.33 1 18.09.2013 0.53 Oil price: (Ldn,cl) 1m 1.70 1.70 0 18.12.2013 0.78 SPOT 110.37 110.85 1.49 1.50 1 15.05.2015 2.19 Gold price 06.03.2013 PM 1.67 1.64 -3 19.05.2017 4.20 AM: 1579.8 1574.0 1.92 1.91 -2 22.05.2019 6.21 Equities Today 0700 % last 2.40 2.41 0 24.05.2023 10.22 Dow Jones 14296.24 0.3% 2.42 2.36 -6 24.05.2023 10.22 Nasdaq C. 3222.37 -0.1% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6345.63 -0.5% 1.88 2.02 1m 1.77 1.74 Eurostoxx50 2619.78 0.1% 1.89 2.02 3m 1.93 1.84 DAX 7691.68 -0.2% 1.90 2.03 6m 2.05 1.98 Nikkei 225 11968.08 0.3% 1.92 2.06 12m 2.27 2.23 OSEBX 477.09 -0.4% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
07.03.2013
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