Morning Report

11.04.2013

Norges Bank closer to rate cut

NOK & 3m NIBOR 7.60 1.90 7.50 1.85 7.40 1.80 7.30 7.20 1.75 11-Mar 25-Mar 11-Apr
EURNOK 3m (rha)

Inflation was lower than expected in March. In the US FOMC seems ready to quit QE3 by year end - given a continued improvement in the labor market. There was a solid recovery in stock markets yesterday. Dow Jones and S&P500 both hit new records. The ten-year government bond yields in the US, Germany, Norway and Sweden crept up by about 5 basis points, while Italian and Spanish interest rates edged down accordingly. In FX markets, the changes are modest, but the dollar and the pound has strengthened somewhat, while the Norwegian krone has depreciated on a broad basis. USDJPY has crept up to 99.6. The dollar has gained in the wake of the FOMC minutes, which were released five hours ahead of schedule due to an error. The minutes suggest that the majority at the time of the meeting (19 - 20 March) wanted to end QE3 (ongoing monthly asset purchases amounting to USD 85 billion) within the year. "A few" suggested that the purchases could be stepped down already in the summer and closed later this year. "Several others" suggested that the purchases should be diminished later this year and close at year-end, if the labor market improved as expected. Following the meeting, labor market figures have, on the contrary, been disappointing. This explains why market reactions have been rather modest. Todays initial claims will give us another indication of the state of the labor market. Claims are expected to have fallen by 20', after a jump of 28' the previous week. Obama sent his 2014 budget to the Congress yesterday. His aim is to reduce the budget deficit to 4.4% of GDP in 2014, and further down to 1.7% in 2023. 1.8 trillion USD will be cut in the course of 10 years. As before, Obama wants to close gaps in the tax system and remove some deductions for the rich. He also proposes increased taxes for the wealthiest households. He wants to replace the automatic cuts that came into force on 1 March with more targeted cuts. The proposal entails cuts to Social Security and the health plan for the elderly (Medicare), which are highly controversial within his own party. The largest reductions will still be done within defence. In practice, there is little chance that Obama will get his way. Hard rounds of negotiations will follow, and republicans have been clear that they will not agree to more tax increases. The NOK depreciated after the news that Norwegian core inflation declined 0.2 pp to 0.9 percent y/y in March, drifting further away from the target (2.5 percent). Norges Banks and analysts' expectation was that price growth would hold steady at 1.1 percent. The surprise was primarily due to lower-than-expected inflation for domestically produced goods and services. It declined by 0.1 percentage points to 1.8 percent, partly triggered by a surprise fall in food prices (-0.7 per cent m/m). The probability of an interest rate cut at the meeting in May or June has increased since last week, with low actual inflation and a surprisingly moderate wage settlement. Although we have become more uncertain than before, we stick to our view that the policy rate will be kept unchanged. It is clear that Norges Bank is reluctant to cut further, since it decided to keep rates unchanged at the March meeting, even though inflation projections did not reach higher than 2 percent in both 2015 and 2016. The reluctance is due to concerns that financial imbalances might be building up. Credit growth has remained at a high level, and the debt burden of households is increasing from already high levels. Swedish industry has performed better than expected in the first two months. Production growth was admittedly a bit lower than expected in February (0.5 percent m/m, expected 0.8), but last month's decline was revised down (from -2.0 percent to -1.1). The orders also pointed up again, after a steep fall in January. The general impression is that the decline in the end of 2012 has been replaced by a slightly positive trend. Today Swedish inflation figures are released. We expect, like both consensus and the Riksbank, an annual rise in core inflation (CPIF) of 0.8 percent in March, slightly lower than in February. The February edition of the OECD's leading indicator signals that the major economies may have reached a positive turning point. The indicator signals firmer growth in the US and Japan, and growth picking up in the euro zone, China and Germany. In the UK, Russia, Brazil and Canada, growth is around trend and in France we see no further decline in growth. Indias performance is less encouraging, with the indicator signaling weakening growth. kjersti.haugland@dnb.no Yesterdays key economic events (GMT)
07:30 08:00 08:00 07:30 07:30 12:30 Sweden Norway Norway Sweden Sweden US Manufacturing production CPI-ATE CPI CPI CPIF Initial claims

Norw ay: 10y Gov't Bond 2.4 100

2.3
2.2

90
80 11-Mar
Rate

2.1
25-Mar

70 11-Apr
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

As of
Feb Mar Mar

Unit
m/m % y/y % y/y %

Prior
-1.1r 1.1 1.0

Poll
0.8 1.1 1.4

Actual
0.5 0.9 1.4

Todays key economic events (GMT)

As of
Mar Mar W14

Unit
y/y % y/y % 385

Prior
-0.2 0.9 365

Poll
-0.2 0.8

DNB
0.2 0.8

Morning Report
11.04.2013

3m LIBOR
0.140 0.135 0.130 0.125 0.120 0.115 11-Mar
EUR

25-Mar

0.29 0.29 0.28 0.28 0.27 11-Apr

USD (rha)

Oil price & NOK TWI

94 93 92 91 90 111

109
107

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 99.20 1.3078 0.8537 7.4558 8.3625 1.2198 7.4820 5.7220 5.77 89.55 100.35 8.767 6.138

Today 99.60 1.3072 0.8530 7.4568 8.3569 1.2187 7.5015 5.7434 5.77 89.85 100.61 8.802 6.159

Spot rates and forecasts In 1m Jul-13 Oct-13 Apr-14 FX 0700 0.4 95 95 95 100 AUD 0.0 1.30 1.32 1.34 1.37 CAD -0.1 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK -0.1 8.40 8.40 8.45 8.60 RUB -0.1 1.22 1.22 1.25 1.27 GBP 0.3 7.45 7.40 7.40 7.40 HKD 0.4 5.73 5.61 5.52 5.40 KWD -0.1 6.03 5.90 5.81 5.40 LTL 0.3 88.7 88.1 87.6 86.0 LVL 0.3 100.0 99.3 99.3 99.3 NZD 0.4 8.76 8.71 8.60 8.51 SEK 0.3 610.66 606.56 592.00 582.68 SGD

USD NOK 1.052 6.038 1.015 5.655 0.932 615.482 19.807 28.971 30.885 18.580 1.533 8.796 7.763 0.739 0.285 20.142 2.642 2.172 0.536 10.706 0.859 4.931 6.392 89.773 1.238 4.635

11-Mar

25-Mar

105 11-Apr
USD/b (rha)

NOK TWI

US dollar

5.9 5.8 5.7 5.6 5.5 11-Mar

1.35 1.30
25-Mar

1.25 11-Apr
EURUSD(rha)

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

Prior 1.82 1.85 1.92 2.09 2.06 2.38 2.69 3.04

Last 1.78 1.84 1.89 2.06 2.02 2.34 2.67 3.03

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

Prior 1.17 1.25 1.32 #N/A 1.52 1.75 1.99 2.24

Interest rates Last USD 1.17 1m 1.25 3m 1.32 6m #N/A 12m 1.52 3y 1.74 5y 1.98 7y 2.22 10y

Prior 0.20 0.28 0.44 0.72 0.46 0.85 1.35 1.90

Last 0.20 0.28 0.44 0.72 0.48 0.88 1.37 1.93

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

Prior 0.06 0.13 0.22 0.42 0.56 0.86 1.20 1.60

Last 0.06 0.13 0.22 0.42 0.56 0.87 1.20 1.62

USDNOK

Japanese yen 105.0 7.0 100.0 95.0 6.0 90.0 85.0 5.0 11-Mar 25-Mar 11-Apr
USDJ PY JPYNOK(rha)

Norw ay Prior NST475 98.95 10y yld 2.12 - US spread 0.37 3m nibor 1.85 1.85 1.85

Norw ay Jul-13 Oct-13 Apr-14

Governm ent bonds Last SEK Prior Last US Prior 98.60 10y 97.81 97.92 10y 102.23 2.16 10y yld 1.73 1.72 10y yld 1.75 0.37 - US spread -0.02 -0.07 30y yld 2.94 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 Jul-13 Oct-13 Apr-14 1.20 1.20 1.20 2.25 2.25 2.50 Jul-13 Oct-13 Apr-14 0.35 0.35 0.35

Last Germany Prior Last 101.91 10y 102.06 101.94 1.79 10y yld 1.28 1.29 2.98 - US spread -0.47 -0.50 10y sw ap 2.00 2.00 2.50 3m euribor 0.25 0.25 0.25 10y sw ap 1.75 1.75 2.00

Germany Jul-13 Oct-13 Apr-14

SEKNOK & CHFNOK 91

90
89

88 11-Mar 25-Mar
SEKNOK

6.3 6.2 6.1 6.0 5.9 11-Apr

CHFNOK (rha)

Equities
15200

14700 14200
13700 11-Mar 25-Mar

490 480 470 460 450 11-Apr

Os lo (rha)

NOK sov. NST20 NST21 NST22 NST471 NST472 NST473 NST475 NST475 NOK FRA JUN SEP DEC MAR

Dow Jones

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.57 1.58 1 18.09.2013 0.44 Last 92.08 91.77 1.67 1.57 -10 18.12.2013 0.69 Oil price: (Ldn,cl) 1m 1.67 1.66 -1 19.03.2014 0.94 SPOT 104.56 105.42 1.26 1.30 4 15.05.2015 2.09 Gold price 10.04.2013 PM 1.36 1.40 4 19.05.2017 4.11 AM: 1577.3 1575.0 1.58 1.61 3 22.05.2019 6.12 Equities Today 0700 % last 2.09 2.13 4 24.05.2023 10.12 Dow Jones 14802.24 0.9% 2.12 2.16 4 24.05.2023 10.12 Nasdaq C. 3297.25 1.8% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6387.37 1.2% 1.79 1.88 1m 1.83 1.78 Eurostoxx50 2661.62 2.6% 1.74 1.85 3m 1.92 1.84 DAX 7810.63 2.3% 1.74 1.85 6m 1.97 1.89 Nikkei 225 13549.16 2.0% 1.75 1.87 12m 2.10 2.06 OSEBX 472.52 0.1% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
11.04.2013
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