Morning Report

06.06.2013

Focus on monetary policy

NOK & 3m NIBOR 7.70 1.90 7.60 1.80 7.50 1.70 7.40 7.30 1.60 06-May 23-May 06-Jun
EURNOK 3m (rha)

Fear that Fed shortly will start to reduce asset purchases did together with poor key figure lead to more risk aversion and declining stock markets yesterday. Today market attention is likely to be on the ECB and BoE Monetary policy meetings. No changes in monetary policy are expected. The weak economic development in the euro area seems to continue. Revised GDP figures revealed a decline of 0.2 per cent q/q in Q1, as originally reported. In particular gross investments pulled growth down. Net exports and consumption gave small, but positive contributions to growth. This is the sixth quarter in the row that GDP is declining, and the recession is, thus, the longest on the record in the euro area. And growth is likely to decline also in Q2. The composite PMI index rose 0.2 points in May, to 47.2. The level indicates further GDP declines. And retail sales declined by 0.5 in April, to the lowest level in ten years. The Federal Reserves Beige Book say overall activity in the US economy has increased at a modest to moderate pace across all district since its previous report (April). The exception was Dallas which reported strong economic growth. The manufacturing sector has expanded the most. Most districts also reported gains in consumer spending. Hiring increased at a measured pace in several Districts. In total the report give an impression of positive, but slow growth in the US economy. Other data from the US released yesterday were not in particular strong. The ISM services index rose from 53.1 to 53.7 in May, somewhat more than expected (53.5). The level is consistent with GDP growth of about 2 per cent. The sub index for employment did however decline by almost 2 points, to 20.1, and is as a result at its lowest level since July. And according to The National Federation of Independent Business small business are cutting jobs. The ADP report was disappointing this month. 135 new jobs were created in May. This was lower than the consensus estimate (165). This is an indication that the payrolls data released on Friday, may come out weaker than expected (+170). The US central bank has said they will start to reduce asset purchases when they have seen a significant improvement in the labour market. Speculations of when this will be, has caught a lot of attention in markets lately, also yesterday. Fear that central bank stimulus may be nearing an end while the economy still is weak weighed on market sentiment yesterday. Stock markets declined, US Treasury prices rose and demand for safe haven currencies, like the CHF and the JPY increased. The JPY also strengthened after the Japanese Prime Minister, Abe, failed to impress markets when he presented his strategy for enhancing growth in the Japanese economy early yesterday morning. USDJPY is currently trading just above 99. The JPY has thus strengthened by about three per cent versus the dollar over the last two weeks. The question now is whether the trend towards a weaker yen has turned or that we are just seeing a larger correction. We believe in the latter and foresee a weaker yen going forward. The main events today are monetary policy meetings in ECB and Bank of England. The ECB cut the refi rate by 25 basis points last month, to 0.50 per cent. According to Draghi there had been a prevailing consensus to cut the rate and some had also argued for an even larger cut. Furthermore he said monetary policy would remain accommodative for as long as needed and that they were ready to do more, if necessary. Since then financial markets have improved somewhat. However the inflation remains well below target and the economic activity is low. Despite of the weak development only 4 out of 81 expect the ECB to cut the rate at the meeting today, according to Reuters. However 19 respondents expect a 25 basis point cut before year end. We believe in another rate cut, but not today. The Bank of England is also likely to keep monetary policy unchanged today. The interest rate will most probably remain at 0.50 per cent and the asset purchase programme at GBP 375 billion. Lately there has been a certain improvement in economic data from the UK. This has reduced the probability of more quantitative easing. On the other hand, inflation is declining, but this is probably only temporary. We still see more asset purchases as likely, but not now. And Mark Carney, which soon will take over as central bank governor, will probably introduce forward guidance in the fall. camilla.viland@dnb.no

Norw ay: 10y Gov't Bond

2.4 2.3 2.2 2.1 2.0 06-May
Rate

23-May

90 85 80 75 70 65 06-Jun
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 64 76 30 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

Yesterdays key economic events (GMT) 07:58 EMU PMI, services 14:00 US ISM, services 18:00 US Beige Book Todays key economic events (GMT) 11:00 UK BoE QE 11:00 UK BoE interest rate decision 11:45 EMU ESB interest rate decision

As of May May As of Jun Jun Jun

Unit Index Index Unit bn % %

Prior 47.5 53.1 Prior 375 0.5 0.5

Poll 47.5 53.4 Poll 375 0.5 0.5

Actual 47.2 53.7 DNB 375 0.5 0.5

Morning Report
06.06.2013

3m LIBOR
0.125

0.120
0.115

0.110 06-May
EUR

23-May

0.28 0.28 0.27 0.27 0.27 0.27 06-Jun

USD (rha)

Oil price & NOK TWI 94 110 93 105 92 100 91 90 95 06-May 23-May 06-Jun
NOK TWI USD/b (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 99.67 1.3087 0.8540 7.4543 8.5842 1.2396 7.5985 5.8067 5.83 88.60 101.92 8.897 6.133

Today 99.18 1.3100 0.8506 7.4549 8.6275 1.2330 7.6175 5.8139 5.86 88.31 102.17 8.956 6.180

Spot rates and forecasts In 1m Aug-13 Nov-13 May-14 FX 0700 -0.5 102 105 107 110 AUD 0.1 1.27 1.26 1.30 1.32 CAD -0.4 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.5 8.55 8.45 8.50 8.60 RUB -0.5 1.24 1.25 1.27 1.30 GBP 0.3 7.55 7.50 7.45 7.40 HKD 0.1 5.94 5.95 5.73 5.61 KWD 0.7 5.83 5.67 5.36 5.10 LTL -0.3 88.3 88.8 87.6 86.0 LVL 0.2 101.3 100.7 100.0 99.3 NZD 0.7 8.88 8.82 8.66 8.51 SEK 0.8 608.87 600.00 586.61 569.23 SGD

USD NOK 0.944 5.485 1.036 5.609 0.941 617.588 19.685 29.528 32.198 18.052 1.541 8.955 7.761 0.749 0.285 20.377 2.636 2.205 0.536 10.840 0.791 4.595 6.585 88.271 1.250 4.650

US dollar 6.0 5.9 5.9 5.8 5.8 5.7 06-May 1.33 1.31 1.29 1.27 1.25 06-Jun
EURUSD(rha)

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

Prior 1.70 1.76 1.86 2.02 2.12 2.48 2.83 3.17

Last 1.70 1.76 1.86 2.02 2.09 2.44 2.78 3.13

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

Prior 1.17 1.22 1.27 1.48 1.82 2.10 2.39

Interest rates Last USD 1.17 1m 1.22 3m 1.27 6m #N/A 12m 1.48 3y 1.82 5y 2.10 7y 2.39 10y

Prior 0.19 0.27 0.41 0.69 0.65 1.22 1.73 2.30

Last 0.19 0.27 0.41 0.69 0.64 1.19 1.70 2.26

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

Prior 0.06 0.12 0.20 0.40 0.61 0.98 1.34 1.76

Last 0.06 0.12 0.20 0.40 0.59 0.96 1.31 1.75 Last 99.89 1.51 -0.58 10y sw ap 1.75 1.75 2.00

23-May

USDNOK

Japanese yen 104.0 7.0 102.0 6.5 100.0 6.0 98.0 5.5 96.0 94.0 5.0 06-May 23-May 06-Jun
USDJ PY JPYNOK(rha)

Norw ay Prior NST475 97.10 10y yld 2.33 - US spread 0.20 3m nibor 1.80 1.80 1.80

Norw ay Aug-13 Nov-13 May-14

Governm ent bonds Last SEK Prior Last US Prior 97.52 10y 95.75 95.75 10y 96.56 2.28 10y yld 1.95 1.95 10y yld 2.13 0.18 - US spread -0.18 -0.14 30y yld 3.30 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 Aug-13 Nov-13 May-14 1.20 1.20 1.45 2.25 2.25 2.50 Aug-13 Nov-13 May-14 0.35 0.35 0.35

Last Germany Prior 96.89 10y 99.62 2.10 10y yld 1.54 3.25 - US spread -0.59 10y sw ap 2.00 2.00 2.50 3m euribor 0.25 0.25 0.25

Germany Aug-13 Nov-13 May-14

SEKNOK & CHFNOK

90

89
88

87 06-May

23-May

6.3 6.2 6.1 6.0 5.9 5.8 06-Jun

CHFNOK (rha)

SEKNOK

Equities
15700 15200 14700 14200 13700 06May
Dow Jones

23May

500 490 480 470 460 06-Jun

Os lo (rha)

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

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.52 1.47 -6 18.09.2013 0.28 Last 92.72 92.64 1.45 1.46 1 18.12.2013 0.53 Oil price: (Ldn,cl) 1m 1.50 1.47 -3 19.03.2014 0.78 SPOT 102.84 103.11 1.31 1.34 3 15.05.2015 1.94 Gold price 05.06.2013 PM 1.64 1.63 -1 19.05.2017 3.95 AM: 1399.5 1404.0 0.00 0.00 0 24.05.2023 9.97 Equities Today 0700 % last 2.31 2.29 -2 24.05.2023 9.97 Dow Jones 14960.59 -1.4% 2.33 2.28 -5 24.05.2023 9.97 Nasdaq C. 3401.48 -1.3% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6558.58 -2.1% 1.79 1.90 1m 1.78 1.70 Eurostoxx50 2755.70 0.3% 1.78 1.89 3m 1.88 1.76 DAX 8295.96 0.1% 1.78 1.91 6m 1.93 1.86 Nikkei 225 12940.33 -0.6% 1.81 1.94 12m 2.08 2.02 OSEBX 482.89 -0.8% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
06.06.2013
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