Morning Report

10.06.2013

Chinas economy is slowing

NOK & 3m NIBOR 7.70 1.90 7.60 1.80 7.50 1.70 7.40 7.30 1.60 08-May 27-May 10-Jun
EURNOK 3m (rha)

Friday's U.S. labor market figures showed continued growth in employment, but higher unemployment. Sunday's economic news from China provided new evidence that the economy is starting to slow. This morning Norwegian inflation for May will be released. Friday's U.S. employment figures were as usual awaited with great attention. This month was a bit special, as some seemed to fear a too strong report because it would increase the chances that the Fed would start to wind down its purchases of securities. However, the outcome was well received by the markets. Employment rose about as expected in May, with 75 000 people which is also in line with the average growth per month over the last year. The unemployment rate rose slightly disappointing from 7.5% to 7.6%, but this should be viewed against the clear decline so far this year. Wages disappointed a little in May (unchanged from April), but annual growth has reached 2% and seems to be trending upwards. A continuation of the strong underlying trend in the labor market this summer will increase the likelihood of tapering to start in the autumn, most likely in September. If the numbers disappoints, tapering will be postponed. At the upcoming FOMC meeting 19 June there may be new signals about how the central bank sees a possible reduction of QE. The employment report boosted the dollar, which strengthened against both the euro and the yen. The long rates fell slightly on the report, but the trend quickly turned and interest rates rose sharply later in the day. The stock markets also appreciated the report and U.S. markets rose well over 1% on Friday. European main markets were up nearly 2%, while the Nikkei has risen by around 4%, boosted by a weaker yen and stronger Japanese GDP growth, which was revised up to 4.1% in the first quarter. While President Xi visited President Obama in Palm Springs, economic news from China showed that growth is slowing. Chinese exports rose only by 1.0% (y/y) in May after rising by 14.7% in April. This was the lowest growth rate in nearly a year. The decline is mainly due to a declining trend in exports to the EU, U.S. and Japan. It is also a sign of weakness that imports are falling, and there was a decline for key commodities such as copper, aluminum and coal. The growth in industrial production slowed slightly to 9.2% in May, which was also lower than projected. The slowdown is gradual and is much as expected. We forecast the Chinese GDP will grow by 7.5% this year. Inflation fell to 2.1% in May, due to lower growth in food prices. German industrial production rose surprisingly by 1.8% (seasonally adjusted) in April. A surprise because zero growth was expected, and also because industrial orders fell the same month. This was the third consecutive month of gains. The engineering industry and especially automobile production has contributed significantly to the rise in this period. The increase means that the underlying trend is greatly strengthened and now clearly points upwards. A large part of the German production is exported. It was therefore not surprising that German exports also rose sharply in April. The rise was much stronger growth than expected, 1.9% versus 0.2%. If this positive trend continues, German GDP is likely to deliver higher growth in the second quarter than in the first. Norwegian industrial production also surprised positively with a rise of 2.6% (seasonally adjusted) in April. It was expected that production would rise by only 0.3% after falling 0.7% the month before. Machinery and equipment contributed most to the rise in April, but it was also solid growth for machinery and equipment and construction of ships and oil platforms. On the other hand, production of consumer and intermediate goods fell. Hence, the dichotomy of Norwegian industries appears to be reinforced. Norwegian inflation has fluctuated vastly in the last few months. In March, core inflation was surprisingly low (0.8%), and contributed to increased expectations of a rate cuts from Norges Bank. In April, core inflation surprised on the upside and ended at 1.5%. In particular, food prices have contributed to the great volatility this spring. This morning, inflation for May will be released and we (and consensus, according to Reuters) expect core inflation to fall to 1.1%. The cause: Food prices once again! There are not any major events this week, but several key indicators will be released. Tomorrow, Swedish inflation is due, while goods production in the euro zone and UK labor market figures will be released on Wednesday. On Thursday, the stage is set for U.S. retail sales for May, while the report from Norges Banks regional network will be published on Friday. The report is the latest vital information ahead of the central bank's monetary policy meeting on 20 June. knut.magnussen@dnb.no Yesterdays key economic events (GMT) 10:00 Germany Goods production, prelim. 12:30 US Non-farm payrolls 12:30 US Unemployment Todays key economic events (GMT) 08:30 Sweden Manufacturing output 09:00 Norway CPI-ATE 09:00 Norway CPI As of Apr Apr Apr As of Apr May May Unit m/m % 1000 % Unit m/m % y/y % y/y % Prior 1.2 165 7.5 Prior 0.8 1.5 1.9 Poll -0.2 165 7.5 Poll 0.3 1.1 1.8 Actual 1.8 175 7.6 DNB 1.1 1.8

Norw ay: 10y Gov't Bond 2.4 85 2.3 80 2.2 75 2.1 70 2.0 65 08-May 27-May 10-Jun
Rate 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

Morning Report
10.06.2013

3m LIBOR
0.125

0.120
0.115

0.110 08-May
EUR

27-May

0.28 0.28 0.27 0.27 0.27 0.27 10-Jun

USD (rha)

Oil price & NOK TWI 94 110 93 105 92 100 91 90 95 08-May 27-May 10-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 96.30 1.3259 0.8498 7.4565 8.6757 1.2297 7.6155 5.7449 5.96 87.82 102.18 8.965 6.195

Today 98.33 1.3198 0.8502 7.4552 8.6803 1.2372 7.6265 5.7790 5.88 87.92 102.32 8.974 6.167

Spot rates and forecasts In 1m Aug-13 Nov-13 May-14 FX 0700 2.1 102 105 107 110 AUD -0.5 1.27 1.26 1.30 1.32 CAD 0.0 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.1 8.55 8.45 8.50 8.60 RUB 0.6 1.24 1.25 1.27 1.30 GBP 0.1 7.55 7.50 7.45 7.40 HKD 0.6 5.94 5.95 5.73 5.61 KWD -1.4 5.83 5.67 5.36 5.10 LTL 0.1 88.3 88.8 87.6 86.0 LVL 0.1 101.3 100.7 100.0 99.3 NZD 0.1 8.88 8.82 8.66 8.51 SEK -0.5 608.87 600.00 586.61 569.23 SGD

USD NOK 0.943 5.447 1.020 5.663 0.937 616.261 19.382 29.807 32.208 17.937 1.552 8.969 7.763 0.744 0.284 20.313 2.617 2.208 0.532 10.860 0.785 4.536 6.577 87.840 1.254 4.605

US dollar 6.0 5.9 5.9 5.8 5.8 5.7 5.7 08-May 1.33 1.31 1.29 1.27 1.25 10-Jun
EURUSD(rha)

NOK Prior 1m Functionality 1.68 3m Functionality 1.75 6m Functionality 1.86 12m Functionality 2.02 3y Functionality 2.12 5y Functionality 2.46 7y Functionality 2.79

Last SEK Prior disabled in Local 1m Functionality Mode. 1.17 disabled in Local 3m Functionality Mode. 1.22 disabled in Local 6m Functionality Mode. 1.27 disabled in Local 12m Mode. disabled in Local 3y Functionality Mode. 1.53 disabled in Local 5y Functionality Mode. 1.86 disabled in Local 7y Functionality Mode. 2.12

Interest rates Last USD Prior Last EUR Prior Last disabled in Local 1m Mode. 0.19 0.19 1m 0.06 0.06 disabled in Local 3m Mode. 0.27 0.28 3m 0.12 0.12 disabled in Local 6m Mode. 0.41 0.41 6m 0.20 0.21 #N/A 12m 0.69 0.69 12m 0.40 0.42 disabled in Local 3y Functionality Mode. 0.64 disabled in Local 3y Functionality Mode. 0.64 disabled in Local Mod disabled in Local 5y Functionality Mode. 1.17 disabled in Local 5y Functionality Mode. 0.99 disabled in Local Mod disabled in Local 7y Functionality Mode. 1.68 disabled in Local 7y Functionality Mode. 1.34 disabled in Local Mod

27-May

10y Functionality 3.14 disabled in Local 10y Functionality Mode. 2.39 disabled in Local 10y Functionality Mode. 2.23 disabled in Local 10y Functionality Mode. 1.76 disabled in Local Mod Norw ay Prior NST475 97.80 10y yld 2.25 - US spread 0.19 3m nibor 1.80 1.80 1.80 Governm ent bonds Last SEK Prior Last US Prior 97.85 10y 95.92 95.93 10y 97.25 2.24 10y yld 1.94 1.94 10y yld 2.06 0.08 - US spread -0.12 -0.23 30y yld 3.22 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 96.33 10y 99.79 2.16 10y yld 1.52 3.32 - US spread -0.53 10y sw ap 2.00 2.00 2.50 3m euribor 0.25 0.25 0.25 Last 99.59 1.55 -0.62 10y sw ap 1.75 1.75 2.00

USDNOK

Japanese yen 104.0 7.0 102.0 6.5 100.0 98.0 6.0 96.0 5.5 94.0 92.0 5.0 08-May 27-May 10-Jun
USDJ PY JPYNOK(rha)

Norw ay Aug-13 Nov-13 May-14

Germany Aug-13 Nov-13 May-14

SEKNOK & CHFNOK

90

89
88

87 08-May

27-May

6.3 6.2 6.1 6.0 5.9 5.8 10-Jun

CHFNOK (rha)

SEKNOK

Equities
15700 15200 14700 14200 13700 08May
Dow Jones

500

490 480
27May 470 10-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 1.43 1.41 -2 18.09.2013 0.27 Last 92.77 92.69 1.48 1.49 1 18.12.2013 0.52 Oil price: (Ldn,cl) 1m 1.47 1.45 -2 19.03.2014 0.77 SPOT 104.34 104.55 1.38 1.37 -1 15.05.2015 1.93 Gold price 07.06.2013 PM 1.63 1.65 2 19.05.2017 3.94 AM: 1400.0 1386.0 0.00 0.00 0 24.05.2023 9.96 Equities Today 0700 % last 2.26 2.22 -4 24.05.2023 9.96 Dow Jones 15248.12 1.4% 2.25 2.24 -1 24.05.2023 9.96 Nasdaq C. 3469.22 #VALUE! 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6411.99 #VALUE! Functionality Functionality disabled in Local disabled Mode. 1m in Local Mode. 1.78 1.68 Eurostoxx50 2724.08 1.8% Functionality Functionality disabled in Local disabled Mode. 3m in Local Mode. 1.88 1.76 DAX 8254.68 1.9% Functionality Functionality disabled in Local disabled Mode. 6m in Local Mode. 1.93 1.86 Nikkei 225 13380.15 3.9% Functionality Functionality disabled in Local disabled Mode. 12m in Local Mode. 2.08 Functionality 2.00 OSEBX disabled in Local Mode. #VALUE! Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
10.06.2013
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