Morning Report

02.08.2013

No surprises from ECB or BoE

NOK & 3m NIBOR
8.10

7.90
7.70

7.50 05-Jul 19-Jul

EURNOK

1.90 1.80 1.70 1.60 1.50 02-Aug

3m (rha)

The ECB and BoE both held monetary policy unchanged at yesterdays meetings. Draghi reiterated that the ECB will keep rates at current level or lower for an extensive period. A strong ISM index and lower than expected initial claims contributed to new record highs on US stock markets and a stronger dollar. The European and British PMIs also came in stronger than expected, while the Norwegian PMI disappointed. The European central bank kept, as expected, monetary policy unchanged yesterday. Mario Draghi reiterated that European rates would remain at current level, or lower, for an extended period. This forward guidance was unanimous, but Draghi avoided any question on whether or not the decision to keep interest rates unchanged or if interest rate cuts had been discussed. Another rate cut is this still a possibility. Future Monetary policy will be contingent on inflation expectations. As of today the ECB see a subdued outlook for inflation. Furthermore Draghi said that the current policy support a gradual recovery in economic activity in the remainder of the year and into 2014. This risk on the economic outlook is, however, still viewed to be on the downside. Bank of England also decided to keep monetary policy unchanged, as expected. The market is now awaiting next weeks inflation report and announcement on forward guidance. Some sort of forward guidance is expected to be introduced, possibly related to specific threshold, similar to Feds policy. At last months meeting Bank of England moved in the direction of forward guidance when they published a press release which said the latest market development, with increasing interest rates, was unwarranted. Another central bank than soon may make some changes to monetary policy is the Federal Reserve. The US central bank has signaled that they soon will start to taper asset purchases if the positive economic development continues. Yesterdays ISM index was far stronger than expected and seem to increase the possibility that the Fed soon will start to reduce its quantitative easing. The index rose from 50.9 to 55.4 in July, and is by a result at its highest level in two years. Consensus had expected an outcome of 52.0. The index point towards GDP growth of 2.5-3.0 per cent in Q3 (annualized). The labor market developments are in particular important for monetary policy. Initial claims fell more than expected last week and were at the lowest level since 2008. Today the monthly labor market data for July are released. In June employment rose by 195 and the unemployment rate held steady at 7.6 per cent. Consensus believes the unemployment rate dropped to 7.5 per cent in July and that 184 new jobs were created. We are more optimistic and believe employment grew by 207 people in July. Such an outcome would further increase the probably of Fed starting to taper asset purchases shortly. The euro area manufacturing PMI index rose to 50.3 in July, slightly stronger than expected and indicated by the flash estimate (50.1). The index is again above 50, indicating increased activity in the manufacturing sector and is, thus, yet another sign that the euro area us emerging from its longest recession ever. The British PMI index (CIPS) rose from 52.9 to 54.6 in July, which is the highest level since March 2011. The outcome was far better than expected (52.8) and it immediately strengthened the pound. The index currently point towards manufacturing growth of about 1.5 per cent. The PMI continues the run of surprisingly strong data from Britain. The Norwegian PMI index rose, from 46.9 in June to 47.5 in July. The outcome was lower than expected (49.0). A level below 50 indicates decreasing manufacturing activity. However the participation in the survey was very low in July, as in June. The figures should, thus, be interpreted with caution. It will be more important to see whether the index remain around these low levels going forward, when people are back from summer vacation. The Norwegian housing figures released yesterday were also surprisingly weak. House prices fell 1.2 per cent seasonally adjusted in July. The turnover is normally low in July and as a result special event may have affected the outcome. Nevertheless, the figures released yesterday support the view that the house price growth is moderating. Today Norwegian labour market data are released. So far in 2013, the labor market has weakened, however the situation seem to have stabilized over the last few months. We expect that unemployment increased by 500 persons in July (seasonally adjusted), and that the unadjusted unemployment rate increased from 2.5 to 2.8 per cent. camilla.viland@dnb.no Yesterdays key economic events (GMT) As of Unit Prior Poll Actual 11:00 UK BoE QE Bn 375 375 375 11:45 EZ ECB rate decision % 0.5 0.5 0.5 14:00 US ISM, manufacturing Jul Index 50.9 52.0 55.4 As of Unit Prior Poll DNB Todays key economic events (GMT) 08:00 Norway Reg. unemployment nsa Jul % 2.5 2.8 2.8 12:30 USA Non-farm payrolls Jul 1000 195 184 207 12:30 USA Unemployment rate Jul % 7.6 7.5

Norw ay: 10y Gov't Bond

2.8 2.6 2.4 2.2 2.0 05-Jul
Rate

125

105
85 19-Jul

65 02-Aug
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
02.08.2013

3m LIBOR
0.155 0.150 0.145 0.140 0.135 0.130 0.28 0.27 0.27 0.26 0.26 02-Aug
USD (rha)

05-Jul
EUR

19-Jul

Oil price & NOK TWI

98 97 96 95 94 93 110

105
100

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 98.40 1.3273 0.8753 7.4548 8.6567 1.2319 7.8435 5.9104 6.01 90.70 105.26 8.966 6.372

Today 99.63 1.3211 0.8739 7.4553 8.7245 1.2384 7.8635 5.9535 5.98 90.25 105.52 9.000 6.353

Spot rates and forecasts In 1m Oct-13 Jan-14 1.3 98 102 107 -0.5 1.30 1.26 1.30 -0.2 0.85 0.85 0.86 0.0 7.45 7.45 7.45 0.8 8.55 8.45 8.50 0.5 1.24 1.25 1.27 0.3 7.80 7.70 7.70 0.7 6.00 6.11 5.92 -0.5 6.12 5.99 5.54 -0.5 91.2 91.1 90.6 0.2 104.7 103.4 103.4 0.4 9.18 9.06 8.95 -0.3 6.29 6.16 6.06

Jul-14 FX 0700 110 AUD 1.32 CAD 0.87 CHF 7.45 CZK 8.60 RUB 1.30 GBP 7.70 HKD 5.83 KWD 5.30 LTL 89.5 LVL 103.4 NZD 8.85 SEK 5.92 SGD

USD 0.891 1.035 0.937 19.687 33.089 1.512 7.757 0.285 2.614 0.532 0.789 6.604 1.276

NOK 5.305 5.749 6.353 30.234 17.988 9.000 0.767 20.867 2.277 11.184 4.698 90.250 4.664

05-Jul

19-Jul

95 02-Aug
USD/b (rha)

NOK TWI

US dollar 6.4 6.2 6.0 5.8 5.6

05-Jul 19-Jul
USDNOK

1.35 1.33 1.31 1.29 1.27 1.25 02-Aug

EURUSD(rha)

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

Prior 1.64 1.72 1.78 1.92 2.14 2.57 2.96 3.30

Last 1.63 1.72 1.78 1.92 2.14 2.58 2.96 3.30

Interest rates SEK Prior Last USD 1m 1.10 1.10 1m 3m 1.19 1.19 3m 6m 1.28 1.28 6m 12m Invalid Invalid RIC(s): RIC. STISEK1YDFI= 12m 3y 1.66 1.66 3y 5y 2.08 2.08 5y 7y 2.38 2.38 7y 10y 2.64 2.64 10y

Prior 0.19 0.27 0.40 0.67 0.76 1.54 2.19 2.79

Last 0.19 0.27 0.40 0.67 0.81 1.64 2.28 2.87

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

Prior 0.08 0.15 0.26 0.47 0.73 1.18 1.55 1.98

Last 0.08 0.15 0.26 0.47 0.74 1.20 1.58 2.00 Last 98.40 1.68 -1.03 10y sw ap 1.75 1.75 2.00

102.0 100.0
98.0

Japanese yen

96.0 05-Jul
USDJ PY

19-Jul

7.0 6.5 6.0 5.5 5.0 02-Aug

Norw ay Prior NST475 94.01 10y yld 2.70 - US spread 0.11 3m nibor 1.55 1.55 1.55

Norw ay Oct-13 Jan-14 Jul-14

Governm ent bonds Last SEK Prior Last US Prior 94.13 10y 93.77 93.76 10y 92.72 2.69 10y yld 2.18 2.19 10y yld 2.60 -0.02 - US spread -0.41 -0.53 30y yld 3.66 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.00 3.00 3.25 Oct-13 Jan-14 Jul-14 1.25 1.25 1.25 2.25 2.25 2.50 Oct-13 Jan-14 Jul-14 0.30 0.35 0.35

Last Germany Prior 91.75 10y 98.51 2.71 10y yld 1.67 3.76 - US spread -0.93 10y sw ap 2.25 2.25 2.50 3m euribor 0.20 0.25 0.20

Germany Oct-13 Jan-14 Jul-14

JPYNOK(rha)

SEKNOK & CHFNOK

93 6.6

91
89

6.4
6.2

87 05-Jul
SEKNOK

19-Jul

6.0 02-Aug
CHFNOK (rha)

Equities
16200 15700 15200 14700 14200 13700 05-Jul 19-Jul 02Aug
Os lo (rha) Dow Jones

510 500 490 480 470 460 450

NOK sov. NST21 NST22 NST23 NST471 NST472 NST475 NST475 NST475 NOK FRA SEP DEC MAR JUN

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.49 1.44 -5 18.12.2013 0.38 Last 95.15 95.05 1.42 1.44 2 19.03.2014 0.63 Oil price: (Ldn,cl) 1m 1.52 1.50 -2 18.06.2014 0.88 SPOT 110.83 109.71 1.49 1.49 0 15.05.2015 1.78 Gold price 01.08.2013 PM 1.75 1.75 0 19.05.2017 3.80 AM: 1314.5 1315.0 2.69 2.67 -2 24.05.2023 9.81 Equities Today 0700 % last 2.69 2.67 -2 24.05.2023 9.81 Dow Jones 15628.02 0.8% 2.70 2.69 -1 24.05.2023 9.81 Nasdaq C. 3675.74 1.4% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6681.98 0.9% 1.71 1.80 1m 1.75 1.63 Eurostoxx50 2808.64 1.5% 1.70 1.81 3m 1.82 1.72 DAX 8410.73 1.6% 1.73 1.84 6m 1.87 1.78 Nikkei 225 14436.06 3.1% 1.77 1.93 12m 2.00 1.92 OSEBX 497.77 0.5% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
02.08.2013
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