Morning report

Fragile optimism
28-Sep-2011
Optimism continued to dominate markets yesterday, with investors awaiting "the big debt rescue". Stock markets rose markedly, long government bond yields pulled up, and the euro and the Scandies strengthened. The upturn may prove to be fragile in the short term, as euro leaders obviously struggle to agree on core issues. The European debt problem is dominating markets these days. Not so strange: If large countries' borrowing costs (i.e. Spain and Italy) get out of control, it may lead to a European banking crisis, a euro split-up and another recession. Optimism has come back in the past two days, as a reaction to signals about a "big debt rescue". Stock markets have risen considerably; while save havens like US and German government debt have lost value. EURUSD is currently trading just below 1,36. The Norwegian and Swedish krone have strengthened even more. The previous debt crisis package, announced on 21 July, is clearly not extensive enough. Neither is it passed in the national parliaments yet: the euro sceptics in Finland will vote over the issue today, tomorrow it is Germany's turn. Euro members' costs are calculated to be 109 bn euros, while private investors agreed to arrangements involving losses of about 20%. Since July the value of Greek government debt has fallen substantially. Germany and the Netherlands want private investors to take a larger part of the losses, while France and ECB refuse, in fear of vast adverse consequences for the banking sector. Representatives from the Troika (EU, ECB and IMF) arrive in Greece tomorrow. They will conclude on whether the country is doing enough to ensure the payment of its sixth loan tranch (8 bn euros). The payment was originally planned to be voted over on Monday, but Financial Times reports that the decision may be postponed for two weeks. At that time, the Greek government will be about to run out of money. Greek politicians have not delivered on their promises to reduce the public deficit to 7.6% this year. This made the Troika representatives leave Athens earlier this month. Since then new plans have been put to the table: one fifth of the public labour force will be cut, as well as one fifth of public wages. Pensions will be cut by 14 per cent, instead of 10 per cent as was originally planned. And while Greek workers were on strike (including tax collectors!) the parliament adopted a highly unpopular property tax yesterday. On the other side of the Atlantic consumers remain pessimistic, weighed by a gloomy labour market, a depressed housing market, still-high fuel expenses and a drop in their financial wealth due to the recent stock market plunge. CB consumer confidence took a dive in August, and barely recovered this month (+0.2 p). The level is far below normal, pointing to an annual drop of 1% in consumption. Consumption has, however, been stronger than implied by this index for some time. August private consumption will be released on Friday, and consensus is for a 0.2% m/m rise. The Swedish economy seems to have put on the brakes during the past few months. The improvement in the labour market is slower, consumers are restrained, house prices are falling, reports from manufacturing purchasing managers are weaker (PMIs indicate a q/q-drop in Q3 GDP), and export growth has waned. NIER's confidence indexes for consumers and enterprises are released today, and a further deterioration is expected. According to deputy central bank governor berg the new interest rate path indicates that the next hike will come either in October or in December. We expect that it will be delayed until February next year. Kjersti.haugland@dnbnor.no

NOK & 3m NIBOR

8.00 7.80 7.60 7.40 18-Aug 7-Sep 3m ra. 3.20 3.10 3.00 2.90 27-Sep EURNOK

SEK & 3m STIBOR

9.5 9.3 9.1 8.9 8.7 18-Aug 7-Sep 2.65 2.60 2.55 2.50 2.45 27-Sep EURSEK

3m ra.
Headquarters 0021 Oslo Stranden 21 Offices Abroad New York London Shanghai Singapore Stockholm Sales Oslo (+47) Equity Fixed Income FX/IR Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund +47 03000

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850 22 94 89 40 22 01 78 20 22 01 76 50 55 75 69 61 52 61 38 22 51 77 73 33 73 21 55 39 05 72 27 07 01 84 62 58 37 84 95 87 41 14 09 32 28 76 04 96 74 13 60 80 60 50 69 06 27 62 50 30 80 89 00 09

Research Regional Sales (+47) Eirik Larsen 22 01 76 55 Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Maren Romstad Camilla Viland Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen 22 22 22 22 22 22 22 22 22 22 22 22 22 01 01 01 01 01 01 01 01 01 01 01 01 01 76 78 78 76 76 77 76 78 77 76 76 77 78 56 03 24 63 64 41 67 37 62 93 77 36 15

Yesterday's key economic events (GMT) 06:00 Germany GfK Consumer confidence 13:00 US Case-Shiller house prices 14:00 US Consumer confidence, CB Todays key economic events (GMT) 07:15 Sweden Business confidence 07:15 Sweden Consumer confidence 12:30 US Orders, excl transports 12:30 US Orders, durable goods

As of Oct Jul Sep As of Sep Sep Aug Aug

Unit Index m/m % Index Unit Index Index m/m % m/m %

Prior 5.2 0.0 45.2r Prior 9.0 4.3 0.8 4.1

Poll Actual 5.0 5.2 0.1 0.0 46.0 45.4 Poll DnB NOR 6.0 2.0 0.2 -0.5

28-Sep-2011

Morning report

Oil spot & NOK TWI

130 110 90 70 18-Aug 7-Sep NOK TWI ra. 100 98 96 94 27-Sep $/b

SPOT RATES AND FORECASTS (Source: Reuters and DnB NOR Markets)
FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK Prior 76.84 1.359 0.869 1.219 7.831 9.196 7.443 5.765 7.509 0.853 9.007 6.768 8.816 1.174 10.574 Last 76.54 1.357 0.868 1.221 7.827 9.189 7.442 5.768 7.537 0.853 9.021 6.769 8.847 1.175 10.593 % -0.4% -0.1% -0.1% 0.2% -0.1% -0.1% 0.0% 0.1% 0.4% 0.0% 0.2% 0.0% 0.4% 0.1% 0.2% In 1 m ...3 m 80 80 1.35 1.35 0.86 0.86 1.20 1.20 8.00 7.80 9.30 9.10 7.45 7.45 5.93 7.41 0.86 9.3 6.89 5.51 1.16 10.81 5.78 7.22 0.86 9.1 6.74 5.39 1.17 10.58 ...6 m ...12 m 80 90 1.30 1.25 0.84 0.82 1.20 1.25 7.70 7.70 9.00 9.00 7.45 7.45 5.92 6.16 7.40 6.84 0.86 0.86 9.2 9.4 6.92 7.20 5.54 6.48 1.17 1.17 10.71 10.98 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 0.9874 1.0252 0.8996 18.07 5.4851 1.5638 7.7957 118.08 0.2772 2.5445 0.5230 0.7854 3.2384 1.2895 31.8460 % -0.31% 0.52% 0.35% 0.28% 0.18% 0.02% -0.04% 0.10% 0.06% 0.13% 0.15% -0.46% 0.19% 0.44% 0.26%

EUR vs GBP & CHF

1.25 1.20 1.15 1.10 1.05 18-Aug 7-Sep GBP r.a 0.89 0.87 0.85 0.83 0.81 27-Sep CHF

Gov. Bonds, 10y

2.25 2.00 1.75 1.50 18-Aug 7-Sep NOK, ra. 3.00 2.50 2.00 1.50 27-Sep SEK

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

SWAP AND MONE YM ARKET RATES (Source: Reuters) NIBOR STIBOR EURIBOR Prior Last Prior Last Prior Las t 2.84 2.83 2.32 2.32 1.29 1.29 3.06 3.09 2.51 2.51 1.49 1.49 3.29 3.31 2.53 2.53 1.70 1.70 3.41 3.41 2.58 2.58 1.85 1.86 2.89 2.91 2.02 2.00 1.64 1.56 3.28 3.25 2.29 2.23 2.01 1.96 3.52 3.50 2.48 2.45 2.28 2.26 3.73 3.70 2.59 2.56 2.55 2.54 GOVE RNMENT BONDS (Source: Reuters) NORWAY SWEDEN GERMANY Prior 115.35 2.38 0.45 Last 111.05 2.45 0.52

USD LIBOR P rior 0.24 0.36 0.54 0.69 0.69 1.22 1.69 2.13 US

Last 0.24 0.37 0.54 0.69 0.70 1.23 1.69 2.14

JPY and DowJones

14 12 10 8 18-Aug 7-Sep USDJPY ra. DowJones, 1000 78 77 76 75 27-Sep

10y 10y yield vs bund

In 3m 6m 12m
1.49 1.44 1.39

NORWAY 3m nibor 10y swap 3.05 4.25 3.20 4.50 3.50 4.50

Prior Last Prior Las t P rior Last 115.659 115.66 102.656 102.91 101.29688 101.45 1.87 1.87 1.93 1.93 1.98 1.97 -0.05 -0.06 0.05 0.05 INTEREST RATE FORECASTS SWEDEN GERMANY US 3m s tibor 10y swap 3m euribor 10y swap 3m libor 10y swap 2.50 3.00 1.50 3.00 0.35 3.00 2.75 3.25 1.50 3.25 0.35 3.25 2.90 3.25 1.50 3.25 0.35 3.25

2000 1900 1800 1700 1600 1500 18-Aug

USD and gold

7-Sep

1.34 27-Sep Gold

EURUSD ra.

EURSEK & OMXS

9.4 9.2 9.0 8.8 18-Aug 7-Sep OMXS ra. 450 430 410 390 370 350 27-Sep EURSEK

FRA NOK DEC MAR JUN SEP FRA SEK DEC MAR JUN SEP

3m 2.70 2.43 2.40 2.40 3m 2.05 1.76 1.69 1.71

Prior 2.70 2.45 2.42 2.42 Prior 2.06 1.76 1.72 1.72

chg 0.00 -0.02 -0.02 -0.02 chg -0.01 -0.01 -0.03 -0.01

TWI NOK SEK EUR USD GBP Comm. Brent spot Brent 1m Spot gold

Today 97.88 121.19 106.17 77.82 79.50 Today 111.9 106.4 1659.0

% - 0.17 0.27 - 0.10 0.05 Last 111.8 107.1 1659.0

Stock ex. Today Dow Jones 11,190.7 Nasdaq 2,546.8 FTSE100 5,294.1 Eurostoxx50 2,194.0 Dax 5,628.4 Nikkei225 8,615.7 Oslo 351.49 Stockholm 422.68 462.84 Copenhagen

% 1.3% 1.2% 4.0% 5.3% 5.3% 0.0% 3.5% 5.9% 4.1%

Morning report
28-Sep-2011
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