Morning Report

29.11.2011

OECD wants action

NOK & 3m NIBOR 8.00 7.80 7.60 3.50 3.30 3.10

The market hopes that euro leaders will deliver - eventually. The euro has strengthened since yesterday morning, and stock markets have risen worldwide. The market participants seem optimistic regarding the results of Merkel and Sarkozy's efforts to ensure fiscal integration between euro members. If Merkel succeeds it would be easier for Germany to agree to use ECB to solve Italy's funding problems in the short run. It was hardly a surprise that Obama used the opportunity to urge Europe top officials Van Rompuy and Barroso to act quickly and decisively in order to solve the crisis when they met in Washington yesterday. Meanwhile, Obama was given notice by Fitch that the US credit rating was put on "negative outlook" list. This contributed to a reversal of the rise in US long-term government bond yields earlier that day. Today financial ministers in the euro zone meet to agree upon the rules for the planned scale-up of the EFSF fund. The payment of the next lending tranch to Greece and Ireland is probably also on the agenda. The Italian 10-year gov'nt bond yield has edged down, to 7.3 per cent. Today Italy plans to auction bonds amounting to 8 bn euros. OECD's new Economic Outlook Report concludes that the economic outlook has deteriorated significantly since the previous report in May. Industrial countries are now expected to grow by 1.6 per cent in 2012, a downward adjustment from 2.8 per cent in May. The largest downward revision is done for the euro zone, which is considered to be in a "mild recession". 2012 growth is expected to be 0.2 per cent. OECD's main scenario is conditional on banking and government debt problems being curbed, monetary policy being eased further in countries in which this is possible (i.e. euro zone) and avoiding dramatic and sudden fiscal contractions. Euro leaders have to deliver a quick, credible and significant increase in the firepower of EFSF, for instance by the help of ECB's balance sheet. OECD states that "alternative scenarios are possible, and may be even more likely than the baseline". All countries should be prepared to face the worst case scenario. This is the gloomy backdrop of the biannual Financial Stability Reports published both in Sweden and in Norway today. There is little doubt that the executive boards' assessment will be that the financial system has become more vulnerable since the previous reports, given the turbulence in financial markets and the deterioration of the economic outlook. The recurring issue of debt-ridden households, and the negative spillover effect these may inflict on economy and the financial system has hardly become less relevant in Norway's case. IMF's recent report on the Norwegian economy put considerable weight on this risk, and recommended stricter regulation measures in order to curb house price and credit growth. We expect household credit growth to edge further up in today's release, to 6.7 per cent y/y. A decline in credit growth to enterprises and municipalities is expected to lead to a decline in total C2, to 6.6 per cent. Yesterday's US new home sales release was disappointing, with only 307' sales in October. Moreover September sales were adjusted downwards by 10' units. A disappointing retail trade survey (CBI) from the UK probably contributed to weakening the pound sterling yesterday. Reported sales fell from -11 to -19, which is the lowest level since March 2009. Swedish retail sales rebounded somewhat (+0.4 per cent m/m) in October, after three consecutive months of decline. The statistics is highly volatile, and underlying growth is still negative. Falling sales in Q3 is the reason why we do not expect any contribution from private consumption in today's GDP release from Sweden. We expect a 0.3 per cent q/q rise in Q3, which is in line with consensus, but slightly weaker than the Riksbank's estimate (0.5 per cent). Today's most important macro release is US consumer confidence (CB), which has dropped steeply this autumn from a level that already was very weak. The index was at 39.8 in October, and is expected to rebound to 43.0 in November. The European Sentiment Index is expected to decline, due to weaker confidence among households as well as enterprises. kjersti.haugland@dnb.no

2.90 7.40 19-Oct 8-Nov 28-Nov

3m ra. EURNOK

SEK & 3m STIBOR 9.5 9.3 9.1 8.9 19-Oct 8-Nov 2.70 2.65 2.60 2.55 2.50 2.45 28-Nov
EURSEK

3m ra.

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850

Sales Oslo (+47) Equity Fixed Income FX/IR

22 94 89 40 22 01 78 20 22 01 76 50

Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

55 21 95 80 75 55 87 60 69 39 41 50 61 05 14 69 52 72 09 06 61 27 32 27 38 07 28 62 22 01 76 50 51 84 04 30 77 62 96 80 73 58 74 89 33 01 73 80 70 11 69 85

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

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 76 64 22 01 77 41 22 01 76 67

Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 78 37 22 01 77 62 22 01 76 93 22 01 76 77 22 01 77 36 22 01 78 15

Yesterday's key economic events (GMT) 08:30 Sweden Retail trade 15:00 USA New home sales Todays key economic events (GMT) 07:30 Sweden GDP 09:00 EMU Sentiment Index 04:00 US Consumer confidence

As of Oct Oct As of Q3 Nov Nov

Unit m/m % Mil Unit q/q % Index Index

Prior -0.4r 0.303 Prior 0.9 94.8 39.8

Poll 0.1 0.315 Poll 0.3 94.0 43.0

Actual 0.4 0.307 DNB 0.3

Morning Report
29.11.2011

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 120 115 110 105 100 19-Oct 100 98 96 8-Nov 94 28-Nov
$/b

NOK TWI ra.

EUR vs GBP & CHF 0.89 0.88 0.87 1.15 0.86 0.85 1.10 19-Oct 8-Nov 28-Nov 1.25 1.20
GBP r.a CHF

FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK

Prior 77.97 1.331 0.859 1.229 7.861 9.288 7.439 5.905 7.570 0.847 9.155 6.977 8.948 1.183 10.818

Last 77.98 1.334 0.860 1.229 7.847 9.268 7.439 5.883 7.550 0.847 9.126 6.950 8.918 1.182 10.779

% 0.0% 0.2% 0.2% 0.0% -0.2% -0.2% 0.0% -0.4% -0.3% 0.0% -0.3% -0.4% -0.3% -0.2% -0.4%

In 1 m ...3 m 80 80 1.35 1.35 0.86 0.86 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 5.78 5.78 7.22 7.22 0.85 0.86 9.1 9.1 6.81 6.74 5.45 5.39 1.18 1.17 10.70 10.58

...6 m ...12 m 80 90 1.30 1.25 0.84 0.82 1.23 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 0.9954 1.0340 0.9217 19.29 5.5764 1.5514 7.7936 119.91 0.2774 2.5886 0.5228 0.7566 3.3873 1.3004 31.3501

% 0.61% -0.17% -0.14% -0.27% -0.20% 0.05% -0.03% -0.22% 0.00% -0.22% -0.21% 0.25% -0.76% -0.18% -0.14%

EURSEK & OMXS 9.4 9.2 9.0 8.8 19-Oct 8-Nov 500 450 400 350 28-Nov

O MXS ra. EURSEK

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

NIBOR Prior 2.82 3.24 3.31 3.36 3.03 3.39 3.63 3.84

SWAP AND M ONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.78 2.38 2.38 1.13 3.25 2.65 2.66 1.42 3.34 2.68 2.68 1.66 3.36 2.75 2.75 1.84 3.00 1.86 1.78 1.70 3.36 2.07 2.00 2.11 3.59 2.31 2.23 2.42 3.80 2.42 2.34 2.72

Las t 1.13 1.42 1.66 1.84 1.73 2.13 2.44 2.72

USD LIBOR P rior 0.26 0.52 0.73 0.89 0.92 1.37 1.77 2.17

Last 0.26 0.52 0.74 0.90 0.92 1.36 1.79 2.18

Gov. Bonds, 10y 2.80 2.60 2.40 1.75 2.20 1.50 2.00 19-Oct 8-Nov 28-Nov 2.25 2.00
NOK , ra. S EK

10y 10y yield vs bund

NORWAY Prior Last 115.3 110.65 2.36 2.47 0.12 0.22

GOVERNM ENT BONDS US SWEDEN GERMANY Prior Last Prior Las t P rior 117.043 117.04 97.254 97.71 100.26563 1.72 1.71 2.24 2.26 1.97 -0.52 -0.54 -0.27

Last 100.14 1.99 -0.26

JPY and DowJones 13 12 11 10 19-Oct 79 77 8-Nov 75 28-Nov

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m s tibor 10y swap 3m euribor 10y swap 3.00 4.25 2.20 3.00 1.30 3.00 2.80 4.50 2.10 3.25 1.10 3.25 3.10 4.50 2.00 3.25 1.05 3.25

US 3m libor 10y swap 0.55 2.75 0.55 3.00 0.50 3.25

USDJPY ra. DowJones, 1000

USD and gold 2000 1.47 1900 1.42 1800 1700 1.37 1600 1500 1.32 19-Oct 8-Nov 28-Nov
EURUSD ra. Gold

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

3m 3.05 2.67 2.44 2.42 3m 2.62 2.03 1.66 1.48

Prior 3.07 2.67 2.45 2.43 Prior 2.62 2.05 1.69 1.51

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

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 98.12 - 0.14 Dow Jones 11,523.0 2.6% SEK 122.40 0.06 Nasdaq 2,527.3 3.5% EUR 105.48 0.08 FTSE100 5,312.8 2.9% USD 79.08 - 0.12 Eurostoxx50 2,221.8 5.2% GBP 0.00 - 100.0 Dax 5,745.3 4.6% Comm. Today Last Nikkei225 8,477.8 0.0% Brent spot 110.0 110.0 Oslo 366.39 3.9% Brent 1m 108.8 109.0 Stockholm 423.30 4.1% Spot gold 1714.0 1714.0 Copenhagen 479.07 2.3% Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
29.11.2011
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