Morning Report

19.12.2011

Growth weakens in China

NOK & 3m NIBOR 8.00 7.80 7.60 7.40
3m ra.

Draghi warns of the consequences of a break in the euro zone, while house prices fall in China.
3.50 3.30 3.10 2.90

8-Nov 28-Nov 16-Dec

EURNOK

SEK & 3m STIBOR 9.5 9.3 9.1 8.9

3m ra.

2.80 2.70 2.60 2.50 2.40

EURSEK

This weekend the European central bank governor, Mario Draghi made his first interview since he took over from Jean-Claude Trichet earlier this year. In the interview where Draghi openly discusses the crisis in the euro zone, he says that that "you never know how it really ends," before further claiming that the countries that withdraw from the common currency still faces several economic challenges, and that they are in a far worse position to solve them outside a monetary union, than within. What Draghi says is not in itself a surprise, but that he now chooses to discuss the topic openly marks a new direction that symbolizes the seriousness of the situation in Europe. The statements may have a negative effect on the markets. Asian stock markets have opened down this morning, but this is probably also related to the death of Kim Jong-Il, which probably creates a fear for the political future on the Korean peninsula. In the currency markets the euro has depreciated slightly against the dollar, while the Norwegian krone has appreciated by 0.5% against the euro and 0.2% against the dollar. Official data from the Chinese housing market showed Sunday that housing prices fell by its most so far in 2011. The data, which is based on 70 Chinese cities, showed that prices fell in 49 cities from October to November, while price increased in only five cities. The contraction in prices came after the authorities for an extended period has tightened conditions in the housing market. Among other things, it has introduced stricter requirements for capital and down-payments, next to the restrictions associated with the number of units a family can own. Due to limitations in saving alternatives and negative real interest rates on bank deposits, the Chinese have invested a larger share of their savings in housing. Reduced activity in the housing market is one of the reasons why we expect weaker economic growth in China in 2012, down from 8% compared to 9% in 2011. As you enter the 2012 real estate contractors are at their most pessimistic since the financial crisis, according to data from the national statistics agency. Aside from the government's plans to build 10 million low cost-units in 2011, growth in building activity appears to be slowing. This will have negative spillover effects to other related sectors, and in sum, this indicates reduced investment growth going forward. The question we ask now is how the Chinese government responds to this development. So far there have been few signs indicating relaxed restrictions in the housing market, and it seems to be a political desire and goal to get the prices further down. Considering that the reduced activity primarily is a result of tighter policy, we are less concerned that the housing market is a bubble which is about to burst, at least in the short term. The underlying growth in demand in China's cities remains strong, partly due to a high urbanization rate, and partly because the middle class is expanding and thus also demanding a higher living standard. If house prices fall too much in the coming months the government has the opportunity to curb the trend by introducing a somewhat milder policy relating to house purchases. However, there appears to be changes in other Chinese markets. On Friday the government announced that it will expand opportunities for international investors to invest in the Chinese stock market. The pilot project, where investors holding yuan outside of China will be allowed to invest in the Chinese market, should be considered as part of a process in which the yuan's role in the international currency market will be strengthened. It remains to be seen what effect this will have in today's markets. The volume of yuan used in international trade accounts for only a small proportion of China's total trade, and although the offshore market for yuan in Hong Kong has been a success since its beginning in 2009, the market has in part been dominated by Chinese state-owned companies, while international enterprises have been more hesitant. Still, the initiative is welcomed and is a step in the right direction towards a fully convertible yuan, something the government wants to be in place by 2015. There were few other figures of interest that were released Friday. In Norway consumer confidence fell further, according to Opinion ForbukerMeteret. According to the survey, confidence in households own economy actually strengthens, while confidence in the nation's economy weakens. In the U.S., consumer prices fell by 0.1 percentage point to 3.4% in November, and we expect that inflation will fall further in coming months. ole.kjennerud@dnb.no As of Unit Prior Poll Actual Yesterday's key economic events (GMT) 13:30 US CPI, core Nov m/m % 0.1 0.2 0.2 13:30 US CPI, total Nov m/m % -0.1 0.1 0.0 Todays key economic events (GMT) 15:00 US NAHB Housing mrk. indx As of Dec Unit m/m % Prior 20 Poll 20 DNB

8-Nov 28-Nov 16-Dec

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Morning Report
19.12.2011

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 118 112 106 100 8-Nov 100 98 96 94 28-Nov 16-Dec
$/b

NOK TWI ra.

EUR vs GBP & CHF 0.87 0.86 1.20 0.85 1.15 0.84 1.10 0.83 8-Nov 28-Nov 16-Dec 1.25
GBP r.a CHF

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

Prior 77.79 1.304 0.840 1.221 7.774 9.026 7.431 5.964 7.668 0.863 9.273 6.925 8.908 1.164 10.752

Last 77.92 1.301 0.840 1.220 7.780 9.030 7.431 5.979 7.673 0.862 9.262 6.942 8.905 1.162 10.752

% 0.2% -0.2% 0.0% -0.1% 0.1% 0.0% 0.0% 0.2% 0.1% -0.1% -0.1% 0.2% 0.0% -0.1% 0.0%

In 1 m ...3 m 80 80 1.30 1.30 0.84 0.84 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 6.00 6.00 7.50 7.50 0.85 0.86 9.3 9.3 7.08 7.00 5.66 5.60 1.18 1.17 10.95 10.83

...6 m ...12 m 80 90 1.25 1.25 0.82 0.82 1.23 1.30 7.70 7.70 9.00 9.00 7.45 7.45 6.16 6.16 7.70 6.84 0.86 0.86 9.4 9.4 7.20 7.20 5.76 6.48 1.17 1.17 10.98 10.98

FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB

USD 0.9930 1.0399 0.9374 19.49 5.7136 1.5496 7.7852 122.70 0.2787 2.6549 0.5364 0.7602 3.4565 1.3068 32.0380

% -0.41% 0.17% 0.11% 0.15% 0.20% -0.16% -0.02% 0.17% 0.03% 0.24% 0.21% -0.11% 0.12% 0.19% 0.07%

EURSEK & OMXS 9.4 9.2 9.0 8.8 8-Nov 500 450 400 350 28-Nov 16-Dec
OMXS ra. EURSEK

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

N IBOR Prior 2.86 2.96 3.10 3.19 2.76 3.06 3.26 3.46

SWAP AN D MON EYM ARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.81 2.45 2.43 1.06 2.97 2.75 2.74 1.35 3.08 2.78 2.77 1.61 3.23 2.82 2.81 1.80 2.78 1.83 1.83 1.46 3.06 1.94 1.93 1.82 3.27 2.14 2.12 2.12 3.47 2.26 2.22 2.42

Last 1.06 1.35 1.61 1.80 1.41 1.80 2.13 2.43

USD LIBOR Prior 0.28 0.56 0.78 0.94 0.81 1.22 1.63 2.02

Last 0.28 0.56 0.79 0.95 0.82 1.23 1.63 2.02

Gov. Bonds, 10y 2.00 1.75 1.50

NOK, ra.

3.00 2.50 2.00 1.50

SEK

8-Nov 28-Nov 16-Dec

10y 10y yield vs bund

N ORWAY Prior Last 117.35 113.50 2.16 2.15 0.27 0.29

GOVERNM ENT BON DS SWEDEN GERMANY US Prior Last Prior Last Prior 118.209 118.21 101.22 101.25 101.34375 1.59 1.59 1.89 1.86 1.85 -0.29 -0.27 -0.04

Last 101.47 1.85 -0.02

13 12 11

JPY and DowJones

10 8-Nov

28-Nov

79 78 77 76 75 16-Dec

In 3m 6m 12m

INTEREST RATE FORECASTS N ORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.60 3.50 2.25 2.25 1.05 2.50 2.40 3.75 1.95 2.50 0.90 2.75 2.30 4.25 1.75 3.00 0.90 3.25

US 3m libor 10y 0.55 0.55 0.50

swap 2.25 2.50 3.00

USDJPY ra. DowJones, 1000

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 8-Nov 28-Nov 16-Dec
EURUSD ra. Gold

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

3m 2.62 2.31 2.21 2.23 3m 2.75 1.75 1.54 1.54

Prior 2.99 2.62 2.32 2.22 Prior 2.74 2.17 1.74 1.53

chg -0.37 -0.31 -0.11 0.01 chg 0.01 -0.42 -0.20 0.01

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 97.25 Dow Jones 11,866.4 0.0% SEK 119.51 Nasdaq 2,555.3 0.6% EUR 103.07 - 0.10 FTSE100 5,387.3 -0.3% USD 80.34 0.24 Eurostoxx50 2,202.7 -1.0% GBP 0.00 - 100.0 Dax 5,701.8 -0.5% Comm. Today Last Nikkei225 8,296.1 0.0% Brent spot 105.0 105.0 Oslo 366.98 0.5% Brent 1m 102.7 103.4 Stockholm 427.83 -0.9% -0.3% Spot gold 1594.0 1594.0 Copenhagen 481.23 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
19.12.2011
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