Morning Report

16.02.2012

War of words
NOK & 3m NIBOR 8.00 7.80 7.60 7.40
3m ra.

Germany wants to postpone Greek elections. The Riksbank is likely to cut rates again today.
3.20 2.90 2.60 2.30

6-Jan 26-Jan 15-Feb

EURNOK

While European stock markets rose yesterday, the market sentiment deteriorated throughout the day, and risk aversion rose. US stock markets fell and Asian markets have continued down during the night. Long German and US government bond yields have dipped by about 5 basis points since yesterday morning. The euro has weakened considerably against the dollar. The main reason: war of words between the Greeks and the European lenders on terms for payment of the aid package of 130 billion euros. Samaras, the leader of New Democracy and the likely winner of Greek elections in April, finally sent European leaders the letter in which he promised to implement the recently adopted austerity measures. However, the letter contained the sentence "(.) policy modifications might be required", which spurred the recipients' irritation. Germany, Netherlands and Finland, which still has top credit ratings, seem to have lost patience with the Greeks. The recent improvements in financial markets, due to the ECB's long-term liquidity operations, have clearly made them less afraid of the consequences of a hard line. The German Finance Minister Schuble yesterday spoke openly about the possibility of postponing the Greek elections and rather establish an apolitical expert government, as in Italy. According to the Financial Times, this possibility was also discussed in the phone conference between the finance ministers of the euro zone yesterday. The Greek President Papoulias called this an insult, and stated that "we have always defended not only the freedom of our own country, but the freedom of Europe." The EuroGroup will meet again on Monday. We might see a temporary solution where enough funds are released for the Greeks to cover its debt repayments on 20 March (14.5 billion euros), while the rest is delayed until after the Greek elections. Euro zone GDP fell by 0.3 percent from the third to the fourth quarter of 2011. The Spanish economy fell by 0.3 percent, the Portuguese by 1.3 percent, the Italian by 0.7 per cent and the German by 0.2 percent. The exception was France, where economic growth picked up by 0.2 percent, mainly due to a significant decline in imports. On the other side of the Atlantic US goods production were disappointing at first glance, but upon closer inspection not bad at all. A large drop in the production of utilities was weighing on growth, while manufacturing production grew by as much as 0.8 percent (and December growth was revised upwards to 1.5 per cent). Also, the recovery in the New York manufacturing managers' index (Empire State) was stronger than expected in February. The minutes from FOMC's January meeting suggest that the probability of further quantitative easing is small, unless the economy weakens again. The pound sterling strengthened against most currencies yesterday after Bank of England published its new Inflation Report. With increased asset purchases (+ 50 billion GDP last week) inflation is now expected to be only marginally below target in two years, and come up to 2 per cent in three years time. That represents a significant upward revision since the last report of November. The markets took this as a sign that the likelihood of further easing is limited. It should be noted, however, that Bank of England's estimate of a pick up in economic growth to three percent at the end of 2013 is far too optimistic in our eyes. We expect another rate cut by 25 basis point at the Riksbank's meeting today. According to Bloomberg only 5 out of 18 respondents expect unchanged interest rates. Today's meeting is the debut of Per Jansson (from the Riksbank's monetary policy department) and Kerstin af Jochnick (former Director of Swedish Bankers Association) at the board. They replace Oberg and Nyberg, where the former was known as the Board's hawk. Higher volatility in markets has contributed to a weakening of the Norwegian krone. Norwegian GDP figures will probably show that the mainland economy was affected by weak foreign demand, constrained households and businesses and tightening in bank lending practice towards the end of 2011. We expect GDP growth to have subsided from 0.8 per cent q/q in Q3 to 0.4 per cent in Q4. Also, central bank governor Olsen's annual address will be followed closely by the markets tonight. kjersti.haugland@dnb.no As of Unit Prior Poll Actual Yesterday's key economic events (GMT) 10:00 EMU GDP Q4 q/q % 0.2 -0.3 -0.3 13:30 USA Empire state (NY Fed) Feb Index 13.5 15.0 19.5 14:15 USA Goods production Jan m/m % 0.4 0.6 0.0 As of Unit Prior Poll DNB Todays key economic events (GMT) 08:30 Sweden CPIF Jan y/y % 0.5 1.1 1.1 08:30 Sweden MPC meeting % 1.75 1.50 1.50 09:00 Norway GDP, mainland Q4 q/q % 0.8 0.4

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 6-Jan

3m ra.

2.70 2.60 2.50 2.40 26-Jan 15-Feb

EURSEK

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 52 9910 69 39 41 50 62 54 14 82 52 72 09 06 61 24 79 56 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 Camilla Viland Kyrre Aamdal

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 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

Morning Report
16.02.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 124 120 116 112 108 104 100 6-Jan
NOK TWI ra.

102 100 98 96 94 26-Jan 15-Feb

$/b

EUR vs GBP & CHF 1.25 1.20 1.15 1.10

GBP r.a

0.85 0.84 0.83 0.82 0.81

CHF

6-Jan 26-Jan 15-Feb

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

Prior 78.36 1.307 0.833 1.207 7.556 8.787 7.433 5.786 7.380 0.861 9.077 6.724 8.581 1.165 10.556

Last 78.70 1.301 0.830 1.207 7.549 8.776 7.433 5.802 7.375 0.861 9.099 6.744 8.578 1.163 10.581

% 0.4% -0.5% -0.3% 0.0% -0.1% -0.1% 0.0% 0.3% -0.1% 0.1% 0.2% 0.3% 0.0% -0.1% 0.2%

In 1 m ...3 m 77 77 1.30 1.30 0.83 0.83 1.23 1.23 7.60 7.75 8.90 9.20 7.45 7.45 5.85 5.96 7.59 7.74 0.85 0.84 9.2 9.3 6.85 7.08 5.27 5.45 1.17 1.19 10.72 11.08

...6 m ...12 m 80 85 1.35 1.40 0.85 0.87 1.23 1.30 7.65 7.65 9.00 9.00 7.45 7.45 5.67 5.46 7.08 6.43 0.85 0.85 9.0 8.8 6.67 6.43 5.33 5.46 1.18 1.18 10.59 10.34

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

USD 1.0673 1.0028 0.9278 19.40 5.7123 1.5678 7.7552 124.26 0.2784 2.6534 0.5375 0.8269 3.2364 1.2690 30.2580

% -0.26% 0.34% 0.48% 0.53% 0.41% -0.14% 0.01% 0.42% 0.05% 0.42% 0.47% -0.95% 0.45% 0.43% 0.71%

EURSEK & OMXS 9.0 8.9 8.8 8.7 6-Jan

OMXS ra. EURSEK

550 500 450 400 350 26-Jan 15-Feb

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

NIB OR Prior 2.27 2.68 3.04 3.24 2.91 3.18 3.41 3.63

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.26 2.21 2.19 0.56 2.67 2.48 2.46 0.98 3.03 2.61 2.60 1.31 3.21 2.67 2.66 1.49 2.89 1.91 1.90 1.22 3.16 2.05 2.04 1.57 3.40 2.26 2.23 1.93 3.62 2.43 2.44 2.29

Last 0.56 0.98 1.30 1.49 1.22 1.56 1.92 2.28

USD LIBOR Prior 0.25 0.50 0.75 0.90 0.65 1.06 1.52 2.00

Last 0.25 0.50 0.75 0.90 0.66 1.06 1.52 2.00

Gov. Bonds, 10y 2.00 1.75 1.50

NOK, ra.

3.00 2.50 2.00 1.50

SEK

6-Jan 26-Jan 15-Feb

10y 10y yield vs bund

NORWAY Prior Last 114.56 111.05 2.46 2.40 0.58 0.57

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 115.606 115.46 101.246 101.49 100.60938 1.84 1.84 1.88 1.83 1.93 -0.04 0.00 0.05

Last 100.77 1.93 0.09

14 13 12 11 10

JPY and DowJones

6-Jan

26-Jan

79 78 77 76 75 15-Feb

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.65 3.50 2.40 2.25 1.05 2.50 2.55 3.75 2.20 2.50 1.05 2.75 2.45 4.25 2.00 3.00 1.05 3.25

US 3m libor 10y swap 0.50 2.25 0.50 2.50 0.50 3.00

USDJPY ra. DowJones, 1000

USD and gold 1.42 1900 1.38 1800 1.34 1700 1.30 1600 1.26 1500 6-Jan 26-Jan 15-Feb
EURUSD ra. Gold

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

3m 2.60 2.42 2.44 2.45 3m 2.25 1.96 1.75 1.69

Prior 2.62 2.46 2.45 2.46 Prior 2.26 1.96 1.77 1.70

chg -0.02 -0.04 -0.01 -0.01 chg -0.01 0.00 -0.02 -0.01

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 94.40 - 0.12 Dow Jones 12,781.0 -0.8% SEK 116.35 0.06 Nasdaq 2,915.8 -0.5% EUR 102.57 - 0.21 FTSE100 5,892.2 -0.1% USD 79.93 0.29 Eurostoxx50 2,494.0 0.2% GBP 81.30 0.2 Dax 6,757.9 0.4% Comm. Today Last Nikkei225 9,238.1 0.0% Brent spot 121.7 121.7 Oslo 419.84 1.2% Brent 1m 119.1 118.9 Stockholm 497.38 1.3% 2.4% Spot gold 0.0 1733.0 Copenhagen 585.73 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
16.02.2012
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