Morning Report

10.05.2012

Spain takes large stake in Bankia

NOK & 3m NIBOR 7.70 7.60 7.50 7.40 7.30
3m ra.

2.40 2.35 2.30 2.25 2.20

EURNOK

Risk appetite is still falling. Spanish authorities take a large stake in Bankia, while the Greeks have not yet managed to form a government. Norges Bank is likely to sit still at todays meeting. Stock markets (with Germany as an exception) fell further yesterday, and the VIX index, an indicator of market turmoil, rose. Italian and Spanish government bond yields have risen further. 10-year yields are now 5.9 and 6.2 percent, respectively. Political uncertainty weighs on the euro, which has declined by a further 0.2 percent against the dollar since yesterday morning (1.29). The NOK has rebounded slightly. Safe havens remain popular. Rumours are that several large banks have exited their "long EURCHF" positions, which suggests that they see a risk of breaking below 1.20. We still believe that the central bank will be able to defend the floor, but with successive waves of unrest the EURCHF will remain very close to 1.20 for some time. Tsipras, Syrizas leader, gave up the attempt to form a coalition government in Greece yesterday. Now the third largest partys, the elections big loser PASOK, turn to try. It is highly unlikely that they succeed, and we should expect a new election in June. In Spain, authorities announced yesterday that they will (indirectly) take a large stake in Bankia, Spain's third largest bank measured by assets and fourth largest in terms of lending volume. FROB, Spain's banking crisis fund, will indirectly acquire 45 percent ownership of Bankia through the conversion of a previously given 4.5 billion euro loan to equity in the parent bank BFA. The Spanish government has refused to spend more money to rescue the financial sector, but made a u-turn this week. The consequences for government finances will be significant, which explains the rise in Spanish yields. German data continue to impress. Exports are now at a record high level (91.8 billion euros), after rising by 0.9 percent from February to March (consensus was -0.8 percent). Lower exports to EU countries were offset by increased exports to countries outside the EU, such as Asia. In this respect it is a bad omen that China's import growth subsided to only 0.3 percent y/y in April (expected 11.0). Exports were also disappointing; growing by 4.9 percent y/y (expected 8.5). Norges Bank is likely to stick with its monetary policy strategy from March, keeping the policy rate unchanged at 1.50 percent at today's meeting. Since the previous meeting Norways most important trading partners forward rates have fallen by about 50 basis points. Norwegian rates have fallen less, and the interest rate differential has increased by about 20 basis points. Still, the importweighted NOK has been slightly weaker than Norges Bank expected. Several key figures from the Norwegian economy have indicated that cost pressures in the Norwegian economy are somewhat higher than the central bank had expected. Consumption and employment growth has been very brisk. Wage settlements so far indicate that Norges Bank will adjust its wage growth estimate in the June report. Norges Bank is probably also worried about the acceleration in house price growth in April (0.9 per cent m/m). We expect an upward revision of the interest rate path in the June report, and a reversal of the March cut at the meeting in August. We expect todays inflation release to show that core inflation (CPIATE) fell from 1.5 percent y/y in March to 0.9 percent in April. The decrease is due to base effects, after inflation in April last year was surprisingly high due to a 54.2 percent m/m increase in airfares (explained by a particularly late Easter). Last month's inflation figures were marginally (0.1 percentage point) above Norges Banks projections. For April the central bank expects 0.8 percent. We do not expect any changes in the key policy rate or the securities purchase program at Bank of Englands meeting today. Minutes from the April meeting showed that a long-standing advocate of greater quantitative easing, Adam Posen, now was satisfied with the size of today's program (325 billion pounds). Also, inflation rose again in March, for the first time in six months, to 3.5 percent. Other important releases today: We expect Swedish CPIF inflation to be unchanged at 1.1 percent y/y in April, 0.1 percentage points higher than the central bank estimate and consensus. We expect manufacturing production to jump back (+6.0 percent m/m) after a large fall in February. US initial claims is expected to rise slightly, from 365 'to 369' kjersti.haugland@dnb.no Yesterdays key economic events (GMT) 06:00 Germany Trade balance 14:00 USA Wholesale inventories Todays key economic events (GMT) 07:30 Sweden CPIF 08:00 Norway CPI-ATE 11:00 UK Bank of England meeting 12:00 Norway Norges Bank meeting As of Mar Mar As of Apr Apr n/a Unit sa bln m/m % Unit y/y % y/y % % % Prior 13.6 0.9 Prior 1.1 1.5 0.5 1.5 Poll 13.5 0.6 Poll 1.1 0.5 1.5 Actual 13.7 0.3 DNB 1.1 0.9 0.5 1.5

30-Mar 19-Apr 9-May

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 30-Mar 19-Apr

3m ra.

2.40 2.20 2.00 9-May

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

56 13 27 20 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 Magne stnor 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 57 22 01 76 67

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

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

Morning Report
10.05.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 135 125 115 105 30-Mar 19-Apr
NOK TWI ra.

96 94 92 90 9-May
$/b

EUR vs GBP & CHF 1.21 1.21 1.20 1.20 1.20

GBP r.a

0.84 0.83 0.82 0.81 0.80

CHF

30-Mar 19-Apr 9-May

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

Prior 79.64 1.293 0.802 1.201 7.545 8.905 7.434 5.835 7.327 0.848 9.416 6.891 8.650 1.181 11.110

Last 79.73 1.296 0.803 1.201 7.548 8.911 7.434 5.829 7.309 0.848 9.408 6.875 8.628 1.181 11.103

% 0.1% 0.2% 0.1% 0.0% 0.0% 0.1% 0.0% -0.1% -0.2% -0.1% -0.1% -0.2% -0.3% 0.0% -0.1%

In 1 m ...3 m 81 84 1.30 1.30 0.83 0.83 1.20 1.20 7.50 7.50 8.90 9.00 7.45 7.45 5.77 5.77 7.12 6.87 0.84 0.83 9.0 9.0 6.85 6.92 5.55 5.82 1.19 1.20 10.72 10.84

...6 m ...12 m 85 85 1.35 1.40 0.85 0.87 1.20 1.30 7.50 7.60 9.00 9.00 7.45 7.45 5.56 5.43 6.54 6.39 0.83 0.84 8.8 8.7 6.67 6.43 5.67 5.46 1.20 1.18 10.59 10.34

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

USD 1.0116 1.0005 0.9272 19.51 5.7371 1.6150 7.7623 125.70 0.2785 2.6649 0.5396 0.7878 3.2640 1.2502 30.1735

% 0.74% -0.23% -0.16% -0.38% -0.21% 0.10% -0.02% -0.13% -0.04% -0.22% -0.15% 0.52% -0.65% -0.26% -0.70%

EURSEK & OMXS 9.0 8.9 8.8 8.7 30-Mar 19-Apr

OMXS ra. EURSEK

550 500 450 400 350 9-May

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

NIBOR Prior 1.94 2.33 2.70 2.94 2.86 3.07 3.28 3.50

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.94 1.89 1.89 0.34 2.33 2.16 2.15 0.62 2.71 2.41 2.41 0.93 2.94 2.53 2.53 1.10 2.88 1.93 1.93 1.07 3.09 2.03 2.03 1.38 3.28 2.19 2.19 1.72 3.50 2.35 2.35 2.08

Last 0.34 0.62 0.93 1.10 1.09 1.39 1.73 2.09

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.73 0.73 0.89 0.89 0.70 0.71 1.09 1.10 1.54 1.54 1.99 2.00

Gov. Bonds, 10y 2.25 2.00 1.75 1.50

NOK, ra.

3.00 2.50 2.00 1.50

SEK

30-Mar 19-Apr 9-May

10y 10y yield vs bund

NORWAY Prior Last 117.55 114.30 2.00 #VALUE! 0.46

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 117.697 117.70 102.14 101.92 101.54688 1.60 1.58 1.52 1.54 1.83 0.07 0.04 0.30

Last 98.88 1.88 0.34

13.5 13.0 12.5

JPY and DowJones

85 80

12.0 30-Mar 19-Apr

75 9-May

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.40 3.50 2.15 2.75 0.70 2.50 2.45 3.75 2.10 2.75 0.70 2.75 2.70 4.25 2.00 3.00 0.70 3.25
% 0.03 0.06 0.14 - 0.14 Last 112.3 113.2 1582.5

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

% -0.8% -0.4% -0.4% -0.5% 0.5% 0.0% 0.1% -0.1% -1.8%

USDJPY ra. DowJones, 1000

USD and gold 1720 1670 1620 1.34 1.32 1.30

1.28 1570 30-Mar 19-Apr 9-May

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today JUN 2.31 2.31 0.00 NOK 94.39 SEP 2.32 2.32 0.00 SEK 118.53 0.00 EUR 101.61 DEC 2.37 2.37 MAR 2.42 2.42 0.00 USD 80.03 FRA SEK 3m Prior chg GBP 84.00 JUN 2.12 2.12 0.00 Comm. Today 0.01 Brent spot 112.4 SEP 1.89 1.88 DEC 1.79 1.79 0.00 Brent 1m 113.0 MAR 1.77 1.77 -0.01 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 12,835.1 Nasdaq 2,934.7 FTSE100 5,530.1 Eurostoxx50 2,225.6 Dax 6,475.3 Nikkei225 9,009.7 Oslo 402.20 Stockholm 481.78 587.72 Copenhagen

Morning Report
10.05.2012
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