Morning Report

11.05.2012

Norges Bank stands still

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

Norges Bank surprised no one yesterday, and let its key policy rate remain unchanged at 1.5 percent. Announcement of a new banking reform in Spain will receive attention today. Stock markets rose slightly yesterday, partly as a result of news that initial claims fell last week. The news about JPMorgan losing at least 2 billion dollars as a result of a failed investment strategy led to recoil. Asian stock markets are down so far today. The increase in long German and US government bond yields yesterday were also reversed. FX markets remain characterized by risk-off. Yen has appreciated against the dollar, which in turn has strengthened against the euro. The Swedish and Norwegian krone has weakened. The SEK depreciation is largest, probably due to gloomy news from the manufacturing sector yesterday. Production grew by only 0.4 per cent m/m in March, after 5.2 percent decline in February. Consensus was a 0.7 percent rise. Also, manufacturing orders fell by a further 6.4 per cent m/m, after a fall of 8.3 per cent in February. In Norway core inflation (CPI-ATE) fell from 1.5 percent y/y in March to 0.7 percent in April. The fall is due to temporary base effects, and inflation has in sum developed in line with Norges Banks expectations. Yesterday's monetary policy meeting offered no surprises. The central bank stuck to its March plan, and kept the key policy rate unchanged at 1.5 percent. The press release pointed out that there are signs that activity in the Norwegian economy is a little higher than expected, but that the turmoil in financial markets has increased somewhat. An overall assessment of new information since March did not alter significantly the picture painted in the March report, the central bank concluded. The release also said that wage settlements so far are in line with the March estimate for wage growth (3.75 percent). We do not share this view and this is an important reason why we expect the central bank to reverse the March cut in August. The Bank of England changed neither the key interest rate nor its securities purchase program at yesterday's meeting. Although most had expected this outcome, the market had priced in a certain probability of a scale-up of securities purchases, after some negative news about the real economy lately. The announcement accordingly led to an immediate appreciation of the pound. The minutes of the meeting will be released on 23 May. On 16 May Bank of Englands Inflation Report is released. Chinese inflation continues to trend down. Headline inflation decreased from 3.6 percent y/y in March to 3.4 percent in April. Food inflation (which has caused overall inflation to climb higher) remains high (7.0 percent y/y). The recent fall in core inflation provides authorities with greater room to implement measures to stimulate the economy. Today's manufacturing figures confirm the need to do so: Production grew by 9.3 percent y/y in April, weaker than the expected increase of 12.0 percent. In Greece, PASOK leader Venizelos is currently trying to form a coalition government, but he admitted to his parliamentary group yesterday that the chances of success are small. The first poll after the election, conducted on 8 - 9 May, shows that radical-left Syriza, which has declared the bail-out package as null and void, has won even greater popular support since the election. The poll implies that they would have won the election today, with 27.7 percent of the vote, up from 16.8 percent in the actual election. New Democracy, the largest party after the election, would have become the second largest with 20.3 per cent of the votes, while socialist PASOK would remain in third place with 12.6 percent of the votes. Today's most important macro release is US consumer confidence (Michigan) which is expected to decrease slightly, from 76.4 in April to 76.2 in May. Otherwise, the presentation of a new banking reform in Spain, which was announced early this week, will probably get a lot of attention. According to Reuters banks will be asked to set aside an additional 35 billion euros (in addition to 54 billion that has already been imposed on them) to increase their capital adequacy ratios. In addition, they will be forced to park their doubtful real estate-related assets into separate entities who will later sell them on. These assets now account for a total of 184 billion euros, which should be considered as a minimum estimate. kjersti.haugland@dnb.no

2-Apr 20-Apr 10-May

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 2-Apr

3m ra.

2.40 2.20 2.00 20-Apr 10-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

Yesterdays key economic events (GMT) 07:30 Sweden CPIF 08:00 Norway CPI-ATE 12:30 USA Initial claims Todays key economic events (GMT) 12:30 USA PPI ex. food&energy 13:55 USA Michigan

As of Apr Apr week 18 As of Apr May

Unit y/y % y/y % 1000 Unit m/m % index

Prior 1.1 1.5 368 Prior 0.3 76.4

Poll 1.0 369 Poll 0.2 76.2

Actual 1.1 0.7 367 DNB

Morning Report
11.05.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 135 125 115 105 2-Apr 20-Apr
NOK TWI ra.

96 94 92 90 10-May
$/b

EUR vs GBP & CHF 1.21 1.20 1.20 1.20

GBP r.a

0.84 0.83 0.82 0.81 0.80

CHF

2-Apr 20-Apr 10-May

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

Prior 79.93 1.294 0.802 1.201 7.590 8.985 7.433 5.869 7.342 0.845 9.472 6.947 8.692 1.185 11.214

Last 79.84 1.292 0.802 1.201 7.605 9.011 7.433 5.892 7.375 0.845 9.491 6.977 8.734 1.185 11.232

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

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 1.0024 1.0047 0.9301 19.56 5.7545 1.6112 7.7650 126.01 0.2787 2.6731 0.5407 0.7822 3.2853 1.2527 30.2200

% -0.49% 0.22% 0.14% 0.14% 0.13% -0.22% 0.02% 0.14% 0.16% 0.13% 0.13% -0.39% 0.28% 0.14% 0.22%

EURSEK & OMXS 9.0 8.9 8.8 8.7 2-Apr

OMXS ra. EURSEK

550 500 450 400 350 20-Apr 10-May

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

NIBOR Prior 1.94 2.33 2.71 2.94 2.88 3.09 3.29 3.50

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.91 1.89 1.89 0.34 2.30 2.15 2.15 0.62 2.69 2.41 2.41 0.93 2.92 2.53 2.53 1.10 2.87 1.88 1.87 1.05 3.07 2.00 1.98 1.37 3.26 2.16 2.14 1.70 3.47 2.33 2.29 2.06

Last 0.34 0.62 0.93 1.10 1.06 1.37 1.70 2.05

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.73 0.73 0.89 0.89 0.68 0.69 1.08 1.10 1.52 1.52 1.98 2.00

Gov. Bonds, 10y 2.25 2.00 1.75 1.50

NOK, ra.

3.00 2.50 2.00 1.50

SEK

2-Apr 20-Apr 10-May

10y 10y yield vs bund

NORWAY Prior Last 117.4 114.40 2.02 1.99 0.49 0.47

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 118.029 117.90 101.966 102.12 1.56 1.56 1.53 1.52 0.03 0.04

US Prior 98.875 1.87 0.34

Last 99.06 1.86 0.34

13.5 13.0 12.5 12.0

JPY and DowJones

85 80

2-Apr

75 20-Apr 10-May
USDJPY ra. DowJones, 1000

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
% 0.26 0.31 - 0.07 0.12 Last 112.3 112.7 1598.5

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

% 0.2% 0.0% 0.3% 1.0% 0.7% 0.0% 1.6% 1.0% 0.5%

USD and gold 1720 1670 1620 1.34 1.32 1.30

1.28 1570 2-Apr 20-Apr 10-May

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today JUN 2.30 2.30 0.00 NOK 95.12 SEP 2.31 2.31 0.00 SEK 119.84 DEC 2.34 2.34 0.00 EUR 101.56 MAR 2.41 2.40 0.01 USD 80.29 FRA SEK 3m Prior chg GBP 84.20 JUN 2.11 2.12 -0.01 Comm. Today -0.01 Brent spot 112.7 SEP 1.85 1.85 DEC 1.72 1.73 -0.01 Brent 1m 111.7 MAR 1.69 1.70 -0.01 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 12,855.0 Nasdaq 2,933.6 FTSE100 5,544.0 Eurostoxx50 2,247.4 Dax 6,518.0 Nikkei225 8,953.3 Oslo 408.61 Stockholm 486.73 590.93 Copenhagen

Morning Report
11.05.2012
IMPORTANT/DISCLAIMER This note (the Note) must be seen as marketing material and not as an investment recommendation within the meaning of the Norwegian Securities Trading Act of 2007 paragraph 3-10 and the Norwegian Securities Trading Regulation 2007/06/29 no. 876. The Note has been prepared by DNB Markets, a division of DNB Bank ASA, a Norwegian bank organized under the laws of the Kingdom of Norway (the Bank), for information purposes only. The Note shall not be used for any unlawful or unauthorized purposes. The Bank, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (individually, each a DNB Party; collectively, DNB Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Note. DNB Parties are not responsible for any errors or omissions, regardless of the cause, nor for the results obtained from the use of the Note, nor for the security or maintenance of any data input by the user. The Note is provided on an as is basis. DNB PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE NOTES FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE NOTE WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall DNB Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Note, even if advised of the possibility of such damages. Any opinions expressed herein reflect the Banks judgment at the time the Note was prepared and DNB Parties assume no obligation to update the Note in any form or format. The Note should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. No DNB Party is acting as fiduciary or investment advisor in connection with the dissemination of the Note. While the Note is based on information obtained from public sources that the Bank believes to be reliable, no DNB Party has performed an audit of, nor accepts any duty of due diligence or independent verification of, any information it receives. Confidentiality rules and internal rules restrict the exchange of information between different parts of the Bank and this may prevent employees of DNB Markets who are preparing the Note from utilizing or being aware of information available in DNB Markets/the Bank which may be relevant to the recipients of the Note. The Note is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. Distribution of material like the Note is in certain jurisdictions restricted by law. Persons in possession of the Note should seek further guidance regarding such restrictions before distributing the Note. The Note is for clients only, and not for publication, and has been prepared for information purposes only by DNB Markets - a division of DNB Bank ASA registered in Norway with registration number NO 984 851 006 (the Register of Business Enterprises) under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet), Monetary Authority of Singapore, the Chilean Superintendent of Banks, and on a limited basis by the Financial Services Authority of UK. Information about DNB Markets can be found at dnb.no. Additional information for clients in Singapore The Note has been distributed by the Singapore branch of DNB Bank ASA. It is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of any product referred to in the Note, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product. Recipients of the Note should note that, by virtue of their status as accredited investors or expert investors, the Singapore branch of DNB Bank ASA will be exempt from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the FAA), the Financial Advisers Regulations and associated regulations there under. In particular, it will be exempt from: - Section 27 of the FAA (which requires that there must be a reasonable basis for recommendations when making recommendations on investments). Please contact the Singapore branch of DNB Bank ASA at +65 6212 0753 in respect of any matters arising from, or in connection with, the Note. We, the DNB group, our associates, officers and/or employees may have interests in any products referred to in the Note by acting in various roles including as distributor, holder of principal positions, adviser or lender. We, the DNB group, our associates, officers and/or employees may receive fees, brokerage or commissions for acting in those capacities. In addition, we, the DNB group, our associates, officers and/or employees may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in the Note. Additional Information, including for Recipients in the In the United States: This note (the Note) is a market letter, as the term is defined in NASD Rule 2211, and, thus, does not constitute a research report within the meaning of U.S. securities laws and regulations, including, without limitation, SEC Rule 15a-6, NASD Rule 2711 and Regulation AC.