Morning Report

04.06.2012

Weak employment figures from the US

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

2.35 2.30 2.25 2.20

EURNOK

US employment disappointed the markets on Friday. This has led to record low yields on government debt in Germany and the US. Also the oil price has fallen significantly since Friday. Friday's labor market report from the US was at the disappointing end of the scale. Employment rose by 69,000 in May, less than half of what consensus had expected (150,000, Reuters).There are few bright spots behind this figure. Growth in private sector was 82,000, the lowest since last August. Government employment fell by 13,000. Those who are involuntarily unemployed for economic reasons rose by 245,000 to 8.1 million. At the same time, the number of long-term unemployed (those who have been unemployed longer than 27 weeks) rose by 300,000 to 5.4 million. Household Survey, published simultaneously, showed that the number of unemployed rose by 220,000, which represents 8.2 percent of the workforce. To the extent that it is possible to extract something positive from this, it was that the rise in unemployment was due to a higher growth in the labor force than in employment. The broad picture is that the US labor market shows clear signs of weakness. Thus, the probability that the Fed initiates a new round of QE has increased significantly. Already on Thursday Ben Bernanke may give signals about this in his speech to the Senate. Market movements in the wake of the report have been very large. The dollar strengthened immediately against the euro and the yen, but the movements were quickly reversed. Technical levels are most likely the reason why EURUSD rose from 1.232 to 1.244 in a very short time after the immediate market reaction had subsided. Now EURUSD is traded at 1.2401 which implies a dollar depreciation of 0.4 percent since Friday morning. Also USDJPY has fallen since Friday, and dollar is currently priced at 78.12 yen. In addition to the weakening of the dollar, interest rates in supposedly safe havens have fallen. Ten-year swap-rates in the US immediately fell by 6 basis points to 1.65 percent, which also is the current level. 10 year Treasury in the US and Germany have dropped by 8 and 4 points, respectively, to 1.48 and 1.17 percent. Both the US and German interest rates are at record lows. US stock markets are down 2-3 percent. The decline was greater in some of the European exchanges, including the DAX index which was down 3 percent. This morning Asian bourses have opened in negative territory, and the Nikkei index has fallen 2 percent. Also the oil price has fallen significantly since Friday. Brent is down by 5 dollar to 97 dollar per barrel. This may also explain Friday's dollar weakening in kroner. EURNOK has risen by 0.6 percent to 7.61 and USDNOK has risen by 0.1 percent to 6.13. A slide of PMI indices from Europe and the US was released on Friday. The US ISM index fell by 0.6 points to 53.5 in May. This was as expected. The Norwegian index rose in line with market expectations to 54.9, while the Swedish index fell slightly more than expected. In the euro zone the index was virtually unchanged at 45. Thus, Norway continues to stand out in a European context. Several key figures from the Norwegian economy have pointed in the direction of strong activity growth. Among others, figures from Statistics Norway earlier last week showed that unemployment fell in March to 3.0 percent driven by strong growth in employment. Friday's home price report from NEF showed that prices in May were 7 percent higher than May last year. Turnover time, measured in number of days it on average takes to sell a home, is near the lows in 2006-07. This weekend it became clear that the Japanese Prime Minister, Yoshihiko Noda, will replace parts of his cabinet to get through an increase in the consumption tax. Noda has since he took over as Prime Minister in November 2011 for the Democratic Party of Japan (DPJ) struggled to raise the consumption tax, now at 5 percent. Japan has the lowest consumption tax among all OECD countries, and Noda wants an increase to 10 percent by 2015 to make the government better prepared for its rising debt costs. Government debt is expected to increase to 239 percent of GDP this year. This week will give us several interesting events. On Tuesday we get service-PMIs in countries such as China, US and euro zone. On Wednesday ECB will hold its hold its monthly monetary policy meeting. We expect the central bank will keep its key rate at 1 percent. On Thursday Bank of England will end its monetary policy meeting, and we expect that the British central bank will increase its asset purchase program by 50 billion pounds to 375 billion. This weekend the Chinese statistics agency will release a number of key figures. Among other things, we get an update on foreign trade, retail trade and manufacturing output, which all have shown a downward trend in 2012. ole.kjennerud@dnb.no Friday's key economic events (GMT) 07:58 EMU PMI, manufacturing 12:30 USA Payrolls 14:00 USA ISM, manufacturing Todays key economic events (GMT) 09:00 EMU Producer prices 14:00 USA Factory orders As of May May May As of Apr Apr Unit Index 1000 Index Unit y/y % % Prior 45.0 115 54.8 Prior 3.3 -1.9 Poll 45.0 150 54.1 Poll 2.7 0.3 Actual 45.1 69 53.5 DNB

24-Apr 14-May 1-J un

SEK & 3m STIBOR 9.3 9.1 8.9 8.7 24-Apr 14-May

3m ra.

2.20

2.00 1-J un
EURSEK

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Morning Report
04.06.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 120 115 110 105 24-Apr 96 94 92 14-May 90 1-Jun
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.20 1.20 1.20 0.82 0.81 0.80

1.20 0.79 24-Apr 14-May 1-J un

GBP r.a CHF

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

Prior 78.04 1.244 0.810 1.202 7.616 9.017 7.432 6.129 7.858 0.846 9.427 7.256 9.303 1.185 11.152

Last 78.16 1.242 0.808 1.201 7.605 9.014 7.431 6.125 7.837 0.844 9.411 7.257 9.285 1.186 11.150

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

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.60 7.50 9.10 9.00 7.45 7.45 6.18 5.77 7.72 6.87 0.84 0.83 9.6 9.0 7.40 6.92 5.92 5.82 1.20 1.20 11.52 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 0.9675 1.0423 0.9672 20.78 5.9841 1.5370 7.7603 130.18 0.2809 2.7806 0.5616 0.7542 3.5522 1.2895 33.6900

% -0.37% 0.15% 0.09% 0.10% 0.07% 0.03% -0.01% 0.05% -0.06% 0.12% 0.09% -0.38% 0.14% -0.28% 0.06%

EURSEK & OMXS 9.3 9.1 8.9 8.7 24-Apr 14-May 550 500 450 400 350 1-Jun

OMXS ra. EURSEK

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

NIBOR Prior 1.93 2.32 2.67 2.88 2.70 2.89 3.05 3.22

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.98 1.89 1.89 0.33 2.33 2.13 2.14 0.59 2.65 2.38 2.39 0.90 2.88 2.51 2.52 1.07 2.69 1.78 1.79 0.92 2.88 1.84 1.84 1.18 3.04 1.94 1.94 1.41 3.22 2.04 2.03 1.65

Last 0.33 0.59 0.90 1.07 0.92 1.19 1.41 1.67

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.74 0.74 0.91 0.91 0.69 0.69 0.98 0.99 1.31 1.33 1.66 1.70

Gov. Bonds, 10y 2.00 1.75 1.50 1.25

NOK, ra.

3.00 2.50 2.00 1.50

SEK

24-Apr 14-May 1-J un

10y 10y yield vs bund

NORWAY Prior Last 117.6 101.10 1.95 1.89 0.77 0.72

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 121.77 121.77 105.454 105.45 1.18 1.18 1.17 1.17 0.01 0.00

US Prior 102.6875 1.46 0.29

Last 102.39 1.50 0.32

13.5 13.0 12.5

JPY and DowJones

12.0 24-Apr 14-May

83 81 79 77 75 1-Jun

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y s wap 3m stibor 10y swap 3m euribor 10y swap 2.50 3.50 2.10 2.75 0.65 2.50 2.45 3.75 2.05 2.75 0.65 2.75 2.75 4.25 2.15 3.00 0.65 3.25

US 3m libor 10y s wap 0.50 2.50 0.50 2.50 0.50 3.00

% -2.2% -2.8% -1.1% -2.4% -3.4% 0.0% -1.7% -2.2% -2.9%

USDJPY ra. DowJones, 1000

USD and gold 1720 1.34 1670 1.32 1620 1.30 1570 1.28 1520 1.26 24-Apr 14-May 1-Jun
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today JUN 2.35 2.36 -0.01 NOK 95.10 - 0.09 Dow Jones 12,118.6 SEP 2.29 2.30 -0.01 SEK 119.79 0.24 Nasdaq 2,747.5 DEC 2.29 2.29 0.00 EUR 99.40 - 0.09 FTSE100 5,260.2 MAR 2.29 2.29 0.00 USD 82.89 0.11 Eurostoxx50 2,068.7 FRA SEK 3m Prior chg GBP 82.70 Dax 6,050.3 JUN 2.19 2.18 0.01 Comm. Today Last Nikkei225 8,272.0 SEP 1.92 1.93 -0.01 Brent spot 99.3 99.3 Oslo 377.66 DEC 1.76 1.74 0.01 Brent 1m 96.9 98.4 Stockholm 455.36 549.80 MAR 1.66 1.65 0.01 Spot gold 0.0 1606.0 Copenhagen Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
04.06.2012
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