Morning Report

21.06.2012

Fed twists, Norges Bank more hawkish

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

2.50 2.40 2.30 2.20

EURNOK

Fed extends Operation Twist, while Norges Bank alerts that the next hike might come towards the end of 2012. Spain is likely to move markets again today. Stock markets rose further yesterday, while Norwegian and German 10-year government bond yields crept up further. A disappointing fall in the Chinese PMI pulls down Asian markets today, with the Nikkei index as the exception. The euro is stable against the dollar at 1.26, while the yen has depreciated by almost 1 percent against the dollar (79.6). The NOK has appreciated on a broad basis in the wake of the Norges Bank meeting yesterday. Today Spain plans to auction 2 -, 3 - and 5-year bonds. The amount is relatively small, between 1 and 2 billion euros. If successful, Spain has conducted 60 percent of its 2012 funding program, thanks to high activity boosted by LTROs at the start of the year. In secondary markets the Spanish 5-year rate is currently at 6.2 percent (while the German rate is at 0.7 percent). In an FT-interview yesterday the French ECB-executive board member Coeur argued that the EFSF should be used to buy distressed Spanish and Italian government debt in the secondary market. He also expected an interest rate cut to be discussed at the ECB's monetary policy meeting next month. Two reports on Spanish banks portfolios, written by independent consultants on request of Spanish authorities, will be published this afternoon. In the wake of these reports Spanish authorities are expected to make a formal request for a specific amount from the bank aid package (up to 100 billion euros) that was launched earlier this month. Finance Ministers of the euro zone meet in Luxembourg tonight. The new Greek Minister (the name is yet unknown) will be one of them. A new coalition government was sworn in yesterday, consisting of the election winner New Democracy (conservative), election loser PASOK (socialist) and Democratic Left (left socialists). The new prime minister is Antonis Samaras. He promises that the agreements with the creditors will be renegotiated. As expected, Fed chose to extend its "Operation Twist" (sale of short-term securities while purchasing long-term bonds) by $267 billion, with the program lasting until the end of 2012. The central bank is ready to do more, if necessary. "More" can not entail Operation Twist, since Fed's holdings of short-term securities will be nearly depleted by the end of the year. At the press conference Bernanke expressed concern for the effect of the European debt crisis on the US economy. FOMC growth estimates for 2012 has been adjusted down from 2.4 to 2.9 percent (April) to 1.9 to 2.4 percent. The Committee expects unemployment to remain at 8 throughout 2012. Norges Bank left its key policy rate unchanged yesterday, as was widely expected. According to the new interest rate path, the timing of the next hike is pushed forward in time, as a result of increasing cost pressures in the Norwegian economy. There is a 25 percent probability for a 25 basis points hike in December, but it may also come either in March, May or June. The strong performance of the domestic economy contributes to pulling the rate path up, while the turmoil abroad pulls in the opposite direction. In our view: If the turmoil diminishes towards the autumn as we expect it to the next hike may come as early as October. The pound has weakened markedly after the minutes of the BoE meeting was published yesterday. Four members voted in favor of increasing the securities purchase program, and one of these where Governor Mervyn King. King, Miles and Posen wanted to increase purchases by 50 billion pounds, while Fisher wanted to increase purchases by 25 billion. Most of the five remaining members were not strongly opposed to the idea, but wanted to wait to see a further drop in the inflation rate (which was what we saw earlier this week). HSBCs flash PMI for China fell from 48.4 in May to 48.1 in June. This is the lowest level in seven months. The drop in the sub-index for export orders was the main contributor. Today euro zone flash PMIs are published. kjersti.haugland@dnb.no Yesterdays key economic events (GMT) 07:15 Sweden CCI Todays key economic events (GMT) 07:58 EMU PMI, manufacturing, flash 12:30 US Initial claims 14:00 US Existing homes sales EMU EuroGroup meeting As of Jun As of Jun Week 24 May Unit Index Unit Index 1000 Mill Prior 5.9 Prior 45.1 386 4.620 Poll 4.0 Poll 44.9 380 4.590 Actual 6.5 DNB

11-May 31-May 20-Jun

SEK & 3m STIBOR 9.3 9.1 8.9 8.7

3m ra.

2.20

2.00
E URSEK

11-May 31-May 20-Jun

Headquarters 0021 Oslo Stranden 21

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Sales Oslo (+47) Equity Fixed Income FX/IR

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Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

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Morning Report
21.06.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 115 110 105 100 95
NOK TWI ra. $/b

96 94 92 90

11-May 31-May 20-Jun

1.20 1.20 1.20 1.20

EUR vs GBP & CHF 0.82 0.81 0.80 0.79

G BP r.a CHF

11-May 31-May 20-Jun

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

Prior 79.52 1.271 0.809 1.201 7.493 8.834 7.434 5.899 7.427 0.849 9.278 6.957 8.751 1.179 10.934

Last 79.65 1.267 0.808 1.201 7.502 8.834 7.434 5.920 7.442 0.850 9.288 6.973 8.758 1.178 10.935

% 0.2% -0.3% 0.0% 0.0% 0.1% 0.0% 0.0% 0.4% 0.2% 0.1% 0.1% 0.2% 0.1% -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 1.0154 1.0222 0.9482 20.18 5.8685 1.5681 7.7596 125.15 0.2802 2.7251 0.5504 0.7980 3.3575 1.2716 33.0100

% -0.40% 0.36% 0.26% 0.17% 0.29% -0.25% 0.00% 0.22% 0.03% 0.23% 0.27% 0.15% 0.60% 0.20% 1.32%

EURSEK & OMXS 9.3 9.1 8.9 8.7

O MXS ra. EURSEK

500 450 400 350

11-May 31-May 20-Jun

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

NIBOR Prior 2.10 2.36 2.63 2.83 2.77 3.02 3.25 3.46

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.06 1.91 1.91 0.33 2.33 2.14 2.14 0.57 2.61 2.40 2.39 0.87 2.77 2.53 2.52 1.04 2.76 1.85 1.88 1.01 3.00 2.05 2.06 1.37 3.23 2.22 2.23 1.69 3.45 2.38 2.36 2.02

Last 0.33 0.57 0.87 1.04 1.01 1.37 1.68 2.00

USD LIBOR Prior Last 0.24 0.25 0.47 0.47 0.74 0.74 0.91 0.91 0.64 0.66 1.01 0.99 1.40 1.37 1.81 1.78

Gov. Bonds, 10y 1.75 1.50 1.25 3.00 2.50 2.00

1.50 1.00 11-May 31-May 20-Jun

NOK, ra. SEK

10y 10y yield vs bund

NORWAY Prior Last 117.6 98.45 2.12 2.16 0.51 0.56

GOVERNMENT BONDS US SWEDEN GERMANY Prior Last Prior Last Prior 117.72 117.66 101.31 101.35 100.90625 1.56 1.57 1.61 1.60 1.65 -0.05 -0.04 0.04

Last 101.06 1.64 0.04

13.0 12.5

JPY and DowJones

81 79 77

12.0 75 11-May 31-May 20-Jun

USDJPY ra. DowJ ones, 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 2.10 2.50 0.65 2.25 2.50 3.75 2.05 2.75 0.65 2.75 2.85 4.25 2.20 3.00 0.65 3.25

US 3m libor 10y 0.50 0.50 0.50

swap 2.25 2.50 3.00

% -0.1% 0.0% 0.6% 0.4% 0.5% 0.0% 0.9% 1.4% 0.3%

USD and gold 1670 1620 1570 1.30 1.25

1.20 1520 11-May 31-May 20-Jun

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % SEP 2.28 2.28 0.00 NOK 93.83 - 0.01 DEC 2.29 2.28 0.01 SEK 117.46 0.02 MAR 2.33 2.31 0.02 EUR 100.61 - 0.04 JUN 2.37 2.35 0.02 USD 81.61 0.19 FRA SEK 3m Prior chg GBP 83.20 SEP 1.88 1.89 -0.01 Comm. Today Last DEC 1.73 1.74 -0.01 Brent spot 93.8 93.8 MAR 1.67 1.67 0.00 Brent 1m 92.2 92.7 JUN 1.67 1.67 0.00 Spot gold 0.0 1601.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 12,824.4 Nasdaq 2,930.5 FTSE100 5,622.3 Eurostoxx50 2,207.5 Dax 6,392.1 Nikkei225 8,824.1 Oslo 399.55 Stockholm 478.89 Copenhagen 577.95

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