Morning Report

02.07.2012

Positive markets Friday

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

2.50 2.40 2.30 2.20

EURNOK

22-May 11-Jun 29-J un

The European Summit last week gave a positive boost to the markets. Stock markets rose sharply on Friday and the markets have climbed further in Asia this morning. European stock markets seem to open positively. The yield on Spanish 10-year government bonds fell by 60 basis points during Friday. The corresponding yield on Italian bonds fell 38 bp. In currency markets the euro rose markedly Friday morning. Today the EURUSD trades 0.5 per cent higher than on Friday morning. Since Friday morning, movements in the currency markets have been moderate, with the exception of the 0.4 per cent weakening of the Japanese yen against the dollar. It will be interesting to see how long the positive sentiment will last. Thursday's meeting of the European Central Bank might be interesting in this respect. At first glance, the big winners from Europe's latest euro-saving summit were the leaders of Italy, Spain and France. Merkel's biggest concession in the early morning hours of Friday was to agree to give the euro zone's new permanent rescue fund, the European Stability Mechanism (ESM), the power to inject aid directly into stricken banks. But her condition was support for one of Berlin's key demands - the establishment of a central supervision authority for banks run by the European Central Bank (ECB). Setting up a common bank oversight authority is a first step towards the closer union Merkel says is needed to save the euro. In Japan the stock market rose today after the Tankan index increased from -4 in March to -1 to June. It was expected that the index would remain at -4. An index of -1 implies that pessimists still outnumbers the optimists, but this majority has now become very small. The improvement came despite a strong Japanese yen that has contributed to weakening exports. In China, the PMI for June was slightly better than expected. The PMI from the national statistics agency ended at 50.2, slightly down from May, but 34 tenth better than expected. The PMI index from HSBC rose 0.1 to 48.2, the same as an flash estimate showed. Yesterday, the EU's sanctions on Iran entered into full force yesterday after exemptions on some contracts and insurance ended. Thus, OPEC is facing the biggest restriction on oil exports since the sanctions on Libya. Oil prices have thus drawn up slightly over the weekend. In the U.S., private consumption was unchanged from April to May in nominal terms. It was a bit weaker than expected. Wage income was unchanged, while total income went up slightly. Thus the savings ratio also rose slightly. Adjusted for inflation, consumption growth was 0.1 per cent in May. With also a little growth in June the second quarter private consumption is likely to increase by moderate 1.6 per cent on annualized basis. Norwegian retail sales rose by 1.7 per cent from April to May, after a 0.2 per cent decline the previous month. It was far stronger than the expected increase of about half a percent. Consumer spending on goods, which includes car purchases and consumption of electricity and fuel, rose 0.9 per cent in May. The power consumption pulled down in May, but contributed to strong growth in goods consumption in April. Goods consumption has in the first five months increased by a total of 3.8 per cent. It is worth noting that Norges Bank has projected a growth in consumption, which also includes the services, at 3 per cent this year. After the May figures were presented, it appears that Norges Bank's estimate of consumption growth this year is a little low and that the central bank underestimates the effect of the low interest rates on domestic demand. On the other hand, we also got the monthly consumer confidence (ForbrukerMeteret) for June on Friday. This index fell from 9 points to 4 points in June and may indicate that consumers are influenced by the euro crisis. If the lower confidence results in lower consumption during the second half of this year, Norges Bank's consumption estimates may still be within reach. In addition, Norges Bank announced that it will purchase foreign exchange for 350 million daily in July. It is the same as in June and as we expected. Today, the Norwegian PMI fell from 54.9 to 46.3. New orders fell 17.5 points, production 6.6 points and employments 8.4 points. The turnaround in the index is not in line with other indicators for Norway but we have seen substantial variation in this index earlier. We have to wait for another month before the weak index is confirmed. kyrre.aamdal@dnb.no

SEK & 3m STIBOR 9.3 9.1 8.9 8.7

3m ra.

2.20

2.00
EURSEK

22-May 11-J un 29-J un

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

22 94 89 40 22 01 78 20

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) 08:00 Norway Retail sales 12:30 USA Private consumption Todays key economic events (GMT) 06:30 Sweden PMI 07:00 Norway PMI 08:00 Norway Credit Indicator C2 14:00 USA ISM

As of May May As of Jun Jun May Jun

Unit m/m % m/m sj % Unit Index Index y/y, % Index

Prior -0.2 0.3 Prior 49 54.9 6.7 53.5

Poll 0.5 0.1 Poll 48. 54.6 6.7 52.5

Actual 1.7 0.0 DNB 48.5 46.3 6.7 51.5

Morning Report
02.07.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 115 105 95 85 22-May 11-Jun 96 94 92 90 29-Jun
$/b

NOK TWI ra.

1.20 1.20 1.20

EUR vs GBP & CHF 0.82 0.81 0.80

1.20 0.79 22-May 11-Jun 29-Jun

GBP r.a CHF

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

Prior 79.84 1.266 0.806 1.202 7.549 8.770 7.435 5.963 7.476 0.862 9.354 6.925 8.681 1.164 10.884

Last 79.64 1.264 0.807 1.201 7.564 8.767 7.435 5.984 7.519 0.864 9.373 6.942 8.713 1.161 10.861

% -0.3% -0.2% 0.1% 0.0% 0.2% 0.0% 0.0% 0.4% 0.6% 0.3% 0.2% 0.2% 0.4% -0.2% -0.2%

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 1.0239 1.0184 0.9507 20.20 5.8857 1.5658 7.7567 125.28 0.2803 2.7328 0.5518 0.8021 3.3479 1.2682 32.5680

% -0.08% 0.16% 0.20% 0.05% 0.20% -0.34% -0.01% 0.18% 0.04% 0.10% 0.22% -0.06% -0.16% 0.23% 0.52%

EURSEK & OMXS 9.3 9.1 8.9 8.7 22-May 11-Jun 500 450 400 350 29-Jun

OMXS ra. EURSEK

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

NIBOR Prior 1.99 2.31 2.61 2.77 2.68 2.92 3.19 3.43

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.95 1.89 1.90 0.32 2.30 2.13 2.14 0.56 2.61 2.38 2.39 0.86 2.79 2.51 2.52 1.03 2.65 1.93 1.93 0.97 2.91 2.08 2.06 1.32 3.15 2.24 2.22 1.65 3.39 2.39 2.37 1.99

Last 0.32 0.56 0.86 1.03 0.95 1.28 1.62 1.97

USD LIBOR Prior Last 0.25 0.25 0.46 0.46 0.73 0.73 0.91 0.91 0.63 0.65 0.97 0.97 1.34 1.35 1.77 1.77

Gov. Bonds, 10y 1.75 1.50 1.25 1.00

NOK, ra.

3.00 2.50 2.00 1.50

SEK

22-May 11-Jun 29-Jun

NORWAY Prior Last 10y /A No Data 99.55 10y yield 2.04 2.05 vs bund 0.44 0.50

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 117.19 117.78 101.56 101.83 100.96875 1.61 1.55 1.60 1.55 1.64 0.01 0.00 0.04

Last 101.03 1.64 0.09

13.0 12.5

JPY and DowJones

81 79 77

12.0 22-May 11-Jun

75 29-Jun

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

% 2.2% 3.0% 1.4% 5.0% 4.3% 0.0% 3.4% 4.1% 2.7%

USDJPY ra. DowJones, 1000

USD and gold 1670 1620 1570 1520

EURUSD ra.

1.30 1.25 1.20

Gold

22-May 11-Jun 29-Jun

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today SEP 2.24 2.25 -0.01 NOK 94.57 0.32 Dow Jones 12,880.1 DEC 2.23 2.24 -0.01 SEK 116.52 Nasdaq 2,935.1 MAR 2.23 2.24 -0.01 EUR 100.36 - 0.12 FTSE100 5,571.2 JUN 2.25 2.25 0.00 USD 81.72 0.15 Eurostoxx50 2,264.7 FRA SEK 3m Prior chg GBP 83.20 0.2 Dax 6,416.3 SEP 1.94 1.94 0.00 Comm. Today Last Nikkei225 9,003.5 DEC 1.84 1.84 0.01 Brent spot 94.4 94.4 Oslo 407.09 MAR 1.79 1.79 0.00 Brent 1m 96.5 97.8 Stockholm 480.17 JUN 1.75 1.77 -0.02 Spot gold 0.0 1598.5 Copenhagen 583.57 Sources to all tables and graphics: Reuters and DNB Markets

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