Morning Report

06.07.2012

More Stimuli from Central Banks

NOK & 3m NIBOR 7.70 7.60 7.50 7.40 7.30 28-May 15-Jun
3m ra.

2.50 2.40 2.30 2.20 5-J ul

EURNOK

ECB and PBOC cut interest rates, Bank of England increased its quantitative easing, but the markets reacted negatively. Interest rate cuts from the European Central Bank were not the redemptive action of strained financial markets. After news of interest rate cuts stock market indices fell sharply. The German DAX index had risen almost 0.7 per cent before the meeting, but closed the day with a decline of 0.4 per cent. Oslo Stock Exchange fell by 0.8 per cent after the monetary policy meeting. In the U.S. the DJIA dropped 0.4 per cent, despite the fact that ADP employment and initial claims came out better than expected. In the sovereign markets the yield on 10-year U.S. Treasuries declined three basis points. The impact was greater for the German ten-year Bund yield that dropped 7 bp. The less secure Spanish 10-year yields rose by 35 bps, while the Italians experienced an increase of 21 bps. In the currency markets the euro was sold away after the ECB-meeting and EURUSD ended down 1.2 per cent from yesterday morning. Just after the meeting the Norwegian krone appreciated against the euro and EURNOK was at times down to 7.46. During the evening, however, the EURNOK increased and trades this morning at about the same level as yesterday morning. It is worth noting that even if the NOK is strong against the euro, it is not particularly strong against the Dollar and Swedish Krona. The import-weighted krone (I-44) exchange rate is marginally weaker than Norges Bank assumed as an average for the third quarter. The ECB decided yesterday to cut all key policy rates by 25 basis points. The refi-rate becomes record low at 0.75 per cent and the lending interest rate was cut to 1.50 per cent. Most attention is attached to the deposit rate that was lowered to 0 per cent so that the banks do not receive interest on their deposits at the ECB. The interest rate cut was widely anticipated. At the press conference Mario Draghi said that the factors which the ECB earlier regarded as a downside risk have materialized and pulled down inflation risk. According to Draghi the numbers for the second quarter points against a worsening of the economic growth for the euro area and the uncertainty about the further development is increased. At the meeting before the previous rate cuts was not discussed. At the previous meeting there were some who desired interest rate cuts, but they were a minority. At this meeting, all of the Governing Council agreed to lower the interest rate. At the press conference no signals of new cuts or other measures were given. ECB wants to see the impact of yesterday's cuts and the effects of loosened collateral requirements that were introduced at the previous meeting. And crucially, it is likely to remain strongly opposed to supporting the peripheral economies with more sovereign bond purchases, which it believes are the responsibility of other euro-zone governments. With effective overnight interest rates already at just 0.3 per cent, the effect of the cut on the wider economy is likely to be limited. It will still make a positive contribution to the banks that now pay a lower interest rate on long liquidity loans (LTRO) in the ECB. Deposit rate of zero will however make it less attractive for banks to put money in the ECB. Probably this will contribute to a shift towards deposits with other central banks (including the Fed), or short-term government notes. Bank of England kept interest rates unchanged as expected at 0.50 per cent, but decided to increase the quantitative easing by GBP 50 billion to GBP 375 billion. This was widely anticipated, after four of the members wanted to increase purchases at the previous meeting. In China, the central bank decided to cut key rates. One year lending rate was reduced by 31 bps to 6.0 per cent while one-year deposit rate was reduced by 25 bps to 3.0 per cent. The cuts take effect on the coming Friday. Moreover, banks' reserve requirements were reduced. The central bank cut interest rates in early June and we expected that it would cut interest rates 1 to 2 more times this year. Yesterday's action was somewhat faster than we anticipated. Today, the U.S. employment figures for June are likely to get the most attention. According to Bloomberg analysts on average expect a rise of 100'.The estimate is adjusted up after yesterday's ADP numbers rose by 176' versus forecast of 104' and initial claims fell to 374'. We expect somewhat weaker figures than consensus. kyrre.aamdal@dnb.no

SEK & 3m STIBOR 9.1 9.0 8.9 8.8 8.7 28-May 15-J un
3m ra.

2.20

2.00 5-J ul
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

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) 11:00 UK BoE, bank rate 11:00 UK BoE, QE total 11:45 EMU ESB rate meeting 14:00 USA ISM, services Todays key economic events (GMT) 08:00 Norway Manuf. production 10:00 Germany Ind. production, prel.. 12:30 USA Employment 12:30 USA Unemployment

As of July July July June As of May May June June

Unit % bill. GBP % index Unit m/m% m/m % 1000 %

Prior 0.5 325 1.00 53.7 Prior 1.1 -2.2 69 8.2

Poll 0.5 375 0.75 53.0 Poll 0.5 100 8.2

Actual 0.5 375 1.00 DNB -0.2 75 8.2

Morning Report
06.07.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 115 105 95 85 28-May 15-Jun 96 94 92 90 5-Jul
$/b

NOK TWI ra.

1.20 1.20 1.20

EUR vs GBP & CHF 0.82 0.81 0.80 0.79 5-J ul

CHF

1.20 28-May 15-Jun

GBP r.a

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

Prior 79.90 1.239 0.799 1.202 7.500 8.633 7.442 6.053 7.578 0.870 9.397 6.971 8.725 1.153 10.813

Last 79.85 1.238 0.798 1.202 7.502 8.634 7.441 6.061 7.597 0.870 9.415 6.975 8.738 1.151 10.830

% -0.1% -0.1% -0.1% 0.0% 0.0% 0.0% 0.0% 0.1% 0.3% 0.0% 0.2% 0.1% 0.1% -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 1.0267 1.0148 0.9704 20.72 6.0095 1.5529 7.7540 128.18 0.2819 2.7883 0.5628 0.8033 3.4036 1.2684 32.6120

% -0.25% 0.04% 0.08% -0.03% 0.07% 0.01% -0.02% 0.05% 0.26% 0.03% 0.09% -0.06% 0.06% 0.28% 0.30%

EURSEK & OMXS 9.1 9.0 8.9 8.8 8.7 28-May 15-Jun 500 450 400 350 5-Jul

OMXS ra. EURSEK

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

NIBOR Prior 1.98 2.29 2.60 2.76 2.51 2.80 3.09 3.37

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.96 1.90 1.90 0.31 2.28 2.14 2.14 0.55 2.61 2.40 2.40 0.86 2.75 2.53 2.53 1.03 2.51 1.80 1.80 0.83 2.81 1.93 1.93 1.13 3.10 2.08 2.08 1.48 3.37 2.24 2.24 1.85

Last 0.31 0.55 0.86 1.03 0.80 1.13 1.47 1.84

USD LIBOR Prior Last 0.25 0.25 0.46 0.46 0.74 0.74 0.91 0.91 0.61 0.61 0.94 0.92 1.31 1.30 1.74 1.73

Gov. Bonds, 10y 1.75 1.50 1.25 1.00 28-May 15-Jun

NOK, ra.

3.00 2.50 2.00 1.50 5-J ul

SEK

NORWAY Prior Last 10y /A No Data 100.00 10y yield 2.01 2.00 vs bund 0.59 0.60

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 119.17 119.21 103.3 103.23 1.41 1.41 1.42 1.40 -0.01 0.01

US Prior 101.375 1.60 0.18

Last 101.56 1.58 0.18

13.0 12.5

JPY and DowJones

81 79 77

12.0 28-May 15-Jun

75 5-Jul

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
% 0.09 0.19 - 0.04 0.01 - 0.0 Last 101.9 100.7 1604.0

US 3m libor 10y 0.50 0.50 0.50

swap 2.25 2.50 3.00

% : : 0.1% -1.2% -0.4% 0.0% -0.8% -0.1% 0.6%

USDJPY ra. DowJones, 1000

USD and gold 1670 1620 1570 1520 28-May 15-Jun

EURUSD ra.

1.28 1.26 1.24 1.22 1.20 5-Jul

Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today SEP 2.16 2.14 0.02 NOK 93.86 DEC 2.03 2.04 -0.01 SEK 114.97 MAR 2.03 2.04 -0.01 EUR 98.92 JUN 2.05 2.05 0.00 USD 82.84 FRA SEK 3m Prior chg GBP 83.30 SEP 1.91 1.93 -0.02 Comm. Today DEC 1.73 1.75 -0.02 Brent spot 101.9 MAR 1.64 1.66 -0.02 Brent 1m 100.0 JUN 1.63 1.64 -0.02 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 12,896.7 Nasdaq 2,976.1 FTSE100 5,692.6 Eurostoxx50 2,284.9 Dax 6,535.6 Nikkei225 9,020.8 Oslo 412.04 Stockholm 489.27 Copenhagen 604.04

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