Morning Report

03.05.2013

ECB rate cut, new measures brewing

1.90 1.85 1.80 1.75 1.70 03-May

In line with expectations, the ECB cut its key rate at the meeting yesterday in light of continued weak economic development, now also in the core countries of the euro zone. In Norway, house prices continues to rise, but at a somewhat slower rate than before. A grave Governor Draghi announced that the ECB cut its key rate from 0.75% to 0.5% at yesterday's monetary policy meeting. It was as expected by 43 of 73 analysts polled by Reuters. Deposit rate was kept unchanged. Draghi reiterated what he said earlier that the ECB is technically ready to introduce negative interest rates if necessary, but that it carries with it a number of disadvantages. When asked, Draghi said there was a "prevailing consensus" in favor of a cut, and a "prevailing consensus" within this group was that the cut would be 25 basis points. This suggests that there were some who wanted to keep interest rates unchanged and some who wanted to cut more. The basis for interest rate was weak economic development, with monthly indicators point to continued weak sentiment. This was confirmed by the final industrial PMIs for several euro area countries earlier in the day yesterday. Although the outcome was marginally more positive than flash estimates, levels indicate declining activity in most euro area countries. It concerned the governor that unlike two months ago, the economic weakness now also includes the core countries of the euro zone. One of the ECB's major concerns is that the transmission mechanism of monetary policy is not working properly, since increased access to credit for banks does not find its way to small and medium sized enterprises. As part of efforts to improve credit access for businesses the ECB is looking at the opportunity to improve the function of the ABS market. But Draghi was unclear to how this will be done. Conversations with the European Investment Bank (EIB) and the European Commission were far from reaching any conclusion yet. House prices in Norway rose by a seasonally adjusted 0.4% from March to April, following a similar decline in March. Compared with April last year, house prices have risen 6.6%, the lowest growth in four years. Thus, it appears that the rate of growth in house prices is about to decline. We still believe in 6.5% growth in house prices for 2013 as a whole. Despite the slightly lower growth rate, the demand for housing seems to hold up. Turnover rate remains high, as does the number of unsold homes. Moreover, there are few signs that household credit growth is slowing. The credit indicator (C2) rose 6.1% y/y in March, down from 6.3% in February. The decline was due to lower debt growth for municipalities and non-financial firms. Household debt growth was in fact unchanged at 7.2%. Going forward, it is reasonable to believe that weaker income growth, rising unemployment and tighter lending standards will contribute to an even cooler housing market. The euro strengthened on the interest rate decision from the ECB, but declined sharply when Draghi reiterated that the ECB was technically ready to introduce negative interest rates. Since yesterday morning the euro is 0.8% weaker against the dollar. The development in the European stock markets was mixed yesterday, with gains in most leading indices. Oslo Brs however, developed weakest in Europe, after a weak quarterly results from Statoil. In the U.S. markets surged on increased stimulus from the ECB, as well as the weekly numbers for initial claims which fell and the trade balance for March which showed a clear (but most likely temporary) improvement. Most Asian stock markets open up today, while Japanese markets are closed. Both long and short international interest rates fell slightly yesterday, while the Norwegian short-term rates did not fall as much. Despite the fact that the isolated effect of a rate cut in the ECB, is increased the likelihood that the Norges Bank cut interest rates, the Norwegian krone appreciated slightly against the euro yesterday. U.S. employment (non-farm payrolls), by some said to be the world most important data, is the obvious highlight of the day. After nearly 200 'new jobs each of the previous five months, the 88 new jobs in March was disappointing. Several indicators have pointed towards lower economic activity and ADP figures on Wednesday from April, added to the picture. It is expected that the numbers from the BLS will show 145 'new jobs in April. We believe in 150 '. From Norway, we get the unemployment rate from NAV and the PMI index. Unemployment is expected to fall from 2.7% in March to 2.6% in April (Reuters). We expect 2.7%. The Norwegian PMI index is expected down from 50.1 to 49.9. Other key figures are PMI services from the UK, ISM services and durable goods orders from the U.S.. magne.ostnor@dnb.no Yesterdays key economic events (GMT) 07:58 EMU Manufacturing PMI 10:00 Norway Credit growth (K2) 11:45 EMU ECB interest rate decision Todays key economic events (GMT) 08:00 Norway Registred unemployment 12:30 US Non-farm payrolls 14:00 US ISM services As of Apr Mar May As of Apr Apr Apr Unit Index y/y % % Unit % 1000 Index Prior 46.5 6.3 0.75 Prior 2.7 88 54.4 Poll 46.5 6.2 0.5 Poll 2.6 145 54.1 Actual 46.7 6.1 0.5 DNB 2.7 150

Norw ay: 10y Gov't Bond 2.2 100

2.1 2.0
03-Apr
Rate

90
80 17-Apr

70 03-May
Diff (bp, rha)

Headquarter Dronning Eufemias gate 30 0191 Oslo Offices Abroad New York London Singapore Stockholm Sales Oslo (+47) Equity Fixed Income Regional Sales (+47) Bergen Bod Fredrikstad Hamar Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund Private Clients Research Regional Sales (+47) Eirik Larsen Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Martin Brter Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen Kristina Solbakken Magnus Vie Sundal

+47 03000

+ 1 212 681 2550 +44 207 283 0050 +65 6220 6144 +46 84 73 48 50

22 94 89 40 24 16 90 30

56 13 27 20 75 52 99 10 69 39 41 50 62 54 14 82 61 24 79 56 38 14 61 64 24 16 90 80 51 84 04 30 77 64 76 30 73 87 49 73 33 01 73 80 70 11 69 85 24 16 90 90

24 16 90 77

24 16 90 08 24 16 90 03 24 16 90 07 24 16 90 04 24 16 90 01 24 16 90 06 24 16 90 02

24 16 90 48 24 16 90 46 24 16 90 47 24 16 90 49 24 16 90 44 24 16 90 45 24 16 90 51 24 16 91 23

Morning Report
03.05.2013

3m LIBOR
0.135 0.130 0.125 0.120 0.115 0.29 0.28 0.28 0.27 0.27 03-May
USD (rha)

03-Apr
EUR

17-Apr

Oil price & NOK TWI

105
100

FX 0700 USD/JPY EUR/USD EUR/GBP EUR/DKK EUR/SEK EUR/CHF EUR/NOK USD/NOK JPY/NOK SEK/NOK DKK/NOK GBP/NOK CHF/NOK

Last 97.31 1.3174 0.8471 7.4563 8.5245 1.2228 7.6011 5.7712 5.93 89.22 101.99 8.978 6.220

Today 98.02 1.3074 0.8420 7.4554 8.5434 1.2222 7.5824 5.8007 5.92 88.80 101.74 9.010 6.208

Spot rates and forecasts In 1m Jul-13 Oct-13 Apr-14 FX 0700 0.7 98 100 105 110 AUD -0.8 1.30 1.32 1.33 1.34 CAD -0.6 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK 0.2 8.50 8.45 8.50 8.60 RUB 0.0 1.22 1.22 1.25 1.27 GBP -0.2 7.55 7.50 7.45 7.40 HKD 0.5 5.81 5.68 5.60 5.52 KWD -0.2 5.93 5.68 5.33 5.02 LTL -0.5 88.8 88.8 87.6 86.0 LVL -0.2 101.3 100.7 100.0 99.3 NZD 0.4 8.88 8.82 8.66 8.51 SEK -0.2 618.85 614.75 596.00 582.68 SGD

USD NOK 1.026 5.950 1.011 5.733 0.935 620.247 19.604 29.576 31.170 18.601 1.553 9.003 7.760 0.747 0.285 20.372 2.641 2.196 0.536 10.825 0.852 4.940 6.534 88.736 1.235 4.695

03-Apr

17-Apr

95 03-May
USD/b (rha)

NOK TWI

US dollar

6.0 5.8 5.6 5.4

1.35 1.30 1.25 03-May

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

Prior 1.74 1.79 1.86 2.01 1.94 2.23 2.54 2.89

Last 1.76 1.79 1.85 2.03 1.94 2.23 2.54 2.89

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

Prior 1.15 1.23 1.29 #N/A 1.29 1.53 1.78 2.04

Interest rates Last USD 1.15 1m 1.23 3m 1.29 6m #N/A 12m 1.34 3y 1.56 5y 1.81 7y 2.06 10y

Prior 0.20 0.27 0.43 0.70 0.42 0.80 1.26 1.80

Last 0.20 0.27 0.43 0.70 0.42 0.79 1.25 1.79

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

Prior 0.06 0.12 0.21 0.40 0.46 0.73 1.06 1.47

Last 0.06 0.12 0.21 0.40 0.46 0.73 1.06 1.47

Japanese yen

105.0 100.0 95.0 90.0 85.0

7.0 6.0
17-Apr

Norw ay Prior NST475 99.60 10y yld 2.04 - US spread 0.42 3m nibor 1.80 1.80 1.80

5.0 03-May
JPYNOK(rha)

Norw ay Jul-13 Oct-13 Apr-14

Governm ent bonds Last SEK Prior Last US Prior 99.83 10y 99.09 99.04 10y 103.33 2.02 10y yld 1.59 1.60 10y yld 1.63 0.40 - US spread -0.03 -0.02 30y yld 2.83 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 Jul-13 Oct-13 Apr-14 1.20 1.20 1.20 2.25 2.25 2.50 Jul-13 Oct-13 Apr-14 0.35 0.35 0.35

Last Germany Prior Last 103.39 10y 102.64 103.03 1.62 10y yld 1.21 1.17 2.82 - US spread -0.42 -0.45 10y sw ap 2.00 2.00 2.50 3m euribor 0.25 0.25 0.25 10y sw ap 1.75 1.75 2.00

Germany Jul-13 Oct-13 Apr-14

SEKNOK & CHFNOK 91 6.3

90
89

6.2
6.1

88 03-Apr 17-Apr
SEKNOK

6.0 03-May
CHFNOK (rha)

Equities
15200

14700 14200
13700 03-Apr 17-Apr 03May

490 480 470 460 450 440

NOK sov. NST20 NST21 NST22 NST471 NST472 NST475 NST475 NST475 NOK FRA JUN SEP DEC MAR

Dow Jones

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.51 1.46 -5 18.09.2013 0.38 Last 92.92 93.03 1.51 1.53 2 18.12.2013 0.63 Oil price: (Ldn,cl) 1m 1.50 1.50 0 19.03.2014 0.88 SPOT 101.98 102.62 1.19 1.17 -2 15.05.2015 2.03 Gold price 02.05.2013 PM 1.30 1.27 -3 19.05.2017 4.05 AM: 1454.8 1469.3 0.00 0.00 0 24.05.2023 10.06 Equities Today 0700 % last 2.06 1.99 -7 24.05.2023 10.06 Dow Jones 14831.58 0.9% 2.04 2.02 -3 24.05.2023 10.06 Nasdaq C. 3340.62 1.3% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6460.71 0.1% 1.73 1.81 1m 1.81 1.76 Eurostoxx50 2718.90 0.3% 1.67 1.78 3m 1.90 1.79 DAX 7961.71 0.6% 1.67 1.77 6m 1.95 1.85 Nikkei 225 13694.04 -0.8% 1.67 1.78 12m 2.05 2.03 OSEBX 476.50 -0.8% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
03.05.2013
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