Morning Report

18.01.2012

Cautious optimism
NOK & 3m NIBOR 8.00 7.80 3.20 2.90 7.60 2.60 7.40 2.30 8-Dec 28-Dec 17-Jan
3m ra. EURNOK

Chinese macro data boosted financial markets from start on Tuesday, and softened the fear of an imminent Greek default. Stock markets rose, Spanish government bond yields fell after successful auctions and the euro strengthened against the dollar. Today we present our Economic outlook, with the recent macroeconomic projections, as well as new interest rate and FX forecasts. Positive economic news from China and Europe was enough to dampen troubled financial markets on Tuesday. Positive growth figures from China the night before and an upbeat German financial sector helped lift the mood. European stock markets rose from the start, the US followed in the afternoon and Asia is also further up in the morning. Yesterday's upturn, however, could only be characterized as moderate, and several factors may have contributed to curb the recovery. The fear that a Greek bankruptcy is imminent strengthens continuously, and yesterday there were statements from the credit rating company Fitch that gained investors attention. According to Fitch, Greece is insolvent and will default. In this context, 20 March is a very important date as 14.5 billion euro of bond redemptions fall due. According to Fitch Director Edward Parker a voluntarily write down is an event that could qualify as a technical default and thus potentially trigger credit default swaps. Bad news from Greece is nothing new and the financial markets chose to focus on yesterday's positive events. On the macro front the German ZEW index was surprisingly strong. However, much of the increase can probably be attributed to the liquidity measures from the European Central Bank before Christmas. The long-term loan facilities offered by ECB has been well received, and partly contributed to lower short-term government bond yields in troubled countries. And in that context, yesterdays Spanish debt auctions must be described as successful. Spanish authorities brought in just under 5 billion euro and the interest rate was almost half of what they had to pay in similar auctions before the monetary policy meeting in December. For example, the interest rate on bonds with one year maturity fell from 4.23 to 2.05 percent. Government bond yields with longer maturities have also declined the last few weeks, and Spanish 10-year rates in the secondary market creeps down towards 5 per cent. Safer government securities with longer maturities, as German bunds and American Treasuries, fell with the stock market recovery. However, the trend reversed later in the American session due to large purchases from the Federal Reserve. In connection with the recent monetary policy stimulus, "Operation Twist", Fed plans to buy as much as 12.75 billion US dollars this week. In the foreign exchange market, the euro strengthened against the dollar. The latter has for a long time benefited from its status as a safe haven and, thus, often weakens when risk appetite improves. The movement was partly reversed after rumors of a downgrade of European banks in the wake of Friday's downgrades, and weak quarterly figures from Citygruop. With the night's upturn in Asia the euro strengthening continues. On today's calendar there are several US key figures, including producer prices, industrial production and NAHB housing market index. The latter is a survey among residential builders on existing and expected home sales. Although the housing market has picked up since the trough in early 2009, the levels are still extremely low. New housing starts are extremely low, the stock of unsold homes is huge and the prices are still falling. At 08 today (GMT), DNB presents this years first Economic Outlook (the English version will be published next week). We present our recent macroeconomic projections, as well as the new interest rate and currency forecasts. For the US we present a relatively subdued growth picture. Our main view is that the slowdown in the global economy continues, but that a new crisis is avoided. An important premise for this is that a collapse in the euro zone avoided. But as the news picture shows, such a collapse is still a possibility. In one chapter we present a possible downside scenario as a result of such a breakdown in Europe. The report will be distributed via our mailing lists and will be available on our website. maren.romstad@dnb.no Yesterday's key economic events (GMT) 08:30 UK CPI 09:00 Germany ZEW 12:30 US Empire state (NY Fed) 11:00 Canada Rate meeting Todays key economic events (GMT) 12:30 US PPI 13:15 US Industrial production 14:00 US NAHB As of Dec Jan Jan As of Dec Dec Jan Unit y/y % Index index % Unit m/m % m/m % index Prior 4.8 -53.8 9.5 1.0 Prior 0.1 -0.2 21 Poll 4.2 -49.9 11.8 1.0 Poll 0.1 0.4 21 Actual 4.2 -21.6 13.5 1.0 DNB

SEK & 3m STIBOR 9.3 9.1 8.9 8.7 8-Dec 2.80 2.70 2.60 2.50 2.40 28-Dec 17-Jan
EURSEK

3m ra.

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 FX/IR

22 94 89 40 22 01 78 20 22 01 76 50

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

55 21 95 80 75 55 87 60 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 Maren Romstad Camilla Viland Kyrre Aamdal

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 76 64 22 01 77 41 22 01 76 67

Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 78 37 22 01 77 62 22 01 76 93 22 01 76 77 22 01 77 36 22 01 78 15

Morning Report
18.01.2012

SPOT RATES AND FORECASTS

NOK TWI ra.

EUR vs GBP & CHF 1.25 1.20 1.15 0.87 0.85 0.83

0.81 1.10 8-Dec 28-Dec 17-Jan

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

Prior 76.83 1.274 0.831 1.210 7.694 8.827 7.436 6.040 7.867 0.873 9.265 6.931 9.028 1.148 10.634

Last 76.74 1.279 0.832 1.210 7.688 8.823 7.436 6.010 7.844 0.871 9.238 6.901 9.003 1.149 10.608

% -0.1% 0.4% 0.2% 0.0% -0.1% 0.0% 0.0% -0.5% -0.3% -0.1% -0.3% -0.4% -0.3% 0.1% -0.2%

In 1 m ...3 m 80 80 1.30 1.25 0.84 0.84 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 6.00 6.24 7.50 7.80 0.85 0.86 9.3 9.3 7.08 7.28 5.66 5.82 1.18 1.17 10.95 10.83

...6 m ...12 m 80 90 1.25 1.25 0.82 0.82 1.23 1.30 7.70 7.70 9.00 9.00 7.45 7.45 6.16 6.16 7.70 6.84 0.86 0.86 9.4 9.4 7.20 7.20 5.76 6.48 1.17 1.17 10.98 10.98

FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB

USD 1.0402 1.0144 0.9460 19.98 5.8146 1.5370 7.7634 124.71 0.2794 2.6996 0.5481 0.8036 3.3940 1.2801 31.5020

% 0.18% -0.08% -0.37% -0.72% -0.41% 0.19% -0.01% -0.45% -0.10% -0.44% -0.40% 0.37% -0.86% -0.43% -0.41%

EURSEK & OMXS 9.2 9.1 9.0 8.9 8.8 8-Dec 500 450 400 350 28-Dec 17-Jan
OMXS ra. EURSEK

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

NIBOR Prior 2.21 2.60 2.94 3.09 2.68 2.94 3.19 3.41

SWAP AND M ONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.23 2.34 2.35 0.76 2.64 2.61 2.61 1.16 2.97 2.68 2.68 1.45 3.12 2.73 2.73 1.64 2.68 1.84 1.84 1.28 2.95 1.94 1.95 1.62 3.20 2.12 2.11 1.96 3.43 2.25 2.25 2.29

Las t 0.75 1.15 1.45 1.64 1.28 1.64 1.98 2.30

USD LIBOR P rior 0.28 0.56 0.79 0.95 0.67 1.10 1.55 2.00

Last 0.28 0.56 0.79 0.95 0.68 1.11 1.56 2.00

Gov. Bonds, 10y 2.00 1.75 3.00 2.50 2.00

1.50 1.50 8-Dec 28-Dec 17-Jan

10y 10y yield vs bund

NORWAY Prior Last 119.5 115.50 1.91 1.92 0.11 0.12

GOVERNM ENT BONDS SWEDEN GERMANY US Prior Last Prior Las t P rior 117.808 117.79 101.879 101.79 101.26563 1.63 1.62 1.80 1.80 1.86 -0.17 -0.18 0.06

Last 101.19 1.88 0.07

13 12 11

JPY and DowJones

10 8-Dec

28-Dec

79 78 77 76 75 17-Jan

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m s tibor 10y swap 3m euribor 10y swap 2.60 3.50 2.25 2.25 1.05 2.50 2.40 3.75 1.95 2.50 0.90 2.75 2.30 4.25 1.75 3.00 0.90 3.25

US 3m libor 10y swap 0.55 2.25 0.55 2.50 0.50 3.00

USDJPY ra. DowJones, 1000

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 8-Dec 28-Dec 17-Jan
EURUSD ra. Gold

FRA NOK MAR JUN SEP DEC FRA SEK MAR JUN SEP DEC

3m 2.50 2.26 2.18 2.19 3m 2.35 1.94 1.68 1.60

Prior 2.50 2.26 2.19 2.20 Prior 2.36 1.95 1.68 1.60

chg 0.00 0.00 -0.01 -0.01 chg 0.00 -0.01 0.00 0.01

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 96.10 - 0.00 Dow Jones 12,482.1 : SEK 116.94 0.02 Nasdaq 2,728.1 : EUR 101.34 0.21 FTSE100 5,694.0 0.6% USD 80.85 - 0.31 Eurostoxx50 2,396.6 1.5% GBP 80.80 - 0.0 Dax 6,332.9 1.8% Comm. Today Last Nikkei225 8,550.6 0.0% Brent spot 111.1 111.1 Oslo 397.51 0.5% Brent 1m 112.0 111.5 Stockholm 471.01 1.1% Spot gold 1656.0 1656.0 Copenhagen 525.88 0.2% Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
18.01.2012
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