Morning Report

28.02.2012

Merkel got support for the rescue package

Merkel was waiting approval for the new aid package in the Bundestag. S&P downgraded Greece to "selective default", which was also expected.
3.20 2.90 2.60 2.30

18-Jan 7-Feb 27-Feb

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 18-Jan 7-Feb

2.70 2.60 2.50 2.40 2.30 27-Feb

Yesterday's vote in the German Bundestag, as expected, showed that Merkel achieved a clear majority for her views. 496 representatives supported the proposal, while 90 voted against. There were 17 opponents from Merkel's own government parties, ie some more than the previous major vote on the rescue fund in September. This may indicate that the resistance is increasing slightly. Merkel's main argument was that one can not predict the negative effects of denying Greece this aid package, citing the impact on countries like Portugal, Ireland, but also Italy and Spain. And with great uncertainty, it is according to her best to adopt a new package. If the restructuring is successful, it will reduce the risk of contagion she said. Merkel also argued to accelerate payments to ESM so that the fund will be fully capitalized in the course of two years instead of five. On the other hand, she does not want to discuss an even larger fund now. This was also the German attitude at this weekend's G20 meeting. S&P downgraded Greece from CCC to SD ie "selective default" yesterday. The reason is that Greece on Friday started the execution of the process which means that private investors take a loss on 75% of their positions (PSI). Once this process is completed, Greece will be upgraded again. The downgrade was expected and is unlikely to affect the markets. The euro appreciation, which began towards the end of last week, halted somewhat yesterday. We envision that the euro may weaken slightly against the dollar in the short term, but think the appreciation will continue in the longer term. The Greek package should be signed on Thursday, depending mainly on the Greeks, who will have to accept all the 38 requirements. Of the 38, there are 10 that have priority and will have to be in place tomorrow for the Eurogroup to give the final acceptance of the rescue package on Thursday. The next milestone is 10 March, when it becomes clear what proportion of investors who participated in the PSI. US pending home sales increased by 2% for December vs expected 1%. The outcome indicates a further rise in sales of existing homes. This was therefore probably a new sign that the turnaround in the US housing market is materializing. Today's agenda offers several figures for the US economy. The durable goods orders is expected to fall slightly in January after a strong rise in December. Exclusive of transportation, orders are expected to be unchanged. Consumer confidence from the Conference Board is expected to rise in line with the development of Michigan's index, while house prices from Case-Shiller is expected to show a decline in December. There have been significant movements in the currency markets recently. While the euro has strengthened, the weakening of the yen (against both the dollar and the euro) has become increasingly clear. For a long time the USDJPY traded at around 77, while cross has now risen to over 81 The weakening of the yen is not very surprising, but it has happened faster than we had envisaged. The yen appear overvalued in a long term perspective. In addition, the Japanese government finances are very weak and about to deteriorate further. The Japanese balance of payments is no longer as strong as it was. It has also been speculation that the Bank of Japan could start to intervene in the market to weaken the currency. We believe that the yen will weaken further vs the USD through 2012. The Norwegian NOK strengthened last week to higher levels than at any time through 2011. It seems that the marked rise in oil prices is the main reason why the NOK has strengthened. In addition, the central bank governor (Mr. Olsen) also contributed through his annual address, in which he largely ruled out further cuts in interest rates to lift inflation. The NOK has appreciated against several currencies and trade-weighted NOK is about 2% stronger than what Norges Bank assumed in its Monetary Policy Report in October. Before year end, the NOK was one per cent weaker than expected. Although the strong NOK in warrant a rate cuts in March, a number of factors count in the opposite direction. Most important is probably less risk in the euro zone, while stronger Norwegian data is pulling the same direction. We believe oil price is going to fall sharply, which may indicate a slightly weaker NOK ahead. knut.magnussen@dnb.no

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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 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 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 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

Yesterday's key economic events (GMT) 14:00 USA Pending home sales

As of Jan As of Feb Jan Feb

Unit Index % Unit Index m/m % index

Prior -3.5 Prior 93.4 2.2 61.1

Poll 1.0 Poll 93.5 0.0 63.1

Actual 2.0 DNB

Todays key economic events (GMT) 09:00 EMU Sentiment index 12:30 USA Orders, ex. transport 14:00 USA Cons. confidence, CB

Morning Report
28.02.2012

SPOT RATES AND FORECASTS

7-Feb

NOK TWI ra.

1.25 1.20 1.15

EUR vs GBP & CHF 0.87 0.85 0.83

1.10 0.81 18-Jan 7-Feb 27-Feb

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

Prior 80.56 1.340 0.847 1.205 7.513 8.843 7.436 5.610 6.963 0.851 8.881 6.601 8.194 1.177 10.441

Last 80.60 1.344 0.849 1.205 7.499 8.839 7.436 5.584 6.925 0.849 8.846 6.578 8.162 1.179 10.422

% 0.0% 0.3% 0.2% 0.0% -0.2% 0.0% 0.0% -0.5% -0.6% -0.2% -0.4% -0.3% -0.4% 0.2% -0.2%

In 1 m ...3 m 77 77 1.30 1.30 0.83 0.83 1.23 1.23 7.60 7.75 8.90 9.20 7.45 7.45 5.85 5.96 7.59 7.74 0.85 0.84 9.2 9.3 6.85 7.08 5.27 5.45 1.17 1.19 10.72 11.08

...6 m ...12 m 80 85 1.35 1.40 0.85 0.87 1.23 1.30 7.65 7.65 9.00 9.00 7.45 7.45 5.67 5.46 7.08 6.43 0.85 0.85 9.0 8.8 6.67 6.43 5.33 5.46 1.18 1.18 10.59 10.34

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

USD 1.0782 0.9956 0.8970 18.58 5.5338 1.5846 7.7548 124.84 0.2775 2.5691 0.5202 0.8417 3.1044 1.2529 28.9790

% 0.20% -0.36% -0.30% -0.30% -0.28% 0.15% -0.01% -0.22% -0.04% -0.33% -0.33% 0.17% -0.28% -0.18% -0.21%

EURSEK & OMXS 9.0 8.9 8.8 8.7 18-Jan 7-Feb 550 500 450 400 350 27-Feb

OMXS ra. EURSEK

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

N IBOR Prior 2.25 2.67 3.00 3.19 2.92 3.18 3.40 3.61

SWAP AN D MON EYM ARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.23 2.03 2.04 0.51 2.66 2.34 2.35 0.92 2.98 2.53 2.54 1.26 3.18 2.64 2.65 1.45 2.94 1.99 1.99 1.19 3.17 2.16 2.16 1.55 3.39 2.37 2.36 1.90 3.61 2.54 2.53 2.26

Last 0.51 0.92 1.25 1.44 1.20 1.55 1.91 2.27

USD LIBOR Prior 0.24 0.49 0.75 0.90 0.72 1.13 1.58 2.04

Last 0.24 0.49 0.75 0.90 0.72 1.14 1.59 2.04

Gov. Bonds, 10y 2.00 1.75 1.50

3.00 2.50 2.00 1.50

18-Jan 7-Feb 27-Feb

10y 10y yield vs bund

N ORWAY Prior Last 115.25 111.58 2.36 2.34 0.52 0.52

GOVERNM ENT BON DS SWEDEN GERMANY US Prior Last Prior Last Prior 114.889 114.89 101.555 101.58 100.67188 1.88 1.89 1.84 1.82 1.93 0.05 0.07 0.09

Last 100.55 1.95 0.13

JPY and DowJones 14 82 81 13 80 79 12 78 77 11 76 10 75 18-Jan 7-Feb 27-Feb

In 3m 6m 12m

INTEREST RATE FORECASTS N ORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.65 3.50 2.15 2.25 1.05 2.50 2.55 3.75 2.10 2.50 1.05 2.75 2.60 4.25 2.00 3.00 1.05 3.25

US 3m libor 10y 0.50 0.50 0.50

swap 2.25 2.50 3.00

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 18-Jan 7-Feb 27-Feb
EURUSD ra. Gold

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

3m 2.62 2.45 2.45 2.47 3m 2.27 1.98 1.79 1.76

Prior 2.62 2.45 2.44 2.46 Prior 2.27 1.98 1.79 1.76

chg 0.00 0.00 0.01 0.01 chg 0.00 0.00 -0.01 0.00

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 93.81 - 0.15 Dow Jones 12,981.5 0.0% SEK 116.90 0.02 Nasdaq 2,966.2 0.1% EUR 105.48 0.21 FTSE100 5,915.6 -0.3% USD 78.37 - 0.18 Eurostoxx50 2,513.1 -0.4% GBP 80.60 - 0.0 Dax 6,849.6 -0.2% Comm. Today Last Nikkei225 9,722.5 0.0% Brent spot 126.7 126.7 Oslo 428.87 0.3% Brent 1m 123.9 124.2 Stockholm 500.31 -0.6% -1.2% Spot gold 0.0 1772.0 Copenhagen 580.80 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
28.02.2012
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