Morning Report

30.07.2012

Is the glass half full or half empty?

NOK & 3m NIBOR 7.60 7.50 7.40 7.30 19-Jun 9-Jul
3m ra.

2.40 2.30 2.20 2.10 27-Jul

EURNOK

Mario Draghis statements last Thursday continued to strengthen the markets on Friday, with a global increase in major bourses, and a decline in peripheral bond yields. Developments in the markets last week proved to be more volatile than we had anticipated in advance. It all started one and a half week ago with negative news from Spain, as Valencia announced that they will apply for financial support, with rumors of other provinces to follow. Spanish government bond yields took a large jump, and were at most at 7.6 percent. This is not sustainable over time. Neither was it positively received that Moody's put three of its triple A-rated countries in the euro zone, including Germany, on negative outlook. Maybe not very surprising in light of the increased probability those peripheral countries in the euro zone may require more financial support. The negative sentiment turned on Mario Draghi's "bumblebee" last Thursday. To quickly recapitulate: Draghi said that the ECB stands ready to do "anything" to save the euro, before he added, "and believe me, it will be enough". The statement bought the ECB and the politicians in the euro area some time to come up with possible solutions to the problems in the euro zone. The question now is what the ECB will come up with at this week's monetary policy meeting. At the last meeting the central bank cut its key rate by 0.25 percentage point to 0.75 percent - a record low for the ECB. Draghi may announce another cut this week, but apart from lower financing costs for the banks that have borrowed money from the ECB, the effect of such cut on the real economy is likely to be limited. More likely is it that the ECB will resume bonds purchases in the secondary market to bring down interest rates in exposed countries (read: Spain and Italy). Draghi noted that the ECB has an opportunity to do this if interest rates fail to reflect the underlying conditions in the concerned countries, and if this hampers the functioning of the monetary policy. There is also a possibility that the ECB grants ESM a banking license, which in turn allows the emergency fund unlimited access to funds through the ECB's market operations. It may turn out to be necessary if the Spanish authorities will apply for emergency assistance to cope with the combination of rising debt and higher debt costs while the GDP is decreasing. On Friday it became clear that the finance ministers of Spain and Germany have talked of a Spanish rescue package worth 300 bn euros. One thing seems certain: Regardless of what measures the ECB will come up with at Thursday's meeting the pressure from the markets is substantial. Since Draghi spoke on Thursday sentiment has turned 180 degrees. Spanish and Italian ten-year yields have declined by 63 and 50 basis points respectively, and the former is currently at 6.76 percent (which is still too high). The euro has appreciated considerably against other major currencies; EURUSD has risen by 1.2 percent since Thursday morning to 1.23. Also EURNOK has rebounded somewhat, and is now traded at 7.45, indicating an increase of 1.0 percent since Thursday morning. Also in the stock markets Draghi's statements were received positively, including the S&P500 up 1.7 percent on Thursday and an additional 1.9 percent on Friday. Oslo Stock Exchange is also up about 3 percent since Thursday morning. We thus appear to have ended the week with a fragile, but half full glass. In the morning hours today in continues to fill up, with a rise in bourses in Hong Kong (1.5 percent) and Japan (0.3). But a fragment of bad news is all it takes before the glass bursts and half full becomes half empty. Any action must take place within the ECB's mandate. An additional interest rate cut is probably difficult to go through with. The Bundesbank opposes purchases of government bonds and the granting of a banking license to the ESM. In addition, it is likely that Draghi expects more from euro zone politicians before the ECB does undertakes more easing. But markets expect something. If ECB disappoints the downside is large. On Friday we got US GDP figures for Q2. Growth came in at 1.5 percent annualized, as expected. Subtrend growth is partly due to weak growth in private consumption, which was 1.5 percent compared to 2.4 percent in Q1. One reason for this decline was that durables goods fell by 1.0 percent, against an increase of 11.5 percent in Q1. In addition investments disappointed somewhat after four consecutive strong quarters. This week there are many interesting events on the calendar. Today we get GDP growth in Sweden. On Wednesday we get an update on manufacturing conditions in China, the euro zone and the US, while the Fed later in the day will conclude its policy meeting. On Thursday, Bank of England and, as mentioned above, the European Central Bank will finish their respective monetary policy meetings. Friday we get another highlight, with employment in the United States in July, which is expected to rise by 100 000 (Reuters). ole.kjennerud@dnb.no Yesterday's key economic events (GMT) 12:30 USA GDP (adv.) 13:55 USA Michigan sent. Todays key economic events (GMT) 07:30 Sweden GDP 09:00 EMU Sentiment index As of Q2 July As of Q2 Jul Unit k/k, saar Index Unit k/k, % Index Prior 1.9 72.0 Prior 0.8 89.9 Poll 1.5 73.4 Poll 88.9 Actual 1.5 72.3 DNB

SEK & 3m STIBOR 9.0 8.6 8.2 19-J un 9-Jul

3m ra.

2.20 2.10 2.00 27-Jul

EURSEK

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Sales Oslo (+47) Equity Fixed Income

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

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

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Morning Report
30.07.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 115 105 95 85 19-J un 9-Jul 96 94 92 90 27-Jul
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.20 0.82 1.20 0.80 1.20 0.78 1.20 1.20 0.76 19-Jun 9-Jul 27-Jul
GBP r.a CHF

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

Prior 78.44 1.232 0.782 1.201 7.452 8.473 7.439 6.054 7.724 0.884 9.534 6.877 8.763 1.139 10.817

Last 78.40 1.229 0.783 1.201 7.451 8.461 7.439 6.067 7.740 0.882 9.524 6.887 8.782 1.137 10.813

% -0.1% -0.3% 0.0% 0.0% 0.0% -0.2% 0.0% 0.2% 0.2% -0.2% -0.1% 0.2% 0.2% -0.2% 0.0%

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.60 7.50 8.80 9.00 7.45 7.45 6.18 5.77 7.72 6.87 0.86 0.83 9.6 9.0 7.15 6.92 5.72 5.82 1.16 1.20 11.14 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 1.0460 1.0054 0.9779 20.68 6.0556 1.5704 7.7564 121.71 0.2823 2.8116 0.5674 0.8084 3.3701 1.2479 32.2183

% -0.25% 0.19% 0.25% 0.57% 0.26% -0.30% -0.02% 0.20% 0.01% 0.22% 0.25% -0.16% 0.48% -0.01% 0.56%

EURSEK & OMXS 8.9 8.7 8.5 8.3 19-Jun 9-Jul 550 500 450 400 350 27-Jul

OMXS ra. EURSEK

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

NIBOR Prior 1.90 2.20 2.44 2.55 2.42 2.71 2.97 3.25

SWAP AND MONEYMARKET RATES ST IBOR EURIBOR Last Prior Last Prior 1.88 1.86 1.86 0.11 2.18 2.07 2.07 0.29 2.43 2.32 2.31 0.60 2.55 2.42 2.41 0.78 2.41 1.75 1.74 0.71 2.71 1.91 1.89 1.08 2.93 2.09 2.08 1.47 3.25 2.28 2.28 1.89

Last 0.11 0.29 0.59 0.77 0.75 1.09 1.46 1.84

USD LIBOR Prior Last 0.25 0.25 0.45 0.45 0.72 0.72 0.90 0.90 0.54 0.52 0.86 0.85 1.24 1.24 1.67 1.67

Gov. Bonds, 10y 1.60 1.40 1.20 1.00 19-Jun 3.00 2.50 2.00 1.50 1.00 27-Jul
SEK

9-Jul

NOK, ra.

NORWAY Prior Last 10y /A No Data 100.50 10y yield 1.89 1.95 vs bund 0.52 0.56

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 118.87 118.91 103.29 103.31 101.85938 1.43 1.43 1.38 1.39 1.54 0.05 0.04 0.17

Last 101.77 1.56 0.17

13.5 13.0 12.5

JPY and DowJones

81 79 77

12.0 19-Jun

9-Jul

75 27-Jul

USDJPY ra. DowJones, 1000

USD and gold 1670 1620 1570 1520 19-Jun 9-Jul

EURUSD ra.

1.28 1.26 1.24 1.22 1.20 27-Jul

Gold

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY US 3m nibor 10y s wap 3m s tibor 10y swap 3m euribor 10y swap 3m libor 10y s wap In 3m 2.40 3.50 2.10 2.50 0.50 2.25 0.50 2.25 6m 2.50 3.75 2.05 2.75 0.50 2.75 0.50 2.50 12m 2.85 4.25 2.20 3.00 0.50 3.25 0.50 3.00 MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today % SEP 2.09 2.09 0.00 NOK 93.18 0.08 Dow Jones 13,075.7 1.5% DEC 1.92 1.93 -0.01 SEK 112.83 - 0.22 Nasdaq 2,958.1 2.2% MAR 1.91 1.92 -0.01 EUR 97.39 - 0.26 FTSE100 5,627.2 1.0% JUN 1.94 1.93 0.01 USD 82.84 0.28 Eurostoxx50 2,301.2 2.2% FRA SEK 3m Prior chg GBP 84.20 Dax 6,689.4 1.6% SEP 1.91 1.94 -0.03 Comm. Today Last Nikkei225 8,635.4 0.0% DEC 1.65 1.68 -0.03 Brent spot 107.1 107.1 Oslo 425.20 1.3% MAR 1.55 1.58 -0.02 Brent 1m 106.4 106.5 Stockholm 498.25 1.1% JUN 1.55 1.58 -0.02 Spot gold 0.0 1618.3 Copenhagen 628.82 2.1% Sources to all tables and graphics: Reuters and DNB Markets

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