Morning report

No change from the Riksbank

08-Sep-2011
The Riksbank lowered down its interest rate path yesterday. Today it is expected that ECB and BoE will hold interest rates. Dollar strengthened against a majority of major currencies yesterday, probably on expectations that Obama today will announce new measures to increase labour demand in the US. Rumours have it that Obama will announce a plan worth $300bn, which contains tax reductions, infrastructure investments and direct transfers to local governments. If Obama's plan is accepted by the congress, Fed's responsibility in improving labour market conditions will most likely be reduced. Market investors have expected that Fed will bring forward new measures under the next meeting which takes place in September. Along with a stronger dollar, stock markets around the globe have increased in value. Oslo Exchange went up by 3.8 per cent, while Nasdaq increased by 3.0 per cent. Asian stock markets also strengthened during the night. Demand for Norwegian and Swedish kroner stayed up on Wednesday, as investors seek alternative safe havens. Throughout the day both currencies appreciated against euro, and EURNOK was at its highest traded at 7.48. Later it depreciated to 7.59 which it is currently traded at. If the currencies maintain their strong position, pressure on the respective central banks will increase. It has until now been expected that both Norges Bank and the Riksbank will increase interest rates this year. However, yesterday the Riksbank lowered their interest rate path, and it seems unlikely that we will have another hike in interest rates this year. Further the Riksbank adjusted down forecasts for GDP in 2012 by 0.5 percentage points to 1.7 per cent. Inflation forecasts were also adjusted down, as they now expect CPI will be 3.0 and 2.1 percent for 2011 and 2012, respectively. It appears that market fear has eased somewhat as a German court ruling supports Germany's role in euro zone bailouts. The positive news should be taken with some reservation as future loans have to be accepted by the parliament before being granted. This may delay future loan processes and limit EFSF's ability react quickly. Nonetheless, the news has been taken positive in the markets, and has probably contributed to the stronger euro. Strong numbers from German industrial production may also have had a positive effect on euro. From June to July industrial production increased by 4.0 percent, while it was expected 0.5 percent, according to Reuters. Today the European and British central banks announce the outcome of this week's meetings. In Great Britain it has been made clear that rates will stay close to zero for a long time, and on this week's meeting it may have been discussed whether we will have a new session of quantitative easing. We think this is unlikely. Regarding the European economy we have for a longer period believed that ECB will increase rates one more time this year. The main reason for this is that inflation is still well above the bank's target, which is at 2.0 per cent. Last week's signals from Trichet indicate a somewhat more cautious ECB, as Trichet has avoided saying that there is upside risk to inflation ahead of this week's meeting. Weak economic growth and financial turmoil indicates that ECB will postpone future interest rate hikes. Market turmoil has lately increased on what we can characterize as a higher noise in Italian politics. However, on Tuesday the government announced that they will introduce new measures to enhance financial stability. Among the measures we find increased VAT, introduction of a wealth tax and delayed pension age for women. The measures are introduced after days of uncertainty, disagreement and a political mess Financial Minister Tremonti has previously opposed a higher VAT, while Prime Minister Berlusconi has blocked any introduction of a wealth tax. The markets do not seem satisfied: It is expected that a reduction in public expenses must be made to improve state financials. Pressure on the Italian economy has increased lately as interest rates on public debt have increased. 10-year bonds now yield 5.26 per cent. ole.kjennerud@dnbnor.no Yesterday's key economic events (GMT) 07:30 Sweden Meeting Riksbanken 10:00 Germany Goods production, prelim 18:00 US Beige Book Todays key economic events (GMT) 11:00 UK BoE meeting 11:45 EMU ECB meeting 12:30 USA Trade balance As of Jul As of Sep Sep Jul Unit % m/m % Unit % % Bn Prior 2.00 -1.1 Prior 0.5 1,5 -53.1 Poll 2.00 Actual 2.00 4.0

NOK & 3m NIBOR

8.20 8.00 7.80 7.60 29-Jul 18-Aug 3m ra. 3.20 3.10 3.00 2.90 2.80 7-Sep EURNOK

SEK & 3m STIBOR

9.5 9.3 9.1 8.9 8.7 29-Jul 18-Aug 2.60 2.59 2.58 2.57 2.56 2.55 7-Sep EURSEK

3m ra.
Headquarters 0021 Oslo Stranden 21 Offices Abroad New York London Shanghai Singapore Stockholm Sales Oslo (+47) Equity Fixed Income FX/IR Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund +47 03000

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850 22 94 89 40 22 01 78 20 22 01 76 50 55 75 69 61 52 61 38 22 51 77 73 33 73 21 55 39 05 72 27 07 01 67 62 58 37 84 95 87 41 14 09 32 28 76 92 96 74 13 60 80 60 50 69 06 27 62 50 69 80 89 00 09

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 Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen 22 22 22 22 22 22 22 22 22 22 22 22 22 01 01 01 01 01 01 01 01 01 01 01 01 01 76 78 78 76 76 77 76 78 77 76 76 77 78 56 03 24 63 64 41 67 37 62 93 77 36 15

Poll DnB NOR 0.5 0.5 1,5 1,5 -50.3

08-Sep-2011

Morning report

Oil spot & NOK TWI

130 110 90 70 29-Jul 18-Aug NOK TWI ra. 100 98 96 94 7-Sep $/b

SPOT RATES AND FORECASTS (Source: Reuters and DnB NOR Markets)
FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK Prior 77.26 1.410 0.882 1.210 7.598 8.971 7.448 5.392 6.976 0.848 8.628 6.368 8.238 1.182 10.179 Last 77.26 1.409 0.880 1.206 7.552 9.053 7.449 5.364 6.942 0.835 8.580 6.429 8.324 1.199 10.291 % 0.0% -0.1% -0.2% -0.3% -0.6% 0.9% 0.0% -0.5% -0.5% -1.5% -0.6% 1.0% 1.0% 1.5% 1.1% In 1 m ...3 m 80 80 1.45 1.50 0.87 0.90 1.20 1.20 7.90 7.80 9.30 9.30 7.45 7.45 5.45 6.81 0.85 9.1 6.41 5.13 1.18 10.69 5.20 6.50 0.84 8.7 6.20 4.96 1.19 10.33 ...6 m ...12 m 80 90 1.45 1.35 0.88 0.82 1.20 1.25 7.70 7.70 9.10 8.80 7.45 7.45 5.31 6.64 0.85 8.8 6.28 5.02 1.18 10.34 5.70 6.34 0.88 9.4 6.52 5.87 1.14 10.73 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 1.0608 0.9880 0.8562 17.37 5.2891 1.6003 7.7945 116.00 0.2741 2.4518 0.5040 0.8282 2.9893 1.2072 29.4760 % -0.51% 0.32% -0.24% 0.07% 0.08% 0.07% 0.00% 0.38% 0.01% 0.10% 0.14% -0.70% 0.07% -0.06% 0.01%

EUR vs GBP & CHF

1.30 1.20 1.10 1.00 0.90 29-Jul 18-Aug GBP r.a 0.89 0.87 0.85 0.83 0.81 7-Sep CHF

Gov. Bonds, 10y

2.75 2.50 2.25 2.00 1.75 29-Jul 18-Aug 2.50 2.00 7-Sep SEK 3.50 3.00

NOK, ra.

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

JPY and DowJones

14 12 10 8 29-Jul 18-Aug USDJPY ra. DowJones, 1000 81 79 77 75 7-Sep

SWAP AN D MON EYMARKET RATES (Source: Reuters) N IBOR STIBOR EURIBOR Prior Last Prior Last Prior Last 2.90 2.90 2.32 2.32 1.29 1.29 3.17 3.17 2.58 2.58 1.48 1.48 3.44 3.44 2.61 2.61 1.70 1.70 3.58 3.58 2.73 2.73 1.86 1.86 3.06 3.14 2.23 2.26 1.63 1.58 3.30 3.40 2.37 2.42 2.00 2.01 3.51 3.61 2.56 2.60 2.34 2.35 3.77 3.84 2.67 2.71 2.67 2.69 GOVERNM ENT BON DS (Source: Reuters) N ORWAY SWEDEN GERMANY Prior 117.3 2.27 0.36 Last 111.95 2.36 0.44 Prior Last Prior Last 115.222 115.85 103.166 102.99 1.90 1.86 1.91 1.92 0.00 -0.06 INTEREST RATE FORECASTS SWEDEN GERMANY

USD LIBOR Prior 0.23 0.34 0.50 0.65 0.65 1.20 1.71 2.23 US Prior 100.75 2.04 0.13 US

Last 0.23 0.34 0.50 0.65 0.67 1.23 1.74 2.25

10y 10y yield vs bund

Last 100.63 2.07 0.15

N ORWAY In 3m 6m 12m
1.46 1.44 1.42 1.40

USD and gold

1900 1800 1700 1600 1500 29-Jul 18-Aug EURUSD ra.

3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 3.20 4.25 2.65 3.00 1.65 3.00 3.50 4.50 2.85 3.25 1.70 3.25 3.70 4.50 2.90 3.25 1.70 3.25

3m libor 10y swap 0.35 3.00 0.30 3.25 0.30 3.25

7-Sep Gold

EU RSEK & OMXS

9.4 9.3 9.2 9.1 9.0 29-Jul 18-Aug OMXS ra. 500 480 460 440 420 400 7-Sep EURSEK

FRA NOK SEP DEC MAR J UN FRA SEK SEP DEC MAR J UN

3m 3.08 2.89 2.72 2.69 3m 2.60 2.44 2.20 2.07

Prior 3.06 2.84 2.64 2.62 Prior 2.58 2.42 2.16 2.02

chg 0.02 0.05 0.08 0.07 chg 0.02 0.02 0.03 0.05

TWI NOK SEK EUR USD GBP Comm. Brent spot Brent 1m Spot gold

Today 94.45 119.27 108.56 75.52 78.90 Today 115.2 113.9 1895.0

% - 0.58 0.79 0.00 0.02 0.13 Last 119.4 115.8 1810.0

Stock ex. Today Dow Jones 11,414.9 Nasdaq 2,548.9 FTSE100 5,318.6 Eurostoxx50 2,151.2 Dax 5,405.5 Nikkei225 8,763.4 Oslo 364.22 Stockholm 423.67 Copenhagen 460.96

% 2.5% 3.0% 3.1% 3.4% 4.1% 0.0% 3.8% 3.5% 3.4%

Morning report
08-Sep-2011
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