Morning Report

19.01.2012

IMF rumors improved market sentiment

NOK & 3m NIBOR 8.00 7.80 7.60 7.40
3m ra.

Rumors that the IMF will increase its lending capacity significantly improved the market sentiment yesterday. The euro gained vs the dollar and stock markets rose in the US and Asia.
3.20 2.90 2.60 2.30

9-Dec 29-Dec 18-J an

EURNOK

SEK & 3m STIBOR 9.3 9.1 8.9 8.7 9-Dec

3m ra.

The markets got a boost yesterday on rumors that the IMF should increase their lending capacity of 1000 billion dollars. The euro strengthened and stock markets also reacted positively. The mood fell again as it became clear that this amount was the IMF's long-term funding needs and the proposal that was discussed was about 600 billion US dollars of which 100 billion should be a buffer. The IMF currently has a lending capacity of 387 billion dollars. Hence, it is initially a matter of increasing this by 113 billion. The overall capacity is obviously too small for the IMF to be able to assist Italy if needed. In addition, it is not clear where the money will come from. Today, the G20-finance ministers will meet in Mexico and the IMF's role will obviously be an important topic at the meeting. There will also be held debt auctions both in Italy and in Spain today. After a strong drop in Norwegian long rates recently, the ten year yield rose rapidly yesterday for the second day in a row. The increase from 1.92% to 2.12% was twice as large as the day before. Interest rates are anyway still very low in a historical perspective, which is related to the considerable demand for Norwegian government bonds. Today, Norges Bank's lending survey for the fourth quarter is released. In the previous survey results showed somewhat tighter credit standards for enterprises. It seems reasonable to assume that credit practices are reported to have become tighter for households this time due to the new requirements from the Finance Authority regarding mortgages. Governor Olsen will speak today at a property conference on "The financial turmoil and Norway - what can we learn?" There were more positive news from the US economy yesterday. Manufacturing production rose by 0.9% in December, while capacity utilization rose from 77.8% to 78.1%. It was reassuring to increase after both production and capacity utilization fell in November. American industry has been expanding since the summer of 2009, and it appears that the positive trend continues. The NAHB index, which reflects the entrepreneurs' expectations, rose a surprising to 25 in January. This is the highest level since June 2007. The level is still low, but the increase shows that the housing market is now beginning to pick up. Perhaps today's figures for housing starts will be another positive surprise? In addition core inflation rate for December is out today. Otherwise weekly initial claims data will be released. The British labor market continues to weaken. Unemployment measured by the LFS survey rose from 8.3% in September (three-month average) to 8.4% in October, while the registered unemployment rate only increased by 1,200 people in December. Monthly figures show that the LFS unemployment has reached 8.6% in November. Employment declined. Wage growth remains low and fell slightly to 1.9% in November. This implies a significant drop in real wages since inflation in November was 4.8%. With continued weak growth in the economy a further rise in unemployment seems likely. We estimate an average unemployment rate of 8.9% this year. The weak trend in the labor market also suggests that the Bank of England will announce a new round of quantitative easing at the next monetary policy meeting on 9 February. In our new interest rate and currency forecasts, we have adjusted the outlook for EURUSD considerably. We now forecast a further weakening of the euro in the coming months, but then a strengthening in the second half of the year. About one year ahead we think the EURUSD will be 1.35 after having been down to 1.20 in coming months. This path is dependent on a continuation of the euro zone crisis short term, which seems reasonable given that Italy faces huge debt maturing in the period February-April and that the situation remains very precarious in Greece. knut.magnussen@dnb.no Yesterday's key economic events (GMT) 12:30 US PPI 13:15 US Industrial production 14:00 US NAHB Todays key economic events (GMT) 12:30 US Core CPI 12:30 US Housing starts 12:30 US Initial claims As of Dec Dec Jan As of Dec Dec week 2 Unit m/m % m/m % index Unit m/m % mio 1000 Prior 0.1 -0.2 21 Prior 0.2 0.685 399 Poll 0.1 0.4 21 Poll 0.2 0.683 385 Actual 0.3 0.5 25 DNB

2.80 2.70 2.60 2.50 2.40 29-Dec 18-J an

EURSEK

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
19.01.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 118 112 106 100 9-Dec 100 98 96 94 29-Dec 18-J an
$/b

NOK TWI ra.

1.25 1.20 1.15

EUR vs GBP & CHF 0.87 0.85 0.83

1.10 0.81 9-Dec 29-Dec 18-Jan

GBP r.a CHF

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

Prior 76.80 1.286 0.833 1.208 7.681 8.802 7.436 5.972 7.782 0.873 9.216 6.847 8.924 1.147 10.568

Last 76.79 1.285 0.833 1.207 7.687 8.802 7.435 5.978 7.790 0.874 9.229 6.849 8.923 1.147 10.570

% 0.0% 0.0% 0.0% -0.1% 0.1% 0.0% 0.0% 0.1% 0.1% 0.1% 0.1% 0.0% 0.0% 0.0% 0.0%

In 1 m ...3 m 77 77 1.25 1.20 0.82 0.80 1.23 1.23 7.80 7.80 9.10 9.20 7.45 7.45 6.24 6.50 8.10 8.44 0.86 0.85 9.5 9.8 7.28 7.67 5.61 5.90 1.17 1.18 11.10 11.50

...6 m ...12 m 77 85 1.20 1.35 0.80 0.85 1.23 1.30 7.65 7.65 9.00 9.00 7.45 7.45 6.38 5.67 8.28 6.67 0.85 0.85 9.6 9.0 7.50 6.67 5.78 5.67 1.18 1.18 11.25 10.59

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

USD 1.0386 1.0111 0.9396 19.84 5.7858 1.5432 7.7645 124.54 0.2791 2.6868 0.5454 0.8023 3.3825 1.2778 31.5045

% -0.38% -0.09% -0.03% -0.07% 0.03% -0.01% 0.04% 0.03% -0.03% 0.05% 0.04% -0.57% 0.21% 0.03% 0.19%

EURSEK & OMXS 9.2 9.1 9.0 8.9 8.8 9-Dec 500 450 400 29-Dec 350 18-Jan

OMXS ra. EURSEK

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

N IBOR Prior 2.23 2.64 2.97 3.12 2.69 2.98 3.23 3.45

SWAP AN D MON EYM ARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.24 2.35 2.34 0.75 2.64 2.61 2.61 1.15 2.91 2.68 2.68 1.45 3.13 2.73 2.73 1.64 2.70 1.84 1.86 1.29 2.98 1.95 1.95 1.63 3.23 2.14 2.14 1.97 3.46 2.26 2.26 2.30

Last 0.74 1.14 1.44 1.63 1.28 1.64 1.97 2.29

USD LIBOR Prior 0.28 0.56 0.79 0.95 0.70 1.13 1.57 2.04

Last 0.28 0.56 0.79 0.94 0.68 1.12 1.58 2.02

Gov. Bonds, 10y 1.75 3.00 2.50 1.50

NOK, ra.

2.00 1.50
SEK

9-Dec 29-Dec 18-Jan

10y 10y yield vs bund

N ORWAY Prior Last 117.64 113.62 2.14 2.12 0.34 0.32

GOVERNM ENT BON DS SWEDEN GERMANY US Prior Last Prior Last Prior 117.795 117.83 101.879 101.72 100.90625 1.62 1.62 1.80 1.81 1.90 -0.17 -0.19 0.10

Last 100.95 1.90 0.09

13 12 11

JPY and DowJones

10 9-Dec

29-Dec

79 78 77 76 75 18-Jan

In 3m 6m 12m

INTEREST RATE FORECASTS N ORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.40 3.50 2.15 2.25 1.05 2.50 2.30 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 0.55 0.55 0.50

swap 2.25 2.50 3.00

USDJPY ra. DowJones, 1000

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 9-Dec 29-Dec 18-Jan
EURUSD ra. Gold

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

3m 2.52 2.29 2.22 2.23 3m 2.35 1.97 1.68 1.61

Prior 2.53 2.29 2.22 2.23 Prior 2.35 1.97 1.70 1.60

chg -0.01 0.00 0.00 0.00 chg 0.00 0.00 -0.02 0.00

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 96.10 - 0.00 Dow Jones 12,579.0 0.8% SEK 116.61 - 0.06 Nasdaq 2,769.7 1.5% EUR 101.60 - 0.09 FTSE100 5,702.4 0.1% USD 80.53 0.06 Eurostoxx50 2,390.6 -0.2% GBP 80.80 - 0.0 Dax 6,354.6 0.3% Comm. Today Last Nikkei225 8,639.7 0.0% Brent spot 110.3 110.3 Oslo 396.53 -0.2% Brent 1m 111.5 110.7 Stockholm 472.80 0.4% 0.2% Spot gold 1647.0 1647.0 Copenhagen 526.90 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
19.01.2012
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