Investment Research

13 May 2011

Weekly Focus
Debt crisis intensifying
Market Movers ahead
• The sovereign debt crisis in Europe should once again top the agenda in a week when
EU Finance Ministers are likely to approve the loan package for Portugal and devote a Contents
lot of energy and attention to discussing the outlook for Greece. Market movers ahead ............................................. 2
Global Update ................................................................... 5
• The US budget debate could resurface in the coming week, with the US set to exceed
Scandi Update .................................................................. 7
its debt ceiling once again.
Latest research from Danske Bank .......... 9
• US housing market data and the Philly Fed survey are due out in the week ahead. Interest rates: Greece and Portugal in
the limelight.....................................................................10
FX: New forecasts ....................................................11
Global Update Commodities: Consolidation after the
• Political statements from Finland and Germany indicate that EU members could be sell-off ....................................................................................12
ready to back another bailout package for Greece. Credit: From Portugal to Greece...............13
Financial Views ...........................................................14
• Strong GDP numbers out of Germany and France support the outlook for another Macroeconomic forecast ................................16
ECB rate hike in July. Financial forecast .....................................................17
Calendar .............................................................................18
• US consumer spending disappointed slightly, but the setback is likely to be
temporary.

• Chinese GDP growth slows as inflation remains high.

Financial views
• The Swedish economy surprised on the upside in spite of weak consumer spending,
while Danish exports performed below expectations. As expected, the Norwegian Major indices
13-May 3M 12M
central bank hiked rates in the past week.
10yr EUR swap 3.46 3.70 3.90
EUR/USD 143 148 138

Research picks of the week 13-May 6M 12-24M

S&P500 1335 0-5% 15-20%
• Greek debt restructuring difficult to avoid Read more on page 17
Source: Danske Bank
• UK Research: Ten good reasons why the Bank of England will keep rates unchanged
in 2011

• Flash Comment – US: Still healthy retail sales

Greek government bondholders China’s import growth slowing sharply

65 % 3m/3m Diffusion 30
Greek banks
60 20
Greek Central Bank << Imports, SA
63 10
Other domestic 55
106
15 EU, IMF
0 Editors
12
50
ECB -10
32 45 Allan von Mehren
German banks Purchase of inputs, HSBC PMI >> -20
20
26
47
French banks 40 Imports, NBS PMI >> -30 +45 4512 8055
7
alvo@danskebank.dk
Other banks 35 -40
other foreign 04 05 06 07 08 09 10 11
i t Steen Bocian
Source: BIS, IMF, Danske Markets estimates Source: Reuters Ecowin, Danske Markets +45 45 12 85 31
steen.bocian@danskebank.dk

Important disclosures and certifications are contained from page 20 of this report.

www.danskeresearch.com
Weekly Focus

Market movers ahead

Global
 The main focus in the US will be data for Philadelphia Fed survey, which fell quite
Philly Fed should bounce after last
strongly last month. Philly Fed also disappointed sharply last year but the weakness
month’s big decline
was never mirrored in ISM. We look for a slight rebound to 20 in May from 18.5 in 65 Index
<< USA ISM manufacturing Net bal
April as other indicators such as factory orders still point to decent growth in 60
40

manufacturing. The Empire survey is also released and will probably give back some 55 20
50
of the gains seen in recent months. Next week is also the big housing week with data 0
45
-20
for housing starts, existing home sales, and the NAHB housing index. We look for a 40
-40
slight rebound in home sales but overall data is likely to still paint a downbeat picture 35
Philly Fed business confidence >>
30 -60
of housing. FOMC minutes are also released but have lost some interest after the
00 02 04 06 08 10
introduction of press conferences. US jobless claims will continue to be watched
closely as recent data has pointed to some weakness. But it has also been distorted so Source: Reuters Ecowin

we need more data to judge the underlying trend.

Finally the US budget debate looks set to resurface next week as the US debt ceiling
is likely to be surpassed early in the week. Payments can still be made until early Euro area core inflation on the rise
August, though, and hence politicians will probably take more time before striking a
deal to avoid a US default.

 The Eurogroup meeting on Monday and the Ecofin meeting on Tuesday will receive
a lot of attention. Portugal is expected to get its loan package approved and options
for Greece will be discussed. We may get a first indication of a second loan package
for Greece. There is little doubt that Greece will eventually need more money and/or a
debt restructuring, see Greek debt restructuring difficult to avoid. The IMF’s
Dominique Strauss-Khan will participate in the Eurogroup meeting, raising expectations Source: Reuters Ecowin
of a bold announcement. Nevertheless, German Chancellor Angela Merkel has said
that she will wait for the conclusions of the IMF’s fourth review (to be finalised on 30
May) before making any decisions, so expectations shouldn’t be too high.

 Euro area HICP inflation is expected to be confirmed at 2.8% on Monday (there is a

small upside risk). Focus will be on whether core inflation continues the recent
ZEW expectations declines
upward trend. We think that it may climb from 1.3% to 1.5%. If so, there should be
little doubt that Trichet will say “strong vigilance” at next month’s ECB meeting and
hike rates in July. German ZEW expectations are projected to decline slightly while
current conditions remain at elevated levels.

 UK: According to the Bank of England’s Inflation Report, CPI inflation is on track to
hit 5% y/y and remain higher than the bank’s 2% target in 2012. Our model confirms
this forecast. We expect CPI inflation to hit 4.9% in September, be above 4%
throughout the year, and stay above 3% until mid-2012 before dropping towards 2%
by spring 2013. Risk to the end-forecast is however skewed to the downside. Even Source: Reuters Ecowin

though a further rise in inflation clearly is uncomfortable for the BoE, we don’t think
it will lead to rate hikes as the economy remains too weak, see Ten good reasons why
the Bank of England will keep rates unchanged in 2011. UK rates could however rise
in panic in the meantime, before falling back as it becomes clear that the MPC will be
at a record-low for longer than generally perceived. Our projection is that data next
week will show CPI rose by 0.6% m/m in April, leaving the annual pace unchanged at
4.0% y/y. CPI usually rises 0.4% m/m in April.

2| 13 May 2011
www.danskeresearch.com
Weekly Focus

 The Bank of England Minutes will also be interesting as some of the less aggressive
hawks – Weale and Dale – might have changed votes from preferring hikes to keeping
rates on hold due to softer data. A change in the voting result from 6-3 to 7-2 or even
8-1 (über-hawk Sentance has most likely not changed his call for a 50bp hike) could
lead to lower UK rates and weaker sterling. If the 6-3 result is repeated, we don’t
expect much market impact.
Japan’s GDP expected to contract in
 CPI data released earlier this week in Switzerland came in short of market Q1
expectations, indicating limited price pressure in Switzerland for the time being. 10 % q/q AR % q/q 10
<<GDP
Coupled with a strong Swiss franc, an early June rate hike appears less likely. This 5 5
0
weighed temporarily on the Swiss franc, which nonetheless was soon bought again – 0
-5 -5
the franc being the most obvious hedge in the currency market against European debt -10 -10
concerns. The coming week will also see speeches from both SNB’s Jordan (Tuesday) -15 Industrial production>> -15
and Danthine (Friday). -20 -20
-25 -25
 In Asia, the main event next week is the release of Q1 GDP in Japan. We expect 06 07 08 09 10 11 12

GDP to have contracted 1.3% q/q AR following a similar contraction in the previous
Source: Reuters Ecowin and Danske Markets
quarter. The main explanation is of course a very weak March in the wake of the
earthquake and tsunami on 11 March. We expect domestic demand to have been
broadly flat in Q1 and foreign trade to have subtracted slightly from growth. The
biggest drag on growth in Q1 has probably been inventories, which expect to have
subtracted close to one percentage point from GDP growth in Q1. However, as seen in
the chart, the biggest negative impact on GDP growth will be in Q2, where we
currently forecast GDP will contract 4-5% q/q AR.

We do not expect any major news in connection with the Bank of Japan’s (BoJ)
monetary meeting on Friday. BoJ is currently in wait and see mode, where it wants a
clearer view of the impact on the economy from the earthquake before it decides on
any additional easing measures. In addition, it should be remembered that there is
already considerable room to purchase financial assets and expand BoJ’s balance
sheet within the easing measures already announced. Of its JPY10trn asset purchase
programme, so far less than JPY4trn has been utilised. It appears that BoJ’s own
macroeconomic forecast also assumes a contraction in GDP in Q1 and Q2 and for that
reason it now looks most likely that BoJ will not expand its asset purchases further. Consumers see Denmark in decline
30 Net 30
Scandi 20
Net
20
10 10
Consum er confidence
 The most interesting release in Denmark is consumer confidence on Wednesday. 0 0
-10 -10
Unlike in most other countries, Danish consumer confidence stopped rising at the end -20 -20
-30 -30
of 2009 and has since been at levels consistent with only very modest growth in -40 -40
-50 Situation of country over year ago -50
consumption – which is exactly what has been seen in practice. The majority of -60 -60
consumers still think that the country’s economic situation is worse than a year ago, 03 04 05 0 6 07 0 8 09 10 11

which it clearly is not, but this reflects the way the political debate is focusing on the
long-term problems facing public finances. These are not new problems, but the Source: Reuters Ecowin/Danmarks Statistik

potential consequences are now clearer in the form of lower pensions, higher taxes
and cuts in public services. In the longer term, it should be good for consumer
confidence that Danish politicians are so keen to reduce a deficit which, relative to Sweden: Housing market going soft?
other countries, is not that big, but here and now it is pulling the other way. There is 12,5 % y/y 12,5
% y/y
no immediate reason why the May index should be any better, and in fact we 10,0 10,0

anticipate a small seasonal decrease. 7,5

House prices
7,5
5,0 5,0
2,5 2,5
0,0 0,0
-2,5 -2,5
07 08 09 10 11

Source: Reuters Ecowin

3| 13 May 2011
www.danskeresearch.com
Weekly Focus

 Not much interesting data is due to be released in Sweden over the coming week: only
house prices (17 May, 09:30 CET) will really be of any interest. However, the Swedish Norway: Import prices on the way up?
National Debt Office (SNDO) will release a new forecast for government finances (18
May, 09:30) and – the short version – outcomes since the last forecast has been
stronger, which means the SNDO will probably further reduce net borrowing needs, at
least short term. But the lack of bond supply should start to weigh on the market. We
believe there is a chance that the SNDO could give some indications on what to do as
the national debt approaches zero with an ever-surprising speed. So read its forecasts
carefully – we will.

 Significant releases are thin on the ground in Norway in the coming week, the sole Source: Reuters Ecowin
exception being the external trade figures for April, including price and volume
indices for Q1. We are most interested in import prices for consumer goods, which
will help give us an idea of how higher global inflation for many goods, combined
with a stronger NOK, will come to affect consumer prices. As the chart shows, prices
for consumer goods at the import level rose quite a long way in H2 10, and this began
to feed through to import prices in the CPI around new year. With commodity prices
still high, there is a risk of continued strong global inflation, which could lead to a
surprisingly powerful inflationary impulse from import prices given that NOK is
relatively strong.

Market Movers ahead

Global movers Event Period Danske Consensus Previous
Mon 16-May - EUR Eurogroup meeting
11:00 EUR HICP m/m|y/y Apr 0.5%|2.8% ...|2.8%
16:00 USD NAHB Housing Market Index Index May 17 16
Tue 17-May - EUR Ecofin meeting
- CHF SNB's Jordan speaks in Geneva
10:30 GBP CPI/HICP Inflation m/m|y/y Apr 0.6%|4.0% 0.7%|4.1% 0.3%|4.0%
11:00 DEM ZEW economic sentiment Index Apr 4.5 5.0 7.6
11:00 DEM ZEW Current situation Index Apr 86.0 88.0 87.1
14:30 USD Housing starts 1000 (m/m) Apr 570 (3.8%) 549 (7.2%)
Wed 18-May 10:30 GBP Minutes from BoE meeting
20:00 USD Minutes from FOMC meeting
Thu 19-May 1:50 JPY GDP, preliminary q/q|ann 1st quarter -0.3%|-1.3% -0.5%|-2.0% -0.3%|-1.3%
14:30 USD Initial jobless claims 1000
16:00 USD Existing home sales m (m/m) Apr 5.30 (3.9%) 5.20 (2.0%) 5.10 (3.7%)
16:00 USD Philadelphia Fed. Index May 20 20.5 18.5
Fri 20-May - JPY BoJ Monetary Policy Announcement 0.10% 0.10%
15:40 CHF SNB's Danthine Speaks at University St. Gallen

Mon 16-May 10:00 NOK Trade balance NOK bn Apr 32.3

Tue 17-May 9:30 SEK House prices SEK mn 2.035
Wed 18-May 9:00 DKK Consumer confidence index May 1.5 2.0

Source: Bloomberg and Danske Markets

4| 13 May 2011
www.danskeresearch.com
Weekly Focus

Global Update
Focus on Finland, Portugal and Greece continues
Focus this week remained on European debt woes. In Finland, an agreement between the
Greek government bond holders
two main political parties (NCP and SDP) to give its support to the Portuguese bailout
package if a list of conditions is fulfilled was reached on Wednesday night. Also the Greek banks

leader of Finland’s euro-sceptic party, the True Finns, has said he won’t join talks to form Greek Central Bank
63

a government coalition. 106

Other domestic

15 EU, IMF
12

Speculation continued about a EUR60bn aid package for Greece. On Thursday, German 32
ECB

German banks
20
finance minister Schaeuble said that Germany would back further support for Greece if 7 26
47
French banks

the country continues to have problems raising funds on markets, but only in return for Other banks

other foreign
more reforms. Greece will run out of money in 2012 unless it can secure a new rescue investors

package and/or a maturity lengthening of bonds. Greek unemployment figures for

February released on Thursday showed an increase to 15.9% up from less than 7% when Source: BIS, IMF and Danske Markets estimates
it bottomed back in early 2008.

The Survey of Professional Forecasters (SPF) inflation expectations published in the

ECB’s monthly bulletin continued to increase for expectations one and two years ahead Strong German trade data
while remaining almost unchanged (up from 1.95% to 1.96%) for five-year inflation
expectations. This gives us even more reason to expect Trichet to say “strong vigilance”
at the next meeting and then raise rates in July. The ECB’s preferred measure of market
expectations is 5y5y inflation expectations, which remain on an upward trend.

This view is also supported by data that suggests growth for the euro area as a whole
remained strong in early 2011. In Germany and France GDP growth in Q1 was a solid
1.5% q/q and 1.0% q/q, respectively. German export and import figures were also
surprisingly strong for March. Other German data has been rather soft recently and in Source: Ecowin and Danske Markets
particular the drop in retail sales in March was rather discomforting. The strong trade data
significantly reduces the likelihood that the German economy has started weakening
significantly in Q2.

US retail sales still on healthy path

US: The US consumer should recover despite weaker reading in April
The US economy continues to be in a phase of mixed data as the effect from higher oil 260
USD bln USD bln 340
330
prices still lingers. US retail sales disappointed slightly with core sales only rising 0.2% 250
Retail sales >> 320
240 310
m/m in April. However, it follows three strong months in nominal growth which 300
230
unfortunately due to the rise in inflation has translated into more moderate growth in real 290
220 280
terms. The latest decline in oil and gasoline prices will provide a renewed tailwind going 210 << Retail sales ex. autos, building
270
materials and gasoline 260
forward. And with stronger job growth, we believe consumption growth will rise to 3.0% 200 250
in Q2 and 4.0% in Q3. This will mark an end to the soft patch in the US economy. In the 05 06 07 08 09 10 11

short term, lagged effects from the softer Q1 will probably be visible in data. But as we
Source: Ecowin
get through the summer we believe a picture of a rebound in growth will materialise.

5| 13 May 2011
www.danskeresearch.com
Weekly Focus

The mixed picture currently was visible in the NFIB small business optimism index
US: Small businesses still downbeat
which declined for the second month in a row and continues to be very decoupled from
110 Index
ISM which represents large companies. This probably reflects that the domestic economy Index 60,0
105
is still under strain in some sectors – not least construction – whereas larger corporations 100
55,0

benefit more from growth outside the US. Initial jobless claims declined as expected as 95
50,0

distortions in data are fading. But we should see further declines in the coming weeks to 90 45,0
Composite ISM >>
remove the concern over recent weaker signals. Trade data showed a significant increase 85 40,0
<< NFIB small business index
rebound in export volumes in March of 3.2% m/m, putting exports back on a strong 80 35,0
98 00 02 04 06 08 10
growth trend. Thus, it still seems that growth in emerging markets is providing strong
support to the US industrial sector. Source: Reuters Ecowin

Growth slows in China, but inflation eases less than expected China’s import growth has slowed
sharply
On balance, the April data released last week suggests that growth in China has finally
65 % 3m/3m Diffusion 30
started to slow, see Flash Comment – China: Growth slows, but inflation eased less than 20
60 << Imports, SA
expected. Slower growth has for some time been evident in the PMIs but until the April 55
10

data there had been few signs of slower growth in the hard economic data. Industrial 50
0
-10
production – the most reliable indicator we have for GDP growth – was significantly 45
Purchase of inputs, HSBC PMI >> -20
weaker than expected and dropped 1.6% m/m according to our own seasonally adjusted 40 Imports, NBS PMI >> -30
numbers, albeit this to some degree was payback on relatively strong industrial 35 -40
04 05 06 07 08 09 10 11
production in the previous month. There was also evidence of weaker growth in the
foreign trade data, where China’s import growth has slowed substantially in recent Source: Ecowin and Danske Markets
months as can be seen in the chart. That said, it was not weakness across the board in
April. For example, fixed asset investment was surprisingly resilient in April.

CPI inflation in April eased slightly to 5.3% y/y from 5.4% y/y in the previous month.
Food price inflation has started to ease a bit, not least because of a drop in vegetable Money supply growth suggests that
prices (one of the main inflation drivers late last year), but on the other hand core inflationary pressure has peaked
inflation continues to edge higher, albeit it remains relatively muted at just 1.6% y/y. 10 % y/y % y/y
Money supply M2, 12M lag>> 30
However, some of our leading indicators for inflation – such as the price components in 8
<< Consumer prices
the manufacturing PMIs and not least money supply growth – suggest that inflationary 6 25

pressure has already peaked. 4

20
2
In our view, the April data is consistent with our view that GDP growth peaked in Q1 and 0
15

is poised to slow below potential in Q2 and Q3. Our view on inflation also remains -2 10
unchanged: i.e. that inflation will remain elevated around current levels until Q3, when 00 02 04 06 08 10 12

we expect it to start declining substantially. The April data does not suggest more Source: Ecowin and Danske Markets
aggressive more monetary tightening; if anything, it suggests that the pace of monetary
tightening will start to slow. We expect the People’s Bank of China (PBoC) to continue to
tighten monetary policy with two additional rate hikes before we expect PBoC to go on
hold in Q3.

6| 13 May 2011
www.danskeresearch.com
Weekly Focus

Scandi Update
Denmark: Healthy export growth in Q1
The March foreign trade figures were a disappointment, showing no change from
February. Looking at Q1 as a whole, exports were up 4.4% on Q4 last year, which has to Denmark: Exports increase in Q1
go down as a rather strong increase, and exports are one of the main things keeping the
Danish economy growing at the moment. In this context, though, it was disappointing
that the export growth in Q1 was due largely to the rapid growth seen in December and
January. The latest figures point the wrong way for exports. Even more disappointing is
that much of the growth in Q1 was due to exports of oil. This can be attributed primarily
to higher oil prices and is not therefore helping to boost economic activity in Denmark.

Consumer prices were 2.9% higher in April this year than last year, which is a shade
higher than our 2.8% forecast and an increase from 2.7% in March. One reason is higher Source: Statistics Denmark
food prices – bread, meat and coffee shot up in April – and rising petrol prices are
naturally also an important factor. The sharp increase in postage prices is also evident in
the April figures, and clothing prices are now pushing inflation up rather than pulling it
down. The statistics show that phones are 57% more expensive than a year ago.

Sweden: Set for strong Q1 GDP-growth

This week we received the last pieces of the Q1 GDP puzzle (however, we never receive
the full set of primary data, which is why deviations can still be substantial) and it seems Sweden: Industrial Production strong
we are in for another bout of very strong GDP. The Riksbank’s forecast is 6.6% y/y (cal 20 % y/y
% y/y
20
15 15
adj) and our ex ante forecast amounted to 6.8% y/y (cal adj). In Q4, preliminary GDP 10
Industrial Production
10
5 5
calculations posted a 7.3% y/y (cal adj) reading. 0 0
-5 -5
Still, production data and trade balance data imply a substantial risk of an even higher -10
-15
-10
-15
outcome. In short, our most reliable methods of estimating current GDP produce growth -20
-25
-20
-25
in the range of 6.5% to 7.5% y/y, which is why we feel compelled to hike our forecast for 07 08 09 10 11

Q1 growth to 7% y/y. Again, not all data are known – not by far – but this interval and
Source: Statistics Sweden
point forecast have historically worked quite well. The main difference between our ex
ante forecast and our new estimates is the composition. It does indeed seem like
consumption will come out even weaker than our rather pessimistic forecast implied. But
then again, strong net exports – in particular – mirrored by strong industrial production
more than compensate for the lack of consumption. Also, one might argue that this
composition is benign for future growth, since it implies stronger investments and more
employment, in turn pushing up the outlook on consumption. Inflation data were also
released this week and despite providing much of a surprise, it solidifies the view of a
rising and more broad-based inflation from, admittedly, benign levels.

In short, domestic news and data out this week further underline our scenario of a series
of Riksbank hikes near term.

7| 13 May 2011
www.danskeresearch.com
Weekly Focus

Norway: Norges Bank delivers the goods

As expected, Norges Bank raised its benchmark rate by 25bp at Thursday's rate-setting
meeting. According to the press release, the Executive Board considers developments Norway: Temporary spike in prices
since the March monetary policy report to have been "approximately as expected". When 4,0 % y/y
% y/y
4,0
3,5 3,5
it comes to new information, importance was attached to the labour market being tighter 3,0
<< CPI-ATE
3,0
than anticipated, and wage growth being "broadly in line with that projected or somewhat 2,5 2,5
2,0 CPI-XE >> 2,0
higher". This is in line with our expectations, and we believe Norges Bank will stick to its 1,5 1,5
1,0 1,0
plan of raising rates again in September and December. The April inflation figures were 0,5 0,5
surprisingly high, but this was due mainly to a sharp increase in prices for air travel, 0,0 0,0
06 07 08 09 10 11
which will probably reverse in full or in part in May. We do not therefore believe that the
April figures mark any serious sea change in Norwegian inflation, but they do serve as a Source: Reuters EcoWin
reminder that much of the downward pressure on inflation in Norway is now in the
process of reversing.

8| 13 May 2011
www.danskeresearch.com
Weekly Focus

Latest research from Danske Bank

13/5 UK Research: King is right - inflation will hit 4.9% in September

UK inflation hasn't peaked yet and will rise further according to our estimations.
We expect UK CPI inflation in April to have been 4.0% y/y.

12/5 Flash Comment - Norway: Norges Bank delivered

Norges Bank increased rates as expected. There is no change to our rate
forecasts.

12/5 Flash Comment - US: Still healthy retail sales

Retail sales were slightly softer than expected but upward revisions to past
months means the figure was close to expectations.

12/5 Research: Greek debt restructuring difficult to avoid

If Greece fails to deliver notable primary budget surpluses soon - if GDP growth
does not return, or if it cannot fund itself at reasonable rates - a debt restructuring
seems unavoidable.

11/5 Flash Comment - China: Growth slows, but inflation eased less than
expected
On balance the April data suggest that growth in China is now slowing. It appears
growth peaked in Q1 and is poised to be below trend in the coming months.

11/5 UK Research: Ten good reasons why the Bank of England will keep rates
unchanged in 2011
We do not believe the BoE will raise rates in 2011. The economy is too weak and
households are seeing their spending power eroded at the fastest rate in more
than 60 years.

9/5 Flash Comment - Norway: Time to walk the walk

We expect Norges Bank to hike interest rates by 25bp on Thursday

9| 13 May 2011
www.danskeresearch.com
Weekly Focus

Interest rates: Greece and Portugal in the limelight

Debt concerns prompted lower rates
Key events of the week ahead
In the European markets focus remains on Greece, as it is becoming an increasingly
demanding task to regain fiscal sustainability and it is not clear whether Greece is willing Data and events
to go through with this. • Ecofin/Eurogroup meeting (Mon)
Greek government bond yield spreads to Germany remain sky-high and flows into core • Eurozone final CPI (Mon)
European fixed income markets increased, leading to lower rates in Europe and a • US housing starts/permits (Tue)
significant weakening of the euro versus other major currencies. Our economists think
• US industrial production (Tue)
that the most likely scenario for Greece is a ‘mild’ restructuring involving an extension of
maturities and possibly a reduction of interest rates taking place in 2012-13. This is likely • FOMC minutes (Wed)
to be combined with a new loan package from the EU and the IMF. • US existing home sales (Thu)

Overall, we think the newsflow should turn less euro negative going forward. If a • US Philadelphia Fed (Thu)
combined package for Greece is announced, it should lower market fears of an ugly debt
restructuring scenario and help to stabilise the decline in money market rates. However, Central bank events and speeches
until the announcement, newsflow should keep market participants alert. We expect
• Fed’s Bernanke speaks (Mon)
intense newsflow surrounding the Ecofin meeting early next week.
• ECB’s Jürgen Stark speaks (Wed)
Bearing in mind the recent rise in inflation, 2.84% flash in April, the surge in SPF
• ECB’s Bini Smaghi speaks (Wed)
inflation expectations and the still strong economic data out of the eurozone, we do not
believe the debt crisis or the recent softening in oil prices is a game changer for the ECB, • ECB’s Constancio speaks (Wed)
and unless we see a more pronounced setback in data, the ECB should stay on course and • Fed’s Bullard speaks (Thu)
bring the refi rate up to 2.00% by January 2012.
• ECB’s Tumpel-Gugerall speaks
Long-end rates pushed down by declining data (Thu)
Long-end rates have continued to fall – led by US markets as economic data weakened. • Fed’s Evans speaks (Thu)
The market is starting to look overbought, but given the strong bullish momentum we • Fed’s Dudley speaks (Fri)
remain sidelined.
• ECB’s Merch speaks (Fri)
Overall, the US recovery is still on track and growth is set to reaccelerate in the coming
months. In our view, the setback in US growth during Q1 was mostly driven by higher oil
prices, bad weather and possibly some negative effect from the earthquake in Japan. Source: Danske Markets

These are all temporary factors, which will fade in the coming months and bring the
growth rate back into the 3-4% range for the remainder of the year.

Hence, we believe that we might soon be close to a trough in US bond yields, which
Fixed income looking overbought
should also help to stabilise long-end rates in Europe.
3.9 % 3.9
10yr swap rate EUR %
Yield Forecast Update – published today 3.8
3.7
3.8
3.7
3.6 3.6
The revised forecasts include minor revisions. In Europe, our forecasts are general above 3.5 3.5
forward markets, whereas the picture is less clear in the US. Overall, the recent decline in 3.4 3.4
3.3 3.3
rates provides attractive levels for hedging interest rate exposures. 3.2 3.2
10yr swap rate USD
3.1 3.1
Jan Feb Mar Apr May
11

Source: Danske Markets

Senior Analyst
Lars Tranberg Rasmussen
+45 4512 8534
laras@danskebank.dk

10 | 13 May 2011
www.danskeresearch.com
Weekly Focus

FX: New forecasts

We have published our new FX forecasts today, Friday, with updated expectations for
USD and CHF in particular. 1-week change against EUR

NZD
Weaker USD still on the cards CAD
The past month has seen huge swings in EUR/USD. The cross first climbed from levels JPY
around 1.42 in mid-April to 1.49, as the market positioned itself for signals of further rate USD
NOK
increases at the ECB meeting on 5 May. As the market priced in a 40% probability of a
SEK
June hike ahead of the meeting, and as non-commercial investors were massively long the
AUD
EUR, the market reaction proved sharp when ECB president Trichet failed to signal a CHF
hike at the following meeting. At the same time, speculation about the possible GBP
restructuring of Greek debt mounted and commodity prices nosedived, so a strong
-0.5% 0.0% 0.5% 1.0%
correction lower in EUR/USD seemed inevitable.
Source: Bloomberg
Although we do not yet know how the market’s positioning has changed in the wake of
the ECB meeting (see our update on IMM positioning data on Monday), there is much to
suggest that a large chunk of the long EUR/USD positions have been closed and that Model estimate for EUR/USD above
market positioning has become less one-sided. At the same time, pricing in the fixed 1.46
1.60 1.60
income market has become more balanced, and the two further hikes we expect from the 1.55 EUR/USD
EUR/USD
1.55

ECB this year should therefore boost the euro. The tone from the FOMC is still soft, and 1.50
1.45
1.50
1.45

we do not expect a first hike from the Fed before mid-2012. Relative monetary policy can 1.40
1.35
1.40
1.35

therefore be expected to continue to point to a weaker USD. 1.30 1.30

1.25 1.25
1.20 1.20
The European debt crisis is still a risk to our expectation of a weaker USD. Greek Aug Sep Oct
10
Nov Dec Jan Feb Mar
11
Apr May

+/- 2 stdev Model estimate Spot

finances seem unsustainable, and the risk of restructuring – which could lead to losses in
Source: Danske Markets
the European banking sector and a sell-off of EUR – is ever-present. However, our euro
economists expect further loans to be extended to Greece, so avoiding or at least deferring
such a scenario. We therefore anticipate some normalisation of the EUR risk premium in
the coming months. In this context, it should also be noted that our short-term model for
EUR/USD, which is based partly on relative interest rates, gives an equilibrium exchange
rate above 1.46.

So in the short term we expect further USD weakening, but due to a higher EUR risk
premium as a result of the debt crisis we have revised our 3M EUR/USD forecast to 1.48
(USD/DKK: 5.04). In six months we will have moved closer to the first hike from the
Fed, and we expect relative rates to gradually begin to support USD. We therefore expect
EUR/USD to trade at 1.46 (USD/DKK: 5.11) at 6M and 1.38 (USD/DKK: 5.41) at 12M.

CHF to remain strong Senior Analyst

Sverre Holbek
CHF has strengthened further as worries about Greek debt have escalated, but it is not just +45 45 14 88 82
fear that is boosting CHF. The Swiss economy is one of the strongest in Europe, and this holb@danskebank.dk

– together with low debt, a strong public budget and a current account surplus – is Senior Analyst
keeping CHF strong. Low inflation and a strong currency have pushed back the first rate Kasper Kirkegaard
+45 45 13 70 18
hike in Switzerland, but we expect higher rates there before the year is over. All in all, kaki@danskebank.dk
this suggests that CHF will stay in overvalued territory longer than previously assumed.

Important disclosures and certifications are contained from page 2 of this report.

11 | 13 May 2011
www.danskeresearch.com
Weekly Focus

Commodities: Consolidation after the sell-off

The past week has seen some consolidation in commodities after the marked sell-off
towards the end of last week: oil has recovered somewhat to trade close to the level we Weekly changes
deem reasonable in light of fundamentals and the MENA situation, grains have been sold
off after a relatively bearish USDA report while base metals are little changed on the LIFFE Wheat
week after another hike in Chinese reserve requirements dented sentiment. Gold
Copper
The monthly IEA Oil Market Report highlighted three reasons for the latest sell-off:
worries over demand destruction at elevated prices, a stronger dollar after the ECB Aluminium
meeting, and unwinding of speculative positions. We agree but would add two additional API2 coal
explanations: the market has overstated the current tightness in the oil market, and market ICE Brent
fears of Chinese growth slowing. IEA also said that OECD forward-demand cover has
declines to 58.8 days in March, mainly on seasonal factors though and due to a decline in -10 0 10
OPEC supplies following the loss of Libyan crude exports. Five-day change, %
Source: Bloomberg, Danske Markets
We are looking for oil to struggle to find a clear direction in coming weeks: on the one
hand, our FX strategists’ call for a stronger euro from current levels points to some
tailwinds, but our economists’ expectations for data to continue to point to a soft patch in
global growth should be a constraint for prices to move higher. As a result, we would not
be surprised to see Brent crude trade in the USD110-120 per barrel range for quite a Today’s key points
while. However, risks are still primarily to the upside in our view: if demand growth turns
out stronger than we currently project and/or if OPEC refrains from increasing supplies as • Mon: USDA weekly crop progress
we think it will over the summer, the oil market could tighten significantly more than the
• Tue: US housing starts
market is looking for at present and spur another round of price surges in the black gold.
• Wed: DOE weekly oil stocks
The coming week will see the release of few commodity-specific data besides the weekly
indications from USDA and DOE on crop progress and oil stocks, respectively. However,
these figures are key to watch at present due to the sensitivity of the market to the US
grains production prospects for this year and for any disruptions to oil supplies following USDA estimates of US ending stocks
the Mississippi flooding.
1000 Corn Soy Wheat
The monthly WASDE report from USDA overall stroke a bearish tone when the first
estimates for ending stocks 2011/12 were given. Notably, the report to some extent 800
reverses the picture that has been painted in grains markets recently with one-way bullish
600
views on corn, as it made clear that increased plantings of not least corn and to some
degree wheat on the back of recent price surges will in fact lead to inventories (at least in 400
the US) to be partially re-built this season. Overall, the report was bearish for corn, but
200
we think that the market may still be speculating that USDA is underestimating the
demand for corn for ethanol production, which they said in April would rise but be 0
countered by reduced feed use of the grain due to elevated prices. Indeed, note that 2012 2011
because we expect oil prices to stay elevated, corn will continue to enjoy structural Source: Bloomberg, USDA, Danske Markets.
support in the medium term in our view.
Note: all figures in mn bushels.
For wheat, the report was largely neutral in our view. Drought in key areas was viewed as
harmful for harvest yields and thus more than outweighed the small rise in plantings.
Note that the weekly crop progress came in on the weak side with first estimates in the
low-30% (compared with 60% at the same time last year). This suggests upside to our
forecast for wheat to decline - instead the downside be rather limited from here. For soy,
the picture is broadly the opposite of corn, with lower plantings weighing on ending
stocks as corn plantings have crowded out not least soybeans in US fields.

Senior Analyst
Christin Tuxen
+45 4513 7867
tux@danskebank.dk

12 | 13 May 2011
www.danskeresearch.com
Weekly Focus

Credit: From Portugal to Greece

Market commentary
It would probably be a great trip to hire a car and travel from Portugal (through Spain and
Italy) to Greece, but from a capital markets point of view, it’s not a pretty sight. This iTraxx Europe (investment grade)
week Greece returned to the headlines with speculation of an imminent debt restructuring. 250 bp

Last week Portugal agreed on a EUR78bn rescue package from the EU/IMF and the 200

European periphery debt story is alive and kicking.

150

Spreads in the CDS markets took very little notice of the Portuguese situation, as it was
100
completely expected and from a credit point of view the EUR12bn set aside to the
banking sector is actually positive. Likewise, the Greek troubles have so far not disturbed 50

spreads this week (most indices are flat compared to last week) despite the significant 0

repercussions a Greek debt restructuring, including haircuts, would imply.

apr-08 okt-08 apr-09 okt-09 apr-10 okt-10 apr-11

Source: Bloomberg, Danske Markets

That said we don’t expect a looming “hard” restructuring of Greek debt. Instead we
believe a more likely scenario is an additional bail-out package delivered by the EU and
the IMF possibly, but not likely at the current stage, combined with a “mild” restructuring
– i.e. maturity extensions and reduction of rates. But at the end of the day, it is a political
decision.

In the primary markets, investor risk appetite for financials is coming back and activity
has been picking up during the past week. We have seen RBS and Danske Bank – among
others – coming to the markets and from the Scandi corporate space we have seen
issuance from Volvo. Furthermore, SCA and SKF have started going on road shows,
which is why we expect upcoming issuance from these.

With increased risk appetite and technicals favouring credits, we don’t foresee any
change to the recent developments in both cash and CDS spreads. They are slowly
drifting tighter.

Periphery is the buzzword this week. In Ireland AIB announced the expected liability
iTraxx Crossover (high yield)
management exercise (LME) offering investors in subordinated papers to tender all
1.200 bp
outstanding sub bonds (aiming for burden sharing). The tender offer is 25% of notional
for LT2s and 10% for UT2s and T1s. In comparison, Anglo Irish Bank offered 20% and
1.000

5% respectively. 800

600

It’s a complicated process, especially for CDS holders, and certain investors have decided
to challenge the outcome by taking the case to court. For cash holders it is probably a
400

good idea to accept the offer as Finance Minister Noonan stated: “The Minister wants to 200

make it clear to investors that, if the LME fails to deliver the required core tier 1 capital 0
apr-08 okt-08 apr-09 okt-09 apr-10 okt-10 apr-11

gain to the bank, the Government will take whatever steps are necessary under the Credit Source: Bloomberg, Danske Markets
Institutions (Stabilisation) Act 2010 or otherwise, to achieve at least that level of
contribution. Any further action, after investors have had an opportunity to take part in
the LME, will result in severe measures being taken in respect of subordinated liabilities.

Chief Analyst
Thomas Hovard
+45 4512 8505
thomas.hovard@danskebank.dk

13 | 13 May 2011
www.danskeresearch.com
Weekly Focus

Financial Views
Equities
• Our six-month expectations for stock market performance remains at 0-5%, reflecting
that, shorter term, we see (1) input costs at high levels, continuing to put pressure on
Equities and US 10Y yield
company margins, (2) softer growth due to monetary and fiscal tightening, especially
1400 Index % 4.00
affecting the industrial cycle, and (3) still high energy prices cutting consumer 1350
US 10-year gov bond >>
3.75
spending. More positive numbers have started to flow from the US, supporting our 1300 3.50
1250
3.25
view that an economic soft patch is only temporary. We expect the recovery to be 1200
3.00
1150
back on track later in 2011 and hence for a 12-24 month horizon, the stock markets 1100 2.75
should follow a positive price trend (+15-20%). Key drivers are (1) continued strong 1050
<<S&P500
2.50
1000 2.25
cyclical earnings momentum (high operational gearing and positive OECD job and Jan Mar May Jul Sep Nov Jan Mar May
credit cycle), and (2) valuation support from high implied ERPs and below-trend 10 11

earnings multiples. Our key recommendation is to underweight high beta stocks, and Source: Reuters Ecowin
overweight large cap defensives with global sales, high FCF and low debt.

Fixed income
EUR/USD and USD/JPY
• Bond yields have moved lower on the back of concerns about Greece and position
150 97.5
unwinding. However, we still expect an ECB hike in July and a continuation of 145 USD/JPY>> 95.0
gradual hiking in the coming quarters. Generally, we think the correction in US, 140 92.5

German and Danish bond yields will prove temporary and that yields will resume the 135 90.0
130 87.5
upward trend in the coming month as the recovery continues and focus turns back to 125 85.0
<<EUR/USD
central bank exit strategies. 120 82.5
115 80.0
• Intra-Euroland and Scandi: We are long Germany and Italy versus Spain and France. Dec
09
Apr Jun
10
Aug Oct Dec

We also recommend buying T-bills issued from Italy, Ireland, Greece, Portugal and
Source: Reuters Ecowin
Spain. We are overweight Scandinavia versus Euroland.
Credit
• We have moved to neutral on credit after spreads have continued to tighten. The
market technicals remain supportive however with limited supply and intact demand. Credit spreads

• Companies are still acting conservatively but we think that a change in focus is 25.0 % points
22.5
% points 6.5
US credit spread (Baa)>> 6.0
currently taking place with companies focusing more on growth-oriented strategies. 20.0 5.5
17.5 5.0
Therefore, event risk is on the rise. 15.0 << Eur high yield spread 4.5
12.5 4.0
FX outlook 10.0
7.5
3.5
3.0
• The euro has not yet fully stabilised following last week’s sharp sell-off. However, we 5.0
2.5
2.5
2.0
maintain our call for higher levels in EUR/USD as the support from relative monetary 08 09 10 11

policy remains intact. However, we are more cautious in the near term as the euro
sell-off could continue on further position unwinding – especially if the correction in Source: Reuters Ecowin

commodity prices (contrary to our view) runs further. Sterling has received tailwind
from a hawkish BoE inflation report, though the struggling UK economy is likely to
rule out hikes in 2011 and keep EUR/GBP elevated going forward.
Commodity prices
• As the market has scaled back its expectations of ECB hikes, the Scandies have been USD/barrel Index 4500
110
able to reverse some of their recent losses. Furthermore, NOK has received support <<Oil (WTI) 4250
100 4000
from this week’s Norges Bank rate hike, while strong Swedish macro data have 90 3750
helped SEK. We look for further downside in both EUR/NOK and EUR/SEK. 80
3500
3250
70 3000
LME metal prices >>
60 2750
May Jul Sep Nov Jan Mar May
10 11

Source: Reuters Ecowin

14 | 13 May 2011
www.danskeresearch.com
Weekly Focus

Commodities
• We continue to see oil trading in the USD100-130/bbl interval this year and the latest
correction seems a bit overdone. If the dollar comes under renewed pressure as we
expect we should expect oil to trade higher once again. Grains and metals should also
continue to see support from the rise in energy costs (e.g. corn and aluminium) and
still-healthy global demand more broadly.

15 | 13 May 2011
www.danskeresearch.com
Weekly Focus

Macroeconomic forecast
Macro forecast, Scandinavia
Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

Denmark 2010 2.1 2.2 1.0 -4.0 0.6 3.5 2.8 2.3 6.0 -2.7 43.6 5.5
2011 2.1 1.5 -0.2 1.4 0.3 5.9 4.6 2.9 5.9 -4.1 42.4 5.8
2012 1.6 1.9 0.0 1.5 0.0 4.6 4.3 1.9 5.8 -2.9 45.2 5.3
Sweden 2010 5.3 3.6 2.2 4.6 2.1 10.7 12.7 1.2 8.4 -0.1 42.0 2.4
2011 3.5 2.5 0.6 5.9 0.1 6.9 7.3 2.2 7.4 0.3 37.0 3.1
2012 2.0 2.2 0.4 3.6 0.0 4.8 4.9 1.7 6.8 0.1 36.0 3.2
Norway 2010 2.2 3.6 2.2 -8.9 3.4 -1.3 8.7 2.5 3.6 11.8 31.0 16.0
2011 3.5 3.8 2.6 7.2 0.0 0.2 4.2 1.8 3.3 13.0 31.0 14.7
2012 3.6 4.0 2.0 7.2 0.0 0.9 5.8 1.5 2.9 13.5 - 14.5

Macro forecast, Euroland

Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

Euroland 2010 1.7 0.7 0.7 -0.9 1.4 9.7 10.1 1.6 10.0 -6.8 85.3 -0.6
2011 2.0 1.3 0.3 3.8 0.1 6.6 6.0 2.5 9.8 -5.8 88.9 -0.4
2012 1.8 1.5 0.2 4.1 0.0 5.0 4.7 1.9 9.4 -5.0 90.5 -0.1
Germany 2010 3.5 0.4 2.0 11.8 -0.1 14.4 13.8 1.2 7.3 -3.7 75.7 4.8
2011 3.0 1.6 1.1 7.5 0.0 8.6 8.5 1.6 6.7 -3.0 76.0 4.3
2012 2.3 1.9 1.0 6.0 0.0 6.0 6.2 1.8 6.2 -2.4 75.5 4.0
France 2010 1.5 1.6 1.4 -1.6 0.5 9.9 7.7 1.7 9.6 -7.7 83.0 -3.3
2011 2.1 2.0 0.4 3.0 0.1 6.8 5.9 1.6 9.4 -6.5 87.0 -3.1
2012 1.9 2.0 0.3 3.4 0.0 5.8 5.7 1.7 9.1 -6.0 90.0 -3.0
Italy 2010 1.1 0.7 -0.4 3.0 0.1 7.9 8.1 1.7 8.4 -5.0 118.9 -3.2
2011 1.6 1.0 0.1 3.9 0.1 7.7 6.4 1.8 8.5 -4.0 120.5 -3.0
2012 1.7 1.2 0.0 4.4 0.0 6.2 6.1 1.8 8.3 -3.5 120.4 -2.8
Spain 2010 -0.1 1.3 -0.7 -7.0 0.1 10.3 5.4 1.7 20.1 -9.3 64.4 -4.8
2011 0.9 0.6 -0.9 -1.9 0.0 6.2 2.7 1.4 21.0 -6.9 70.0 -4.0
2012 1.3 1.0 -0.1 3.0 0.0 5.1 4.3 1.3 20.5 -5.8 73.5 -3.5
Finland 2010 3.1 2.6 0.4 0.8 0.0 5.1 2.6 1.2 8.4 -2.5 48.4 2.9
2011 3.2 1.6 0.3 6.0 0.0 5.0 4.0 3.2 7.4 -1.5 51.0 2.1
2012 2.5 1.8 0.0 4.0 0.0 5.5 3.5 2.4 7.0 -1.0 52.5 2.3

Macro forecast, Global

Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

USA 2010 2.9 1.7 1.0 3.9 1.4 11.7 12.6 1.6 9.6 -8.8 88.6 -3.2
2011 3.1 3.1 -0.2 7.4 -0.1 10.4 7.0 2.3 8.6 -10.7 95.5 -3.4
2012 3.4 3.2 -0.5 9.3 0.2 9.1 8.4 1.3 8.0 -6.7 97.8 -3.7
Japan 2010 4.3 1.9 2.2 0.3 0.6 24.2 1.1 -1.0 4.7 -8.0 220.0 3.1
2011 1.7 0.7 1.1 2.3 0.1 7.9 6.9 0.3 4.3 -5.2 220.4 2.3
2012 1.8 1.4 0.8 1.8 0.0 6.4 5.6 0.6 - - - 2.3
China 2010 10.3 - - - - - - 3.7 4.3 -3.3 23.6 4.8
2011 9.3 - - - - - - 4.5 4.0 -2.2 20.5 5.0
2012 9.0 - - - - - - 2.9 - - - 5.4
UK 2010 1.3 0.8 0.8 3.0 1.5 5.3 8.5 3.3 8.0 -9.9 80.3 -2.5
2011 1.4 0.5 -0.2 4.1 0.0 8.7 6.8 4.0 7.6 -8.0 88.2 -2.7
2012 1.7 1.4 -1.0 6.4 -0.2 5.6 4.1 2.7 7.5 - - -2.9
Switzer- 2010 2.0 1.8 0.5 2.1 -0.7 7.0 5.0 1.0 3.8 -1.0 40.0 9.0
land 2011 1.7 1.6 1.0 1.5 -0.2 4.0 4.0 1.2 3.5 -0.5 39.0 10.0
2012 - - - - - - - - - - - -

Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.

16 | 13 May 2011
www.danskeresearch.com
Weekly Focus

Financial forecast
Bond and money markets
Key int. Currency Currency Currency
3m interest rate 2-yr swap yield 10-yr swap yield
rate vs EUR vs USD vs DKK
USD 13-May 0.25 0.26 0.75 3.30 143.2 - 520.5
+3m 0.25 0.30 1.00 3.50 148 - 504
+6m 0.25 0.40 1.35 3.60 146 - 511
+12m 0.25 0.70 1.60 3.70 138 - 541
EUR 13-May 1.25 1.42 2.29 3.46 - 143.2 745.6
+3m 1.50 1.80 2.60 3.70 - 148 746.0
+6m 1.75 2.10 2.80 3.80 - 146 746.0
+12m 2.00 2.35 3.05 3.90 - 138 746.0
JPY 13-May 0.10 0.20 0.36 1.18 115.3 80.5 6.47
+3m 0.10 0.20 0.45 1.30 122 82 6.11
+6m 0.10 0.20 0.45 1.35 124 85 6.02
+12m 0.10 0.20 0.50 1.35 120 87 6.22
GBP 13-May 0.50 0.82 1.58 3.55 88.0 162.8 847.6
+3m 0.50 0.80 1.60 3.65 92.0 161 811
+6m 0.50 0.85 1.80 3.80 89.0 164 838
+12m 0.75 1.10 2.10 4.00 86.0 160 867
CHF 13-May 0.25 0.18 0.72 2.24 126.4 88.2 590.1
+3m 0.25 0.25 0.90 2.50 130 88 574
+6m 0.50 0.50 1.20 2.60 127 87 587
+12m 1.00 1.00 1.60 2.70 127 92 587
DKK 13-May 1.30 1.46 2.47 3.63 745.6 520.5 -
+3m 1.55 1.90 2.80 3.85 746 504 -
+6m 1.85 2.20 3.00 3.95 746 511 -
+12m 2.10 2.50 3.25 4.05 746 541 -
SEK 13-May 1.75 2.46 3.14 3.64 898.6 627.4 83.0
+3m 2.00 2.60 3.30 3.75 875 591 85.3
+6m 2.50 3.05 3.95 4.05 870 596 85.7
+12m 2.75 3.30 3.75 4.05 880 638 84.8
NOK 13-May 2.25 2.64 3.61 4.44 783.7 547.2 95.1
+3m 2.25 2.90 3.95 4.80 770 520 96.9
+6m 2.50 3.20 4.20 4.85 770 527 96.9
+12m 3.25 3.80 4.40 4.95 770 558 96.9

Equity markets
Price trend Price trend Regional recommen-
Risk
6 mth. 12-24 mth. dations
Regional
USA Low 0-5% 15-20% Overweight
Japan Low 0-5% 10-20% Underweight
Emerging markets (USD) High 0-5% 15-20% Overweight
Pan-Europe (EUR) High 0-5% 15-20% Underweight
Nordics High 0-5% 15-20% Neutral

Commodities
2011 2012 Average
12-May Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012
NYMEX WTI (US$/bbl) 98 95 114 113 110 112 114 116 118 108 115
ICE Brent (US$/bbl) 113 106 122 120 116 117 118 119 120 116 119
Copper 8,700 9,624 9,900 10,000 10,100 10,200 10,300 10,400 10,500 9,906 10,350
Zinc 2,160 2,414 2,450 2,460 2,455 2,450 2,445 2,440 2,435 2,445 2,443
Nickel/1000 25 27 26 27 27 27 27 27 28 27 27
Steel 544 564 570 575 580 585 590 595 600 572 593
Aluminium 2,612 2,532 2,600 2,625 2,650 2,675 2,700 2,700 2,700 2,602 2,694
Gold 1,493 1,388 1,425 1,450 1,475 1,450 1,425 1,400 1,375 1,435 1,413
Matif Mill Wheat 230 252 240 230 220 220 220 220 220 236 220
CBOT Wheat 754 786 790 785 751 701 701 701 701 778 701
CBOT Corn 673 672 700 705 710 715 720 725 730 697 723
CBOT Soybeans 1,330 1,380 1,360 1,370 1,380 1,390 1,400 1,410 1,420 1,373 1,405

Source: Danske Markets

17 | 13 May 2011
www.danskeresearch.com
Weekly Focus

Calendar
Key Data and Events in Week 20

Monday, May 16, 2011 Period Danske Bank Consensus Previous

- USD Debt ceiling of USD 14.294 trn reached
- EUR Eurogroup meeting
1:50 JPY Machine orders m/m|y/y Mar -10.0%|-8.0% -2.3%|7.6%
1:50 JPY Domestic CGPI m/m|y/y Apr 0.4%|2.1| 0.6%|2.0%
7:00 JPY Consumer Confidence Index Apr 36.7 38.6
9:00 DKK Wholesale prices m/m|y/y Apr 1.4%|9.0%
10:00 NOK Trade balance NOK bn Apr 32.3
11:00 EUR Trade Balance, s.a. EUR bn Mar -2.4
11:00 EUR HICP m/m|y/y Apr 0.5%|2.8% ...|2.8%
11:00 EUR Core inflation m/m|y/y Apr 0.4%|1.5% …|1.3%
11:00 ITL HICP, final m/m|y/y Apr 1.1%|3.0% 1.1%|3.0%
14:30 USD Empire Manufacturing m/m May 20.00 21.70
15:00 USD Total Net TIC Flows USD bn Mar 97.7
15:00 USD Net Long-term TIC Flows USD bn Mar 26.9
15:00 USD Fed's Bernanke (voter, neutral) speaks
16:00 USD NAHB Housing Market Index Index May 17 16
18:45 CAD Bank of Canada Governor Carney speaks in Ottawa

Tuesday, May 17, 2011 Period Danske Bank Consensus Previous

- OTH Earnings: Wal-Mart, Vodafone, Dell, Home Depot
- EUR Ecofin meeting
- CHF SNB's Jordan speaks in Geneva
3:30 AUD Reserve Bank of Australia minutes May
9:30 SEK House prices SEK mn 2.035
10:30 GBP CPI/HICP Inflation m/m|y/y Apr 0.6%|4.0% 0.7%|4.1% 0.3%|4.0%
11:00 DEM ZEW economic sentiment Index Apr 4.5 5.0 7.6
11:00 DEM ZEW Current situation Index Apr 86.0 88.0 87.1
14:30 USD Housing starts 1000 (m/m) Apr 570 (3.8%) 549 (7.2%)
14:30 USD Building Permits 1000 (m/m) Apr 590 (0.9%) 585 (11.2%)
15:15 USD Industrial production m/m Apr 0.4% 0.8%
15:15 USD Capacity utilization % Apr 77.6% 77.4%

Wednesday, May 18, 2011 Period Danske Bank Consensus Previous

- OTH Earnings: Hewlett-Packard, Target
1:50 JPY Tertiary Industry Index m/m Mar -5.8% 0.8%
9:00 DKK New car sales, s.a. (Private households) m/m Apr -0.4%
9:00 DKK Consumer confidence index May 1.5 2.0
9:00 ESP GDP s.a. q/q|y/y 1st quarter
10:30 GBP Minutes from BoE meeting
10:30 GBP Average Earnings 3Ms/YoY Mar 2.0% 2.0%
10:30 GBP Unemployment % Mar 7.9 7.8
10:30 GBP Jobless Claims Change 1.000 Apr 1.0 0.7
13:00 USD MBA Mortgage Applications
20:00 USD Minutes from FOMC meeting
Source: Danske Markets

18 | 13 May 2011
www.danskeresearch.com
Weekly Focus

Calendar - continued

Thursday, May 19, 2011 Period Danske Bank Consensus Previous

1:00 USD Fed's Bullard (non-voter, hawk) speaks
1:50 JPY GDP Deflator, preliminiary y/y 1st quarter -1.9% -1.6%
1:50 JPY GDP, preliminary q/q|ann 1st quarter -0.3%|-1.3% -0.5%|-2.0% -0.3%|-1.3%
4:00 NZD New Zealand Budget
6:00 USD Fed's Dudley (voter, dove) speaks
6:30 JPY Industrial production, final m/m|y/y Mar -15.3%|-12.9%
10:30 GBP Retail Sales m/m|y/y Apr 1.5%|3.0% 1.0%|2.7% 0.2%|1.3%
14:30 USD Initial jobless claims 1000
16:00 USD Existing home sales m (m/m) Apr 5.30 (3.9%) 5.20 (2.0%) 5.10 (3.7%)
16:00 USD Leading Indicators m/m Apr 0.1% 0.4%
16:00 USD Philadelphia Fed. Index May 20 20.5 18.5
19:40 USD Fed's Evans (voter, neutral) speaks

Friday, May 20, 2011 Period Danske Bank Consensus Previous

- DKK General Prayer Day - markets closed
- JPY BoJ Monetary Policy Announcement 0.10% 0.10%
6:00 USD Fed's Dudley (voter, dove) speaks
6:30 JPY All Industry Activity Index m/m Mar -6.1% 0.7%
12:00 EUR Current account, s.a. EUR bn Mar -7.2
13:00 CAD CPI m/m|y/y Apr 0.5|3.4 1.1|3.3
14:30 CAD Retail sales m/m Mar 0.9 0.4
15:40 CHF SNB's Danthine Speaks at University St. Gallen
16:00 EUR Consumer confidence Net balanc May -11.6

During the week Period Danske Bank Consensus Previous

Wed 11 - 18 GBP Nationwide Consumer Confidence index Apr 44
Mon 16 - 18 CNY Actual FDI y/y Apr 36.1% 32.9%

The editors do not guarantee the accurateness of figures, hours or dates stated above
For furher information, call (+45 ) 45 12 85 22.

Source: Danske Markets

19 | 13 May 2011
www.danskeresearch.com
Weekly Focus

Disclosure
This research report has been prepared by Danske Reseach, a division of Danske Bank A/S ("Danske Bank"). The
authors of the research report are Allan von Mehren, Chief Analyst and Steen Bocian, Chief Economist.

Analyst certification
Each research analyst responsible for the content of this research report certifies that the views expressed in the
research report accurately reflect the research analyst’s personal view about the financial instruments and issuers
covered by the research report. Each responsible research analyst further certifies that no part of the compensation
of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed
in the research report.

Regulation
Danske Bank is authorized and subject to regulation by the Danish Financial Supervisory Authority and is subject
to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske
Bank is subject to limited regulation by the Financial Services Authority (UK). Details on the extent of the
regulation by the Financial Services Authority are available from Danske Bank upon request.

The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’
rules of ethics and the recommendations of the Danish Securities Dealers Association.

Conflicts of interest
Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high
quality research based on research objectivity and independence. These procedures are documented in the
research policies of Danske Bank. Employees within the Danske Bank Research Departments have been
instructed that any request that might impair the objectivity and independence of research shall be referred to the
Research Management and the Compliance Department. Danske Bank Research Departments are organised
independently from and do not report to other business areas within Danske Bank.

Research analysts are remunerated in part based on the over-all profitability of Danske Bank, which includes
investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate
finance or debt capital transactions.

Financial models and/or methodology used in this research report

Calculations and presentations in this research report are based on standard econometric tools and methodology
as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be
obtained from the authors upon request.

Risk warning
Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis
of relevant assumptions, are stated throughout the text.

General Disclaimer
This research has been prepared by Danske Markets (a division of Danske Bank A/S). It is provided for
informational purposes only. It does not constitute or form part of, and shall under no circumstances be
considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments
(i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or
options, warrants, rights or other interests with respect to any such financial instruments) ("Relevant Financial
Instruments").

The research report has been prepared independently and solely on the basis of publicly available information
which Danske Bank considers to be reliable. Whilst reasonable care has been taken to ensure that its contents are
not untrue or misleading, no representation is made as to its accuracy or completeness, and Danske Bank, its
affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without
limitation any loss of profits, arising from reliance on this research report.

The opinions expressed herein are the opinions of the research analysts responsible for the research report and
reflect their judgment as of the date hereof. These opinions are subject to change, and Danske Bank does not

20 | 13 May 2011
www.danskeresearch.com
Weekly Focus

undertake to notify any recipient of this research report of any such change nor of any other changes related to the
information provided in the research report.

This research report is not intended for retail customers in the United Kingdom or the United States.

This research report is protected by copyright and is intended solely for the designated addressee. It may not be
reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank’s prior
written consent.

Disclaimer related to distribution in the United States

This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer
and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S.
Securities and Exchange Commission. The research report is intended for distribution in the United States solely
to "U.S. institutional investors" as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this
research report in connection with distribution in the United States solely to “U.S. institutional investors”.

Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence
of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are
not registered or qualified as research analysts with the NYSE or FINRA, but satisfy the applicable requirements
of a non-U.S. jurisdiction.

Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial
Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non-
U.S. financial instruments may entail certain risks. Financial instruments of non-U.S. issuers may not be
registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and
auditing standards of the U.S. Securities and Exchange Commission.on request. Copyright (C) Danske Bank A/S.
All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part
without permission.

21 | 13 May 2011
www.danskeresearch.com