Morning report

China slows down

18-Oct-2011
The Chinese economy is slowing down, and German authorities seek to lower the market's expectations for a grand solution at Sunday's summit. Investors are reacting by seeking "safe havens". The German finance minister Schuble and Merkel's spokesperson Seibel poured cold water on increasingly optimistic investors yesterday, ahead of the European Council meeting on Sunday. Schuble said that there would be no definitive solution within Monday, but a five-point-plan for further action. Seibel followed up saying that " the dreams building up that this package will mean everything will be solved and over by Monday cannot be fulfilled". The politicians are evidently in need of more time, but we continue to expect a largescale package to be launched within this year. The market situation is untenable, and European banks are struggling. The rating agency Moody's warned yesterday that France is in danger of being put on the list of nations with a negative outlook within the next three months, as was the case with the US this August. In that case France may loose its top rating (Aaa) within the next couple of years. Moody's is concerned that the costs of supporting French banks as well as other euro members many have too adverse consequences for public budgets. Meanwhile politicians in the most heavily indebted euro countries are struggling to obtain a minimum support for the tough austerity measures among the population. General strikes are about to be carried through in Greece and Portugal. The Portuguese government launched a budget proposal yesterday featuring increased taxes and deep cuts in public spending which is supposed to bring the budget deficit down from 5.9% of GDP this year to 4.5% next year. According to the government, these measures will lead to a contraction of the economy by 2.8% in 2012, even more than the 1.9% contraction that is expected this year. Investors were disappointed by statements from German officials, after having been encouraged by the clear statement from G20 finance ministers this weekend. They reacted by going into safe havens. Global stock markets fell, while the price of US and German government bonds rose. Yen and Swiss Franc appreciated, while the euro and the Scandies depreciated. This negative tendency has strengthened during the Asian session, after Chinese GDP figures were marginally weaker than expected. Growth slowed down from 9.5% y/y in Q2 to 9.1% in Q3. Even though the annual rate is the weakest since Q2 2009, we are neither surprised nor worried about what should be characterized as a soft landing for the Chinese economy. The authorities have implemented various tightening measures for some time now, i.e. hiking rates and increasing the capital requirements of banks, in order to curb inflation. Chinese export has been hit by low demand from Europe and the US. Moreover, the government has signaled that they will tolerate weaker growth ahead, in order to allow a necessary structural change in the economy, from being heavily reliant on investments to being more balanced. We expect China's GDP to grow by 8% next year. The US economy seems to be developing stronger than feared in Q3. Manufacturing production was stronger than expected (+0.4%) in September, featuring the third consecutive month of solid growth. Some of it is due to a rebound in car production, after disruptions in the supply chain in the wake of the Japanese earthquake in March. Still, excluding cars, production rose by 0.3%, and production of investment equipment like computers and electronics growth rose by 1.0% m/m. Today's most important macro releases are the ZEW-index, which measures German investors' sentiment, and UK inflation. The latter is expected to rise from 4.5% in August to 4.9% in September. We expect Norway's Q3 lending survey to show a further increase in household credit demand. We will also be looking for possible negative effects on credit demand and/or supply from/to non-financial corporation, given the increased strain in financial markets lately kjersti.haugland@dnbnor.no Yesterday's key economic events (GMT) 12:30 USA Empire state (NY Fed) 13:15 USA Industrial production 02:00 China GDP Todays key economic events (GMT) 08:30 UK CPI 09:00 Germany ZEW index 14:00 USA NAHB housing market index As of Oct Sep Q3 As of sep Oct Oct Unit Index m/m % y/y % Unit y/y % Index Index Prior -8.8 0.0r 9.5 Prior 4.5 -43.3 14 Poll Actual -4.0 -8.5 0.2 0.2 9.2 9.1 Poll DnB NOR 4.9 -45.0 15

NOK & 3m NIBOR

8.00 7.80 7.60 7.40 7-Sep 27-Sep 3m ra. 3.20 3.10 3.00 2.90 17-Oct EURNOK

SEK & 3m STIBOR

9.4 9.3 9.2 9.1 9.0 8.9 7-Sep 2.60 2.55 2.50 2.45 17-Oct EURSEK

27-Sep

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 84 62 58 37 84 95 87 41 14 09 32 28 76 04 96 74 13 60 80 60 50 69 06 27 62 50 30 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

18-Oct-2011

Morning report

Oil spot & NOK TWI

125 120 115 110 105 100 7-Sep 27-Sep NOK TWI ra. 100 98 96 94 17-Oct $/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 76.85 1.374 0.873 1.236 7.749 9.167 7.446 5.642 7.347 0.847 8.885 6.670 8.688 1.183 10.506 Last 76.82 1.375 0.871 1.234 7.755 9.183 7.446 5.642 7.350 0.845 8.912 6.684 8.702 1.186 10.551 % 0.0% 0.0% -0.2% -0.1% 0.1% 0.2% 0.0% 0.0% 0.0% -0.1% 0.3% 0.2% 0.2% 0.2% 0.4% In 1 m ...3 m 80 80 1.35 1.35 0.86 0.86 1.20 1.20 8.00 7.80 9.30 9.10 7.45 7.45 5.93 7.41 0.86 9.3 6.89 5.51 1.16 10.81 5.78 7.22 0.86 9.1 6.74 5.39 1.17 10.58 ...6 m ...12 m 80 90 1.30 1.25 0.84 0.82 1.20 1.25 7.70 7.70 9.00 9.00 7.45 7.45 5.92 6.16 7.40 6.84 0.86 0.86 9.2 9.4 6.92 7.20 5.54 6.48 1.17 1.17 10.71 10.98 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 1.0167 1.0219 0.8983 18.06 5.4179 1.5787 7.7762 115.99 0.2759 2.5127 0.5132 0.7911 3.1700 1.2698 30.9400 % 0.12% -0.14% -0.09% -0.20% -0.02% 0.27% -0.03% -0.03% -0.08% -0.09% -0.06% -0.09% -0.18% -0.37% -0.06%

EUR vs GBP & CHF

1.25 1.20 1.15 1.10 7-Sep 27-Sep GBP r.a 0.89 0.88 0.87 0.86 0.85 17-Oct CHF

Gov. Bonds, 10y

2.25 2.00 1.75 1.50 7-Sep 27-Sep NOK, ra. 3.00 2.80 2.60 2.40 2.20 2.00 17-Oct SEK

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

SWAP AND MONE YM ARKET RATES (Source: Reuters) NIBOR STIBOR EURIBOR Prior Last Prior Last Prior Las t 2.87 2.88 2.32 2.32 1.31 1.31 3.09 3.12 2.52 2.51 1.51 1.51 3.30 3.35 2.53 2.53 1.72 1.72 3.47 3.52 2.59 2.58 1.88 1.89 3.08 3.06 2.14 2.12 1.71 1.64 3.43 3.41 2.35 2.31 2.07 2.01 3.65 3.62 2.51 2.48 2.35 2.32 3.84 3.81 2.60 2.56 2.64 2.62 GOVE RNMENT BONDS (Source: Reuters) NORWAY SWEDEN GERMANY Prior 112.82 2.74 0.60 Last 108.62 2.72 0.69

USD LIBOR P rior 0.24 0.40 0.59 0.75 0.83 1.40 1.90 2.34 US

Last 0.24 0.41 0.60 0.75 0.85 1.40 1.88 2.33

JPY and DowJones

12 11 10 7-Sep 27-Sep USDJPY ra. DowJones, 1000 78 77 76 17-Oct

10y 10y yield vs bund

In 3m 6m 12m

NORWAY 3m nibor 10y swap 3.05 4.25 3.20 4.50 3.50 4.50

Prior Last Prior Las t P rior Last 114.91 114.91 101.297 102.02 99.734375 99.89 1.93 1.93 2.14 2.02 2.16 2.15 -0.20 -0.09 0.02 0.13 INTEREST RATE FORECASTS SWEDEN GERMANY US 3m s tibor 10y swap 3m euribor 10y swap 3m libor 10y swap 2.50 3.00 1.50 3.00 0.35 3.00 2.75 3.25 1.50 3.25 0.35 3.25 2.90 3.25 1.50 3.25 0.35 3.25

2000 1900 1800 1700 1600 1500 7-Sep

USD and gold

27-Sep

1.42 1.40 1.38 1.36 1.34 1.32 17-Oct Gold

EURUSD ra.

EURSEK & OMXS

9.4 9.2 9.0 8.8 7-Sep 27-Sep OMXS ra. 450 430 410 390 370 350 17-Oct EURSEK

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

3m 2.88 2.63 2.53 2.53 3m 2.31 1.98 1.88 1.87

Prior 2.89 2.67 2.57 2.57 Prior 2.32 2.01 1.90 1.89

chg -0.01 -0.04 -0.04 -0.04 chg 0.00 -0.02 -0.03 -0.03

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

Today 96.96 121.09 107.16 77.15 79.40 Today 113.9 110.4 1682.0

% 0.05 0.37 - 0.06 - 0.06 Last 113.9 110.2 1682.0

Stock ex. Today Dow Jones 11,397.0 Nasdaq 2,614.9 FTSE100 5,436.7 Eurostoxx50 2,315.9 Dax 5,859.4 Nikkei225 8,741.9 Oslo 367.52 Stockholm 429.44 449.87 Copenhagen

% -2.1% -2.0% -0.5% -1.7% -1.8% 0.0% -0.8% -1.6% -2.1%

Morning report
18-Oct-2011
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