Morning report

Relief rally
28-Oct-2011
Markets reacted very positively to the agreement among the euro zone leaders. Equities, long US and Germen rates as well as the euro all surged. The question is whether this is only a relief rally or the start of a bull market. Today Norwegian unemployment is released, together with a business cycle survey for manufacturing. After some positive signs just after the agreement was finalized, markets continued to pick up yesterday. The relief over the fact that the agreement was in place seemed to be larger, even if the content was much in line with expectations. The fact that the new ECB boss (Draghi) said that the central bank will continue to buy government bonds was obviously also positive. Stock markets rose strongly both in Europe and in the US, lifted by the financial sector. The euro went strait up and reached 1.4247 vs the dollar before falling back somewhat. The trade weighted dollar fell the most in one day since March 2009. Long rates rose strongly in the US and Germany, but fell in Italy. Data from the euro zone confirmed that the economy is slowing. Consumer and business confidence both slowed in October. The overall Economic Sentiment Indicator has now fallen for eight consecutive months and points at GDP growing by less than 1%. Even if the solution to the crisis now has been launched, there is little doubt that the economies will continue to slow for some time. Tight fiscal policies and weaker external demand both h slows activity. In addition the strong euro is probably negative for the growth prospects for exports. Tightening of credit standards will probably dampen investments. US GDP grew by a healthy 2.5% in the second quarter. Both consumer demand and investments contributed by lifting GDP by 1.6% (annualized). Investments grew strongly (up almost 14%) and all three groups (housing, real estate and IT & software) all increased. Stocks subtracted 1%-points from growth while foreign trade added a little this quarter. All in all it looks good that growth is resuming after a weak second quarter. But, still growth is too slow to reduce unemployment. As expected the Swedish central bank kept the repo rate unchanged at the rate meeting yesterday. It was neither a surprise that the rate path was lowered. The new path points a rate hike in the autumn of 2012. It was also as expected that the two dissenters, Ekholm and Svensson) both wanted a lower path. However, it was a surprise that the two wanted to cut rates at this meeting and that they favoured another cut soon. Compared with the Norwegian case, domestic demand has cooled down the Sewdish economy. Riksbanken now expect that GDP will only grow by 1.5% next year, after an accumulated boost of 10%-points in 2010 and 2011. The Swedisk curency strengthened soewhat shortly after the decision, but the movementes were minor. Today retail sales and consumer confidence will be released. Data for Japanese unemployment, inflation and production were released last night. Unemployment fell to 4.1%. The downtrend seems fairly strong, but may prove temporary. Industrial production fell much more than expected in September, after having recovered during recent months. Inflation stays close to zero. In Norway claimant counnt unemployment will be released this morning. It is expected that the (unadjusted) unemployment rate will drop from 2.5% to 2.4%. A quarterly business cycle survey for manufaturing is also going to be released this morning. The main indicator has been stable for three quarters, but may fall somewhat this time due to weaker international markets. knut.magnussen@dnbnor.no Yesterday's key economic events (GMT) 07:30 Sweden Interest rate meeting 09:00 EMU Sentiment index 12:30 US GDP Todays key economic events (GMT) 08:00 Norway Gross unemployment 08:00 Norway Unemployment rate 12:30 US Private consumption As of Oct Oct Q3 As of Oct Oct Sep Unit % Index q/q ar Unit 1000 % m/m % Prior 2.0 95.0 1.3 Prior 85.7 2.5 0.2 Poll Actual 2.0 2.0 93.7 94.8 2.5 2.5 Poll DnB NOR

NOK & 3m NIBOR

8.00 7.80 7.60 7.40 19-Sep 7-Oct 3m ra. 3.20 3.10 3.00 2.90 27-Oct EURNOK

SEK & 3m STIBOR

9.4 9.3 9.2 9.1 9.0 8.9 19-Sep 2.55 2.50 2.45 27-Oct EURSEK

7-Oct

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

0.5

28-Oct-2011

Morning report

Oil spot & NOK TWI

120 115 110 105 100 19-Sep 7-Oct NOK TWI ra. 96 94 27-Oct $/b 100 98

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 75.97 1.419 0.881 1.221 7.678 8.999 7.445 5.415 7.129 0.854 8.718 6.341 8.352 1.173 10.216 Last 75.89 1.418 0.881 1.221 7.673 9.004 7.445 5.419 7.141 0.854 8.709 6.357 8.374 1.175 10.228 % -0.1% -0.1% 0.0% 0.0% -0.1% 0.1% 0.0% 0.1% 0.2% -0.1% -0.1% 0.3% 0.3% 0.2% 0.1% In 1 m ...3 m 80 80 1.40 1.35 0.88 0.86 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 5.57 6.96 0.85 8.9 6.57 5.26 1.18 10.45 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 1.23 1.25 7.70 7.70 9.00 9.00 7.45 7.45 5.92 7.40 0.86 9.2 6.92 5.54 1.17 10.71 6.16 6.84 0.86 9.4 7.20 6.48 1.17 10.98 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 1.0694 0.9928 0.8617 17.46 5.2537 1.6090 7.7694 112.73 0.2741 2.4352 0.4974 0.8209 3.0330 1.2447 29.9510 % -0.35% 0.19% 0.20% 0.26% 0.15% -0.10% 0.01% 0.10% 0.02% 0.07% 0.14% -0.27% 0.10% 0.23% 0.01%

EUR vs GBP & CHF

1.25 1.20 1.15 1.10 19-Sep 7-Oct GBP r.a 0.89 0.88 0.87 0.86 0.85 27-Oct CHF

Gov. Bonds, 10y

2.25 2.00 1.75 1.50 19-Sep 3.00 2.80 2.60 2.40 2.20 2.00 27-Oct SEK

7-Oct

NOK, ra.

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

JPY and DowJones

13 12 11 10 19-Sep 7-Oct USDJPY ra. DowJones, 1000 78 77 77 76 27-Oct

SWAP AN D MON EYMARKET RATES (Source: Reuters) N IBOR STIBOR EURIBOR Prior Last Prior Last Prior Last 2.89 2.91 2.32 2.33 1.30 1.31 3.10 3.13 2.51 2.53 1.52 1.52 3.36 3.35 2.53 2.56 1.73 1.73 3.52 3.53 2.59 2.61 1.89 1.90 3.19 3.19 2.27 2.27 1.79 1.75 3.50 3.50 2.45 2.45 2.18 2.18 3.73 3.73 2.62 2.62 2.45 2.43 3.93 3.93 2.70 2.70 2.73 2.71 GOVERNM ENT BON DS (Source: Reuters) N ORWAY SWEDEN GERMANY Prior 113.3 2.64 0.46 Last 109.20 2.65 0.40

USD LIBOR Prior 0.25 0.42 0.62 0.76 0.84 1.48 2.09 2.53 US

Last 0.25 0.43 0.62 0.77 0.83 1.46 2.01 2.52

10y 10y yield vs bund

N ORWAY In 3m 6m 12m
1.47 1.42 1.37 1.32

Prior Last Prior Last Prior 113.59 113.59 100.34 100.02 97.734375 2.05 2.06 2.18 2.25 2.39 -0.13 -0.19 0.21 INTEREST RATE FORECASTS SWEDEN GERMANY US

Last 97.89 2.38 0.13

USD and gold

2000 1900 1800 1700 1600 1500 19-Sep 7-Oct EURUSD ra.

3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 3.15 4.25 2.50 3.00 1.50 3.00 3.15 4.50 2.55 3.25 1.50 3.25 3.35 4.50 2.65 3.25 1.50 3.25

3m libor 10y swap 0.45 2.75 0.35 3.00 0.35 3.25

27-Oct Gold

EU RSEK & OMXS

9.4 9.2 9.0 8.8 19-Sep 7-Oct OMXS ra. 500 450 400 350 27-Oct EURSEK

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

3m 2.97 2.75 2.63 2.63 3m 2.52 2.21 2.11 2.08

Prior 2.97 2.75 2.63 2.63 Prior 2.52 2.21 2.11 2.08

chg 0.00 0.00 0.00 0.00 chg 0.00 0.00 0.00 0.00

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

Today 95.94 118.67 108.68 75.02 79.20 Today 113.1 111.5 1718.0

% - 0.00 - 0.02 Last 113.1 112.1 1718.0

Stock ex. Today Dow Jones 12,208.6 Nasdaq 2,738.6 FTSE100 5,713.8 Eurostoxx50 2,476.9 Dax 6,337.8 Nikkei225 9,019.2 Oslo 394.92 Stockholm 468.37 Copenhagen 487.52

% 2.9% 3.3% 2.9% 6.1% 5.3% 0.0% 3.0% 4.4% 3.9%

Morning report
28-Oct-2011
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