Morning Report

18.09.2012

Yen weakens ahead of BoJ meeting

NOK & 3m NIBOR 7.50 7.40 7.30 7.20
3m ra.

Expectations of further expansionary measures from Bank of Japan, while riots in China hits Japanese enterprises.
2.50 2.35 2.20 2.05 1.90

8-Aug 28-Aug 17-Sep

EURNOK

SEK & 3m STIBOR 8.8 8.6 8.4 8.2 8.0 8-Aug

3m ra.

2.40 1.60 0.80 0.00 28-Aug 17-Sep

EURSEK

There was a slight correction in markets yesterday, after several strong days. Stock markets declined, and the German and US bond yields edged down again. The euro has weakened slightly against the dollar and the pound, and the Norwegian and the Swedish krona has weakened against the euro. The yen weakens as Bank of Japan today embarks on its two-day policy meeting. The decision will be announced Wednesday morning. After the launch of QE3 on Thursday, expectations are rising that the Bank of Japan will follow up with further easing. The uprising in the Chinese population against Japan's decision to buy a long-term territorial disputed island is also weighing on the yen. The riots have hit Japanese firms in China. Hundreds of shops and plants are closed, and some fear negative long-term effects on trade between China and Japan, the world's second and third largest economy, which have important trade relations. Housing market in China has worried many investors, as both investment and prices have developed very strongly over many years. Two years ago the government introduced a series of measures to curb speculation-driven price pressure. In October last year, house prices started to fall. In August house prices fell by 1.4 percent y/y, slightly less than in July (-1.5 percent). On a monthly basis, prices rose in both July and August, in August by 0.1 percent. Home prices rose in 35 of the 70 cities, less than the 49 cities in July. The government maintains the measures to curb the housing market, despite the need for stimulus in the rest of the economy. At 8AM Riksbank Governor Ingves and Deputy Governor Ekholm meet the financial committee in the Swedish Parliament for the annual hearing on monetary policy. Half an hour later minutes from the Riksbank meeting on 5 September is released. The MPC chose to deviate from its plan in July, and cut the repo rate by 25 basis points in September. Criticism had mounted in advance of the meeting, as a PMI reading indicated that the recession in the euro zone and in UK was about to hit the highly export-dependent Swedes. The strong SEK also worried commentators. EURSEK went from a peak of 9.15 on 17 May to a through of 8.18 on 10 August. Since then, some of the movement has been reversed, and the rate cut on 5 September led to a further depreciation. The level is still strong by historical standards though. EURSEK is currently traded at 8.63. Governor Ingves is part of the majority of the Monetary Policy Committee, which has long proved reluctant to cut rates further, for fear of contributing to the build-up of financial imbalances. Ekholm has for a long time, along with Svensson, constituted the minority who wants a more expansionary monetary policy. At the meeting in September, she voted against the interest rate scenario that was presented, which indicated an unchanged interest rate of 1.25 percent until the summer of 2013. She voted in favour of another 25 bp cut to 1.0 per cent in the autumn. Other important news today: British inflation is expected to have fallen from 2.6 percent in July to 2.5 percent in August. The German ZEW index is expected to be slightly less negative than in August. In the weeks ahead, we expect to see increased pressure on Spanish authorities to apply for help from the European Stabilisation Mechanism. In the absence of such an application, markets have become more wary. The Spanish 10-year yield came down from a peak of 7.6 percent 24 July to a low of 5.6 percent the day after the ECB's interest rate meeting on 6 September. Since then, they have come up again, to just above 6 percent. The conditions for US manufacturers are deteriorating. The national index, ISM, has been below 50 for the past three months, thereby indicating a drop in activity. Yesterdays Empire State index (New York Fed) was a solid disappointment, falling by 4.6 points to -10.4. This points to a further decline in the important ISM index in September, but note that the Empire State has been a quite unreliable and highly volatile indicator over the last year. Today the NAHB index is published, reporting about the situation of residential contractors in the US. It is expected increase further. kjersti.haugland@dnb.no

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56 13 27 20 75 52 99 10 69 39 41 50 62 54 14 82 61 24 79 56 38 14 61 64 22 01 76 50 51 84 04 30 77 62 96 80 73 87 49 73 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 Camilla Viland Magne stnor Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Martin Brter Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 77 41 22 01 76 57 22 01 76 67

22 01 78 37 22 01 78 34 22 01 77 62 22 01 76 77 22 01 77 36 22 01 78 15

Yesterdays key economic events (GMT) 12:30 US Empire State (NY Fed) 01:30 China House prices Todays key economic events (GMT) 07:30 Sweden Minutes Riksbank meeting 08:30 UK CPI 09:00 Germany ZEW index 14:00 US NABH index

As of Sep Aug As of Sep Aug Sep Sep

Unit Index y/y % Unit y/y % Index Index

Prior -5.9 -1.5 Prior 2.6 -25.5 37

Poll -4.0 Poll 2.5 -19.0 38

Actual -10.4 -1.4 DNB

Morning Report
18.09.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 85 8-Aug
NOK TWI ra.

94 93 92 91 90 28-Aug 17-Sep
$/b

EUR vs GBP & CHF 1.22 1.22 1.21 1.21 1.20

GBP r.a

0.82 0.80 0.78 0.76

CHF

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

Prior 78.73 1.312 0.807 1.217 7.480 8.628 7.455 5.705 7.245 0.867 9.273 6.582 8.360 1.154 10.692

Last 78.68 1.310 0.807 1.214 7.484 8.636 7.456 5.712 7.261 0.867 9.286 6.598 8.384 1.156 10.711

% -0.1% -0.1% -0.1% -0.2% 0.1% 0.1% 0.0% 0.1% 0.2% -0.1% 0.1% 0.3% 0.3% 0.1% 0.2%

In 1 m ...3 m 80 76 1.23 1.15 0.79 0.76 1.20 1.20 7.30 7.20 8.30 8.40 7.45 7.45 5.93 6.26 7.42 8.24 0.88 0.86 9.2 9.5 6.75 7.30 5.40 5.55 1.14 1.17 10.51 11.05

...6 m ...12 m 76 78 1.15 1.20 0.78 0.80 1.20 1.20 7.30 7.40 8.50 8.50 7.45 7.45 6.35 6.17 8.35 7.91 0.86 0.87 9.4 9.3 7.39 7.08 5.62 5.53 1.16 1.15 10.90 10.63

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

USD 1.0465 0.9747 0.9266 18.80 5.6917 1.6249 7.7532 121.73 0.2806 2.6358 0.5320 0.8280 3.1430 1.2247 30.8760

% -0.11% -0.02% -0.14% 0.38% 0.11% -0.02% 0.01% 0.12% -0.20% 0.08% 0.13% 0.18% 0.52% 0.01% 0.75%

8-Aug 28-Aug 17-Sep

EURSEK & OMXS 8.7 8.5 8.3 8.1 8-Aug

OMXS ra. EURSEK

575 500 425 350 28-Aug 17-Sep

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

NIB OR Prior 1.78 1.94 2.19 2.30 2.35 2.69 3.02 3.37

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.79 1.56 1.55 0.07 1.93 1.66 1.65 0.16 2.18 1.86 1.85 0.41 2.30 1.97 1.95 0.56 2.35 1.57 1.56 0.67 2.70 1.80 1.78 1.08 3.02 2.05 2.03 1.48 3.36 2.29 2.26 1.91

Last 0.07 0.16 0.41 0.55 0.67 1.08 1.47 1.91

USD LIBOR Prior Last 0.22 0.22 0.39 0.38 0.67 0.67 0.83 0.83 0.49 0.48 0.88 0.86 1.33 1.32 1.88 1.85

Gov. Bonds, 10y 1.60 1.40 1.20 1.00

NOK, ra.

3.00 2.50 2.00 1.50

SEK

8-Aug 28-Aug 17-Sep

NORWAY Prior Last ot be found 97.25 10y 10y yield 2.30 2.29 vs bund 0.62 0.63

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 116.58 116.59 98.291 98.53 1.64 1.64 1.68 1.66 -0.04 -0.03

US Prior 98.03125 1.84 0.16

Last 98.28 1.82 0.16

14.0 13.5 13.0 12.5 12.0 8-Aug

JPY and DowJones

81 79 77

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.10 3.25 1.90 2.25 0.50 1.75 2.10 3.25 1.90 2.25 0.50 1.75 2.15 3.50 1.90 2.50 0.50 2.00

US 3m libor 10y swap 0.45 1.75 0.45 1.75 0.45 2.25

75 28-Aug 17-Sep
USDJPY ra. DowJones, 1000

USD and gold 1820 1720 1620 1.32 1.28 1.24

1.20 1520 8-Aug 28-Aug 17-Sep

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today DEC 1.88 1.89 -0.01 NOK 93.60 MAR 1.87 1.89 -0.02 S EK 114.85 JUN 1.92 1.93 -0.01 E UR 101.94 SEP 1.96 1.96 0.00 USD 78.99 FRA SEK 3m Prior chg GBP 84.00 DEC 1.52 1.51 0.00 Comm. Today MAR 1.41 1.41 0.00 B rent spot 116.9 JUN 1.39 1.40 -0.01 B rent 1m 113.1 SEP 1.39 1.40 -0.01 S pot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% 0.05 - 0.03 - 0.13 0.06 Last 116.9 113.8 1770.0

Stock ex. Today Dow J ones 13,553.1 Nasdaq 3,178.7 FTSE100 5,893.5 Eurostoxx50 2,583.6 Dax 7,403.7 Nikkei225 9,123.8 Oslo 459.76 Stockholm 520.89 Copenhagen 637.11

% -0.3% -0.2% -0.4% -0.4% -0.1% : -0.3% -0.5% -0.4%

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