Morning report

The end for Berlusconi

09-Nov-2011
Berlusconi's departure results in a rise in stocks in the US and Asia. In China inflation falls back. Yesterday's parliamentary meeting marked an ending for Sivio Berlusconi's 17 year long reign as prime minister in Italy. 308 of 618 parliamentary members voted for austerity measures proposed by the government in 2010, which implies that Berlusconi now has lost support from 8 of his own party members, and thus also the majority in the parliament. It is expected that Berlusconi will step back as soon as the parliament passes austerity measures in line with those required by EU and ECB. The measures will most likely be voted over some time next week. The political future in Italy is now somewhat uncertain. Apparently, there are two choices. Either one has to choose a temporary technical government, whereas the politicians themselves elect the government, which is led by an expert. Such alternative is not unknown to Italy, who chose this option in both 1993 and 1994. The second option is to elect a new government by popular vote, which has to take place after 45 days and before 75 days after the president officially dissolve the parliament. This means sometime in the beginning of 2012. Berlusconi himself has expressed his support for the latter option, and has not excluded the opportunity to once again be a candidate. A tedious process will be the least favorable outcome for the markets, which until now seems to have had a risk premium on Berlusconi. Thus, it is expected that his resignation will have a positive effect on the markets. Since yesterday, the euro has appreciated by about 0.5 per cent against dollar, while EURNOK has been relatively stabile. Yesterday afternoon also saw a positive development in American stocks. Both Dow Jones and Nasdaq strengthened by about 1 per cent compared to yesterday morning. In Asia we now se the outline of a broad rise in stocks. Eg the Nikkei index has strengthened by about 1.2 per cent since yesterday morning. Increased appetite for risk probably explains yesterday's movement in interest on Treasuries. It should be stressed that the underlying problems in Italy is not even closed to being solved. Economic growth in 2012 is expected to be weak, and consensus for 2012 is stagnation whereas only a small impulse will bring Italy in a new recession. Significant austerity measures which are necessary to bring down debt will make the job even harder. Italian industry is struggling, and Italian PMIs has fallen back the recently and most of among the major euro zone economies. The country has neither been able to bring down unemployment, which in the aftermath of 2008-09 has increased to over 8 per cent. This is however still less than the other PIIGS countries. This morning we also got Chinese inflation numbers, which confirmed market expectations of reduced price pressures in the world's largest exporter. Growth in consumer prices came out at 5.5 per cent in October, down from 6.1 per cent in September. Even more positive was the fall in producer price growth, down from 6.5 per cent in September to 5.0 per cent in October. This is the lowest growth in producer prices in 12 months, and normally changes in producer prices has relatively quickly resulted in a similar change in consumer prices. It is therefore likely that inflation (CPI) will continue to level off in the coming months. This in turn may result in laxer policy from the government in Beijing, especially if economic activity cools off, looking forward. It is most likely that the government reduces bank's reserve requirements, which for large banks currently is 21.5 per cent. This may lead to higher credit growth and easing lending conditions, in particular for small and medium sized enterprises, which to a larger extend has been struggling with financing than the larger state owned enterprises. October numbers for retail sales and industrial production also confirmed our picture of a Chinese economy cooling off. However, there are few signs of a hard landing. Investment growth is still high, and retail sales indicate that contribution from consumption to GDP growth will be close to 4 percent points in 2011. ole.kjennerud@dnbnor.no As of Unit Prior Poll Actual Yesterday's key economic events (GMT) 08:30 UK Industrial output Sep m/m % 0.2 0.1 0.0 08:30 UK Manufacturing output Sep m/m % 0.1 -0.3 0.2 12:55 US Redbook retail sales Week 44 m/m % -0.6 1.4 As of Unit Prior Poll DnB NOR Todays key economic events (GMT) 00:00 China CPI Okt y/y % 6.1 5.5 5.5 01:00 China Retail sales Okt y/y % 17.7 17.4 17.2 08:30 Swedem Minutes from the Riksbank's meeting 26. October

NOK & 3m NIBOR

8.00 7.80 7.60 7.40 29-Sep 19-Oct 3m ra. 3.20 3.10 3.00 2.90 8-Nov EURNOK

SEK & 3m STIBOR

9.3 9.2 9.1 9.0 8.9 29-Sep 19-Oct 2.50 2.45 8-Nov EURSEK 2.60 2.55

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

09-Nov-2011

Morning report

Oil spot & NOK TWI

120 115 110 105 100 29-Sep 19-Oct NOK TWI ra. 96 94 8-Nov $/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 77.73 1.384 0.860 1.239 7.741 9.037 7.445 5.595 7.202 0.858 9.001 6.533 8.406 1.168 10.511 Last 78.06 1.375 0.857 1.246 7.733 9.052 7.445 5.626 7.211 0.855 9.032 6.584 8.439 1.172 10.572 % 0.4% -0.7% -0.4% 0.6% -0.1% 0.2% 0.0% 0.6% 0.1% -0.3% 0.3% 0.8% 0.4% 0.4% 0.6% 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 1.0294 1.0176 0.9062 18.33 5.4160 1.6053 7.7708 115.03 0.2756 2.5122 0.5117 0.7940 3.1769 1.2733 30.4480 % -0.98% 0.84% 1.25% 0.51% 0.64% -0.25% 0.02% 0.34% 0.02% 0.65% 0.65% -0.59% 1.08% 0.54% 0.72%

EUR vs GBP & CHF

1.25 1.20 1.15 1.10 29-Sep 19-Oct GBP r.a 0.89 0.88 0.87 0.86 0.85 8-Nov CHF

Gov. Bonds, 10y

2.25 2.00 1.75 1.50 29-Sep 3.00 2.80 2.60 2.40 2.20 2.00 8-Nov SEK

19-Oct

NOK, ra.

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

JPY and DowJones

13 12 11 10 29-Sep 19-Oct USDJPY ra. DowJones, 1000 79 77 75 8-Nov

SWAP AN D MON EYMARKET RATES (Source: Reuters) N IBOR STIBOR EURIBOR Prior Last Prior Last Prior Last 2.85 2.85 2.35 2.36 1.17 1.17 3.09 3.09 2.58 2.59 1.43 1.43 3.29 3.29 2.63 2.64 1.65 1.65 3.39 3.39 2.70 2.71 1.83 1.83 3.03 3.02 2.15 2.11 1.61 1.53 3.33 3.36 2.31 2.27 1.98 1.89 3.60 3.62 2.48 2.44 2.27 2.21 3.81 3.83 2.57 2.53 2.58 2.52 GOVERNM ENT BON DS (Source: Reuters) N ORWAY SWEDEN GERMANY Prior 113.85 2.59 0.78 Last 109.85 2.57 0.78

USD LIBOR Prior 0.25 0.44 0.64 0.79 0.75 1.27 1.76 2.25 US

Last 0.25 0.44 0.64 0.79 0.72 1.21 1.70 2.17

10y 10y yield vs bund

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

Prior Last Prior Last Prior 116.894 117.00 103.995 104.06 100.40625 1.74 1.72 1.81 1.80 2.08 -0.07 -0.07 0.26 INTEREST RATE FORECASTS SWEDEN GERMANY US

Last 101.02 2.02 0.23

USD and gold

2000 1900 1800 1700 1600 1500 29-Sep 19-Oct EURUSD ra.

3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 3.00 4.25 2.25 3.00 1.10 3.00 2.70 4.50 2.00 3.25 1.05 3.25 3.10 4.50 2.00 3.25 1.05 3.25

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

8-Nov Gold

EU RSEK & OMXS

9.3 9.2 9.1 9.0 8.9 8.8 29-Sep 19-Oct OMXS ra. 500 450 400 350 8-Nov EURSEK

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

3m 2.88 2.60 2.43 2.42 3m 2.51 2.12 1.95 1.89

Prior 2.90 2.62 2.46 2.44 Prior 2.56 2.16 1.98 1.92

chg -0.02 -0.02 -0.03 -0.02 chg -0.05 -0.04 -0.03 -0.03

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

Today 96.70 119.57 106.93 77.10 80.70 Today 115.3 115.1 1782.0

% - 0.13 0.16 - 0.24 0.56 Last 116.2 115.0 1795.0

Stock ex. Today Dow Jones 12,170.2 Nasdaq 2,727.5 FTSE100 5,567.3 Eurostoxx50 2,303.2 Dax 5,961.4 Nikkei225 8,655.5 Oslo 388.21 Stockholm 444.15 Copenhagen 481.05

% 0.8% 1.2% 1.0% 1.2% 0.6% 0.0% 0.2% 0.2% 1.5%

Morning report
09-Nov-2011
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