Morning Report

16.12.2011

IMF Warns About Depression

NOK & 3m NIBOR 8.00 7.80 7.60 7.40
3m ra.

U.S. stocks rose slightly despite the warnings of crisis.

3.50 3.30 3.10 2.90

7-Nov 25-Nov 15-Dec

EURNOK

SEK & 3m STIBOR 9.5 9.3 9.1 8.9

3m ra.

2.80 2.70 2.60 2.50 2.40

EURSEK

7-Nov 25-Nov 15-Dec

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

IMF chief Christine Lagarde warned yesterday that there is a risk that the global economy faces the prospects of retraction, rising protectionism and isolation, and drew parallels to the situation in the 1930s. She pointed out that no economies are immune to the crisis that not only unfolds, but escalates. "It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action", she said according to FT.com. Stock markets in the United States was well on the way up, but Lagarde posts in Washington yesterday seemed to dampen the recovery. Just before had the French central bank governor criticized the rating agencies and alleged that there was greater reason to downgrade British debt before the French debt, which the British, of course, reacted promptly on. Yesterday came news that the rating company Fitch downgraded six global banks. A little earlier, S & P had downgraded Spanish banks, and Moody's has recently announced that they are considering several bank downgrades. However, U.S. stock markets ended slightly up, but long U.S. Treasury yields pulled down a couple of basis points. In Spain, there was a successful auction of 5-year government bonds to two percentage points lower interest rate than what Italy had to pay the day before. In the currency market there has been relatively moderate movements, where the euro is 0.3 per cent stronger against the dollar compared with yesterday morning. The Swiss Franc has strengthened against the euro after the Swiss Central Bank on yesterday's monetary policy meeting did not rise the EURCHF minimum target level. The Norwegian Krone weakened slightly after the monetary policy meeting on Wednesday and has roughly kept the level of the last day. The Chinese Yuan rose to record levels against the dollar yesterday, according to Reuters. The reason was the suspicion that the Chinese central bank offered large amounts of dollars through state banks. It is relatively rare that the PBOC support the Yuan, but it is likely to kill the expectations of a depreciating Yuan. Yesterday the United States posted some positive figures. Initial claims fell by 19' last week, to 366'. It was better than expected and the numbers indicate an improvement in the U.S. labor market in the going forward. New York Fed PMI index Empire State rose from 0.6 points in November to 0.5 in December. It was clearly more than expected in advance according to a consensus survey by Reuters. The index is volatile and not emphasized heavily, but it points in the same direction as other corresponding regional indices. Producer prices rose about as expected, a little more for the total and slightly less for core components. Today the more important November consumer price figures will be released. In the Euro zone the PMI index rose by 0.9 points to 47.9. It was better than expected, but the level is still below the long-term average (from before the crisis) of 53.3, and indicating further slowdown in production. PMI index for manufacturing industry pulled further down, while the PMI for the service sector showed an increase. It is also worth noting that the PMI for Germany now has fallen below 50, while France could record a slight rise to 46.9. Yesterday, we released new forecasts for the Norwegian and international economy, and the adjusted interest rate and currency forecasts. The main features are marginally weaker global growth, but with a significant downward revision to the GDP growth in the Euro zone. We now expect GDP in the euro area will decline by 0.4 per cent next year. Also for Norway we have revised growth rates markedly. Nevertheless, we expect growth in mainland GDP to be 2.5 per cent next year. We have assumed that the turbulence in financial markets persists through the first quarter, and that markets gradually improve towards the summer. We estimate that the ECB will lower interest rates in two rounds and end up with the key interest rate at 0.5 percent. With interest rate cuts in Euro zone, still high premiums in the money markets, difficult financing opportunities for banks and weak growth prospects, we believe Norges Bank will lower its key interest rate in March to 1.50 per cent. Estimates of exchange rates are little changed. We expect stronger U.S. dollar against the euro towards the summer, and we expect EURNOK generally will be at the lower end of the trading range seen over the past year. kyrre.aamdal@dnb.no

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850

Sales Oslo (+47) Equity Fixed Income FX/IR

22 94 89 40 22 01 78 20 22 01 76 50

Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

55 21 95 80 75 55 87 60 69 39 41 50 61 05 14 69 52 72 09 06 61 27 32 27 38 07 28 62 22 01 76 50 51 84 04 30 77 62 96 80 73 58 74 89 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 Maren Romstad Camilla Viland Kyrre Aamdal

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 76 64 22 01 77 41 22 01 76 67

Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 78 37 22 01 77 62 22 01 76 93 22 01 76 77 22 01 77 36 22 01 78 15

Yesterday's key economic events (GMT) 08:58 EMU PMI, total (flash) 13:30 US Initial claims 13:30 US Empire state (NY Fed) 14:15 US Goods production Todays key economic events (GMT) 13:30 US CPI, core 13:30 US CPI, total

As of des W 49 des nov As of nov nov

Unit Index 1000 Index m/m % Unit m/m % m/m %

Prior 47.0 381 0.6 0.7 Prior 0.1 -0.1

Poll 46.5 390 2.2 0.2 Poll 0.2 0.1

Actual 47.9 366 9.53 -0.2 DNB

Morning Report
16.12.2011

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 118 112 106 100 7-Nov 100 98 96 94 25-Nov 15-Dec
$/b

NOK TWI ra.

EUR vs GBP & CHF 0.87 0.86 1.20 0.85 1.15 0.84 1.10 0.83 7-Nov 25-Nov 15-Dec 1.25
GBP r.a CHF

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

Prior 77.91 1.302 0.840 1.224 7.805 9.082 7.433 5.998 7.702 0.860 9.305 6.982 8.968 1.164 10.833

Last 77.89 1.302 0.839 1.225 7.786 9.060 7.433 5.978 7.679 0.861 9.281 6.956 8.933 1.164 10.796

% 0.0% 0.0% 0.0% 0.0% -0.2% -0.2% 0.0% -0.3% -0.3% 0.1% -0.3% -0.4% -0.4% 0.0% -0.3%

In 1 m ...3 m 80 80 1.30 1.30 0.84 0.84 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 6.00 6.00 7.50 7.50 0.85 0.86 9.3 9.3 7.08 7.00 5.66 5.60 1.18 1.17 10.95 10.83

...6 m ...12 m 80 90 1.25 1.25 0.82 0.82 1.23 1.30 7.70 7.70 9.00 9.00 7.45 7.45 6.16 6.16 7.70 6.84 0.86 0.86 9.4 9.4 7.20 7.20 5.76 6.48 1.17 1.17 10.98 10.98

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

USD 0.9991 1.0320 0.9406 19.51 5.7067 1.5519 7.7817 122.43 0.2787 2.6513 0.5362 0.7604 3.4743 1.3044 31.7840

% 0.73% -0.31% -0.02% -0.30% -0.10% 0.05% 0.00% -0.09% 0.02% -0.10% -0.04% 0.97% -0.17% -0.37% -0.09%

EURSEK & OMXS 9.4 9.2 9.0 8.8 7-Nov 500 450 400 350 25-Nov 15-Dec
OMXS ra. EURSEK

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

N IBOR Prior 3.09 3.18 3.24 3.32 2.79 3.07 3.29 3.49

SWAP AN D MON EYM ARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.86 2.45 2.45 1.06 2.96 2.76 2.75 1.35 3.10 2.78 2.78 1.62 3.19 2.83 2.82 1.80 2.77 1.84 1.84 1.45 3.05 1.98 1.95 1.86 3.27 2.17 2.15 2.18 3.47 2.27 2.26 2.46

Last 1.06 1.35 1.61 1.80 1.45 1.85 2.18 2.49

USD LIBOR Prior 0.28 0.56 0.78 0.94 0.83 1.26 1.66 2.07

Last 0.28 0.56 0.78 0.94 0.82 1.27 1.69 2.08

Gov. Bonds, 10y 2.00 1.75 1.50

NOK, ra.

3.00 2.50 2.00 1.50

SEK

10y 10y yield vs bund

N ORWAY Prior Last 117.6 113.75 2.15 0.21 2.12 0.19

GOVERNM ENT BON DS SWEDEN GERMANY US Prior Last Prior Last Prior 117.887 117.88 100.434 100.56 100.79688 1.63 -0.30 1.63 -0.31 1.93 1.94 1.91 -0.02

Last 100.61 1.94 0.00

7-Nov 25-Nov 15-Dec

13 12 11

JPY and DowJones

10 7-Nov

25-Nov

79 78 77 76 75 15-Dec

In 3m 6m 12m

INTEREST RATE FORECASTS N ORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.60 3.50 2.25 2.25 1.05 2.50 2.40 3.75 1.95 2.50 0.90 2.75 2.30 4.25 1.75 3.00 0.90 3.25

US 3m libor 10y 0.55 0.55 0.50

swap 2.25 2.50 3.00

USDJPY ra. DowJones, 1000

USD and gold 1900 1800 1700 1600 1500

EURUSD ra.

1.42 1.38 1.34 1.30 1.26

Gold

7-Nov 25-Nov 15-Dec

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

3m 2.96 2.61 2.29 2.20 3m 2.77 2.24 1.80 1.56

Prior 2.97 2.62 2.32 2.23 Prior 2.76 2.23 1.79 1.56

chg -0.01 -0.01 -0.03 -0.03 chg 0.00 0.00 0.00 0.00

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 97.37 - 0.23 Dow Jones 11,868.8 0.4% SEK 119.94 - 0.11 Nasdaq 2,541.0 0.1% EUR 103.19 - 0.01 FTSE100 5,400.9 0.6% USD 80.23 - 0.02 Eurostoxx50 2,224.9 0.9% GBP 81.00 Dax 5,730.6 1.0% Comm. Today Last Nikkei225 8,401.7 0.0% Brent spot 105.5 105.5 Oslo 365.01 1.8% Brent 1m 104.1 105.1 Stockholm 431.51 0.8% 0.6% Spot gold 1574.0 1574.0 Copenhagen 482.53 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
16.12.2011
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