Morning Report

11.09.2012

Lower Norwegian core inflation

Once again Norwegian inflation surprised on the downside of expectations. It suggests a lower
NOK & 3m NIBOR interest rate path from Norges Bank in October.
7.50 2.50
7.40 2.35 Norwegian inflation once again came out lower than expected. Core inflation was 1.2% in August,
2.20 while 1.5% was expected according to Reuters. Norges Bank assumed that core inflation would rise by
7.30 2.05 1.6% in its monetary policy report in June, and inflation is far lower than inflation target (2.5%) at the
7.20 1.90 moment. Domestic core inflation slowed slightly to 1.8%, while imported core inflation remains negative
1-Aug 21-Aug 10-Sep and declined to -0.4%. This was the third consecutive month with lower core inflation than
3m ra. EURNOK projected by the central bank. The low inflation was also underlined by Norges Bank at the monetary
policy meeting in August. Total inflation is also very low, only 0.5% in August, dragged down by low
inflation on electricity. At the same time, the exchange rate (I44) is 2% stronger than Norges Bank
assumed in June. This is likely to curb inflation going forward. The expectation survey for the third
SEK & 3m STIBOR quarter showed that inflation expectations are declining, both on a two and a five-year perspective.
8.8 2.40
Lower inflation suggests that the interest rate path will be lowered at the next policy meeting in
8.6 1.60
8.4
late October and may suggest that the first rate hike will come later than Norges Bank has so far
8.2 0.80 indicated. We stick to our forecast that the first elevation coming in fall 2013.
8.0 0.00
There have been clear indications of improvement in the financial markets after the ECB on Thursday
1-Aug 21-Aug 10-Sep
opened for unlimited purchases of government bonds in crisis countries under the so-called OMT
3m ra. EURSEK
program. The most obvious effects relate to the Spanish and Italian government bond yields which have
fallen sharply. The impact has been greatest for the shorter rates, which will be directly affected by the
Headquarters +47 03 000 OMT. The two-year government bond rate in Spain reached a peak of 6.77% on 24 July, but had
yesterday dropped to 3.03%. The long bond yields have also fallen a lot. The Spanish ten-year rate is
0021 Oslo
Stranden 21
currently traded at around 5.75%, while the Italian is down to around 5.2%. Developments in the foreign
exchange market have also indicated a more positive sentiment. The most obvious is that the euro
has strengthened against the dollar, pound and other currencies. While EURUSD was trading at
Offices Abroad
New York + 1 212 681 2550 just over 1.25 days before the ECB's monetary policy meeting, the rate now appears to have been
London +44 207 283 0050 established close to 1.28. The development of the Swiss franc also supports the improvement in
Singapore +65 6220 6144
Stockholm +46 84 73 48 50
sentiment. While the EURCHF in recent months has been traded close to SNBs floor at 1.20, it rose
(weaker franc) after ECB on Thursday and has since been traded close to 1.21.
Regional Sales (+47)
Bergen 56 13 27 20
Bodø 75 52 99 10 Although the atmosphere is now more positive, it is also obvious that there will appear several obstacles
Fredrikstad 69 39 41 50 in the future. Already this week we see more examples of it. Greece has enough once received a visit
Hamar 62 54 14 82
Lillehammer 61 24 79 56
by the troika, and once again it appears that the austerity measures have been too small. It will
Kristiansand 38 14 61 64 thus be another round in which Greek politicians must try to reach an agreement on new measures.
Oslo 22 01 76 50 Although the game between the Greek government and the troika may gradually erode the patience of
Stavanger 51 84 04 30
Tromsø 77 62 96 80 both parties, there is little to suggest that a grexit is just around the corner. In Germany, the
Trondheim 73 87 49 73 Constitutional Court tomorrow will decide whether the ESM is in accordance with the German
Tønsberg 33 01 73 80
Ålesund 70 11 69 85
constitution. Probably this hurdle will be passed smoothly, but some uncertainty is still related to this
event. It has also been growing uncertainty related to the willingness of France to implement necessary
Research Regional Sales (+47)
Eirik Larsen 22 01 76 55
economic reforms after Hollande took over as president. The president has been met with criticism of
failing to address these challenges. In an interview on Sunday Hollande came, however, with clear
Research FX/IR (+47) indications that he supports a softening of the so-restrictive regulations of the French labor
Øystein Dørum 22 01 76 56
Kjersti Haugland 22 01 78 03
market. However Hollande played the ball on to the labour market partners, and urged them to find a
Ole André Kjennerud 22 01 78 24 historic compromise. He also maintained plans to reduce the budget deficit to 3% of GDP next year,
Knut A. Magnussen 22 01 76 63
Camilla Viland 22 01 77 41
despite the lowering of growth forecasts.
Magne Østnor 22 01 76 57
Kyrre Aamdal 22 01 76 67 Swedish data for industrial production and orders were published yesterday. Production has expanded
Credit Research (+47) markedly in recent months and the recovery continued in July. The increase from June to July was 0.3%,
Ole Einar Stokstad 22 01 78 37 about the same as in June, but clearly better than expected. Orders fell 0.7% and are now 5.3% lower
Martin Børter 22 01 78 34
Mikael L. Gjerding 22 01 77 62
than a year ago. Somewhat surprisingly it was the orders in the domestic market that fell, while export
Rolv Kristian Heitmann 22 01 76 77 contributes positively. It is also surprising that the Swedish manufacturing industry perform so well
Thomas Larsen 22 01 77 36 despite the fact that major trading partners in Europe are struggling and the SEK is very strong.
Knut Olav Rønningen 22 01 78 15
Yesterday's figures did not affect the crown in a major way.
knut.magnussen@dnb.no

Yesterday’s key economic events (GMT) As of Unit Prior Poll Actual

09:30 Sweden Industrial production Jul y/y % 1.1 -2.1 -0.4
10:00 Norway CPI Aug y/y % 0.2 0.4 0.5
10:00 Norway CPI-ATE Aug y/y % 1.3 1.5 1.2
Today’s key economic events (GMT) As of Unit Prior Poll DNB
10:30 UK Trade balance Jul Bln -10.1
14:30 USA Trade balance Jul Bln -42.9 -44.0
 Morning Report
11.09.2012

SPOT RATES AND FORECASTS

FX Prior Last % In 1 m ...3 m ...6 m ...12 m FX USD %
Oil spot & NOK TWI USDJPY 78.30 78.23 -0.1% 80 76 76 78 AUD 1.0342 0.02%
125 93
115 EURUSD 1.276 1.278 0.2% 1.23 1.15 1.15 1.20 CAD 0.9764 -0.15%
92
105 EURGBP 0.798 0.799 0.1% 0.79 0.76 0.78 0.80 CHF 0.9449 -0.20%
95 91
EURCHF 1.208 1.207 0.0% 1.20 1.20 1.20 1.20 CZK 19.25 -0.24%
85 90 EURNOK 7.393 7.401 0.1% 7.30 7.20 7.30 7.40 DKK 5.8305 -0.21%
1-Aug 21-Aug 10-Sep EURSEK 8.472 8.476 0.0% 8.30 8.40 8.50 8.50 GBP 1.6010 0.12%
NOK TWI r a. $/b EURDKK 7.452 7.451 0.0% 7.45 7.45 7.45 7.45 HKD 7.7550 -0.01%
USDNOK 5.797 5.791 -0.1% 5.93 6.26 6.35 6.17 ISK 122.49 -0.19%
JPYNOK 7.403 7.402 0.0% 7.42 8.24 8.35 7.91 KWD 0.2819 -0.05%
EUR vs GBP & CHF SEKNOK 0.873 0.873 0.0% 0.88 0.86 0.86 0.87 LTL 2.7015 -0.16%
1.22 0.82 GBPNOK 9.284 9.273 -0.1% 9.2 9.5 9.4 9.3 LVL 0.5450 -0.20%
1.21 0.80 USDSEK 6.643 6.631 -0.2% 6.75 7.30 7.39 7.08 NZD 0.8106 0.15%
1.21 0.78 JPYSEK 8.477 8.477 0.0% 5.40 5.55 5.62 5.53 PLN 3.2202 -0.27%
1.20 0.76
NOKSEK 1.147 1.146 -0.1% 1.14 1.17 1.16 1.15 SGD 1.2343 -0.23%
1-Aug 21-Aug 10-Sep GBPSEK 10.623 10.618 -0.1% 10.51 11.05 10.90 10.63 RUB 31.8010 0.35%
GBP r.a CHF
SWAP AND MONEYMARKET RATES
NIBOR STIBOR EURIBOR USD LIBOR
EURSEK & OMXS Prior Last Prior Last Prior Last Prior Last
8.7 575 1m 1.81 1.78 1. 63 1.62 0.07 0.07 0.23 0.23
8.5 500 3m 2.01 1.97 1. 75 1.74 0.16 0.16 0.41 0.40
8.3 425 6m 2.27 2.22 1. 96 1.95 0.43 0.42 0.69 0.69
8.1 350 12m 2.40 2.35 2. 06 2.05 0.58 0.57 0.86 0.86
1-Aug 21-Aug 10-Sep 3y 2.35 2.35 1. 58 1.58 0.62 0.62 0.48 0.48
OMXS ra. 5y 2.63 2.63 1. 76 1.74 1.00 1.00 0.81 0.82
EURSEK
7y 2.93 2.91 1. 96 1.97 1.40 1.38 1.26 1.25
10y 3.26 3.24 2. 17 2.18 1.82 1.82 1.77 1.76
Gov. Bonds, 10y
1.60 3.00 GOVERNMENT BONDS
1.40 2.50 NORWAY SWEDEN GERMANY US
1.20 2.00 Prior Last Prior Last Prior Last Prior Last
1.00 1.50 10y ot be found 99.05 118. 11 118.15 99.56 99.86 99.734375 99.70
1-Aug 21-Aug 10-Sep 10y yield 2.10 2.10 1. 48 1.48 1.54 1.52 1.65 1.66
NOK, ra. SEK vs bund 0.55 0.59 -0. 06 -0.03 0.11 0.15

I NTEREST RATE FORECASTS

JPY and DowJones NORWAY SWEDEN GERMANY US
13.5 81
13.0 79 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 3m libor 10y swap
12.5 77
In 3m 2.10 3.25 1. 90 2.25 0.50 1.75 0.45 1.75
… 6m 2.10 3.25 1. 90 2.25 0.50 1.75 0.45 1.75
12.0 75
… 12m 2.15 3.50 1. 90 2.50 0.50 2.00 0.45 2.25
1-Aug 21-Aug 10-Sep
USDJPY ra. MISCELLANEOUS
DowJones, 1000
FRA NOK 3m Prior chg TWI Today % Stock ex. Today %
SEP 2. 00 2. 00 0.00 NOK 92.55 0.12 Dow Jones 13,254.3 -0.4%
DEC 1. 94 1. 94 0.00 SEK 112.89 0.20 Nasdaq 3,104.0 -1.0%
USD and gold MAR 1. 93 1. 93 0.00 EUR 100.07 0.08 FTSE100 5,793.2 0.0%
1820 1.32 JUN 1. 94 1. 94 0.00 USD 80.29 - 0.13 Eurostoxx50 2,528.5 -0.4%
1720 1.28 FRA SEK 3m Prior chg GBP 84.10 - 0.0 Dax 7,213.7 0.0%
1620 1.24 SEP 1. 73 1. 72 0.01 Comm. Today Last Nikkei225 8,807.4 0.0%
1520 1.20 DEC 1. 57 1. 58 -0.01 Brent spot 113.6 113.6 Oslo 445.72 0.2%
MAR 1. 46 1. 46 0.00 Brent 1m 114.4 114.8 Stockholm 502.56 -0.3%
1-Aug 21-Aug 10-Sep
EURUSD ra. Gold JUN 1. 44 1. 44 0.00 Spot gold 0.0 1732.0 Copenhagen 646.15 -0.3%
Sources to all tables and graphics: Reuters and DNB Markets
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