Morning Report

17.10.2012

Increased market hope of Spanish aid

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

2.10 2.00 1.90 1.80

EURNOK

The euro strengthened and global bourses rose on increased believe that Spain now will apply for financial aid. The euro rose yesterday on increased belief that Spain will ask the EU for financial aid. The reason for this was a statement by German authorities that Germany is open to Spain seeking a precautionary credit line from Europes rescue fund, which will provide Spain with milder conditions than countries such as Ireland and Greece have been met with. Against the dollar euro rose to the highest level in a week, and against the yen and euro was at its highest in four weeks. Today EURUSD is traded at 1.31, up 1.0 percent from yesterday morning, while EURJPY is up 0.7 percent. Bourses worldwide edged up yesterday, which also is a reflection of Germany now showing somewhat more willingness that Spain can get help in financing its high debt burden. European equities rose steadily throughout the day, and Oslo Brs ended 0.9 percent in plus, while the DAX index rose 1.6 percent. The U.S. stock markets also ended in positive territory after a strong opening. In the interest rates markets we also saw signs of somewhat higher risk appetite, with German and US sovereign yields ticking up about 5 points. Yesterday we were updated with inflation data from the major western economies. In the US, CPI inflation was 2.0 percent in September, in line with the Fed's goal. It should be noted that prices increased by 0.6 percent from August to September, but most of this increase was due to higher gas prices. Excluding food and energy consumer prices were more or less unchanged on a monthly basis. In the UK price pressures have moderated, as CPI inflation was 2.2 percent in September, down from 2.5 percent in August. Thus, inflation is only a few ticks away from the BoE's target, which last year had to accept that inflation was 4.5 percent. This complicated the situation for the BoE, which on the one side wanted to use monetary policy to stimulate economic activity, but on the other side had to live with the fear that the temporary high inflation could channel into higher inflation expectations. Now it seems that the temporary factors from last year have leveled out, and that the BoE can fully concentrate on how to stimulate economic activity. This probably means a further expansion of the bank's asset purchase programme. In contrast to the US and the UK, inflation in the eurozone remains somewhat above the ECB's inflation target. In September, inflation was 2.6 percent y/y, unchanged from August. The development is as the ECB had expected, and the central bank foresees that price growth will fall below its 2 percent target next year. In sum it appears that global inflation pressures have moderated and is (with some exceptions) in line or below the central bank's targets. This enables more focus to be shifted towards lifting economic activity, which is still at depressed levels. DNB Markets' Macro Score, which is a monthly assessment of economic conditions of the major economies, was yesterday downgraded from September to October, an indication of somewhat slower economic momentum. This is the fifth consecutive month in which the score has been lowered, and the aggregate index has over the past three months fallen to the same levels as we had at the end of 2011. Weak economic development is still seen in the US, despite an increase in industrial output by 0.4 percent from August to September. This was higher than expected (consensus was 0.2 percent, according to Reuters), but the September data comes on the backdrop of downward revision of 0.2 percentage points of the August data, when output fell by 1.4 percent. While industrial production (+0.2 percent) and production of non-durable goods (+0.6 percent) contributed positively, there was a decrease in production of durable goods (-1.7 percent). Overall, the outlook remains weak, despite the moderate rise in September. This partly reflects that production is burdened by limited opportunities for US households to increase their consumption due to weak employment growth and low wage increase. But it also reflects low growth in demand from businesses, as testified by the latest edition of Beige Book. Businesses are reporting that they are postponing investment plans, partly because of uncertainty about fiscal policy, and partly due to the situation in Europe. Thus, it seems that the risk remains on the downside, at least as long as the situation surrounding US government finances remains uncertain. Today Norges Bank publishes Regional network 3/12. The last report, which was released in May, indicated that economic conditions for Norwegian businesses were good, but that the economy was twotiered. Since then growth in manufacturing output has been strong, despite turmoil and weak growth in surrounding economies. It will therefore be very interesting to see what businesses have reported to Norges Bank about their expectations for activity growth this time. ole.kjennerud @dnb.no As of Yesterday's key economic events (GMT) 09:00 Germany ZEW Oct 12:30 US CPI ex food/energy Sep 13:15 US Industrial production Sep As of Todays key economic events (GMT) 08:00 Norway Norges Bank Regional network 12:30 USA Housing starts Sep 02:00t China GDP Q3 Unit Index y/y % m/m % Unit mn y/y % Prior -18.2 1.9 -1.4 Prior 0.750 7.6 Poll -15.0 2.0 0.2 Poll 0.770 7.4 Actual -11.5 2.0 0.4 DNB

6-Sep 26-Sep 16-Oc t

SEK & 3m STIBOR 8.8 8.6 8.4 8.2 8.0 6-Sep

3m ra.

2.40 1.60 0.80 0.00 26-Sep 16-Oc t

EURSEK

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

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Sales Oslo (+47) Equity Fixed Income

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

56 13 27 20 75 52 9910 69 39 41 50 62 54 14 82 52 72 09 06 61 24 79 56 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 Camilla Viland Magne stnor Kyrre Aamdal

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

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

Morning Report
17.10.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 85 6-Sep 94 93 92 91 90 16-Oct
$/b

26-Sep

NOK TWI ra.

EUR vs GBP & CHF 1.22 0.82 1.22 0.80 1.21 0.78 1.21 1.20 0.76 6-Sep 26-Sep 16-Oc t
GBP r.a CHF

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

Prior 78.92 1.306 0.811 1.209 7.391 8.630 7.459 5.665 7.165 0.862 9.120 6.614 8.368 1.169 10.648

Last 78.81 1.312 0.813 1.210 7.407 8.642 7.459 5.646 7.168 0.857 9.117 6.596 8.368 1.167 10.640

% -0.1% 0.5% 0.3% 0.1% 0.2% 0.1% 0.0% -0.3% 0.0% -0.5% 0.0% -0.3% 0.0% -0.1% -0.1%

In 1 m ...3 m 78 76 1.27 1.15 0.79 0.76 1.20 1.20 7.30 7.20 8.55 8.40 7.45 7.45 5.75 6.26 7.37 8.24 0.85 0.86 9.2 9.5 6.73 7.30 5.25 5.55 1.17 1.17 10.82 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 1.0325 0.9857 0.9228 18.91 5.6879 1.6143 7.7523 122.13 0.2809 2.6337 0.5313 0.8184 3.1190 1.2183 30.7670

% 0.44% -0.13% -0.37% -0.52% -0.49% 0.19% 0.01% -0.55% -0.08% -0.46% -0.47% 0.49% -0.34% -0.13% -0.34%

EURSEK & OMXS 8.9 575 8.7 500 8.5 425 8.3 8.1 350 6-Sep 26-Sep 16-Oct
OMXS ra. EURSEK

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

NIBOR Prior 1.76 1.93 2.14 2.25 2.27 2.58 2.88 3.22

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.77 1.41 1.41 0.06 1.92 1.49 1.49 0.14 2.11 1.64 1.64 0.31 2.22 1.73 1.73 0.45 2.29 1.36 1.37 0.63 2.59 1.57 1.59 0.99 2.91 1.84 1.86 1.39 3.25 2.10 2.13 1.82

Last 0.06 0.14 0.30 0.45 0.66 1.02 1.40 1.86

USD LIBOR Prior Last 0.21 0.21 0.33 0.32 0.59 0.58 0.76 0.75 0.47 0.48 0.83 0.83 1.27 1.28 1.75 1.78

Gov. Bonds, 10y 1.60 1.40 1.20 1.00

NOK, ra.

3.00 2.50 2.00 1.50

SEK

6-Sep 26-Sep 16-Oc t

10y 10y yield vs bund

NORWAY Prior Last 100.32 99.85 1.97 2.02 0.44 0.43

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 117.08 116.89 99.608 99.18 1.57 1.59 1.53 1.59 0.05 0.00

US Prior 99.125 1.72 0.20

Last 98.92 1.75 0.16

JPY and DowJones 14.0 81 13.5 79 13.0 77 12.5 12.0 75 6-Sep 26-Sep 16-Oct
USDJPY ra. DowJones, 1000

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y s wap 3m stibor 10y swap 3m euribor 10y swap 1.90 3.25 1.65 2.25 0.25 1.75 1.90 3.25 1.65 2.25 0.25 1.75 2.05 3.50 1.65 2.50 0.25 2.00

US 3m libor 10y s wap 0.45 1.75 0.45 1.75 0.45 2.25

USD and gold 1820 1720 1620 1.32 1.28 1.24

1520 1.20 6-Sep 26-Sep 16-Oct

EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % DEC 1.87 1.87 0.00 NOK 92.60 0.22 MAR 1.87 1.86 0.01 SEK 114.85 0.06 JUN 1.88 1.89 -0.01 EUR 102.25 0.11 SEP 1.92 1.92 0.00 USD 79.09 - 0.17 FRA SEK 3m Prior chg GBP 83.40 - 0.2 DEC 1.39 1.38 0.01 Comm. Today Last MAR 1.22 1.22 0.00 Brent spot 116.4 116.4 JUN 1.19 1.19 0.00 Brent 1m 114.1 115.1 SEP 1.19 1.19 0.00 Spot gold 0.0 1746.5 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 13,551.8 Nasdaq 3,101.2 FTSE100 5,870.5 Eurostoxx50 2,547.9 Dax 7,376.3 Nikkei225 8,806.6 Oslo 452.33 Stockholm 506.27 Copenhagen 655.47

% 1.0% 1.2% 1.1% 2.5% 1.6% 0.0% 0.9% 0.8% 1.0%

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