Morning report

Markets cheer euro zone deal

27-Oct-2011
The new rescue package to help solve the debt crisis in Europe was in place last night. Although all details arent finalized financial markets seem satisfied with the outcome. Todays highlights are the monetary policy meeting in Sweden and Q3 GDP figures from the US. After long meetings yesterday and last night, euro zone leaders finally agreed on a new rescue package. Greek debt will be written down to 120 per cent of GDP by the end of 2020 and private investors (i.e. banks and insurance companies) will voluntarily take losses of 50 per cent of the face value of their bonds. This means in excess of 100 billion euro. In addition, loans from the EU and the IMF are increased to 130 billion euro, from the original 109 billion from July. The current plan is to be completed with further negotiations during the year. Hence, the entire package will be in place before years end. It was also agreed to increase the effectiveness of the emergency fund, by using it as insurance for new government debt in vulnerable countries, especially directed against Italy. For now its not specified how big losses would be covered by the fund, but both Merkel and Sarkozy argued that the scheme would the increase the fund size by four to five times. Given that the current capacity is around 250 billion euro, the effective size is expected to increase to 1000-1250 billion euro. The final element is the recapitalization of the 70 largest European banks for a total of 106 billion euro by summer next year. Although the solution lacks some details it seems as a crucial step in the right direction. Financial markets seem to cheer the new agreement. The euro has strengthened and EURUSD is currently trading close to 1.40. US longer term rates rose by roughly 10 basis points and Asian stock markets rallied early this morning. In the US, new home sales surprised markets positively with an increase of nearly 6 per cent in September. Although sales comes from a very low level, yesterdays figures are a clear sign of improvement after the housing market has been in big trouble for a long time. Today GDP figures for the third quarter are released. After GDP growth was disappointingly low at 1.3 per cent in the second quarter, it is expected an increase (annualized) of 2.5 per cent in the third quarter. While it was mainly private consumption that disappointed in the second quarter, it is expected that consumption will raise growth this time. Yesterday's order number for durable goods also implies that investment growth has remained quite good in the third quarter. Although growth should pick up in line with expectations, it will not be high enough to bring unemployment down. GDP usually attracts large market focus and significant deviation from expectations will give market reactions. British manufacturing sector could be heading into another recession. The CBI index fell sharply in October, after a decline also in the previous month. The indicator of expected production is now pointing in the direction of a substantial fall for manufacturing in the future. This may seem surprising given the short time since the last downturn and the sharp depreciation of the pound. The home market is being hit by the sharp fiscal tightening, while export-oriented industries are experiencing weaker markets in the euro zone and the USA. Today the Swedish central bank will announce their rate decision and present a new rate path. The question is whether they follow in the footsteps of Norges Bank and the lower the rate path significantly. We expect (like everyone else) that the central bank's interest rate path will be adjusted down and our interest rate forecasts imply only one more hike during the next twelve months. This may imply that rates are kept unchanged until next fall. As for Norges Bank, lower interest rates abroad, lower global growth and ongoing financial turmoil are expected to be arguments for lowering the rate path. knut.magnussen@dnbnor.no Yesterday's key economic events (GMT) 12:30 US Orders durable goods 12:30 US Orders, ex transport 14:00 US New home sales Todays key economic events (GMT) 07:30 Sweden Interest rate meeting 09:00 EMU Sentiment index 12:30 US GDP As of Sep Sep Sep As of Oct Oct Q3 Unit m/m % m/m % mio Unit % Index q/q ar Prior -0.1 -0.1 0.295 Prior 2.0 95.0 1.3 Poll Actual -0.4 0.7 0.300 Poll DnB NOR 2.0 2.0 93.2 2.5 2.4

NOK & 3m NIBOR

8.00 7.80 7.60 7.40 16-Sep 6-Oct 3m ra. 3.20 3.10 3.00 2.90 26-Oct EURNOK

SEK & 3m STIBOR

9.4 9.3 9.2 9.1 9.0 8.9 16-Sep 6-Oct 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

2.55 2.50 2.45 26-Oct EURSEK

+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

27-Oct-2011

Morning report

Oil spot & NOK TWI

120 115 110 105 100 16-Sep 6-Oct NOK TWI ra. 96 94 26-Oct $/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 76.20 1.391 0.871 1.225 7.670 9.071 7.444 5.516 7.241 0.846 8.805 6.526 8.568 1.185 10.423 Last 75.92 1.400 0.875 1.226 7.671 9.063 7.444 5.480 7.223 0.847 8.777 6.476 8.529 1.183 10.365 % -0.4% 0.7% 0.5% 0.1% 0.0% -0.1% 0.0% -0.7% -0.2% 0.0% -0.3% -0.8% -0.5% -0.1% -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 5.78 6.96 7.22 0.85 0.86 8.9 9.1 6.57 6.74 5.26 5.39 1.18 1.17 10.45 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 6.16 7.40 6.84 0.86 0.86 9.2 9.4 6.92 7.20 5.54 6.48 1.17 1.17 10.71 10.98 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 1.0543 0.9984 0.8755 17.77 5.3162 1.6016 7.7717 113.67 0.2746 2.4653 0.5031 0.8090 3.0965 1.2592 30.2485 % 1.35% -0.60% -0.68% -1.43% -0.72% 0.28% -0.03% -0.50% -0.21% -0.76% -0.77% 0.99% -1.85% -0.92% -1.26%

EUR vs GBP & CHF

1.25 1.20 1.15 1.10 16-Sep 6-Oct GBP r.a 0.89 0.88 0.87 0.86 0.85 26-Oct CHF

Gov. Bonds, 10y

2.25 2.00 1.75 1.50 16-Sep 6-Oct NOK, ra. 3.00 2.80 2.60 2.40 2.20 2.00 26-Oct SEK

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

JPY and DowJones

13 12 11 10 16-Sep 6-Oct USDJPY ra. DowJones, 1000 78 77 77 76 26-Oct

SWAP AND MONE YM ARKET RATES (Source: Reuters) NIBOR STIBOR EURIBOR Prior Last Prior Last Prior Las t 2.92 2.89 2.32 2.32 1.31 1.30 3.16 3.10 2.51 2.51 1.52 1.52 3.41 3.36 2.53 2.53 1.73 1.73 3.55 3.52 2.58 2.59 1.90 1.89 3.12 3.15 2.17 2.17 1.67 1.66 3.41 3.46 2.36 2.36 2.02 2.04 3.63 3.68 2.51 2.53 2.29 2.35 3.81 3.86 2.59 2.61 2.58 2.65 GOVE RNMENT BONDS (Source: Reuters) NORWAY SWEDEN GERMANY Prior 114.15 2.52 0.46 Last 110.15 2.54 0.38 Prior Last Prior Las t 114.988 114.99 101.831 100.78 1.94 1.92 2.06 2.16 -0.12 -0.24 INTEREST RATE FORECASTS SWEDEN GERMANY 3m s tibor 10y swap 3m euribor 10y swap 2.50 3.00 1.50 3.00 2.55 3.25 1.50 3.25 2.65 3.25 1.50 3.25

USD LIBOR P rior 0.24 0.42 0.61 0.76 0.82 1.40 1.92 2.38 US P rior 99.28125 2.21 0.15

Last 0.25 0.42 0.62 0.76 0.82 1.43 1.95 2.43

10y 10y yield vs bund

Last 98.91 2.26 0.10

2000 1900 1800 1700 1600 1500 16-Sep

USD and gold

In 3m 6m 12m
1.40 1.38 1.36 1.34

NORWAY 3m nibor 10y swap 3.15 4.25 3.15 4.50 3.35 4.50

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

6-Oct

1.32 26-Oct Gold

EURUSD ra.

EURSEK & OMXS

9.4 9.2 9.0 8.8 16-Sep 6-Oct OMXS ra. 500 450 400 350 26-Oct EURSEK

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

3m 2.95 2.71 2.56 2.56 3m 2.44 2.10 2.00 1.98

Prior 2.95 2.71 2.57 2.56 Prior 2.43 2.11 2.00 1.96

chg 0.00 0.00 -0.01 0.00 chg 0.01 0.00 0.00 0.02

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

Today 95.92 119.46 107.88 75.72 79.70 Today 111.1 110.5 1715.0

% 0.02 - 0.39 0.47 - 0.64 Last 111.1 108.9 1715.0

Stock ex. Today Dow Jones 11,869.0 Nasdaq 2,650.7 FTSE100 5,553.2 Eurostoxx50 2,335.1 Dax 6,016.1 Nikkei225 8,926.5 Oslo 383.38 Stockholm 448.46 469.36 Copenhagen

% 1.4% 0.5% 0.5% -0.4% -0.5% 0.0% 0.4% 0.8% 0.7%

Morning report
27-Oct-2011
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