Morning Report

17.11.2011

Disagreement about ECBs role

The European debt crisis is still in the centre of market participant's attention. Disagreement between Germany and France about ECBs role in the crisis dampened market sentiment yesterday. US key figures surprised positively yesterday. Inflation seem to have passed its peak, industrial production show solid growth and the NAHB index was at its highest level since May 2010. This was however not enough to lift market sentiment. US stock markets declined yesterday and the yield on US Treasuries fell, clear signs of risk aversion. The reason is that the European debt crisis remains in the centre of market participants' attention. In particular Italy has been in focus over the last few days as the interest rate on Italian 10 year government bonds has been around seven per cent. The Italian debt burden is not sustainable in the long run if the interest rate remains at these levels. There have also been signs of the fear of contagion to other large European countries, like Spain and even France. The risk premium investors charge for holding French rather than German 10 year debt has increased to a euro life time high. These latest developments are probably why the ECB, according to Reuters, purchased relatively large amount of both Italian and Spanish government debt yesterday. This was however not enough to get these countries interest rate levels down. Many, including France, now call for more decisive action from the ECB and want the central bank to intervene heavily in euro zone government bond markets to stem the crisis. Germany does however oppose such intervention and the German Chancellor, Merkel, yesterday said that EU rules prohibited such action. The German opposition is due to fear of the potential risk of inflation from printing money. They also believe that debt purchases could reduce the pressure on troubled countries to implement necessary reforms. The ECB policymakers also continue to reject such action, and emphasize that it is up to European governments to solve the crisis through austerity measures and reforms. Italy has started this process and passed substantial tightening measures last Friday. The measures accounts for cuts equal to 60 bill. euro during the coming three years, ie 3.4% of GDP. The question is to which extent the cuts will be implemented and, even more important, if this is enough to restore market confidence. So far the measures have not been enough to calm market nerves about the Italian debt situation. The hope is however, that the new Italian Prime Minister, Mario Monti, will manage to win back market confidence. Yesterday Monti presented his new government. The new government contains no politicians. Monti say this should be strength as it can avoid political disputes and focus on important reforms. The government is expected to have an overwhelming majority in the parliament and Monti believe the government should last until the next scheduled elections, in 2013. Today, Monti is expected to outline new austerity measures and reforms. The United Kingdom does also have a large debt burden and has over the last few years passed and implemented several tightening measures. The fiscal austerity measures pull growth down. Weaker international growth and financial market turmoil has further weakened the growth prospects. As a consequence Bank of England decided to increase its asset purchases in October, despite of inflation well above the central banks target. Earlier this week fresh inflation figures indicated that price growth has peaked. And according to the latest inflation report from Bank of England, which was released yesterday, inflation is expected to fall sharply going forward. In two year's time price growth is projected to be just 1.2%, below the central bank target. The central bank has also revised their growth forecasts down. Annual GDP growth is expected to be only about 1 per cent in 2012, while their previous estimate was 2 per cent. The report also indicated a fair chance of the British economy entering a new recession. As a consequence of the central bank latest forecast, interest rates in the UK is expected to be kept on hold for the foreseeable future and further policy loosening is likely to be needed. [email protected] Yesterday's key economic events (GMT) 12:30 US Core CPI 13:15 US Industrial production 14:00 US NAHB Todays key economic events (GMT) 07:30 Sweden Unemployment 08:30 UK Retail trade 12:30 US Housing starts 12:30 US Initial claims As of Oct Oct Nov As of Oct Oct Oct Week 44 Unit m/m % m/m % Index Unit % na m/m % mill 1000 Prior 0.1 -0.1 17 Prior 6.8 0.6 0.658 390 Poll 0.1 0.4 18 Poll -0.1 0.610 395 Actual 0.1 0.7 20 DNB 6.7

2.90 7.40 7-Oct 27-Oct 16-Nov

SEK & 3m STIBOR 9.2 9.1 9.0 8.9 7-Oct 2.65 2.60 2.55 2.50 2.45 27-Oct 16-Nov
EURSEK

3m ra.

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Morning Report
17.11.2011

SPOT RATES AND FORECASTS

NOK TW I ra.

EUR vs GBP & CHF 1.25 0.89 0.88 1.20 0.87 1.15 0.86 0.85 1.10 7-Oct 27-Oct 16-Nov
GBP r.a CHF

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

Prior 77.07 1.346 0.856 1.239 7.808 9.170 7.443 5.802 7.528 0.852 9.126 6.815 8.844 1.176 10.726

Last 77.02 1.352 0.858 1.242 7.805 9.156 7.443 5.777 7.506 0.853 9.104 6.776 8.807 1.175 10.680

% -0.1% 0.4% 0.2% 0.2% 0.0% -0.2% 0.0% -0.4% -0.3% 0.1% -0.2% -0.6% -0.4% -0.1% -0.4%

In 1 m ...3 m 80 80 1.35 1.35 0.88 0.86 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 5.78 5.78 7.22 7.22 0.85 0.86 8.9 9.1 6.81 6.74 5.45 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 1.0116 1.0213 0.9189 19.04 5.5083 1.5766 7.7851 117.67 0.2765 2.5551 0.5187 0.7682 3.2928 1.2920 30.7330

% 0.34% -0.24% -0.07% -0.23% -0.41% 0.22% 0.01% -0.29% -0.11% -0.41% -0.31% 0.43% -0.55% -0.33% -0.01%

EURSEK & OMXS 9.2 9.1 9.0 8.9 8.8 7-Oct 500 450 400 350 27-Oct 16-Nov
OMXS ra. EUR SEK

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

NIBOR Prior 2.79 3.04 3.13 3.24 2.98 3.34 3.59 3.80

SWAP AND MONEYM ARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.80 2.36 2.36 1.14 3.03 2.62 2.62 1.41 3.18 2.66 2.66 1.65 3.26 2.73 2.73 1.82 2.99 1.95 1.93 1.57 3.32 2.15 2.15 1.95 3.56 2.35 2.35 2.25 3.77 2.46 2.46 2.53

Last 1.14 1.41 1.65 1.82 1.58 1.94 2.25 2.52

USD LIBOR Prior 0.25 0.47 0.67 0.82 0.86 1.31 1.77 2.19

Last 0.25 0.47 0.68 0.83 0.87 1.33 1.78 2.20

Gov. Bonds, 10y 2.25 2.00 1.75 3.00 2.50

1.50 2.00 7-Oct 27-Oct 16-Nov

10y 10y yield vs bund

NORWAY Prior Last 115.7 111.35 2.42 2.40 0.61 0.58

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 117.653 117.74 103.825 103.82 1.65 1.65 1.81 1.82 -0.16 -0.17

US Prior 100 2.00 0.19

Last 99.97 2.01 0.19

JPY and DowJones 13 12 11 10 7-Oct 79 77 27-Oct 75 16-Nov

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.90 4.25 2.00 3.00 1.05 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

US 3m libor 10y swap 0.40 2.75 0.35 3.00 0.35 3.25

USDJPY ra. DowJones, 1000

USD and gold 1.47 2000 1900 1.42 1800 1700 1.37 1600 1500 1.32 7-Oct 27-Oct 16-Nov
EURU SD ra. Gold

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

3m 2.88 2.59 2.41 2.39 3m 2.57 2.06 1.75 1.63

Prior 2.88 2.59 2.41 2.39 Prior 2.57 2.06 1.76 1.64

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

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 97.59 - 0.01 Dow Jones 11,905.6 -1.6% SEK 120.95 - 0.17 Nasdaq 2,639.6 -1.7% EUR 105.84 0.36 FTSE100 5,509.0 -0.2% USD 78.03 - 0.45 Eurostoxx50 2,268.0 0.6% GBP 80.40 Dax 5,913.4 -0.3% Comm. Today Last Nikkei225 8,479.6 0.0% Brent spot 112.9 112.9 Oslo 386.34 0.4% Brent 1m 111.8 111.9 Stockholm 438.96 0.0% 0.1% Spot gold 1756.0 1756.0 Copenhagen 488.28 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
17.11.2011
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