Morning Report

30.12.2011

Italy still faces high borrowing costs

3.40 3.20 3.00 2.80 2.60

Fixed income markets were a slightly disappointed with yesterday's Italian debt auction, but share prices rose in both Europe and the USA. U.S. stocks rose yesterday with the S&P500 up 1.1 per cent. The index is thus in positive territory for 2011 ahead of the last trading day of the year. Long-term rates however, declined with 10-year U.S. Treasury yield down to 1.89 percent, four basis points lower than the day before. Gold prices continued to fall to its lowest level in nearly six months. The decrease can be related to year-end liquidation by funds. Macro economic figures from the United States was mixed, but with a bias towards the positive side. After successful auctions in Italy Wednesday, there was much excitement attached to yesterday's Italian auctions in benchmark securities. The outcome, however, was on the weak side of expectations from the market reactions to judge. The euro weakened slightly immediately after the auction results were known. EURUSD traded however this morning at about the same level as yesterday morning. The euro traded still below 7.80 against the NOK, and dollar costs just over 6 NOK. USDNOK exceeded the 6.0 level Wednesday night for the first time in about a year. The Italian government conducted yesterday four auctions of government securities. Two of the loans were so-called benchmark loans with respectively 3 years and 10 years maturities. All in all, the government borrowed just over 7.0 billion EUR, versus a maximum target at 8.5 billion EUR. The interest rate on the loan with the three-year maturity was 5.62 per cent, down from 7.89 per cent at a similar auction in November. The interest rate on the 10y bond was 6.98 per cent, down from 7.56 per cent at an auction 29 November. In addition, it raised 0.8 billion EUR in a 7-year floating-rate loan that yesterday was 7.42 per cent, and 1.2 billion EUR in a 9y bond to 6.7 per cent. Auctions yesterday was perceived as a bit disappointing, partly because the auctions on the day before was perceived as successful, and partly because the total loan amount was less than desired. Italy thus still faces long-term borrowing costs above 7 per cent, which many consider to be an unsustainable level. Italian interest rates pulled a bit up after the auction. There were also rumors that the ECB bought the Italian government securities after the auction. In the U.S. the initial claims rose by 15' last week, to 381', versus an expected increase to 375 '. Four weeks average was down 6 'to 375'. Although there was an increase last week, the trend is heading downward. The seasonal factors just before Christmas is even more uncertain than usual, and one should be cautious in interpreting the weekly figures. The Pending home sales index rose 7.3 per cent in November, compared with an expected increase of 2 per cent. This index also surprised last month. The index is still at low levels, but now indicates a slight increase in existing home sales. Chicago PMI was unchanged from November to December for the overall index. It was expected a decline to 61. Among the sub-indices new orders fell by 2.2 points. Production fell by 1.1, while the inventories index was down 1.4. Employment, however, rose by 1.7 and order reserves with 2.8. The level towards the end of the year is high and suggests still solid growth in local industry. The index points against high ISM (released 3 January). In Sweden, exports fell 0.8 per cent from October to November. Moreover, the decline was greater in October than previously reported. Imports were unchanged from the previous month. The seasonally adjusted trade surplus thus fell to 6.6 billion SEK in November. The surplus in October was revised down from 9.5 billion to 7.4 billion SEK. The underlying trend has slowed markedly in the past. The GDP figures for the second quarter was boosted by strong exports. It is likely we will se downward revisions for Q2 and probably much weaker growth for Q3. [email protected]

21-Nov 9-Dec 29-Dec

SEK & 3m STIBOR 9.5 9.3 9.1 8.9

2.80 2.70 2.60 2.50 2.40

21-Nov 9-Dec 29-Dec

Headquarters 0021 Oslo Stranden 21

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

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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) 09:00 EMU Money growth- M3 13:30 USA Initial claims 15:00 USA Pending Home Sales 15:15 USA Chicago PMI Todays key economic events (GMT) 07:00 UK Nationwide home prices 09:00 Italiy PPI

As of Nov W48 Nov Dec As of Dec Nov

Unit y/y % 1000 Index, % Index, Unit y/y % y/y %

Prior 2.6 364 10.4 62.6 Prior 1.6 4.5

Poll 2.5 375 2.0 61.0 Poll 1.6 4.6

Actual 2.0 381 7.3 62.5 DNB

Morning Report
30.12.2011

SPOT RATES AND FORECASTS

NOK TWI ra.

EUR vs GBP & CHF 0.87 0.86 1.20 0.85 1.15 0.84 1.10 0.83 21-Nov 9-Dec 29-Dec 1.25
GBP r.a CHF

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

Prior 77.64 1.296 0.841 1.219 7.771 8.937 7.434 5.999 7.718 0.870 9.244 6.899 8.888 1.151 10.628

Last 77.59 1.294 0.839 1.217 7.777 8.946 7.434 6.011 7.751 0.870 9.276 6.917 8.917 1.151 10.674

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

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 1.0154 1.0217 0.9404 19.95 5.7451 1.5431 7.7698 122.96 0.2789 2.6693 0.5415 0.7729 3.4047 1.2997 32.1269

% 0.10% 0.06% 0.04% 0.18% 0.16% 0.09% -0.04% 0.10% 0.01% 0.15% 0.26% 0.18% 0.06% -0.10% 0.00%

EURSEK & OMXS 9.4 9.2 9.0 8.8 21-Nov 9-Dec 500 450 400 350 29-Dec

OMXS ra. EURSEK

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

N IBOR Prior 2.61 2.92 3.10 3.24 2.84 3.17 3.40 3.60

SWAP AN D MON EYM ARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.55 2.35 2.36 1.02 2.86 2.64 2.64 1.32 3.11 2.70 2.71 1.59 3.27 2.76 2.76 1.76 2.83 1.84 1.83 1.40 3.17 1.96 1.96 1.76 3.40 2.17 2.16 2.10 3.60 2.29 2.29 2.42

Last 0.99 1.30 1.57 1.75 1.41 1.76 2.09 2.40

USD LIBOR Prior 0.30 0.58 0.81 0.97 0.88 1.28 1.67 2.06

Last 0.30 0.58 0.81 0.97 0.87 1.29 1.68 2.07

Gov. Bonds, 10y 2.00 1.75 1.50

3.00 2.50 2.00 1.50

10y 10y yield vs bund

N ORWAY Prior Last 114.8 110.85 2.44 0.58 2.44 0.59

GOVERNM ENT BON DS SWEDEN GERMANY US Prior Last Prior Last Prior 117.757 117.75 101.396 101.36 100.90625 1.63 -0.23 1.63 -0.22 1.86 1.85 1.90 0.04

Last 100.78 1.92 0.07

21-Nov 9-Dec 29-Dec

13 12 11

JPY and DowJones

10 21-Nov

9-Dec

79 78 77 76 75 29-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

1.42 1.38 1.34 1.30 1.26

21-Nov 9-Dec 29-Dec

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

3m 2.62 2.34 2.29 2.30 3m 2.20 1.80 1.60 1.58

Prior 2.62 2.33 2.25 2.29 Prior 2.19 1.79 1.59 1.57

chg 0.00 0.01 0.04 0.01 chg 0.01 0.01 0.02 0.01

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 97.23 0.04 Dow Jones 12,287.0 1.1% SEK 118.46 - 0.08 Nasdaq 2,613.7 0.9% EUR 102.58 - 0.12 FTSE100 5,566.8 1.1% USD 80.44 0.01 Eurostoxx50 2,292.3 1.7% GBP 80.80 0.1 Dax 5,848.8 1.3% Comm. Today Last Nikkei225 8,455.4 0.0% Brent spot 108.0 108.0 Oslo 383.26 0.9% Brent 1m 108.0 108.0 Stockholm 446.55 0.8% 0.2% Spot gold 1531.0 1531.0 Copenhagen 497.56 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
30.12.2011
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