Morning Report

06.02.2012

Promising US data
NOK & 3m NIBOR 8.00 7.80 7.60 7.40
3m ra.

Strong job figures Friday provide some hope of further recovery. But some sobriety is warranted.
3.20 2.90 2.60 2.30

When this is read Friday's encouraging U.S. employment report is already well digested by the markets. The verdict was positive: The S&P500 rose 1.5%, the Eurofirst300 1.6% and the Oslo Stock Exchange 1.2%. The U.S. ten-year government bond yield rose 11 bps to 1.93%. The increase is justified. Based on historical relationships the 150,000 additional jobs that were expected in January correspond to a GDP growth of a quite solid 3.3%, while the 243,000 jobs that were actually created is equivalent to a GDP growth of a more fiery 4.5%. And while the former implies more or less unchanged unemployment over time, the latter implies a decline in the unemployment rate of 0.5 percentage point annually. In other words, if Friday's jobs growth should continue, it will "only" take six years for the United States to return to its assumed normal level of unemployment around 5%. The December factory orders and January non manufacturing ISM provided a suitable appendix to the labor market figures. The ISM-index rose from 53.0 in December to a solid 56.8 in January, which in the index rather short history has been consistent with a GDP growth of just over 3%. Thus, this and other data released in January, supports the view that the strong job numbers are more than a flash in the pan. Some doubts remain, however. First, as the calculations above illustrate, higher growth is required if unemployment is to be brought down to its equilibrium level. The central bank's signal of an unchanged policy rate until the end of 2014 is not taken out of the air. Fed expects 2.2-2.7% GDP growth in the U.S. this year, slightly more than the consensus expectations. Stagnation in private consumption in the fourth quarter of last year and a housing market still characterized by overcapacity and falling prices both supports a conservative growth estimate for 2012. But this can of course be turned on its head: If enterprises speed up their hiring, growth in income and consumption will follow, and growth projections will have to raised. A final point worth making, however, is that the jobs growth has partially matched by significantly weaker productivity growth. In 2010, as companies held back on hiring despite an ongoing upswing, productivity rose by more than 4%. Last year it rose by a lamentably low %. Does it matter? Yes, productivity growth is the basis for the remuneration of labour and the owners of capital. Weaker productivity growth means, all else equal, lower earnings growth. Anyway, we sail into February with higher steering speed than we left December with. The risk of a new downturn seems to weaken day by day. Thus it will be interesting to see if better "soft" data (mainly sentiment indices) are followed by the harder data. German industrial orders for December are released today. After a dramatic decline in November, a small increase is expected in December. Note however that these figures are collected before ECB's three-year liquidity supply had begun to work. The ECB meets on Thursday this week. We expect no rate change at this meeting. Here we are in line with the majority of the 70 other forecasters estimates collected by Reuters last week. But as many as 13 of those are actually expecting a rate cut from 1.00% to 0.75% this Thursday. Well over a third of those questioned (26) expect like we do that interest rates will be cut to 0.50% by summer. If anything, the likelihood of more rate cuts has declined recently. Nevertheless, we believe it is far too early for the ECB to signal that it has finished cutting. Uncertainty is still too large, and fundamental conditions remain weak, cf. Eurozone retail sales that fell 0.4% m/m and 1.6% y/y in December. Though the jobs report was gratifying, perhaps even more gratifying was Silvio Berluconis notice on Friday, given in an interview with Financial Times, that he is not going to be a candidate for the post as prime minister for a fourth time. Good, because Italy's political situation can hardly be characterized as anything but fragile. Mario Monti is well respected both at home and abroad, but represents a strange state of emergency, in which elected politicians, to be re-elected in 2013, have to sit silent and endorse the restrictive measures of a purely bureaucratic government. It's hard not to believe that this condition will be harder to keep when elections are drawing nigh. Surely, there is then no disadvantage that the greatest populist of them all leaves the race. It leaves Monti with more room to solve his demanding job. [email protected] Yesterday's key economic events (GMT) 09:00 EMU Retail sales 13:30 USA Employment 13:30 USA Unemployment 15:00 USA Factory orders 15:00 USA ISM, non-manufacturing Todays key economic events (GMT) 11:00 Germany Manufacturing orders As of Dec Jan Jan Dec Jan As of Dec Unit m/m % 1000 % m/m % indeks Unit m/m % Prior -0.4r 203r 8.5 2.2r 53.0 Prior -4.8 Poll 0.2 150 8.5 1.5 53.0 Poll 1.3 Actual -0.4 243 8.3 1.1 56.8 DNB

27-Dec 16-Jan 3-Feb

SEK & 3m STIBOR 9.1 9.0 8.9 8.8 8.7 27-Dec 16-Jan
3m ra.

2.70 2.60 2.50 2.40 3-Feb

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Morning Report
06.02.2012

SPOT RATES AND FORECASTS

100 98 96 94 3-Feb
$/b

EUR vs GBP & CHF 0.85 0.84 0.83 1.15 0.82 1.10 0.81 27-Dec 16-Jan 3-Feb 1.25 1.20
GBP r.a CHF

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

Prior 76.57 1.314 0.831 1.208 7.629 8.791 7.434 5.805 7.582 0.869 9.182 6.689 8.735 1.153 10.579

Las t 76.75 1.307 0.829 1.206 7.616 8.787 7.434 5.829 7.597 0.867 9.191 6.727 8.769 1.155 10.605

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

In 1 m ...3 m 77 77 1.25 1.20 0.82 0.80 1.23 1.23 7.80 7.80 9.10 9.20 7.45 7.45 6.24 6.50 8.10 8.44 0.86 0.85 9.5 9.8 7.28 7.67 5.61 5.90 1.17 1.18 11.10 11.50

...6 m ...12 m 77 85 1.20 1.35 0.80 0.85 1.23 1.30 7.65 7.65 9.00 9.00 7.45 7.45 6.38 5.67 8.28 6.67 0.85 0.85 9.6 9.0 7.50 6.67 5.78 5.67 1.18 1.18 11.25 10.59

FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB

USD 1.0724 0.9965 0.9229 19.16 5.6915 1.5771 7.7560 123.90 0.2781 2.6428 0.5359 0.8318 3.2091 1.2458 30.2345

% -0.49% 0.32% 0.45% 0.85% 0.62% -0.27% 0.02% 0.51% 0.10% 0.61% 0.56% -0.50% 0.90% 0.28% 0.24%

EURSEK & OMXS 9.1 9.0 8.9 8.8 8.7 27-Dec 16-Jan 550 500 450 400 350 3-Feb

OMXS ra. EURSEK

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

NIBOR Prior 2.27 2.69 2.90 3.10 2.78 3.07 3.35 3.61

SWAP AN D MONEYM AR KET RATES STIBOR EUR IBOR Las t Prior Last Prior 2.28 2.30 2.29 0.63 2.66 2.56 2.55 1.04 2.96 2.65 2.65 1.36 3.10 2.71 2.71 1.55 2.76 1.94 1.94 1.23 3.05 2.12 2.12 1.61 3.34 2.32 2.32 1.99 3.59 2.48 2.48 2.36

Last 0.62 1.03 1.35 1.54 1.24 1.61 1.98 2.36

USD LIBOR Prior 0.26 0.53 0.77 0.92 0.62 1.03 1.52 2.04

Last 0.26 0.53 0.77 0.92 0.63 1.04 1.53 2.01

Gov. Bonds, 10y 2.00 1.75 3.00 2.50

2.00 1.50 1.50 27-Dec 16-Jan 3-Feb

10y 10y yield vs bund

NORW AY Prior Las t 114.9 110.99 2.40 2.41 0.51 0.48

GOVERNM ENT BONDS SW EDEN GERMANY US Prior Last Prior Last Prior 114.932 114.93 100.538 100.61 100.67188 1.90 1.89 1.89 1.93 1.92 0.01 -0.04 0.03

Last 100.73 1.93 0.00

JPY and DowJones 14 79 13 78 12 77 11 76 10 75 27-Dec 16-Jan 3-Feb

In 3m 6m 12m

INTEREST RATE FORECASTS NORW AY SW EDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.40 3.50 2.15 2.25 1.05 2.50 2.30 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 s wap 0.55 2.25 0.55 2.50 0.50 3.00

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 27-Dec 16-Jan 3-Feb
EURUSD ra. Gold

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

3m 2.58 2.33 2.29 2.30 3m 2.32 2.00 1.77 1.70

Prior 2.58 2.33 2.30 2.31 Prior 2.33 2.00 1.78 1.69

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

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 95.23 - 0.19 Dow Jones 12,862.2 1.2% SEK 116.51 - 0.14 Nasdaq 2,905.7 1.6% EUR 102.25 - 0.41 FTSE100 5,901.1 1.8% USD 79.33 0.50 Eurostoxx50 2,515.2 1.5% GBP 81.30 - 0.0 Dax 6,766.7 1.7% Comm. Today Last Nikkei225 8,929.2 0.0% Brent spot 113.4 113.4 Oslo 409.91 1.2% Brent 1m 114.3 114.6 Stockholm 495.35 1.3% 2.1% Spot gold 0.0 1734.0 Copenhagen 559.81 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
06.02.2012
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