Morning Report

16.08.2012

Lower 3m NIBOR
Norwegian money market rates has slowed in line with lower risk premiums in money markets.
NOK & 3m NIBOR 7.60 7.50 7.40 7.30 7.20 6-Jul
3m ra.

2.30 2.25 2.20 2.15 2.10 26-Jul 15-Aug

SEK & 3m STIBOR 9.0 8.6 8.2 6-J ul

Norwegian three-month money market rate (3m NIBOR) fell 6 basis points yesterday to 2.10 percent. A week ago the interest rate was around 2.24 per cent. The decline in 3M NIBOR has pulled near FRA rates down. The relatively low interest rates partly reflects expectations of rate cuts this fall, but also that premiums in the money market have decreased. The latter has been most important lately and is a result of lower risk premiums in international money markets. Lower risk premiums in money markets have been accompanied by lower implied volatility and higher prices in the U.S. stock market. Also longterm U.S. Treasury yields have increased in August, and overall this points to some higher risk appetite. But the rise in government bond yields is modest and the desire to take risk is probably not much changed. The decline in EUR-USD basis swaps may also be related to that European banks over time have reduced their need for U.S. dollar. Yesterday's figures gave no significant new impetus to the U.S. stock market where the main indices ended virtually unchanged from the previous day. August is vacation month in large parts of Europe and the flow of news from there is currently limited. In the market for U.S. Treasuries yields rose slightly yesterday and the trend has continued in the Asian session. In currency markets the U.S. dollar has strengthened 0.7 percent against the Japanese yen since yesterday morning, and 0.4 percent against the euro. Pound sterling has held its value against the dollar, and thus strengthened against the euro. The Swedish krona has strengthened against the euro, while the Norwegian krone has remained stable despite the a rise in oil prices. Oil prices (Brent) is now just over 116 USD / barrel. The Empire State index for August where the increase in July was followed by a fall in August disappointed. The index fell 13.3 p to -5.85, compared with 6.50 expected and is thus back to levels around the "double dip-fears" in autumn 2010 and autumn 2011. Inventories and deliveries both fell much. The index has limited relevance to the national figures, but is the first release in the monthly cycle. More positive was the industrial production. This rose 0.6 percent in July, against the expected 0.5 percent, according to Reuters. On the other hand, growth in June was revised down 0.3 percentage points. Manufacturing production rose 0.5 percent from June, and the underlying growth slowed from 1.5 percent to 1.0 percent. Capacity utilization, however, rose to its highest level since April 2008. The figures are not strong, but still show sustained improvement. The housing market has gradually improved the home builder's expectations. Yesterday's NAHB index added into this picture with an increase from 35 to 37 in August the highest level since February 2007. The Consumer Price Index in July remained unchanged from the previous month. It was expected a rise of 0.2 percent and the annual inflation rate fell from 1.7 percent to 1.4 percent. Core inflation (CPI ex. Food / energy) rose 0.1 percent, marginally below expectations, and the annual rate fell one tenth to 2.1 percent. Food, clothing, transportation, and (especially) hotels pulled down overall inflation rate from June to July. Oil prices still had a negative effect on inflation, but this effect seems to disappear in the near future. In the UK, number of registered unemployed fell by 5,900 people in July, compared with an expected increase of 6,000. The Olympic Games may be an explanation to the July figures. LFS unemployment (3m average) fell by 0.1 percentage points to 8.0 percent in June. Employment increased 0.4 percent year / year in June. High unemployment and slack in the economy dampens wage growth. There was also reflected in yesterday's wage figures. Total wages, including bonuses, rose 1.6 percent in June, compared with expected 1.8 percent. Excluding bonuses, wages rose by 1.8 percent in June, versus expected 1.9. Wage growth is well below a normal level and implies a clear decline in real wages. In Norway, Statistics Norway released the trade figures for July. These showed a decline in traditional exports from the previous month. Electricity and processed petroleum products contributed to lower growth. Exclusive these products, the export trend seems to remain relatively good. kyrre.aamdal@dnb.no

2.20 2.10 2.00 26-Jul 15-Aug

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850

Sales Oslo (+47) Equity Fixed Income

22 94 89 40 22 01 78 20

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

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 77 41 22 01 76 57 22 01 76 67

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

Yesterday's key economic events (GMT) 08:30 UK BoE Minutes 12:30 US CPI, total 13:15 US Goods production 14:00 US NAHB housing market Todays key economic events (GMT) 08:30 UK Retail trade 12:30 US Housing starts 12:30 US Initial claims 14:00 US Philadelphia Fed

As of Jul Jul Aug As of Jul Jul week 32 Aug

Unit m/m % m/m % index Unit m/m % mill 1000 Index

Prior 0.0 0.4 35 Prior 0.1 0.760 361 -12.9

Poll 0.2 0.4 35 Poll 0.0 0.758 -4.0

Actual 0.1 0.5 37 DNB

Morning Report
16.08.2012

SPOT RATES AND FORECASTS

96 94 92 90 15-Aug
$/b

1.20 1.20 1.20 1.20

EUR vs GBP & CHF 0.82 0.80 0.78 6-Jul 0.76 26-Jul 15-Aug
CHF

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

Prior 79.00 1.229 0.784 1.202 7.312 8.210 7.444 5.949 7.537 0.893 9.331 6.687 8.467 1.124 10.477

Last 79.24 1.227 0.784 1.201 7.320 8.230 7.443 5.970 7.530 0.890 9.341 6.715 8.470 1.125 10.506

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

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.35 7.50 8.40 9.00 7.45 7.45 5.98 5.77 7.47 6.87 0.88 0.83 9.3 9.0 6.83 6.92 5.46 5.82 1.14 1.20 10.63 10.84

...6 m ...12 m 85 85 1.35 1.40 0.85 0.87 1.20 1.30 7.50 7.60 9.00 9.00 7.45 7.45 5.56 5.43 6.54 6.39 0.83 0.84 8.8 8.7 6.67 6.43 5.67 5.46 1.20 1.18 10.59 10.34

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

USD 1.0486 0.9894 0.9793 20.32 6.0696 1.5654 7.7576 120.36 0.2829 2.8147 0.5680 0.8067 3.3331 1.2523 31.9150

% -0.19% -0.02% 0.17% 0.06% 0.21% -0.20% -0.01% 0.17% -0.12% 0.14% 0.16% -0.09% 0.39% 0.17% 0.11%

GBP r.a

EURSEK & OMXS 8.7 8.5 8.3 8.1 6-Jul 26-Jul 550 500 450 400 350 15-Aug

OMXS ra. EURSEK

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

NIBOR Prior 1.84 2.16 2.41 2.54 2.39 2.70 3.01 3.30

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.81 1.83 1.83 0.08 2.10 2.04 2.03 0.21 2.37 2.29 2.28 0.51 2.50 2.40 2.39 0.67 2.39 1.81 1.79 0.74 2.71 1.96 1.95 1.13 3.03 2.15 2.15 1.52 3.32 2.34 2.34 1.93

Last 0.08 0.21 0.51 0.66 0.75 1.15 1.54 1.94

USD LIBOR Prior Last 0.24 0.24 0.44 0.43 0.72 0.72 0.88 0.88 0.60 0.63 1.01 1.03 1.44 1.47 1.92 2.00

Gov. Bonds, 10y 1.60 1.40 1.20 1.00 6-Jul 3.00 2.50 2.00 1.50 1.00 26-Jul 15-Aug
SEK

NORWAY Prior Last /A No Data 99.05 10y 10y yield 2.02 2.10 vs bund 0.49 0.54

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 117.81 117.56 101.836 101.70 1.53 1.55 1.53 1.56 -0.01 -0.01

US Prior 98.25 1.82 0.29

Last 98.13 1.84 0.28

NOK, ra.

13.5 13.0 12.5 12.0

JPY and DowJones

81 79 77

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.40 3.50 2.10 2.50 0.50 2.25 2.50 3.75 2.05 2.75 0.50 2.75 2.85 4.25 2.20 3.00 0.50 3.25

US 3m libor 10y swap 0.50 2.25 0.50 2.50 0.50 3.00

6-Jul

26-Jul

75 15-Aug

USDJPY ra. DowJones, 1000

USD and gold 1670 1620 1570 1520 6-Jul

1.26 1.24 1.22 1.20 26-Jul 15-Aug

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % SEP 2.09 2.08 0.01 NOK 91.52 0.10 DEC 1.95 1.95 0.00 SEK 109.78 0.07 MAR 1.94 1.94 0.00 EUR 97.41 0.02 JUN 1.94 1.93 0.01 USD 82.83 0.17 FRA SEK 3m Prior chg GBP 84.20 - 0.1 SEP 1.97 1.97 0.00 Comm. Today Last DEC 1.76 1.77 -0.01 Brent spot 116.3 116.3 MAR 1.66 1.65 0.01 Brent 1m 115.9 116.3 JUN 1.63 1.64 -0.01 Spot gold 0.0 1601.8 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 13,164.8 Nasdaq 3,030.9 FTSE100 5,833.0 Eurostoxx50 2,430.4 Dax 6,946.8 Nikkei225 9,092.8 Oslo 435.59 Stockholm 505.09 Copenhagen 652.14

% -0.1% 0.5% -0.5% -0.1% -0.4% 0.0% 0.5% -0.6% 0.6%

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