Morning Report

09.02.2012

Expects no rate cut from ECB

Interest meetings in the European and British central banks are today's most important events. Today's inflation figures from China showed that price pressures picked up in January.
3.20 2.90 2.60 2.30

30-Dec 19-Jan 8-Feb

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 30-Dec 19-J an

2.70 2.60 2.50 2.40 8-Feb

Inflation in China was 4.5 percent in January, up from 4.1 percent in December. The increase was slightly higher than expected, and according to Reuters consensus was 4.1 percent. Excluding food prices inflation was 1.8 in January. Higher total inflation, which topped at 6.5 percent in July last year, is mainly due to increased demand as a result of Chinese New Year. The figures, which are not seasonally adjusted, have previously been blown somewhat up in the wake of the Chinese New Year celebrations. We therefore expect that the January-rise is passing. More moderate growth, stabilization of commodity prices and lower food price growth will most likely bring inflation below 4 percent in 2012. This gives room for the Chinese government to act in the event of a possible economic downturn, by easing monetary and fiscal policy. The government has already begun, partly by reducing reserve requirements in the banking sector, partly by temporary liquidity-enhancing measures in the financial market, and partly by tax cuts for small and medium sized enterprises. Today, the European Central Bank (ECB) ends its monetary policy meeting. We are expecting, like consensus, that ECB will keep interest rates unchanged at 1 percent. However, there are several factors in favor of a cut. Unemployment rose by 20,000 in December, and in total there are 16.5 million unemployed in the euro zone. Between countries there are substantial differences: In Spain, unemployment is 23 percent, in France it is 10 percent, while Germany has an unemployment rate at 5.5 percent. High unemployment will most likely reduce wage and consumption growth, which in turn will dampen inflationary pressures. It is therefore expected that inflation, which was 2.8 percent in January, will decline further. This is in line with ECB's expectations. At the press conference in January Mario Draghi stated that inflation is expected to fall below the target of 2 percent in the second half of 2012. Despite the fact that the fundamentals in the European economy look less encouraging, there are traces of a positive development. The long-term refinancing operations (LTRO) from December 2011 seem to have a significant effect in the financial market. Interest rates in indebted peripheral euro zone economies like Italy and Spain have dropped sharply in 2012. The yield on Italian government with 10 years maturity is now 5.6 percent - the lowest level since October 2011. The price of insuring against an Italian or Spanish bankruptcy has also declined markedly in 2012. The spread between 3-month euro LIBOR and OIS swap spread, an indication of the stress in financial markets, have fallen by almost 30 points since the ECB made the first LTRO in December. This positive trend was mentioned by Mario Draghi in January, who also stated that ECB saw signs of stabilization in economic activity. This has been confirmed by PMI indices for both the manufacturing and the service sector, which rose in January. The composite PMI index has now risen to over 50, an indication that economic activity in the euro zone has bottomed out. Still, uncertainty seems to be significant, and we expect that the euro zone is in a mild recession. Yesterday's German trade data may also indicate this. Exports fell by 4.3 percent from November to December, considerably worse than consensus (-1.0 percent, according to Reuters). Macro-economic data points towards a slowdown of economic activity in the UK. Last autumn Bank of England (BoE) increased its securities purchase program by 75 billion pounds, where the purchases were to be spread over the following four months. As they now have completed these purchases we expect the BoE to announce that they will increase the program by 75 billion pounds on today's monetary policy meeting. This is somewhat higher than consensus (50 billion pounds, Reuters). It seems that the authorities in Greece have agreed to cut an additional 3 billion euros, and according to the Financial Times, tonly minor details should remain before a new agreement with EU/IMF for payment of a new loan tranche will be signed. According to Reuters, these "minor details" correspond to about 300 million euros. Once such an agreement is formalized, Greek authorities will probably end their discussions with private investors on restructuring of Greek debt. It is expected by private investors will take losses equivalent to 70 percent of their total exposure to the Greek sovereign debt. The development appears to have a positive impact on the euro, now trading at 1.33 against dollar, the highest EURUSD has been traded at since December 2011. The krone remains strong against euro and EURNOK is traded at 7.64 in the morning hours, which implies a strengthening of the krone by 0.3 percent since yesterday morning. Stock markets were relatively stable yesterday. Oslo Stock Exchange was up 0.7 percent, while the movements elsewhere in the world was more moderate. ole.kjennerud@dnb.no Yesterday's key economic events (GMT) 07:00 Germany Trade balance Todays key economic events (GMT) 01:30 China CPI 12:00 UK BoE: Asset purchases 12:45 EMU ESB interest rate meeting As of Dec As of Jan Feb Feb Unit bn sa Unit y/y % Bn GBP % Prior 15.1 Prior 4.1 275 1.0 Poll Actual 14.0 13.9 Poll DNB 4.1 4.5 325 350 1.0 1.0

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Morning Report
09.02.2012

SPOT RATES AND FORECASTS

100 98 96 94 8-Feb
$/b

EUR vs GBP & CHF 0.85 0.84 1.20 0.83 1.15 0.82 1.10 0.81 30-Dec 19-Jan 8-Feb 1.25
GBP r.a CHF

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

Prior 77.08 1.326 0.838 1.210 7.630 8.820 7.432 5.754 7.472 0.866 9.104 6.653 8.639 1.157 10.522

Last 77.22 1.330 0.840 1.211 7.638 8.834 7.432 5.746 7.438 0.866 9.102 6.643 8.600 1.158 10.522

% 0.2% 0.3% 0.2% 0.0% 0.1% 0.2% 0.0% -0.1% -0.4% 0.0% 0.0% -0.2% -0.5% 0.1% 0.0%

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 1.0818 0.9952 0.9108 18.65 5.5909 1.5837 7.7556 122.16 0.2774 2.5975 0.5262 0.8364 3.1408 1.2444 29.7070

% 0.21% -0.11% -0.28% -0.50% -0.30% 0.12% 0.03% -0.16% -0.05% -0.27% -0.34% 0.22% -0.64% -0.21% -0.12%

EURSEK & OMXS 9.0 8.9 8.8 8.7 30-Dec 19-Jan 550 500 450 400 350 8-Feb

OMXS ra. EURSEK

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

N IBOR Prior 2.27 2.68 2.94 3.11 2.87 3.16 3.44 3.69

SWAP AN D MON EYM ARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.29 2.27 2.25 0.60 2.72 2.54 2.53 1.02 2.99 2.65 2.64 1.34 3.15 2.71 2.71 1.53 2.87 1.98 2.00 1.27 3.18 2.15 2.16 1.64 3.46 2.36 2.36 2.02 3.72 2.52 2.53 2.40

Last 0.59 1.01 1.33 1.52 1.25 1.64 2.02 2.40

USD LIBOR Prior 0.26 0.52 0.77 0.91 0.67 1.11 1.59 2.08

Last 0.25 0.51 0.76 0.91 0.65 1.10 1.60 2.10

Gov. Bonds, 10y 2.00 1.75 1.50

3.00 2.50 2.00 1.50

30-Dec 19-Jan 8-Feb

10y 10y yield vs bund

N ORWAY Prior Last 115.4 111.55 2.35 2.35 0.37 0.36

GOVERNM ENT BON DS SWEDEN GERMANY US Prior Last Prior Last Prior 114.471 114.43 100.19 100.11 100.15625 1.95 1.94 1.98 1.99 1.98 -0.03 -0.05 0.00

Last 99.88 2.02 0.04

JPY and DowJones 14 78 13 77 12 76 11 10 75 30-Dec 19-Jan 8-Feb

In 3m 6m 12m

INTEREST RATE FORECASTS N ORWAY SWEDEN 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 0.55 0.55 0.50

swap 2.25 2.50 3.00

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 30-Dec 19-Jan 8-Feb
EURUSD ra. Gold

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

3m 2.58 2.39 2.37 2.41 3m 2.29 1.99 1.80 1.74

Prior 2.61 2.39 2.38 2.41 Prior 2.29 1.99 1.80 1.75

chg -0.03 0.00 -0.01 0.00 chg 0.00 0.00 0.00 -0.01

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 95.52 0.13 Dow Jones 12,884.0 0.0% SEK 116.91 0.21 Nasdaq 2,915.9 0.4% EUR 103.77 0.35 FTSE100 5,875.9 -0.2% USD 78.49 - 0.26 Eurostoxx50 2,512.9 0.0% GBP 80.90 Dax 6,748.8 -0.1% Comm. Today Last Nikkei225 9,002.2 0.0% Brent spot 117.3 117.3 Oslo 411.39 0.7% Brent 1m 117.5 117.2 Stockholm 492.65 0.0% 0.3% Spot gold 0.0 1746.0 Copenhagen 566.07 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
09.02.2012
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