Morning Report

27.04.2012

BoJ set to expand APP

Bank of Japan increases its balance by 5 trn yen. Yesterday's and this morning's figures were somewhat disappointing. Bank of Japan decided this morning to increase its balance by 5 trn yen to a total of 70 trn. The increase is part of the bank's Asset Purchase Programme (APP), which now comprise 35 of the 70 trn which is found at the central bank's balance. Of the 35 trn in APP 19 have previously been used to buy JGB. Now, this share is increased to 29 trn. This is a significant increase which may push borrowing costs to Japanese authorities further down. The bank also decided to extend the remaining maturity of JGBs to be purchased from "one to two years" to "one to three years". The outstanding purchases (about 15 'bn + 5' passed today) will be implemented by June 2013, which is an extension of 6 months against what was previously adopted. Although it was expected that the central bank was going to do something at today's meeting, it has been unclear how much they wanted to do. Now it thus appears that Governor Shirakawa has given in to pressure, but that the measures are in the "low" end of expectations. The Japanese yen immediately depreciated by 0.2 percent against the dollar, but this has later been reversed. Since yesterday morning the yen has appreciated by 0.4 percent against dollar, and USDJPY is now traded at 80.87. Weak European figures yesterday also weighed on the euro against other major currencies. Among others, EURUSD and EURGBP are down 0.3 percent since yesterday morning. The krone has also weakened somewhat, and EURNOK is traded at 7.59, about 0.3 percent higher than yesterday morning. EURSEK, however, is unchanged, after positive Swedish figures gave a temporary boost to the Swedish krona. Having risen from -3.2 in February to 0.0 in March, consumer confidence rose to 4.7 in April. This is the biggest two-month increase since Sep 2009, and indicates that conditions are starting to improve in the Swedish economy. Weak global macro data have also contributed to a decline in yields on sovereign bonds in the US and Germany. Yields on 10 year Treasuries were down 10 points in the US, while the corresponding rate in Germany fell by about 5 bp. Development in bourses around the world has also been mixed. The US stock market has risen by about 1 percent, while the increase was slightly less in Europe. This morning the Japanese stock market has opened in negative territory on weaker than expected macro data and slightly disappointing news from the BoJ. Macro data published yesterday and this morning have been mostly disappointing. Japanese figures came in on the weak side in March. Industrial production increased by 1.0 percent from February, while it was expected a growth of 2.6 percent (Bloomberg). Although the reconstruction after the catastrophe last year is in progress, the development so far has appeared to be somewhat weaker than previously expected. This is not surprising. The crisis in Japan in 2011 has been followed by an escalating debt crisis in the euro zone, which most likely is in a mild recession. This weighs on international demand and Japanese exports. In addition, the yen has strengthened on increased anxiety and reduced risk appetite, which put additional downward pressure on the export-oriented Japanese economy. Also the neighbor to the east of Japan is affected by the slowdown. In South Korea growth in the first quarter dropped to 2.8 per cent annualized. This is the lowest growth in Asia's fourth largest economy in two and a half years. It should be noted, however, that the slowdown in the region is not only entitled to a weak euro zone. The Chinese growth locomotive, which is both Japan and South Korea's largest trading partner, has shown clear signs of a slowdown so far in 2012. Yet there is no escaping from the problems in the euro zone if you want to explain the reason for why the brakes are on in the global economy. On Wednesday, the ECB lending survey showed that banks continued to tighten credit standards for firms and households in the first quarter. Yesterday's unexpected drop in the European sentiment index (ESI) from 94.5 in March to 92.8 in April, reversed the increase in the last few months, and the index is now at the same level as in December. The decline is driven by a decline in all sectors and shows that the problems in the euro zone are far from over. ECB's efforts to help markets earlier this year seems to have had some positive effect in financial markets, and has probably helped to reduce the immediate risk of default in debt threatened European countries. But the measures have done little to solve the underlying problems: debt is too high, the budgets will be cut, and the private sector is apparently not able to counter the fall in demand caused by this. This leads to a question of how the euro zone will deal with its all-time high unemployment. In time, deregulation of inefficient sectors and higher efficiency in public sector with reduced bureaucracy may contribute positively, but it takes time for such reforms have an effect on aggregate demand. ole.kjennerud@dnb.no Yesterdays key economic events (GMT) 07:30 Sweden Consumer confidene 08:00 Norway Gross unemployment, sa. 10:00 EMU Sentiment index Todays key economic events (GMT) 00:30 Japan "Core" CPI 10:00 Norway Retail sales 14:30 USA GDP As of Apr Apr Apr As of Mar Mar Q1 Unit Index 1000 Index Unit y/y % m/m % q/q saar Prior 0.0 81.6 94.4 Prior 0.1 1.0 3.0 Poll 1.0 81.4 94.2 Poll 0.1 -0.4 2.3 Actual 1.5 81.8 92.8 DNB 0.2 0.8 2.4

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 19-Mar 6-Apr 2.40 2.20 2.00 26-Apr
EURSEK

3m ra.

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Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

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Morning Report
27.04.2012

SPOT RATES AND FORECASTS

NOK TWI ra.

EUR vs GBP & CHF 1.21 0.86 1.21 0.84 1.20 0.82 1.20 1.20 0.80 19-Mar 6-Apr 26-Apr
GBP r.a CHF

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

Prior 81.04 1.321 0.817 1.202 7.590 8.881 7.439 5.747 7.094 0.855 9.297 6.723 8.301 1.172 10.874

Last 80.78 1.316 0.815 1.202 7.586 8.892 7.439 5.766 7.140 0.854 9.317 6.758 8.366 1.174 10.919

% -0.3% -0.4% -0.3% 0.0% -0.1% 0.1% 0.0% 0.3% 0.6% -0.1% 0.2% 0.5% 0.8% 0.1% 0.4%

In 1 m ...3 m 83 84 1.30 1.30 0.83 0.83 1.20 1.20 7.50 7.50 8.90 9.00 7.45 7.45 5.77 5.77 6.95 6.87 0.84 0.83 9.0 9.0 6.85 6.92 5.68 5.82 1.19 1.20 10.72 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 1.0359 0.9871 0.9133 18.91 5.6522 1.6163 7.7595 126.38 0.2782 2.6236 0.5317 0.8114 3.1824 1.2435 29.4280

% -0.26% 0.15% 0.36% 0.40% 0.35% -0.09% -0.01% 0.22% 0.03% 0.49% 0.36% -0.39% 0.53% 0.14% 0.26%

EURSEK & OMXS 9.0 8.9 8.8 8.7 19-Mar 6-Apr 550 500 450 400 350 26-Apr

OMXS ra. EURSEK

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

NIBOR Prior 1.93 2.30 2.69 2.89 2.93 3.19 3.42 3.63

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.92 1.90 1.90 0.35 2.27 2.17 2.17 0.65 2.66 2.42 2.42 0.97 2.88 2.54 2.54 1.14 2.92 2.08 2.04 1.11 3.17 2.23 2.18 1.50 3.40 2.40 2.37 1.86 3.61 2.56 2.52 2.24

Last 0.35 0.65 0.96 1.14 1.10 1.47 1.85 2.22

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.73 0.73 0.89 0.89 0.67 0.67 1.10 1.10 1.57 1.54 2.05 2.03

Gov. Bonds, 10y 2.25 2.00 1.75 1.50

3.00 2.50 2.00 1.50

19-Mar 6-Apr 26-Apr

10y 10y yield vs bund

NORWAY Prior Last 115.65 112.55 2.25 2.21 0.56 0.56

GOVERNMENT BONDS US SWEDEN GERMANY Prior Last Prior Last Prior 115.324 115.32 100.573 100.94 100.46875 1.83 1.82 1.69 1.65 1.95 0.13 0.17 0.25

Last 100.92 1.91 0.26

13.5 13.0 12.5 12.0

JPY and DowJones

85 80 75

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y s wap 3m stibor 10y swap 3m euribor 10y swap 3.50 2.15 2.75 0.80 2.50 2.40 3.75 2.10 2.75 0.80 2.75 2.45 2.70 4.25 2.00 3.00 0.80 3.25

US 3m libor 10y 0.50 0.50 0.50

swap 2.50 2.50 3.00

19-Mar

6-Apr

26-Apr

USDJPY ra. DowJones, 1000

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 19-Mar 6-Apr 26-Apr
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today JUN 2.30 2.26 0.04 NOK 94.88 2.27 2.27 0.00 SEK 118.12 SEP DEC 2.34 2.35 -0.01 EUR 103.13 MAR 2.43 2.44 -0.01 USD 79.24 FRA SEK 3m Prior chg GBP 83.30 JUN 2.10 2.11 -0.01 Comm. Today SEP 1.95 1.96 -0.01 Brent spot 119.5 DEC 1.90 1.91 -0.02 Brent 1m 119.3 MAR 1.89 1.91 -0.02 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% - 0.05 0.08 - 0.16 0.09 0.1 Last 119.5 119.9 1653.5

Stock ex. Today Dow Jones 13,204.6 Nasdaq 3,050.6 FTSE100 5,748.7 Eurostoxx50 2,322.7 Dax 6,739.9 Nikkei225 9,520.9 Oslo 422.44 Stockholm 485.44 Copenhagen 597.97

% 0.9% 0.7% 0.5% 0.0% 0.5% 0.0% 0.4% -0.6% -0.1%

Morning Report
27.04.2012
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