Morning Report

04.10.2012

Central banks centre of attention

Neither cuts nor new measures are expected from the ECB and Bank of England at the monetary policy meetings today. We think the ECB may surprise markets.
2.40 2.25 2.10 1.95 1.80

24-Aug 13-Sep 3-Oct

Since yesterday morning the movements in interest rates and stock markets have been limited. Long US treasury yields have risen by a few points, while German yields have fallen slightly. Global stock markets rose somewhat (Oslo Stock Exchange was one of the exceptions). A surprising and encouraging rise in the ISM index of the US service sector to 55.1 was an important contributor to increased risk appetite. The Nikkei index has risen so far today. In FX markets, the dollar has strengthened considerably against Scandies and the yen, while the euro is slightly stronger against both the dollar and sterling. Today's ECB meeting may offer surprises. According to Bloomberg 48 of 52 analysts expect the refi rate to be kept unchanged at 0.75 percent. We belong to the very small minority that expects a 25 bp cut to 0.5 percent today. It is a fact that the euro zone is in recession, and growth prospects as well as the inflation outlook - are weak. A cut will lower banks' funding costs and enhance their earnings, alternatively be transferred to customers through lower lending rates. Admittedly, the leeway for further easing is very limited, as market rates are already very low. However: A majority of respondents expect the ECB cut to 0.50 percent before the end of the year, albeit not to day. Like consensus, we do not expect the Bank of England to move today. Consensus according to Reuters expects BoE to expand its asset purchase program by 50 bn GBP to 425 billion in November, when the previous program is finalised and a new inflation report is published. Friday morning Bank of Japan reveals its monetary policy decision. According to Reuters no changes are expected tomorrow, after the launch of more quantitative easings at the previous meeting. Minutes of the FOMC meeting on 12 - 13 September are published tonight. Back then, Governor Bernanke met the markets high expectations by a wide margin. The projected timing of the first rate hike was pushed further out in time, from end-2014 to mid-2015. QE3 was launched: Federal Reserve will buy assets (MBS) amounting to 40 billion dollars a month. Unlike the previous two QEs, the time period of the purchases was not specified. These will continue until the job market improves substantially. The purpose of the measures is to push down long-term interest rates, which would help to ease financial conditions for both firms and households. Yesterday's mortgage statistics suggest that QE3 is already working as intended. The 30-year fixed rate on mortgages fell by 20 basis points in week 37 and 38, to 3.53 percent. This has led to a surge of refinancing applications. In percentage terms, these increased by 20 percent in the week after the monetary policy meeting. Lower interest expenses will release more funds to consumption, which accounts for 70 percent of the demand side in the world's largest economy. It will also provide an additional boost to the U.S. housing market, which has recently shown clear signs of improvement after having been depressed for the last five years. Although Jeffrey M. Lacker was the only one who voted against the decision at the FOMC meeting, we know that quantitative easing is disputed among Committee members. In particular, several fear that the costs could far exceed the benefits in the longer term. Today minutes may give us an impression of how convinced the committee members were in their decision. The statement said that purchases would be increased even further if the significant improvement in the labor market failed to materialize. We will look for discussions on what "significant improvement" actually means, and on whether temporarily higher inflation to support such an improvement should be allowed. Currently, the Fed has been quite vague, saying that the goal should be reached "in a context of price stability." While waiting for the US payrolls on Friday, yesterdays ADP report showed that the number of jobs in the private sector increased by 162' in September. That was 19' more than expected, but on the other hand, both July and August increases were downwardly adjusted to 17' and 12', respectively. Todays initial claims are expected to show a rise of 11' to 370' in week 38. [email protected] As of Unit Prior Poll Actual Yesterday's key economic events (GMT) 07:58 EMU PMI, composite Sep Index 45.9 45.9 46.1 12:15 USA ADP employment report Sep 1000 189r 143 162 14:00 USA ISM, non-manufacturing Sep Index 53.7 53.2 55.1 As of Unit Prior Poll DNB Todays key economic events (GMT) 11:00 UK BoE key policy rate Oct % 0.5 0.5 0.5 11:45 EMU ESB key policy rate Oct % 0.75 0.75 0.50 12:30 USA Initial claims Week 38 1000 359 370 18:00 USA FOMC publish minutes from the interest rate meeting on 12-13 September

SEK & 3m STIBOR 8.8 8.6 8.4 8.2 8.0 24-Aug 13-Sep
3m ra.

2.40 1.60 0.80 0.00 3-Oct

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Morning Report
04.10.2012

SPOT RATES AND FORECASTS

94 93 92 91 90 3-Oct
$/b

EUR vs GBP & CHF 1.22 1.22 1.21 1.21 1.20

0.82 0.80 0.78 0.76

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

Prior 78.54 1.291 0.803 1.211 7.434 8.630 5.763 7.332 0.863 9.261 6.688 8.521 1.162 10.748

Last 78.61 1.293 0.803 1.213 7.431 8.613 7.456 5.745 7.311 0.865 9.254 6.661 8.477 1.159 10.727

% 0.1% 0.2% 0.0% 0.1% 0.0% -0.2% #VALUE! -0.3% -0.3% 0.3% -0.1% -0.4% -0.5% -0.2% -0.2%

In 1 m ...3 m 78 76 1.27 1.15 0.79 0.76 1.20 1.20 7.30 7.20 8.40 8.40 7.45 7.45 5.75 6.26 7.37 8.24 0.87 0.86 9.2 9.5 6.61 7.30 5.16 5.55 1.15 1.17 10.63 11.05

...6 m ...12 m 76 78 1.15 1.20 0.78 0.80 1.20 1.20 7.30 7.40 8.50 8.50 7.45 7.45 6.35 6.17 8.35 7.91 0.86 0.87 9.4 9.3 7.39 7.08 5.62 5.53 1.16 1.15 10.90 10.63

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

USD 1.0227 0.9865 0.9377 19.34 5.7676 1.6101 7.7553 122.99 0.2812 2.6699 0.5389 0.8213 3.1625 1.2292 31.1310

% 0.09% -0.13% -0.09% -0.38% -0.19% 0.14% 0.00% -0.20% -0.18% -0.24% -0.20% 0.21% -0.13% -0.21% -0.14%

24-Aug 13-Sep 3-Oct

EURSEK & OMXS 8.7 8.5 8.3 8.1 24-Aug 13-Sep

575 500 425 350 3-Oct

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

NIBOR Prior 1.85 1.97 2.19 2.30 2.25 2.55 2.85 3.17

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.82 1.46 1.45 0.07 1.94 1.59 1.57 0.15 2.17 1.77 1.73 0.35 2.28 1.87 1.84 0.50 2.24 1.39 1.39 0.57 2.55 1.61 1.61 0.94 2.85 1.85 1.86 1.31 3.18 2.09 2.10 1.76

Last 0.06 0.15 0.34 0.49 0.58 0.95 1.34 1.76

USD LIBOR Prior Last 0.21 0.22 0.35 0.35 0.63 0.62 0.80 0.80 0.45 0.44 0.75 1.16 1.17 1.68 1.71

Gov. Bonds, 10y 1.60 1.40 1.20 1.00

3.00 2.50 2.00 1.50

24-Aug 13-Sep 3-Oct

10y 10y yield vs bund

NORWAY Prior Last 98.98 99.00 2.11 2.11 0.66 0.66

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 118.16 118.17 100.491 100.46 100.07813 1.47 1.47 1.45 1.45 1.62 0.02 0.02 0.17

Last 99.95 1.64 0.19

14.0 13.5 13.0 12.5 12.0 24-Aug 13-Sep

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 1.90 3.25 1.65 2.25 0.25 1.75 1.90 3.25 1.65 2.25 0.25 1.75 2.05 3.50 1.65 2.50 0.25 2.00

US 3m libor 10y swap 0.45 1.75 0.45 1.75 0.45 2.25

75 3-Oct

USDJPY ra. DowJones, 1000

USD and gold 1820 1720 1620 1.32 1.28 1.24

1.20 1520 24-Aug 13-Sep 3-Oct

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today DEC 1.87 1.87 0.00 NOK 92.93 MAR 1.85 1.85 0.00 SEK 114.55 JUN 1.85 1.86 -0.01 EUR 101.10 SEP 1.87 1.87 0.00 USD 79.82 FRA SEK 3m Prior chg GBP 83.90 DEC 1.42 1.42 0.00 Comm. Today MAR 1.26 1.26 0.00 Brent spot 109.8 JUN 1.22 1.22 0.00 Brent 1m 108.5 SEP 1.22 1.23 -0.01 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% Stock ex. Today - 0.06 Dow Jones 13,494.6 - 0.23 Nasdaq 3,135.2 0.11 FTSE100 5,825.8 - 0.11 Eurostoxx50 2,492.5 Dax 7,322.1 Last Nikkei225 8,824.6 109.8 Oslo 449.40 108.2 Stockholm 509.60 1775.3 Copenhagen 652.93

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

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