Morning Report

23.03.2012

Weak euro-zone PMIs hit markets

2.80 2.60 2.40 2.20

A surprisingly weak purchasing manager index (PMI) for the euro zone led to a weakening of the euro, lower interest rates in Germany, but higher interest rates in Spain and Italy. Fortunately, the US economy once again delivered positive news on the labour market. The markets took a defensive stance yesterday after new weak figures for the euro zone (that came in the wake of weak PMIer from China) reminded us all that the debt crisis is far from over. Stock markets fell in all major economies, mostly in Europe (Eurostoxx50 down 1.5%). The US stock market fell more moderately (0.5%), but the Oslo Stock Exchange was down 1.0%. The Asian markets have fallen last night. Government bond yields fell in the solid economies, but rose in the crisis ridden countries. The foreign exchange market was dominated by the marked weakening of the euro. Yesterday was marked by another round of good figures from the U.S. and weak figures from Europe. Let us start with the positive news. The US labor market continues to improve. Yesterday's figures for the initial claims fell to 348,000 - the lowest in four years. This shows that the downward trend continues and suggests that unemployment will continue to fall. The leading indicator for February also rose more than expected by 0.7%. House prices (from FHFA) were stable in January, which also may be interpreted positively after a long period of falling prices. Today, February figures for sales of new homes are due. A slight increase is expected. In addition, a conference organized by the Fed, with the striking title: "Central Banking: Before, During and After the Crisis" is held today. Fed chief Ben Bernanke will open the conference and one of the topics being discussed are quantitative easing (QE). Then we move to the problems in Europe. The flash estimates for the PMI in the Eurozone disappointed markedly in March. The overall indicator (which includes both manufacturing and services) for the entire euro zone was expected to rise to 49.7 - but instead fell to 48.7. In particular, the PMI for the manufacturing in Germany (down 2.9 points) and France (down 2.7 points) was a disappointment, but also the German indicator for services declined. Otherwise, industrial orders fell a lot in January, after an even stronger increase in December. The only bright spot was the consumer confidence index which rose for the third consecutive month, but confidence is still very low. The surprisingly weak figures led to a sharp weakening of the euro against the dollar and the yen. Long German interest rates fell after the numbers, while long rates in Spain and Italy rose. The Spanish ten-year yield rose 14 basis points yesterday and is again back above 5.5% for the first time since January. Italian ten-year government bond rate rose to over 5.0%. With a weaker outlook for the euro zone, it will become even harder to boost growth and to reduce debt in crisis-stricken economies. The interest rate increase may also be a sign that investors (rightly) begin to doubt whether the ECB's lending of just over 1,000 billion euros to the banks was the final solution to the crisis. Spain is struggling to provide adequate budget cuts and has the weakest labor market in the euro zone. The fact that the country now has a higher government bond yield than Italy indicates that the concern is greater for Spain than for Italy. Although the Spanish government debt is not very high (78% of GDP last year), the private debt is extremely high. According to a report by Mc Kinsey the countrys total debt last year was 363% of GDP. The goal is that Spain should reduce the budget deficit from 8.0% last year to 5.3% this year. This can be difficult, not least because the economy is weak. After several months of relatively strong growth in British consumer demand, retail sales fell sharply in February. The decline was 0.8%, while it was expected to drop by half. In addition, the good figures for December and January were revised down. Thus it appears that the upturn in private consumption will be weaker than one might have thought a short time ago. The pound weakened immediately after the numbers, but picked up again quickly. Oil prices have fallen somewhat in recent days and Brent spot is now trading around $ 123 a barrel, while oil for delivery in September is priced at around $ 121. The decline yesterday was probably related to weak PMI data from China. The fall in oil prices may have contributed to the weakening of the NOK recently, although the decline in the last week is mainly due to the unexpected interest rate cut from Norway Bank. We expect that oil prices will fall further in the months ahead, although there also are significant upside risks due to the situation in Iran. [email protected]

13-Feb 2-Mar 22-Mar

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 13-Feb 2-Mar

2.60 2.40 2.20 2.00 22-Mar

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 FX/IR

22 94 89 40 22 01 78 20 22 01 76 50

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 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 67

Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 78 37 22 01 77 62 22 01 76 93 22 01 76 77 22 01 77 36 22 01 78 15

As of Unit Prior Poll Actual Yesterday's key economic events (GMT) 08:58 EMU PMI, composite Mar Index 49.3 49.7 48.7 09:30 UK Retail sales Feb m/m % 0.9 -0.4 -0.8 15:00 EMU Consumer confidence Mar Index -20.2 -19.0 As of Unit Prior Poll DNB Todays key economic events (GMT) 07:45 France INSEE business confidence Mar Index 92.0 93.0 14:00 USA New home sales Feb mill 0.321 0.325 USA Bernanke opens conf.on "Central Banking: Before, During and After the Crisis"

Morning Report
23.03.2012

SPOT RATES AND FORECASTS

NOK TWI ra.

EUR vs GBP & CHF 0.86 0.85 1.21 0.84 1.21 0.83 1.20 0.82 13-Feb 2-Mar 22-Mar 1.22
GBP r.a CHF

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

Prior 82.59 1.320 0.835 1.206 7.639 8.940 7.436 5.789 7.006 0.854 9.152 6.778 8.201 1.171 10.716

Last 82.86 1.320 0.835 1.206 7.644 8.949 7.435 5.793 6.996 0.855 9.164 6.782 8.190 1.172 10.726

% 0.3% 0.0% 0.0% 0.0% 0.1% 0.1% 0.0% 0.1% -0.1% 0.0% 0.1% 0.1% -0.1% 0.1% 0.1%

In 1 m ...3 m 83 84 1.30 1.30 0.83 0.83 1.23 1.23 7.60 7.60 8.90 9.20 7.45 7.45 5.85 5.85 7.04 6.96 0.85 0.83 9.2 9.2 6.85 7.08 5.68 5.94 1.17 1.21 10.72 11.08

...6 m ...12 m 85 85 1.35 1.40 0.85 0.87 1.23 1.30 7.60 7.60 9.00 9.00 7.45 7.45 5.63 5.43 6.62 6.39 0.84 0.84 8.9 8.7 6.67 6.43 5.67 5.46 1.18 1.18 10.59 10.34

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

USD 1.0383 1.0010 0.9137 18.77 5.6346 1.5816 7.7672 126.64 0.2787 2.6171 0.5285 0.8106 3.1658 1.2649 29.4250

% -0.07% 0.16% -0.01% 0.01% 0.00% -0.01% 0.02% 0.03% 0.03% -0.02% -0.04% 0.05% 0.31% -0.18% -0.04%

EURSEK & OMXS 9.0 8.9 8.8 8.7 13-Feb 2-Mar 550 500 450 400 350 22-Mar

OMXS ra. EURSEK

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

NIBOR Prior 1.96 2.32 2.63 2.82 2.85 3.19 3.45 3.69

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.92 2.02 1.99 0.37 2.28 2.30 2.28 0.72 2.61 2.50 2.48 1.08 2.79 2.60 2.59 1.27 2.86 2.05 2.06 1.24 3.18 2.24 2.25 1.63 3.45 2.46 2.45 1.99 3.68 2.63 2.63 2.36

Last 0.37 0.72 1.07 1.26 1.25 1.63 1.99 2.36

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.74 0.74 0.89 0.89 0.82 0.84 1.36 1.38 1.85 1.88 2.34 2.35

Gov. Bonds, 10y 2.25 2.00 1.75 1.50

3.00 2.50 2.00 1.50

13-Feb 2-Mar 22-Mar

10y 10y yield vs bund

NORWAY Prior Last 113.98 109.97 2.53 2.52 0.62 0.61

GOVERNMENT BONDS US SWEDEN GERMANY Prior Last Prior Last Prior 113.646 113.65 100.794 100.79 97.515625 2.01 2.00 1.92 1.91 2.28 0.09 0.09 0.37

Last 97.50 2.30 0.39

13.5 13.0 12.5

JPY and DowJones

85 80

12.0 13-Feb

2-Mar

75 22-Mar

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.30 3.50 2.15 2.75 0.80 2.50 2.45 3.75 2.10 2.75 0.80 2.75 2.60 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

USDJPY ra. DowJones, 1000

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 13-Feb 2-Mar 22-Mar
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today JUN 2.24 2.24 0.00 NOK 95.61 0.04 Dow Jones 13,046.1 SEP 2.24 2.26 -0.02 SEK 118.56 0.12 Nasdaq 3,063.3 DEC 2.30 2.30 0.00 EUR 104.63 0.03 FTSE100 5,845.7 MAR 2.37 2.37 0.00 USD 79.72 0.07 Eurostoxx50 2,530.2 FRA SEK 3m Prior chg GBP 81.50 Dax 6,981.3 JUN 2.01 2.01 -0.01 Comm. Today Last Nikkei225 10,011.5 SEP 1.84 1.84 -0.01 Brent spot 123.4 123.3 Oslo 423.73 DEC 1.81 1.82 -0.01 Brent 1m 123.3 123.1 Stockholm 494.27 586.09 MAR 1.82 1.82 -0.01 Spot gold 0.0 1635.5 Copenhagen Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
23.03.2012
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