Morning Report

29.05.2012

Spanish yields climbs on market fear

2.40 2.35 2.30 2.25 2.20

The Spanish government's 19 bn euro investment in Bankia has pushed sovereign yields further up. The spread against the German "Bund" is at its highest in the euro's history. Since Friday morning stock market developments have been somewhat mixed. Hopes that Chinese authorities will step on the gas and stimulate the economy by speeding up investments have contributed to a modest recovery in Asia. In both Korea and Hong Kong stocks markets have risen over the past two days, while the Tokyo Stock Exchange has opened in positive territory this morning. In Europe and the US stocks have fell, with the DAX down 0.3 percent and the Dow Jones down 0.6 percent. The decline can probably be related to lower risk appetite. Both German and US government bond yields have fallen since Friday. The German 10-year bond now gives an interest rate of 1.37 percent, which is the lowest in German history. Reduced risk appetite has also resulted in a lower USDJPY, which has fallen by 0.4 percent to 79.5. EURUSD is unchanged at 1.25 since Friday morning, while the Norwegian krone has appreciated by 0.6 percent against the euro and dollar. Spanish borrowing costs rose Monday to the highest levels observed since December. The interest rate on 10-year loans rose yesterday to 6.49 percent, up nearly 20 basis points since Friday. The interest rate on 2-year loans also rose by 20 points, to 4.49 percent. The spread between Spanish and German government bond yields are now at their highest in the euro's history. The rise in interest rates is a clear sign that markets are becoming increasingly nervous about Spanish public finances. The authorities agreed last week to invest 19 billion euros in Bankia, the country's second largest bank as measured by the value of bank assets. As a result, the authorities now own 90 percent of Bankia. This weekend, it was also rumored that the government may use this as an opportunity to avoid the rising borrowing costs the government faces. According to the Financial Times, Spain may recapitalize Bankia by swapping newly issued government bonds in exchange for equity. In turn Bankia may use the sovereign bonds as collateral in obtaining new loans at the ECB. According to Bloomberg, the authorities will decide within 2 to 3 months if they want to go for such a solution. The news has not been well received, and in addition to higher sovereign bond yields, Bankia shares dropped by as much as 22 percent yesterday. It is not surprising that the Spanish government is looking for alternative ways to ensure that funding costs will stay low. Rising loan costs will weigh heavily on public finances, despite the fact that government debt is still low compared to other crisis countries such as Greece and Italy. Of the debt, which totaled at about 735 billion euros at the end of 2011, equivalent to 68 per cent of GDP, about 13 percent is maturing this year. Another 15 percent matures in 2013. In addition Spain is in an economic and social crisis. GDP has fallen in the last two quarters. Unemployment has risen to nearly 25 percent, while youth unemployment almost twice as high. The PMI for the manufacturing sector has been below 50 since May last year, an indication of reduced activity in manufacturing for the last year. We still think Spain avoid a crisis of the kind Greece is now experiencing. The political situation seems better, with a majority government that will sit for 4 years. Government debt is probably manageable and ongoing labor market reforms will contribute positively in bringing unemployment down. Then to Friday's macroeconomic data: Michigan consumer confidence rose 2.5 points from the flash estimate, to 79.3 in May. This is the highest level of the index in over four years. The increase is probably due to lower gasoline prices, as both the stock market and employment figures has disappointed somewhat recently. Today we get updated figures on the consumer confidence from Conference Board, which is expected to increase by 0.8 points to 70.0 in May. Also in Norway households are increasingly optimistic, according to TNS Gallup's trend indicator for the second quarter. The seasonally adjusted index increased from 17 points in the first quarter to 22.4 points in the second quarter, above its long-term average. Faith in the country's economy explains the increase, while expectations about households own economy over the next year fell back somewhat. This week offers a variety of interesting events that may affect market development. Today Norges Bank Governor ystein Olsen is attending a hearing on monetary policy at the Parliament's Financial committee. On Thursday, Ireland will hold a referendum on the fiscal compact. In addition several labor market reports from Norway and the US will be published. Today Statistics Norway releases new figures for LFS unemployment in March, while updated figures for the gross unemployment will be released on Thursday. On Thursday we also get ADP employment from the US, which will give an early indication of the non-farm payrolls, which is released on Friday. [Link]@[Link] As of Unit Prior Poll Actual Yesterday's key economic events (GMT) 08:00 Norway Consumer confidence May Index 9.4 9.0 13:55 USA Michigan sentiment ind. May Indeks 77.8 77.8 79.3 As of Unit Prior Poll DNB Todays key economic events (GMT) 08:00 Norway LFS unemployment Mar % 3.2 3.2 10:30 Norway ystein Olsen meets for hearing at the Parlament's Financial Committee 14:00 USA Cons. confidence, CB May indeks 69.2 70.0

18-Apr 8-May 28-May

SEK & 3m STIBOR 9.3 9.1 8.9 8.7 18-Apr

2.20

2.00 8-May 28-May

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

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Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal

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Morning Report
29.05.2012

SPOT RATES AND FORECASTS

NOK TWI ra.

EUR vs GBP & CHF 1.20 1.20 0.83 0.82 0.81 1.20 0.80 1.20 0.79 18-Apr 8-May 28-May
GBP r.a CHF

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

Prior 79.48 1.254 0.800 1.202 7.534 8.986 7.431 6.007 7.561 0.839 9.418 7.172 9.028 1.193 11.237

Last 79.53 1.256 0.799 1.202 7.536 8.977 7.431 6.000 7.544 0.840 9.424 7.150 8.993 1.193 11.236

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

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.60 7.50 9.10 9.00 7.45 7.45 6.18 5.77 7.72 6.87 0.84 0.83 9.6 9.0 7.40 6.92 5.92 5.82 1.20 1.20 11.52 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 0.9886 1.0216 0.9572 20.18 5.9189 1.5712 7.7626 129.70 0.2804 2.7496 0.5564 0.7634 3.4537 1.2748 32.0460

% 0.32% -0.22% -0.15% -0.33% -0.10% 0.18% -0.01% -0.11% -0.02% -0.16% -0.09% 0.13% -0.40% -0.20% -0.15%

EURSEK & OMXS 9.3 9.1 8.9 8.7 18-Apr 8-May 550 500 450 400 350 28-May

OMXS ra. EURSEK

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

NIBOR Prior 1.95 2.33 2.68 2.90 2.78 3.00 3.19 3.38

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.97 1.89 1.89 0.33 2.34 2.12 2.13 0.60 2.68 2.38 2.38 0.91 2.91 2.51 2.51 1.07 2.78 1.76 1.77 0.97 2.98 1.89 1.90 1.25 3.17 2.05 2.06 1.55 3.36 2.20 2.21 1.85

Last 0.33 0.60 0.91 1.07 0.97 1.26 1.55 1.86

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.74 0.74 0.91 0.91 0.74 0.75 1.11 1.12 1.49 1.48 1.90 1.90

Gov. Bonds, 10y 2.00 1.75 1.50 1.25

3.00 2.50 2.00 1.50

18-Apr 8-May 28-May

10y 10y yield vs bund

NORWAY Prior Last 117.6 98.25 2.19 2.18 0.81 0.79

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 119.372 119.32 103.609 103.39 100.03125 1.42 1.42 1.37 1.39 1.75 0.05 0.03 0.37

Last 99.89 1.77 0.38

13.5 13.0 12.5

JPY and DowJones

12.0 18-Apr

8-May

83 81 79 77 75 28-May

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y s wap 3m stibor 10y swap 3m euribor 10y swap 2.50 3.50 2.10 2.75 0.65 2.50 2.45 3.75 2.05 2.75 0.65 2.75 2.75 4.25 2.15 3.00 0.65 3.25
% - 0.03 0.10 0.06 - 0.14 - 0.0 Last 108.9 107.1 1574.6

US 3m libor 10y s wap 0.50 2.50 0.50 2.50 0.50 3.00

USDJPY ra. DowJones, 1000

USD and gold 1720 1.34 1670 1.32 1620 1.30 1570 1.28 1520 1.26 18-Apr 8-May 28-May
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today JUN 2.33 2.34 -0.01 NOK 94.20 SEP 2.32 2.32 0.00 SEK 119.52 DEC 2.33 2.33 0.00 EUR 99.94 MAR 2.34 2.34 0.00 USD 82.11 FRA SEK 3m Prior chg GBP 83.80 JUN 2.11 2.10 0.01 Comm. Today SEP 1.82 1.81 0.01 Brent spot 108.9 DEC 1.67 1.66 0.01 Brent 1m 107.6 MAR 1.60 1.60 0.01 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones Nasdaq FTSE100 5,356.3 Eurostoxx50 2,147.9 Dax 6,323.2 Nikkei225 8,657.1 Oslo 392.17 Stockholm 469.09 Copenhagen #N/A ND

Morning Report
29.05.2012
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