Morning Report

26.06.2013

"No need to panic"

7.80
7.60

7.40 28-May

12-Jun

1.90 1.80 1.70 1.60 1.50 26-Jun

After some weeks with markets in disarray, scared of what central banks might (or, rather, might not) do, it was reconciliation time yesterday. Do not panic, said the head of the Dallas Fed on Monday night. We aim at reasonable interest rates, China's central bank said yesterday. Richard Fisher, head of Dallas Fed, manages a region boosted by high activity in the oil and offshore sector, and has been a hawk for a long time. Fisher is concerned about possible underpricing of risk and corresponding financial bubbles. He is therefore one of the strongest supporters of the view that the Fed should not stimulate too much. Fisher wants the markets to take into account that quantitative easing is not a one way street, and the sooner markets understand this, presumably the better. However, Fisher said, Fed's tapering (slowing its quantitative easing) is conditioned upon the state of the economy, and the Fed has not even begun tapering yet. Echoing this, Britain's outgoing central bank governor, Mervyn King, said in his last parliamentary hearing that the US tapering would depend on incoming data. It would be "crazy" to predetermine a future rate path. On our own account, it is easy to add: Exactly! Central banks have pursued expansionary policies to speed up the economy. They will not step on the brakes before their economies are back on their feet. The deputy director of the Shanghai branch of the central bank got the challenging task of calming the nervous Chinese markets. He chose to repeat the contents of the central bank's message on Monday that the liquidity crunch was due to temporary factors, including tax payments, and that there was enough liquidity in the system, but also stressed that the government aimed at a "reasonable" interest rates. Although we are of the opinion that some of the squeeze probably is desired, in the sense that the government wants to send a warning to a banking industry which now blows up credit growth by an expansion of short-term loans in the "grey market" outside the regular channels, we cannot believe that the government will squeeze banks so hard that credit collapses and investments decline. The risk is therefore primarily that the situation gets out of control. Bank of England's yesterday published its assessment of the benefits of negative interest rates, following a request from the UK Parliament's Treasury Committee. Bank of Englands views are of course relevant to other central banks that currently ponders the introduction of negative interest rates, such as the ECB. According to the Bank of England, there are no technical barriers to the introduction of negative interest rates. There are limits as to how low interest rates can be set without deposits being converted to cash, however. In addition, lower interest rates may weaken banks' earnings and may therefore lead to tighter credit, the opposite of what one aims to achieve. Although this can be dealt with, and negative interest therefore remains an option, Bank of England says that more asset purchases (money printing) and measures to improve the "transmission mechanism", such as Funding for Lending, are more "reliable measures to stimulate aggregate demand than further interest rate cuts. It appears that many seem to forget that the reason that Ben Bernanke has started to signal an end to the cash-driven party, is that the US economy is gaining traction. Yesterdays numbers supports this. First, durable goods orders rose by 3.6% from April to May, after a similar growth in April. Much of the increase was due to volatile aircraft and defense orders, but disregarding this, core orders rose for the third month in a row, and are now growing by an underlying 8%. Core shipments, which provide the input to national accounts data for machine investment are somewhat weaker, with an annualized growth of only 3%, but suggests a stronger investment rebound in Q3. The Case-Schiller house price index rose for the fifteenth consecutive month in April, and house prices have now risen by almost 14% from the bottom. Higher home prices lift more households "above water" (with property worth more than the debt), and allows more people to refinance at lower interest rates (unless Feds signals continue to raise long-term rates). New home sales rose 2% m/m to 476,000 units in May - the highest since July 2008, and 70% above its lows. And finally: Consumer confidence rose 7 points to unexpectedly high 81.4 in June - the highest since January 2008, and consistent with a consumption growth close to 3%. The Euro Stoxx-50 rose 1.4%, the Oslo Stock Exchange 1.7%, and the rise continues in Asia today (except Shanghai, which falls). Long-term rates rose. The US ten-year bond rate hit 2.60%. The dollar strengthened slightly against the EUR and JPY, while the crown appreciated, with EURNOK now at 7.96, which is 7 cents stronger than yesterday. [email protected] Yesterdays key economic events (GMT) France 06:45 Business sentiment INSEE 12:30 USA Durable goods orders 14:00 USA Consumer confidence, CB Todays key economic events (GMT) 06:45 France GDP, revised 08:00 Norway LFS unemployment nd 12:30 US GDP, final (2 revision) As of Jun May Jun As of Q1 Apr Q1 Unit Index m/m% Index Unit q/q % % q/q % Prior 92.0 3.6r 74.3r Prior -0.2 3.7 2.4 Poll 93.0 3.0 75.4 Poll 3.7 2.4 Actual 93.0 3.5 81.4 DNB 3.8

EURNOK

Norw ay: 10y Gov't Bond 2.8 95 2.6 85 2.4 75 2.2 2.0 65 28-May 12-Jun 26-Jun
Rate Diff (bp, rha)

Headquarter Dronning Eufemias gate 30 0191 Oslo Offices Abroad New York London Singapore Stockholm Sales Oslo (+47) Equity Fixed Income Regional Sales (+47) Bergen Bod Fredrikstad Hamar Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund Private Clients Research Regional Sales (+47) Eirik Larsen Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Martin Brter Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen Kristina Solbakken Magnus Vie Sundal

+47 03000

+ 1 212 681 2550 +44 207 283 0050 +65 6220 6144 +46 84 73 48 50

22 94 89 40 24 16 90 30

56 13 27 20 75 52 99 10 69 39 41 50 62 54 14 82 61 24 79 56 38 14 61 64 24 16 90 80 51 84 04 30 77 64 76 30 73 87 49 73 33 01 73 80 70 11 69 85 24 16 90 90

24 16 90 77

24 16 90 08 24 16 90 03 24 16 90 07 24 16 90 04 24 16 90 01 24 16 90 06 24 16 90 02

24 16 90 48 24 16 90 46 24 16 90 47 24 16 90 49 24 16 90 44 24 16 90 45 24 16 90 51 24 16 91 23

Morning Report
26.06.2013

3m LIBOR
0.200 0.150 0.100 0.050 0.000 28-May
EUR

12-Jun

0.28 0.28 0.27 0.27 0.27 0.27 26-Jun

Oil price & NOK TWI 98 110 96 105 94 92 100 90 88 95 28-May 12-Jun 26-Jun
NOK TWI USD/b (rha)

FX 0700 USD/JPY EUR/USD EUR/GBP EUR/DKK EUR/SEK EUR/CHF EUR/NOK USD/NOK JPY/NOK SEK/NOK DKK/NOK GBP/NOK CHF/NOK

Last 97.55 1.3113 0.8499 7.4597 8.8594 1.2244 8.0373 6.1296 6.29 90.82 107.82 9.462 6.566

Today 97.41 1.3069 0.8471 7.4589 8.7858 1.2263 7.9792 6.1058 6.27 90.86 106.98 9.420 6.510

Spot rates and forecasts In 1m Sep-13 Dec-13 Jun-14 FX 0700 -0.1 98 102 107 110 AUD -0.3 1.30 1.26 1.30 1.32 CAD -0.3 0.85 0.85 0.86 0.87 CHF 0.0 7.45 7.45 7.45 7.45 CZK -0.8 8.55 8.45 8.50 8.60 RUB 0.2 1.24 1.25 1.27 1.30 GBP -0.7 7.65 7.70 7.70 7.70 HKD -0.4 5.88 6.11 5.92 5.83 KWD -0.3 6.00 5.99 5.54 5.30 LTL 0.0 89.5 91.1 90.6 89.5 LVL -0.8 102.7 103.4 103.4 103.4 NZD -0.4 9.00 9.06 8.95 8.85 SEK -0.9 616.94 616.00 606.30 592.31 SGD

USD NOK 0.928 5.667 1.048 5.822 0.938 650.588 19.737 30.927 32.888 18.560 1.543 9.418 7.757 0.787 0.285 21.421 2.642 2.311 0.537 11.362 0.776 4.735 6.721 90.824 1.272 4.799

US dollar 6.2 6.0 5.8 5.6 5.4 28-May 1.35 1.33 1.31 1.29 1.27 1.25 26-Jun
EURUSD(rha)

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

Prior 1.63 1.69 1.74 1.87 2.21 2.68 3.00

Last Paused at Paused at Paused at Paused at Paused at Paused at Paused at

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

Interest rates Prior Last USD 1.15 Paused at 1m 1.23 Paused at 3m 1.29 Paused at 6m Paused at 12m 1.79 Paused at 3y 2.24 Paused at 5y 2.53 Paused at 7y 2.80 Paused at 10y

Prior Last 0.20 0.19 0.28 0.28 0.43 0.42 0.70 0.70 0.88 Paused at 1.63 Paused at 2.20 Paused at 2.75 Paused at

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

Prior Last 0.07 0.07 0.14 0.15 0.26 0.27 0.48 0.49 0.92 Paused at 1.39 Paused at 1.74 Paused at 2.12 Paused at Last 97.44 1.79 -0.77 10y sw ap 1.75 1.75 2.00

12-Jun

3.34 Paused at

USDNOK

105.0 100.0
95.0

Japanese yen

90.0 28-May
USDJ PY

12-Jun

7.0 6.5 6.0 5.5 5.0 26-Jun

Norw ay Prior NST475 93.70 10y yld 2.73 - US spread 0.24 3m nibor 1.55 1.55 1.55

Norw ay Sep-13 Dec-13 Jun-14

Governm ent bonds Last SEK Prior Last US Prior 94.20 10y 92.77 93.15 10y 93.48 2.67 10y yld 2.29 2.25 10y yld 2.49 0.11 - US spread -0.20 -0.31 30y yld 3.51 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.00 3.00 3.25 Sep-13 Dec-13 Jun-14 1.25 1.25 1.25 2.25 2.25 2.50 Sep-13 Dec-13 Jun-14 0.30 0.35 0.35

Last Germany Prior 92.95 10y 97.17 2.56 10y yld 1.82 3.59 - US spread -0.68 10y sw ap 2.25 2.25 2.50 3m euribor 0.20 0.25 0.20

Germany Sep-13 Dec-13 Jun-14

JPYNOK(rha)

SEKNOK & CHFNOK 92 6.6 91 6.4 90 89 6.2 88 87 6.0 28-May 12-Jun 26-Jun
SEKNOK CHFNOK (rha)

Equities
15700 15200 14700 14200 13700 28May 12-Jun
Dow Jones

500 480 460 440 420 26-Jun

NOK sov. NST21 NST22 NST23 NST471 NST472 NST475 NST475 NST475 NOK FRA SEP DEC MAR JUN

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.44 1.44 1 18.12.2013 0.48 Last 96.95 97.40 1.37 1.38 1 19.03.2014 0.73 Oil price: (Ldn,cl) 1m 1.48 1.48 0 18.06.2014 0.98 SPOT 100.11 100.68 1.47 1.45 -2 15.05.2015 1.88 Gold price 25.06.2013 PM 1.85 1.82 -3 19.05.2017 3.90 AM: 1286.8 1279.0 0.00 0.00 0 24.05.2023 9.92 Equities Today 0700 % last 2.74 2.67 -7 24.05.2023 9.92 Dow Jones 14760.31 0.7% 2.73 2.67 -6 24.05.2023 9.92 Nasdaq C. 3347.89 #VALUE! 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6101.91 #VALUE! Paused at Paused at 1m 1.77 1.61 Eurostoxx50 2543.37 1.3% Paused at Paused at 3m 1.82 1.69 DAX 7811.30 1.5% Paused at Paused at 6m 1.88 1.76 Nikkei 225 12834.01 -1.0% Paused at Paused at 12m 2.00 1.88 OSEBX Paused at 0.3% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
26.06.2013
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