Morning Report

29.11.2012

Growth in Sweden is expected to slow

NOK & 3m NIBOR
7.50 2.00

7.40 7.30 7.20

19Oct
3m ra.

1.90 1.80 1.70

08Nov 28Nov
EURNOK

Uncertainty about fiscal cliff in the United States persists and signs of little progress in the negotiations between Democrats and Republicans contributed to the decline in the U.S. stock markets. This fall has continued in Asia in the early hours today. American government bond yields have fallen for the same reason. But despite the agreement between Greece and its lenders about debt relief earlier this week, there is still uncertainty as to the ratification of the agreement in euro area parliaments and the implementation of the agreement. This helped to weaken the euro. The Swedish krona has continued to weaken after the fall in business and consumer confidence on Tuesday, and in advance of today's GDP figures. The weakening of the Swedish krona has contributed to a weaker Norwegian krone. A consequence of several central banks unconventional monetary policy is an increase in the narrow monetary aggregates. But this increase has so far not resulted in a rise in the broad money supply, and thus not helped to create inflation. This is because banks have become more restrictive in their lending to businesses, households and other banks. Or the money multipliers have fallen. Bernanke has repeatedly pointed out that QE does not lead to higher inflation expectations. If so, an inflation targeting central bank would be forced to raise interest rates. In fact, inflation expectations in the U.S. have fallen the last weeks. Fed has made it clear that QE3 will only be implemented if not inflation or inflation expectations, increases too much. The ECB expects inflation in the short term to remain above the target of 2 per cent as a result of increased indirect taxes and high commodity prices, before falling in the course of next year. Yesterday's increase in the broad money supply, M3, by 3.9% from September to October, was up from 2.7% the previous month and higher than expected. However, not particularly high in itself. Nevertheless, the trend of M3 clear. It is on the rise. If this trend continues AND the money multiplier is normalized, inflation and inflation expectations can rise rapidly since the narrow money supply has increased considerably as a result of central bank stimulus. That would make it difficult to be an inflation targeting central bank. But if banks become more willing to lend money, it will most likely be because we see an improvement in the economy. The Swedish economy surprised everyone in H1, with strong growth despite the increasingly gloomy global outlook particularly in the euro area. Because more than a third of all Swedish exports are to the euro area and a high proportion of it is cyclical. But, growth in Q1 and Q2 were revised down sharply to 0.7% q/q in both quarters. Since then, confidence indices, both for companies and households, have deteriorated. New orders in manufacturing exports have fallen sharply and unemployment is expected to rise. In our macro score, only the euro area, which has a weaker score than Sweden. But everything is still not miserable. The development of the service sector has been better than in manufacturing. And Sweden has leeway in both the fiscal and monetary policy. New rules for banks' risk weights on housing loans from FSA takes away some of the risk of financial instability that the central bank has pointed out time and again in recent months. Stricter regulation could curb credit growth, thus opening the door for further interest rate cuts by the central bank. We expect that today's GDP figures for the third quarter will show a growth of 0.2% q/q, in line with the Riksbank's forecasts and marginally higher than consensus (Reuters 0.1%). Both private and public consumption is expected to be the main contributors to growth, while net exports and investment is expected to pull down. In the currency market, the Swedish krona has long been a favorite, and despite the weakening following the growth revision, the SEK is still about 3% stronger against the euro than earlier this year. In fear of weak numbers today, there are several players have reduced their exposure in Swedish kronor. Also the Swiss economy fared surprisingly well despite what was happening around them. But the central bank said it was temporary, and that if not the appreciation of the Swiss franc was halted, growth and inflation would continue to fall. And then growth fell in the second quarter. And now unemployment is on the rise and confidence indices are falling. Growth in the third quarter is expected to be meager 0.2% q/q, pulled down by weak demand for exports. The level of foreign exchange reserves at the end of October is expected slightly down as the pressure on the Swiss franc recently did not increase until November. Other key data on the agenda today are retail sales figures from Sweden, unemployment from Germany, several sentiment indexes from the euro area and pending home sales from the U.S. Both Riksbanken and the BoE publish their reports on financial stability. magne.ostnor@dnb.no Yesterdays key economic events (GMT) 09:00 EZ Money (M3) 15:00 US New home sales 20:00 US Beige Book Todays key economic events (GMT) 08:30 Sweden GDP 10:00 EZ Economic sentiment 15:00 US Pending home sales As of Oct Oct As of Q3 Nov Oct Unit y/y % 1000 Unit q/q % Index m/m % Prior 2.7 389 Prior 0.7 84.5 0.3 Poll 2.8 390 Poll 0.1 84.2 -0.5 Actual 3.9 368 DNB 0.2

SEK & 3m STIBOR

8.7

8.6 8.5 8.4 19-Oct

08Nov 28Nov

1.55 1.50 1.45 1.40 1.35

EURSEK

3m ra.

Headquarters 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

+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 62 96 80 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

Morning Report
29.11.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 1.00 0.50 0.00 19-Oct
08-Nov

94 92 90 28-Nov
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.22 1.21 1.21 1.20 1.20 19Oct
GBP r.a

0.82 0.81 0.80 0.79 0.78 08Nov 28Nov

CHF

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

Prior 82.09 1.295 0.809 1.204 7.342 8.614 7.460 5.671 6.926 0.854 9.073 6.650 8.118 1.175 10.648

Last 82.14 1.295 0.809 1.204 7.341 8.613 7.460 5.669 6.903 0.853 9.078 6.652 8.100 1.174 10.654

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

In 1 m ...3 m 82 80 1.27 1.20 0.80 0.78 1.20 1.20 7.30 7.25 8.60 8.55 7.45 7.45 5.75 6.04 7.01 7.55 0.85 0.85 9.1 9.1 6.77 7.13 5.55 5.70 1.18 1.18 10.75 10.76

...6 m ...12 m 78 80 1.20 1.25 0.78 0.80 1.20 1.20 7.25 7.40 8.50 8.60 7.45 7.45 6.04 5.92 7.75 7.40 0.85 0.86 9.1 9.1 7.08 6.88 5.53 5.50 1.17 1.16 10.70 10.60

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

USD 1.0463 0.9925 0.9299 19.52 5.7621 1.6016 7.7505 126.02 0.2820 2.6677 0.5380 0.8248 3.1704 1.2220 31.0740

% -0.15% 0.02% 0.04% -0.42% 0.04% 0.00% 0.00% 0.05% -0.07% 0.05% 0.00% 0.10% 0.00% -0.07% 0.00%

EURSEK & OMXS

8.7 8.6 8.5 8.4 19-Oct 520 500 480 460 28-Nov
EURSEK

08-Nov

OMXS ra.

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

NIBOR Prior 1.77 1.93 2.10 2.23 2.25 2.52 2.81 3.14

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.82 1.40 1.40 0.05 1.98 1.45 1.45 0.13 2.13 1.53 1.53 0.24 2.25 1.64 1.63 0.36 2.24 1.36 1.36 0.52 2.53 1.57 1.56 0.87 2.81 1.81 1.80 1.25 3.15 2.06 2.06 1.69

Last 0.05 0.13 0.24 0.36 0.52 0.87 1.25 1.69

USD LIBOR Prior 0.21 0.31 0.53 0.70 0.46 0.77 1.18 1.66

Last 0.21 0.31 0.53 0.70 0.47 0.78 1.19 1.68

Gov. Bonds, 10y 1.80 1.60 1.40 1.20 19Oct 08Nov 28Nov
SEK NOK, ra.

2.40 2.20 2.00 1.80

10y 10y yield vs bund

84 82 80 78 76

NORWAY Prior Last 98.86 99.00 2.12 0.74 2.11 0.73

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 117.88 118.01 101.144 101.12 1.47 0.09 1.46 0.08 1.38 1.38

US Prior 99.92188 1.63 0.25

Last 99.86 1.65 0.27

JPY and Dow Jones 14.0 13.0 12.0 19-Oct

08Nov 28Nov

USDJPY ra. DowJones, 1000

USD and gold 1800 1750 1700 1650 18Oct 7-Nov 27Nov
Gold

1.35 1.30 1.25 1.20

EURUSD ra.

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY US 3m nibor 10y sw ap 3m stibor 10y sw ap 3m euribor 10y sw ap 3m libor 10y In 3m 1.90 3.25 1.30 2.25 0.30 1.75 0.35 6m 1.90 3.25 1.30 2.25 0.25 1.75 0.35 12m 2.15 3.50 1.30 2.50 0.25 2.00 0.35 MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today DEC 1.95 1.95 0.00 NOK 91.80 Dow Jones 12,878.1 MAR 1.91 1.92 -0.01 SEK 114.49 - 0.13 Nasdaq 2,991.8 JUN 1.90 1.91 -0.01 EUR 102.15 - 0.01 S&P 500 1,409.9 SEP 1.89 1.91 -0.02 USD 80.30 0.01 Eurostoxx50 2,546.8 FRA SEK 3m Prior chg GBP 83.60 Dax 7,343.4 DEC 1.45 1.45 0.00 Comm. Today Last Nikkei225 9,400.9 MAR 1.27 1.27 0.00 Brent spot 109.2 Invalid field(s). Oslo 434.10 JUN 1.21 1.21 0.00 Brent 1m 109.8 109.5 Stockholm 507.89 SEP 1.19 1.19 0.00 Spot gold 0.0 1708.0 Copenhagen 635.60 Sources to all tables and graphics: Reuters and DNB Markets

sw ap 1.75 1.75 2.25

% -0.7% 0.8% 0.8% 0.1% 0.2% 0.0% -1.6% -0.2% -0.5%

Morning Report
29.11.2012
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