Morning Report

17.01.2013

Norwegian rates on hold until end-2014?

NOK & 3m NIBOR 7.50 7.40 7.30 7.20 07Dec
3m ra.

Norges Bank will have to fight against further NOK appreciation.

2.00 1.90 1.80 1.70

27Dec

16Jan
EURNOK

The absence of surprises from macro data or other sources led to a relatively quiet market session with no clear direction. Stocks and fixed income markets were little changed in Europe and the US. Asian markets pull down slightly today, with the exception of Nikkei that rises marginally. Yen has depreciated by 0.6 percent against the dollar since yesterday morning, and is currently trading at 88.6. After Qvigstads comments spurred a marked NOK depreciation yesterday, Governor Olsen yesterday stated that it is still too early to change the interest rate outlook on the basis of the NOK developments and recent poorer macro data. The NOK strengthened marginally on this. We expect the NOK to strengthen further over the next six months. With the prevailing investment climate, with low yields and rotten government finances in the industrialized world, positive interest rate differentials and large government wealth has made the NOK an increasingly popular investment object. With large-scale money printing by the major central banks, there is much money to be invested. With an increasingly rare AAA rating Norway emerges as an attractive alternative, despite its illiquidity and absence of deep markets. Norges Bank's main objective, an inflation rate of 2 per cent, is not yet in sight. Core inflation has been steady at just above 1 percent for some time, due to weak price impulses from crisis-ridden industrial countries as well as a persistent strengthening of the NOK. The latter movement would be reinforced if Norges Bank (NB) starts to hike this year, as planned. With continued record-low interest rates abroad for another one and a half years and yet another interest rate cut in Sweden in February, NB will rather have to fight against pressure to cut interest rates further. We expect the import-weighted NOK to appreciate by a further 2 per cent up to the monetary policy meeting on 14 March. NBs reaction is likely to be another pushing of the date for the first rate increase into the future. It's not the first time this happens, and it will probably not be the last. Our new forecasts indicate that the central bank will have to wait until December 2014 before it starts hiking. Norges Bank may then raise interest rates sheltered by the Fed, which we expect to be the first large country to start hiking in the autumn of 2014. By then, we expect the economic growth to have been sufficiently strong to tip US unemployment below the 6.5 percent threshold that Fed has set to start the hiking process. With anemic growth in the euro zone and UK, ECB and BoE will wait until 2015 until they start. We believe that the euro will appreciate in 2013, to 1.37 by the end of the year. This is partly due to our expectation that a traditional driver for the common European currency - risk appetite will improve further. Another factor is money printing. We expect the Fed's quantitative easing (currently 85 billion dollars a month) to persist at least for another 6 months. BoJ will probably increase its purchases significantly. Meanwhile, the ECB's balance sheets may shrink. Signals from European banks suggest that several will take the opportunity to pay back the 3-year LTRO-loans that were granted in December 2011 and February 2012 before time. We expect the Japanese yen to depreciate further, to 93 (USDJPY) in 12 months. Increased quantitative easing will contribute to this, although much of this may have been priced in already. As risk appetite increases, we expect yen movements to be more driven by domestic conditions. These include very weak growth, a soaring national debt and a decreasing in savings due to demographic factors. These fundamental factors have for a long time been arguments in favor of a much weaker yen. Todays most important data is US housing starts and initial claims. The former is expected to have increased to 890 units in December. Yesterdays beige book stated that real estate activity has expanded or held steady in most districts since the previous report. In general economic activity had expanded, at a growth pace characterized as either modest or moderate. Consumer spending had increased, auto sales were steady or stronger and tourism activity in all districts. kjersti.haugland@dnb.no

SEK & 3m STIBOR 9.0 8.8 8.6 8.4 8.2 07Dec

3m ra.

1.60 1.40 1.20 27Dec 1.00 16-Jan

EURSEK

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

As of Yesterdays key economic events (GMT) 10:00 EZ Core inflation, final Dec 14:30 US Core CPI Dec 14:15 US Goods production Dec As of Todays key economic events (GMT) 09:00 Norges Banks lending survey, Q4 13:30 US Housing starts Dec 13:30 US Initial claims Week 1

Unit m/m% y/y% m/m % Unit mill 1000

Prior -0.1 1.9 1.0 Prior 0.861 371

Poll 0.4 1.9 0.3 Poll 0.890 365

Actual 0.5 1.9 0.3 DNB

Morning Report
17.01.2013

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 1.00 0.50 0.00 07-Dec 27-Dec 94 92 90 16-Jan
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.26 1.24 1.22 1.20 1.18 07Dec
GBP r.a

0.84 0.82 0.80 0.78 27Dec 16Jan

CHF

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

Prior 88.40 1.329 0.828 1.237 7.407 8.645 7.463 5.573 6.304 0.857 8.919 6.505 7.357 1.168 10.413

Last 88.60 1.329 0.831 1.242 7.402 8.646 7.463 5.570 6.288 0.857 8.907 6.509 7.346 1.169 10.407

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

In 1 m ...3 m 88 90 1.33 1.32 0.82 0.81 1.20 1.20 7.30 7.25 8.65 8.65 7.45 7.45 5.49 5.49 6.24 6.10 0.84 0.84 8.9 8.9 6.50 6.55 5.72 5.90 1.18 1.19 10.55 10.62

...6 m ...12 m 91 93 1.36 1.37 0.85 0.86 1.20 1.25 7.25 7.40 8.60 8.70 7.45 7.45 5.33 5.40 5.86 5.81 0.84 0.85 8.9 8.9 6.32 6.35 5.75 5.91 1.19 1.18 10.56 10.47

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

USD 1.0510 0.9869 0.9349 19.24 5.6170 1.5991 7.7533 129.24 0.2820 2.5984 0.5255 0.8397 3.1016 1.2247 30.3390

% -0.61% 0.07% 0.40% 0.02% 0.01% -0.11% 0.01% 0.02% -0.11% -0.05% 0.02% -0.20% 0.02% 0.05% -0.02%

EURSEK & OMXS 9.0 8.8 8.6 8.4 8.2 07-Dec 560 540 520 500 16-Jan
EURSEK

27-Dec

OMXS ra.

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

NIBOR Prior 1.82 1.87 1.99 2.11 2.26 2.58 2.89 3.25

SWAP AND MONEYMARKET RATES EURIBOR STIBOR Last Prior Last Prior 1.80 1.17 1.18 0.05 1.85 1.22 1.22 0.14 1.97 1.31 1.32 0.24 2.08 1.43 1.44 0.35 2.26 1.40 1.40 0.63 2.58 1.67 1.67 0.95 2.88 1.93 1.93 1.30 3.25 2.20 2.19 1.73

Last 0.05 0.13 0.23 0.35 0.63 0.96 1.30 1.74

USD LIBOR Prior 0.21 0.30 0.49 0.66 0.50 0.86 1.31 1.85

Last 0.21 0.30 0.49 0.66 0.49 0.87 1.32 1.85

Gov. Bonds, 10y 2.00 1.00 0.00 07Dec 27Dec 16Jan

SEK NOK, ra.

2.40 2.20 2.00 1.80

10y 10y yield vs bund

NORWAY Prior Last 96.87 96.80 2.34 0.85 2.35 0.86

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 114.97 115.03 99.998 100.11 1.75 0.26 1.75 0.26 1.50 1.49

US Prior 98.26563 1.82 0.32

Last 98.33 1.82 0.33

JPY and Dow Jones 14.0 95 90 13.5 85 13.0 80 12.5 75 072716-Jan Dec Dec
USDJPY ra. DowJones, 1000

USD and gold 1750 1700 1650 1600 07Dec 27Dec 16Jan
Gold

1.35 1.30 1.25

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 1.85 3.25 1.10 2.25 0.25 1.75 0.35 6m 1.85 3.25 1.10 2.25 0.25 1.75 0.35 12m 1.85 3.50 1.10 2.50 0.25 2.00 0.35 MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today MAR 1.87 1.87 0.00 NOK 92.57 - 0.11 Dow Jones 13,511.2 JUN 1.87 1.85 0.02 SEK 114.59 - 0.10 Nasdaq 3,117.5 SEP 1.88 1.87 0.01 EUR 106.25 0.01 S&P 500 1,472.6 DEC 1.93 1.92 0.01 USD 79.85 0.05 Eurostoxx50 2,702.5 FRA SEK 3m Prior chg GBP 82.40 Dax 7,691.1 MAR 1.15 1.15 0.00 Comm. Today Last Nikkei225 10,609.6 461.34 JUN 1.12 1.13 0.00 Brent spot 111.7 valid field( Oslo SEP 1.13 1.13 0.00 Brent 1m 109.8 110.6 Stockholm 537.52 690.94 DEC 1.19 1.18 0.01 Spot gold 0.0 1676.3 Copenhagen Sources to all tables and graphics: Reuters and DNB Markets

sw ap 2.00 2.00 2.25

% -0.2% 0.2% 0.0% 0.0% 0.2% 0.0% 0.5% 0.3% 0.5%

Morning Report
17.01.2013
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