Morning Report

29.12.2011

EUR nears one-year low against USD

NOK & 3m NIBOR 3.40 3.20 3.00 7.60 2.80 2.60 7.40 18-Nov 8-Dec 28-Dec 8.00 7.80
3m ra. EURNOK

ECBs massive liquidity measures are staring to show effects in financial markets. Government bond yields in Italy and Spain are decreasing, probably with higher demand from banks as a key driver. But unfortunately, banks are depositing a large part of excess liquidity back with the ECB. This news contributed to a weakening of the European currency yesterday. Stocks fell broadly on Wednesday. In the US, equities were down roughly by one per cent, while in Europe the decline was somewhat larger. With the absence of new macroeconomic figures and negative news investors started concentrating on 2012 and what they fear is a very weak start to the New Year. Furthermore, a slowdown in Asia and the debt crisis in the Euro Area are weighing on financial markets. As a consequence, interest rates on longer government bonds dropped as investors increased their demand for safe havens. This is probably also an important reason behind the euro weakening against the US dollar yesterday. The common European currency fell to its lowest against the dollar in 11 months. Currently EURUSD is trading below 1.30. The euro also weakened against the Japanese yen and EURJPY traded Wednesday at its lowest in 10 years. Most of the euro weakening occurred around the opening of US markets and several pointed out that European banks now are placing a record amount of money deposits at the ECB as a negative driver (452 billion euro). At its last monetary policy meeting ECB launched a series of liquidity measures, and most importantly, the banks' ability to borrow at a three year maturity at a reasonable rate. However, figures yesterday showed that banks are placing a record high amount back in the central bank (auction last week, where banks borrowed a total of 490 billion euro), which could be an indication that the effects on the European economy outside the banking sector could be small. Banks are still reluctant to lend to households and businesses one of the second round effects ECB was hoping for. A positive effect of the liquidity measures we have observed through auctions of government debt in heavily indebted countries. Last week Spain borrowed a large sum at a much lower rate than for a long time, and this was also the case for Italian governments yesterday. Italy conducted two auctions, with respectively 6 months and 2 years duration. The interest rate on the loan with a six-month maturity was 3.25 per cent, while yield on the 2-year loan was 4.853 per cent. This is a marked decrease compared to what they had to pay in similar auctions in November (respectively 6.5 and 7.814 per cent). European banks can now borrow from the central bank at an interest rate at 1 per cent and invest those in, for example Italian government bonds which provide a significantly higher rate. In this way banks can improve their position while they contribute to countries like Italy keep floating by buying government bonds - another second round effect that ECB hoped for. Although yesterday's auction was successful, the crisis is far from over and far greater financial challenges lies ahead. Even today, they are back in international loan markets to borrow money with a longer maturity (3- and 10-year bonds), which may prove to be far more challenging. However, the big test probably doesnt come until the period February to April, when the country has large refinancing needs (around 140 billion euro). Nevertheless it must be regarded as positive news that the demand for Italian government bonds increases and the interest thus fell. Longer term Italian yields also pulled down yesterday. The interest rate on 10-year bonds fell by almost 20 basis points after the auction. The 10-year yield is still dangerously close to 7 per cent, a level that is unsustainable in the long run. Today there are few economic highlights. From the US we get the number of initial claims, as well as pending home sales for November. The former is expected to rise slightly after a positive development recently. The number of initial claims is again below 400' and the trend has been downward. A rise today does not change the underlying picture, as these numbers are usually relatively volatile. Pending home sales is expected to rise (2 per cent from October to November). The index, which is based on signed contracts for existing homes, are at very low levels and the US housing market is still very weak. maren.romstad@dnb.no Yesterday's key economic events (GMT) 08:30 Sweden Retail sales 10:30 Switz. KOF index 13:55 USA Redbook retail sales Todays key economic events (GMT) 09:00 EMU Money growth- M3 13:30 USA Initial claims 15:00 USA Pending Home Sales As of Nov Dec Week 49 As of Nov W48 Nov Unit m/m % Index m/m % Unit y/y % 1000 Index, % Prior 0.4 0.35 -2.7 Prior 2.6 364 10.4 Poll -0.1 0.28 Poll 2.5 375 2.0 Actual

SEK & 3m STIBOR 9.5 9.3 9.1 8.9 18-Nov 8-Dec 2.80 2.70 2.60 2.50 2.40 28-Dec
EURSEK

3m ra.

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Morning Report
29.12.2011

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 118 112 106 100 18-Nov 8-Dec 100 98 96 94 28-Dec
$/b

NOK TWI ra.

EUR vs GBP & CHF 0.87 0.86 0.85 1.15 0.84 0.83 1.10 18-Nov 8-Dec 28-Dec 1.25 1.20
GBP r.a CHF

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

Prior 77.92 1.294 0.838 1.220 7.796 8.939 7.435 6.031 7.738 0.872 9.312 6.909 8.871 1.147 10.677

Last 77.72 1.294 0.836 1.220 7.789 8.942 7.435 6.018 7.748 0.872 9.320 6.912 8.894 1.150 10.697

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

In 1 m ...3 m 80 80 1.30 1.30 0.84 0.84 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 6.00 6.00 7.50 7.50 0.85 0.86 9.3 9.3 7.08 7.00 5.66 5.60 1.18 1.17 10.95 10.83

...6 m ...12 m 80 90 1.25 1.25 0.82 0.82 1.23 1.30 7.70 7.70 9.00 9.00 7.45 7.45 6.16 6.16 7.70 6.84 0.86 0.86 9.4 9.4 7.20 7.20 5.76 6.48 1.17 1.17 10.98 10.98

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

USD 1.0103 1.0226 0.9425 19.97 5.7457 1.5477 7.7742 123.51 0.2789 2.6684 0.5402 0.7697 3.4000 1.3011 32.0860

% 0.08% -0.20% -0.07% 0.11% -0.05% 0.16% 0.01% -0.05% -0.01% -0.06% 0.04% 0.09% -0.13% 0.20% 0.84%

EURSEK & OMXS 9.4 9.2 9.0 8.8 18-Nov 8-Dec 500 450 400 350 28-Dec

OMXS ra. EURSEK

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

NIBOR Prior 2.64 2.95 3.11 3.25 2.85 3.20 3.42 3.63

SWAP AND M ONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.61 2.35 2.35 1.03 2.92 2.64 2.64 1.33 3.10 2.70 2.70 1.60 3.24 2.76 2.76 1.77 2.85 1.85 1.85 1.41 3.19 1.98 1.98 1.78 3.42 2.18 2.18 2.11 3.62 2.31 2.31 2.41

Las t 1.02 1.32 1.59 1.76 1.39 1.75 2.12 2.40

USD LIBOR P rior 0.29 0.58 0.80 0.96 0.90 1.31 1.70 2.09

Last 0.30 0.58 0.81 0.97 0.90 1.31 1.71 2.09

Gov. Bonds, 10y 2.00 1.75 3.00 2.50 2.00

1.50 1.50 18-Nov 8-Dec 28-Dec

NOK , ra. S EK

10y 10y yield vs bund

NORWAY Prior Last 114.75 110.77 2.44 2.45 0.53 0.56

GOVERNM ENT BONDS US SWEDEN GERMANY Prior Last Prior Las t P rior 117.457 117.48 100.966 101.00 100.70313 1.67 1.66 1.91 1.89 1.92 -0.24 -0.23 0.01

Last 100.64 1.94 0.05

13 12 11

JPY and DowJones

10 18-Nov

8-Dec

79 78 77 76 75 28-Dec

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m s tibor 10y swap 3m euribor 10y swap 2.60 3.50 2.25 2.25 1.05 2.50 2.40 3.75 1.95 2.50 0.90 2.75 2.30 4.25 1.75 3.00 0.90 3.25

US 3m libor 10y swap 0.55 2.25 0.55 2.50 0.50 3.00

USDJPY ra. DowJones, 1000

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 18-Nov 8-Dec 28-Dec
EURUSD ra. Gold

FRA NOK MAR JUN SEP DEC FRA SEK MAR JUN SEP DEC

3m 2.63 2.36 2.30 2.31 3m 2.18 1.79 1.59 1.58

Prior 2.63 2.35 2.28 2.31 Prior 2.18 1.79 1.59 1.58

chg 0.00 0.01 0.02 0.00 chg 0.00 0.00 0.01 0.00

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 97.39 - 0.05 Dow Jones 12,151.4 -1.1% SEK 118.40 - 0.16 Nasdaq 2,590.0 -1.3% EUR 102.54 - 0.06 FTSE100 5,507.4 : USD 80.44 - 0.16 Eurostoxx50 2,255.0 -1.5% GBP 81.00 Dax 5,771.3 -2.0% Comm. Today Last Nikkei225 8,398.9 0.0% Brent spot 108.6 108.6 Oslo 379.88 -1.0% Brent 1m 107.7 107.6 Stockholm 443.07 -0.8% Spot gold 1571.0 1571.0 Copenhagen 496.33 0.4% Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
29.12.2011
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