Morning Report

18.02.2013

Currency warriors? We??? Not at all!

NOK & 3m NIBOR 7.60 2.00 1.95 7.50 1.90 7.40 1.85 7.30 1.80 7.20 1.75 21-Jan 04-Feb 18-Feb

As expected, the communiqu from the G20 meeting in Moscow in the week-end also adressed recent exchange rate developments.

2.8 2.6 2.4 2.2 2.0 1.8

The G20 nations reiterate their commitment to move more rapidly toward more market-determined exchange rate systems" and will let exchange rates "reflect underlying fundamentals." Persistent exchange rate misalignments should be avoided. The G20 nations believe that excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability. After which follow the clearest statements: "We will refrain from competitive EURNOK 3m(rha) devaluation. We will not target our exchange of competitive purposes, will resist all forms of protectionism and keep our markets open. In a separate statement, IMF chief Christine Lagarde said talk of currency wars is overblown, and that it was heartening to see the G20 reaffirmed its Norsk 10y sov. commitment to move more rapidly toward more market-determined exchange rate systems and 150 exchange rate flexibility to reflect underlying fundamentals.
100 50
0 18-Feb
Diff(bp,rha)

21-Jan
rente

04-Feb

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

What is the significance of this? Firstly, it is obvious that recent exchange rate developments are worrying many countries. If not, one would hardly acknowledge the need for such a bold statement. If developments were not addressed, it may have given a "green light" for a further weakening of the Japanese yen. Second, the statement can be read as a cautionary finger to Japan (which of course is unnamed in the statement): Japan gets "permission" to pursue an expansionary policy to achieve domestic objectives, such as 2% inflation, but should not use the exchange rate to achieve this. Thirdly, this illustrates some of meaninglessness in this oral exercise. When countries print more money to accelerate inflation, this will also affect the exchange rate. In a sense, this is precisely what underlying fundamentals could mean. And the statement becomes even more hollow when we know that most large central banks in advanced nations currently are on a money-printing spree, albeit in varying degrees. Fourth, it can be argued that the statement to refrain from competitive devaluations do not contain anything new. None of the G20 countries are currently doing this. It certainly does not cost much to commit to not do something you currently dont do. But, fifthly, we should appreciate that the G20 nations after all agree on the ideals of international economic relations. Although they probably arent committed longer than economic circumstances warrant, the statement represents a strong defense of free trade, free capital movements and flexible and market-determined exchange rates. That is comforting. Several important data were published on Friday. The University of Michigan's consumer confidence index rose from 73.8 in January to 76.3 in February, which was slightly better than expected. The index is pulled up by the cautious recovery in the labor market and higher stock prices, and down by higher gasoline prices and the tax hikes after the budgetary agreement. Confidence is consistent with an annualized consumption growth around 2%. US industrial production fell by 0.1% in January (vs +0.2% expected), but November and December were revised up, with the underlying rate of growth rising to an annualized 6.3% in January. In addition, most leading indicators are improving. Both the ISM and PMI indices have risen, and the Empire State Index, published Friday, jumped by almost 18 points to 10.0 in February. New orders rose by more than 20 points, deliveries by 16 and employment by 12. The US manufacturing industry is clearly moving ahead, after last years slowing. Financial Times today presents a poll showing that only one in three Britons would vote yes to continued EU membership. Exactly 50 percent would vote against. PM David Cameron is for British membership, and probably regrets bitterly that he was forced to promise a referendum on EU in 2017 if the Tories were to win the next election. While the EU is working hard to build a stronger and more closely integrated union to save the euro, Cameron will have to work to keep Britain out of any new institutions and arrangements, while at the same time maintaining its influence in EUs decision-making bodies. Only this "influence without participation" strategy can ensure a yes to continued membership in the referendum in four years. G20 countries' lack of direct criticism of Japan contributed to a further weakening yen, to 94.0 against the USD, and 5.90 against NOK, both 1.6% weaker than Friday morning. oystein.dorum@dnb.no Yesterdays key economic events (GMT) As of Unit m/m % Index m/m % Unit Prior Poll Actual -0.6 10.0 -0.1

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

09:30 UK Retail sales Jan 13:30 USA Empire State Feb 14:15 USA Industrial production Jan As of Todays key economic events (GMT) Norway Report on wage developments

-0.3r 0.4 -7.8 -2.0 0.4r 0.2 Prior Poll DNB

Morning Report
18.02.2013

3m LIBOR
0.16 0.15 0.14 0.13 0.12 21-Jan
EUR

04-Feb

0.31 0.30 0.30 0.29 0.29 0.28 18-Feb

USD(rha)

NOK & 3m NIBOR 7.60 2.00 1.95 7.50 1.90 7.40 1.85 7.30 1.80 7.20 1.75 21-Jan 04-Feb 18-Feb
EURNOK 3m(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 92.49 1.3356 0.8609 7.4597 8.4651 1.2315 7.4099 5.5482 6.00 87.73 99.39 8.608 6.019

Today 94.11 1.3343 0.8618 7.4596 8.4496 1.2326 7.4027 5.5483 5.90 87.63 99.29 8.587 6.008

Spot rates and forecasts In 1m May-13 Aug-13 Feb-14 FX 0700 1.8 92 90 91 93 AUD -0.1 1.34 1.32 1.36 1.37 CAD 0.1 0.84 0.81 0.85 0.86 CHF 0.0 7.45 7.45 7.45 7.45 CZK -0.2 8.65 8.65 8.60 8.70 RUB 0.1 1.20 1.20 1.20 1.20 GBP -0.1 7.35 7.25 7.25 7.40 HKD 0.0 5.49 5.49 5.33 5.40 KWD -1.7 5.96 6.10 5.86 5.81 LTL -0.1 85.0 83.8 84.3 85.1 LVL -0.1 98.7 97.3 97.3 99.3 NZD -0.2 8.75 8.95 8.53 8.60 SEK -0.2 612.50 604.17 604.17 592.00 SGD

USD NOK 1.029 5.709 1.007 5.507 0.924 600.447 19.035 29.136 30.138 18.402 1.548 8.587 7.755 0.715 0.283 19.632 2.588 2.143 0.524 10.576 0.843 4.676 6.332 87.584 1.240 4.474

US dollar

5.7 5.6 5.5 5.4 5.3

21-Jan 04-Feb
USDNOK

1.40 1.35 1.30 1.25 18-Feb

EURUSD(rha)

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

Prior 1.82 1.91 2.04 2.29 2.36 2.73 3.07 3.39

Last 1.81 1.89 2.01 2.24 2.33 2.72 3.05 3.38

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

Prior 1.15 1.19 1.28 1.56 1.58 1.91 2.17 2.43

Interest rates Last USD 1.15 1m 1.19 3m 1.28 6m 1.56 12m 1.59 3y 1.92 5y 2.18 7y 2.43 10y

Prior 0.20 0.29 0.46 0.76 0.53 0.98 1.48 2.04

Last 0.20 0.29 0.46 0.76 0.53 0.98 1.48 2.04

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

Prior 0.06 0.15 0.26 0.48 0.72 1.08 1.44 1.88

Last 0.06 0.14 0.26 0.47 0.72 1.09 1.45 1.89 Last 98.76 1.64 -0.37 10y sw ap 1.75 1.75 2.00

Japanese yen

95.0 90.0 85.0

21-Jan
USDJ PY

7.0 6.0

Norw ay Prior NST475 94.67 10y yld 2.60 - US spread 0.61 3m nibor 1.85 1.85 1.85

Norw ay

04-Feb

5.0 18-Feb
JPYNOK(rha)

Governm ent bonds Last SEK Prior Last US Prior 94.90 10y 112.45 112.49 10y 100.13 2.57 10y yld 2.02 2.01 10y yld 1.98 0.57 - US spread 0.03 0.01 30y yld 3.15 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 May-13 Aug-13 Feb-14 1.10 1.10 1.10 2.25 2.25 2.50 May-13 Aug-13 Feb-14 0.35 0.35 0.35

Last Germany Prior 99.95 10y 98.82 2.00 10y yld 1.63 3.18 - US spread -0.36 10y sw ap 2.00 2.00 2.25 3m euribor 0.25 0.25 0.25

Germany May-13 Aug-13 Feb-14

May-13 Aug-13 Feb-14

SEKNOK & CHFNOK 88 87 86 85 84 83 21-Jan 04-Feb

SEKNOK CHFNOK(rha)

6.1 6.0 5.9 5.8 18-Feb

Equities 14200 13700 13200 12700 12200 21-Jan 04-Feb

Dow J.I.

475 470 465 460 455 18-Feb

Os lo(rha)

NOK sov. NST19 NST20 NST21 NST471 NST472 NST473 NST475 NST475 NOK FRA MAR JUN SEP DEC

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.79 1.81 2 19.06.2013 0.33 Last 90.52 90.04 2.13 2.14 1 18.09.2013 0.58 Oil price: (Ldn,cl) 1m 1.71 1.71 0 18.12.2013 0.83 SPOT 117.85 117.71 1.65 1.60 -5 15.05.2015 2.24 Gold price 15.02.2013 PM 1.89 1.85 -4 19.05.2017 4.25 AM: 1646.0 1612.3 2.13 2.08 -4 22.05.2019 6.26 Equities Today 0700 % last 2.60 2.55 -5 24.05.2023 10.27 Dow Jones 13981.76 0.1% 2.60 2.57 -3 24.05.2023 10.27 Nasdaq C. 3192.03 -0.2% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6328.26 0.0% 1.91 2.03 1m 1.88 1.81 Eurostoxx50 2615.26 -0.8% 1.91 2.02 3m 2.00 1.89 DAX 7593.51 -0.5% 2.01 2.04 6m 2.12 2.01 Nikkei 225 11407.87 2.1% 2.11 2.10 12m 2.28 2.24 OSEBX 471.10 0.3% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets