Morning Report

02.07.2013

Towards gradual recovery in the Euro zone

NOK & 3m NIBOR
8.10

7.90
7.70

7.50 03-Jun

18-Jun

1.90 1.80 1.70 1.60 1.50 02-Jul

3m (rha)

PMI figures for the euro area point towards a gradual recovery. Also in the U.S., the UK and Sweden the PMIs increased. Stock markets generally rose after the PMIs yesterday. In the U.S. the S&P500 gained 0.5 per cent. In Europe the Eurostoxx50 rose 0.8 per cent and the FTSE 100 by 1.5 per cent. The benchmark index of the Oslo Stock Exchange rose 1.1 per cent. Today the Nikkei 225 is up 1.8 per cent. Long-term government bond yields changed little, but in the U.S. 10-year Treasury yield fell 4 basis points for the last 24 hours. In Italy and Spain, the 10-year government bond yields declined by about 10 bps. In the currency market, the euro increased on the PMIs. Since yesterday morning EURUSD has risen 0.2 per cent and the euro has strengthened against the British pound, Swiss franc and Norwegian krone. The latter has had a surprisingly weak development where EURNOK is up 1 per cent in the last day. In particular, the NOK fell yesterday afternoon and evening. The movements can hardly be attached to any macro-economic news, but in a thin market, small trades can move the price substantially. The Swedish Krona kept its value against the euro ant thus strengthened versus the NOK. In the Euro zone the final PMI increased to 48.8 in June, up from 48.3 in May. The index is now at its highest level since February 2012 and is 2.6 points above the average from last year. Thus, it appears that the recession in the euro zone, which so far has lasted for six quarters, is about to end. The improvement in the PMI in June was mainly due to an increase in the production index, which rose 1.1 points to 49.8. But the indices for new orders and employment also rose last month. It is especially the peripheral countries that have improvement. In Spain, the index rose by 1.9 points to 50.0, the highest level since April 2011. Also in Italy and France indices rose markedly, with respectively 1.8 and 2.0 points. However, the German index fell by 0.8 points and the German PMI is now lower than both the Italian and the Spanish PMIs. Despite the fact that the German index edged down it is the almost 2 points above the average for the previous year, indicating that GDP growth in Germany might be improved going forward. We believe that the recession in the euro zone now comes to an end, and expect moderate growth in GDP in the second half of 2013. In the UK CIPS gained for the fourth consecutive month and ended at 52.5. It was well above expectations and the highest level since April 2011. This was another UK number that surprised positively and may indicate that the economy slowly improves. In Sweden, manufacturing PMI increased 1.3 points to 53.5 in June. Also in Sweden, there are several indicators that underpin recovery in the Swedish economy. In Norway the publication of the PMI is deferred. Despite some improvement in manufacturing outlook, employment in Europe continues to deteriorate. In May, there were 19.2 million unemployed in the Euro zone, which corresponds to 12.1 per cent of the workforce. It may still appear that the rate of deterioration is slowing. In 2011, the number of unemployed in the Euro zone rose with 93 000 on average per month. This number increased to 160 thousand in 2012, but the development in 2013 have been better. So far this year the number of unemployed increased by 75 000 on average per month, which may be an indication that the trend is about to reverse. In Norway credit growth slowed from 6.5 per cent y/y in April to 6.4 per cent in May. The reason for this was that household credit growth fell from 7.7 per cent y/y in April to 7.4 per cent in May. In light of banks tightening of lending standards in recent months, it was not expected that credit growth would accelerate in April. The May figures bring the development more in line with what we expected. However, household credit growth remains higher than income growth. In line with a more moderate credit growth, we see that the temperature of the housing market in Norway is about to decline. Adjusted for seasonal variations, prices rose by 0.4 per cent m/m in May. This was slightly better than in April, when prices fell 0.1 per cent, but compared to the last three years the trend in recent months shows that the price increase is beginning to moderate. In the U.S. the ISM index rose 1.9 points to 50.9. This was a solid increase after three months of decline and better than expected. There were substantial increases in production and stocks that contributed to the over-all rise. All sub-indices except employment and stocks are now over 50. A headline index just above 50, points to a positive but weak growth in manufacturing production. Previously, such levels of ISM coincided with a GDP growth around 2 per cent. kyrre.aamdal@dnb.no Yesterdays key economic events (GMT) As of Unit Prior Poll Actual 06:30 Sweden PMI, Manufacturing Jun index 51.9 52.3 53.5 07:58 EZ PMI Jun index 48.7 48.7 48.8 14:00 USA ISM, manufacturing Jun index 49.0 50.1 50.9 As of Unit Prior Poll DNB Todays key economic events (GMT) 09:00 EZ PPI May m/m % -0.6 -0.2 14:00 USA Dur. Orders ex Transport May m/m % 0.7 14:00 USA Industrial Orders May % 1.0 2.0

EURNOK

Norw ay: 10y Gov't Bond

2.8 2.6 2.4 2.2 2.0 03-Jun
Rate

95

85
75 18-Jun

65 02-Jul
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
02.07.2013

3m LIBOR
0.200 0.150 0.100 0.050 0.000 03-Jun
EUR

18-Jun

0.28 0.28 0.27 0.27 0.27 0.27 02-Jul

USD (rha)

Oil price & NOK TWI

98 96 94 92 90 110

105
100

03-Jun

18-Jun

95 02-Jul
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 99.35 1.3033 0.8564 7.4588 8.7236 1.2305 7.9037 6.0662 6.11 90.67 106.01 9.235 6.427

Today 99.85 1.3069 0.8586 7.4594 8.7145 1.2355 7.9695 6.0989 6.11 91.50 106.87 9.282 6.450

Spot rates and forecasts In 1m Sep-13 Dec-13 Jun-14 FX 0700 0.5 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 -0.1 8.55 8.45 8.50 8.60 RUB 0.4 1.24 1.25 1.27 1.30 GBP 0.8 7.65 7.70 7.70 7.70 HKD 0.5 5.88 6.11 5.92 5.83 KWD 0.0 6.00 5.99 5.54 5.30 LTL 0.9 89.5 91.1 90.6 89.5 LVL 0.8 102.7 103.4 103.4 103.4 NZD 0.5 9.00 9.06 8.95 8.85 SEK 0.4 616.94 616.00 606.30 592.31 SGD

USD NOK 0.917 5.590 1.052 5.798 0.945 644.914 19.918 30.611 32.947 18.505 1.522 9.280 7.755 0.786 0.285 21.361 2.642 2.308 0.537 11.352 0.779 4.748 6.668 91.432 1.266 4.817

NOK TWI

US dollar 6.2 6.0 5.8 5.6 5.4

03-Jun 18-Jun
USDNOK

1.35 1.33 1.31 1.29 1.27 1.25 02-Jul

EURUSD(rha)

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

Prior 1.55 1.66 1.76 1.91 2.17 2.58 2.92 3.24

Last 1.54 1.67 1.75 1.90 2.18 2.61 2.94 3.25

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

Prior 1.14 1.21 1.28 1.77 2.20 2.47 2.72

Interest rates Last USD 1.14 1m 1.21 3m 1.28 6m #N/A 12m 1.77 3y 2.20 5y 2.47 7y 2.72 10y

Prior 0.19 0.27 0.41 0.69 0.79 1.52 2.12 2.67

Last 0.20 0.27 0.41 0.69 0.80 1.54 2.13 2.68

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

Prior 0.07 0.15 0.26 0.47 0.79 1.23 1.60 2.02

Last 0.07 0.15 0.26 0.47 0.79 1.23 1.59 2.00 Last 97.98 1.72 -0.75 10y sw ap 1.75 1.75 2.00

105.0 100.0
95.0

Japanese yen

90.0 03-Jun
USDJ PY

18-Jun

7.0 6.5 6.0 5.5 5.0 02-Jul

Norw ay Prior NST475 95.20 10y yld 2.55 - US spread 0.05 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 95.35 10y 93.32 93.31 10y 93.38 2.54 10y yld 2.23 2.23 10y yld 2.51 0.06 - US spread -0.28 -0.24 30y yld 3.52 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 93.69 10y 97.90 2.47 10y yld 1.73 3.47 - US spread -0.78 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 91 90 89 88 87 6.6

6.4
6.2

03-Jun

18-Jun

6.0 02-Jul
CHFNOK (rha)

SEKNOK

Equities 15700 15200 14700 14200 13700 03-Jun 18-Jun

Dow Jones

500

480 460
440 02-Jul
Os lo (rha)

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 1.53 1.46 -7 18.12.2013 0.46 Last 96.74 96.35 1.46 1.47 1 19.03.2014 0.71 Oil price: (Ldn,cl) 1m 1.52 1.57 5 18.06.2014 0.96 SPOT 103.40 103.18 1.45 1.44 0 15.05.2015 1.87 Gold price 01.07.2013 PM 1.72 1.70 -1 19.05.2017 3.88 AM: 1192.0 1242.8 2.54 2.52 -1 24.05.2023 9.90 Equities Today 0700 % last 2.54 2.52 -1 24.05.2023 9.90 Dow Jones 14974.96 0.4% 2.55 2.54 -2 24.05.2023 9.90 Nasdaq C. 3434.49 0.9% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6307.78 1.5% 1.70 1.82 1m 1.75 1.54 Eurostoxx50 2622.62 0.8% 1.71 1.85 3m 1.82 1.67 DAX 7983.92 0.3% 1.74 1.93 6m 1.87 1.75 Nikkei 225 14098.74 1.8% 1.85 2.03 12m 2.00 1.90 OSEBX 473.89 1.1% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
02.07.2013
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