Morning Report

11.07.2012

Inflation below expectations

NOK & 3m NIBOR 7.70 7.60 7.50 7.40 7.30 30-May 19-Jun
3m ra.

2.50 2.40 2.30 2.20 9-Jul

EURNOK

Euro area finance ministers agreeing on helping Spain improved sentiment yesterday. But once again, relief seems to be short-lived. Inflation in Norway was lower than expected in June, while industrial production in Sweden surprised positively. Inflation rose less than we, consensus and Norges Bank expected. In June, core inflation measured by the CPI-ATE increased by 1.2% compared to last year. We and Norges Bank had projected a growth of 1.7%, consensus 1.6%. Inflation was low in most subindicies, but a surprising fall in air fares pulled inflation down, and sales activity meant that prices of furniture, decorating and decorative items and clothing also fell. It is worth noting that domestic inflation contributed the most to lower inflation than expected. Overall inflation was pulled down further by a fall in electricity prices, and rose 0.5% y/y. One month with lower inflation than expected will have little meaning. But if any of this is not reversed in July, and we get several months of lower inflation, the isolation rate path down. In the UK, manufacturing output rose by 1.2% m / m in May. Following a decline in both March and April, it seemed the numbers were surprisingly good at first glance. It was anticipated zero growth. But much of the increase was due to a holiday in May, being moved to June because of Queen Jubilee. This effect is likely to be reversed in June, which will make the data more in line with surveys pointing to slowing growth in the industry sector. The trade deficit in the UK in May shrunk slightly, but reversed only part of the increase in April. Thus, net exports are likely to give a negative contribution to growth in Q2. In Sweden, both confidence indicators and industry data has pointed towards a slowdown in the Swedish industry. But yesterday's figures for industrial production in May were surprisingly good, and production increased 3.5% from April. Far more than the expected 0.3%. But the index for non-durable consumer goods has been extremely volatile of late, and rose 26.7% from April to May! A reversal of this growth in June will be more in line with other indicators pointing to abating growth in the Swedish industrial sector. Swedish krona continues to appreciate, and is about one percent stronger against the euro since yesterday morning. And since the beginning of June, the Swedish krona has strengthened by about 5% against the euro. The interest rate differential between Swedish and European interest rates has risen recently, but still explains only part of the appreciation. The apparently good industrial production figures yesterday may have helped to reinforce the positive momentum that is in Swedish kronor at the moment. Strong Swedish numbers and lower inflation than expected in Norway has contributed to the weakening of the Norwegian krone against the Swedish. The agreement to give Spain an extra year to meet budget targets, make available 30 billion euros to Spanish banks by the end of July and recapitalize Spanish banks without going through the Spanish government gave a boost to European stock markets yesterday. A broad-based rise helped lift the Oslo Stock Exchange with more than 2 percent. The same agreement also contributed to a fall in Spanish and Italian yields yesterday, and the Spanish 10-year government bond yield is again below 7 percent. But fears that the global slowdown will hit corporate earnings made the U.S. stock markets fall yesterday, while Asian stock markets opened down today. Oil prices fell after it was compulsory arbitration on the Norwegian shelf the night before, and Brent is now trading at $ 99 / barrel. Only U.S. figures on the agenda today. The trade deficit is expected to shrink slightly, while wholesale inventories are expected to increase somewhat. The most important data is probably the minutes of the FOMC meeting on 19.-20. June, when the Fed decided to extend Operation Twist. magne.ostnor@dnb.no

SEK & 3m STIBOR 9.1 9.0 8.9 8.8 8.7 30-May 19-Jun
3m ra.

2.20

2.00 9-Jul
EURSEK

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850

Sales Oslo (+47) Equity Fixed Income

22 94 89 40 22 01 78 20

Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

56 13 27 20 75 52 9910 69 39 41 50 62 54 14 82 52 72 09 06 61 24 79 56 38 07 28 62 22 01 76 50 51 84 04 30 77 62 96 80 73 58 74 89 33 01 73 80 70 11 69 85

Research Regional Sales (+47) Eirik Larsen 22 01 76 55

Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 77 41 22 01 76 57 22 01 76 67

Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 78 37 22 01 77 62 22 01 76 77 22 01 77 36 22 01 78 15

Yesterdays key economic events (GMT) 08:00 Norway CPI-ATE 08:00 Norway CPI EMU EcoFin-meeting Todays key economic events (GMT) 10:30 USA Trade balance 12:00 USA Wholesale inventories 16:00 USA FOMC Minutes

As of Jun Jun As of May May

Unit % y/y % y/y Unit Bln m/m %

Prior 1.4 0.5 Prior -50.1 0.6

Poll 1.6 0.8 Poll 48.7 0.3

Actual 1.7 0.8 DNB

Morning Report
11.07.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 115 105 95 85 30-May 19-Jun
NOK TWI ra.

96 94 92 90 9-Jul
$/b

EUR vs GBP & CHF 1.20 1.20 1.20 1.20 1.20 30-May 19-Jun
GBP r.a

0.82 0.81 0.80 0.79 9-Jul

CHF

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

Prior 79.58 1.232 0.794 1.201 7.486 8.626 7.439 6.078 7.639 0.869 9.446 7.012 8.806 1.153 10.881

Last 79.51 1.229 0.793 1.202 7.478 8.624 7.439 6.083 7.654 0.868 9.436 7.016 8.830 1.155 10.880

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

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.60 7.50 8.80 9.00 7.45 7.45 6.18 5.77 7.72 6.87 0.86 0.83 9.6 9.0 7.15 6.92 5.72 5.82 1.16 1.20 11.14 10.84

...6 m ...12 m 85 85 1.35 1.40 0.85 0.87 1.20 1.30 7.50 7.60 9.00 9.00 7.45 7.45 5.56 5.43 6.54 6.39 0.83 0.84 8.8 8.7 6.67 6.43 5.67 5.46 1.20 1.18 10.59 10.34

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

USD 1.0184 1.0206 0.9773 20.74 6.0526 1.5511 7.7549 128.49 0.2815 2.8098 0.5668 0.7949 3.4333 1.2713 33.0124

% -0.28% 0.14% 0.24% 0.32% 0.21% -0.12% -0.01% 0.13% -0.05% 0.20% 0.19% -0.29% 0.22% 0.18% 0.04%

EURSEK & OMXS 9.1 9.0 8.9 8.8 8.7 30-May 19-Jun
OMXS ra. EURSEK

500 450 400 350 9-Jul

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

NIBOR Prior 1.94 2.26 2.50 2.63 2.50 2.78 3.05 3.32

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.99 1.90 1.90 0.20 2.29 2.14 2.13 0.45 2.55 2.39 2.38 0.74 2.67 2.51 2.51 0.92 2.50 1.72 1.71 0.85 2.78 1.86 1.86 1.14 3.05 2.01 2.01 1.47 3.32 2.16 2.17 1.83

Last 0.19 0.43 0.73 0.91 0.84 1.12 1.46 1.80

USD LIBOR Prior Last 0.25 0.25 0.46 0.46 0.74 0.74 0.91 0.91 0.59 0.58 0.87 0.88 1.23 1.23 1.65 1.65

Gov. Bonds, 10y 1.75 1.50 1.25 1.00 30-May 19-Jun

NOK, ra.

3.00 2.50 2.00 1.50 9-Jul

SEK

NORWAY Prior Last 10y /A No Data 100.75 10y yield 1.94 1.92 vs bund 0.62 0.60

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 120.02 120.11 103.9 103.91 102.15625 1.33 1.32 1.32 1.33 1.51 0.00 -0.01 0.19

Last 102.19 1.52 0.19

13.0 12.5

JPY and DowJones

81 79 77

12.0 30-May 19-Jun

75 9-Jul

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.40 3.50 2.10 2.50 0.50 2.25 2.50 3.75 2.05 2.75 0.50 2.75 2.85 4.25 2.20 3.00 0.50 3.25
% - 0.16 0.01 - 0.11 0.10 Last 100.4 100.3 1585.0

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

% -0.3% -0.2% -0.6% -0.3% -0.4% 0.0% -0.5% -0.5% -0.5%

USDJPY ra. DowJones, 1000

USD and gold 1.28 1.26 1.24 1570 1.22 1.20 1520 30-May 19-Jun 9-Jul 1670 1620
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today SEP 2.18 2.18 0.00 NOK 93.52 DEC 2.04 2.04 0.00 SEK 114.91 MAR 2.03 2.04 -0.01 EUR 98.29 JUN 2.05 2.06 -0.01 USD 83.23 FRA SEK 3m Prior chg GBP 83.70 SEP 1.93 1.93 0.00 Comm. Today 0.01 Brent spot 100.4 DEC 1.69 1.68 MAR 1.61 1.59 0.01 Brent 1m 98.5 JUN 1.56 1.57 -0.01 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 12,736.3 Nasdaq 2,931.8 FTSE100 5,627.3 Eurostoxx50 2,227.9 Dax 6,387.6 Nikkei225 8,857.7 Oslo 404.22 Stockholm 481.00 598.08 Copenhagen

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