Morning Report

24.01.2013

The debt ceiling suspended

NOK & 3m NIBOR 7.60 1.88 1.86 7.50 1.84 7.40 1.82 7.30 1.80 7.20 1.78 21-Dec 10-Jan 24-Jan
EURNOK 3m(rha)

The congress yesterday approved a proposal from Republicans to suspend the effect of the debt ceiling for four months. This avoids market turmoil and politicians have more time to reach a long-term budget deal. The market mood was moderately positive yesterday with the rise of American and European markets. Asian stock markets have been a bit mixed as have the macro numbers. Japanese exports disappointed slightly, while Chinese PMI manufacturing showed an increase from 51.5 in December to 51.9 in January. Long-term interest rates have been fairly stable, but the Spanish government 10-year bond yield has dropped some 5 basis points. Bank of Canada kept interest rates unchanged as expected at 1.0% at yesterday's monetary policy meeting. In the currency market, the yen weakened against the dollar, while the NOK has appreciated slightly. As expected the U.S. Congress yesterday voted to suspend the effect of the debt ceiling to 18 May. This means that the U.S. government can continue to borrow as normal in the meantime. This gives Congress more time to negotiate a long-term budget deal. The decision also means (a bit surprising) that the politicians will not receive compensation after 15 April if a resolution of the budget for fiscal year 2014 is not agreed upon. Housing prices from FHFA rose 0.6% in November, and the rise in October was revised up to the same rate of growth. It thus appears that the growth in house prices continues. This is important because it helps more people to refinance their mortgages. IMF yesterday released updated forecasts for the world economy. The estimates for global GDP growth were adjusted marginally down from the previous report in October to 3.5% for this year and 4.1% for next year. The IMF remains optimistic about China and retains forecasts of 8.2% growth this year and 8.5% next year. Advanced economies are expected to grow by only 1.4% this year and 2.2% next year (drawn up by the United States with 2.0% and 3.0% respectively). Our forecasts for global growth are in line with the IMF forecasts. We are slightly more optimistic about the U.S. and the Eurozone, but somewhat less optimistic on China and Brazil. Several British events dominated the news yesterday. Most importantly was Prime Minister David Cameron's speech, where he launched a referendum on continued EU membership. The plan is that Britain should first obtain a renegotiated EU-agreement and then have a referendum in 2017. Given that the British people are generally split in their views on the EU, this initiative could create a lot of uncertainty about the further association with the EU. This may in itself have a negative impact on economic development and in particular affect the important financial sector. The UK labor market numbers continue to surprise positively. The registered unemployment fell by 12,100 persons in December, while it was expected unchanged. LFS unemployment fell from 7.8% in October (3m average) to 7.7% in November. Employment is still rising and is at its highest level since records began, while wage growth remains subdued. The decline in the unemployment rate may seem positive, but is in fact due to the weaker productivity growth. If this continues, it is undoubtedly negative for growth potential of the economy. In addition, weak productivity growth implies that labor costs are growing faster. This will prevent a further decline in inflation, which means lower real household income and slower economic growth. The minutes from the monetary policy meeting of the Bank of England 9 and 10 January showed that David Miles once again was the only member of the MPC who voted to increase the quantitative easing. Miles emphasizes large slack in the economy and weak growth more than a little too high inflation. Others put more emphasis on the fact that the Funding for Lending Scheme seems to take effect and that inflation is no longer falling. Governor King said in a speech Tuesday night that no one should be in any doubt that the central bank would implement further stimulus measures, if necessary. He added that it is necessary to recapitalize banks and carry out reforms on the supply side of the economy. King thought it was good and necessary that the pound fell 25% during the crisis in 2008. The country still has a current account deficit. Yesterday's news contributed however, not to affect the pound much. In our forecasts, we assume a gradual weakening of the pound through 2013. knut.magnussen@dnb.no Yesterdays key economic events (GMT) 06:45 France INSEE business climate 08:30 UK Minutes from BoE 13:00 USA House prices (FHFA) Todays key economic events (GMT) 23:45 China PMI, manuf. 08:58 EMU Comp- PMI 12:30 USA Initial claims As of Jan Jan Nov As of Jan Jan W2 Unit index m/m % Unit Index Index 1000 Prior 89.0 Poll 90.0 Actual 86.0 0.6 DNB

Norsk 10y sov.

2.6 2.4 2.2 2.0 1.8 21-Dec
rente

10-Jan

100 80 60 40 20 0 24-Jan
Diff(bp,rha)

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

0.6r Prior Poll 51.5 47.2 335 47.6 355

Morning Report
24.01.2013

3m LIBOR
0.15 0.14 0.13 0.12 0.11 21-Dec
EUR

10-Jan

0.32 0.31 0.31 0.30 0.30 24-Jan

USD(rha)

NOK & 3m NIBOR 7.60 1.88 1.86 7.50 1.84 7.40 1.82 7.30 1.80 7.20 1.78 21-Dec 10-Jan 24-Jan
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 88.23 1.3309 0.8407 7.4636 8.6737 1.2368 7.4260 5.5823 6.33 85.68 99.53 8.838 6.009

Today 89.47 1.3338 0.8422 7.4627 8.6899 1.2413 7.4124 5.5587 6.21 85.39 99.31 8.803 5.972

Spot rates and forecasts In 1m Apr-13 Jul-13 Jan-14 FX 0700 1.4 88 90 91 93 AUD 0.2 1.33 1.32 1.36 1.37 CAD 0.2 0.82 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 0.4 1.20 1.20 1.20 1.20 GBP -0.2 7.30 7.25 7.25 7.40 HKD -0.4 5.49 5.49 5.33 5.40 KWD -1.8 6.24 6.10 5.86 5.81 LTL -0.3 84.4 83.8 84.3 85.1 LVL -0.2 98.0 97.3 97.3 99.3 NZD -0.4 8.90 8.95 8.53 8.60 SEK -0.6 608.33 604.17 604.17 592.00 SGD

USD NOK 1.052 5.846 1.000 5.557 0.931 596.916 19.200 28.937 30.168 18.416 1.584 8.801 7.753 0.717 0.282 19.722 2.589 2.146 0.523 10.617 0.842 4.680 6.514 85.287 1.227 4.527

US dollar

5.7 5.6 5.5 5.4 21-Dec

1.35 1.30
10-Jan

1.25 24-Jan
EURUSD(rha)

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

Prior 1.81 1.86 1.99 2.23 2.28 2.61 2.89 3.23

Last 1.82 1.87 2.00 2.23 2.28 2.62 2.90 3.23

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

Interest rates Prior 0.20 0.30 0.48 0.81 0.49 0.87 1.33 1.85

Last 0.20 0.30 0.48 0.81 0.48 0.86 1.32 1.86

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

Prior 0.05 0.14 0.25 0.47 0.68 1.02 1.35 1.75

Last 0.06 0.13 0.25 0.46 0.66 0.98 1.32 1.73

USDNOK

Japanese yen

95.0 90.0
85.0

8.0 7.0
10-Jan

Norw ay NST475 10y yld - US spread

Prior 95.75 2.47 0.64

Last 95.85 2.46 0.63

Governm ent bonds US Prior Last 10y 98.17 98.13 10y yld 1.83 1.83 30y yld 3.01 3.03 Interest rate forecasts US 3m libor 10y sw ap Apr-13 0.35 2.00 Jul-13 0.35 2.00 Jan-14 0.35 2.25

Germany 10y 10y yld - US spread

Prior 99.31 1.58 -0.25

Last 99.49 1.56 -0.28

80.0 21-Dec
USDJ PY

6.0 24-Jan
JPYNOK(rha)

Norw ay Apr-13 Jul-13 Jan-14

3m nibor 1.85 1.85 1.85

10y sw ap 3.25 3.25 3.50

Germany Apr-13 Jul-13 Jan-14

3m euribor 10y sw ap 0.25 1.75 0.25 1.75 0.25 2.00

SEKNOK & CHFNOK 87 86 85 84 83 21-Dec 10-Jan

SEKNOK CHFNOK(rha)

6.2 6.1 6.0 5.9 5.8 24-Jan

Equities
14200 13700 13200 12700 12200 21Dec 10-Jan
Dow J.I.

480 470 460 450 440 430 24-Jan

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 2.34 2.35 2 19.06.2013 0.40 Last 90.65 90.99 1.90 1.91 1 18.09.2013 0.65 Oil price: (Ldn,cl) 1m 1.89 1.69 -20 18.12.2013 0.90 SPOT 114.14 112.79 1.58 1.55 -2 15.05.2015 2.30 Gold price 23.01.2013 PM 1.84 1.81 -3 19.05.2017 4.32 AM: 1690.5 1690.3 2.03 2.00 -3 22.05.2019 6.33 Equities Today 0700 % last 2.46 2.43 -3 24.05.2023 10.33 Dow Jones 13779.33 0.5% 2.47 2.46 -1 24.05.2023 10.33 Nasdaq C. 3153.67 0.3% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6197.64 0.3% 1.89 2.01 1m 1.87 1.82 Eurostoxx50 2708.28 -0.3% 1.89 2.03 3m 1.97 1.87 DAX 7707.54 0.1% 1.93 2.08 6m 2.10 2.00 Nikkei 225 10620.87 1.3% 1.99 2.14 12m 2.31 2.23 OSEBX 468.83 0.8% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets

Morning Report
24.01.2013
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