Investment Research

11 June 2010

Weekly Focus
Another week in the shadow of the debt crisis

Market Movers Ahead

Developments in the European debt crisis will probably be the dominant theme in a
week with no major releases in the US or Euroland to steal the limelight.
Otherwise the week will see monetary policy meetings in Japan and Switzerland. The
latter is the more hotly awaited, especially in terms of the SNBs take on the stronger
Swiss franc.
In Scandinavia, only Sweden has interesting releases scheduled, with the main focus
on the labour market.
Global Update
Financial markets were not expecting much from the ECBs meeting, so there was no
negative market reaction when it failed to announce any new initiatives or disclose
further information about its government bond purchase programme.
Incoming data continue to point to progress in the global economy. This was
confirmed during the week by strong Chinese figures, healthy order data from
Germany and signs that small businesses in the US are gradually getting back on
track.
Contents
Market movers ahead ........................................... 2
Global update................................................................... 4
Scandi Update ................................................................ 6
Focus - Denmark: Unemployment has
peaked ..................................................................................... 8
Equities: What could trigger a bear
market? .............................................................................11
Fixed Income: ECB succeeds in calming
markets .............................................................................12
FX: More hiking cycles kicked off ............13
Commodities: Focus on oil disaster ....14
Financial views...........................................................15
Macroeconomic forecast ..............................17
Financial forecast ...................................................18
Calendar ...........................................................................19

Focus
This week we look more closely at the Danish labour market, which has surprised on
the positive side for months now. We have therefore revised our view of
unemployment, which we now believe has peaked.

Business sentiment improves Danish unemployment has peaked

65 Index Index 115
60 << ISM 110
55 105
50 100
45 95 Editors
40 90
35
NFIB, small business optimism >>
85
Allan von Mehren
30 80
+45 4512 8055
00 01 02 03 04 05 06 07 08 09 alvo@danskebank.dk

Steen Bocian
Source: Reuters EcoWin, Danske Markets Source: Statistics Denmark, Danske Markets +45 45 12 85 31
steen.bocian@danskebank.dk

www.danskeresearch.com
Weekly Focus

Market movers ahead

Global
In the US, the schedule of economic releases in the coming week is dominated by
Large tax credit induced distortions to
housing and inflation data. We expect core inflation to continue its downward trend,
US housing data
although input price pressures have been building for some time now. So far, the rise
20 20
% m/m % m/m
in productivity has more than countered the upward pressure on core inflation. 15 Building permits 15
10 10
Further, the disinflationary trend from housing is set to continue for some while yet. 5 5
0 0
The first time home buyer tax credit has made it extremely difficult to extract the true -5 -5
-10 -10
underlying trend in housing data lately. This weeks releases are no exception. We Housing starts
-15 -15
expect building permits to rebound from the tax credit induced plunge in April and -20 -20
-25 -25
housing starts to reflect the weakness in Aprils building permits. We will have to Jun Sep Dec Mar Jun Sep Dec Mar
wait a couple more months before we get a better picture of the true underlying trend. 08 09 10

Source: Reuters Ecowin and Danske Markets

On Tuesday German ZEW is released. We expect to see a replay of previous reports
lower expectations and an improved assessment of the current situation. Hence we
expect a decline in the German ZEW expectation due to the ongoing turmoil related to ZEW expectations to decline slightly
the euro debt crisis. However, the surprise increase in the Sentix index may dent the 100 100
Net balance Expectations
decline. Meanwhile, we expect to see another rise in the assessment of the current 75 75
50 50
situation, reflecting a robust recovery in Germany. Besides ZEW, we await May
25 25
inflation data. There are currently very limited inflationary pressures in the euro area. 0 0
German Zew...
Besides a potential push from energy prices and a weaker euro, we see a limited -25 -25
-50 -50
number of factors that could lift inflation in the medium term. We look for unchanged
-75 -75
headline (1.6%) and core (0.8%) inflation in May. We expect inflation to remain Current conditions
-100 -100
around these levels for the rest of the year. 00 01 02 03 04 05 06 07 08 09

UK CPI for May is expected to have fallen 0.3 percentage points to 3.4% still quite Source: Reuters Ecowin
a high level, but not high enough to worry the Bank of England which held rates at a
record low in the past week. Inflation is set to come down in the UK and therefore
requires little action now. Confirmation that the unemployment rate has peaked and
good retail sales data could boost sentiment in UK markets in the coming week, but
negative headlines on the massive UK debt could occur ahead of the presentation of
austerity measures on 22 June. The pound has held up against the euro lately but we
see only limited scope for further appreciation in the current risk environment.
The absolutely most important event in Switzerland in the coming week will be the
monetary policy meeting on Thursday. There is not much excitement about the
outcome of the rate decision, as the Swiss central bank is widely expected to keep
rates unchanged. On the other hand, it will be interesting to see how the central bank
responds to the recent strengthening of the Swiss franc. Also, we expect the central Strong JPY is a concern in Japan
bank to revise its GDP growth forecast for 2010 upwards and to revise its inflation 170 Indice
Indice 170
expectations slightly downwards on a three-year horizon. 160 160
Appreciation
Next week will be a relatively quite one in Asia with no major economic releases due 150 150

in either Japan or China. Most interesting is the monetary meeting in Bank of Japan 140 140
Effective JPY
(BoJ) on Tuesday. It will probably prove to be one of the less eventful meetings. 130 130
Leading interest rates will remain unchanged until at least H2 11. In addition, the BoJ
120 120
is unlikely to introduce new non-conventional easing measures on Monday, as it Jan May Sep Jan May Sep Jan May
08 09 10
introduced a new lending facility at its previous meeting to ease some of the current
Source: Reuters Ecowin
political pressure on the BoJ. However, it might start to express some concerns about
the strong and increasing downside risk from the European debt crisis.

2| 11 June 2010
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Weekly Focus

Scandies
Denmark is heading for a very light data calendar in the week ahead. The key release
will be new car registrations for May 2010. Car sales have improved over the past Danish car sales are picking up
year after plummeting, particularly in the second half of 2008. The recovery in car 16000 16000
15000 Total 15000
sales reflects a muted improvement in consumer expectations for the future, which is 14000 14000
13000 13000
good news for overall consumer spending going forward. We expect car sales to have 12000 12000
maintained their momentum. 11000 11000
Car sales
10000 10000
9000 9000
In Sweden, labour markets will be thoroughly dissected in the week ahead, with both 8000 8000
7000 7000
the Labour market board (AMS) measure and the official Statistics Sweden (AKU) 00 02 04 06 08 10
measure. We look for a seasonally normal downturn in the unemployment rate
towards the 9% mark and a continued stronger development in employment. Source: Statistics Denmark

The Swedish National Debt Office (SNDO) will release its second forecast of
government finances on 16 June, and we believe that the forecast might cause some Swedish employment on a positive
commotion. Looking back over the past few months, we can clearly see that outcomes trend
are on the strong side (SEK20-25bn better than forecast), which might very well be 4.65 millions 4.65
4.60 4.60
enough for the SNDO to revise the auction size downwards, not just for 2010 but also Employment (SA)
4.55 4.55
for 2011. 4.50 4.50
4.45 4.45
Elsewhere, we will also receive some information on the state of the Swedish housing 4.40 4.40
market, when April house prices are published. 4.35 4.35
4.30 4.30
We expect no important indicators out of Norway in the coming week. However, it 05 06 07 08 09 10

could be interesting to see if the European debt crisis has had any impact on May : 90 X 160)
Source: Statistics Sweden
foreign trade numbers. We do not expect to see any impact yet. Add to this the signs
of improvement in export industry in the recent report from Norges Banks regional
network, and we expect exports of non-oil goods to have picked up in May.

Market movers ahead

Global movers Event Period Danske Consensus Previous
Tue 15-Jun - JPY BoJ Monetary Policy Announcement % 0.10 0.10 0.10
10:30 GBP CPI Inflation m/m|y/y May 0.3%|3.5% 0.6%|3.7%
11:00 DEM ZEW economic sentiment Index Jun 44.0 48.0 45.8
11:00 DEM ZEW current situation Index Jun -10 -15 -21.6
Wed 16-Jun 10:30 GBP ILO Unemployment Rate % May 8.0% 8.0% 8.0%
11:00 EUR Inflation (CPI), final m/m|y/y Jun 0.1%|1.6% 0.1%|1.6% 0.5%|..
11:00 EUR Core Inflation y/y May 0.1%|0.8% ..|0.8% ..|0.8%
14:30 USD Housing starts 1000 (m/m) May 632 (-6.0%) 650 (-3.3%) 672 (5.8%)
16:00 USD Building Permits 1000 (m/m) May 623 (2.2%) 628 (-2.9%) 606 (-11.5%)
Thu 17-Jun 9:30 CHF Monetary policy decisions, 3-month libor target 2nd quarter 0.25% 0.25% 0.25%
14:30 USD CPI ex. food & energy m/m|y/y May 0.0%|0.8% 0.1%|0.9% 0.0%|0.9%
Scandi movers Event Period Danske Consensus Previous
Thu 17-Jun 9:30 DKK New car sales, s.a. (Private households) May 3.9%|-17.9%
9:30 SEK Statistics Sweden, Unemployment % May 9.1% 9.5%
Ons 18-Jun 9:30 SEK National Debt Office report, Central Gov. borrowing: Forecast & analysis

Source: Bloomberg and Danske Markets

3| 11 June 2010
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Weekly Focus

Global update
ECB unable to rattle the markets
The tug of war between fear and fundamentals continues, but it seems like fundamentals
gained the upper hand this week. Strong Chinese data, a surge in German industrial orders US hours worked continue to surge
and a reversal of the overreaction to last Fridays US employment report helped to lift
7.5 3 mth chg., AR 7.5
3 mth chg., AR
risk appetite. We had feared that inaction from the ECB would cause another blowout in 5.0 5.0

market stress, but expectations were low into the meeting and spreads continued to 2.5 2.5
0.0 0.0
decline across markets following the press release. -2.5 -2.5
-5.0 Private payrolls, 3mth avg. -5.0

US small businesses catching up -7.5 Private working hours, 3mth avg. -7.5
-10.0 -10.0
It has been a quiet week in the US with the main market mover, retail sales, released after 85 90 95 00 05 10

the deadline of this publication. The general picture remains that the recovery in the US is
Source: Reuters Ecowin and Danske Markets
becoming more broad based and thereby increasingly robust.

Markets ended up disappointed after the May employment report, but we believe there is
still reason to be optimistic, as the guts of the labour market continue to improve. US small business optimism improves
Although private payrolls increased a meagre 41K in May, total private hours worked 65 Index Index 115
increased a robust 0.4% m/m suggesting that the demand for labour input is increasing at 60 << ISM 110
55 105
the same pace as in April. Further, the underlying trend in private payrolls is accelerating 50 100
with GDP growth remaining above trend, labour productivity is very stretched and 45 95
40 90
average weekly hours has recouped more than 2/3 of the pre-crisis level. NFIB, small business optimism >>
35 85
30 80
An encouraging sign is this weeks increase in small business confidence (NFIB) which 00 01 02 03 04 05 06 07 08 09
has been lagging behind the ISM index over the past year. Most notably, the percent of
firms expecting the economy to improve increased to 8% from 0% and 1% reported that Source: Reuters Ecowin and Danske Markets
they had plans to hire new workers over the coming three months, the first positive value
since September 2008. "[Heading 2]"

ECB government bond purchases

Fed chairman Bernanke provided little news in his testimony to the House budget
committee. He continues to expect a moderate recovery. While he voiced relatively
positive views on consumption and business capital spending, he remained concerned on
housing and construction. Interestingly, he had a note on the euro crisis indicating that the
Fed is watching this closely. Overall he expected the impact to remain modest if markets
continue to stabilise, but said that the Fed will remain highly attentive to developments
abroad and to their potential effects on the US economy.

The ECB seems committed to the bond purchasing programme Source: Reuters Ecowin and Danske Markets

At the ECB press conference Trichet gave little news about how the ECB will progress
with the government bond purchasing programme. The impression is that it is ready to
undertake bigger acquisitions if needed i.e. the rumours about a limit on the programme Strong German growth in Q2
seem indeed to have been just that. Trichet did also not give many new insights into the
decision to embark on the programme that famous Sunday night. He did say that it was a
reaction to the malfunctioning of some segments of the euro-area debt securities market,
which happened in an acute way in the afternoon of the Thursday following the last
Governing Council meeting and during early Friday.

Source: Reuters Ecowin and Danske Markets

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Weekly Focus

Trichet told that the three regular scheduled 3-month long-term refinancing operations
during Q3 will be undertaken as fixed rate full allotment tenders. It is likely that full China's exports soar in May
allotment at one month operations will now be given at least until year-end. The quarterly
120 Jan. 2008 =100 Jan. 2008 =100 120
ECB staff projections included a minor upward revision of the 2010 GDP growth Korea
110 China 110
100 100
estimate from 0.8% to 1.0% while the 2011 projection was revised lower from 1.5% to
90 90
Japan
1.2%. Financial markets had low expectations of the ECB meeting and thus reacted 80 80
Taiwan
positively to the outcome, partly because of the announcement of more auctions with full 70 70
60 60
allotment and the upward revision of the 2010 growth projection 50 50
07 08 09 10
We also continue to see a flow of positive macro data. German industrial orders increased
2.8% m/m in April. This is even better than the headline number might suggest as it Source: Reuters Ecowin and Danske Markets

comes after a very strong March, with a 5.1% m/m increase. German industrial
production increased by 0.9% m/m in April and the outlook is now for very strong
German GDP growth in Q2.

Strong Chinese data suggest revaluation is not off the table

The economic data for May released in China suggest that so far there has been no major
impact on the Chinese economy from either the European debt crisis or the governments Inflationary pressure is increasing in
recent tightening measures targeting the real estate market. Although industrial China
12 % % 12
production was slightly weaker than expected, the overall picture still looks strong. 10 10
Industrial production increased 16.5% y/y in May and according to our own seasonal 8 CPI, % 3m AR CPI, % y/y 8
6 6
adjusted figures is up a solid 4.2% 3m/3m. This suggests GDP growth in the current 4 4
2 2
quarter will remain double digit and will only slow marginally from around 12% q/q AR 0 0
-2 -2
compared to Q1 10. However, GDP should moderate further in H2 10. Property sales -4 -4
-6 -6
dropped substantially in May and while there has been no major impact so far from the -8 -8
05 06 07 08 09 10
governments targeting measures, it does suggest there will be later this year.
Source: Reuters Ecowin and Danske Markets
Chinas exports surged 48.5% y/y in May and its trade balance surplus soared as well
underlining that any talk of Chinas trade surplus disappearing in the wake of the global
financial crisis has been premature. Particularly exports to the US showed strong gains
suggesting that the global recovery is gradually becoming more broad based. On the other
hand, inflationary pressure is increasing. Consumer prices in May increased 3.1% y/y
following a 2.8% y/y increase in the previous month and we expect them to exceed 3.5%
by the end of Q3 10. This suggests increasing upside risk to the governments 3%
inflation target for 2010 as whole.

The bottom line on these numbers is that a Chinese revaluation is not off the table,
although recent volatility on financial markets has postponed it. Strong exports, an
increasing trade surplus, higher inflation and so far only a modest impact from the
governments tightening measures in our view all suggest we have a strong revaluation
case but financial markets need to calm down before it will happen. In our view a
resumption of appreciation is still possible in Q3.

5| 11 June 2010
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Weekly Focus

Scandi Update
Denmark current account sets new record
Statistics Denmark has published the April current account data in the past week.
Danish current account surplus
The Danish current account has remained very strong during the crisis and the April surges to record high
numbers were no exception, with a surplus of DKK7.8bn. Over the past 12 months, the
current account surplus has totalled a staggering DKK74.4bn.

The April numbers set a milestone for the current account, with the largest surplus ever.
In particular, the surplus on the merchandise trade account has improved over the past
year, surging by almost DKK50bn. However, the improvement is, not least, attributable
to a significant slowdown in consumer spending and investment during the crisis, which
has reduced the demand for foreign goods. Source: Statistics Denmark

The good news is that this is not the only contributory factor to the current account
improvement. Exports have shifted up a gear recently, pushing the merchandise trade
account in the right direction.

Obviously, the pick-up in exports should be viewed against the background of the recent
recovery in Denmarks key export markets. In addition, exports have been supported by a
modest improvement in Denmarks international competitiveness in recent months. Wage
growth in Denmark is slowing, the Danish krone has weakened against the currencies of
some of the countrys key trading partners, and domestic productivity has improved.

Judging from current account movements, the Danish economy still appears to be
competitive in spite of the doubts some have expressed about Denmarks
competitiveness. However, this should not turn into an excuse for inaction in a dynamic
world of constant tough competition.

Sweden rolling with the international tides and turns

Not much to speak of this week. Inflation came in as widely expected, and we interpret
Swedish industrial output is finally on
industrial data as being slightly on the positive side. Revised labour market data, inflation
the rise
expectations and the SNDO outcome for May borrowing needs also failed to stir markets. 115 Index 115
The market reaction on domestic news has by and large been muted, but volatility has 110 Industrial Production, total (SA) 110
105 105
remained on the high side, mainly driven by international events. From a Riksbank
100 100
perspective, and especially given its apparent unwillingness to acknowledge contagion 95 95
90 90
risks of any magnitude to Sweden from the problems of the PIIGS, this weeks data will
85 Industrial Production, ex energy (SA) 85
probably have passed by somewhat unnoticed. Indeed, both Ingves and Nyberg seemed to 80 80
00 01 02 03 04 05 06 07 08 09
confirm this in their (unpublished) speeches during the week.
Source: Statistics Sweden

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Weekly Focus

Norway signs of recovery at long last

As we have emphasised several times in recent weeks, indicators out of Norway so far
this year have surprised on the downside. However, the Q2 data from Norges Banks Norwegian GDP growth is picking up
regional network showed signs of slightly better times ahead. The aggregate production 15,0 % q/q ann.
Index
3,0
12,5 2,5
index rose to 0.8, indicating annualised growth in mainland GDP of roughly 1.75% for 10,0 2,0
7,5 1,5
Q2, according to Norges Bank. So, we are not looking at a bonanza in the Norwegian 5,0 1,0
2,5 0,5
economy, but it looks as if GDP is now growing more in line with our previous 0,0 << Mainland-GDP 0,0
-2,5 -0,5
expectations. The improvement in Q2 was particularly driven by a recovery in the -5,0 Regional survey>> -1,0
-7,5 -1,5
merchandise trade account and the export industry. Hence, consumer spending appears to 02 03 04 05 06 07 08 09
have begun to pick up after remaining in the doldrums for several months and after the
winters power bills had been paid. Note also that the market outlook has brightened Source: SSB and Norges Bank

significantly for both oil-related industries and the building and construction industry.
Also, the recovery seems to have become more broadly based. In this context, the oil
industry investment survey was highly encouraging, and oil investment next year could
be up 7-8% on 2010.

7| 11 June 2010
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Weekly Focus

Focus - Denmark: Unemployment has peaked

Solid numbers scupper unemployment forecast Key points
Economic data out of Denmark are increasingly beginning to surprise positively,
suggesting that the fragile economic upswing is gaining traction. This also appears to be
Unemployment numbers have
benefiting the labour market, with unemployment numbers, in particular, surprising us in
for several months been
recent months. Since November last year official unemployment numbers have fallen by
heralding an improvement in
3,900, while gross unemployment i.e. including various government activation
the labour market, and this
schemes has remained more or less stable in recent months (see figure 1). Official
good news is being supported
unemployment figures are supported by the Labour Force Survey, which in Q1 also
showed unchanged unemployment. by other benchmark indicators.

Denmark has haemorrhaged jobs during the economic crisis, with employment falling by One joker in the labour market is
productivity. Several years of
more than 160,000 in 2009 alone though this has been far from fully reflected in the
sluggish productivity growth could
unemployment numbers. Official unemployment has risen by a mere 70,000 or so since
suggest a recovery in productivity
bottoming out. Naturally this has stoked fears that the relatively stable level of
and thus a jobless upswing.
unemployment primarily reflects a still shrinking labour force, which is why we continue
However, there is nothing to
to see jobs disappear. Thus it was pleasing to note that it is not just the unemployment
indicate this outcome when one
figures that are improving both the Labour Force Survey and the National Accounts
looks more closely at corporate
numbers showed approximately unchanged employment in Q1 (see figure 2). Hence, the
employment expectations.
employment numbers underpin the recent positive developments in unemployment data.

We have been sceptical in recent months about whether we were seeing a nascent Likewise, staffing levels now
turnaround in the labour market. Clearly our scepticism is being increasingly challenged seem to be on track in terms of
by the one positive number after the other for the labour market. We can at any rate adjusting to the dramatic
doubtless acknowledge that our latest unemployment forecast from April has been downturn in growth that the
scuppered, as indeed have forecasts from Nationalbanken (Danish central bank) and the Danish economy has
government (see figure 3). Looking at our April forecast, in simple terms it would require experienced.
an average increase in unemployment of 4,500 per month from May to December to hit
our forecast average unemployment level of just under 130,000 for 2010. The overall result of this is that
Nationalbankens unemployment forecast for this year being met would require a very we have changed our
substantial 12,500 additional workers joining the ranks of the unemployed every month unemployment forecast in a
for the rest of the year. Even the forecast of the Economic Council (the so-called significantly more positive
Wisemen), which was released the other day, appears rather extreme, requiring a monthly direction. While we previously
rise of 3,000 in the number of unemployed for the rest of the year. It is worth noting at saw unemployment peaking at
this point that the number of jobless has only risen by just under 2,000 per month over just over 140,000, we now
the past year and has in fact remained stable over the past six months. expect that unemployment has
already peaked.
The big question is this the turnaround?
The big question at the moment is whether the latest trends mark a turnaround in the Figure1: Unemployment stabilising
labour market, or if companies still need to make major adjustments to staffing levels Thousands
180
Thousands
180
160 160
especially when taking into account both the brutal downturn in growth in 2008 and 2009, Gross unemployment
140 140
when the Danish economy shrank by around 6.5% from its peak in late 2007, and the 120 120
100 100
period preceding the crisis, when companies jogged along for a number of years with a 80 80
60 60
remarkably low level of productivity growth. All else being equal, companies may need 40
Unemployment
40

some time to restore productivity and may thus have a reduced need for new workers. 20
08 09 10
20

Source: Statistics Denmark

Senior Economist
Christian Hilligse Heinig
+45 45 12 82 64
chei@danskebank.dk

8| 11 June 2010
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Weekly Focus

Danish companies have in fact managed to improve productivity substantially in recent

quarters. Employment fell dramatically in the second half of 2009, while the Danish Figure 2: Employment stabilising
economy at the same time experienced economic growth. This means the latest recession
Thousands Thousands
no longer stands out negatively compared with earlier recessions in terms of companies 2950 2950
Employment, National Accounts
getting their employee numbers sufficiently adjusted. 2900 2900

2850 2850
Measured in terms of GDP per person in work, we are again approaching the levels 2800 2800

prevailing before the crisis struck (see figure 4). For the first many quarters after the 2750 2750

2700 2700
downturn arrived productivity fell markedly mainly due to the extreme intensity of the Employment, Labour Force Survey
2650 2650
economic downturn. This made it difficult for companies to implement a quick and 00 02 04 06 08 10

precise adjustment of staff numbers. Source: Statistics Denmark and own calculations

The extreme nature of the downturn in both the labour market and activity is also
apparent in figure 5, which compares developments in GDP and employment since the Figure 3: Unemployment forecast
start of the downturn. Considerably greater fluctuations are apparent this time compared scuppered out of the water
to earlier recessions, even though the same basic features are repeated. First we have a 225
Unemployment, thousands

205
Nationalbanken, March 2010 (per month: +12.500)
period when activity falls without a parallel decline in employment. Next there is a period 185
Ministry of Finance, May 2010 (per month: +5.000)
when both activity and employment fall, and then when the economy turns there is 165

145 Danske Bank, April 2010 (per month: +4.500)

typically a lengthy period before employment again begins to rise. This reflects the 125

classic labour hoarding phenomenon, where companies prefer to wait and see before 105

85
laying off/hiring employees in order not to incur unnecessary costs.
65
Economic Counsel, May 2010 (per month: +3.000)
45
As figure 5 also illustrates, developments suggest that we are approaching the fun point 25
2008M01 2008M07 2009M01 2009M07 2010M01 2010M07
on the curve where economic growth goes hand in hand with at least stable employment
and perhaps even a tendency towards rising employment. One precondition is of course Source: Nationalbanken, Finance Ministry, DRS
that the economic upswing continues, but the conclusion from both figure 4 and figure 5 and own calculations

is that companies at least generally appear to be on track in terms of adjusting staffing

levels to the downturn in growth in recent years.
Figure 4: Marked improvement in
Whether Danish companies have a more structural need to improve productivity after productivity
years of low productivity growth is the joker in the pack for both employment and 108
GDP per person in work

unemployment. The issue of productivity has in fact been at the core of the large spread 106
1992/1993

104
in economists unemployment forecasts throughout the crisis predictions have ranged 1980
102
1973
from a peak of 150,000 jobless to more than 200,000 despite more or less the same 1987
2001
100

estimates for growth. 98

There is no real definitive answer to the issue of the need for productivity to improve, but 96
2008/2009

it is worth noting that the entire productivity debate is at times a little difficult to quantify. 94

Number of quarters since start of downturn

92
First, there is uncertainty about what precisely drives productivity growth and, second, 0 1 2 3 4 5 6 7 8 9

one could also question how exactly it should be measured. At any rate, there is unlikely Source: MONA, Statistics Denmark and own
to be anyone forcing companies to hire workers who do not ultimately make a positive calculations
contribution to the bottom line which is what the hard numbers, in the form of negative
productivity developments, show for a period of several years during the latest upswing.
Figure 5: Is the fun point on the curve
Corporate Denmark does not foresee a jobless upswing approaching?
102
Employment, GDP peak=100

A revitalisation of productivity growth could result in a so-called jobless upswing. This 101

hypothesis has been aired several times by for example the OECD, Nationalbanken and 100
2007q4

indeed we also discussed it in our December forecast. 99

However, looking at the signals the business community is sending in the form of 98
Average of recessions (1973, 1980,
1987, 1992/1993)
confidence indicators, there is currently no suggestion of a jobless upswing being on the 97

cards. 96

2010q1 Development of GDP, GDP peak=100

95
92 94 96 98 100 102 104 106

Source: MONA, Statistics Denmark and own

calculations

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Weekly Focus

If one compares the corporate view of the economy and the corporate view on the need to
Figure 6: No sign of jobless upswing
hire new staff, then historically there has been a fairly decent connection between an among corporates
improvement in the economic outlook and expectations of a need to hire more employees. Employment expectations
30

If this time around were to be different the result should be business having a more 20

May 2010
positive view of the economy without a corresponding improvement on the employment 10

front. As can be seen in figure 6, employment expectations in the latest confidence 0

-40 -30 -20 -10 0 10 20 30
Business confidence
indicators from May move as they usually do in tandem with economic expectations, -10

y = 0,9567x - 2,1624
in fact they are actually a little better than what one would immediately expect from a R = 0,9511
-20

historical perspective. Hence there is no evidence of a shift towards a new regime in -30

which economic growth does not go hand in hand with increased unemployment. -40

Growth outlook is key

The noticeable levelling off in the unemployment curve in recent months is not an
unequivocal signal that the labour market is turning. There have been similar periods Figure 7: Unemployment flattening out
during earlier economic downturns in Denmark, after which unemployment again rose no guarantee of no further rises in
unemployment
(see figure 7). This phenomenon was particularly obvious during the first Oil Crisis and
180 180
Thousands
the 1987-1993 recession. Developments during the Oil Crisis must be seen against the 160
1. oil crisis
160
140 140
2. oil crisis
backdrop of greater growth in the workforce as women increasingly entered the labour 120 120
Now
100 100
market, while in the period 1987-1993 the upswing never really got off the ground. In 80 80
1987-1993
60 60
contrast, if we look at the downturn in the wake of the IT crisis at the start of the 40 40
IT-crisis
20 20
millennium, there was a pronounced unemployment stop, as the economic upswing 0 0
quickly gained traction. 0 M10 M20 M30 M40 M50 M60 M70

Source: Statistics Denmark and own calculations

Comparing to the current situation it is thus not surprising that growth will be the key as
to whether the labour market has bottomed out. As mentioned earlier this is supported by
employment expectations, which do not suggest that we are on the threshold of an
extended period of productivity recovery. It is, however, worth remembering that the
workforce, as mentioned, has declined sharply during the crisis, and a positive cyclical
effect may come into play in the labour force that will mean rising employment may not
affect the unemployment statistic in a one-to-one ratio.

Looking more specifically at our growth forecasts, we belong to the optimistic camp of
economists. We expect economic growth this year and next of just under 2%, meaning
that we are at growth levels where there is a basis for job creation. This also supports the
idea that we may be witnessing a turnaround in the labour market at the moment.

Marked shift in our view on unemployment Figure 8: Markedly more positive view
on unemployment
If we convert the above into more specific opinions about unemployment, then we now
160

expect that unemployment has already peaked. There will be no dramatic fall in Thousands
Unemployment forecast, April 2010
140
unemployment in the coming years the outlook for growth is too weak, the labour force
may increase a little due to improvements in the economy and there ought to still be scope 120

for corporate productivity to improve. Overall, we expect that unemployment will remain 100
New forecast

in the neighbourhood of the current 110,000-115,000 during the forecast period. Hence 80

our view of the labour market has undergone something of a transformation compared to 60

our last forecast in April. Back then we expected that unemployment would be around
40

30,000 higher at the end of the forecast period (see figure 8). 2006M01 2007M01 2008M01 2009M01 2010M01 2011M01

Source. Statistics Denmark and own calculations

10 | 11 June 2010
www.danskeresearch.com
Weekly Focus

Equities: What could trigger a bear market?

A myriad of market worries
Equity markets have a lot to cope with at the moment. A swirl of negative news has Financials and energy have dragged
undermined the positive sentiment that between February and April lifted global equities the market down
by almost 15%. This performance has since been entirely wiped out and global equity 105 Price index 100 = 1/4/2010 105
markets are again struggling around February levels. Equity investors are evidently very 100 100
worried about a number of factors, the most important of which we discuss below.
95 Total 95

1. How will debt-ridden European nations repay their debts, and in connection with 90 90
Energy
this how much will growth slow in 2011? A re-run of the post-Lehman financial crisis of 85 85
2008 is the nightmare scenario for the PIIGS sovereign debt debacle. 80
Financials
80

2. The future of the financial sector. The sector, which accounts for some 20% of global April May June
10
equity market value, finds itself in a regulative hurricane season, with countries such as
Germany unilaterally banning naked short selling and imposing additional taxes. The Source: Reuters Ecowin

sector has also been hit by fear of supranational regulations (e.g. Basel 3) that in the
longer term could hinder growth. Indeed, uncertain financial markets and continuing
losses on loans to homeowners, etc are already posing a challenge to earnings.
Fears of hard landing for global
3. The oil sector has been hit by BPs problems and deepwater drilling will almost industrial production
i i d ki
certainly suffer heavier regulation, meaning costlier operations, due to environmental 15.0 % 6m % 6m 15.0
considerations. As long as BP cannot stop the oil leak in the Gulf of Mexico, uncertainty 10.0 China 10.0
will plague the company and thus the global oil sector it could even spell the end of BP! 5.0 5.0
USA
4. The notion of a jobless upswing in the US and for that matter the rest of the OECD 0.0 0.0
Eurozone
was resuscitated by the weak May jobs report in the US. Equity markets will increasingly -5.0 -5.0

need to be fed signals that the upswing that has been under way since early 2009 is -10.0 -10.0
becoming self-sustaining and thus that the private sector is taking over from the public 00 01 02 03 04 05 06 07 08 09
sector as the prime growth locomotive. Private sector job creation is a key factor here.
Source: Reuters Ecowin
5. Fears of a hard landing for the global industrial economy have also become a
theme this year. The data are ever more strongly suggesting a slowdown in the global
industrial economy that is in part directly linked to developments in the Chinese economy
and trends in the developing economies in general.
Pre-announcements indicate strong
Q2 earnings in the US
Potential bear market triggers 0.9 Postitiv til negativ rate 0.9

In our view the equity market has now priced in too little growth for the coming years 0.8 0.8
0.7 0.7
(see Equity Strategy) hence we see decent potential for an equity upturn in the coming 0.6 0.6
months. That said, like the market we see a number of factors we believe could confirm, 0.5 0.5

and not refute, the latest bear market signals. A) Double-dip fears will be stimulated by 0.4 0.4
0.3 0.3
excessive falls in industrial PMIs, which therefore need to be avoided by China, the US 0.2 0.2
and Europe. B) Germany must continue to show leadership in the economic indicators.
06 07 08 09 10
The effects of the weak euro, low German interest rates and global economic expansion
has to be reflected in the German IFO. C) Q2 earnings should be good, but companies Source: Reuters Ecowin
must deliver. Some financials will overshadow still solid earnings from other companies.
D) US companies will have to show they are investing at home and not just in the
developing countries. Thus the US job market must very soon demonstrate some real
improvement.

Chief Analyst
Morten Kongshaug
+45 45 12 80 57
Mokon@danskebank.com

11 | 11 June 2010
www.danskeresearch.com
Weekly Focus

Fixed Income: ECB succeeds in calming markets

ECB delivers more than feared
The ECB delivered less than we expected, but more than feared at the monetary policy
Key events of the week ahead
meeting. All key interest rates were kept unchanged, no new liquidity measures were
introduced and no new details about the government bond purchase programme were German ZEW (15 June)
revealed.
US Empire and NABH (15 June)
The only policy change was that the ordinary three-month tenders were expanded from Ireland sells 2016 and 2018
fixed to full allotment during Q3. Basically, this locks EONIA rates at a very low level bonds (15 June)
for the remainder of the year and on the margin it delays the exit process for the ECB. US PPI and building permits
Importantly, the decision by the ECB to expand the three-month tenders was unanimous (16 June)
and generally Trichet delivered a more clear message to the market compared with the Germany sells EUR5bn10-year
previous meeting. bonds (16 June)

While the bar to surprise on the positive side was probably low following the disastrous Spain to sell 2020 and 2041
bonds
May meeting, the ECB delivered just enough to make the markets feel more confident.
Following the meeting, markets responded positively and risk appetite saw a significant US CPI (17 June)
comeback after a week with nervous trading and high volatility. France to sell notes, US auction
announcement (17 June)
Bidding returns to Euro market, money markets improve
Following a gradually seizing-up over the past couple of weeks, bidding has returned to
Euro government bond markets over the past few days. Both high quality countries Euro sovereigns spreads tightening
(France, Belgium, Netherlands) and PIIGS have tightened versus Germany since 500 bp bp 500
450 450
Wednesday. On top of this, money market conditions have continued to improve and 400
Portugal
400
350 350
there are signs that funding tensions in the USD market are easing. Evidence from the 300 300
Ireland
forward market is particularly encouraging with the USD FRA/OIS spread narrowing 250 250
200 200
Spain
consistently over the past few weeks. 150 150
100 Italy 100
50 50

From fear to fundamentals 0

March April May June
0

10
With the ECB meeting out of the way and some general signs of improvement in market Source: Ecowin and Danske Markets
conditions, this will hopefully leave some room for markets to turn focus away from fear
and back to fundamentals.

While the Euro debt crisis has dominated the agenda, the flow of global economic data
Money markets improve
has remained robust and there are few signs of contagion so far. If we do not get new
80 bp FRA/OIS spread 2nd contract bp 80
shocks in the coming week, there could be room for a recovery in risk appetite. Given the 70 70
3M USD Libor OIS spread
unusually high correlation with equities, this would imply higher bond yields and steeper 60 60
50 50
curves in both the US and Germany. 40 40
30 30
The calendar is dominated by tier two data next week. There will be little news from the 20 20
Fed which is entering the usual blackout period ahead of the FOMC meeting on 23 June 10 10
0 0
and there are no interesting ECB speeches scheduled. Focus will be on bond auctions in Nov 2009 Jan 2010 Mar 2010 May 2010
Ireland, Spain, France and Germany and the auction announcement in the US.
Source: Bloomberg and Danske Markets

Senior Analyst
Peter Possing Andersen
+45 45 13 70 19
pa@danskebank.dk

12 | 11 June 2010
www.danskeresearch.com
Weekly Focus

FX: More hiking cycles kicked off

BoC and RBNZ kicking off hiking cycles, more to come!
Despite the sovereign debt crisis continuing to haunt the financial markets, June has seen
both the BoC and the RBNZ kick off their hiking cycles, defying concerns over a possible G10 FX 1-week changes vs. EUR
double-dip in global economic growth. The 1 June BoC hike was in line with market
CAD
expectations, and as the accompanying statement devoted much attention to the downside
AUD
risks to global growth, the reaction in USD/CAD was relatively muted. In our view, the
NZD
strong momentum in the Canadian economy and stickiness in core inflation are likely to CHF
warrant more hikes in the near future. In turn, this should imply more upside for the GBP
Canadian dollar, though the current fragile market sentiment remains a clear risk. SEK
This week, the RBNZ became the fourth G10 central bank to hike rates from the crisis NOK
low of 2.50%. This hike was also expected in the market, but a relatively upbeat JPY
statement gave the kiwi a lift and NZD/USD rose nearly 2%. With the recovery in New USD
Zealands main trading partners well under way, more hikes should be coming up. -2.0% -1.0% 0.0% 1.0% 2.0%
Whos next? We look for the SEK to receive support from Riksbank hikes, possibly as
Source: Bloomberg
early as 1 July. Although Riksbank member Nyberg cast some doubts on the immediate
prospects for higher borrowing costs in Sweden due to uncertainty in Southern Europe, a
July hike remains our base case.
BoC and RBNZ policy rates
Little news from ECB 9 9
8 8
Although there had been some speculation about a possible rate reduction ahead of this 7
RBNZ
7

weeks ECB meeting, there was no cut and no new liquidity measures introduced. In stark
contrast with the May meeting, where the ECBs failure to address the escalating debt
crisis caused the EUR to be severely punished, this time around expectations for further
measures to deal with the crisis were likely quite low and EUR/USD traded slightly
6 6
5 5
4 4
BoC
3 3
2 2
1 1

higher over the day. 0

Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May
0

06 07 08 09 10

There is in our view still plenty of event risk emanating from the sovereign debt crisis and
the unanimous decision to provide three-month liquidity at full allotment in Q3 underlines Source: Ecowin
that a normalisation of monetary policy is not imminent. We believe the EUR will
continue to lose against the USD as long as European monetary policy is getting looser,
European risks remain high and debt markets are not functioning. SNB FX reserves soaring

CHF at all-time high versus EUR ahead of SNB meeting 220

BN CHF
220
190 Swiss foreign FX reserves 190
The past week has seen the Swiss franc strengthen to a new all-time high against the euro 160 160
taking EUR/CHF to a 1.3734 low. An accelerated euro sell-off coupled with safe-haven 130 130
flows into the Swiss franc, as falling prices on risky assets increased the demand for 100 100
70 70
insurance, added too much downside pressure on EUR/CHF for the Swiss National Bank 40 40
(SNB) to sustain its approximate 1.40 level. It was not because the SNB did not put great 99 01 02 03 04 05 06 07 08 09

efforts into preventing a further appreciation, however. Recently published data shows
that the foreign exchange reserves jumped by CHF79bn in May. This indicates that May Source: Ecowin
saw an unprecedented level of SNB intervention, but that the SNB nevertheless was not
able to withstand the massive franc buying pressure. Improved risk sentiment in recent
days has eased the downside pressure on EUR/CHF. However, given Switzerlands
strong fiscal position and growth outperformance, we expect the fundamental trend to be
for a stronger franc.
The next key event will be the Q2 SNB meeting on Thursday. We expect little change to
the current monetary policy setting and focus to be on how the SNB expects to mop up
the excess liquidity it has poured into the financial system since March 2009. The biggest
risk to the upside in EUR/CHF is the potential unwinding of what is likely to be still Senior Analyst
Sverre Holbek
stretched short EUR/CHF positions in the market.
+45 45 14 88 82
holb@danskebank.dk

Senior Analyst
Kasper Kirkegaard
+45 45 13 70 18
kaki@danskebank.dk

13 | 11 June 2010
www.danskeresearch.com
Weekly Focus

Commodities: Focus on oil disaster

The oil spill in the Gulf of Mexico has turned into a nightmare not just for the
Prospect of rising costs pushing up
environment, but also for oil company BP. Since the disaster, its share price has halved
long oil prices
and the price of insurance (CDSs) for debt issued by BP has soared. The market is
naturally worried about the size of the bill that awaits BP and it is now estimated that up
to 900,000 barrels of oil have escaped, almost four times as much as after the Exxon
Valdez disaster in 1989.

But we are not BP analysts, and predicting the fate of individual companies is not our
concern here. The spill has, however, meant that deepwater drilling has suddenly become
a highly controversial technology and the accident will almost inevitably have a major
impact on the sector going forward. The Obama administration has provisionally halted Source: Bloomberg
all drilling in deep water in the Gulf of Mexico for six months, although current
production will be permitted to continue for the time being. The Norwegians have also
indefinitely suspended any new drilling in deep water, but are allowing ongoing drilling
to proceed. Prospect of rising costs pushing up
long oil prices
The International Energy Agencys latest monthly Oil Market Report looks at the long-
term consequences of the disaster. The IEA reckons that it could have a marked effect on
oil supply, with up to 300,000 b/d of deepwater production in the danger zone over the
next five years. This might not sound much on the face of it, but with the market balance
expected to tighten in the coming years, this is far from insignificant not least because
deepwater drilling has for many years been seen as the way forward, especially outside
Opec.

However, the impact on costs could considerably outweigh the impact on supply. With
Opec keeping a rein on production, oil prices are, in principle, decided by the most
expensively produced oil to be sold in the market the marginal cost is equal to the price. Source: Bloomberg
The cost of deepwater drilling is now set to rise. Following the Piper Alpha disaster in the
North Sea in 1988, for example, the UK introduced more than 100 new maintenance and
safety regulations. There are already reports that the price of insurance for deepwater
drilling has rocketed. Future insurance and contingency requirements may also make it
US oil demand on the up
difficult for smaller operators that do not have the same financial strength as the oil
20 20
majors. 15
%y/y %y/y
15
10 Total distallate fuel supplied, 4wmva. 10

OECD demand for oil on the up 5 5

0 0
-5 -5
Although the oil spill is by some margin the worst ever, the impact on oil prices to date -10 -10

has been modest. After all, the spill is but a drop in the ocean in terms of the overall oil -15
Total products supplied, 4wmva.
-15
-20 -20
market. What has caught our attention, though, is that the IEA has again revised up its oil -25 -25
05 06 07 08 09 10
demand forecast for 2010, this time from 1.6 to 1.7mb/d. The IEA puts this down mainly
to higher economic growth in the US. There is much to suggest that the prediction we Source: EcoWin
made in our last Commodities Monthly that growth in OECD demand would be the next
big market driver is now materialising. We therefore expect oil prices to remain upward
Chief Analyst
bound in the coming quarters.
Arne Lohmann Rasmussen
+45 4512 8532
arr@danskebank.dk

14 | 11 June 2010
www.danskeresearch.com
Weekly Focus

Financial views
Equities
Our overall view is that stock markets will return to the bullish trend due to continued
global economic expansion and overly nervous investors who have now priced in Equities and US 10Y yield
close to zero growth in European corporate earnings over the coming five years. 1275 Index %
4,0
US 10-year gov bond >> 3,9
Hence we see the recent market correction as a buying opportunity. However, 1225 3,8
1175 3,7
investors should still recognise that, in the short term, the high risk profile of the 1125 3,6
3,5
market may continue due to very uncertain economic conditions for the Financials 1075 << S&P500 3,4
1025
sector. We reiterate our European/Nordic recommendations to underweight Financials 3,3
975 3,2
and overweight Industrials and Health Care. The latter two are main beneficiaries of a 925 3,1
dec jan feb mar apr maj jun
weaker euro and a stronger US dollar. 09 10

Source: Reuters Ecowin

Fixed Income
Risk aversion is the only driver of yields at the moment. If risky assets succeed to
rebound, both German and US yields will follow suit by moving higher. However, if
the crisis escalates again, yields will once again drop faster than a lead balloon. EUR/USD and USD/JPY

We expect some relief in bond markets in the coming weeks as the crisis takes a step 165 98
155 << EUR/USD 96
back. Governments and central banks have done much to counter the crisis and we
145 94
expect it will help ease fears. Fiscal belt-tightening in Italy, Spain and Portugal also 135 92
goes some way to help the credibility of fiscal programmes. Finally, continued strong 125 90

macro data out of the big countries should provide some cushion. 115 88
USD/JPY >>
105 86
Euroland intra-spreads: We remain overweight in Germany, Italy, the Netherlands, jun aug okt dec feb apr jun
09 10
Austria and Ireland. We are underweight in France, Spain, Greece and Portugal. We
recommend 5Y Italy versus France and 30Y Italy versus Germany. Source: Reuters Ecowin

Scandinavian government bonds are performing well and we remain overweight 2Y

DGBs and 5Y SGBs vs France and long 10Y DGBs vs France. We are long on
Norwegian krone T-bills on an outright basis with open currency exposure. Credit spreads
25,0 % points % points 6,5

Credit 20,0
<< Eur high yield spread
5,5

Liquidity is slowly coming back to the credit market, but there is still limited activity 15,0 4,5

in the primary market. Banks remain under some pressure as sovereign debt fears 10,0 3,5

refuse to go away. We believe this picture is likely to remain with us for some time. 5,0 2,5
US credit spread (Baa) >>
0,0 1,5
From a fundamental perspective we are positive on investment grade credit from non- jun okt feb jun okt feb jun okt feb
07 08 09 10
financial companies. Company credit metrics are currently sound and we thus
consider the default risk in the short to medium term as very low. Furthermore, Source: Reuters Ecowin
companies of high credit quality offer an alternative for investors that seek an exit
from what they perceive as risky sovereign exposure.

FX Outlook Commodity prices

EUR/USD continues to hit new lows and further downside, in our view, is still to
90 USD/barrel Index 4000
come as political risks in Europe weigh on the euro and US rates are expected to rise. 85 3750
<< Oil (WTI)
Despite a massive effort from the SNB to stem currency inflow, EUR/CHF is 80 3500
75 3250
declining and new record-lows cannot be excluded. EUR/GBP has fallen dramatically 70 3000
and we believe we will have a consolidation period before a move lower. The yen is 65
LME metal prices >>
2750
60 2500
too expensive in our view while CAD is a good buy.
55 2250
jun aug okt dec feb apr jun
09 10

Source: Reuters Ecowin

15 | 11 June 2010
www.danskeresearch.com
Weekly Focus

NOK and SEK are both stronger against the euro, as investors find comfort in
Scandinavian paper. The outlook of higher rates in both Sweden and Norway in H2
will give additional support and we see more value in both NOK and especially SEK.

Commodities
While we cannot rule out the possibility of further setbacks to commodity prices in
the near term, we view the recent price action as a correction and not a change of
course. With the prospects for global growth intact, a re-coupling with bullish supply-
demand fundamentals is likely to benefit cyclical products in the months to come.

16 | 11 June 2010
www.danskeresearch.com
Weekly Focus

Macroeconomic forecast
Macro forecast, Scandinavia
Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

Denmark 2009 -4.9 -4.6 2.5 -12.0 -1.7 -10.3 -13.2 1.3 3.5 -2.8 38.8 4.0
2010 1.8 2.7 1.2 -2.3 0.8 2.7 2.6 2.0 4.6 -5.6 42.0 3.2
2011 1.9 2.5 0.5 1.3 0.2 3.5 3.5 1.8 5.0 -4.5 46.5 2.5
Sweden 2009 -4.9 -0.8 2.1 -15.3 -1.5 -12.5 -13.4 -0.3 8.4 -1.3 39.5 7.6
2010 1.8 2.2 4.6 0.4 0.5 3.5 6.8 1.4 10.3 -2.8 43.1 5.9
2011 2.0 1.8 1.5 2.2 0.0 4.4 4.2 2.4 10.3 1.0 44.0 6.8
Norway 2009 -1.4 0.1 5.0 -7.9 -1.8 -4.2 -9.6 2.2 3.1 8.0 26.0 19.0
2010 3.1 5.0 3.1 -0.5 1.0 2.3 5.6 2.5 3.3 12.0 26.0 24.9
2011 1.7 4.4 2.5 0.0 0.0 1.4 7.3 1.9 3.4 10.0 - 17.0

Macro forecast, Euroland

Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

Euroland 2009 -4.0 -0.5 2.3 -10.8 -0.8 -12.6 -11.4 0.3 9.4 -6.3 78.7 -0.7
2010 1.3 0.1 1.4 -2.0 0.4 7.9 5.8 1.4 9.8 -6.7 84.8 -0.3
2011 2.1 1.2 1.1 3.8 0.0 5.4 4.6 1.6 9.5 -6.0 88.5 -0.2
Germany 2009 -4.9 -0.1 3.4 -13.5 0.4 -14.5 -9.5 0.2 7.5 -3.5 73.0 4.0
2010 1.9 -1.0 2.1 9.9 0.1 8.9 8.8 1.0 8.1 -5.0 76.5 3.7
2011 2.7 1.7 1.4 7.4 0.0 7.0 6.7 1.2 7.6 -3.0 79.0 3.2
France 2009 -2.6 0.7 2.8 -7.0 -1.6 -10.7 -9.8 0.1 9.4 -8.3 78.0 -2.3
2010 1.6 1.3 1.7 -1.0 0.3 7.9 5.9 1.2 10.0 -8.5 82.0 -2.5
2011 1.8 1.4 1.0 4.2 0.1 6.2 6.2 1.5 9.7 -7.0 87.0 -2.2
Italy 2009 -5.1 -1.6 1.6 -13.1 -0.3 -19.2 -15.2 0.7 7.8 -5.3 114.6 -2.2
2010 1.3 0.9 1.3 0.1 0.2 8.0 6.0 1.9 8.6 -5.0 116.0 -2.0
2011 2.0 1.0 1.0 5.2 0.1 8.4 7.2 2.0 8.3 -4.5 117.5 -1.7
Spain 2009 -3.7 -5.1 5.0 -15.5 0.0 -12.0 -18.2 -0.3 18.1 -11.2 54.3 -5.2
2010 -0.3 -0.5 1.8 -5.6 0.0 7.2 4.6 0.9 20.1 -10.0 66.0 -4.1
2011 1.0 0.7 0.2 0.2 0.0 6.1 4.1 1.9 19.8 -8.5 73.0 -3.2
Finland 2009 -7.8 -2.1 0.7 -13.4 0.0 -24.3 -22.3 0.0 8.2 -2.2 44.0 1.4
2010 1.5 0.2 0.0 -4.0 0.0 4.0 2.0 1.4 10.0 -3.8 49.0 1.4
2011 2.5 1.5 0.5 3.5 0.0 9.0 5.5 2.0 9.2 -3.3 52.0 2.2

Macro forecast, Global

Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

USA 2009 -2.4 -0.6 1.8 -18.3 -0.6 -9.6 -13.9 -0.3 9.3 -9.9 83.8 -2.9
2010 3.3 2.7 0.3 2.9 1.2 12.1 11.3 1.6 9.4 -10.2 91.6 -3.9
2011 3.2 2.7 9.4 2.8 -0.4 6.4 6.4 1.6 9.4 -8.8 96.8 -3.8
Japan 2009 -5.2 -1.1 1.6 -14.4 -0.3 -24.1 -16.9 -1.4 4.7 -8.0 220.0 2.8
2010 3.3 2.2 1.6 -1.1 -0.1 23.7 2.6 -1.0 4.3 5.2 220.4 3.4
2011 2.1 1.7 1.0 2.5 0.0 5.4 5.4 0.1 - - - 3.0
China 2009 8.7 - - - - - - -0.7 4.3 -3.3 23.6 5.8
2010 10.2 - - - - - - 3.3 4.0 -2.2 20.5 4.8
2011 9.5 - - - - - - 3.5 4.0 -2.2 20.5 5.5
UK 2009 -4.9 -3.2 2.8 -14.9 -1.2 -10.6 -13.3 2.2 7.6 -10.4 68.6 -1.3
2010 1.3 0.9 3.0 -2.0 1.1 4.4 0.9 3.2 8.0 -10.7 80.3 -2.0
2011 2.3 2.6 2.2 2.2 1.3 6.9 5.0 2.1 8.1 -8.8 88.2 -1.2

Switzer- 2009 -1.5 1.2 2.5 -3.7 1.0 -9.3 -5.7 -0.5 3.7 1.4 38.8 8.3
land 2010 2.0 1.8 0.5 2.1 -0.7 7.0 5.0 1.0 3.8 -1.0 40.0 9.0
2011 1.7 1.6 1.0 1.5 -0.2 4.0 4.0 1.2 3.5 -0.5 39.0 10.0

Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.

17 | 11 June 2010
www.danskeresearch.com
Weekly Focus

Financial forecast
Bond and money markets
Key int. Currency Currency Currency
3m interest rate 2-yr swap yield 10-yr swap yield
rate vs EUR vs USD vs DKK
USD 11-Jun 0.13 0.54 1.15 3.38 121.2 - 614.1
+3m 0.13 0.25 1.30 3.90 120 - 620
+6m 0.13 0.35 1.45 3.75 115 - 648
+12m 1.00 1.25 1.90 3.50 127 - 587
EUR 11-Jun 1.00 0.72 1.26 2.94 - 121.2 743.9
+3m 1.00 0.65 1.25 3.25 - 120 744.0
+6m 1.00 0.65 1.25 3.40 - 115 745.0
+12m 1.00 1.00 1.65 3.55 - 127 746.0
JPY 11-Jun 0.10 0.24 0.47 1.31 110.9 91.6 6.71
+3m 0.10 0.30 0.50 1.55 114 95 6.53
+6m 0.10 0.30 0.65 1.60 114 99 6.54
+12m 0.10 0.30 1.00 1.65 130 102 5.74
GBP 11-Jun 0.50 0.73 1.49 3.47 82.4 147.1 903.2
+3m 0.50 0.65 1.70 3.85 84.0 143 886
+6m 0.50 0.75 1.75 4.00 83.0 139 898
+12m 0.50 0.75 1.90 4.20 82.0 155 910
CHF 11-Jun 0.25 0.09 0.55 2.01 138.4 114.3 537.4
+3m 0.25 0.25 0.70 2.25 138 115 539
+6m 0.25 0.25 0.85 2.30 137 119 544
+12m 0.75 0.75 1.50 2.50 141 111 529
DKK 11-Jun 1.05 1.16 1.60 3.08 743.9 614.1 -
+3m 1.05 1.25 1.80 3.55 744 620 -
+6m 1.05 1.25 1.85 3.60 745 648 -
+12m 1.05 1.50 2.10 3.70 746 587 -
SEK 11-Jun 0.25 0.68 1.58 2.86 956.1 789.1 77.8
+3m 0.50 0.80 2.10 3.60 950 792 78.3
+6m 0.75 1.10 2.30 3.90 940 817 79.3
+12m 1.50 1.90 3.30 4.40 920 724 81.1
NOK 11-Jun 2.00 2.65 3.17 4.13 786.3 649.0 94.6
+3m 2.25 2.65 3.35 4.50 765 638 97.3
+6m 2.50 2.90 3.60 4.70 760 661 98.0
+12m 3.00 3.30 4.00 4.90 760 598 98.2
PLN 11-Jun 3.50 3.75 4.42 5.34 409.1 337.6 181.9
+3m 3.50 4.10 5.00 5.85 400 333 186
+6m 3.50 4.10 5.20 6.10 400 348 186
+12m 3.50 4.10 5.80 6.35 395 311 189

Equity markets
Price trend Price trend Regional recommen-
Risk
3 mth. 12 mth. dations
Regional
USA Low -5% to +5% 0% to +10% Underweight
Japan High -5% to +5% 0% to +10% Neutral
Emerging markets (USD) High -5% to +5% 0% to +10% Overweight
Pan-Europe (EUR) Low -5% to +5% 0% to +10% Neutral
Nordics
Sweden Average -5% to +5% 0% to +10% Neutral
Norway High -5% to +5% 0% to +10% Neutral
Denmark High -5% to +5% 0% to +10% Neutral

Commodities
2010 2011 Average
11-Jun Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011
NYMEX WTI 75 81 78 80 85 87 89 92 94 81 91
ICE Brent 75 79 79 79 84 86 88 91 93 80 90
Copper 6,410 7,274 7,300 7,500 7,800 8,200 8,600 8,650 8,700 7,468 8,538
Zinc 1,720 2,307 2,150 2,200 2,400 2,500 2,500 2,550 2,550 2,264 2,525
Nickel/1000 19 20 24 22 23 23 23 23 23 22 23
Steel 425 464 525 550 575 580 585 590 600 529 589
Aluminium 1,949 2,199 2,200 2,250 2,300 2,400 2,400 2,400 2,400 2,237 2,400
Gold 1,219 1,110 1,175 1,150 1,100 1,050 1,000 1,000 1,000 1,134 1,013
Matif Mill Wheat 130 126 133 133 132 127 133 133 133 131 132
CBOT Wheat 434 518 480 470 450 475 500 500 500 480 494
CBOT Corn 344 389 370 375 400 410 420 430 440 384 425
CBOT Soybeans 934 969 960 975 1,000 1,025 1,050 1,075 1,100 976 1,063

Source: Danske Markets

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Calendar
Key Data and Events in Week 24

Monday, June 14, 2010 Period Danske Bank Consensus Previous

0:45 NZD Retail sales (ex auto) Apr -0.4% 1.1%
1:50 JPY BSI Large Manufacturing q/q 2nd quarter 4.3%
6:30 JPY Industrial production, final m/m|y/y Apr
9:15 CHF Producer & Import prices m/m|y/y May 0.6%|0.8%
11:00 EUR Industrial production m/m|y/y Apr 0.4%|8.6% 0.6%|.. 1.5%|7.4%
11:15 USD Fed's Bullard speaks on the Global Recovery in Tokyo

Tuesday, June 15, 2010 Period Danske Bank Consensus Previous

- JPY BoJ Monetary Policy Announcement % 0.10 0.10 0.10
1:01 GBP RICS House Price Balance Index May 17%
3:30 AUD RBA June minutes
9:30 DKK Wholesale prices m/m|y/y May 1.3%|5.1%
10:00 NOK Trade balance NOK bn May 27.1
10:30 GBP CPI Inflation m/m|y/y May 0.3%|3.5% 0.6%|3.7%
11:00 EUR ZEW economic sentiment Jun 37.6
11:00 DEM ZEW economic sentiment Index Jun 44.0 48.0 45.8
11:00 DEM ZEW current situation Index Jun -10 -15 -21.6
12:15 USD Fed's Bullard speaks on Asset Bubbles in Hong Kong
14:30 USD Import prices m/m|y/y May -1.2%|8.1% 0.9%|11.1%
14:30 USD Empire State Manufacturing Index Index Jun 20.00 19.11
15:00 USD TICS international capital flow, Net inflow USD bn Apr 10.5
19:00 USD NAHB Housing Market Index Index Jun 21 22 22
19:00 USD Auction of USD42 bn 2-year notes

Wednesday, June 16, 2010 Period Danske Bank Consensus Previous

1:50 JPY Tertiary Industry Index m/m Apr 2.6% -3.0%
7:00 JPY Bank of Japan Monthly Report
9:30 SEK National Debt Office report, Central Gov. borrowing: Forecast & analysis
10:00 ITL Inflation (HICP), Final m/m|y/y May 0.1%|1.6% 0.1%|1.6%
10:30 GBP Jobless Claims Change May -24.0 -27.1
10:30 GBP Average Earnings 3Ms/YoY May 4.3% 4.0%
10:30 GBP ILO Unemployment Rate % May 8.0% 8.0% 8.0%
11:00 EUR Inflation (CPI), final m/m|y/y Jun 0.1%|1.6% 0.1%|1.6% 0.5%|..
11:00 EUR Core Inflation y/y May 0.1%|0.8% ..|0.8% ..|0.8%
13:00 USD MBA mortgage applications
14:30 USD PPI m/m|y/y May 0.2%|5.6% -0.5%|4.8% -0.1%|5.5%
14:30 USD PPI core m/m|y/y May 0.1%|1.2% 0.1%|1.1% 0.2%|1.0%
14:30 USD Housing starts 1000 (m/m) May 632 (-6.0%) 650 (-3.3%) 672 (5.8%)
15:15 USD Industrial production m/m May 0.8% 0.9% 0.8%
15:15 USD Capacity utilization % May 74.5% 73.7%
16:00 USD Building Permits 1000 (m/m) May 623 (2.2%) 628 (2.9%) 606 (-11.5%)
23:45 USD Bernanke Speaks at Financial Regulation Conference in New York
Source: Danske Markets

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Calendar - continued

Thursday, June 17, 2010 Period Danske Bank Consensus Previous

5:00 NZD Consumer confidence Index Jun 126
7:00 JPY Leading Economic Index, final y/y Apr
9:15 CHF Industrial production q/q|y/y 1st quarter 6.4%|-1.1%
9:30 CHF Monetary policy decisions, 3-month libor target 2nd quarter 0.25% 0.25% 0.25%
9:30 DKK New car sales, s.a. (Private households) May 3.9%|-17.9%
9:30 SEK Statistics Sweden, Unemployment % May 9.1% 9.5%
10:30 GBP Retail Sales ex auto fuel m/m|y/y May 0.0%|2.0% 0.1%|3.0%
12:30 SEK Barbro Wickman-Parak speak on "The Repo - Experience After Three Years" at Danske Bank Stockholm
14:30 USD CPI m/m|y/y May -0.1%|2.0% -0.2%|2.0% -0.1%|2.2%
14:30 USD CPI ex. food & energy m/m|y/y May 0.0%|0.8% 0.1%|0.9% 0.0%|0.9%
14:30 USD Initial jobless claims 1000
14:30 USD Current account bill. USD 1st quarter -119.3 -115.6
15:00 USD Leading indicator Index May 0.4% -0.1%
16:00 USD Philadelphia Fed. Index Jun 21.0 21.4

Friday, June 18, 2010 Period Danske Bank Consensus Previous

1:50 JPY BoJ Board Minutes
10:30 GBP Public Finances (PSNCR) bn. GBP May 8.8
10:30 GBP Broad money M4 m/m|y/y May 0.0%|3.3%
14:30 CAD Leading indicators m/m May 0.9%

During the week Period Danske Bank Consensus Previous

Fri 11 - 18 CNY Actual FDIC y/y May 22.3% 24.7%
Mon 14 - 18 GBP Nationwide Consumer Confidence m/m|y/y May 72 74
Source: Danske Markets

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Weekly Focus

Disclosure
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Calculations and presentations in this report are based on standard econometric tools and methodology.

Risk warning
Major risks connected with recommendations or opinions in this report, including as sensitivity analysis of
relevant assumptions, are stated throughout the text.

First date of publication

Please see the front page of this research report.

Expected updates
This report is updated on a weekly basis.

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