Investment Research — General Market Conditions

7 July 2010

Danske Daily
Key news
Market movers today: Today
US non-manufacturing ISM declines more than expected.
No major market movers today, [Tex
US stocks advance slightly, but treasury yields and the dollar decline.
but watch out for final Q1 GDP
Mixed stock market session in Asia, most markets are in negative territory. numbers out of the euro area and
German factory orders.

Markets Overnight
Market overview
June US non-manufacturing ISM declined more than expected from 55.4 to 53.8 in
07:30 1 day +/-,%
May and new orders dropped below 50, implying that US growth is set to slow somewhat
S&P500 (clo se) 1028.1  0.54
during H2 10. S&P500 fut (chng fro m clo se) 1019.2  -0.49
Nikkei 9243.9  -1.01
Even though the ISM reading led to underperformance in US stocks versus European Hang Seng 19839.6  -1.22

ones, it was not enough to send US stocks into negative territory. Hence, US stocks 17:00 07:30 +/-, bp

gained around 0.5% yesterday with the S&P500 rising from a 10-month low to 1028 US 2y gov 0.63 0.61  -1.6
US 10y gov 2.96 2.93  -3.0
ahead of the Q2 earnings report season, which starts next week.
iTraxx Europe (IG) 120 125  5.3
US treasuries rose in yesterday’s trading session, pushing 10-year yields towards their iTraxx Xover (Non IG) 476 564  88

lowest levels this year. Further, US two-year notes traded near a record low. US yields +/-, %
have been stable overnight. EUR/USD 1.265 1.259  -0.47
USD/JPY 87.450 87.440  -0.01
EUR/CHF 1.34 1.34  -0.03
The recent weakening of US data is certainly being felt in currency markets, where the EUR/GBP 0.831 0.832  0.06
recent decline in EUR/USD is replaced by a strong move in the opposite direction. EUR/SEK 9.599 9.603  0.04
EUR/NOK 8.04 8.08  0.46
Yesterday the dollar fell to a six-week low against the euro, and it declined versus most
USD
major currencies. Meanwhile, Australia’s dollar rose against most currencies as the Oil Brent, USD 72.9 71.6  -1.86
nation’s central bank said business investment is set to expand. Most FX crosses have Gold, USD 1192.8 1190.2  -0.22
Note:
been stable overnight including the scandies. * The iTraxx Europe Index shows the spread
development for the most liquid investment grade CDS
No major news out of Asia this morning. The stock market sessions have been somewhat contracts in the euro credit market.
mixed and most indices are falling this morning – probably driven by the ISM non-
**The iTraxx Europe Crossover shows the spread
manufacturing. development of the most liquid non-investment grade
CDS contracts in the euro credit market.
Source: Bloomberg

Senior Analyst
Lars Tranberg Rasmussen
+45 4512 8534
laras@danskebank.dk

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Global Daily
Focus today: There are no big market movers today. German factory orders (12:00 CET) German factory orders in strong
may attract a little attention if it deviates strongly from consensus. It has been rising for turnaround
10 of the past 12 months and points to clear improvement in German industry. There is Index Index 125
125

some risk, though, that we could see some correction lower in May as other indicators 115 115

105 105
have pointed to some slowing in orders. Also look out for revised Euroland GDP numbers
95 95
(11:00 CET) as we see a chance of an upward revision. GDP has generally been much
85 85
weaker than suggested by, for example, industrial production and PMI. Otherwise, the 75
German manufacturing orders
75
markets will increasingly look ahead for the ECB meeting tomorrow – see Flash 00 01 02 03 04 05 06 07 08 09

Comment - ECB preview: Don’t expect too much. Source: Reuters Ecowin

Fixed income markets: Risk appetite continues to drive the overall direction of markets.
The decline in US yields still looks a bit excessive to us but a turn in risk appetite is a
US S&P500 future
prerequisite for yields turning. In the euro area, the ECB’s weekly auction resulted in less
excess liquidity and contributed to some upward pressure on eonia rates and euro bond 1074 1074
1064 1064
yields. The decline in excess liquidity and much shorter duration on the banks’ liquidity 1054 1054
1044 1044
has led to a substantial flattening of the yield curve as two-year yields have been pushed 1034 1034
higher while 10-year yields has been pushed lower by the decline in US 10-year yields. 1024 1024
1014 1014
The market will focus on the ECB meeting tomorrow and awaits the upcoming earnings 1004 1004
Mon Tue Wed Fri Mon Wed
season which will set the tone for equity markets – and hence also the bond market.
Source: Danske Markets
Germany auctions EUR5bn 10-year bonds today.

FX markets: EUR/USD continues higher, breaking above 1.26 yesterday for a 1.2662
US 10y gov yield
high. The upward pressure on the pair is probably related to: (i) profit-taking (stop-losses)
on short speculative EUR positions, which are likely to have been significant according to 3.13 3.13

IMM data; (ii) disappointing US economic data, which has led a widening of the EUR- 3.03 3.03
USD interest rate spread (2Y swap spread by more than 40bp since late May); and (iii) a
2.93 2.93
slightly reduced risk premium on the euro, with positive indications on the
2.83 2.83
implementation of the Greek austerity measures as the latest relief. We believe the
Mon Tue Wed Thu Mon Wed
upward pressure on EUR/USD can be sustained in the very short term; the next key
technical resistance levels are found at 1.2673 and 1.2740 – support at 1.2470. Source: Danske Markets

Scandi Daily Global FX

Sweden: The Swedish National Debt Office will publish its monthly outcome for public EUR/USD (LHS) USD/JPY (RHS)
1.275
finances today. The SNDO forecast a June deficit of SEK18.9bn and we see no strong 89.4
1.255
arguments against that forecast. However, we note that the SNDO continues to put 88.6
1.235 87.8
forward cautious estimates of government borrowing needs, despite becoming ever more
optimistic on the Swedish economy. 1.215 87
Mon Tue Thu Fri Mon Wed

Norway: Norwegian manufacturing production covering May is due to be released today.

Source: Danske Markets

Key figures and events

Scandi FX
Wednesday, July 7, 2010 Period Danske Bank Consensus Previous
8:45 FRF Trade Balance EUR bn. May -4.2 EUR/SEK (LHS) EUR/NOK (RHS)
10:00 NOK Manufacturing Production m/m|y/y May 0.5%|.. 0.2%|3.0% 8.12
11:00 EUR GDP, s.a. - Final q/q|y/y 1st quarter 0.2%|0.6% 0.2%|0.6% 0.2%|0.6% 9.64
8.06
12:00 DEM Factory Orders m/m|y/y May 0.4%|24.9% 2.8%|29.6%
13:00 USD MBA Mortgage applications 8.8%
9.59 8.00
16:00 CAD Ivey PMI index Jun 64.0 62.7
9.54 7.94
21:35 USD Fed's Kocherlakota (non-voter, neutral) speaks
9.49 7.88
Mon Tue Thu Fri Mon Wed

Source: Danske Markets

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Today’s market data: 07 July 2010

STOCKS
S&P500 Intraday, % Eurostoxx Intraday, %
3.60 3.6 Clo se +/-
1.80 1.80 DJSTOXX50 2348  2.6%
2.70 2.7
Max 2.3 Max 3.6 OM XC20 401  2.6%
1.00 Min -0.6 1.00 Min 0.0 OM XS30 1009  2.9%
1.80 1.8
0.8 0.9 OSE B X 337  0.0%
0.20 0.20 0.90 0.9
Clo se +/-
-0.60 -0.60 0.00 0 DOW JONES 9744  0.6%
15 16 17 18 19 20 21 09 10 11 12 13 14 15 16 17 18 NA SDA Q 2094  0.1%
Grey line indicates closing of Danish markets
Grey line indicates opening of US markets
1mo nth  -2.1% 1mo nth  -0.6% S&P 500 1028  0.5%
Year-to -date  -7.8% Year-to -date  -9.2% NIKKEI (07:30) 9244  2.6%

FX & COMMODITIES
O il,
EUR/USD Intraday E UR 17:00 07:30 +/- G o ld, $ B re nt , $
126.5 126.5 USD 126.46 125.87  -0.59 07:30 1190.15 71.57
JP Y 110.59 110.07  -0.52 1day  -2.48  0.12
126.1Max ## 126.1 GB P 83.12 83.17  0.05 1mo nth  -50.10  -0.55
Min ## NOK 803.87 807.55  3.68 Year-t-date  93.20  -6.36
125.7 0.4 125.7 SEK 959.91 960.30  0.39
DKK 745.31 745.32  0.01 CRB C R B , R aw
125.3 125.3 P LN 410.23 411.14  0.91 1M f ut ure Indus t ria ls
07 10 13 16 19 22 01 04 US D 17:00 07:30 +/- 07:30 253.80 473.39
JP Y 87.45 87.44  -0.01 1day  -0.68  -0.74
1mo nth  6.64 GB P 152.13 151.35  -0.78 1mo nth  4.82  -2.51
Year-to -date  -17.34 CHF 105.76 106.22  0.46 Year-t-date  -29.58  -10.10

YIELDS & INTEREST RATES

USD-Yields Intraday S pre a d,
P o lic y R a t e 3M bp 17:00 07:30 +/-, bp
3.00
0.65 USD2Y USD10Y USD 0.25 0.53 28 USD 10Y 2.96 2.93  -3
Max 0.7 Max 3.0 EUR 1.00 0.80 -20 USD 30Y 3.91 3.89  -2
2.97
0.63 Min 0.6 Min 2.9 GB P 0.50 0.73 23 JP Y 10Y 1.14 1.14  1
0 0 DKK 1.05 1.12 7
2.94 SEK 0.25 0.83 58 07:30(-1)* 17:00 +/-, bp
0.61
NOK 2.00 2.77 77 DEM 10Y 2.56 2.59  3
0.59 2.91 P LN 3.50 3.74 24 DKK 10Y 2.68 2.69  2
07 10 13 16 19 22 01 04 SEK 10Y 2.60 2.64  4
USD2Y (lhs) USD10Y (rhs) NOK 10Y 3.56 3.56  0
P LN 10Y 5.92 5.84  -8
* As of closing previous trading day

10Y Yield Spread to Germany

US Yield Curve German Yield Curve
4.0 4.0 4.0
3.26 -0.1 3.0
3.5
3.0 3.0 3.0
3.0 -0.6 2.5
2.5
2.0 1.48 2.0 2.5 2.0
-1.1 2.0
0.97 2.0
1.0
0.76
1.0 1.5
## M ax 0.000 -1.6
1.5 ## M ax # # # 1.5
0.34 0.37
0.000.05 1.0 ## M in -2.620 1.0 ## M in # # # 1.0
0.0 0.0 -2.1
0.5 0.5 0.5
USD JPYGBPFRF ITL DKKSEKNOKPLN 0.0 -2.6
-1.0 -1.0 0.0 0.0
USD2Y USD5Y USD10Y
DEM2Y DEM5YR DEM10Y
-2.0 -1.45 -2.0 D-t-D +/-, bp (right axis)
07:30 (left axis) D-t-D +/-, bp (right axis)
1 month ago (left axis) 07:30 (left axis)
1 month ago (left axis)

C re dit s pre a d, iT ra xx Credit spreads S wa p S pre a d, bp**

160 900 17:00 07:30 +/-

07:30 1day 1mo nth 140 800 USD 10Y 7 8  1
120 700
Euro pe (IG) 125  -2  -10 JP Y 10Y 7 6  -1
100 600
HiVo l 187  -3  -17 500
80
Xo ver (N-IG) 564  -5  -61 400 07:30(-1)* 17:00 +/-
60 300
40 EUR 10Y 30 30  -1
200
20 100 DKK 10Y 36 36  -1
Finan. Sr. 149  -5  -41 0 0 SEK 10Y 33 32  0
Finan. Sub. 225  -7  -59 Jul Aug Oct Nov Jan Feb Apr May Jul NOK 10Y 57 59  2
No n-finan. 225  -7  -59 iTraxx Europe (IG) (left axis)
iTraxx Xover (Non IG) (right axis) * As of closing previous trading day
* Ask price ** Ask price

So urce: B lo o mberg 7:30(-1) o g 17:00 refers to the previo us (trade) day

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