Morning Report

21.05.2012

Towards a Greek exit?

NOK & 3m NIBOR 7.70 7.60 7.50 7.40 7.30
3m ra.

2.40 2.35 2.30 2.25 2.20

EURNOK

A possible Greek exit from the euro zone was in focus at this weekend's G8 meeting and will also dominate a new (informal) summit of EU leaders scheduled for Wednesday this week. After the euro fell markedly vs the dollar last week, the currency has recovered slightly over the weekend. Uncertainty related to a possible Greek exit, along with continued Spanish banking trouble, continued to weigh down the markets on Friday. Long-term rates in the U.S. and Germany continued to trend downward, while government bond yields in Spain and Italy increased. The German ten-year interest rates fell Friday to below 1.40% for the first time. Stock markets also fell on Friday, both in Europe (Oslo Stock Exchange fell 3.1%) and in the United States. Last night, however, the Japanese Nikkei index edged up a bit. After the marked deterioration earlier last week, the euro fetched some recovery in the dollar on Friday. The euro continued to appreciate through the weekend and EURUSD traded Monday morning around 1.28. Japanese yen appreciated sharply against the dollar 17 May, but the price has since remained relatively stable at just over 79 The crisis in Greece was, as expected, the main focus on this weekend's G8 meeting at Camp David and EU leaders gather for a new (informal) Summit on Wednesday this week. Two themes seem to be in focus: Measures that may be aimed at banks and the possible handling of a Greek exit. Some suggest that the permanent rescue fund (ESM) should be able to provide capital directly to banks, not only to the authorities in individual member countries. Another proposal is that the ECB should be allowed to buy large amounts of government bonds to reduce bond yields in countries such as Spain and Italy, which Germany has so far resisted. Merkel also suggested that Greece should conduct a referendum on membership in the euro zone simultaneously with the election 17 June. Greece has in place an interim government that will rule until the June election. The question is whether the country will then be put in place a viable government that will follow up on commitments to the EU, ECB and IMF (ie the Troika). Measurements show that a clear majority of the population (around 75%) wants to remain in the euro zone. It should apparently be possible for PASOK and New Democracy (which almost achieved the majority last time) to gain a majority in June. An opinion poll published on Thursday showed a majority for the two parties, with 164 of the 300 seats in parliament. The problem is that although the Greeks want to keep the euro, they bear no more austerity measures. The economic impact has been dramatic, with sky-high unemployment and social deprivation. Opinion polls show that the left coalition Syriza still have large support and may be the biggest party in the election in June. In such case the party will gain 50 extra seats in parliament. If the party should win the election and form a government with other parties that oppose further tightening, the crisis will reach another peak. The strategy of such a government would probably be to push the rest of the euro zone to give in to demands. If the strategy succeeds, it will be possible to achieve a compromise on budget cuts, more write-downs of debt and perhaps also financial transfers to the country. However, if this strategy fails, the country will have to leave the euro, despite the fact that Syriza does not want Greece to introduce a new currency. On the other hand we should not ignore the fact that Germany and other euro countries will ultimately compromising to Greece, simply because the alternative seems worse. If Greece goes out, it means large additional losses for European banks and the ECB (and IMF). In addition, it will probably be a financial chaos, with serious spillover effects to the other crisis countries. Politically, it will also be a defeat for Germany and the other core countries if Greece leaves the union. It may therefore be rational for the other countries to go for another round of restructuring of Greek debt, which no matter seems far too high (around 160% of GDP). There are generally few important macroeconomic events this week. Tomorrow, Norwegian GDP for the first quarter will be released, while the OECD issues its "Economic Outlook". Thursday the Ifo index for Germany and preliminary PMI figures for the euro zone are due. From the U.S. a row of housing market data are relased this week, while the highlight is likely to be durable goods orders out on Thursday afternoon. Despite the absence of key macroeconomic figures, the continuation of the Greek crisis will probably imply another week with large market movements. knut.magnussen@dnb.no As of Unit Prior Poll Friday's key economic events (GMT) 08:00 Italy Industrial orders Mar y/y % -2.8 Global G8 meeting As of Unit Prior Poll Todays key economic events (GMT) 07:00 Switzerland SNB publish Monthly Statistical Bulletin of Banking Statistics 12:30 USA Chicago Fed activty Apr Index -0.3 12:30 Actual 3.5 DNB

10-Apr 30-Apr 18-May

SEK & 3m STIBOR 9.3 9.1 8.9 8.7

3m ra.

2.40 2.20 2.00

EURSEK

10-Apr 30-Apr 18-May

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Morning Report
21.05.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 120 115 110 105 10-Apr 96 94 92 30-Apr 90 18-May
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.20 0.83 1.20 0.82 0.81 1.20 0.80 1.20 1.20 0.79 10-Apr 30-Apr 18-May
GBP r.a CHF

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

Prior 79.04 1.278 0.808 1.201 7.627 9.131 7.433 5.974 7.561 0.837 9.459 7.150 9.050 1.198 11.307

Last 79.31 1.277 0.808 1.201 7.615 9.117 7.433 5.965 7.524 0.836 9.428 7.142 9.003 1.198 11.284

% 0.3% -0.1% 0.0% 0.0% -0.2% -0.2% 0.0% -0.2% -0.5% -0.1% -0.3% -0.1% -0.5% 0.1% -0.2%

In 1 m ...3 m 81 84 1.30 1.30 0.83 0.83 1.20 1.20 7.50 7.50 8.90 9.00 7.45 7.45 5.77 5.77 7.12 6.87 0.84 0.83 9.0 9.0 6.85 6.92 5.55 5.82 1.19 1.20 10.72 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 0.9837 1.0193 0.9408 19.79 5.8215 1.5808 7.7651 127.39 0.2794 2.7041 0.5467 0.7570 3.4004 1.2732 31.1800

% -0.09% -0.29% 0.05% 0.09% 0.01% -0.08% -0.03% 0.00% -0.07% 0.09% 0.04% -0.26% -0.28% -0.19% -0.11%

EURSEK & OMXS 9.3 9.1 8.9 8.7 10-Apr 550 500 450 400 350 30-Apr 18-May
OMXS ra. EURSEK

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

NIBOR Prior 1.93 2.30 2.69 2.89 2.78 2.99 3.18 3.37

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.00 1.89 1.89 0.34 2.34 2.13 2.13 0.61 2.73 0.93 2.92 2.51 2.51 1.09 2.79 1.79 1.78 1.09 2.99 1.90 1.90 1.35 3.17 2.07 2.07 1.65 3.38 2.22 2.22 1.96

Last 0.34 0.61 0.93 1.09 1.08 1.37 1.66 1.98

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.74 0.74 0.91 0.91 0.76 0.77 1.09 1.10 1.46 1.47 1.84 1.87

Gov. Bonds, 10y 2.00 1.75 1.50 1.25

NOK, ra.

3.00 2.50 2.00 1.50

SEK

10-Apr 30-Apr 18-May

10y 10y yield vs bund

NORWAY Prior Last 117.6 114.96 1.93 1.93 0.51 0.49

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 119.231 119.23 103.06 102.95 1.44 1.43 1.42 1.43 0.02 -0.01

US Prior 100.25 1.72 0.30

Last 99.98 1.76 0.33

13.5 13.0 12.5

JPY and DowJones

12.0 10-Apr

83 81 79 77 75 30-Apr 18-May

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y s wap 3m stibor 10y swap 3m euribor 10y swap 2.40 3.50 2.15 2.75 0.70 2.50 2.45 3.75 2.10 2.75 0.70 2.75 2.70 4.25 2.00 3.00 0.70 3.25

US 3m libor 10y s wap 0.50 2.50 0.50 2.50 0.50 3.00

% -0.6% -1.2% -1.3% -0.1% -0.6% 0.0% : : :

USDJPY ra. DowJones, 1000

USD and gold 1720 1.34 1670 1.32 1620 1.30 1570 1.28 1520 1.26 10-Apr 30-Apr 18-May
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today JUN 2.34 2.33 0.01 NOK 95.27 SEP 2.31 2.31 0.00 SEK 121.15 DEC 2.30 2.30 0.00 EUR 101.17 MAR 2.30 2.31 -0.01 USD 81.15 FRA SEK 3m Prior chg GBP 83.60 JUN 2.08 2.09 -0.01 Comm. Today SEP 1.82 1.81 0.00 Brent spot 108.7 DEC 1.66 1.66 0.00 Brent 1m 107.8 MAR 1.61 1.61 0.00 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% Stock ex. Today - 0.15 Dow Jones 12,369.4 - 0.32 Nasdaq 2,778.8 0.01 FTSE100 5,267.6 0.08 Eurostoxx50 2,144.7 - 0.0 Dax 6,271.2 Last Nikkei225 8,633.9 108.7 Oslo 388.59 107.1 Stockholm 455.13 1589.5 Copenhagen #N/A ND

Morning Report
21.05.2012
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