Morning Report

20.01.2012

Improved market sentiment

Successful Spanish and French debt auctions lifted market sentiment yesterday. Stock markets have risen and the euro has appreciated versus currencies like the dollar and the yen. Spain and France borrowed money yesterday. The auctions were closely watched as it was the first time the two countries were in the market since Standard and Poors downgraded their credit ratings last Friday (France by one notch to AA+ and Spain by two notches, to A). Spain yesterday sold bonds for a total of 6.6 billion (maturities ranging 4 to 10) years, which was well above the government's target (3.5 to 4.5 billion euro). The yield on the 10 year bond was 5.403 percent, down from 6.975 at a similar auction in November. France sold bonds worth 8 billion euro yesterday. They also achieved a lower yields compared to last time they were in the market. Yesterday's auctions must therefore be regarded as very successful. The great demand in yesterday's auction may indicate that European banks are now using the funds they borrow cheaply from the ECB to purchase euro zone government debt. If so, this is a very positive development which may help to ease the funding situation of pressured euro area states. Norges Bank's recent lending survey shows that banks tightened credit standards, both to businesses and households during the fourth quarter. The overall tightening is about as notified three months ago. The tightening for households may be explained by the new guidelines that have come from the Financial Supervisory Authority of Norway (FAS). The FAS now demand that banks require at least 15 percent equity for purchase of housing, compared to 10 percent previously. Banks also say they will tighten credit practices further for households going forward. In the same period, demand for loans from households has increased and there are more and more households that ask for fixed rate mortgages. This development is probably due to the low interest rates. Corporate loan demand was however slightly lower in the fourth quarter, but the decline was somewhat less than expected. Further declines are expected to come. Companies also face tighter credit standards and the development is partly due to banks' challenging funding situation. Other factors like reduced risk appetite, and deteriorating macroeconomic and sector-specific prospects have also lead to tighter credit standards. Banks do not expect further tightening for corporates going forward. The US Consumer Price Index was unchanged in December. Core prices rose by 0.1 per cent, slightly less than expected. Furthermore data showed that housing starts fell by 4.1 per cent to a seasonally adjusted annual rate of 657' units in December. However, the US figures that gained the most attention yesterday, were the weekly labour market data. "Only" 352' Americans filed for new jobless benefits last week. This is the lowest figure seen since April 2008, and far lower than the week before (402'). The figures also clearly beat consensus expectations (385' according to Reuters). Generally, the US labour market data has surprised on the upside lately and yesterday figures indicate that the positive trend may continue. There are relatively few key figures on the agenda today. We get British retail sales figures from December. Retail sales dropped in November, but consensus expects an increase this month. From the US existing home sales figures are released today. In general US house market figures seem to have improved lately. Among other things, Pending Home Sales have, which normally is good indicator for existing home sales, have gone up lately. As a result consensus also expects existing home sales to increase this month. Another event that may gain some attention today is the meeting between Merkel, Sarkozy and Monti in Rome. Market sentiment seems to be improving. The euro strengthened yesterday as a response to the successful European debt auctions. At the same time increased risk appetite has lowered the demand for the USD as safe haven. EURUSD is currently trading around 1.296, around the highest levels in two weeks. The euro has also strengthened versus other currencies, like the yen and the British pound. Increased risk appetite also seems to lift the equity markets. US stock markets yesterday rose for the third straight day. The S&P 500 index is at its highest levels since July. Besides the European auctions and the positive labour market data, strong Q4 results from US banks helped lift sentiment. The positive development seems to continue in Asia where stock markets are up this morning. camilla.viland@dnb.no Yesterday's key economic events (GMT) 12:30 US Core CPI 12:30 US Housing starts 12:30 US Initial claims Todays key economic events (GMT) 09:30 UK Retail sales 15:00 USA Existing home sales As of Dec Dec week 2 As of Dec Dec Unit m/m % mio 1000 Unit m/m% mill Prior 0.2 0.685 402r Prior -0.4 4.4 Poll 0.2 0.683 385 Poll 0.6 4.6 Actual 0.1 0.657 352 DNB

SEK & 3m STIBOR 2.80 2.70 2.60 8.9 2.50 8.7 2.40 12-Dec 30-Dec 19-Jan 9.3 9.1
3m ra. EURSEK

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

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

Sales Oslo (+47) Equity Fixed Income FX/IR

22 94 89 40 22 01 78 20 22 01 76 50

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

55 21 95 80 75 55 87 60 69 39 41 50 62 54 14 82 52 72 09 06 61 24 79 56 38 07 28 62 22 01 76 50 51 84 04 30 77 62 96 80 73 58 74 89 33 01 73 80 70 11 69 85

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

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

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 76 64 22 01 77 41 22 01 76 67

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

22 01 78 37 22 01 77 62 22 01 76 93 22 01 76 77 22 01 77 36 22 01 78 15

Morning Report
20.01.2012

SPOT RATES AND FORECASTS

EUR vs GBP & CHF 1.25 0.87 1.20 0.85 1.15 0.83 1.10 0.81 12-Dec 30-Dec 19-Jan
GBP r.a CHF

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

Prior 77.13 1.297 0.837 1.209 7.662 8.754 7.437 5.910 7.660 0.876 9.154 6.754 8.759 1.144 10.464

Last 77.14 1.297 0.837 1.209 7.667 8.762 7.436 5.910 7.668 0.875 9.157 6.759 8.768 1.145 10.468

% 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.0% 0.0% 0.1% 0.0% 0.0% 0.1% 0.1% 0.1% 0.0%

In 1 m ...3 m 77 77 1.25 1.20 0.82 0.80 1.23 1.23 7.80 7.80 9.10 9.20 7.45 7.45 6.24 6.50 8.10 8.44 0.86 0.85 9.5 9.8 7.28 7.67 5.61 5.90 1.17 1.18 11.10 11.50

...6 m ...12 m 77 85 1.20 1.35 0.80 0.85 1.23 1.30 7.65 7.65 9.00 9.00 7.45 7.45 6.38 5.67 8.28 6.67 0.85 0.85 9.6 9.0 7.50 6.67 5.78 5.67 1.18 1.18 11.25 10.59

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

USD 1.0426 1.0129 0.9325 19.51 5.7357 1.5491 7.7627 123.82 0.2791 2.6629 0.5408 0.8026 3.3252 1.2740 31.2886

% 0.03% 0.12% 0.02% -0.13% -0.05% 0.00% 0.03% -0.03% 0.08% -0.06% -0.04% -0.07% 0.04% 0.18% -0.16%

EURSEK & OMXS 9.2 500 9.1 450 9.0 400 8.9 8.8 350 12-Dec 30-Dec 19-Jan
OMXS ra. EURSEK

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

NIBOR Prior 2.24 2.64 2.91 3.13 2.70 2.99 3.25 3.49

SWAP AND MONEYM ARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.27 2.34 2.33 0.74 2.65 2.61 2.60 1.14 2.92 2.68 2.67 1.44 3.13 2.73 2.72 1.63 2.71 1.89 1.88 1.30 3.00 2.01 2.00 1.66 3.26 2.19 2.18 2.00 3.50 2.32 2.32 2.32

Last 0.73 1.14 1.43 1.62 1.31 1.66 2.01 2.34

USD LIBOR Prior 0.28 0.56 0.79 0.94 0.70 1.17 1.63 2.09

Last 0.28 0.56 0.79 0.95 0.71 1.19 1.66 2.12

Gov. Bonds, 10y 1.75 3.00 2.50 2.00 1.50 1.50 12-Dec 30-Dec 19-Jan
NOK, ra. SEK

10y 10y yield vs bund

NORWAY Prior Last 117.3 113.40 2.15 2.15 0.32 0.27

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 117.094 117.08 101.263 101.10 100.15625 1.68 1.69 1.83 1.88 1.98 -0.15 -0.19 0.15

Last 100.08 2.00 0.12

JPY and DowJones 79 13 78 12 77 11 76 10 75 12-Dec 30-Dec 19-Jan

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.40 3.50 2.15 2.25 1.05 2.50 2.30 3.75 1.95 2.50 0.90 2.75 2.30 4.25 1.75 3.00 0.90 3.25

US 3m libor 10y swap 0.55 2.25 0.55 2.50 0.50 3.00

USD and gold 1900 1.42 1800 1.38 1700 1.34 1600 1.30 1500 1.26 12-Dec 30-Dec 19-Jan
EURU SD ra. Gold

FRA NOK MAR JUN SEP DEC FRA SEK MAR JUN SEP DEC

3m 2.53 2.30 2.23 2.24 3m 2.35 2.00 1.72 1.65

Prior 2.54 2.30 2.22 2.23 Prior 2.34 2.01 1.73 1.64

chg -0.01 0.00 0.01 0.01 chg 0.01 0.00 -0.01 0.01

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 96.10 - 0.00 Dow Jones 12,624.0 0.4% SEK 116.05 0.02 Nasdaq 2,788.3 0.7% EUR 102.29 0.04 FTSE100 5,741.2 0.7% USD 80.08 0.01 Eurostoxx50 2,435.0 1.9% GBP 80.80 - 0.0 Dax 6,416.3 1.0% Comm. Today Last Nikkei225 8,766.4 0.0% Brent spot 110.0 110.0 Oslo 398.67 0.5% Brent 1m 111.9 111.6 Stockholm 477.06 0.9% Spot gold 1655.0 1655.0 Copenhagen 529.71 0.5% Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
20.01.2012
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