Morning Report

07.06.2012

"We will be ready to act"

At yesterday's monetary policy meeting the ECB held the refi rate unchanged at 1.0 percent. New measures were not introduced, but Mario Draghi stated that he was ready act if the economic conditions were to deteriorate further.
NOK & 3m NIBOR 7.70 2.50 7.60 2.40 7.50 2.30 7.40 7.30 2.20 27-Apr 17-May 6-J un
3m ra. EURNOK

SEK & 3m STIBOR 9.3 9.1 8.9 8.7 27-Apr 17-May

3m ra.

2.20

The ECB yesterday kept its key rate unchanged at 1.0 percent. This was as expected. It was still great interest in the European Central Bank, in the hope of a possible interest rate cut or advertisement of other measures. This did not happen, but Governor Mario Draghi indicated that interest rate cuts may be necessary if the economy in the euro area deteriorates further. According to Draghi yesterday's decision was taken by consensus, as a minority of the committee members already now wanted a cut. Despite signs of a cut, we believe that the central bank will keep the refi rate unchanged at 1.0 percent. This level served as a lower bound during the crisis in 2008-09, and Draghi said that current conditions were better than the market conditions back then. We do not exclude, however, that the ECB may come up with other measures. According to Draghi, liquidity in parts of the euro zone is still low, despite the fact that the ECB in December and February lent about 1,000 billion euros in the three-year money at 1.0 percent interest rate. Most likely the ECB will have to ease collateral requirements on these loans if a new round of LTRO will have a significant effect on liquidity. There are few who doubt that conditions in the euro zone are critical. Yesterday's figures were neither of the positive kind. German industrial production fell by 2.2 percent in April, and reversed an increase of 2.2 percent last month. This was not the worst, as manufacturing production fell by 2.4 percent from March to April. Thus, actual production is back at the levels seen early in the first quarter. The production figures are now indicating a worsening of GDP growth in the second quarter. The revised GDP figures for the first quarter showed no change from initial estimates. The details, which first became known in yesterday's estimate, showed that growth was helped by exports. Investments fell by 1.4 percent, private consumption was unchanged, while public consumption rose marginally. A soon-to-come rebound in growth seems unlikely as second quarter is coming to an end. The aforementioned German numbers are one factor pointing in the direction of deterioration. Another is the PMI index for the euro zone which has been stable around 45 throughout the second quarter. Yesterday Fed published an updated edition of Beige Book, which is released in conjunction with Fed's monetary policy meetings. This time, the report showed a slightly more positive image of the U.S. economy. About the economy the report stated that activity had increased at moderately, where activity in several districts had picked up in a "moderate pace", while other districts had shown "modest growth". About labor market conditions, the report said that the employment were stable and had increased somewhat. At the same time, it was reported that some districts had difficulties finding qualified workers. Based on the wording of the report a new round of QE seems to be somewhat premature, as there were few indications of deterioration of economic conditions from the April report to yesterday's report. Today all eyes will be directed at Ben Bernanke, who will speak for the Senate. Today Bank of England will round up its monetary policy meeting. In light of the weak economic figures, downgraded growth projections and falling inflation, there is a certain tension associated with whether the central bank will announce new measures. The consensus is that Bank of England will keep its asset purchases unchanged at 325 billion pounds. We are expecting an increase of 50 billion to a total of 375 billion. At the last monetary policy meeting in May only David Miles voted for more QE. However, the minutes showed clearly that the Committee continues to discuss the need for further easing. And for many members the decision not to adopt more QE already back then was "finely balanced". Yesterday's market movements pointed towards slightly higher risk appetite. Global stock markets rose sharply. Stock markets in both Europe and the United States rose by 2-3 percent. Asian stock markets have also opened up today. In addition, the euro strengthened broadly. EURUSD has increased by 0.4 percent to 1.26 while the EURJPY rose by 1.0 percent. Also the Norwegian and the Swedish krona fell against the euro. Both the Scandinavian currencies fell by 0.5 percent and the euro is now trading at 7.65 and 9.03, respectively. There were also clear signs that the sovereign bond yields in the United States and Germany increased from very low levels. German ten-year interest rose by 13 basis points to 1.35 percent, while the U.S. ten year old rose 5 points to 1.64 percent. ole.kjennerud@dnb.no As of Yesterday's key economic events (GMT) 08:00 Norway Regional Network 10:00 Germany Industrial output (prel.) Apr 11:45 EMU ECB meeting Jun As of Todays key economic events (GMT) 11:00 UK Bank of England QE 12:00 USA Initial claims Week 21 14:00 USA Bernanke speaks for the senate Unit m/m % % Unit Bn GBP 1000 Prior 2.2 1.0 Prior 325 383 Poll -1.0 1.0 Poll 325 377 Actual -2.2 1.0 DNB 375

2.00 6-J un
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

56 13 27 20 75 52 9910 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 Camilla Viland Magne stnor Kyrre Aamdal

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 77 41 22 01 76 57 22 01 76 67

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

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

Morning Report
07.06.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 27-Apr 17-May 96 94 92 90 6-Jun
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.20 1.20 1.20 0.82 0.81 0.80

1.20 0.79 27-Apr 17-May 6-J un

GBP r.a CHF

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

Prior 79.24 1.257 0.812 1.201 7.634 9.006 7.433 6.074 7.665 0.849 9.410 7.165 9.044 1.180 11.098

Last 79.31 1.256 0.813 1.201 7.625 9.015 7.433 6.072 7.664 0.847 9.378 7.177 9.053 1.183 11.089

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

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.60 7.50 9.10 9.00 7.45 7.45 6.18 5.77 7.72 6.87 0.84 0.83 9.6 9.0 7.40 6.92 5.92 5.82 1.20 1.20 11.52 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 0.9949 1.0279 0.9566 20.25 5.9193 1.5447 7.7588 128.72 0.2804 2.7500 0.5556 0.7706 3.4391 1.2773 32.2200

% 0.22% -0.02% 0.13% 0.12% 0.10% -0.30% 0.01% -0.17% 0.02% 0.11% 0.14% -0.05% 0.12% 0.19% -0.41%

EURSEK & OMXS 9.3 9.1 8.9 8.7 27-Apr 17-May 550 500 450 400 350 6-Jun

OMXS ra. EURSEK

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

NIBOR Prior 1.97 2.35 2.66 2.87 2.73 2.94 3.11 3.27

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.97 1.89 1.89 0.33 2.32 2.14 2.14 0.59 2.65 2.39 2.39 0.90 2.86 2.52 2.52 1.06 2.75 1.77 1.85 0.98 2.97 1.82 1.97 1.28 3.16 1.90 2.08 1.53 3.33 2.01 2.19 1.79

Last 0.33 0.58 0.90 1.06 0.99 1.28 1.54 1.81

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.74 0.74 0.91 0.91 0.69 0.69 1.05 1.02 1.42 1.41 1.82 1.80

Gov. Bonds, 10y 2.00 1.75 1.50 1.25 1.00

NOK, ra.

3.00 2.50 2.00 1.50

SEK

10y 10y yield vs bund

NORWAY Prior Last 117.6 100.05 1.93 2.00 0.62 0.65

GOVERNMENT BONDS SWEDEN GERMANY Prior Last Prior Last 122.18 120.91 104.046 103.77 1.13 1.26 1.30 1.35 -0.17 -0.09

US Prior 100.8125 1.66 0.36

Last 101.06 1.64 0.29

27-Apr 17-May 6-J un

13.5 13.0 12.5 12.0

JPY and DowJones

27-Apr 17-May

83 81 79 77 75 6-Jun

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.50 3.50 2.10 2.75 0.65 2.50 2.45 3.75 2.05 2.75 0.65 2.75 2.75 4.25 2.15 3.00 0.65 3.25

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

USDJPY ra. DowJones, 1000

USD and gold 1.35 1720 1670 1.30 1620 1.25 1570 1520 1.20 27-Apr 17-May 6-Jun
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today JUN 2.36 2.36 0.00 NOK 95.35 SEP 2.30 2.31 -0.01 SEK 119.71 DEC 2.30 2.31 -0.01 EUR 100.42 MAR 2.32 2.31 0.01 USD 82.30 FRA SEK 3m Prior chg GBP 82.40 JUN 2.20 2.18 0.01 Comm. Today SEP 1.94 1.90 0.04 Brent spot 101.8 DEC 1.75 1.71 0.04 Brent 1m 100.2 MAR 1.68 1.61 0.06 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% Stock ex. Today - 0.12 Dow Jones 12,414.8 - 0.19 Nasdaq 2,844.7 - 0.02 FTSE100 5,384.1 0.10 Eurostoxx50 2,137.7 - 0.4 Dax 6,094.0 Last Nikkei225 8,639.7 101.8 Oslo 385.98 100.6 Stockholm #N/A ND 1635.0 Copenhagen 558.81

% 2.4% 2.4% : 2.4% 2.1% 0.0% 2.8% : :

Morning Report
07.06.2012
IMPORTANT/DISCLAIMER This note (the Note) must be seen as marketing material and not as an investment recommendation within the meaning of the Norwegian Securities Trading Act of 2007 paragraph 3-10 and the Norwegian Securities Trading Regulation 2007/06/29 no. 876. The Note has been prepared by DNB Markets, a division of DNB Bank ASA, a Norwegian bank organized under the laws of the Kingdom of Norway (the Bank), for information purposes only. The Note shall not be used for any unlawful or unauthorized purposes. The Bank, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (individually, each a DNB Party; collectively, DNB Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Note. DNB Parties are not responsible for any errors or omissions, regardless of the cause, nor for the results obtained from the use of the Note, nor for the security or maintenance of any data input by the user. The Note is provided on an as is basis. DNB PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE NOTES FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE NOTE WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall DNB Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Note, even if advised of the possibility of such damages. Any opinions expressed herein reflect the Banks judgment at the time the Note was prepared and DNB Parties assume no obligation to update the Note in any form or format. The Note should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. No DNB Party is acting as fiduciary or investment advisor in connection with the dissemination of the Note. While the Note is based on information obtained from public sources that the Bank believes to be reliable, no DNB Party has performed an audit of, nor accepts any duty of due diligence or independent verification of, any information it receives. Confidentiality rules and internal rules restrict the exchange of information between different parts of the Bank and this may prevent employees of DNB Markets who are preparing the Note from utilizing or being aware of information available in DNB Markets/the Bank which may be relevant to the recipients of the Note. The Note is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. Distribution of material like the Note is in certain jurisdictions restricted by law. Persons in possession of the Note should seek further guidance regarding such restrictions before distributing the Note. The Note is for clients only, and not for publication, and has been prepared for information purposes only by DNB Markets - a division of DNB Bank ASA registered in Norway with registration number NO 984 851 006 (the Register of Business Enterprises) under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet), Monetary Authority of Singapore, the Chilean Superintendent of Banks, and on a limited basis by the Financial Services Authority of UK. Information about DNB Markets can be found at dnb.no. Additional information for clients in Singapore The Note has been distributed by the Singapore branch of DNB Bank ASA. It is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of any product referred to in the Note, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product. Recipients of the Note should note that, by virtue of their status as accredited investors or expert investors, the Singapore branch of DNB Bank ASA will be exempt from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the FAA), the Financial Advisers Regulations and associated regulations there under. In particular, it will be exempt from: - Section 27 of the FAA (which requires that there must be a reasonable basis for recommendations when making recommendations on investments). Please contact the Singapore branch of DNB Bank ASA at +65 6212 0753 in respect of any matters arising from, or in connection with, the Note. We, the DNB group, our associates, officers and/or employees may have interests in any products referred to in the Note by acting in various roles including as distributor, holder of principal positions, adviser or lender. We, the DNB group, our associates, officers and/or employees may receive fees, brokerage or commissions for acting in those capacities. In addition, we, the DNB group, our associates, officers and/or employees may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in the Note. Additional Information, including for Recipients in the In the United States: This note (the Note) is a market letter, as the term is defined in NASD Rule 2211, and, thus, does not constitute a research report within the meaning of U.S. securities laws and regulations, including, without limitation, SEC Rule 15a-6, NASD Rule 2711 and Regulation AC.