Morning Report

12.02.2013

Still low Norwegian inflation

NOK & 3m NIBOR
7.60 7.50 7.40 7.30 7.20 15-Jan

Norwegian core inflation was slightly higher than expected in January, but the main picture is that inflation remains low. Along with a strong currency this will most likely mean than Norges 2.00 Bank will delay the expected interest rate hike further. Norwegian inflation still shows no clear signs of picking up. Core inflation (CPI-ATE) fell by 0.4% from December to January, while the annual growth rose from 1.1% to 1.2%. According to both Bloomberg and Reuters, the median expectation was 1.0%, while Norges Bank estimated inflation at 1.3% in the monetary policy report in October. Our estimate was 1.2%. However, we were surprised by a higher rise in food prices than expected, while the prices of tobacco rose less than we projected. Otherwise, prices on furniture were lower than we had assumed. Moreover, prices of furniture, carpets and repairs fell by 7% m/m (due to seasonal sales), the largest fall in January since records began in 1979. Prices for hotel services also dropped abnormally. Overall, the domestic core inflation remained unchanged at 1.8%. to be negative and hence keep overall inflation down. In December imported inflation was -0.9%, while the decline was moderated to -0.6% in January. Several factors contribute to keeping imported inflation low. The NOK has strengthened over time and spare capacity in many countries dampens inflation abroad. Electricity prices increased by 2.7% from December to January. Headline inflation (CPI) hence fell less than core inflation and the decline was 0.2 percent from December to January. Compared to January last year, the CPI rose by 1.3 percent. Overall inflation was also lower than Norges Bank's estimate of 1.4 percent. CPI-ATE was slightly lower in January than Norges Bank expected. Norges Bank has estimated that inflation should remain at 1.3% through the first quarter of this year. In itself, this presumably indicate that the interest rate path may be somewhat lowered at the meeting in March. In addition, the NOK has been stronger than projected in the Monetary Policy report from October. Overall, this implies that the interest rate hike will be further delayed. We still expect that the first rate hike late next year. Internationally, very few figures were released yesterday. The French goods production fell by 0.1% in December, while industrial production rose by 0.1%. This was almost in line with expectations. The downward trend is still strong. Goods production fell 3.3% during the last four months of last year, while the decline for the manufacturing was even worse at 4.3%. There is thus little doubt that the French industry is struggling. In the markets Japanese stocks picked up, while the yen weakened after Undersecretary Lael Brainard in the U.S. Treasury department supported the Japanese anti deflationary policy. It was taken as an indication that weakening of the yen is not regarded as currency manipulation. In Europe Buba Chief Jens Weidman said that the euro is not overvalued. This dampened fears of a "currency war" and strong wording in connection with the G20 summit which starts in Moscow on Friday. In the U.S. the S&P500 ended virtually unchanged from the day before. Early today the EU finance minister meeting starts. The head of the IMF, Christine Lagarde will attend the meeting, and the agenda is support for the crisis-stricken Cyprus. According to the Financial Times, the crisis package to Cyprus may be cut from 16.7 billion to 5.5 billion euro. In that case, foreign deposits in Cypriot banks are no longer guaranteed. Inflation figures from the UK are out today. After inflation fell throughout much of last year, higher school fees and domestic energy costs lifted inflation in the fourth quarter. On the basis of an increase in regulated prices and a stronger exchange rate, inflation is expected to remain above the 2% target f over the next two years. This will also be elaborated in the inflation report which is due tomorrow. Inflation is expected to increase from 2.7 percent in December to 2.8 percent in January. Later today, Obama holds his annual speech to the nation, the so-called "State of the Union." It is expected that he will focus less on budget cuts, and more on the need to create jobs so as to lay the foundation for growth. knut.magnussen@dnb.no Yesterdays key economic events (GMT) As of Unit m/m % y/y % y/y % Unit y/y % index Prior 0.5 1.4 1.1 Prior 2.7 88.0 Poll -0.2 1.1 1.0 Poll 2.8 Actual -0.1 1.3 1.2 DNB

29-Jan

1.95 1.90 1.85 1.80 1.75 12-Feb

3m(rha)

EURNOK

Norsk 10y sov.

2.8 2.6 2.4 2.2 2.0 1.8 15-Jan
rente

150

100 It is still a big difference between domestic and imported inflation. The imported core inflation continues 50
29-Jan 0 12-Feb
Diff(bp,rha)

Headquarters Dronning Eufemias gate 30 0191 Oslo Offices Abroad New York London Singapore Stockholm Sales Oslo (+47) Equity Fixed Income Regional Sales (+47) Bergen Bod Fredrikstad Hamar Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund Private Clients Research Regional Sales (+47) Eirik Larsen Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Martin Brter Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen Kristina Solbakken

+47 03000

+ 1 212 681 2550 +44 207 283 0050 +65 6220 6144 +46 84 73 48 50

22 94 89 40 24 16 90 30

56 13 27 20 75 52 99 10 69 39 41 50 62 54 14 82 61 24 79 56 38 14 61 64 24 16 90 80 51 84 04 30 77 62 96 80 73 87 49 73 33 01 73 80 70 11 69 85 24 16 90 90

24 16 90 77

24 16 90 08 24 16 90 03 24 16 90 07 24 16 90 04 24 16 90 01 24 16 90 06 24 16 90 02

24 16 90 48 24 16 90 46 24 16 90 47 24 16 90 49 24 16 90 44 24 16 90 45 24 16 90 51

07:45 France Industrial production Dec 09:00 Norway CPI Jan 09:00 Norway CPI-ATE Jan As of Todays key economic events (GMT) 09:30 UK CPI Jan 12:30 USA NFIB Jan USA Obamas State of the union address

Morning Report
12.02.2013

3m LIBOR
0.16 0.15 0.14 0.13 0.12 15-Jan
EUR

29-Jan

0.31 0.30 0.30 0.29 0.29 12-Feb

USD(rha)

NOK & 3m NIBOR 7.60 2.00 1.95 7.50 1.90 7.40 1.85 7.30 1.80 7.20 1.75 15-Jan 29-Jan 12-Feb
EURNOK 3m(rha)

FX 0700 USD/JPY EUR/USD EUR/GBP EUR/DKK EUR/SEK EUR/CHF EUR/NOK USD/NOK JPY/NOK SEK/NOK DKK/NOK GBP/NOK CHF/NOK

Last 92.67 1.3375 0.8466 7.4616 8.6133 1.2282 7.3925 5.5268 5.97 85.86 99.06 8.732 6.019

Today 94.22 1.3392 0.8554 7.4617 8.5731 1.2335 7.3789 5.5099 5.85 86.12 98.86 8.630 5.985

Spot rates and forecasts In 1m May-13 Aug-13 Feb-14 FX 0700 1.7 92 90 91 93 AUD 0.1 1.34 1.32 1.36 1.37 CAD 1.0 0.84 0.81 0.85 0.86 CHF 0.0 7.45 7.45 7.45 7.45 CZK -0.5 8.65 8.65 8.60 8.70 RUB 0.4 1.20 1.20 1.20 1.20 GBP -0.2 7.35 7.25 7.25 7.40 HKD -0.3 5.49 5.49 5.33 5.40 KWD -1.9 5.96 6.10 5.86 5.81 LTL 0.3 85.0 83.8 84.3 85.1 LVL -0.2 98.7 97.3 97.3 99.3 NZD -1.2 8.75 8.95 8.53 8.60 SEK -0.6 612.50 604.17 604.17 592.00 SGD

USD NOK 1.025 5.648 1.007 5.471 0.921 598.076 18.867 29.192 30.169 18.256 1.566 8.624 7.756 0.710 0.282 19.531 2.578 2.137 0.522 10.543 0.836 4.607 6.401 86.042 1.244 4.427

US dollar

5.7 5.6 5.5 5.4 5.3

15-Jan 29-Jan
USDNOK

1.40 1.35 1.30 1.25 12-Feb

EURUSD(rha)

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

Prior 1.90 1.97 2.12 2.35 2.41 2.78 3.08 3.39

Last 1.85 1.95 2.09 2.33 2.42 2.78 3.07 3.39

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

Prior 1.12 1.17 1.27 1.53 1.54 1.88 2.16 2.42

Interest rates Last USD 1.12 1m 1.17 3m 1.27 6m 1.53 12m 1.55 3y 1.89 5y 2.16 7y 2.42 10y

Prior 0.20 0.29 0.47 0.77 0.53 0.96 1.44 2.01

Last 0.20 0.29 0.46 0.77 0.52 0.95 1.43 2.00

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

Prior 0.06 0.15 0.27 0.49 0.73 1.07 1.42 1.84

Last 0.06 0.15 0.26 0.49 0.72 1.07 1.42 1.84 Last 99.05 1.60 -0.35 10y sw ap 1.75 1.75 2.00

Japanese yen

95.0 90.0 85.0

15-Jan
USDJ PY

7.0 6.0

Norw ay Prior NST475 94.47 10y yld 2.62 - US spread 0.67 3m nibor 1.85 1.85 1.85

Norw ay

29-Jan

5.0 12-Feb
JPYNOK(rha)

Governm ent bonds Last SEK Prior Last US Prior 94.50 10y 112.64 112.60 10y 97.13 2.62 10y yld 2.00 2.00 10y yld 1.95 0.66 - US spread 0.05 0.05 30y yld 3.16 Interest rate forecasts 10y 10y Sw eden 3m libor USA 3m libor sw ap sw ap 3.25 3.25 3.50 May-13 Aug-13 Feb-14 1.10 1.10 1.10 2.25 2.25 2.50 May-13 Aug-13 Feb-14 0.35 0.35 0.35

Last Germany Prior 97.08 10y 98.99 1.95 10y yld 1.61 3.16 - US spread -0.34 10y sw ap 2.00 2.00 2.25 3m euribor 0.25 0.25 0.25

Germany May-13 Aug-13 Feb-14

May-13 Aug-13 Feb-14

SEKNOK & CHFNOK 87 86 85 84 83 15-Jan 29-Jan

SEKNOK CHFNOK(rha)

6.1 6.0 5.9 5.8 12-Feb

Equities 14200 13700 13200 12700 12200 15-Jan 29-Jan

Dow J.I.

475 470 465 460 455 450 12-Feb

Os lo(rha)

NOK sov. NST19 NST20 NST21 NST471 NST472 NST473 NST475 NST475 NOK FRA MAR JUN SEP DEC

Miscellaneous Prior Last Change Maturity year rem. NOK-index TWI Prior 1.71 1.72 1 19.06.2013 0.35 Last 89.98 90.47 2.07 2.08 1 18.09.2013 0.60 Oil price: (Ldn,cl) 1m 1.72 1.73 0 18.12.2013 0.85 SPOT 118.10 118.14 1.66 1.67 1 15.05.2015 2.25 Gold price 11.02.2013 PM 1.90 1.91 0 19.05.2017 4.27 AM: 1668.3 1652.0 2.11 2.12 2 22.05.2019 6.27 Equities Today 0700 % last 2.58 2.58 0 24.05.2023 10.28 Dow Jones 13971.24 -0.2% 2.62 2.62 0 24.05.2023 10.28 Nasdaq C. 3192.00 -0.1% 3 mnd 6 mnd NOK NIDR NIBOR FTSE100 6263.93 0.6% 1.95 2.09 1m 1.90 1.85 Eurostoxx50 2630.30 1.2% 1.96 2.09 3m 2.03 1.95 DAX 7652.14 0.8% 1.98 2.13 6m 2.12 2.09 Nikkei 225 11369.12 1.9% 2.06 2.21 12m 2.30 2.33 OSEBX 468.12 -0.9% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets