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Investment Research

09 July 2010

Weekly Focus
Global growth slowing down

Market Movers ahead

 The US data release calendar is quite full. Most notable of the US figures will be the
retail sales report for June. Contents
Market movers ahead ........................................... 2
 In the euro area, the German ZEW expectations index will get the most attention. The
Global update................................................................... 5
bank stress tests to be published on 23 July will also attract a lot of attention.
Scandi Update ................................................................ 7
 In the UK, the minutes from the 8 July Monetary Policy meeting at the Bank of Focus: Research - Global: Growth is
bound to slow – but by how much? ........... 9
England will be released on 21 July.
Equities: Q2 earnings should ease
 In Asia, the main focus next week will be China, where GDP for Q2 is due to be investor concerns ..................................................12
released. Fixed Income: ECB’s Trichet in a good
mood .....................................................................................13
 In Japan, focus will be on the Upper House election on 11 July. FX: EUR has wind in its sails ........................14
Commodities: Supply fears support oil
 In Sweden, we are particularly looking forward to delving into the apparent tensions .....................................................................................................15
within the Riksbank board. Credit ...................................................................................16
Financial views...........................................................17
Global Update Macroeconomic forecast ..............................19
 This week the IMF adjusted its forecast for global growth upwards for 2010, but at the Financial forecast ...................................................20
same time emphasised that downside risks have increased. Calendar ...........................................................................21

 Data from the US was mixed, but nevertheless helped to reduce concerns about a
sharp decline in US growth.

 In Europe, ECB president Trichet did not seem concerned about the latest increases in
money market rates.

 Global growth to slow – but by how much?

 Prospects of a double-dip scenario?

ISM indices suggest slower US growth Headwind on the equity markets


Allan von Mehren

+45 4512 8055

Steen Bocian
Source: Reuters Ecowin and Danske Markets Source: Reuters Ecowin and Danske Markets +45 45 12 85 31
Weekly Focus

Market movers ahead

 Next week’s US data release calendar is quite full. On Wednesday we expect the
retail sales report for June to reveal a continued decline, driven by a drop in both car US retail sales boosted by discounts
sales and gasoline prices. On the other hand, chain store sales showed firm June 2.5
% m/m Retail sales total % m/m

figures. Therefore we also expect continued positive figures for retail sales less autos 1.5 DB forecast 1.5

and gas. On Friday June’s CPI is expected to show some easing, with a slight drop of 0.5 0.5

-0.5 -0.5
0.1% from May to June, reflecting the declining gasoline prices. Hence, core CPI is Retail sales ex. autos,
-1.5 building materials, and -1.5
likely to increase slightly. Later on Friday University of Michigan confidence is gasoline
-2.5 -2.5
expected to show a decline in consumer confidence. This is primarily driven by the May Jul Sep Nov Jan Mar May
09 10
drop in equities, causing consumers to be increasingly cautious, although lower
gasoline prices will counterbalance some of the effect. Given the recent increase in Source: Reuters Ecowin and Danske Markets
talk about further quantitative easing from the Fed, there will be attention on the
speeches by Bernanke and board member Duke on Monday. Further, FOMC minutes
are due to be released on Wednesday. In addition, the US earnings season is set to
start next week – kicking off with Alcoa on Monday.

Over the next few weeks, the most notable US figures will be ISM on 2 August and
non-farm payrolls on 6 August. The fear is that July figures will turn out to be weak
as the June numbers. If so, it could add to the growing fear of a severe economic

 In the euro area, the German ZEW expectations index will receive some attention on
Tuesday as it has been a good early indicator of turns in Ifo and PMI during this Germany: Further decline in ZEW?
crisis. Our model indicates a modest decline in ZEW expectations and we see some 125 Net bal
Ifo expectations >> Index 110
100 105
signs that it has bottomed. Euroland industrial production is projected to have 75
increased 0.8%. Details on euro area inflation in June are likely to reveal that core 25 95
0 90
inflation remained at 0.8% while the energy contribution fell significantly. Core -25
<< German ZEW 85
inflation is expected to stay below 1% for the rest of 2010. -75 80
-100 75
Bank stress tests to be published on 23 July will attract a lot of attention. Politicians 00 01 02 03 04 05 06 07 08 09 10

repeat the mantra that the stress tests will restore confidence. We are not so sure. No
matter what the stress tests show, the market will continue to be concerned that the Source: Reuters EcoWin

real picture of the German Landesbanks and in particular the Spanish Cajas is bleak.

 The next pivotal event in the UK market might very well be on 21 July when the
minutes from the 8 July Monetary Policy meeting at the Bank of England will be
released. As widely expected, the BoE kept its policy rate unchanged at 0.5% and set Switzerland: Strong growth
target for the asset purchase programme at GBP200bn. Remember that MPC member 3 ,0 6
< < K O F, leading indicator
2 ,5 Ind ex % y/y 5
Sentance last time voted for a rate hike of 25bp due to the current high inflation. The 2 ,0 4

market will scrutinise the minutes to see if more members have joined Sentance this 1 ,5 3

1 ,0 2

time. In that respect, note that June’s inflation numbers are expected to overshoot the 0 ,5 1

0 ,0 0
3.0% limit for the fourth month in a row. The market looks for a 3.2% reading. -0 ,5 -1

-1 ,0 -2
GDP >>
 No important data or speeches from central bankers are on the agenda in Switzerland -1 ,5 -3

-2 ,0 -4

in the coming week. Looking further ahead, the KOF leading indicator on 30 July will 92 94 96 98 00 02 04 06 08 10

be among the more interesting releases. The focus here will be on whether the Source: Reuters EcoWin

2| 09 July 2010
Weekly Focus

indicator is beginning to show signs of a slower rate of growth. We predict a small

rise in the KOF from 2.25 to 2.30, which would underline that the economy is still in
fine fettle.

 In Asia the main focus next week will be China where most economic data for June
will be released together with GDP for Q2. In our view, these figures will prove China: Growth slowing
weaker than the current consensus. Based on early foreign trade reports from Taiwan 14 25
<<GDP % y/y
and South Korea, we expect China’s foreign trade data to be particularly weak with a
12 20
sharp drop in both imports and exports, with weakness most pronounced in imports.
10 15
We expect industrial production to edge 1.8% m/m higher in June following a similar
8 10
increase in the previous month. For Q2 as a whole, we expect growth in industrial Industrial production >>
6 5
production to have slowed to 3.5% q/q from 4.4% q/q in Q1. Based on the Forecast
4 0
development in industrial production, Q2 GDP growth is expected to have slowed to 00 01 02 03 04 05 06 07 08 09 10
around 9% q/q AR from 12% q/q AR in Q1. Hence, GDP growth has probably been
Source: Reuters Ecowin
slightly below potential in Q2. CPI inflation probably edged slightly higher to 3.3%
y/y from 3.1% y/y in the previous month. Nonetheless, the message from the June
data now is that the risk of overheating is now declining fast and inflation will soon
 In Japan focus will be on the Upper House election on 11 July. Currently the DPJ
coalition government has a slight majority in the Upper House and it looks
increasingly likely that the coalition government will lose this majority, albeit it will
be broadly status quo for DPJ. DPJ currently has a majority in the more important
Lower House and hence DPJ will remain in power even if the coalition government
lose its majority, so we expect no major market impact. We expect no new easing
initiatives from the Bank of Japan (BoJ) in connection with the monetary meeting on
15 July. However, we suspect BoJ could soon start to move towards an easing bias on
the back of slower growth and the strong JPY.
 A wealth of data are due out in Denmark in the coming weeks. On 12 July consumer
Denmark: Unemployment has turned
and net price indices for June will be released: we anticipate inflation of 2.1% y/y or
0.2% m/m. Consumer expectations for July are due out on 22 July: we predict a rise in
the consumer confidence index from -1.5 to 0.5. Statistics Denmark’s house prices for
Q1 will be released on 26 July: we expect confirmation of the rise already seen in the
Association of Danish Mortgage Banks’ house price data. Unemployment figures for
June will be out on 29 July: we expect a largely unchanged level. Figures for business
confidence will also be released that day.

Source: Reuters EcoWin

3| 09 July 2010
Weekly Focus

 In Sweden we are particularly looking forward to delving into the apparent tensions
within the Riksbank board. Remember that there are now (again) two dissenters: Sweden: Housing in for a slowdown?
Svensson and Ekholm. Quintessentially, all it would take for a complete change of 1.600 Market value / Taxation value 1.600
1.575 1.575
heart within the Riksbank board would be for Governor Ingves (holding the casting 1.550 House price coefficient 1.550
vote) to jump the fence. We do not judge this as very probable in the short term, but, 1.525 1.525
1.500 1.500
still. Under any circumstances, the minutes, set to be released on 15 July, will be an 1.475 1.475
House price coefficient (MA3)
1.450 1.450
interesting read, and if there are any indications of a softening tone among the 1.425 1.425
‘hawks’ we could be in for a major financial market reaction. On 15 July house price 1.400 1.400
09 10
data will also be a point of great interest, particularly since Governor Ingves has put
great emphasis on housing and household credit developments when arguing for a Source: Statistics Sweden
‘normalisation’ of rates.
 No important data on the agenda in Norway in the coming week, but the foreign trade Norway: Exporters to make a
figures could give us an idea of how developments in the global economy are comeback?
affecting exporters. The global upswing starting in 2003 produced a significant 160
1998=100 1998=100
150 150
upswing for Norwegian exporters, with strong growth in prices as well as volumes. << Export ex. oil. Prices
140 Export ex. oil. Vol. >> 140
Since the financial crisis, however, Norwegian exporters have recovered slowly given 130 130
120 120
the high rates of growth in the global economy. One key element of our forecasts for
110 110
the Norwegian economy is that global demand for energy and commodities will once 100 100
90 90
again push up both prices and volumes of Norwegian export goods.
98 00 02 04 06 08 10

Source: Reuters EcoWin

Market movers ahead

Global movers Event Period Danske Consensus Previous
Mon 12-Jul - CNY Trade balance (from 7/10) USD bn Jun 20.3 15.6 19.5
- JPY Upper House election (on 7/11)
16:00 USD Fed's Bernanke (voter, neutral) speaks
Tue 13-Jul 10:30 GBP CPI m/m|y/y Jun 0.0%|3.2% 0.2%|3.4%
11:00 DEM ZEW economic sentiment Index Jul 29.8 25.0 28.7
11:00 DEM ZEW current situation Index Jul 0.0 -3.0 -7.9
Wed 14-Jul 11:00 EUR CPI, final m/m|y/y Jun 0.0%|1.4% 0.0%|1.4% 0.1%|…
14:30 USD Retail sales m/m Jun -0.3% -0.2% -1.2%
20:00 USD Minutes from FOMC meeting
Thu 15-Jul - JPY BoJ Monetary Policy Announcement % 0.10 0.10 0.10
4:00 CNY GDP Constant Price y/y 2nd quarter 10.3% 11.0% 11.9%
4:00 CNY CPI y/y Jun 3.3% 3.3% 3.1%
4:00 CNY Industrial production y/y Jun 15.0% 15.2% 16.5%
Fri 16-Jul 14:30 USD CPI m/m|y/y Jun -0.1%|1.1% 0.0%|1.2% -0.2%|2.0%
15:55 USD University of Michigan Confidence Index Jul 73.2 74.0 76.0
Scandi movers Event Period Danske Consensus Previous
Mon 12-Jul 9:30 DKK CPI m/m|y/y Jun 0.2%|2.1% 0.0%|2.2%

Source: Bloomberg and Danske Markets

4| 09 July 2010
Weekly Focus

Global update
IMF emphasises downside risks
This week the IMF adjusted its forecast for global growth upwards for 2010, but it was
ISM indices suggest slower US growth
driven solely by higher activity in H1. In addition, the IMF emphasised that downside
risks have increased and it discussed the risk of a double-dip in the US housing market.
65 Index ISM non-manufacturing Index 65
60 60
Data from the US was mixed, but nevertheless helped to reduce concerns about a sharp 55 55
decline in US growth. In Europe, ECB president Trichet was almost light-hearted at the 50
45 45
monthly press conference and did not seem concerned about the latest increases in money
40 40
market rates. Greek data indicated that fiscal tightening is on track. In Asia, the Bank of 35 35
30 30
Korea joined the rate hike club (India, Malaysia, Taiwan). Data nevertheless suggests that
98 00 02 04 06 08 10
growth in Asia is slowing.
Source: Reuters Ecowin and Danske Markets
EUR/USD has strengthened during the week. Stock markets bottomed on Monday and
have since gained considerably.

Renewed focus on US but limited new information Jobless claims data improves slightly
7.5 million 675
Markets have turned focus back to the strength of the US recovery but this week’s data '000
<< Continuing claims
6.5 625
revealed little news on the matter. After the significant drop in the manufacturing ISM,
5.5 575
expectations for the nonmanufacturing ISM had been scaled back. The index declined 1.2
4.5 525
points which is less drastic than the drop in its manufacturing counterpart and the details
3.5 475
of the survey were mixed. The business activity index remains high, although it came off Initial jobless claims >>
2.5 425
its peak in May, suggesting that the expansion in the service sector continues. New orders 08 09 10
on the other hand dropped to the lowest level since December 2009, signalling that the
rapid expansion in demand may have run its course. Source: Reuters Ecowin and Danske Markets

Judging from retail sales reports from chain stores, consumer spending nevertheless rose
in June with heavy discounts to clear out merchandise before the back-to-school period Still strong momentum in the
kicks off later this month boosting sales. Finally, initial jobless claims broke the upward industrial sector
trend and fell to its lowest level since early May last week. That said, initial jobless Industrial production in...
120 120
claims are still high and at these levels would suggest growth in nonfarm payrolls of a 115
Index Index
110 110
modest +50K. Continuing claims took a massive decline as well although this does not 105
100 Euro area 100
necessarily reflect that people have moved into employment. 95 France 95
90 Italy 90
85 85
Good news from Greece 80 Spain 80
06 07 08 09 10
Data from the Greek central bank indicates a sharp improvement in the government
budget compared with last year’s spending spree. If the data can be trusted, it indicates a Source: Reuters Ecowin and Danske Markets
tightening which is even sharper than what has been put forward in the austerity plans. On
Thursday, Greece took another big step in the right direction towards fiscal consolidation,
as a tough pension reform was pushed through in parliament. The reform increases the PMIs indicate a peak in euro area
retirement age and reduces benefits. growth
65 Index 65
The ECB meeting did not bring any changes in key interest rates, and the Governing 60
55 55
Council did not introduce any liquidity measures. Read more in our comment – Flash 50
45 Spain 45
Comment: Trichet was almost light-hearted.
40 40
35 35
PMI, service sector in...
30 30
25 25
06 07 08 09 10

Source: Reuters Ecowin and Danske Markets

5| 09 July 2010
Weekly Focus

Euro area retail sales increased 0.2% in May, which was slightly below expectations. We
still fail to see signs of a notable rebound in private consumption, which we expect to Machinery losing some momentum in
remain flat during Q2. Service PMI declined in Spain and Italy, which was not surprising
50 % 3m/3m 50
given the latest decline in global leading indicators. A downbeat report that adds to the % 3m/3m
30 30
picture of slow growth in southern Europe in H2 10. On the other hand, hard data shows Domestic machinery
10 orders, excl. volatile 10
that industrial activity expanded briskly in Germany and France during May. This
-10 -10
indicates, despite the decline in leading indicators, that the economic recovery saw strong -30 -30
Domestic machine tool orders
momentum in May in the two largest countries within the euro area. Details reveal that -50 -50
the automobile industry expanded robustly. Even though German factory orders declined -70 -70
06 07 08 09 10
during May, we look for robust GDP expansion in Germany and France during Q2.
Source: Reuters Ecowin
South Korea joins the rate hike club
The Bank of Korea in the past week finally joined the Asian rate hike club by raising its
Weak Taiwanese foreign trade data
leading interest rates by 25bp to 2.25%. So far India, Malaysia, Taiwan and now South
suggests China’s will disappoint
Korea have raised their leading interest rates, while China has tightened mainly through 60 60
% m/m % m/m
non-conventional measures like tightening access to mortgage credit. The big question of 50 50

40 40
course is whether the Asian growth and monetary cycle will continue to diverge from the China's total import, SA
30 30
US and Europe. 20 20

10 10
The past week has been light on economic data, but the latter continues to disappoint and 0 0

clearly suggests that growth in Asia is slowing. In Japan, machinery orders plunged 9.0% -10 -10

-20 -20
m/m in May. It should be remembered that machinery orders are extremely volatile and Taiwan's export to China, SA
-30 -30
the overall trend still appears to be flat or slightly higher machinery orders. In Taiwan, 08 09 10

foreign trade data for June was weak, suggesting that the Chinese foreign trade data to be Source: Reuters Ecowin and Danske Markets
released this weekend could be considerably weaker than the current market consensus.
Slower growth in Asia is entirely consistent with our current forecast and we continue to
regard the slowdown as a natural and healthy moderation on the back of the extremely
strong growth since early 2009. That said, downside risk on growth is increasing and the
risk of overheating is receding across Asia.

The US Treasury Department has finally released its delayed report on the exchange
policy of the US’s main trading partners. The Treasury report says that China took a
‘significant step’ last month when it abandoned its unofficial peg to the USD and allowed
RMB to appreciate. However, the report also says that RMB remains ‘undervalued’ and it
is not clear whether the policy shift will correct the undervaluation. Hence, eventually
China will be judged on the size of the appreciation and tensions could resurface again at
some stage.

6| 09 July 2010
Weekly Focus

Scandi Update
Denmark – Mass redundancies on the retreat
The National Labour Market Authority published figures during the week for the number
Redundancy notices back to pre-crisis
of redundancy notices served, showing an increase of 380 from 894 in May to 1,247 in
June. This increase is by no means alarming, however, and it is important to remember
that redundancies do tend to vary from month to month.

If we take a step back, the overall picture is that redundancies fell back sharply in 2009
and have generally been relatively stable so far in 2010 after the surge in late 2008 to a
peak of 5,300 in one month. They are now largely back to the levels seen before the crisis
hit the Danish labour market.

So there is much to suggest that the big rounds of redundancies are now very much Source: Statistics Denmark
history. This is, of course, good news, showing that the labour market has put the shock
of the financial crisis behind it and is now generally back to a more normal state.

We reckon that the labour market has entered a more stable period with largely flat
unemployment. This naturally needs to be seen in the light of the past seven months’
gentle decline in unemployment, but also of growth in general being expected to be
strong enough to create jobs in the economy. We therefore expect largely stable
unemployment through to the end of 2011.

Our more positive view of the labour market is also confirmed by a steep drop in the
number of people on job shares. When the crisis struck the Danish economy, many
businesses chose to put part of their workforce in job-sharing schemes as an alternative to
straight redundancies. The sharp fall in people on job shares means that there is no hidden
unemployment lurking around the corner as these temporary schemes come to an end.

Sweden – Inflation recedes

Inflation came in much in line with our expectations. However, this implies that the
Riksbank’s very recent forecast is already a notch above actual developments. Inflation Inflation losing sight of the target?
might not be in vogue among policymakers currently (how strange it feels to write such a 3.50 % y/y 3.50
% y/y

thing), but we are becoming increasingly worried about the deflationary (or 3.00 3.00

2.50 2.50
disinflationary for those of you who are into semantics) prospects for the Swedish
2.00 CPIF 2.00
economy. Should these developments continue, we believe it will shortly take a
1.50 1.50
considerably more prominent position in the monetary policy analysis.
1.00 1.00
08 09 10 11 12 13
Also, and on the same note, the Swedish economy has recently posted some disappointing
outcomes in terms of growth data (PMI, industrial production and orders) adding to the Source: Statistics Sweden and the Riksbank
concerns one might have about the recovery, even the domestic recovery that just a few
weeks ago seemed so firm.

7| 09 July 2010
Weekly Focus

Norway – Looking ahead

The risk of a fresh downturn in the global economy will slow Norges Bank’s interest
rate increases. Nor is there anything in our own analysis to suggest problems with Debt risk
rapidly rising inflation during the forecast period. On the face of it, this will increase 200 200
% of disp. income % of disp. income
the central bank’s room for manoeuvre, with the result that considerable weight can 190 190
<< Debt ratio
be attached to downside risk in the short term. However, we expect interest rates to 180 180

climb further than either the fixed income market or Norges Bank anticipates, for two 170 170

160 160
reasons. First, growth in the domestic economy will be healthier than anticipated and
150 150
in any case stronger than in Euroland. Second, the extremely low level of real
140 140
mortgage rates, combined with already high debt ratios and real house prices, brings
130 130
a latent risk of an imbalance in the housing market which could cause unexpectedly 02 03 04 05 06 07 08 09
large problems for Norwegian banks and the Norwegian economy. We therefore
Source: Reuters EcoWin, Danske Markets
expect that Norges Bank’s policy rate will rise to 2.25% in December and that we
could see more frequent hikes in 2011-12 than currently priced into the market.

8| 09 July 2010
Weekly Focus

Focus: Research - Global: Growth is bound to slow – but by

how much?
Rising fears of a “double-dip” scenario Key points
While the global recovery set off to a strong start in 2010, new headaches have appeared
for the global economy. First, the debt crisis in the Euro area has created new uncertainty  Growth is bound to slow down in
and led to sharp declines in equities and credit bonds. This has provided a new and the second half of 2010, as the
unexpected headwind to the global economy. Second, the labour market in the US has balance between tailwinds and
disappointed and hence is not giving as strong support to US consumers as projected. And headwinds turns less favourable.
finally, Chinese growth appears to be slowing earlier as tightening measures may be
having a bigger effect than anticipated. These developments have raised fears of a  The key question though is how
“double-dip” in financial markets. much will growth slow. We still
We have for a long time expected some slowdown in the global economy in the second don’t expect growth to go below
half of 2010, but this slowdown may become stronger than expected due to the above potential growth over the coming
mentioned developments. We already see some tentative signs of this – see Global quarters, but a pick-up in
Business Cycle Monitor: Further declines in leading indicators. It will be crucial for employment soon and no new
sentiment and the outlook for 2011 how much growth actually slows. setbacks in financial markets are
For now we will sketch some of the factors that will shape the slowdown. After the key assumptions behind this
summer break we will quantify these effects more rigorously to gauge the risk of a forecast.
double-dip scenario more precisely.
 Should current headwinds get
The balance of tailwinds and headwinds is turning stronger we will have to re-
Judging the short-term swings in the growth rates is about estimating the changes in evaluate our outlook.
short-term impulses that hit the economy (tailwinds and headwinds) and the development
in the inventory cycle. It is key to understand that it is the change in the tailwind that will
affect the change in the growth rate. This corresponds to riding a bike: A stronger Equity markets – from tailwind to
tailwind means you can go faster. If the tailwind fades so will your speed – even though headwind
40 % 40
the wind is still helping you. 30
20 S&P500 index, 2mth change 20
The strength of the labour market and potential pent up demand/over-investment will 10 10
0 0
determine whether an economy can stay on a recovery track when tailwind factors -10 -10
disappear. -20 -20
-30 -30
-40 -40
Using this approach it seems evident that a wide range of factors point to a weakening of -50 -50
growth going forward: 06 07 08 09 10

 The inventory cycle helped boost growth in 2009 and 2010, but there are signs Source: Reuters Ecowin
now that this effect has peaked and that the growth contribution from
inventories will decline from here on. Increased uncertainty could force a
sharper decline of this growth contribution, as companies become wary of Signs of faster slowdown in China
restocking when the outlook is more clouded.
Index Index
 Fiscal policy provided a decent tailwind in 2009 and 2010. This tailwind is 70 70
slowly fading, though, and will become a not insignificant headwind in 2011 in 60 60
both Europe and US.
50 50
 Monetary policy has provided a substantial tailwind to the economy as rates
were slashed to very low levels in 2008 and early-2009. This has led to a sharp 40 40
China PMI, New Orders (CLSA)
reduction in financing costs and thus increased disposable incomes and 30 30
corporate earnings. While low rates are still providing a tailwind for new 05 06 07 08 09 10

investments and consumption the effect on incomes and earnings was a one-off
Source: Reuters Ecowin
increase and hence the growth impact will fade going forward. The tailwind is
still there but it is getting smaller.

Chief Analyst
Allan von Mehren
+45 4512 8055

9| 09 July 2010
Weekly Focus

 Emerging Markets growth provided a major boost to exports in 2009 and in

Metal prices and freight rates also
the first half of 2010 as Asia especially witnessed a sharp V-shape recovery. point to slowing activity
Asia has been growing above its potential growth rate though and policymakers 12000 Index Index 4500
have tightened policy to slow growth down. We are already seeing signs of this 10000 4000
LME metal price index >>
happening in China, where recent indicators such as PMI could indicate a 8000 3500

6000 3000
somewhat stronger and earlier slowdown than envisaged. Hence this strong
4000 2500
tailwind for the developed countries also looks bound to become smaller. 2000
<< Baltic Dry index
 The development in risky assets worked as a strong tailwind in 2009, as 0
jan maj sep jan maj sep jan maj
08 09 10
equities rallied strongly and corporate yields declined substantially. This
reduced financing costs for companies, increased wealth for consumers and Source: Reuters Ecowin

worked to boost overall sentiment. However, this tailwind has unexpectedly

turned into a headwind as risk markets have sold off strongly over the past 2½ The boost to growth from inventories
months. has peaked
 Housing market incentives in the US provided a strong tailwind to the housing 3
US inventories,
contr. to GDP growth, q/q AR
market boosting home sales over the past year and giving support to house 2
prices. As these incentives have expired this tailwind is disappearing. 0
While most of these effects were anticipated and already discounted in current forecasts, -2
the development in risky assets and the early warnings of a sharper decline in the -3
Grey bars mark recession periods
contribution from the inventory cycle are new. 00 01 02 03 04 05 06 07 08 09

There are also stabilising forces pulling in the other direction though. Bond yields are Source: Reuters Ecowin
lower than expected and oil prices have also seen a setback, which increases purchasing
power somewhat. But it is questionable whether these are strong enough to compensate
for the new headwinds. US fiscal policy tightening ahead in
Employment and pent-up demand all the more important now 4 % of GDP % of GDP 4
2 US, cyclically adjusted primary deficit 2
With the growth impulses turning more negative than expected it is all the more important 0
(Office of Management and Budget)
that the labour market shows improvement and provides support to consumer incomes. -2 -2

While this has actually happened we have to say that the improvement has disappointed -4 -4
-6 -6
lately – at least in the US where employment growth slowed again in May and June after -8 -8
showing stronger-than-expected gains in March and April. 04 05 06 07 08 09 10 11 12

It is paramount that we see stronger job growth in the US soon. If economic growth slows Source: Reuters Ecowin
too much before job gains have picked up the momentum in the labour market could fade
again by the end of the year, leaving little support for the economy. We still expect this to
come through, but the recent data has of course raised some uncertainty in this area. Interest rates: Both level and change
Lean corporate sector means increased resilience 7
G3 3m libor rate, %
5 5
On a positive note, the corporate sector is in much better shape this time, compared with 3 3
2008, for example. The crisis led to enormous cutbacks in employment, investment and 1 1
inventories. The corporate sector is therefore extremely lean now and inventories are at a -1 -1

very low level. Should global growth slow more strongly, there is no extra layer of fat -3 -3
G3 3m libor, y/y change, % point
that will need to be cut away this time. This in itself would put a limit on any new decline -5 -5
00 02 04 06 08 10
in growth rates.
Source: Reuters Ecowin

10 | 09 July 2010
Weekly Focus

Conclusion: Rising risks, but too early to call for a double-dip

While downside risks have increased and growth is bound to slow, we believe it is too
early to call for a double-dip in which growth gets stuck below trend growth. Our current Important that the job growth picks up
forecasts, however, are based on the expectation that job gains pick up soon and equity Mn Monthly chng, '000
117 300
and credit markets stabilise and recover. Should these factors fail to come through in the 115 100
coming months we will have to re-evaluate the outlook. 113 -100
111 -300
For more on the effects of the euro crisis see also Research US: Euro crisis could speed << US private payrolls, level
109 -500
up manufacturing slowdown, where we look at different scenarios for the US 107 -700
US private payrolls, chng >>
manufacturing sector depending on the development in financial markets. 105 -900
05 06 07 08 09 10

Source: Reuters Ecowin

Scenarios for ISM depending on

financial market developments
65 Index 65
Before shock Index
60 60
55 55
50 50
Global crisis
45 45
40 Current shock 40
(no improvement)
35 35
30 30
07 08 09 10 11

Source: Reuters Ecowin

11 | 09 July 2010
Weekly Focus

Equities: Q2 earnings should ease investor concerns

Profits: Investors downgrade, analysts upgrade
Global equities have corrected by 14% (S&P Global 1200) since the middle of April – the
largest correction since the recovery began in March 2009. At the same time, analysts S&P500 long-term growth: Analysts
say 10%. The market says 5.
worldwide have revised up aggregate expectations for global corporate earnings for 2010
and 2011 by 3% and 2%, respectively. Hence there is a glaring disparity between
investors and analysts when it comes to interpreting the events of the past three or four 7.5 gap p.a.
2.5 %

Analysts see no global cooling. Investors see PIIGS! -7.5

The analyst corps being positive about the world reflects the healthy state of the corporate
sector at present and that companies do not have the visibility to foresee either the 96 98 00 02 04 06 08 10

consequences or the profile of the growth slowdown that is coming in H2 10. In contrast,
equity investors, with the PIIGS crisis as a catalyst, are now discounting a severe Source: Reuters Ecowin, IBES
slowdown that will soon bring the global economy worryingly close to the growth
nightmare of 2008.

Expectations gap as in summer 2008

We have looked at the large spread in earnings expectations, and it seems the market, in
terms of the S&P500, is discounting growth of 5.1% per year (end of June) for the next
five years. Analysts, when asked, say 10.6% (IBES long-term growth June 2010). There
is thus a 5%+ difference in expected annual S&P500 EPS growth rates between 2010 and
2014. As our graph illustrates, this expectations gap has not been wider since 2008, when
it reached around 10% (after the Lehman shock in September 2008). In the summer
months ahead of the Lehman collapse, the gap was in fact also 5%. Hence today’s equity
market resembles the market of mid-2008 in terms of expectations. Back then investors
were right in thinking the situation was set to deteriorate. But who is right this time?

Reporting season will provide the succour the market needs

This time investors are too worried, in our view, and if we are correct and H2 10 delivers
a gentle slowdown rather than a hard landing, we believe the equity market could rise
10-15% in H2 10. We base this on the good health of the corporate sector in the west. The
earnings base has recovered strongly after the profit cycle bottomed in Q2 09 and under-
rather than an over-investment in jobs and capital equipment has been the case in recent
years. Hence, the corporate sector is the strong anchor that will draw investors back to
equities. In the short term, we expect that Q2 earnings, in particular, will provide the
succour investors are currently yearning for. While companies may not know when the
slowdown will strike, they are well prepared in that they have not yet invested in M&A,
capex or jobs. Industry giants as diverse as Siemens, Samsung and AP Moller Maersk are
all making positive noises ahead of their quarterly reports, and barring new
disappointments in connection with the EU’s stress-test of the bank sector’s sensitivity to
future EU recessions (to be presented 23 July), we expect that double-dip fears among
investors will be considerably calmed, with equity price increases as the tangible result.

Chief Analyst
Morten Kongshaug
+45 4512 80 57

12 | 09 July 2010
Weekly Focus

Fixed Income: ECB’s Trichet in a good mood

ECB comfortable with EONIA rates
The expiry of the one-year LTRO from the ECB has been a game changer for the euro
short end. Excess liquidity has been reduced substantially as there is no economic Key events of the week ahead
incentive for banks to take more funds than needed on the ECB auctions. The carry
 Earnings season kicks off next
opportunities are much smaller compared with last year and healthy banks can get week – this will be a key driver of
liquidity cheaper through the market than from the ECB. The implication of lower excess risk sentiment
liquidity and a shorter duration on liquidity is higher risk premia in the EONIA market.
 Fed’s Bernanke and Duke due to
This has been reflected in a steeper EONIA curve. On top of this, three-month Euribor speak
rates have crept higher day by day since early April. Despite this, ECB president Trichet
 US retail sales and CPI
did not express concerns about the latest market developments at the ECB meeting
yesterday. Instead, he explained in detail in the Q&A how much excess liquidity had been  FOMC minutes
reduced after the 12-month LTRO and that the increase in market rates was a natural
consequence. Later, he said that it would be a mistake to interpret these market moves as
a monetary policy signal. He added that it is a result of the banks’ own decisions to
reduce liquidity (as the ECB is still offering full allotment at its auctions) and that it is not
EONIA rates have crept higher
surprising this is reflected in the market.
0.70 0.70
We believe the higher risk premia will stay in the euro money markets. The move higher 0.65 0.65
0.60 3M 0.60
in rates is still fairly limited and it is an unavoidable effect of getting the markets to 0.55 1W 0.55
0.50 0.50
function better on their own rather than from respiratory help via the ECB. The ECB has 0.45 0.45
0.40 0.40
continuously warned about banks getting too addicted to the extraordinary measures and Fixing
0.35 0.35
0.30 0.30
is eager to signal some kind of exit. It will require a lot more stress and higher libor rates 0.25 0.25
Feb Mar Apr May Jun Jul
in our view to get the ECB to introduce new measures. 10

Event risks are however high at the moment and the release of the bank stress tests on Source: Reuters Ecowin and Danske Markets
23 July is the next big (known) event. A large negative market reaction to these might
trigger some action from the ECB. On the positive side, peripheral markets have on
balance performed well over the past two weeks. In particular, the Spanish spread
towards Germany has tightened while the Greek spread continues to widen.
10-year yields have risen from June’s
Next week: US retail sales, Fed speeches and earnings reports
4.25 4.25
% US 10yr Treasury yield %
Despite some mixed data out of the US this week, US and German 10-year yields 4.00 4.00
3.75 3.75
managed to rise, suggesting that at current levels, bond markets are already pricing a lot 3.50 3.50
3.25 3.25
of economic malaise in the second half of the year. With retail sales likely to show decent 3.00 3.00
2.75 2.75
10yr German Bund yield
growth in underlying spending and our equity research team expecting strong Q2 2.50 2.50
2.25 2.25
earnings, the positive sentiment could continue to add upward pressure on 10-year bond 2.00 2.00
Jan Apr Jul Oct Jan Apr Jul
yields. Further, Fed Chairman Bernanke and board member Duke will speak. We doubt 09 10
there will be much new information, but with the recent heightened speculation about
Source: Reuters Ecowin and Danske Markets
possible new quantitative easing measures from the Fed, their remarks will be scrutinised
by markets. Finally, FOMC minutes from the June meeting will be released on

Senior Analyst
Signe Roed-Frederiksen
+45 45 12 82 29

13 | 09 July 2010
Weekly Focus

FX: EUR has wind in its sails

EUR has had the wind in its sails over the past month, with EUR/USD climbing from
1.20 to almost 1.27. This appreciation follows a series of disappointing US data which Weekly change, %
have pulled down US yields, while European yields have risen with the ECB withdrawing AUD
liquidity from the market. CAD
The FX market is also focusing less on the risk of collapse in the European bond market, CHF
and the risk premium the market previously attached to EUR has shrunk. Finally, it may USD
be that buybacks of short EUR positions have accentuated the latest movement. In this GBP
context we recommend following the weekly IMM data published every Friday night.
-3.0% -1.5% 0.0% 1.5% 3.0%
These provide an overview of speculative positioning in the FX market, which may be
Source: Bloomberg
crucial in the short term – not least over the summer when liquidity can be limited.

However, we think it is still too early to declare the EUR’s troubles over. On 23 July, the
long-awaited stress tests for the European banking sector will be published. The report EUR/USD on the up
could turn the spotlight back onto Europe’s big debt problems. It is also worth noting that
although risk appetite in financial markets has improved, the Spanish/German 10Y
government bond spread has actually widened by more than 20bp in less than three

Fears of a global double-dip have mounted on the back of weak US data and a downturn
in business confidence indicators. We do not anticipate a double-dip (see focus article),
but there is a growing risk of the market pricing in a greater probability of such a
scenario. This would tend to strengthen USD by triggering fresh safe-haven flows into US Source: Ecowin

Our FX forecast indicates a fall in EUR/USD to 1.15 on a three-month view. Following

the latest rise in EUR/USD, this would be quite a sharp movement in just three months, CHF more stable
so we have our forecast under review. However, we still think that the overall risk for
EUR/USD is on the downside in the coming months.

On the other hand, as ECB governor Jean-Claude Trichet pointed out at last week’s rate
meeting, the soccer World Cup has shown that Europe should never be underestimated. If
the economies of southern Europe can convince markets that they have their budget
deficits under control, the stress tests prove unproblematic, global growth remains intact,
and yield spreads continue to be to EUR’s advantage, it is not beyond the realms of
possibility that EUR/USD has already bottomed out in the present cycle. Source: Ecowin

CHF intervention not to be ruled out

As financial markets have regained their risk appetite, we have seen some stabilisation in
EUR/CHF. We also feel that the risk to CHF has become more two-sided. There are
already some speculative long CHF positions in the market, and the low inflation figures
for June go to show that the risk of deflation – and so intervention by the SNB – cannot
be ignored altogether. The latest messages from the SNB have also been less dismissive
of intervention, and in general we reckon that the risk of big swings in EUR/CHF remains
Senior Analyst
John Hydeskov
+ 45 4512 8497

14 | 09 July 2010
Weekly Focus

Commodities: Supply fears support oil

Past week: Healthy gains across the board
Commodities have on the whole witnessed decent gains this week as risk sentiment has
improved and supply factors have given support. The grains segment has been boosted by Weekly changes
news of overly wet conditions for crops in the US, which could damage yields this season LIFFE Wheat
despite earlier indications of otherwise good crop progress. We discuss the factors driving Steel
oil process below. Copper
Oil higher as supply concerns lend support Fuel oil 3.5%
Oil prices rose briefly above USD75/barrel this week as a range of factors provide ICE Jet fuel
support. First of all, the weekly report on US oil stocks showed massive draws last week. ICE Gasoil
ICE Brent
However, up until now there has been little sign of the usual seasonal fall in inventories,
usually seen when refiners start to produce for the driving season. The major reason for 0 2 4 6 8 10 12
Five-day change, %
the stock draw was that hurricane Alex forced some producers in the US Gulf to cease
Source: Bloomberg, Danske Markets.
production and Mexico closed loading terminals, which send output to US refiners.

Second, the US Department of Energy said in its monthly Short-Term Energy Outlook
released this week that the production impact of the six-month drilling moratorium in the
US is likely to be higher than forecast earlier: 31,000 b/d in Q4 and 82,000 in 2011.
Week ahead
However, the restrictions on offshore drilling are now leading oil companies to seek out
other options, such as shallow waters and shale oil. Further adding to the range of  IEA Oil Market Report (Tue)
supportive supply factors was news that a weather system in the Mexican Gulf could
 US retail sales (Tue)
develop into a cyclone. This could disturb production further.
 Euroland industrial prod (Wed)
Finally, important for the energy demand outlook, the IMF released its quarterly World
Economic Outlook this week and the fund raised its global growth forecast to 4.6% y/y  Opec monthly report
(previously 4.2%). Notably, the IMF also highlighted risks to the recovery, stressing that
 US industrial production (Thu)
higher growth forecasts derive mainly from better-than-expected H1 figures.
Notwithstanding, this will likely imply that the International Energy Agency (IEA) will
raise their global oil demand forecast when publishing its monthly report next week.

On the whole, we still look for oil prices to average USD81-82 in H2 and edge higher to Light cracks spreads narrowing again
USD90 in 2011 as OCED demand picks up. However, risks to our forecasts are
Gasoil (USD/bbl)
extraordinarily high at present as uncertainties regarding the global recovery are large and 20 Heat oil
the demand outlook is fragile. Gasoline
Regarding the price of oil products – i.e. crack spreads – these have narrowed a little of
late following a surge in, not least, gasoline prices earlier in the year. Specifically, the 10
ICE gasoil spread to Brent is now around USD11.5/barrel compared with a high of
USD14/barrel in mid-June. Overall, we see light-heavy spreads widening moderately over
our forecast horizon, not least distillate prices could be pushed higher as manufacturing 0
activity gains pace. Jun-09 Dec-09 Jun-10

In contrast, the spread between fuel oil and crude prices remains compressed – i.e. fuel oil Source: Danske Markets.
trades at a relatively small discount to Brent. We expect this to continue into early-2011
as we see Opec keeping production levels largely at current levels and thus the amount of
heavy oil put on the market to stay broadly unchanged.

Senior Analyst
Christin Tuxen
+45 4513 7867

15 | 09 July 2010
Weekly Focus

Market commentary
This week has seen strong activity in the primary market, despite the holiday season and
iTraxx Europe (5Y CDS)
positive sentiment, characterised by a general spread tightening. New issuance has moved
down the capital structure from covered bonds, which saw strong new issuance during 250

June, to senior financials. Four new deals alone were announced on Thursday (UBS, 200

SocGen, RBS and an Intesa Sanpaolo LT2). The market seems able to absorb the volume
but subsequent spread performance in the secondary market is limited. Spread
differentiation remains significant with strong names able to print tighter than CDS, while 100

weaker names come with a material premium. As the primary market was effectively

closed during the latter part of spring, we would not be surprised to see continued healthy
issuance despite competition from the summer weather. 0
jun-07 dec-07 jun-08 dec-08 jun-09 dec-09 jun-10

The iTraxx Main investment grade index currently trades at 119 basis points (9bp tighter Source: Markit
during the week), whereas the crossover index trades at 534bp (33bp tighter). iTraxx
Senior Financials outperformed Main during the week and trades at 139bp (17bp tighter).
We believe much bad news has already been discounted but with weak consumer iTraxx Crossover (5Y CDS)
confidence numbers coming out from the US as well as ongoing fiscal challenges in many 1,400
countries, growth is likely to be shallow. Substantial spread tightening therefore seems 1,200

unlikely in the short term. Still we remain constructive on non-financial credit on the back 1,000

of sound company fundamentals and improving credit metrics. Many Nordic Q2 interim 800

reports are out next week (Investor, SEB, SKF, Hafslund, Fortum, Elisa, TVO) and given 600

solid expected performance, outlook statements will attract most attention, in our view. 400


Upcoming European bank stress tests 0

jun-07 dec-07 jun-08 dec-08 jun-09 dec-09 jun-10

Yesterday, CEBS came out with a press release naming the 91 banks to be included in the
upcoming stress tests, as well as confirming the date of July 23 for publication. The four Source: Markit

Swedish large cap names were included, as expected – as well as Danske, Jyske and
Sydbank in the Danish universe and OP-Pohjola Group (parent of Pohjola Bank) in
Finland. Our view is that the market reaction is more likely to be positive than negative,
as so many market participants have been sceptical. With regard to the Nordic banks, this
could focus attention on their strong capitalisation and limited exposure to PIIGS. In
combination with our expectations of solid Q2 reports this could be a short-term positive.

Table 1. Selected new issues during the week Senior Analyst

Peter Tind Larsen, PhD
Bond spread on +45 45 12 8508
Name Rating Coupon Maturity Currency Size issue date, (bp)*
Deutsche Telekom BBB+/Baa1 4.25% 12Y EUR 1.25bn 173
Swedish Match BBB/Baa2 4.34% 5Y SEK 0.7bn NA.
Barclays (LT2) AA-/Aa3 6% 11Y EUR 1.5bn 343
Rabobank AAA/Aaa 4.125% 15Y EUR 1bn 162
BNP Paribas AA/Aa2 2.875% 5Y EUR 1bn 87
Note: Ratings are Moody's and S&P. * Mid-Swaps for Fixed, Discount Margin for floating.
Source: Danske Markets and Bloomberg.

16 | 09 July 2010
Weekly Focus

Financial views
 The stock market is nervous that the economic slowdown phase that we are facing in
Equities and US 10Y yield
H2 10 will be a trough ride that will bring the global economy to its knees for the
second time in three years. There will be room for more sell-offs if we experience a 1275 Index % 3.9
true double-dip for the global economy. In the short term investors will – for a period 1175

at least – be occupied with the Q2 reporting season which, in our view, is likely to 1125 3.5
1075 3.3
dampen the fears of a double-dip in H2 10. We expect solid corporate earnings 1025 << S&P500
US 10-year gov bond >> 3.1
growth in Q2, which together with modestly positive profit guides for H2 10 will 975
925 2.9
likely calm the nerves of investors. Together with the Q2 reports, we anticipate the Jan Feb Mar Apr May Jun Jul
release of the EU banking stress tests on July 23, to remove uncertainty for the 10

banking industry, which more than any sector has been hit by fears in connection with Source: Reuters Ecowin
the PIIGS crisis. We stick to our global markets forecast of 10-15% end-year 2010.

Fixed Income
 Global: Risk sentiment remains the key driver of global bond yields, as financial
165 98
markets continue to trade on the European debt crisis and the fear of a hard landing in
155 << EUR/USD 96
the global economy. Following the recent sharp decline in yields, bond markets are
145 94
now pricing in a substantial slowdown in H2. Until evidence of resilience in global 135 92
growth and/or improvement in debt markets is seen, bond yields will be depressed. 125 90
115 88
 Euroland intra-spreads: We remain overweight on Germany, Italy, the Netherlands, USD/JPY >>
105 86
Austria and Ireland. We are underweight on France, Spain, Greece and Portugal. We Jul Sep Nov Jan Mar May Jul
09 10
recommend 5Y Italy versus France and 30Y Italy versus Germany.
Source: Reuters Ecowin
 Scandinavian government bonds are performing well relative to Euroland and we
remain overweight 10Y DGBs and 10Y SGBs vs France.

Credit spreads
 While July is typically a quiet month, we have seen healthy activity in the primary
25.0 % points % points 6.5
market following the effectively closed period in May and early-June. The market has
20.0 5.5
been able to absorb the volume, but subsequent performance in the secondary market
15.0 4.5
has been limited. Going forward we expect liquidity to continue to improve.
10.0 3.5
 We are positive on investment grade credit from non-financial companies. Company
5.0 US credit spread (Baa) >> 2.5
credit metrics are sound and we thus consider the default risk in the short- to medium- << Eur high yield spread
0.0 1.5
term as very low. Furthermore, companies of high credit quality offer an alternative 07 08 09 10

for investors seeking an exit from what they perceive to be risky sovereign exposure.
Banks are likely to remain under pressure for some time on the back of sovereign Source: Reuters Ecowin

distress and the austerity measures currently being undertaken.

FX outlook
Commodity prices
 The euro has received support as the ECB managed a reduction of its liquidity
90 USD/barrel Index 4000
provision without adding to already high market tension. However, with Spain bonds
85 3750
<< Oil (WTI)
still suffering and the EU banking stress-tests coming up attention remains on the euro 80 3500
debt crisis and the uptick in EUR/USD is likely to be temporary. EUR/CHF has tested 75 3250
70 3000
new lows, but with speculative investors already long the Swiss franc the risk picture 65 2750
LME metal prices >>
has become more two-sided – not least after currency intervention once again has 60 2500
55 2250
moved closer after the lower than expected CPI numbers.
Jul Sep Nov Jan Mar May Jul
09 10

Source: Reuters Ecowin

17 | 09 July 2010
Weekly Focus

 SEK has performed on global risk appetite and strong growth momentum should
warrant lower levels of EUR/SEK going forward. NOK has been weak lately, but
given the latest spike in risk appetite it offers value once again.

 Commodities have recovered lately, as risk sentiment has improved and supply
factors have given support. We look for oil prices to consolidate recent gains to the
USD75/barrel level – base metals are likely be sensitive to any surprises in industrial
production figures out of the US and Euroland next week.

18 | 09 July 2010
Weekly Focus

Macroeconomic forecast
Macro forecast, Scandinavia
Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

Denmark 2009 -4.7 -4.6 3.4 -13.0 -1.7 -10.2 -13.2 1.3 3.6 -3.0 38.0 3.9
2010 1.5 2.8 1.6 -6.9 0.8 2.6 1.4 2.2 4.1 -5.6 42.1 4.1
2011 1.8 2.3 0.5 1.2 0.2 3.9 3.9 1.8 4.0 -4.5 46.5 4.1
Sweden 2009 -5.1 -0.8 1.7 -16.0 -1.5 -12.4 -13.2 -0.3 8.4 -2.1 38.9 7.2
2010 2.7 2.2 1.5 2.3 1.1 9.1 11.3 1.3 9.3 -3.5 43.6 6.3
2011 1.5 1.4 1.3 1.8 0.0 3.3 3.2 2.1 10.1 -4.1 47.2 6.6
Norway 2009 -1.6 0.2 4.8 -7.9 -2.1 -3.9 -10.3 2.1 3.1 8.0 26.0 19.0
2010 1.8 3.9 2.7 -7.2 0.8 1.1 1.9 2.5 3.3 12.0 26.0 24.9
2011 3.1 4.2 2.3 3.8 0.1 0.3 5.5 1.7 3.2 10.0 - 17.0

Macro forecast, Euroland

Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

Euroland 2009 -4.0 -0.5 2.3 -10.8 -0.8 -12.6 -11.4 0.3 9.4 -6.3 78.7 -0.7
2010 1.3 0.1 1.4 -2.0 0.4 7.9 5.8 1.4 9.8 -6.7 84.8 -0.3
2011 2.1 1.2 1.1 3.8 0.0 5.4 4.6 1.6 9.5 -6.0 88.5 -0.2
Germany 2009 -4.9 -0.1 3.4 -13.5 0.4 -14.5 -9.5 0.2 7.5 -3.5 73.0 4.0
2010 1.9 -1.0 2.1 9.9 0.1 8.9 8.8 1.0 8.1 -5.0 76.5 3.7
2011 2.7 1.7 1.4 7.4 0.0 7.0 6.7 1.2 7.6 -3.0 79.0 3.2
France 2009 -2.6 0.7 2.8 -7.0 -1.6 -10.7 -9.8 0.1 9.4 -8.3 78.0 -2.3
2010 1.6 1.3 1.7 -1.0 0.3 7.9 5.9 1.2 10.0 -8.5 82.0 -2.5
2011 1.8 1.4 1.0 4.2 0.1 6.2 6.2 1.5 9.7 -7.0 87.0 -2.2
Italy 2009 -5.1 -1.6 1.6 -13.1 -0.3 -19.2 -15.2 0.7 7.8 -5.3 114.6 -2.2
2010 1.3 0.9 1.3 0.1 0.2 8.0 6.0 1.9 8.6 -5.0 116.0 -2.0
2011 2.0 1.0 1.0 5.2 0.1 8.4 7.2 2.0 8.3 -4.5 117.5 -1.7
Spain 2009 -3.7 -5.1 5.0 -15.5 0.0 -12.0 -18.2 -0.3 18.1 -11.2 54.3 -5.2
2010 -0.3 -0.5 1.8 -5.6 0.0 7.2 4.6 0.9 20.1 -10.0 66.0 -4.1
2011 1.0 0.7 0.2 0.2 0.0 6.1 4.1 1.9 19.8 -8.5 73.0 -3.2
Finland 2009 -7.8 -2.1 0.7 -13.4 0.0 -24.3 -22.3 0.0 8.2 -2.2 44.0 1.4
2010 1.8 1.0 0.5 -3.0 0.0 4.0 3.5 1.4 9.0 -3.9 49.5 1.4
2011 2.5 1.5 0.0 4.0 0.0 8.0 5.0 2.0 8.6 -3.3 52.0 2.2

Macro forecast, Global

Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

USA 2009 -2.4 -0.6 1.8 -18.3 -0.6 -9.6 -13.9 -0.3 9.3 -9.9 83.8 -2.9
2010 3.3 2.7 0.3 2.9 1.2 12.1 11.3 1.6 9.4 -10.2 91.6 -3.9
2011 3.2 2.7 9.4 2.8 -0.4 6.4 6.4 1.6 9.4 -8.8 96.8 -3.8
Japan 2009 -5.2 -1.1 1.6 -14.4 -0.3 -24.1 -16.9 -1.4 4.7 -8.0 220.0 2.8
2010 3.3 2.2 1.6 -1.1 -0.1 23.7 2.6 -1.0 4.3 5.2 220.4 3.4
2011 2.1 1.7 1.0 2.5 0.0 5.4 5.4 0.1 - - - 3.0
China 2009 8.7 - - - - - - -0.7 4.3 -3.3 23.6 5.8
2010 10.2 - - - - - - 3.3 4.0 -2.2 20.5 4.8
2011 9.5 - - - - - - 3.5 4.0 -2.2 20.5 5.5
UK 2009 -4.9 -3.2 2.8 -14.9 -1.2 -10.6 -13.3 2.2 7.6 -10.4 68.6 -1.3
2010 1.3 0.9 3.0 -2.0 1.1 4.4 0.9 3.2 8.0 -10.7 80.3 -2.0
2011 2.3 2.6 2.2 2.2 1.3 6.9 5.0 2.1 8.1 -8.8 88.2 -1.2

Switzer- 2009 -1.5 1.2 2.5 -3.7 1.0 -9.3 -5.7 -0.5 3.7 1.4 38.8 8.3
land 2010 2.0 1.8 0.5 2.1 -0.7 7.0 5.0 1.0 3.8 -1.0 40.0 9.0
2011 1.7 1.6 1.0 1.5 -0.2 4.0 4.0 1.2 3.5 -0.5 39.0 10.0
Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.

19 | 09 July 2010
Weekly Focus

Financial forecast
Bond, money and currency markets
Key int. Currency Currency Currency
2-yr swap yield 10-yr swap yield
rate vs EUR vs USD vs SEK
USD 09-Jul 0.13 0.93 3.07 126.9 - 750.9
+3m 0.13 1.30 3.60 115 - 817
+6m 0.13 1.45 3.60 118 - 780
+12m 0.75 1.95 3.60 127 - 724
EUR 09-Jul 1.00 1.44 2.89 - 126.9 953.1
+3m 1.00 1.30 3.00 - 115 940.0
+6m 1.00 1.35 3.10 - 118 920.0
+12m 1.00 1.65 3.40 - 127 920.0
JPY 09-Jul 0.50 0.45 1.22 112.2 88.4 8.50
+3m 0.10 0.50 1.45 109 95 8.62
+6m 0.10 0.65 1.55 117 99 7.86
+12m 0.10 1.00 1.60 130 102 7.08
GBP 09-Jul 0.50 1.43 3.40 83.6 151.8 1139.7
+3m 0.50 1.55 3.60 84.0 137 1119
+6m 0.50 1.60 3.75 85.0 139 1082
+12m 0.50 1.95 4.05 82.0 155 1122
CHF 09-Jul 0.25 0.61 1.93 133.5 105.2 714.0
+3m 0.25 0.60 2.00 130 113 723
+6m 0.50 0.95 2.15 128 108 719
+12m 1.00 1.60 2.50 135 106 681
DKK 09-Jul 1.05 1.79 3.06 745.5 587.3 128
+3m 1.05 1.60 3.20 744 647 126
+6m 1.05 1.65 3.25 744 631 124
+12m 1.05 1.95 3.50 745 587 123
SEK 09-Jul 0.50 1.78 3.00 953.1 750.9 -
+3m 0.50 2.00 2.70 940 817 -
+6m 1.00 2.30 2.90 920 780 -
+12m 1.50 3.00 3.45 920 724 -
NOK 09-Jul 2.00 3.17 4.10 809.5 637.8 117.7
+3m 2.00 3.20 4.30 765 665 122.9
+6m 2.50 3.50 4.45 760 644 121.1
+12m 3.25 4.25 4.80 760 598 121.1
PLN 09-Jul 3.50 4.57 5.34 407.8 321.3 233.7
+3m 3.50 5.00 5.85 395 343 238
+6m 3.50 5.20 6.10 395 335 233
+12m 3.50 5.80 6.35 390 307 236

Equity markets
Price trend Regional
Price trend
Risk recommen-
3 mth. 12 mth.
Regional dations
USA Låg -5% till +5% 0% till +10% Undervikt
Japan Hög -5% till +5% 0% till +10% Neutral
Emerging markets (USD) Hög -5% till +5% 0% till +10% Övervikt
Pan-Europe (EUR) Låg -5% till +5% 0% till +10% Neutral
Sweden Medel -5% till +5% 0% till +10% Neutral
Norway Hög -5% till +5% 0% till +10% Neutral
Denmark Hög -5% till +5% 0% till +10% Neutral

2010 2011 Average
07-Jul Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011
NYMEX WTI 72 81 81 80 85 87 89 92 94 82 91
ICE Brent 71 79 81 79 84 86 88 91 93 81 90
Copper 6,605 7,274 7,072 7,200 7,500 8,000 8,400 8,600 8,700 7,261 8,425
Zinc 1,850 2,307 2,067 1,900 2,000 2,100 2,150 2,200 2,250 2,069 2,175
Nickel/1000 19 20 23 21 22 22 23 23 24 21 23
Steel 433 464 491 460 475 500 510 530 550 473 523
Aluminium 1,995 2,199 2,131 2,100 2,100 2,150 2,200 2,300 2,400 2,132 2,263
Gold 1,188 1,110 1,194 1,200 1,150 1,100 1,050 1,000 1,000 1,164 1,038
Matif Mill Wheat 149 126 131 132 123 120 127 127 127 128 125
CBOT Wheat 507 518 490 470 450 475 500 500 500 482 494
CBOT Corn 362 389 379 375 410 420 430 440 450 388 435
CBOT Soybeans 970 969 932 975 990 1,000 1,010 1,020 1,030 967 1,015

Source: Danske Bank

20 | 09 July 2010
Weekly Focus

Key Data and Events in Week 28

Monday, July 12, 2010 Period Danske Bank Consensus Previous

- CNY Trade balance (from 7/10) USD bn Jun 20.3 15.6 19.5
- OTH Earnings: Alcoa
- CNY Export (from 7/10) y/y Jun 35.1% 38.0% 48.5%
- CNY Import (from 7/10) y/y Jun 24.5% 35.4% 48.3%
- JPY Upper House election (on 7/11)
1:50 JPY Domestic CGPI m/m Jun -0.2%|0.6% 0.1%|0.4%
9:30 DKK CPI m/m|y/y Jun 0.2%|2.1% 0.0%|2.2%
10:30 GBP GDP, final q/q|y/y 1st quarter 0.3%|-0.2% 0.3%|-0.2%
15:00 USD Fed's Lacker (non-voter, hawk) speaks
16:00 USD Fed's Bernanke (voter, neutral) speaks
23:15 USD Fed's Duke (voter, neutral) speaks

Tuesday, July 13, 2010 Period Danske Bank Consensus Previous

- OTH Earnings: Intel
- EUR Greek auction of 26 week T-bills (EUR1.25bn)
1:01 GBP RICS House Price Balance Index Jun 20% 22%
3:30 AUD Business confidence Index Jun 5
6:30 JPY Industrial production, final m/m|y/y May -0.1%|20.2%
7:00 JPY Consumer sentiment survey Index Jun 42.5 42.7
8:45 FRF Inflation (HICP) m/m|y/y Jun 0.0%|1.8% 0.1%|1.9%
9:00 ESP Inflation (HICP) m/m|y/y Jun 0.2%|1.5%
9:15 CHF Producer & Import prices m/m|y/y Jun 0.3%|1.4%
10:00 SEK Unemployment % Jun 4.5
10:30 GBP CPI m/m|y/y Jun 0.0%|3.2% 0.2%|3.4%
11:00 DEM ZEW economic sentiment Index Jul 29.8 25.0 28.7
11:00 DEM ZEW current situation Index Jul 0.0 -3.0 -7.9
11:15 EUR ECB allots funds in 3 month and 6 day refinancing operations
14:30 USD Trade balance USD bn May -39.0 -40.3
20:00 USD Budget statement USD bn Jun -73.8 -135.9

Wednesday, July 14, 2010 Period Danske Bank Consensus Previous

- OTH Earnings: Marriott
0:45 NZD Retail sales m/m May 0.5% -0.3%
1:01 GBP Nationwide consumer confidence m/m|y/y Jun 65
11:00 EUR CPI - core, Final m/m|y/y Jun 0.8%|… 0.9%|… 0.8%|…
11:00 EUR Industrial production m/m|y/y May 1.2%|… 0.9%|11.4% 0.8%|9.5%
11:00 EUR CPI, final m/m|y/y Jun 0.0%|1.4% 0.0%|1.4% 0.1%|…
13:00 USD MBA mortgage applications 6.7%
14:30 USD Import prices m/m|y/y Jun -0.4%|5.2% -0.6%|8.6%
14:30 USD Retail sales less autos m/m Jun 0.1% -0.1% -1.1%
14:30 USD Retail sales m/m Jun -0.3% -0.2% -1.2%
14:30 USD Retail sales less autos & gas m/m Jun 0.3% 0.2% -0.8%
20:00 USD Minutes from FOMC meeting
Source: Danske Markets

21 | 09 July 2010
Weekly Focus

Calendar - continued

Thursday, July 15, 2010 Period Danske Bank Consensus Previous

- JPY BoJ Monetary Policy Announcement % 0.10 0.10 0.10
- OTH Earnings: JPMorgan Chase, Novartis, Google
4:00 CNY GDP y/y 2nd quarter 10.3% 10.5% 11.9%
4:00 CNY PPI y/y Jun 6.8% 7.1%
4:00 CNY CPI y/y Jun 3.3% 3.3% 3.1%
4:00 CNY Retail sales value y/y Jun 18.8% 18.7%
4:00 CNY Industrial production y/y Jun 15.0% 15.2% 16.5%
4:00 CNY Fixed assets investments y/y Jun 25.2% 25.9%
10:00 EUR ECB publishes July monthly report
11:00 CHF ZEW Index Jul 17.5
14:30 USD PPI m/m|y/y Jun -0.1%|3.1% -0.1%|3.1% -0.3%|5.3%
14:30 USD PPI core m/m Jun 0.1%|1.1% 0.1%|1.1% 0.2%|1.3%
14:30 USD Initial jobless claims 1000 453 454
14:30 USD Empire Manufacturing m/m Jul 18.25 19.57
15:15 USD Industrial production m/m Jun -0.1% 0.0% 1.2%
15:15 USD Capacity utilization Jun 74.2% 74.7%
16:00 USD Philadelphia Fed. Index Jul 10.0 8.0
16:00 USD Senat hearing on Fed nominations

Friday, July 16, 2010 Period Danske Bank Consensus Previous

- OTH Earnings: Mattel, Citigroup, LG Displayy, General Electric, Bank of America
0:45 NZD CPI q/q|y/y 2nd quarter 0.4%|2.0%
1:15 USD Fed's Lacker (non-voter, hawk) speaks
1:50 JPY Tertiary Industry Index m/m May -0.7% 2.1%
11:00 EUR Trade Balance (s.a.) EUR bn May 1.6
14:30 USD CPI m/m|y/y Jun -0.1%|1.1% 0.0%|1.2% -0.2%|2.0%
14:30 USD CPI ex. food & energy m/m|y/y Jun 0.1%|0.9% 0.1%|0.9% 0.1%|0.9%
14:30 CAD Leading indicator m/m Jun 0.9%
15:55 USD University of Michigan Confidence Index Jul 73.2 74.0 76.0

During the week Period Danske Bank Consensus Previous

Sun 11 - 15 CNY Housing Prices Index Jun 12.4
Mon 12 - 15 CNY Money supply M2 y/y Jun 18.8% 21.0%
Mon 12 - 15 CNY Foreign Exchange Reserves bn. Usd Jun 2.47 2.45
Mon 12 - 16 CNY Actual FDIC Cumulative y/y Jun 15.8% 27.5%
Source: Danske Markets

22 | 09 July 2010
Weekly Focus

This report has been prepared by Danske Research, which is part of Danske Markets, a division of Danske Bank.
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23 | 09 July 2010