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Investment Research — General Market Conditions

08 august 2010

Danske Daily
Key news
Market movers today: Today
Weak US employment sent equities lower, but market staged recovery in late hours
No market movers today [Tex
Bond yields sharply lower
Market awaits Fed meeting
Wheat prices retreated somewhat on Friday from 23-month high
Tuesday
Fitch to postpone rating upgrades on demand uncertainty
All eyes on Fed meeting tomorrow Market overview
07:30 1 day +/-,%

S&P500 (clo se) 1121.6 -0.37


Markets Overnight

S&P500 fut (chng fro m clo se) 1118.6  -0.08
Nikkei 9552.2  -0.93
Equity markets suffered on Friday as the US employment report disappointed once Hang Seng 21677.1  -0.01
again adding only 71k private jobs in July – still far from the job growth needed to 17:00 07:30 +/-, bp
reinvigorate the US consumers – see Flash Comment. Equities staged a rebound, though,
US 2y gov 0.51 0.51  0.8
in the last hour of trading and limited the loss in S&P500 to 0.4% after being down close US 10y gov 2.82 2.82  0.2

to 2% earlier in the session. Stock markets in Asia are mixed with Nikkei down while iTraxx Europe (IG) 98 104  6.3
Chinese stocks are slightly up. iTraxx Xover (Non IG) 384 472  88.0

+/-, %
US bond yields were sent sharply lower on the employment report as it raises EUR/USD 1.331 1.328  -0.21
USD/JPY 85.100 85.470 0.43
expectations that Fed may add further stimulus soon. PIMCO’s Bill Gross’ comments that EUR/CHF 1.38 1.38

 0.19
Fed won’t raise rates in the next 2-3 years added to the bullish sentiment in bonds. US 10- EUR/GBP 0.833 0.831  -0.17
EUR/SEK 9.415 9.403  -0.13
year yields reached a new cycle low at 2.81% and have stayed close to that level in Asia EUR/NOK 7.92 7.90  -0.23
this morning. US-2-year yields went to a new record low of 0.5%. USD
Oil Brent, USD 80.8 80.5  -0.28
In FX markets EUR/USD rose above 1.33 Friday and is trading slightly below 1.33 this Gold, USD 1208.1 1207.4  -0.06
morning. Scandi currencies have weakened somewhat on the back of lower risk appetite. Note:
* The iTraxx Europe Index show the spread
development for the most liquid investment grade CDS
Warnings of likely food price rises at the consumer level continue as the Russian drought
contracts in the euro credit market.
has pushed up not only wheat prices but also the price of barley, an important feed grain
**The iTraxx Europe Crossover show the spread
for the livestock industry. Barley prices have risen 130% since mid-June – see FT. Wheat
development of the most liquid non-investment grade
prices retreated on Friday after reaching a 23-month high on speculation that farmers will CDS contracts in the euro credit market.

increase plantings worldwide and stock piles are high – see WSJ. A rise in consumer food Source: Bloomberg

prices will work as a tax on consumption and would provide further headwind to
consumption growth globally. Oil prices fell to USD81 per barrel on the weak US job
report.

According to Financial Times Fitch ratings will announce Monday that it has pushed
back its expectations for broad rating upgrades of European companies. Despite a strong
series of earnings results this year, Fitch refers to increased demand uncertainty on the
back of the fiscal retrenchment announced by governments – see FT.

Chief Analyst
Allan von Mehren
+45 4512 8055
alvo@danskebank.dk

www.danskeresearch.com
Danske Daily

Global Daily
Focus today: With no market movers on the agenda the market will look forward to the
German exports at full steam
Fed meeting tomorrow. Speculation has risen that Fed will soon add further stimulus as
85 Eur bn 85
the recovery is beginning to sputter. One option is that Fed announces it will reinvest 80
Eur bn
80
German exports
proceedings from expiring bonds in its bond purchase programme. Later this week focus 75 75
70 70
turns to euro area GDP and US retail sales – both due for release Friday. 65 65
60 60
Fixed income markets: Bond yields continue the downward trend as recovery fears 55 55
intensify in US. With Fed expected to be on hold for a very long time – and possibly add 50 50
02 03 04 05 06 07 08 09 10
to stimulus – carry is in focus and investors are piling into the 5-7-year segments which
offer the best carry/roll down. This points to a continuation of the downward trend in Source: Reuters Ecowin

yields. There is a risk of a disappointment from Fed Tuesday, though, as it may find it
premature to add stimulus. This could trigger a slight upward correction in yields. In
US S&P500 future
Germany yields reached new lows on Friday in both 10-year and 30-year yields. The long
end continues to perform very well. With 2-year yields more locked as ECB is on a 1124 1124
gradual exit path this has led to a substantial flattening of the yield curve. 1114 1114

FX markets: Today’s key events are not expected to attract much attention in the FX 1104 1104

market. Instead the market will be looking forward to the important FOMC meeting 1094 1094

tomorrow. There is growing speculation that the Fed will reintroduce new quantative 1084 1084
Thu Fri Mon Wed Thu Mon
measures not least after Friday’s labour market report. If new measures are introduced the
Source: Danske Markets
dollar is expected to suffer further.

Scandi Daily US 10y gov yield


There are no key market movers in Scandi today. 3.07 3.07

2.97 2.97

Key figures and events 2.87 2.87

Monday, August 9, 2010 Period Danske Bank Consensus Previous 2.77 2.77
8:00 DEM Trade balance EUR bn Jun 13.0 12.0 9.7
Thu Fri Mon Wed Thu Mon
9:30 DKK Current account DKK bn Jun 6.0 6.7
9:30 DKK Trade Balance DKK bn Jun 7.5
Source: Danske Markets
Source: Bloomberg and Danske Markets

Global FX
EUR/USD (LHS) USD/JPY (RHS)

1.338
87.4

86.6
1.318
85.8

1.298 85
Thu Fri Tue Wed Thu Mon

Source: Danske Markets

Scandi FX
EUR/SEK (LHS) EUR/NOK (RHS)

9.49 8.00

9.44 7.95

9.39 7.90

9.34 7.85
Thu Fri Tue Wed Thu Mon

Source: Danske Markets

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Today’s market data: 09 August 2010


STOCKS
S&P500 Intraday, % Eurostoxx Intraday, %
Clo se +/-
0.50 0.50
0.70 0.7 DJSTOXX50 2512  -1.0%
Max 0.6 Max 1.2 OM XC20 419  -1.3%
0.10 0.10
Min -0.7 0.00 Min -1.4 0 OM XS30 1065  -0.9%
0.4 0.7 OSE B X 374  0.0%
-0.30 -0.30
-0.70 -0.7

Clo se +/-
-0.70 -0.70 -1.40 -1.4 DOW JONES 10654  -0.2%
15 16 17 18 19 20 21 09 10 11 12 13 14 15 16 17 18 NA SDA Q 2288  -0.2%
Grey line indicates closing of Danish markets
Grey line indicates opening of US markets
1mo nth  4.1% 1mo nth  3.4% S&P 500 1122  -0.4%
Year-to -date  0.6% Year-to -date  -2.8% NIKKEI (07:30) 9552  -1.0%

FX & COMMODITIES
O il,
EUR/USD Intraday E UR 17:00 07:30 +/- G o ld, $ B re nt , $
USD 133.07 132.79  -0.28 07:30 1207.35 80.52
132.7 132.7
JP Y 113.23 113.49  0.26 1day  1.95  0.36
Max ## GB P 83.28 83.14  -0.14 1mo nth  -4.25  5.10
132.2 132.2
Min ## NOK 792.26 790.46  -1.80 Year-t-date  110.40  2.59
131.7
0.5 131.7
SEK 941.51 940.29  -1.22
DKK 745.09 745.12  0.03 CRB C R B , R aw
131.2 131.2 P LN 399.10 399.07  -0.03 1M f ut ure Indus t ria ls
07 10 13 16 19 22 01 04 US D 17:00 07:30 +/- 07:30 274.71 493.09
JP Y 85.10 85.47  0.37 1day  -2.96  0.88
1mo nth  6.38 GB P 159.78 159.72  -0.06 1mo nth  14.09  19.61
Year-to -date  -10.42 CHF 103.45 103.86  0.41 Year-t-date  -8.67  9.60
* The chart plot s 07:30 - 23:00 Fri and 23:00 Sun t o 07:30 Mon

YIELDS & INTEREST RATES


USD-Yields Intraday S pre a d,
P o lic y R a t e 3M bp 17:00 07:30 +/-, bp
0.58
USD2Y USD10Y 2.95 USD 0.25 0.41 16 USD 10Y 2.82 2.82  0
Max 0.6 Max 3.0 EUR 1.00 0.91 -10 USD 30Y 4.01 4.00  -1
0.55
Min 0.5 Min 2.8 2.90 GB P 0.50 0.74 24 JP Y 10Y 1.06 1.03  -4
0 0 DKK 1.05 1.15 10
0.52 2.85 SEK 0.50 0.95 45 07:30(-1)* 17:00 +/-, bp
NOK 2.00 2.69 69 DEM 10Y 2.57 2.52  -5
0.49 2.80 P LN 3.50 3.70 20 DKK 10Y 2.71 2.62  -9
07 10 13 16 19 22 01 04 SEK 10Y 2.64 2.57  -7
USD2Y (lhs) USD10Y (rhs) NOK 10Y 3.34 3.34  0
P LN 10Y 5.85 5.83  -2
* The chart plot s 07:30 - 23:00 Fri and 23:00 Sun t o 07:30 Mon * As of closing previous trading day

10Y Yield Spread to Germany


US Yield Curve German Yield Curve
4.0 4.0 4.0
3.30 3.0
3.5 -0.8
3.0 3.0 -1.8 0.4
3.0 2.5
-2.8 -0.6
2.0 2.0 2.5 2.0
1.27 -3.8
2.0 -1.6
0.71 0.82 ## M ax 0.000 -4.8 1.5 ## M ax 1.100
1.0 1.0 1.5 -5.8
0.30 0.25 0.090.06 1.0 ## M in -8.780
-6.8
1.0 ## M in # # # -2.6
0.0 0.0 0.5 0.5 -3.6
-7.8
USD JPYGBPFRF ITL DKKSEKNOKPLN 0.0 -8.8
-1.0 -1.0 0.0 -4.6
USD2Y USD5Y USD10Y
DEM2Y DEM5YR DEM10Y
-2.0 -1.49 -2.0 D-t-D +/-, bp (right axis)
07:30 (left axis) D-t-D +/-, bp (right axis)
1 month ago (left axis) 07:30 (left axis)
1 month ago (left axis)

C re dit s pre a d, iT ra xx s . 11* Credit spreads S wa p S pre a d, bp**

160 700 17:00 07:30 +/-


07:30 1day 1mo nth 140 600 USD 10Y 1 1  0
Euro pe (IG) 104  2  -11 120 500 JP Y 10Y 3 7  3
100
HiVo l 152  1  -22 400
80
Xo ver (N-IG) 472  0  -58 300 07:30(-1)* 17:00 +/-
60
40 200 EUR 10Y 28 28  0
20 100 DKK 10Y 38 37  -1
Finan. Sr. 114  2  -16 0 0 SEK 10Y 31 33  1
Finan. Sub. 173  3  -21 Aug Sep Nov Dec Feb Mar May Jun Aug NOK 10Y 66 65  -1
No n-finan. 173  3  -21 iTraxx Europe (IG) (left axis)
iTraxx Xover (Non IG) (right axis) * As of closing previous trading day
* Ask price ** Ask price

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