Investment Research General Market Conditions

Monday, 15 August 2011

Danske Daily
Key news
Asian equity markets are up across the region following the positive sentiment from the US markets on Friday. The Swiss franc continues to weaken amid speculation of the SNB introducing a target rate for CHF. Small movements in JPY despite comments from Japanese Finance Minister Noda regarding intervention. Japanese GDP data declined less than expected as construction works after the earthquake and tsunami in March limit the slump in the economy.
Market movers today:

Today

Focus on SNB and Bank of Japan will they intervene How much did ECB buy last week data released this afternoon Scandinavia speech by Vice governor Quickstad

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Markets Overnight
US equity markets continued their rally on Friday, when S&P500 closed up 0.5%. This ends a historically dramatic week in the global financial markets with unprecedented volatility. This was also seen in the movements in the US government bond yields, where 10Y US treasury yields almost broke through 2% during the week, but by Friday evening had traded back to 2.25%. This morning the Asian equity markets follow the sentiment from the US market with most Asian indices rising. Nikkei is up 1.3%, while Hang Seng is up 2.2%. Japanese GDP numbers declined 1.3% in Q2 against expectation of a 2.5% decline as construction works after the earthquake in March limit the slump in the economy In Euroland the debate about the issuance of eurobonds intensifies as the German government no longer excludes the possibility of issuing eurobonds as a last resort if the euro is facing a breakup according to Welt am Sontag citing unidentified people within the German government. This pinpoints the will to keep the euro together as the German government has previously been against this. Today we will get info on ECBs purchase of government bonds until Wednesday last week. In the FX markets focus is on intervention from the Swiss Central Bank (SNB) and Bank of Japan. According to a Swiss newspaper the Swiss government and SNB are in intense talks over setting a possible target for the franc, the newspaper reported, citing unidentified people close to the situation. The plans are ready, and the SNB may set such a target in coming days . We have seen CHF weaken on the back of these rumours of a target for the Swiss franc that surfaced last week. EUR/CHF is trading above the 1.12-level this morning after being close to parity last week. Japan also stands ready to intervene according to the Japanese finance minister Noda. An unstable situation is continuing, Noda said during the weekend. As foreign exchange market matters are my prerogative, I will continue to closely watch the markets and take bold action if it becomes necessary. However, the impact on the yen has been limited as USD/JPY is still trading below the 77-level this morning.
Chief Analyst Jens Peter Srensen +45 45128517 jenssr@danskebank.dk

Market overview
07:30 S&P500 (clo se) S&P500 fut (chng fro m clo se) Nikkei Hang Seng 17:00 US 2y gov US 10y gov iTraxx Europe (IG) iTraxx Xover (Non IG) 0.18 2.24 150 627 1178.8 1185.7 9068.5 20069.1 07:30 0.19 2.26 150 628

1 day +/-,%

0.53 0.76 1.17 2.29 +/-, bp 0.8 2.1 0.2 1.0 +/-, % 0.48 0.09 3.00 0.50 0.09 0.04 USD -0.08 0.68

EUR/USD USD/JPY EUR/CHF EUR/GBP EUR/SEK EUR/NOK

1.423 76.750 1.10 0.873 9.243 7.85

1.430 76.820 1.13 0.878 9.252 7.85

Oil Brent, USD Gold, USD

108.4 1731.5

108.3 1743.2

Note: * The iTraxx Europe Index show the spread development for the most liquid investment grade CDS contracts in the euro credit market. **The iTraxx Europe Crossover show the spread development of the most liquid non-investment grade CDS contracts in the euro credit market.

Source: Bloomberg

Important disclosures and certifications are contained from page 4 of this report.

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Global Daily
Focus today: The calendar today is relatively light. ECB will today reveal the amount of government bond purchases made last week through its SMP bond purchase programme. So far the SMP holds EUR74bn of government bonds. In the US focus will be on the empire state manufacturing index and the NAHB housing market index for August. They will give an early indication on how big a hit there has been to confidence in the US in the wake of the recent turmoil. The sharp drop in University of Michigan consumer confidence (released on Friday) in August suggests there might be downside on these numbers. Feds Lockhart (non-voter, neutral), will be speaking this evening and might give us his view on how far we are from QE3. Fixed income markets: Judging from the EUR money market, the markets now price in a 30% chance that the ECB will lower the refi rate by an accumulated 50bp on a sixmonth horizon. If economic data worsen significantly in the coming month the implied probability could rise further. However, a lot hinges on European policymakers too. If they get ahead of the curve in terms of resolving the debt crisis this should reduce odds of the ECB cutting. FX markets: In the FX market the Swiss franc continues to attract a lot of attention. EUR/CHF continued higher on Friday after the SNB said it might be ready to introduce a peg against the euro for the Swiss franc. If the Swiss authorities go through with the plans it might further fuel FX lows in JPY despite the comment from the Japanese Finance Minister. The weekly CFTC data published Friday night showed that the market in the week ending 9 August significantly slashed its bets against the dollar. Hence, the risk of a big rebound in the dollar on the back of positioning should be smaller now.

US S&P500 future
1260
1230 1200

1260
1230 1200

1170
1140 1110 1080 Thu Fri Tue Wed Thu Mon

1170
1140 1110 1080

Source: Danske Markets

US 10y gov yield

2.69 2.59 2.49 2.39 2.29 2.19 2.09 1.99
Thu Fri Tue Wed Thu Mon

2.69 2.59 2.49 2.39 2.29 2.19 2.09 1.99

Source: Danske Markets

Scandi Daily
In Scandinavia there is not much on the agenda apart from Swedish industrial production data and a speech by vice governor Qvigstad. The speech comes after the Norges Bank meeting last week, where Norges Bank kept rates on hold. We expect the speech to be along the lines of last weeks statement, so no new information is expected. Swedish industrial production has remained firm through the first part of 2011 underpinning the very strong GDP growth numbers in both Q1 and Q2. Meanwhile industrial orders have moved sideways for some time, indicating that production is about to lose steam in the second half of 2011. The drop in PMI and NIER manufacturing data also suggest that production is about to slow down. Company reports were generally quite upbeat on Q2 though.

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

1.445 1.425 1.405 Thu Fri Tue Wed Thu Mon

79.9 78.7 77.5 76.3

Source: Danske Markets

Key figures and events

Monday, August 15, 2011
1:01 1:50 1:50 9:00 9:30 9:30 10:00 14:30 15:30 16:00 19:25 NOK GBP JPY JPY DKK SEK SEK NOK USD EUR USD USD Speech by Jan F. Qviqstad Rightmove House Prices GDP Deflator, preliminary GDP, preliminary Wholesale prices Industrial production Industrial orders Trade balance Empire State Manufacturing Index ECB announces bond purchases (SMP) NAHB Housing Market Index Fed's Lockhart (non-voter, neutral) speaks Index Aug 15 15 m/m|y/y y/y q/q|ann. m/m|y/y m/m|y/y m/m|y/y NOK bn Index Aug 2nd quarter 2nd quarter Jul Jun Jun Jul Aug 0.3 0.5 |-1.9% -1.7% -0.6%|-2.5% -1.6%|0.1% -1.9% -0.9%|-3.5% 0.1%|6.8% 2.6%|13.4% 2.8%|22.0% 24.7 -3.76 Period Danske Bank Consensus Previous

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

9.30
9.22 9.14 9.06

7.88 7.81 7.74 7.67 Thu Fri Tue Wed Thu Mon

Source: Bloomberg and Danske Markets

Source: Danske Markets

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Todays market data: 15 August 2011

STOCKS
1.70 1.20

S&P500 Intraday, %

1.70 1.20 0.70 0.20

Eurostoxx Intraday, % Clo se

2.20
0.70 -0.80 -2.30 09 10 11 12 13 14 15 16 17 18
Grey line indicates opening of US markets

+/ 2.9% 3.1 % 2.1 % 0.0% +/ 1% .1 0.6% 0.5% 2.9%

Max Min 0.70

0.20

1.7 -0.3 0.5

Max Min

3.4 -2.3 1.5

2.2

DJSTOXX50 OM XC20 OM XS30 OSE B X

2248 372 958 366 Clo se

0.7

-0.8

-0.30
Grey line indicates closing of Danish markets

-0.30
15 16 17 18 19 20 21

-2.3

DOW JONES NA SDA Q S&P 500 NIKKEI (07:30)

1 269 1 2508 1 79 1 9068

1mo nth Year-to -date

-1 0.4% -6.3%

1mo nth Year-to -date

-1 0.6% -1 % 3.1

FX & COMMODITIES
EUR/USD Intraday
142.9 142.9

E UR USD JP Y GB P NOK SEK DKK P LN US D JP Y 1 .40 9.1 3 GB P CHF

1 7:00 1 42.29 1 09.20 87.35 784.88 924.30 744.93 41 5.81 1 7:00 76.75 1 62.90 77.05

07:30 1 42.97 1 09.83 87.78 785.1 6 925.1 5 744.92 41 5.66 07:30 76.82 1 62.88 78.99

+/0.68 0.63 0.44 0.28 0.85 -0.01 -0.1 5 +/0.07 -0.02 1 .94 07:30 1day 1mo nth Year-t-date 07:30 1day 1mo nth Year-t-date

G o ld, $ 1 743.20 -3.70 1 49.65 322.42 CRB 1M f ut ure 326.53 0.1 9 -1 9.77 -6.27

O il, B re nt , $ 1 08.26 0.23 -9.00 1 3.51 C R B , R aw Indus t ria ls 568.06 3.1 3 -25.47 -1 5.75

Max 142.4 Min

141.9 141.4

## ## 0.5

142.4 141.9 141.4

07 10 13 16 19 22 01 04

1mo nth Year-to -date

* The chart plot s 07:30 - 23:00 Fri and 23:00 Sun t o 07:30 Mon

YIELDS & INTEREST RATES

USD-Yields Intraday P o lic y R a t e 3M 0.29 1 .54 0.85 1 .63 2.56 3.1 6 4.62 S pre a d, bp 4 4 35 8 56 91 1 2 DEM 1 0Y DKK 1 0Y SEK 1 0Y NOK 1 0Y P LN 1 0Y
* The chart plot s 07:30 - 23:00 Fri and 23:00 Sun t o 07:30 Mon

1 7:00 USD 1 0Y USD 30Y JP Y 1 0Y 2.24 3.72 1 .05 07:30(-1 )* 2.29 2.48 0.00 2.54 5.80

07:30 2.26 3.70 1 .04 1 7:00 2.33 2.58 2.1 7 2.54 5.86

+/-, bp 2 -1 0 +/-, bp 4 9 21 7 0 6

USD2Y 0.20 Max 0.2 Min 0.2 0 0.18

USD10Y Max 2.3 Min 2.2 0

2.30 2.27 2.24

USD EUR GB P DKK SEK NOK P LN

0.25 1 .50 0.50 1 .55 2.00 2.25 4.50

0.16
07 10 13 16 19 22 01 04

2.21

USD2Y (lhs)

USD10Y (rhs)

* As of closing previous trading day

10Y Yield Spread to Germany

4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -0.08JPYGBPFRF ITL DKKSEKNOKPLN -0.16 USD -1.29 0.65 0.20 0.25 0.20 3.53 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 3.0 2.5 2.0 1.5

US Yield Curve
0.8 3.0 2.5

German Yield Curve

4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
DEM10Y

2.69

0.3

1.0 0.5
0.0

## M ax ## M in

-0.2

2.0
1.5 1.0 0.5 0.0 DEM2Y DEM5YR

1 .200 -1 .670

-0.7 -1.2 -1.7

## M ax # # # ## M in # # #

USD2Y

USD5Y

USD10Y

D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis)

D-t-D +/-, bp (right axis) 07:30 (left axis) 1 month ago (left axis)

C re dit s pre a d, iT ra xx s . 11* 07:30 Euro pe (IG) HiVo l Xo ver (N-IG) 1 50 230 628 1day -7 -1 0 -26 1mo nth 26 36 1 69
180 160 140 120 100 80 60 40 20 0

Credit spreads
700 600

S wa p S pre a d, bp** 1 7:00 USD 1 0Y JP Y 1 0Y 07:30(-1 )* EUR 1 0Y DKK 1 0Y SEK 1 0Y NOK 1 0Y 58 54 69 1 33 1 8 07:30 1 7 2 1 7:00 59 53 62 1 42 +/1 -1 -7 8 +/-1

500 400
300 200 100 0 Aug Sep Nov Dec Feb Mar May Jun Aug

Finan. Sr. Finan. Sub. No n-finan.

* Ask price

230 399 95

-1 1 -1 7 -3

41 69 1 3

iTraxx Europe (IG) (left axis)

iTraxx Xover (Non IG) (right axis) * As of closing previous trading day ** Ask price

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