Morning Report

05.06.2012

Market expects new crisis measures

NOK & 3m NIBOR 2.50 7.70 7.60 2.40 7.50 2.30 7.40 7.30 2.20 25-Apr 15-May 4-Jun
3m ra. EURN OK

After the large moves lately, yesterday saw the correction long awaited. Safe haven yields rose, while the dollar and the yen weakened. The move came on the back of more support for a euro area bank union, and increased likelihood of new crisis measures. More and more people speaks in favour of a euro area bank union, and goes a long way to support the Spanish proposal of using EFSF/ESM to fund their struggling banking sector directly. The quartet consisting of the EU Commission's chairman Barosso, ECB chief Draghi, the European Council Chairman Van Rompuy and Eurogroup chairman Juncker have all called for a closer integration of euro area banking sector. Germany, however, denied that the arrangements involving the distribution of losses in a country's banking sector between European countries is possible before the appropriate austerity measures are implemented and a closer fiscal union is in place. Der Spiegel reports that Germany once again have asked Spain to resort to emergency assistance. This is supposed to have happened in both 2010 and 2011. The Spaniards, however, should have rejected the proposal, for fear of being shut out of funding markets and thereby losing the possibility to raise new capital. Neither German or Spanish authorities have been willing to comment on the rumors. The figures for industrial orders in April from the U.S. were weaker than expected, and the figures for March were revised down. From March to April industrial orders fell by 0.6 percent, while it was expected an increase of 0.2 percent. More and more data is now indicating a somewhat slower rate of growth in the U.S. economy. The Reserve Bank of Australia cut the key interest rate by 25 bp to 3.5 percent this morning. The cut comes against the background of slower growth in Europe and China and increased turmoil in financial markets. The latest developments have contributed to the market again waiting for new initiatives. Many look to the ECB as the only one who can address the situation in the euro area, and the last week of attention of a bank union and the use of EFSF/ESM to recapitalize banks make tomorrow's meeting of the ECB interesting. The growth rate in the U.S. appears to be declining, and the improvement in the labor market to a halt. Thus, markets will be on high alert to hints of more QE from Bernanke in his testimony to Congress on Thursday. And we expect the Bank of England to increase their purchase of securities by 50 billion pounds at the meeting on Thursday. Expectations of measures to strengthen growth and address the situation in the euro area led to a correction of the safe haven flows of late yesterday. The euro strengthened on a broad basis, and is about one percent stronger against the dollar since yesterday morning. Yen weakened, it seems as if investors are reluctant to buy more yen when the exchange rate approaches 78 to the dollar. Also long dated government bond yields corrected, and both German and U.S. long rates rose, while rates in the euro area periphery fell back. Despite the hopes of more stimuli, the turmoil has led short-term money market rates to rise recently. Increased cost of borrowing dollars has contributed to a rise in NIBOR rates since yesterday. It was a mixed day in the stock market yesterday. While Asian stock markets opened down yesterday morning after Friday's weak employment figures in the U.S., the rest of yesterday was more mixed. In Europe, the German DAX index and the Oslo Stock Exchange fell, while STOXX50 rose slightly. In Asia, markets opened up today. Today we get the PMI index for the service sector in the U.S. and the euro zone. In addition, the retail sales figures from the euro area and industrial orders from Germany are released. It is expected that the Bank of Canada will keep interest rates unchanged until its spring 2013, and at today's monetary policy meeting is instead related to the whether or not the BOC will follow up the hawkish statements from the last meeting in April. In the UK, markets are closed today to celebrate the Queen's Diamond Jubilee. magne.ostnor@dnb.no

SEK & 3m STIBOR 9.3 9.1 8.9 8.7 2.00 25-Apr 15-May 4-Jun
3m ra. EURSEK

2.20

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850

Sales Oslo (+47) Equity Fixed Income FX/IR

22 94 89 40 22 01 78 20 22 01 76 50

Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

56 13 27 20 75 52 9910 69 39 41 50 62 54 14 82 52 72 09 06 61 24 79 56 38 07 28 62 22 01 76 50 51 84 04 30 77 62 96 80 73 58 74 89 33 01 73 80 70 11 69 85

Research Regional Sales (+47) Eirik Larsen 22 01 76 55

Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal

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

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

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

Friday's key economic events (GMT) 09:00 EMU Producer prices 14:00 USA Factory orders Todays key economic events (GMT) 09:00 EMU Retail sales 10:00 Germany Industrial orders 14:00 USA ISM, non-manufacturing

As of Apr Apr As of Apr Apr May

Unit y/y % % Unit m/m % m/m % index

Prior 3.3 -1.9 Prior 0.3 2.2 53.5

Poll 2.7 0.3 Poll 0.2 -1.0 54.0

Actual 2.6 -0.6 DNB

Morning Report
05.06.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 25-Apr 15-May
NOK TWI ra. $/b

96 94 92 90 4-Jun

EUR vs GBP & CHF 1.20 1.20 1.20 0.82 0.81 0.80

0.79 1.20 25-Apr 15-May 4-Jun

GBP r.a C HF

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

Prior 78.36 1.250 0.813 1.201 7.588 8.967 7.432 6.073 7.753 0.848 9.338 7.181 9.162 1.182 11.036

Last 78.44 1.250 0.813 1.201 7.595 8.966 7.431 6.078 7.755 0.847 9.348 7.176 9.152 1.181 11.036

% 0.1% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.1% 0.0% 0.0% 0.1% -0.1% -0.1% -0.1% 0.0%

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.60 7.50 9.10 9.00 7.45 7.45 6.18 5.77 7.72 6.87 0.84 0.83 9.6 9.0 7.40 6.92 5.92 5.82 1.20 1.20 11.52 10.84

...6 m ...12 m 85 85 1.35 1.40 0.85 0.87 1.20 1.30 7.50 7.60 9.00 9.00 7.45 7.45 5.56 5.43 6.54 6.39 0.83 0.84 8.8 8.7 6.67 6.43 5.67 5.46 1.20 1.18 10.59 10.34

FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB

USD 0.9778 1.0380 0.9615 20.57 5.9486 1.5379 7.7591 129.39 0.2808 2.7641 0.5584 0.7586 3.5166 1.2874 33.2505

% 0.49% -0.18% 0.03% -0.13% 0.03% -0.03% 0.00% -0.07% 0.00% 0.02% 0.04% 0.21% 0.07% -0.02% -0.75%

EURSEK & OMXS 9.3 9.1 8.9 8.7 25-Apr 15-May 550 500 450 400 350 4-Jun

OMXS ra. EU RSEK

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

NIBOR Prior 1.98 2.33 2.65 2.88 2.72 2.91 3.07 3.24

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.04 1.89 1.89 0.33 2.41 2.14 2.14 0.59 2.71 2.39 2.39 0.90 2.92 1.07 2.71 1.76 1.77 0.92 2.90 1.83 1.83 1.19 3.06 1.93 1.92 1.43 3.23 2.02 2.02 1.68

Last 0.33 0.59 0.90 1.06 0.92 1.19 1.42 1.68

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.74 0.74 0.91 0.91 0.71 0.71 1.04 1.03 1.35 1.37 1.73 1.72

Gov. Bonds, 10y 3.00 2.00 1.75 2.50 1.50 2.00 1.25 1.50 1.00 25-Apr 15-May 4-Jun
NOK, ra. SEK

10y 10y yield vs bund

NORWAY Prior Last 117.6 101.10 1.85 1.89 0.65 0.68

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 121.77 122.09 105 105.13 102.07813 1.16 1.15 1.21 1.21 1.52 -0.05 -0.06 0.32

Last 101.80 1.56 0.35

83 81 13.0 79 12.5 77 75 12.0 25-Apr 15-May 4-Jun 13.5

USDJPY ra. DowJones , 1000

JPY and DowJones

In 3m 6m 12m

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

US 3m libor 10y swap 0.50 2.50 0.50 2.50 0.50 3.00

% -0.1% 0.5% : 0.5% -1.2% 0.0% -1.6% -1.1% -1.0%

USD and gold 1720 1.35 1670 1.30 1620 1.25 1570 1520 1.20 25-Apr 15-May 4-Jun
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today JUN 2.36 2.39 -0.03 NOK 94.94 SEP 2.29 2.30 -0.01 SEK 119.11 2.29 0.00 EUR 99.89 DEC 2.29 MAR 2.29 2.29 0.00 USD 82.54 FRA SEK 3m Prior chg GBP 82.70 JUN 2.19 2.17 0.02 Comm. Today SEP 1.94 1.93 0.01 Brent spot 98.4 DEC 1.75 1.73 0.02 Brent 1m 99.3 MAR 1.64 1.65 -0.01 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% Stock ex. Today - 0.26 Dow Jones 12,101.5 - 0.33 Nasdaq 2,760.0 0.02 FTSE100 - 0.02 Eurostoxx50 2,079.0 Dax 5,978.2 Last Nikkei225 8,382.0 99.3 Oslo 371.80 98.9 Stockholm 450.27 1606.0 Copenhagen 544.34

Morning Report
05.06.2012
IMPORTANT/DISCLAIMER This note (the Note) must be seen as marketing material and not as an investment recommendation within the meaning of the Norwegian Securities Trading Act of 2007 paragraph 3-10 and the Norwegian Securities Trading Regulation 2007/06/29 no. 876. The Note has been prepared by DNB Markets, a division of DNB Bank ASA, a Norwegian bank organized under the laws of the Kingdom of Norway (the Bank), for information purposes only. The Note shall not be used for any unlawful or unauthorized purposes. The Bank, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (individually, each a DNB Party; collectively, DNB Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Note. DNB Parties are not responsible for any errors or omissions, regardless of the cause, nor for the results obtained from the use of the Note, nor for the security or maintenance of any data input by the user. The Note is provided on an as is basis. DNB PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE NOTES FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE NOTE WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall DNB Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Note, even if advised of the possibility of such damages. Any opinions expressed herein reflect the Banks judgment at the time the Note was prepared and DNB Parties assume no obligation to update the Note in any form or format. The Note should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. No DNB Party is acting as fiduciary or investment advisor in connection with the dissemination of the Note. While the Note is based on information obtained from public sources that the Bank believes to be reliable, no DNB Party has performed an audit of, nor accepts any duty of due diligence or independent verification of, any information it receives. Confidentiality rules and internal rules restrict the exchange of information between different parts of the Bank and this may prevent employees of DNB Markets who are preparing the Note from utilizing or being aware of information available in DNB Markets/the Bank which may be relevant to the recipients of the Note. The Note is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. Distribution of material like the Note is in certain jurisdictions restricted by law. Persons in possession of the Note should seek further guidance regarding such restrictions before distributing the Note. The Note is for clients only, and not for publication, and has been prepared for information purposes only by DNB Markets - a division of DNB Bank ASA registered in Norway with registration number NO 984 851 006 (the Register of Business Enterprises) under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet), Monetary Authority of Singapore, the Chilean Superintendent of Banks, and on a limited basis by the Financial Services Authority of UK. Information about DNB Markets can be found at dnb.no. Additional information for clients in Singapore The Note has been distributed by the Singapore branch of DNB Bank ASA. It is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of any product referred to in the Note, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product. Recipients of the Note should note that, by virtue of their status as accredited investors or expert investors, the Singapore branch of DNB Bank ASA will be exempt from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the FAA), the Financial Advisers Regulations and associated regulations there under. In particular, it will be exempt from: - Section 27 of the FAA (which requires that there must be a reasonable basis for recommendations when making recommendations on investments). Please contact the Singapore branch of DNB Bank ASA at +65 6212 0753 in respect of any matters arising from, or in connection with, the Note. We, the DNB group, our associates, officers and/or employees may have interests in any products referred to in the Note by acting in various roles including as distributor, holder of principal positions, adviser or lender. We, the DNB group, our associates, officers and/or employees may receive fees, brokerage or commissions for acting in those capacities. In addition, we, the DNB group, our associates, officers and/or employees may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in the Note. Additional Information, including for Recipients in the In the United States: This note (the Note) is a market letter, as the term is defined in NASD Rule 2211, and, thus, does not constitute a research report within the meaning of U.S. securities laws and regulations, including, without limitation, SEC Rule 15a-6, NASD Rule 2711 and Regulation AC.