Morning Report

11.06.2012

Spain seeks bailout

Spain is ready to ask EU for emergency assistance to strengthen the Spanish financial sector. The reactions in the markets have been positive so far.
NOK & 3m NIBOR 7.70 2.50 7.60 2.40 7.50 2.30 7.40 7.30 2.20 1-May 21-May 8-J un
3m ra. EURNOK

SEK & 3m STIBOR 9.3 9.1 8.9 8.7 1-May 21-May

3m ra.

2.20

This weekend it became clear that Spain will be the fourth country in the euro zone to seek EU for emergency assistance. The money will be used to capitalize Spanish banks, and will be provided either by he EFSF or ESM. IMF does not take part in the Spanish package. According to a statement from the Euro Group the loan will cover the estimated capital requirements with an additional safety margin. A preliminary estimate for this is about 100 billion euros. According to the leader of the European Commission, Olli Rehn, the final value will be determined by the European Commission in consultation with other international experts. The funds will be available to the Spanish authorities and then transferred directly to the Fund for Orderly Bank Restructuring (FROB), which will be responsible for how the money is divided between Spanish financial institutions. According to Bloomberg, the interest rate on the loan will be about 3 percent. A formal request loan request from Spain has not yet been received but is expected shortly. Should the money be paid out by the ESM instead of the EFSF, the loan will be senior toll other Spanish sovereign debt. This ordinance follows the rules established for the ESM, which states that the ESM is senior to all other creditors except the IMF. According to the plan, ESM will st take effect as of July 1 . The uncertainties around the Spain's sovereign finances have reached renewed highs recently, and Spanish borrowing costs have risen to levels seen last winter. Before the market closed on Friday yields on ten year sovereign debt was at 6.23 percent, 487 basis points above the corresponding German yield. Uncertainty has been linked to the potential costs that will be incurred by the government, in the event of a necessary recapitalization of Spanish banks. A month ago it was announced that the government has invested 19 billion euros in Bankia, Spains fourth largest bank. Spain's public debt stood at the end of last year at 735 billion euros, corresponding to 68.5 percent of GDP. With the 100 billion the country now receives in loans from the EU debt will increase by about 10 percentage points. The package Spain now receives is referred to as a "Bailout-lite," and differs from packages such as Portugal, Greece and Ireland have previously received. Since the funds will be channeled directly to the national banking system, Spain will not be subject to the same criteria as the other countries were faced with. Among other things, this means that a quarterly delegate from the Troika (the European Commission, IMF and ECB) will not come to Spain to control the Spanish government books. An important reason for why Spain doesn't have to go through this process is that the government already has proposed significant cutbacks for 2012. According to the Financial Times taxes will be increased and government spending reduced by 27 billion euros. Still, Spain will not escape all forms for control. The pressure will be large on Spain to overhaul the financial sector, and the Troika will most likely impose strict regulations on how this process to take place. The EU will have the opportunity inspect Spanish banks, make sure they receive necessary assistance, and provide them with the opportunity to hire external experts who can help strengthen the bank books. The Spanish package has apparently been interpreted positively in the markets. Since Friday, the euro appreciated markedly against most major international currencies. EURUSD has risen by 0.9 percent since Friday morning and is currently traded at 1.264 while the EURJPY has risen by as much as 1.3 percent. The euro, however, has been weaker against the Norwegian and Swedish krona, and large movements are particularly observed in EURSEK, which has fallen by 0.8 percent. Ten-year Treasury yields in the U.S. have risen by 10 basis points to 1.71 percent since Friday morning. In the equity markets, there have been signs of optimism this morning, and the major Asian markets have opened up. Among other things, the Hang Seng index and the Nikkei has risen by about 2 percent today. The recovery in Asia should be viewed in the light of this weekend's Chinese figures, which were largely unchanged from last month. The positive surprise was that trade numbers edged up markedly. Export growth increased from 6.8 percent in April to 15.3 percent in May, while import growth increased from 0.3 percent to 12.7 percent. We are still cautious about interpreting this as a relief in the Chinese economy. The trade numbers are usually volatile, and there are few signs of improvement in the domestic market. For the first time in three years, growth in industrial production was below 10 percent for two consecutive months. ole.kjennerud@dnb.no Yesterday's key economic events (GMT) 08:00 Norway Credit growth 12:30 USA Trade balance Sunday China Exports Todays key economic events (GMT) 08:00 Norway CPI-ATE As of Mar Apr May As of May Unit y/y % Bn USD y/y % Unit y/y % Prior 7.0 -51.8 4.9 Prior 0.7 Poll 7.1 -49.5 6.8 Poll Actual 6.7 15.3 DNB 0.5

2.00 8-J un
EURSEK

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Morning Report
11.06.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 125 115 105 95 1-May 21-May 96 94 92 90 8-Jun
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.20 1.20 1.20 0.82 0.81 0.80

1.20 0.79 1-May 21-May 8-J un

GBP r.a CHF

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

Prior 79.52 1.252 0.809 1.201 7.579 8.929 7.433 6.059 7.625 0.850 9.378 7.131 8.974 1.180 11.036

Last 79.30 1.249 0.808 1.201 7.598 8.978 7.434 6.085 7.677 0.847 9.409 7.189 9.068 1.182 11.113

% -0.3% -0.2% -0.1% 0.0% 0.2% 0.6% 0.0% 0.4% 0.7% -0.4% 0.3% 0.8% 1.0% 0.2% 0.7%

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 0.9856 1.0319 0.9615 20.40 5.9502 1.5460 7.7584 129.35 0.2806 2.7641 0.5584 0.7638 3.4377 1.2845 32.7390

% -0.67% 0.53% 0.16% 0.42% 0.22% -0.10% -0.01% -0.15% 0.06% 0.18% 0.05% -0.92% 0.15% 0.08% 0.64%

EURSEK & OMXS 9.3 9.1 8.9 8.7 1-May 21-May 550 500 450 400 350 8-Jun

OMXS ra. EURSEK

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

NIBOR Prior 1.99 2.36 2.67 2.89 2.76 2.97 3.15 3.31

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.99 1.89 1.89 0.33 2.36 2.14 2.14 0.58 2.67 2.40 2.40 0.90 2.89 2.53 2.52 1.06 2.78 1.92 1.93 0.96 3.00 2.04 2.04 1.29 3.19 2.17 2.16 1.55 3.37 2.29 2.29 1.82

Last 0.33 0.58 0.90 1.06 1.02 1.31 1.56 1.82

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.74 0.74 0.91 0.91 0.67 0.68 1.03 1.01 1.41 1.37 1.82 1.78

Gov. Bonds, 10y 2.00 1.75 1.50 1.25 1.00

NOK, ra.

3.00 2.50 2.00 1.50

SEK

1-May 21-May 8-J un

10y 10y yield vs bund

NORWAY Prior Last 117.6 99.20 2.07 2.08 0.76 0.74

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 119.21 118.64 103.855 103.80 101.07813 1.42 1.48 1.32 1.34 1.63 0.10 0.13 0.32

Last 101.30 1.62 0.27

13.5 13.0 12.5

JPY and DowJones

81 79 77 75

12.0 1-May

21-May

8-Jun

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y s wap 3m s tibor 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 s wap 0.50 2.50 0.50 2.50 0.50 3.00

% 0.7% 1.0% -0.2% 0.0% -0.2% 0.0% -0.5% -0.9% -1.5%

USDJPY ra. DowJones, 1000

USD and gold 1.35 1720 1670 1.30 1620 1.25 1570 1520 1.20 1-May 21-May 8-Jun
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today % Stock ex. Today JUN 2.36 2.37 -0.01 NOK 95.05 0.32 Dow Jones 12,554.2 SEP 2.33 2.32 0.01 SEK 119.38 0.56 Nasdaq 2,858.4 DEC 2.33 2.32 0.01 EUR 99.94 - 0.13 FTSE100 5,435.1 MAR 2.34 2.32 0.02 USD 82.58 0.18 Eurostoxx50 2,143.9 FRA SEK 3m Prior chg GBP 83.00 0.5 Dax 6,130.8 JUN 2.20 2.19 0.00 Comm. Today Last Nikkei225 8,459.3 SEP 1.97 1.97 0.00 Brent spot 100.7 98.3 Oslo 387.43 DEC 1.81 1.81 -0.01 Brent 1m 98.2 99.5 Stockholm 463.35 559.56 MAR 1.74 1.74 0.00 Spot gold 0.0 1576.5 Copenhagen Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
11.06.2012
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