Morning Report

03.07.2012

Weak PMIs All Over

NOK & 3m NIBOR 7.70 7.60 7.50 7.40 7.30 23-May 12-Jun
3m ra.

2.50 2.40 2.30 2.20 2-J ul

EURNOK

The PMI indices point to stagnation or setback for the manufacturing industries on both sides of the Atlantic. In Europe equity markets continued the good mood from Friday and major indices rose yesterday around 1 per cent. In the U.S. there were small changes in the major stock market indices, where a weak ISM index contributed negatively. Today Asian stock market continued to increase. In the fixed income markets the picture is a bit different and it appeared that the positive mood ebbed away. 10-year U.S. government bond yields fell 5 basis points since yesterday morning. In Europe 10-year Spanish government bond yields rose 5 bps. This morning the euro traded 0.2 per cent lower against the dollar, while the Norwegian krone has appreciated 0.4 per cent against the euro. The same is true for the Swedish krona. Yesterday was the big day with PMI indices for several countries. In Europe, the index has been low for a while and June index actually showed a slight increase to 45.1 compared to the flash estimate of 44.8. The overall picture is still a low index pointing to stagnation and decline in manufacturing production. There was a slight decrease in the indices for Germany, Italy and more for Spain, while the index in France rose slightly. In Sweden, the PMI fell 0.6 p to 48.4 in June, about as expected. The level is well below the average for the last ten years. New orders fell 2.8 points while there were minor changes in the employment and production indices. The latter still remained above 50, the others are well below. The PMI suggest continued weak performance of a Swedish manufacturing sector burdened by euro crisis. In the UK the CIPS (UK's PMI) increased from 45.9 in May to 48.6 in June and thus recovered from the sharp fall from April to May. It was expected an increase to 46.5. In the UK there was a marked rise in new orders, production and inventories. But despite the recovery in May, it appears that the industrial sector alone will contribute to a decline in GDP growth in the second quarter. In the U.S. the ISM index fell from 53.5 in May to 49.7 in June. It was expected a small decline, but the outcome was lower than any estimate given to Reuters and Bloomberg. It was a particularly marked decline for new orders (-12.3 points). In Norway, the PMI index has for some time been at a comfortable level around 55, completely out of line with other countries. The index in June fell to 46.3, however. All indices except inventories and delivery time fell in June. Orders that rose the most in May, fell 17.5 points in June. From to indicate pretty strong production in May, the June indicator suggests that industrial activity is about to slow markedly. The Norwegian PMI index can be volatile and not very reliable as a measure of activity, especially around July and the summer months. The survey this time also had relatively low response rate. Normally we would therefore be careful not to put much weight on such a surprising outcome. This time, we see the same tendencies in the United States and the level is now more comparable with levels elsewhere in Europe. Other surveys indicate that companies with deliveries to the petroleum sector are doing well, while other manufacturers struggle with low demand from Europe. Existing home prices and credit growth figures for Norway were also released yesterday. According to the EFF/NEF/ECON and Finn.no existing home prices rose 0.9 per cent seasonally adjusted from May to June. Thus, it appears that the growth in May was arbitrarily low. Together with short trading time and relatively few unsold homes the figures indicate that the housing market remains strong. Since the beginning of the year household credit growth has slowed and slightly more pronounced in April than in other months. Yesterday's figures for May showed a new increase to 7.1 per cent y/y in May in line with the growth level in March. The growth rate is thus marginally lower than at the turn of the year, but probably not too far away from household income growth. The Norwegian key figures this week and last week reaffirm the two-tier development in the Norwegian economy with solid growth in domestic demand and for petroleum related industries and deteriorating prospects for the export oriented manufacturing industry. kyrre.aamdal@dnb.no Yesterdays key economic events (GMT) 06:30 Sweden PMI 07:00 Norway PMI 08:00 Norway Credit Indicator C2 14:00 USA ISM Todays key economic events (GMT) 04:30 Australia RBA, rate meeting 09:00 EMU PPI 14:00 USA Industrial orders As of Jun Jun May Jun As of July May May Unit Index Index y/y, % Index Unit % m/m % % Prior 49 54.9 6.7 53.5 Prior 3.50 0.0 -0.6 Poll 48.5 54.6 6.7 52.5 Poll 3.50 -0.3 -0.3 Actual 48.4 46.3 7.1 49.7 DNB 3.50

SEK & 3m STIBOR 9.3 9.1 8.9 8.7 23-May 12-J un

3m ra.

2.20

2.00 2-J ul
EURSEK

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

22 94 89 40 22 01 78 20

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

Morning Report
03.07.2012

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 115 105 95 85 23-May 12-Jun 96 94 92 90 2-Jul
$/b

NOK TWI ra.

1.20 1.20 1.20

EUR vs GBP & CHF 0.82 0.81 0.80 0.79 2-J ul

CHF

1.20 23-May 12-Jun

GBP r.a

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

Prior 79.52 1.259 0.802 1.201 7.512 8.713 7.435 5.971 7.513 0.863 9.386 6.925 8.713 1.161 10.871

Last 79.81 1.260 0.803 1.201 7.521 8.723 7.435 5.972 7.484 0.863 9.371 6.923 8.679 1.162 10.865

% 0.4% 0.1% 0.1% 0.0% 0.1% 0.1% 0.0% 0.0% -0.4% 0.0% -0.2% 0.0% -0.4% 0.1% -0.1%

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 1.0268 1.0160 0.9536 20.27 5.9017 1.5700 7.7557 125.52 0.2804 2.7398 0.5529 0.8044 3.3401 1.2629 32.5060

% 0.16% -0.12% -0.10% -0.33% -0.10% 0.01% -0.04% -0.06% -0.05% -0.18% -0.16% 0.11% -0.33% -0.36% -0.26%

EURSEK & OMXS 9.3 9.1 8.9 8.7 23-May 12-Jun 500 450 400 350 2-Jul

OMXS ra. EURSEK

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

NIBOR Prior 1.95 2.30 2.61 2.79 2.66 2.89 3.14 3.38

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.95 0.32 2.31 2.14 2.14 0.56 2.64 2.39 2.39 0.86 2.79 2.52 2.52 1.03 2.64 1.91 1.92 0.92 2.89 2.05 2.06 1.26 3.13 2.20 2.21 1.60 3.37 2.35 2.35 1.96

Last 0.32 0.56 0.86 1.03 0.92 1.25 1.59 1.94

USD LIBOR Prior Last 0.25 0.24 0.46 0.46 0.73 0.73 0.91 0.91 0.64 0.63 0.93 0.93 1.31 1.31 1.72 1.74

Gov. Bonds, 10y 1.75 1.50 1.25 1.00 23-May 12-Jun

NOK, ra.

3.00 2.50 2.00 1.50 2-J ul

SEK

NORWAY Prior Last 10y /A No Data 99.90 10y yield 2.05 2.01 vs bund 0.50 0.49

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 117.88 117.92 102.18 102.12 101.48438 1.54 1.54 1.54 1.52 1.59 0.00 0.02 0.05

Last 101.44 1.60 0.08

13.0 12.5

JPY and DowJones

81 79 77

12.0 23-May 12-Jun

75 2-Jul

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.40 3.50 2.10 2.50 0.65 2.25 2.50 3.75 2.05 2.75 0.65 2.75 2.85 4.25 2.20 3.00 0.65 3.25

US 3m libor 10y 0.50 0.50 0.50

swap 2.25 2.50 3.00

% -0.1% 0.6% 1.2% 1.2% 1.2% 0.0% 0.9% 0.6% 1.2%

USDJPY ra. DowJones, 1000

USD and gold 1670 1620 1570 1520 23-May 12-Jun

EURUSD ra.

1.28 1.26 1.24 1.22 1.20 2-Jul

Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today SEP 2.24 2.25 0.00 NOK 94.04 DEC 2.21 2.22 -0.01 SEK 116.07 MAR 2.21 2.22 -0.01 EUR 100.06 JUN 2.22 2.22 0.00 USD 81.83 FRA SEK 3m Prior chg GBP 83.30 SEP 1.94 1.93 0.01 Comm. Today DEC 1.83 1.83 0.01 Brent spot 95.6 MAR 1.79 1.78 0.01 Brent 1m 98.0 JUN 1.76 1.76 0.00 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

% Stock ex. Today - 0.15 Dow Jones 12,871.4 - 0.04 Nasdaq 2,951.2 0.17 FTSE100 5,640.6 - 0.03 Eurostoxx50 2,292.1 - 0.1 Dax 6,496.1 Last Nikkei225 9,066.6 95.5 Oslo 410.84 97.3 Stockholm 482.83 1592.0 Copenhagen 590.42

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