Morning Report

25.11.2011

NOK & 3m NIBOR 8.00 7.80 7.60 7.40

3m ra.

Is fiscal union the answer to the euro's problems?

3.20 3.10 3.00 2.90

The lost European train is headed further towards the cliff. Another day another crisis meeting. Yesterday the leaders from the three largest EMU economies, Merkel, Sarkozy and Monti met in Strasbourg. Prior to the meeting France (which now also feels that the floor beneath its feet are starting to burn) increased its pressure on Germany to expand the role of the central bank, in order to rescue the euro. France's foreign minister, Alain Jupp, said that the situation is critical. He couldn't be more right. However, after the meeting Merkozy declared that they will continue to work towards a fiscal union, which that the budget policy in the euro zone will more integrated. Thus, Merkozy will propose changes to the EU treaty in order to improve control over the member countries' state finances. They did not specify which changes that will occur. Any changes in the treaty require that all 27 membership countries in the EU ratify these. Not only will a stronger degree of supranationality be troublesome, both for countries with and without budget control and discipline, but it will also be time consuming to have it implemented. To believe that signals of a new federal union will be sufficient to make investors again start to borrow money to Italy the coming months is the same as believing in Santa Claus. The political disagreement and the lack of efficiency is more likely to make investors turn to other type of risk that is easier to accept. In light of this, it is not surprising that the euro continues to weaken. It is now traded at 1.3305 versus the dollar, which is 0.2% lower than yesterday morning and almost 5% lower than by the end of October. Merkozy did also until further notice clarify their stands against the ECB. In principle ECB is independent, which is manifested in the EU-treaty. The fact that politicians now are discussing what the central bank should do illustrates that this independence is not written carved in stone. The independence of the central bank is an outcome of choices made by democratic institutions. If the central bank over time acts against what the majority wants, its mandate may be changed. This is also understood by the leaders of the central bank. The current discussion is a result of political disagreements about what the central bank's mandate should be, alternatively how far this mandate should be stretched. Does the responsibility for ensuring financial stability also mean that one should prevent a sovereign debt crisis? Does being a lender of last resort involve that one should finance public deficits? More and more people now things that the answer to these questions is yes. But Germany still thinks it is "no". However, yesterday it was concluded that France was to shut up and stop pushing the limits of ECB. And the train drives on.. In Portugal unions and other organizations led the most comprehensive 24-hour general strike in over 30 years. The motive is severe cuts in welfare policy. Portugal is going to implement austerity measures which comprises about 10% of GDP from 2010-13. By adjusting for inflation, this number increases to about 20% of GDP. Every fifth euro-expense will be cut off. And that is a lot! Therefore, it is also inevitable that people are protesting. At the same time the confidence in Portugal to bring budgets under control is decreasing. Yesterday Fitch downgraded Portugal from BBB- to BB+, ie. Junk. As a response to the market turmoil, the krone is pushed downwards, as expected. We aren't witnessing any dramatic movements, but more that the Norwegians currency is slowly depreciating. Since the end of October the krone has weakened by about 16 re (cent) against the euro to about 7.85, and 40 re against dollar. The import weighted exchange rate(I-44) is in the same period down by 2.0%, whereas the trade weighted rate is down 1.7%. If it is one country which is in the need of a weaker currency and improved competitiveness in these crisis times, it is the surplus country Norway.. Yesterday didn't offer us an abundance of key numbers. The German IFO index came in as a positive surprice, with a small increase in the expectation index, which is the index that correlates best with GDP. But the level of the expectations index indicates that German GDP will stagnate in the coming quarters. Analogous does the CBI-indicator from UK point in a direction of a new recession for British industry. Tonight we'll play Martha % The Vandella's "Nowhere to Run" (1965 Motown). Loud. oystein.dorum@dnb.no Yesterday's key economic events (GMT) 09:00 Italy Consumer confidence 09:00 Germany IFO, total 12:00 UK CBI, orders Todays key economic events (GMT) 07:45 France Consumer confidence 09:00 Italy Retail sales As of Nov Nov Nov As of Nov Sep Unit Index Index Index Unit Index m/m % Prior 92.9 106.4 -18.0 Prior 82.0 0.0 Poll 92.4 105.1 -18.0 Poll 81.0 Actual 96.5 106.6 -19 DNB

17-Oct 4-Nov 24-Nov

EURNOK

SEK & 3m STIBOR 9.3 9.2 9.1 9.0 8.9 17-Oct 4-Nov
3m ra.

2.70 2.65 2.60 2.55 2.50 2.45 24-Nov

EURSEK

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

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

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Morning Report
25.11.2011

SPOT RATES AND FORECASTS

Oil spot & NOK TWI 120 115 110 105 100 17-Oc t 100 98 96 4-Nov 94 24-Nov
$/b

NOK TWI ra.

EUR vs GBP & CHF 1.25 1.20 0.89 0.88 0.87 1.15 0.86 1.10 0.85 17-Oct 4-Nov 24-Nov
GBP r.a CHF

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

Prior 77.15 1.335 0.862 1.228 7.848 9.262 7.437 5.882 7.631 0.848 9.118 6.941 9.010 1.182 10.754

Last 77.39 1.331 0.860 1.228 7.843 9.275 7.437 5.893 7.618 0.846 9.125 6.967 9.007 1.183 10.787

% 0.3% -0.3% -0.2% 0.0% -0.1% 0.1% 0.0% 0.2% -0.2% -0.3% 0.1% 0.4% 0.0% 0.1% 0.3%

In 1 m ...3 m 80 80 1.35 1.35 0.86 0.86 1.23 1.23 7.80 7.80 9.20 9.10 7.45 7.45 5.78 5.78 7.22 7.22 0.85 0.86 9.1 9.1 6.81 6.74 5.45 5.39 1.18 1.17 10.70 10.58

...6 m ...12 m 80 90 1.30 1.25 0.84 0.82 1.23 1.25 7.70 7.70 9.00 9.00 7.45 7.45 5.92 6.16 7.40 6.84 0.86 0.86 9.2 9.4 6.92 7.20 5.54 6.48 1.17 1.17 10.71 10.98

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

USD 0.9713 1.0478 0.9223 19.49 5.5872 1.5482 7.7962 120.14 0.2771 2.5941 0.5251 0.7422 3.3885 1.3125 31.6200

% -0.17% 0.09% 0.27% 0.81% 0.27% -0.09% -0.01% 0.25% 0.04% 0.24% 0.23% 0.03% 0.44% 0.28% 0.47%

EURSEK & OMXS 9.4 9.2 9.0 8.8 17-Oct 4-Nov 500 450 400 350 24-Nov

OMXS ra. EURSEK

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

NIBOR Prior 2.82 3.27 3.33 3.38 3.01 3.34 3.59 3.80

SWAP AND M ONEYMARK ET R ATES ST IBOR EUR IBOR Last Prior Last Prior 2.82 2.37 2.37 1.13 3.23 2.64 2.65 1.41 3.32 2.68 2.68 1.65 3.36 2.75 2.75 1.83 3.03 1.90 1.83 1.71 3.33 2.06 2.04 2.09 3.58 2.25 2.24 2.39 3.79 2.36 2.36 2.68

Last 1.13 1.41 1.66 1.84 1.69 2.08 2.39 2.68

U SD LIBOR Prior 0.26 0.51 0.72 0.88 0.92 1.30 1.72 2.09

Last 0.26 0.51 0.73 0.89 0.92 1.36 1.77 2.15

Gov. Bonds, 10y 2.25 2.00 1.75 1.50

NOK, ra.

3.00 2.50 2.00

SEK

17-Oct 4-Nov 24-Nov

10y 10y yield vs bund

NOR WAY Prior Last 115.65 111.35 2.43 2.40 0.30 0.21

GOVER NM EN T BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 118.36 118.35 98.252 98.31 101.01563 1.59 1.59 2.14 2.19 1.89 -0.55 -0.60 -0.25

Last 100.42 1.96 -0.23

JPY and DowJones 13 12 11 10 17-Oct 4-Nov

USDJPY ra. DowJones, 1000

79 77 75 24-Nov

In 3m 6m 12m

INTEREST RATE F OR ECASTS NOR WAY SWEDEN GERMANY 3m nibor 10y s wap 3m stibor 10y s wap 3m euribor 10y swap 3.00 4.25 2.20 3.00 1.30 3.00 2.80 4.50 2.10 3.25 1.10 3.25 3.10 4.50 2.00 3.25 1.05 3.25

US 3m libor 10y 0.55 0.55 0.50

swap 2.75 3.00 3.25

USD and gold 1.47 2000 1900 1.42 1800 1700 1.37 1600 1500 1.32 17-Oct 4-Nov 24-Nov
EURUSD ra. Gold

FRA NOK DEC MAR JUN SEP FRA SEK DEC MAR JUN SEP

3m 3.04 2.68 2.49 2.47 3m 2.60 2.00 1.64 1.49

Prior 3.05 2.70 2.47 2.45 Prior 2.60 2.07 1.69 1.53

chg -0.01 -0.02 0.02 0.02 chg 0.00 -0.07 -0.05 -0.04

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 98.08 - 0.04 Dow Jones : SEK 122.47 0.13 Nasdaq : EUR 105.19 - 0.10 FTSE100 5,127.6 -0.2% USD 79.24 0.16 Eurostoxx50 2,090.3 -0.3% GBP 0.00 - 100.0 Dax 5,428.1 -0.5% Comm. Today Last Nikkei225 8,160.0 0.0% Brent spot 107.9 107.9 Oslo 347.74 -0.3% Brent 1m 107.4 107.8 Stockholm 405.07 -0.2% -0.9% Spot gold 1692.5 1692.5 Copenhagen 464.62 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
25.11.2011
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