Important disclosures and certifications are contained from page 17 of this report. www.danskeresearch.com

Investment Research

Market movers ahead

We expect another solid US employment report with nonfarm payrolls for October of

240,000, above consensus of 225,000.

The ECB should remain on hold, although the pressure from low inflation, weak

activity and market turmoil have increased in October.

We expect Swedish industrial production to post a strong rebound in September.

We estimate Norwegian manufacturing production declined in September after a

strong increase in August. We estimate Norwegian PMI fell further in October.

The Danish FX reserves may attract some attention due to the strong krone.

Global macro and market themes

The surprise Bank of Japan move gives support to risk assets.

Pressure is rising on the ECB to follow but it will take time for it to act.

The hawkish Fed and dovish Bank of Japan give new fuel to USD/JPY.

Focus turns to the US next week – ISM to give more clues to US slowing.

Focus

Japan: BoJ expands QE programme in surprise easing move, 31 October 2014.

We expect another solid US job report Low inflation adds pressure on the ECB

Source: Macrobond Finncial Source: ECB, Eurostat

31 October 2014

Editors Allan von Mehren +45 4512 8055 alvo@danskebank.dk Steen Bocian +45 45 12 85 31 steen.bocian@danskebank.dk

Weekly Focus

Riksbanken and Bank of Japan surprised

Contents

Market Movers ................................................ 2

Global Macro and Market Themes ..... 6

Scandi Update................................................ 10

Latest research from Danske Bank

Markets .............................................................. 12

Macroeconomic forecast ....................... 13

Financial forecast ........................................ 14

Calendar ............................................................ 15

Financial views

Source: Danske Bank

Major indices

31-Oct 3M 12M

10yr EUR swap 1.07 0.90 1.05

EUR/USD 125 122 123

ICE Brent oil 85 103 93

31-Oct 6M 12-24M

S&P500 2009 0-5% 5-8%

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Market Movers

Global

The coming week includes a lot of important US data releases, ISM, non-farm

payrolls, unemployment and an essential political event being the mid-term election

on 4 November.

We expect another solid employment report with non-farm payrolls for October at

240,000, above consensus of 225,000. The non-farm payrolls have averaged 227k this

year, which the Fed characterises as solid job gains. Most job indicators are very

strong at the moment and our models suggest that job growth is trending a bit higher

following two quarters with robust GDP growth. The unemployment rate is expected

to stay at 5.9% after the big drop last month from 6.1% in August.

We expect the ISM manufacturing to drop in October to 56.0 from 56.6 in September.

The Markit PMI manufacturing for October came out lower than expected, 56.2, and

business sales have also levelled off lately. Tighter financial conditions (partly due to

USD strengthening), lower retail sales growth recently and weak activity in Europe

are the main factors behind an expected moderation in US growth in coming quarters.

ISM service (or non-manufacturing) is also due for release. It has been on a really

strong path but weaker activity in the retail sector should spill over to a decline in this

index. We expect the index to fall to 57.5 in October from 58.6 in September.

Lastly, it is worth to mention Tuesday’s mid-term election. Here the House of

Representatives, one-third of the Senate and a lot of the governors are up for election.

This will give us an indication of the political sentiment in the US.

In the euro area the upcoming ECB meeting is among the main events next week.

We expect the ECB to remain on hold at its meeting on Thursday although the

pressure from low inflation, weak activity and market turmoil has increased during

October. In terms of policy rates, President Mario Draghi has repeated that the ECB

has reached the lower bound on rates after the latest cut in September and technical

adjustments should no longer be possible. Regarding non-standard measures including

QE in sovereign bonds, we believe the ECB will remain in a wait-and-see mode at

least until the results of the TLTRO auction in December are known. Overall our view

is that more easing from the ECB will only happen if inflation remains around the

current very low level for a longer period or if the already announced measures prove

insufficient in boosting the balance sheet.

Euro-area retail sales for September are expected to decline 0.4% m/m. However, this

should not reflect a change in the underlying positive trend in private consumption in

the euro area and our estimate is a reflection of volatility in the monthly figure for

retail sales figures.

German factory orders and industrial production for September should attract some

attention after the figures were very weak in August when industrial production

declined 4.0% m/m and factory orders declined 5.7% m/m. The weakness seems

largely explained by changing summer holidays and looking at the new car

registrations for September we expect industrial production to rebound and increase

3.2% m/m and indicate that the weak August print was temporary. Factory orders are

expected to rise 4.0%.

Our model points to US payrolls

around 250k

Source: Macrobond

We expect ISM to decline further in

the short run

Source: Macrobond

Low inflation puts pressure on the ECB

Source: Macrobond

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The service PMIs in the periphery are set for significant improvements when

considering the residual from the known flash print of Germany, France and the euro

area. However, there has been a tendency lately of down revisions of the euro flash

print and with that in mind we would not be surprised if the Spanish service PMI is

unchanged and the Italian one increases to 49.2 from 48.8. The already released flash

estimates for the euro area, Germany and France indicate upside to these forecasts,

whereas the released flash manufacturing PMI suggests that Spanish and Italian

manufacturing PMIs will decline. However, given that German manufacturing PMI

has been revised down by about 0.5%-points each month since May, some moderation

of the increase in German manufacturing PMI for September is likely to be seen in the

final print. We expect Italian manufacturing PMI to be almost unchanged at 50.6 from

50.7 and Spanish manufacturing PMI to be 52.3 from 52.6 but with downside risk to

both estimates.

The European Commission Economic Forecasts are due to be released in the week

ahead. We expect the commission to revise its forecasts down relative to its latest

publication from early May due to the unexpected slowdown that appeared in Q2 and

Q3, coupled with an outlook that points to gradual but slow improvement.

Further, focus at the Eurogroup and ECOFIN meetings will be on fiscal budgets and

aid-receiving countries.

In China the main event next week will be the release of the official manufacturing

PMI published by China’s National Bureau of Statistics (NBS). The flash estimate for

the HSCB/Markit manufacturing PMI in October improved marginally to 50.4 from

50.2 in September. However, the Chinese manufacturing PMIs appear to be moving

broadly sideways at the moment and we expect the NBS manufacturing PMI to be

unchanged at 51.1 in October. The resilience in the manufacturing PMI is a bit

surprising in light of the relatively sharp slowdown in credit growth and investment

demand in recent months. Currently it appears the weakness in investment demand

has been offset by strong exports and robust private consumption. However, exports

could lose momentum again in the coming months and create renewed downward

pressure on the manufacturing PMIs. The HSBC/markit service PMI and the NBS

non-manufacturing PMI for October will also be released next week. In general they

do not yet get a lot of attention in the market partly because they are very volatile.

Japan has a relatively quiet week ahead with only minor releases scheduled. The

Markit/JMMA service PMI for October will be released next week. It improved

substantially in September and should have continued to improve in October. Hence,

in line with other recent data this suggests that the Japanese economy has turned the

corner in the wake of the slump after the consumption tax hike in April. BoJ’s

surprising expansion of its QE programme should support this recovery further.

Rebound expected in German

production

Source: Macrobond

China’s manufacturing PMIs moving

sideways

Source: Macrobond

Retail sales indicate strong private

consumption

Source: Macrobond

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Scandi

In Denmark the week sees the release of revised national accounts data for 2013. It

will be particularly interesting to see whether real GDP growth changes from the

previously published level of -0.1%. We do not expect any big changes, as it is less

than two months since a major revision of the national accounts. Statistics Denmark

will also be releasing housing prices for August. We have already had indications of

how prices moved from the likes of estate agent chain Home and the website

Boligsiden, but this makes the official figures no less interesting as they have to be

seen as the most reliable. Viewed as a three-month average, we expect house prices to

climb 1.0% from March-May to June-August, and apartment prices by 2.5%.

Although these are lower growth rates than last month, prices are still rising, just

slightly more slowly. The housing market is currently one of the bright spots in the

Danish economy, buoyed by continued low interest rates and rising employment. The

upcoming week also offers October data for repossessions and bankruptcies, and the

Nationalbank’s currency reserve data for October, which will be interesting in the

light of the strong krone and the central bank’s decision to intervene marginally last

month.

In Sweden, the week ahead contains some of the last few major pieces of our Q3

GDP puzzle, with industrial and service production (incl. industrial order data) and

household consumption being published. Lastly, PMI is released. First and foremost,

we expect industrial production to post a strong rebound, something which would at

least keep us from the embarrassment of getting also the sign of consecutive growth

wrong.

In Norway interest will centre on the September figures for manufacturing output, the

first hard data for a month that, according to the media, was all about redundancies in

oil-related industries. We therefore anticipate a fall of 1.3% m/m after the surprisingly

big rise of 1.0% in August. Both the Norwegian PMI currently at 49.4 and the

business tendency survey from the statistical office indicate weaker growth ahead in

Norwegian manufacturing. Speaking of the PMI indicator, we expect it to drop further

to 49.2 in October from 49.4 in September, reflecting the weaker outlook for the oil

industry and the euro area.

Revision of annual GDP data

Source: Statistics Denmark

A divided economy

Source: Statistics Sweden. Danske Bank

calculations

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Market movers ahead

Source: Bloomberg, Danske Bank Markets

Global movers Event Period Danske Consensus Previous

Mon 03-Nov 10:00 EUR PMI manufacturing, final Index Oct 50.7 50.7 50.7

16:00 USD ISM manufacturing Index Oct 56.0 56.5 56.6

18:40 USD Fed's R.Fisher (voter, hawkish) speaks

Tue 04-Nov 10:30 GBP PMI manufacturing Index Oct 63.4 51.6

Wed 05-Nov 9:15 CHF CPI m/m|y/y Oct -0.10%|-0.10% 0.10%|-0.10%

10:00 EUR PMI composite, final Index Oct 52.1 52.2 52.2

11:00 EUR Retail sales m/m|y/y Sep -0.4%|… -0.50%|… 1.20%|1.90%

14:15 USD ADP employment 1000 Oct 214K 213K

16:00 USD ISM non-manufacturing Index Oct 57.5 58.0 58.6

Thurs 06-Nov 0:50 JPY BoJ board minutes

8:00 DEM Factory Orders m/m|y/y Sep 4.0%|… 2.00%|-1.00% -5.70%|-1.30%

10:30 GBP Manufacturing production m/m|y/y Sep 0.30%|2.80% 0.10%|3.90%

13:45 EUR ECB announces deposit rate % -0.20% -0.20% -0.20%

14:30 EUR ECB's Draghi holds press conference

Fri 07-Nov 14:30 USD Unemployment % Oct 5.90% 5.90% 5.90%

14:30 USD Non farm payrolls 1000 Oct 240K 230K 248K

Scandi movers Event Period Danske Consensus Previous

Mon 03-Nov 8:30 SEK PMI Index Oct 53.4

Tue 04-Nov 16:00 DKK Currency reserves DKK bn Oct 442.4

Wed 05-Nov 8:30 SEK PMI services Index Oct 55.6

9:30 SEK Industrial production s.a. m/m|y/y Sep -0.20%|-2.40%

Fri 07-Nov 10:00 NOK Manufacturing Production m/m|y/y Sep 1.00%|5.20%

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Global Macro and Market Themes

Bank of Japan adds to pressure on the ECB

In one of the most surprising moves in a very long time, the Bank of Japan (BoJ)

stepped on the gas further this morning and increased asset purchases in its quest to

push inflation up to its 2% target. It increased the target for the annual expansion of the

monetary base to JPY80trn, from JPY60-70trn (see Flash Comment: Japan – BoJ

expands QE programme in surprise easing move for details). The timing was surprising

because Japanese economic data has improved lately but with this move the Bank of

Japan is showing a very clear commitment to reaching its 2% target by the end of fiscal

year 2015. Inflation has eased recently to 1.0% (excluding VAT effects) in September,

from a peak of 1.5% in April. The move is also significant because the Bank of Japan was

already printing a significant amount of money, so the new stimulus is taking policy

easing to even higher levels.

Apart from increasing global liquidity further, it also adds more pressure on the

ECB – as if the pressure was not high enough already. The difference between the two

central banks is striking: Japan has inflation of 1.0%, the euro area has 0.4%. The output

gap has been closed in Japan, the euro area has an output gap of 3-4% (OECD estimates).

Finally, the Japanese economy is recovering, while the euro economy is still slowing

down. Apart from the psychological pressure, the ECB will also feel the effect through a

stronger currency versus the yen if it does not go down the same route. It seems more and

more likely that Mario Draghi will have to take the final battle with the German hawks in

early 2015 and push through a broader based QE programme. For now though, we believe

the ECB wants to get past the results of the TLTRO in December before taking any

further decisions on policy easing.

For risk assets the Bank of Japan move is clearly a positive. Stock markets reacted

promptly, showing new gains, and the news is likely to provide more fuel to the recovery

in stocks and credit bonds that started a couple of weeks ago. Not least, Japanese stocks

are getting a lot of tailwind now from both a recovering economy and another shot in the

arm from the BoJ. The next key thing to watch for overall risk markets will be how much

the US economy slows down in coming quarters and how the Fed reacts to a continued

faster decline in unemployment than it projects in its own forecasts. Next week releases

for ISM and non-farm payrolls will be important inputs to this equation (see Market

movers later in this document). We remain positive on risk assets in the medium term

but expect volatility to stay high short term, while US growth is slowing and year-

end is approaching.

Key points

Surprise Bank of Japan move

gives support to risk assets

Pressure rising on the ECB to

follow – but it takes time for it to

act

Hawkish Fed and dovish Bank of

Japan give new fuel to USD/JPY

Focus turns to US next week – ISM

to give more clues to US slowing

Bank of Japan already the most

aggressive of all central banks

Source: Macrobond Financial

Even though Japan has closed the

output gap (according to OECD)

Source: Macrobond Financial

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US economy in tug of war in the short term

As we wrote in Strategy: How much will the US slow?, 24 October, the US economy is

set for a tug of war in coming quarters. The economy is facing headwinds from a stronger

USD, financial uncertainty and some softening in demand from consumers and exports on

the one hand but has also received new tailwinds from a decline in both oil prices and

bond yields on the other.

This tug of war was also reflected in this week’s data. Consumer confidence rose to a new

seven-year high boosted by the very sharp decline in gasoline prices recently. However,

at the same time, weekly chain store sales weakened further and durable goods orders

show signs of levelling off following the very strong growth pace over the summer. The

latter confirms the moderation in demand growth that we expect to slow the US economy

over the next couple of quarters. With ISM for both manufacturing and services being at

very high levels, we continue to look for moderation in these in the short term. Our

models also point to a decline in the US OECD leading indicator in coming months.

The Fed’s compass is the labour market

If there was any uncertainty over how the Fed weighs the balance of risks between

inflation and employment, this week’s statement left a clear message: the Fed compass is

the labour market. It is ultimately seen as the main determinant of future inflation. The

more hawkish Fed statement this week was thus linked purely to jobs: the Fed now

sees ‘solid job gains’ and that ‘underutilisation of labour resources is gradually

diminishing’ rather than being ‘significant’.

This explains why the Fed continues to consider the ‘likelihood of inflation running

persistently below 2% has diminished somewhat since early this year’ despite a sharp

decline in energy prices, a stronger USD, lower inflation expectations and momentum in

core inflation currently being the lowest since 2010. Although we expect growth to slow in

coming quarters, trend growth in the US has fallen to 2.0-2.5% as productivity growth is

suffering from the very low investment activity following the financial crisis. Hence, even

with growth around 2.5-3.0% over the next two quarters, we look for the unemployment

rate to hit the Fed’s long run unemployment level of 5.4% as soon as early Q2 15.

Despite all the financial noise and still low inflation today, the Fed is steering its ship

with a firm hand and focusing on what is on the horizon rather than on the waves it is

hitting on the way. It did not mention the rise in global uncertainty and financial turmoil

at all in its statement this week. The Fed is following its job market compass and it is

leaving it on track for a rate hike in Q2 next year. We moved our forecast from an

April hike to a June hike this week based on a more subdued inflation outlook. However,

there is still a risk that the Fed pulls the trigger in early Q2 if the financial situation is

stable and the growth outlook still positive at that point.

Euro area credit shows signs of thawing but inflation stays low

While euro area activity continues to be weak in the short term, we are getting more

positive signs that the credit market may be slowly thawing. The ECB lending survey

for Q3 showed further easing in lending standards and an increase in demand (see Flash

Comment: Euro area – loan demand continues to increase, 29 October). In particular, the

supply of credit has been a constraint and it is good news that lending standards continue

to improve. With the Asset Quality Review and stress tests out of the way, there is hope

that the supply of credit can increase further next year. Hard data on credit and money are

also moving in the right direction, as new data this week showed a rise in money growth

and that the decline in credit flows is easing.

Tighter US financial conditions

causing headwind

Source: Macrobond Financial

Lower US unemployment increases

medium-term inflation pressure…

Source: Macrobond Financial

…making short-term decline in inflation

less significant

Source: Macrobond Financial

Euro banks easing credit standards

Source: Macrobond Financial

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While the improving credit conditions are positive for the medium term, the short-

term picture is still one of weakness. Judging from PMI data, inventory levels are too

high, which is likely still to weigh on production in coming months. However, we

continue to look for improvement in H1 15, as real wage growth is robust, the euro is

weakening substantially and credit conditions are improving.

On the inflation front, the headache for the ECB is not getting better. While inflation

rose to 0.4% y/y as expected in October, from 0.3% in September, this was due mainly to

base effects in energy and food prices. Core inflation declined to 0.7% y/y, from 0.8%

y/y. We expect inflation to stay low in coming months and continue to challenge the

ECB. Combining the weak growth picture in PMI and the low inflation, we have

constructed a nominal PMI (see chart). It clearly illustrates how the euro area has failed to

recover in nominal terms over the past few years.

Downward pressure on bond yields to persist in euro area

While the US bond curve saw some repricing with higher yields following the hawkish

Fed statement, German yields have stayed low. With rising expectations of QE from the

ECB, continued low inflation and easing growth in the US, we expect the pressure on

German bond yields to continue to be on the downside. The move by the Bank of

Japan also means the world is even more awash with cash and European pension funds

are growing, so significant amounts of liquidity are likely to support euro area bonds for a

long time, in our view.

Peripheral bond markets remain nervous even though volatility has come off the peak

seen in mid-October. The news from the Bank of Japan is giving support to bonds in the

peripheral countries but otherwise investors have become more cautious as year-end is

approaching, yield levels have come down and liquidity proved to be quite thin during the

October sell-off. The latter has caused some reluctance to run too big positions in

peripheral bond markets. However, in the medium term, new money will come into play

with the start of a new year in 2015 and a QE programme next year would add liquidity

and demand to the market. Hence, we retain a moderately positive stance on

peripheral bonds, especially in short maturities, where holding bonds to maturity gives a

nice pickup to German bonds trading at negative yields.

Stronger policy divergence to support USD

The central bank news this week underlines the strong divergence in monetary policy: the

Fed delivered a more hawkish statement than expected, while the Bank of Japan is

stepping on the gas further. This is giving more fuel to the long USD/JPY trade. The

Bank of Japan needs a weaker currency to lift inflation further and it is likely to achieve

that with today’s move. The added pressure on the ECB should work in the same way and

reinforce the downward pressure on EUR/USD.

Downward pressure on German yields

to continue

Source: Macrobond Financial

The ECB is struggling with low nominal

growth in the euro area

Source: Macrobond Financial

More of the same in the currency

market – USD strength resumed

Source: Macrobond Financial

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Global market views

Source: Danske Bank Markets

Asset class Main factors

Equities

Very positive on 3m horizong, moderately positive on 12m horizon Short term: Expect high volatility, but with limited risk to the downside

M edium term: Strong US growth, moderate Chinese growth, a drop in the o il price of 28% since June high and

the continued easing bias at ECB, BoJ and PBoC is supportive of equities. In addition equities are still

attractive versus bonds and the US earnings season so far looks very promising

Bond market

Downward pressure on yields rest of year, longer term moderate rise M oderation in US growth, ECB QE expectations building, inflation to stay low

US-Euro spread: Wider 2-5y, stable longer maturities Policy divergence drives short-end spread wider, longer-end spread stable as close to historical highs

Peripheral spreads to continue gradual tightening Volatility to remain higher into year-end. Neg. policy rate and improving fundamentals support search for yield.

Credit spread to remain stable, but with bouts of vo latility Added liquidity from ECB, stable fundamentals and search for yield

FX

EUR/USD - Lower short- and medium-term Lower on 0-6 months on diverging growth and monetary policy

USD/JPY - higher USD/JPY to break sharply higher on BoJ easing and pension reforms

EUR/SEK - lower Lower fo llowing Riksbank on Swedish growth outperformance, valuation

EUR/NOK - Consolidation and then lower EUR/NOK to fall on stabilizing o il prices, growth outperformance

Commodities

Oil prices - weakness rest of the year, recover in 2015 OPEC overproduction and global growth concerns to weigh near-term. Limited risk of supply disruptions

M etal prices sideways before trending up in 2015 Chinese growth concerns a near-term negative factor, supply side risks.

Gold prices to correct lower still Trending down as first Fed hike draws closer. Geopolitical concerns a supportive factor.

Agricultural risks remain on the upside Near term stabilization, extreme weather is key upside risk.

10 | 31 October 2014 www.danskeresearch.com

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Scandi Update

Denmark – Manufacturers still overly pessimistic

The week brought news about the mood in the manufacturing industry in the form of

Statistics Denmark's confidence data for October. The figures showed a decrease in

manufacturing confidence (seasonally adjusted) from -9 in September to -16 in October.

This means that the indicator has fallen for five months in a row to its lowest level for

more than five years. Drilling a little deeper into the data, we find that it is primarily the

food, drink and tobacco industries that are dragging down confidence, while the

pharmaceutical industry is pulling in the other direction somewhat. We believe that

sentiment is still far too negative, which is supported by manufacturing confidence

lagging well behind the Ifo index in Germany. Elsewhere, data from the labour market

revealed largely unchanged unemployment from August to September. This was as

expected and should be seen as a normalisation after the big drop in August. The labour

market is fundamentally improving and we expect further growth in employment going

into 2015, albeit at a more modest rate as firms have already taken on much of the labour

they need.

Sweden – Life at the zero lower bound (ZLB)

The Riksbank went a bit further than we had expected this week by cutting the repo rate

to zero. At the same time the Riksbank postponed the first rate hike to mid-2016, which

was in line with our expectations. Hence, the central bank managed to both lower rates

dramatically and push the SEK to its weakest in three years. Unfortunately, we believe

this to be a passing state and the SEK to strengthen, as expectations on actions from the

ECB and Norges Bank remain and at the same time expectations on the Fed might have

become a bit too aggressive. As if that was not enough, Swedish fundamentals are still

strong, better than most of its competitors.

Now, should inflation continue to be below Riksbank expectations and become

entrenched in deflationary territory, what has been a fringe debate during the past years –

policy measures at the zero lower bound – will come to the fore. Fact is, this has been an

ongoing debate among economists (including ourselves) for some time and in the latest

Monetary Policy Report the Riksbank also chose to put forward some of the instruments

it might use, should it become necessary. Nonetheless, the impression is that the Riksbank

will not easily turn to the foolproof way of conducting ZLB monetary policy, but that it

will remain a policy of last resort.

Our view is that should economic developments weaken considerably and/or inflation

expectations drop, FX intervention (a currency floor) is indeed an option. However, bar

any unforeseen event, we should be quite some way into 2015 before this materialises.

Norway – Norwegian yields tumble on Riksbank cut

The bigger-than-expected rate cut at the Riksbank in Sweden also made its mark on the

Norwegian fixed-income market, which is now seriously speculating whether we will see

one or more rate cuts from Norges Bank too in 2015. In fact the market is now pricing in

a roughly 60% chance of a cut at the upcoming meeting on 11 December, with the policy

rate coming down as much as 40bp over the next year.

Danish manufacturers overly

pessimistic

Source: Statistics Denmark, Macrobond

It seems like a big change, but most of

it was already discounted

Source: Riksbank. Danske Bank calculations

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It is hard to see Norges Bank's model for the interest rate path saying the same, especially

with the weaker krone and lower interest margins in the Norwegian market. The

immediate effect of this is much greater than that of the drop in interest rates abroad. But

the big joker in the pack is still oil investment and we will have to wait until 4 December

for the release of the next oil investment survey.

However, lower interest rates abroad and lower oil prices will naturally put pressure on

Norges Bank to deliver lower interest rates too. The past week also saw a slight

deterioration in the labour market, with LFS unemployment climbing to 3.7% in August

and registered unemployment including those on job creation schemes increasing by 900

people, and retail sales fell slightly.

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Latest research from Danske Bank Markets

30/10 Flash Comment - CBR hikes again but it won't stop the RUB sell-off

This morning the Russian central bank (CBR) hiked its key policy rate once again - this

time by 150bp to 9.5%. We had expected a 100bp hike. Initially, the hike helped the

rouble a bit but gains did not last for long.

30/10 Flash Comment: German inflation surprises on the downside

German HICP inflation surprised on the downside, as it fell from 0.8% y/y in September

to 0.7% y/y in October.

30/10 Flash Comment: Portugal: Recovery still intact

Leading indicators released today remain consistent with a continued modest Portuguese

recovery in H2.

29/10 Flash Comment: FOMC - The Fed rocks the boat

The Fed surprised today by issuing a much more hawkish statement than expected.

29/10 Flash Comment - Euro area: Loan demand continues to increase

ECB's Bank lending survey for October 2014 showed that credit standards were again

eased for all loan categories (consumers, enterprises and housing).

28/10 Research Denmark: Inflation headed for zero

Inflation in Denmark is headed even lower than expected because of the drop in

commodity prices.

27/10 Flash Comment - Euro area: still positive signs from bank lending and money

supply

The upward trend in M3 money supply continued as it improved to 2.5% y/y in

September from 2.1% y/y in August. This is the highest rate of increase since May 2013

after bottoming at 0.8% y/y in April 2014.

27/10 ECB comprehensive assessment: Capital shortfall less than expected

The result of the ECB’s Asset Quality Review and stress test, including the fact that 12

out of the 25 have already covered their capital shortfall, is better than feared.

Importantly, there were no major banks failing the tests.

13 | 31 October 2014 www.danskeresearch.com

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Macroeconomic forecast

Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.

Macro forecast, Scandinavia

Denmark 2013 -0.1 0.2 0.1 0.6 0.1 1.2 2.2 0.8 5.8 -0.7 45.0 7.12014 0.7 0.4 0.8 1.5 0.1 0.8 1.7 0.5 5.1 -0.4 43.2 6.52015 1.3 1.5 0.8 1.9 -0.2 2.0 2.2 0.8 4.9 -2.9 43.0 6.0

Sweden 2013 1.5 2.1 1.6 -0.1 0.0 -0.5 -0.8 0.0 8.0 -1.2 38.7 3.72014 2.2 2.7 1.3 4.9 0.0 2.1 4.5 -0.1 8.0 -2.0 39.2 2.92015 2.6 1.7 1.6 7.3 0.0 3.0 4.0 1.0 7.7 -1.2 38.8 2.6

Norway 2013 2.0 2.1 1.8 8.4 -0.2 -3.3 2.9 2.1 3.5 - - -2014 2.4 2.1 2.1 0.2 0.0 1.2 1.5 2.2 3.4 - - -2015 2.2 2.1 2.1 -1.0 -0.1 1.0 3.5 2.0 3.5 - - -

Macro forecast, Euroland

Euroland 2013 -0.4 -0.6 0.2 -2.3 -0.1 2.1 1.2 1.4 11.9 -3.0 92.6 2.62014 1.0 1.0 1.0 0.4 0.1 3.4 3.5 0.5 11.7 -2.5 96.2 2.92015 1.5 1.6 0.8 1.6 0.0 3.3 3.4 0.8 11.4 -2.2 95.6 2.9

Germany 2013 0.2 0.9 0.7 -0.6 0.2 1.7 3.2 1.6 5.3 0.0 78.4 7.42014 1.3 0.9 0.8 1.9 -0.1 3.6 4.0 0.9 5.2 0.0 76.0 7.32015 1.6 1.2 0.6 1.1 0.0 4.8 4.5 1.3 5.1 -0.1 73.6 7.0

France 2013 0.4 0.3 2.0 -0.8 0.2 2.4 1.9 1.0 10.3 -4.3 93.5 -1.92014 0.3 0.1 1.6 -2.1 -0.1 2.7 2.6 0.7 10.3 -3.9 95.6 -1.82015 1.0 0.9 0.2 1.3 0.0 3.7 2.7 0.9 10.2 -3.4 96.6 -2.0

Italy 2013 -1.9 -2.7 -0.7 -5.4 -0.6 0.9 -2.6 1.3 12.2 -3.0 132.6 0.92014 -0.2 0.3 -0.1 -2.6 0.3 2.4 1.6 0.2 12.6 -2.6 135.2 1.52015 1.1 0.9 0.2 0.4 0.0 4.4 2.9 0.9 12.1 -2.2 133.9 1.5

Spain 2013 -1.2 -2.1 -2.3 -5.1 0.0 4.9 0.4 1.5 26.1 -7.1 93.9 0.82014 1.2 1.6 1.9 1.0 0.0 3.8 5.0 0.0 25.2 -5.6 100.2 1.42015 2.0 1.6 -0.1 3.8 0.0 4.8 4.2 0.7 24.0 -6.1 103.3 1.5

Finland 2013 -1.2 -0.7 1.5 -4.9 - -1.7 -2.5 1.5 8.2 -2.0 55.8 -1.42014 -0.4 -0.2 0.3 -3.5 - 0.5 -0.5 1.0 8.6 -2.0 59.0 -1.22015 0.8 0.0 0.0 1.0 - 3.0 1.5 1.0 8.6 -1.8 61.0 -1.0

Macro forecast, Global

USA 2013 1.9 2.0 -0.6 4.5 -0.4 2.7 1.4 1.1 7.4 -4.1 72.0 -2.32014 2.2 3.0 0.0 3.7 -0.3 3.8 4.2 1.5 6.3 -2.9 74.0 -2.22015 3.4 3.5 1.0 7.3 0.0 7.8 8.6 1.9 5.9 -2.6 73.0 -2.9

Japan 2013 1.5 2.0 2.0 0.2 -0.3 1.6 3.4 0.2 4.0 -8.4 243.0 0.72014 1.1 -0.3 0.7 5.6 -0.4 7.3 6.8 2.7 3.6 -7.2 244.0 1.22015 0.6 -1.1 0.8 2.0 0.4 5.5 2.2 2.1 3.4 -6.4 245.0 1.3

China 2013 7.7 - - - - - - 2.6 4.3 -1.9 22.8 2.02014 7.4 - - - - - - 2.3 4.3 -2.2 21.3 2.22015 7.2 - - - - - - 2.9 4.2 -2.0 30.0 2.6

UK 2013 1.7 2.2 0.7 -0.8 0.3 0.5 0.2 2.6 7.6 -4.5 89.7 -3.32014 3.1 2.5 0.6 8.9 -0.2 0.5 -0.5 1.7 6.5 -3.5 94.9 -2.72015 2.7 2.4 -0.5 8.7 0.0 4.7 4.4 1.8 6.0 -1.9 96.6 -2.2

Current

acc.4

GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3

Public

budget4

Public

debt4

Year

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3

Public

budget4

Current

acc.4

Public

debt4

Current

acc.4

Im-

ports1

Public

debt4

Public

budget4

Ex-

ports1

Infla-

tion1

Unem-

ploym.3

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

14 | 31 October 2014 www.danskeresearch.com

Weekly Fo

cus

Weekly Focus

Financial forecast

Source: Danske Bank Markets

Bond and money markets

Currencyvs USD

Currencyvs DKK

USD 31-Oct - 595.0

+3m - 610.5

+6m - 620.4+12m - 605.3

EUR 31-Oct 125.1 744.4

+3m 122.0 744.8

+6m 120.0 744.5+12m 123.0 744.5

JPY 31-Oct 112.0 5.31

+3m 115.0 5.28

+6m 116.0 5.32+12m 118.0 5.13

GBP 31-Oct 159.7 950.2

+3m 156.0 954.8

+6m 158.0 979.6+12m 156.0 942.4

CHF 31-Oct 96.4 617.1

+3m 99.2 615.5

+6m 101.7 610.2+12m 100.8 600.4

DKK 31-Oct 595.0 -

+3m 610.5 -

+6m 620.4 -+12m 605.3 -

SEK 31-Oct 740.9 80.3

+3m 745.9 81.8

+6m 750.0 82.7+12m 715.4 84.6

NOK 31-Oct 678.1 87.7

+3m 668.0 91.4

+6m 658.3 94.2+12m 634.1 95.4

Equity Markets

Regional

Price trend12 mth.

Regional recommen-dations

USA (USD) Strong growth & earnings, expensive 5-8% Neutral

Emerging markets (local curr) Commodity-related equities are pressured 0-5% Underweight

Europe (ex. Nordics) Stagnating economy, cheap valuation 5-10% OverweightNordics Cyclical profile, expensive 5-10% Overweight

Commodities

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015

NYMEX WTI 99 103 97 86 87 89 91 93 96 90

ICE Brent 108 110 103 89 91 93 95 97 102 94

Copper 6,996 6,768 6,973 6,675 6,825 6,975 7,125 7,275 6,853 7,050

Zinc 2,024 2,080 2,314 2,300 2,350 2,400 2,450 2,500 2,180 2,425

Nickel 14,723 18,529 18,631 18,000 18,250 18,500 18,750 19,000 17,471 18,625

Aluminium 1,754 1,839 2,007 1,925 1,975 2,025 2,075 2,125 1,881 2,050

Gold 1,292 1,291 1,281 1,250 1,240 1,230 1,220 1,210 1,278 1,225

Matif Mill Wheat (€/t) 201 200 171 160 166 169 171 172 183 169

Rapeseed (€/t) 383 372 324 325 337 344 348 351 351 345

CBOT Wheat (USd/bushel) 618 651 528 505 515 525 530 535 575 526

CBOT Corn (USd/bushel) 453 478 359 340 350 360 365 370 408 361CBOT Soybeans (USd/bushel) 1,358 1,470 1,146 940 960 980 990 1,000 1,228 983

329

Average

Key int.rate

0.25

0.25

0.250.75

1.50

0.00

0.05

0.05

0.100.10

0.50

10-yr swap yield

0.25

0.20

0.200.20

3m interest rate

1.75

0.05

0.10

0.50

0.00

0.20

0.04

0.55

0.751.10

0.000.00

0.05

0.50

0.35

0.00

0.10

0.30

0.05

1.00

0.050.05

0.20

0.20

0.20

0.35

0.35

1.50

0.10

0.100.10

1.50

1.50

1.70

1.75

0.23

0.09

0.11

0.55

0.01

0.25

0.501.18

0.06

0.04

0.20

0.15

0.20

1.75

1.75

0.40

1.95

0.50

1.531.58

0.35

0.350.35

0.05

0.050.05

0.33

0.40

1.101.80

1.20

1.401.85

0.20

0.200.25

125.1

-

-

--

140.1

744.8

744.5744.5

926.8

848.4

780.0

910.0

790.0

900.0880.0

815.0

120.6

744.4

78.0

76.079.0

121.0

122.0124.0

122.0

120.0123.0

141.0

140.0145.0

High

High

Currencyvs EUR

2-yr swap yield

Risk profile3 mth.

High 0-5%

Price trend3 mth.

2.45

2.47

2.75

0.71

0.22

0.15

1.09

0.02

0.49

0.15

0.150.15

0.70

78.3

3.05

369

31-Oct

0-5%

0-5%

80

15,775

6,740

2,300

1,166

170

85

2,025

20152014

High 0-5%

0.90

0.801.05

0.75

0.800.85

2.30

2.25

0.59

1,016

525

1.07

1.682.05

2.35

2.30

2.30

2.402.70

0.78

0.95

1.051.25

2.60

1.151.35

1.25

1.49

1.66

1.38

15 | 31 October 2014 www.danskeresearch.com

Weekly Fo

cus

Weekly Focus

Calendar

Source: Danske Bank Markets

Monday, November 3, 2014 Period Danske Bank Consensus Previous

- USD Total Vechicle Sales m Oct 16.60M 16.34M

2:00 CNY Non-manf. PMI Index Oct 54.0

2:45 CNY HSBC manf. PMI, final Index Oct 50.4 50.4

8:30 SEK PMI Index Oct 53.4

9:00 NOK PMI Index Oct 49.4

9:15 ESP PMI manufacturing Index Oct 52.3 52.6

9:30 CHF PMI manufacturing Index Oct 51.3 50.4

9:45 ITL PMI manufacturing Index Oct 50.6 50.5 50.7

9:50 FRF PMI manufacturing, final Index Oct 47.3 47.5 47.3

9:55 DEM PMI manufacturing, final Index Oct 51.6 51.8

10:00 EUR PMI manufacturing, final Index Oct 50.7 50.7 50.7

15:30 USD Fed's Evans (non-voter, dovish) speaks

15:45 USD Markit manufacturing PMI, final Index Oct 56.0 56.2

16:00 USD Construction spending m/m Sep 0.70% -0.80%

16:00 USD ISM manufacturing Index Oct 56.0 56.5 56.6

16:00 USD ISM prices paid Index Oct 58.0 59.5

18:40 USD Fed's R.Fisher (voter, hawkish) speaks

Tuesday, November 4, 2014 Period Danske Bank Consensus Previous

1:30 AUD Retail sales m/m Sep 0.30% 0.10%

1:30 AUD Trade balance AUD m Sep -1775M -787M

2:35 JPY Markit/JMMA manufacturing PMI, final Index Oct 52.8

4:30 AUD Reserve Bank of Australia rate decision % 2.50% 2.50% 2.50%

6:00 USD Midterm Election Day

10:30 GBP PMI manufacturing Index Oct 63.4 51.6

10:30 GBP PMI construction Index Oct 63.4 64.2

11:00 EUR PPI m/m|y/y Sep -1.40%|-0.10%

11:00 EUR European Commission Economic Forecasts

14:30 USD Trade balance USD bn Sep -40.0 -40.1

16:00 USD Factory orders m/m Sep -0.50% -10.10%

16:00 DKK Currency reserves DKK bn Oct 442.4

Wednesday, November 5, 2014 Period Danske Bank Consensus Previous

0:50 JPY Monetary base y/y Oct 35.30%

2:30 JPY Labor cash earnings y/y Sep 0.80% 0.90%

2:45 CNY Service PMI Index Oct 53.5

3:30 JPY BoJ Kuroda speaks

8:30 SEK PMI services Index Oct 55.6

9:00 DKK House prices (Statistics Denmark) 3m/3m|3m/YoY Aug 1.0%|2.5% 1.7%|3.0%

9:00 DKK Aparment prices (Statistics Denmark) 3m/3m|3m/YoY Aug 2.5%|8.0% 3.2%|8.9%

9:15 CHF CPI m/m|y/y Oct -0.10%|-0.10% 0.10%|-0.10%

9:15 ESP PMI Services Index Oct 55.8 55.8

9:30 SEK Industrial production s.a. m/m|y/y Sep -0.20%|-2.40%

9:30 SEK Service production m/m|y/y Sep 0.70%|2.30%

9:30 SEK Industrial orders m/m|y/y Sep 0.60%|-4.70%

9:45 ITL PMI Services Index Oct 49.2 49.2 48.8

9:50 FRF PMI Services, final Index Oct 48.1 48.1 48.1

9:55 DEM PMI service, final Index Oct 54.8 54.8

10:00 EUR PMI composite, final Index Oct 52.1 52.2 52.2

10:00 EUR PMI services, final Index Oct 52.1 52.4 52.4

10:30 GBP PMI services Index Oct 58.1 58.7

11:00 EUR Retail sales m/m|y/y Sep -0.4%|… -0.50%|… 1.20%|1.90%

13:00 USD MBA Mortgage Applications %

14:15 USD ADP employment 1000 Oct 214K 213K

15:30 USD Fed's Lacker (non-voter, hawkish) speaks

16:00 USD Fed's Rosengren (non-voter, dovish) speaks

16:00 USD ISM non-manufacturing Index Oct 57.5 58.0 58.6

16 | 31 October 2014 www.danskeresearch.com

Weekly Fo

cus

Weekly Focus

Calendar - continued

Source: Danske Bank Markets

Thursday, November 6, 2014 Period Danske Bank Consensus Previous

0:45 USD Former Fed's Bernanke Speaks

0:50 JPY BoJ board minutes

1:30 AUD Employment change 1000 Oct 10.0K -29.7K

2:35 JPY Markit service PMI Index Oct 52.5

6:00 JPY Leading economic index, preliminary Index Sep 105.5 104.4

8:00 DEM Factory Orders m/m|y/y Sep 4.0%|… 2.00%|-1.00% -5.70%|-1.30%

9:00 DKK National accounts, yearly (2013) revision

9:00 DKK Bankruptcies (s.a.) Number Oct 338

9:00 DKK Enforced sales (s.a.) Number Oct 304

10:30 GBP Industrial production m/m|y/y Sep 0.40%|1.60% 0.00%|2.50%

10:30 GBP Manufacturing production m/m|y/y Sep 0.30%|2.80% 0.10%|3.90%

13:00 GBP BoE announces asset purchase target GBP bn Nov 375 375

13:00 GBP BoE rate announcement % Nov 0.50% 0.50% 0.50%

13:45 EUR ECB announces deposit rate % -0.20% -0.20% -0.20%

13:45 EUR ECB announces refi rate % 0.05% 0.05% 0.05%

14:30 EUR ECB's Draghi holds press conference

14:30 USD Initial jobless claims 1000

14:30 USD Unit Labour cost, preliminary q/q 3rd quarter 0.90% -0.10%

15:00 EUR Eurogroup meeting in Brussels

16:40 USD Fed's Evans (non-voter, dovish) speaks

Friday, November 7, 2014 Period Danske Bank Consensus Previous

- EUR ECB's Coeure speaks in Brussels

- EUR EU's debt rating may be published by Moody's

- EUR Portugal's debt rating may be published by S&P

- EUR Belgium's debt rating may be published by Moody's

1:05 USD Fed's Mester (voter, hawkish) speaks

7:45 CHF Unemployment % Oct 3.20% 3.20%

8:00 DEM Industrial production m/m|y/y Sep 3.2%|… 1.80%|-1.10% -4.00%|-2.80%

8:00 DEM Trade balance EUR bn Sep 14

8:45 FRF Industrial production m/m|y/y Sep 0.1%|… -0.10%|0.00% 0.00%|-0.30%

9:00 EUR ECOFIN

9:15 CHF Retail sales y/y Sep 1.90%

9:30 SEK Budget balance SEK bn Oct -8

10:00 NOK Manufacturing Production m/m|y/y Sep 1.00%|5.20%

10:00 NOK Industrial production m/m|y/y Sep -0.60%|2.30%

10:30 GBP Trade balance GBP bn Sep -2300 -1917

12:00 EUR ECB announces 3-year LTRO repayment

14:30 USD Unemployment % Oct 5.90% 5.90% 5.90%

14:30 USD Average hourly earnings, non-farm m/m|y/y Oct 0.20%|2.10% 0.00%|2.00%

14:30 USD Private payrolls 1000 Oct 232K 225K 236K

14:30 USD Manufacturing payrolls 1000 Oct 12K 10K 4K

14:30 USD Non farm payrolls 1000 Oct 240K 230K 248K

14:30 USD Average weekly hours Hours Oct 34.6 34.6

14:30 CAD Net change in full time employment 1000 Oct 69.3

19:00 USD Fed's Evans (non-voter, dovish) speaks

21:00 USD Consumer credit USD bn Sep 16.0 13.5

23:00 EUR ECB's Constancio speaks in Chicago

The editors do not guarantee the accurateness of figures, hours or dates stated above

For furher information, call (+45 ) 45 12 85 22.

17 | 31 October 2014 www.danskeresearch.com

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Weekly Focus

Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske

Bank’). The authors of the research report are Allan von Mehren, Chief Analyst and Steen Bocian, Chief

Economist.

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