Weekly Focus - Danske Bank...an increase of 0.5% m/m primarily driven by a major gain in auto sales following the drop in October. Ex autos, we look for retail sales to decline by

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Investment Research

Market Movers ahead • We expect Fed to replace the current Operation Twist programme with outright

treasury purchases at the FOMC meeting next week.

• The deadline for a deal on the US fiscal cliff is moving closer and we expect Congressional leaders to meet for further negotiations.

• In the euro area, the main release is flash PMIs but politics will also be in focus with the EU summit and an extraordinary ECOFIN meeting scheduled next week.

• We expect Chinese hard data to confirm soft data indications of a moderate recovery.

• In Scandinavia we will get inflation data for Sweden, Denmark and Norway.

• Along with inflation, industrial production data and employment will provide the Riksbank with the last pieces of information ahead of its decision on 18 December.

Global Update • ECB president, Mario Draghi, surprised the markets by announcing that there had

been a ‘wide discussion’ on rate cuts at this month’s ECB meeting.

• Data released this week pointed to a bottoming in the global business cycle with increases in PMIs in the euro area and China, upward revisions in US core capital goods orders and a jump in German factory orders.

• The US manufacturing ISM nevertheless declined as manufacturers reduced inventories in November. This leaves the sector better positioned to grow once demand picks up.

Focus • We published our updated outlook for the world economy this week. We expect the

global economy to recover in 2013 as policy uncertainty fades and global policy stimulus has become stronger (see Global Scenarios: The tide is turning).

07 December 2012

Important disclosures and certifications are contained from page 22 of this report.

Weekly Focus ECB opens the door for negative rates

Contents

Market movers ahead ........................................... 2 Global Update ................................................................. 6 Scandi Update ................................................................ 9 EMEA update............................................................... 10 Latest research from Danske Bank .... 11 Rates: ECB opens door for lower rates ..................................................................................................... 12 FX: Draghi pushes the euro lower .......... 13 Credit: Christmas calmness ....................... 14 Financial views........................................................... 15 Macroeconomic forecast .............................. 17 Financial forecast ................................................... 18 Calendar ........................................................................... 19

Financial views

Major indices07-Dec 3M 12M

10yr EUR swap 1.58 1.80 2.15

EUR/USD 129 130 130

07-Dec 6M 12-24M

S&P500 1414 -5% to +5% 5%-10%

Read more on Page 18

Source: Danske Bank

Global PMIs converge

Fed to expand its balance sheet further next year

04 05 06 07 08 09 10 11 12

30

35

40

45

50

55

60

65

30

35

40

45

50

55

60

65Index Index

China HSBC PMI

Euro area PMI US ISM

07 08 09 10 11 12 13

750

1250

1750

2250

2750

3250

3750

750

1250

1750

2250

2750

3250

3750 USD bn USD bn

Size of Fed balance sheet

Source: Reuters EcoWin, Danske Bank Markets Source: Reuters EcoWin, Danske Bank Markets

http://danskeanalyse.danskebank.dk/abo/GlobalScenariosDec2012/$file/GlobalScenarios_Dec2012.pdf�

2 | 07 December 2012 www.danskeresearch.com

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Market movers ahead Global

• The main event in the US next week is the FOMC meeting. The meeting will include new economic projections and a press conference. At the top of the agenda is the Operation Twist programme which will expire by the end this month. An extension of the programme under which the Fed buys USD45bn per month in longer-term treasuries and sell an equal amount of short-dated papers is not possible, since the Fed’s holding of short-dated papers is by now very small. However, we think the Fed will not risk derailing the fragile improvement in the economy with a premature removal of stimulus. Hence, we expect the Fed to provide an additional monetary boost to the economy in January by replacing the Twist programme with unsterilised treasury purchases. As highlighted by Bullard this week, the Fed could decide to buy a smaller amount than the USD45bn but we expect the number to be between USD30bn and USD45bn.

• Another ‘work in progress’ is to improve communication with the public. The latest idea is to guide the public by announcing numerical thresholds for some measures of the labour market and inflation which need to be achieved before the Fed increases interest rates. Although there has been a lot of talk about this idea from several members of the FOMC, there is still disagreement within the committee on key issues. The most likely outcome seems to be a watered-down version of the framework which only uses the thresholds as guidance in the monetary policy setting. We expect such a new regime to be announced around spring/summer next year, but Bernanke could mention the work in progress at next week’s press briefing.

• In terms of data, we will get November retail sales. We expect the headline to show an increase of 0.5% m/m primarily driven by a major gain in auto sales following the drop in October. Ex autos, we look for retail sales to decline by 0.1% as gasoline sales will be a drag due to declining prices. There is however a larger-than-usual uncertainty on our estimate as the impact from Sandy is difficult to project. That also goes for industrial production, which has been very weak over the past three months. We look for a small rebound in November of 0.2% m/m. Finally, we expect inflation to trend lower and look for a 0.1% m/m increase in core CPI and a 0.2% decline in the headline which will take annual CPI to 1.9% y/y.

• The last EU summit in 2012 is taking place on Thursday and Friday. While this meeting might not attract that much market attention, it is a very important as it will set the direction for the future of the EMU. Important topics on the agenda are discussion about the Single Supervisory Mechanism, resolution scheme, deposit guarantee scheme and possibly also future treaty changes. The starting point for the discussion will be the report by Draghi, Barosso, Junker and Van Rompuy. Regarding the Single Supervisory Mechanism, there are still many unresolved issues following the decision on the October meeting. The once-united Germans and French failed to agree at last week’s ECOFIN meeting on how comprehensive the banking union must be and a new ECOFIN meeting is scheduled for Wednesday. France wants one single supervisor covering all banks while Germany only wants the major European banks to be under the share supervision.

•

Retail sales to get a boost from autos

jun aug okt dec feb apr jun aug okt11 12

-0,75

-0,50

-0,25

0,00

0,25

0,50

0,75

1,00

1,25

1,50

-0,75

-0,50

-0,25

0,00

0,25

0,50

0,75

1,00

1,25

1,50 % m/m % m/m

Retail sales

Retail sales ex autos, gasoline and building materials

Source: Reuters EcoWin, Danske Bank Markets

•

Inflation to trend lower

09 10 11 12

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

6,0

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0% m/m

<< Monthly CPI % y/y

Annual CPI >>


PMIs expected to edge higher

Source: Reuters Ecowin and Danske Bank

Markets


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• While the Christmas season is upon us, the Germans are in the early stages of preparing for the election next autumn. The German Social Democratic party, SPD, is to formally elect Peer Steinbrueck (former finance minister in the grand coalition during 2005-09) as the party’s chancellor candidate at the party’s annual party congress on Sunday following the CDU’s formal re-election of Angela Merkel as its chancellor candidate. The main topic in both parties’ election campaigns is the euro area debt crisis and its impact on Germany. It is not expected that Germany will handle the crisis differently if Peer Steinbrueck is to win although he may be tougher regarding regulations in financial markets, etc. Angela Merkel is expected to win according to the most recent polls but the government formation may be difficult as the CDU’s current coalition partner, the liberal FPD, is close to the election threshold. A coalition government based on CDU and SPD is still an option

• There are a number of interesting releases in the week ahead. In Germany trade data is due to be released on Monday followed by the ZEW survey on Tuesday. We expect a small improvement in ZEW expectations but in line with better market sentiment. For the four major European countries and the euro area industrial production data is due to be released at the beginning of next week (except Germany). Flash December PMIs for the euro area, Germany and France will be released on Friday. We expect a moderate improvement over the coming month. Last month’s release had stronger details, indicating that the December figure would show an improvement. This is also supported by our forward-looking models.

• It will be a busy week in China next week, with most economic data for November scheduled to be released. Manufacturing PMIs and preliminary figures for house sales and house prices in November suggest the Chinese economy continued to recover in November. However, industrial production is only expected to accelerate slightly from 9.6% y/y to 9.8% y/y due to a base impact from higher production in November last year. Retail sales and fixed investment should also continue to look solid and this should also start to become more evident in import in the foreign trade data. We expect CPI inflation to accelerate markedly to 2.2% y/y from 1.7% y/y and this might generate some negative headlines. However, the jump in inflation is also largely due to a base impact from lower food prices in November last year and we expect inflation to ease a bit again in December. At the moment inflation is no big concern in China.

• In China the important Central Economic Work Conference (CEWC) is just around the corner. This is a joint meeting between government and the Central Committee of the Communist party and is important because at this meeting the Chinese leadership will decide on most macroeconomic targets for 2013. The meeting is usually not preannounced to the public, but it is usually held in mid-December, so it is probably just around the corner. The message from the CEWC meeting will probably be status quo: monetary policy will remain neutral or ‘prudent’ in Chinese terminology while there will remain an easing bias (proactive) in fiscal policy. The target for GDP growth will probably also remain unchanged at 7.5% although we cannot completely rule out the possibility that it will be cut to 7%, because 7% was the target set for average GDP growth in the five-year plan for 2011-15. The GDP target should be regarded as the lower critical level for GDP growth for the Chinese leadership rather than an actual forecast for GDP growth. As seen in the table, actual GDP usually

•

Growth in industrial production appears to be picking up

07 08 09 10 11 12

30

35

40

45

50

55

60

65

70

-4

-2

0

2

4

6

8

<< New orders, HSBC PMI

DiffusionIndustrial production >>

% 3m/3m

Source: Reuters EcoWin, Markit, Danske Bank

Markets

Growth target and policy change expected to be unchanged in China

Monetary Fiscal Target Actual2007 Prudent Prudent 8.0% 14.1%2008 Tight Prudent 8.0% 9.6%2009 Loose Proactive 8.0% 9.2%2010 Loose Proactive 8.0% 10.4%2011 Prudent Proactive 8.0% 9.2%2012 Prudent Proactive 7.5% 7.7%

E2013 Prudent Proactive 7.5% 8.6%

Policy stance GDP

Source: Danske Bank Markets


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exceeds the targeted GDP growth substantially. With inflation currently substantially below the 4% target set for 2012, we cannot rule out the possibility that the inflation target will be cut too. Unchanged targets for GDP growth and inflation will be the most bullish growth message because it leaves more room to ease.

• In Japan the election campaign and polls ahead of the Lower House election on 16 December will probably dominate the headlines. In the data calendar, main focus will be on the release of the first revision of Q3 GDP growth. Capital expenditure data released since the first release suggests GDP growth could be revised slightly higher from -3.5% q/q AR in the first release.

Scandi • In Denmark, Monday brings inflation figures for November. We expect a rate of

0.0% m/m and 2.4% y/y, up from 2.3% y/y in October. The increase is due partly to rising food prices, as suggested by German data, but there is some uncertainty about petrol prices as some companies have revised their pricing. Monday also brings figures for foreign trade. We expect the surplus on the current account to edge down to DKK8bn, due primarily to weaker exports to Denmark’s key trading partners.

• In Sweden, the week ahead will provide the Riksbank with the last pieces of information before its decision on 18 December. November inflation (Thursday, 09:30 CET), where we expect an outcome a couple of notches below the Riksbank’s forecast and, even more importantly, data on the labour market (Thursday, 09:30 CET) will be published. Even though it might be a tad early, the sharp increase in lay-offs during the autumn could start to show in employment numbers. First out is nonetheless industrial data (Monday, 09:30 CET) where anything but a sharp decline would be surprising given how PMI and other survey data has developed. In addition, Statistics Sweden will also reveal in what direction the housing markets (Thursday, 09:30 CET) are developing after solid price increases in the past couple of months. On balance, our take is that the above data should do nothing to alleviate the pressure on the Riksbank to cut rates. Nonetheless, we still feel that market pricing is a bit aggressive expecting cuts in both December and February.

• In Norway, core inflation has been unusually volatile over the past six months but has trended downwards. Weak global inflationary pressures and a stronger krone will keep imported inflationary pressures at bay, but domestic inflationary pressures will mount as wage growth accelerates, productivity growth slows and pricing power improves. Inflation is nevertheless likely to remain moderate for a long time to come. We predict a moderate rise in core inflation to 1.3% y/y in November, which would be more or less in line with Norges Bank’s projections in the October monetary policy report and would not therefore prompt any market reaction. The week also brings the results of Norges Bank’s regional network survey – its preferred economic indicator – for Q4. Growth in the Norwegian economy has held up well despite the debt problems in Europe, but there are now signs of a slowdown in Norway as well. Growth in private consumption is falling, homebuilding has slowed slightly, and manufacturing activity is down. On the other hand, employment growth has picked up again, which suggests that underlying demand is still healthy. We nevertheless expect the survey’s aggregated output index to fall to 1.4, indicating quarterly growth of around 0.7% in Q4. This should not trigger any great market reaction.

Current account surplus expected to decrease

09 10 11 12-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5 bn DKK

Source: Reuters EcoWin

•

Swedish industry taking a nose dive?

07 08 09 10 11 12

-3.0

-2.0

-1.0

0.0

1.0

2.0

-3.0

-2.0

-1.0

0.0

1.0

2.0 STD STD

Industrial Production

BCIPMI


Growth slowing?

Source: Reuters EcoWin, Norges Bank, Danske

Bank Markets


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Market movers ahead

Global movers Event Period Danske Consensus Previous

Mon 10-Dec - CNY Industrial production (Sunday) y/y Nov 9.8% 9.8% 9.6%

- CNY Retail sales value (Sunday) y/y Nov 14.9% 14.6% 14.5%

- DEM SPD federal party congress (Sunday)

- CNY CPI (Sunday) y/y Nov 2.2% 2.1% 1.7%

0:50 JPY GDP, final q/q|ann. 3rd quarter -0.8%|-3.3% -0.9%|-3.5%

Tue 11-Dec 11:00 DEM ZEW economic sentiment Index Dec -7.0 -12.0 -15.7

Wed 12-Dec 11:00 EUR Industrial production m/m|y/y Oct …|-2.3% -2.5%|-2.3%

14:30 EUR ECOFIN meeting on banking supervision

18:30 USD FOMC meeting % 0.25% 0.25%

Thurs 13-Dec - EUR European Council meeting

14:30 USD Retail sales m/m Nov 0.5% 0.3% -0.3%

Fri 14-Dec - EUR European Council meeting

9:00 FRF PMI manufacturing, preliminary Index Dec 44.9 44.5

9:00 FRF PMI services, preliminary Index Dec 46.2 45.8

9:30 DEM PMI manufacturing, preliminary Index Dec 47.4 47.1 46.8

9:30 DEM PMI services, preliminary Index Dec 50.2 50.3 49.7

10:00 EUR PMI manufacturing, preliminary Index Dec 46.7 46.6 46.2

10:00 EUR PMI services, preliminary Index Dec 47.1 47.0 46.7

14:30 USD CPI m/m|y/y Nov -0.2%|1.9% -0.2%|2.1% 0.1%|2.2%

14:30 USD CPI ex. food & energy m/m|y/y Nov 0.1%|1.9% 0.2%|2.0% 0.2%|2.0%

15:15 USD Industrial production m/m Nov 0.2% 0.2% -0.4%

Scandi movers Event Period Danske Consensus Previous

Mon 10-Dec 9:00 DKK CPI m/m|y/y Nov 0.0%|2.4% -0.1%|2.3%

9:30 SEK Industrial production s.a. m/m|y/y Oct -4.1%|-5.0%

9:30 SEK Industrial orders m/m|y/y Oct 1.2%|-5.3%

10:00 NOK Core inflation(CPI-ATE) m/m|y/y Nov 0.0%|1.3% 0.0%|1.1%

Thurs 13-Dec 9:30 SEK Unemployment % Nov 7.1% 7.1%

9:30 SEK CPI m/m|y/y Nov -0.3%|-0.1% -0.1%|0.4%

Source: Bloomberg and Danske Markets


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Global Update This week we published our updated outlook for the world economy (see Global Scenarios: The tide is turning). We expect the global economy to recover in 2013 as policy uncertainty fades and global policy stimulus becomes stronger. We forecast global GDP to rise 3.8% in 2013 after 3.3% in 2012. Our forecasts for next year are slightly above consensus – particularly in China. In 2014, we look for global growth to rise further to 4.0%. Emerging markets are expected to recover from a two-year slump, which will be an important impetus for global demand. The main uncertainty still relates to policy. The main risks are a failure of US politicians to avoid a fiscal cliff or renewed escalation of the euro crisis.

US: growth to bottom this quarter Data out of the US continues to be mixed, but we think Q4 will mark the low point in growth. The ISM for the manufacturing sector dropped below 50 for the first time since August. Details of the survey suggest that the drop was caused by a downward adjustment in inventories as manufacturers take a cautious approach to the future. The upshot is that with lean inventory levels, once demand recovers next year, production will have to follow. That said, we do not expect any major improvement in the ISM in the short term and expect the ISM to hover around the 50 level before taking off in spring next year. A positive sign came from the revisions to core capital goods orders in the factory report this week. Core capital goods orders have been extremely weak since the summer, but the November data showed a turn in this trend.

The non-manufacturing ISM increased to 54.7 in November and generally the service sector has held up better than the manufacturing. New orders spiked to 58.1 but employment fell back to 50.3 so the details were mixed. Data distortions from Sandy have been a factor lately but the ‘positive’ growth effects from the economic damages are now starting to show. This week’s data for November auto sales showed a major rebound which more than neutralised the October decline. We expect this to show in next week’s retail sales report as well. In terms of the labour market, initial jobless claims are back at a level close to pre-storm. We will be wiser on the state of the labour market later today with the November employment report which is due to released after the deadline of this publication.

ECB had wide discussions on rate cut

At Thursday’s ECB Governing Council meeting, ECB president, Mario Draghi, surprised the market by announcing that there had been a ‘wide discussion’ on rate cuts at this month’s ECB meeting although the council decided to leave all rates unchanged. It “briefly touched upon the complexities (of negative) rates but didn’t elaborate further”. This could be an early signal of a January 2013 rate cut and the likelihood of this scenario has increased significantly. However, if the Governing Council had decided to signal a rate cut, Draghi would probably have sent fewer mixed signals. Draghi emphasised the very accommodative monetary policy and improvements in leading indicators and financial market sentiment. Will we get a policy rate cut? It is a very close call but it will depend on how quickly data improves. We expect a moderate improvement in the leading indicators going forward. A rate cut will be partly priced in for the next couple of meetings and data releases will be scanned for signs of an improvement/worsening over

Global GDP forecast

% y/yDanske

BankConsens

us OECD IMFDanske

BankConsensu

s OECD IMF

USA 2.1 2.0 2.0 2.1 2.8 2.8 2.8 2.9

Euro area 0.3 0.1 -0.1 0.2 1.3 1.1 1.3 1.2

Japan 0.7 0.8 0.7 1.2 1.2 1.1 0.8 1.1

China 8.6 8.1 8.5 8.2 8.3 7.9 8.9 8.5

Global 3.8 3.5 3.6 4.0 3.8 4.1

2013 2014

Source: Danske Bank Markets, Bloomberg, OECD,

IMF

US ISM divergence

02 03 04 05 06 07 08 09 10 11 12

30

35

40

45

50

55

60

65

30

35

40

45

50

55

60

65Index Index

ISM manufacturing

ISM non-manufacturing


Core capital goods orders have turned

04 05 06 07 08 09 10 11 12

-60-50-40-30-20-10

010203040

-60-50-40-30-20-10

010203040

3m/3m % AR 3m/3m % AR

Core capital goods orders

Core capital shipments


German factory orders showed strong improvement

07 08 09 10 11 12

73

83

93

103

113

123

133

85

90

95

100

105

110

115

1202005=100 << German industrial production

German factory orders >>

Source: Reuter EcoWin, Danske Bank Markets




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the next months. We think the ECB will cut all policy rates if it cuts rates. Keeping the deposit rate at 0% is an option but it would significantly reduce the impact as short market rates are currently determined by the floor in the rate corridor (the deposit rate).

This week data generally pointed to improvement: German factory orders jumped 3.9% in October and the decline in September was revised down to 2.4%. Note though that the increase in orders is driven mainly by orders from the rest of the world while orders from Germany and the rest of the euro area only increased slightly. The final release of euro area service PMIs showed a substantial upward revision from 45.7 to 46.7 driven by a substantial upward revision of the German figure. Manufacturing PMIs improved for all countries except Italy, but it remains a fragile recovery from low levels. Some data pointed to continued weakness: euro area retail sales dropped 1.2% in October and the September figure was revised down to -0.6% m/m. We believe that the cycle bottomed in September/October. Inventories are being reduced during Q4, paving the way for a moderate recovery that will set in as we enter Q1.

This week’s Eurogroup and Ecofin meeting was the least interesting for a long time. A rescue package for Cyprus is still not finalised and the Ecofin meeting had long discussions on the banking union without much progress. We doubt that an agreement will be reached before the end of the year. But expectations are low, so we do not expect a significant negative market reaction. Discussions will continue at an extraordinary Ecofin meeting and the EU summit next week.

China: November PMIs suggest moderate recovery:

China’s official NBS manufacturing PMI in November improved slightly to 50.6 from 50.2 in October, see Flash Comment – China: November PMIs suggest moderate recovery. This was the third month in a row with an improvement and the NBS manufacturing PMI is now at its highest level since April. The details were relatively strong with new orders improving from 50.4 to 51.2 and export orders improving from 49.3 to 50.2. The HSBC manufacturing PMI in its final reading in November improved to 50.5 (revised up from 50.4) from 49.5 in October. After the revision the details of the HSBC manufacturing PMI were also stronger as it no longer shows a substantial deterioration in the new order-inventory balance. The manufacturing PMI is consistent with our view that the economy has bottomed out and should improve to the 52-53 range in Q2 13.

On 4 December the Communist Party of China (CPC) held its first politburo meeting after the leadership transition last month. In the statement, the CPC politburo said that the economy is stabilising and hence the statement does not suggest major new fiscal or monetary stimuli in the wake of the leadership transition. However, the statement said that China faces considerable challenges and hence, in line with our expectations, suggests that the Chinese leadership will instead focus on longer-term economic reforms. There was particular attention on comments indicating that the Chinese government will proactively support urbanisation which has to some degree has been suppressed by the hokou household registration system. Abolishment of the hokou system could accelerate urbanisation in China and would be a boost to construction and private consumption.

German order improvement driven by exports

05 06 07 08 09 10 11 12

70

80

90

100

110

120

130

140

70

80

90

100

110

120

130

140Index Index

Domestic

Non-euro area

Euro areaIntermediate goods orders


China: appears to have bottomed out

07 08 09 10 11 12

92

94

96

98

100

102

104

106

108

40

45

50

55

60

OECD leading indicator>>

Diffusion<<HSBC manufacturing PMI

Diffusion

<<NBS manufacturing PMI

Source: Reuters EcoWin, Markit, Danske Bank

Markets

Urbanisation still has a long way to go in China

50 60 70 80 90 00 10

10

20

30

40

50

60

70

80

90

10

20

30

40

50

60

70

80

90

Japan

%

Taiwan

China

South Korea

Urbanisation%


http://danskeanalyse.danskebank.dk/link/FlashCommentChina031212/$file/FlashComment_China_031212.pdf�


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Japan: Polls suggest possible LDP majority

In Japan focus continues to be on the election for the Lower House on 16 December. The most recent polls suggest that the main opposition party, the Liberal Democratic Party (LDP) could possibly win an outright majority in the Lower House, albeit there are still many undecided voters. However, even if LDP were to secure a majority in the Lower House, it would still be dependent on the support of other parties in the Upper House where it currently does not have a majority. There will be an election for the Upper House in July 2013 and should LDP also gain a majority in the Upper House it would be in a strong position to push through its political agenda. Bank of Japan (BoJ) governor and the two new deputy governors will have to be approved by both the Lower House and the Upper House in March and April, respectively. However, as other opposition parties also want more aggressive monetary easing, it should not be difficult for LDP to get a majority for dovish appointments to the BoJ board.


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Scandi Update Denmark – Debit card transactions climbing steadily

Thursday brought figures for Dankort debit card transactions in November. Our calculations suggest a seasonally adjusted increase of 2.2% m/m but the adjustment is subject to unusual uncertainty due to the relaxation of restrictions on shop opening hours. A relatively clear picture has nevertheless emerged in recent months of a rise in consumer spending – a sign that the Danes are now seriously starting to make use of those early retirement pension contribution payouts. On Monday meanwhile, the Confederation of Danish Employers (DA) released its international wage statistics showing that Danish wage competitiveness is continuing to improve. Wages in the manufacturing sector climbed 1.1% in Q3 12 compared with 2.2% for its main trading partners. Denmark is still lagging behind, though, so we have to expect wage growth to remain below that of its trading partners in the coming years.

Sweden – Survey data refusing to stabilise

The past week proved an uncomfortable read for the Swedish business sector. If it was not enough to see NIER’s business confidence collapse a couple of weeks ago, this week Swedish manufacturing PMI plummeted to levels below even Greece (in standardised terms) and services PMI took a massive step into contractionary territory. And in contrast to many other economies, Swedish car registrations continued to weaken in November. In short, the past week added another weight to arguments in favour of a December cut. And from what we gather reading Riksbank speeches and comments, the majority is – as they indicated at latest policy meeting – leaning towards a cut at the 18 December meeting.

Norway – What is actually going on in industry?

The PMI moved above 50 in November for the first time since May, while the equivalent indicators in neighbouring countries continued to fall from already low levels. Actual industrial production has also been far stronger than leading industrial indicators would suggest. On the other hand, the underlying indices were much more disappointing than the headline PMI. Stocks of purchases are rising and the main reason seems to be dwindling sales and, therefore, production. The new orders index also fell to 48.8, making it three months in a row below 50 (indicating falling orders). This is confirmed by Statistics Norway’s data for new orders, which fell 20% y/y in Q3 12. There is little doubt that Norwegian manufacturers have performed remarkably well while the downturn in Europe has accelerated, but there are now a number of signs of a slowdown. Fortunately, though, the global economy outside Europe seems to be getting stronger and stronger, which we consider essential if Norwegian manufacturers are to avoid a relatively hard landing.

Debit card transactions on the up and up

20

22

24

26

28

20

07

20

08

20

09

20

10

20

11

20

12

bn dkk


Things have deteriorated, but worse than Greece..?

10 11 12

42.5

47.5

52.5

57.5

62.5

67.5

42.5

47.5

52.5

57.5

62.5

67.5Expansion index

Manufacturing PMI

Services PMI

Source: Swedbank SILF

Relatively better



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EMEA update This week we published our FX Top Trades 2013. Among the top trades is a number of recommendations on EMEA currencies (pages 7, 13, 14).

Our overall view is that we expect continued global recovery (though moderate) and further monetary easing globally. This should be supportive for investor risk appetite, which in turn should support the EMEA currencies going into 2013.

Hence, 2013 should be a good year for the EMEA FX Markets. We expect increased risk appetite, the search for carry in a low-carry environment, low volatility in G10 and the de-escalation of the euro crisis to support EMEA markets, even though there will be some bumps down the road and country-specific fundamentals will be back in fashion.

Based on our expectation that the aggressive monetary easing by the major central banks will continue, there is good reason to be positive about the outlook for EMEA FX markets. Even though most of the countries are going through a considerable economic slowdown and the region’s central banks will stay on easing bias next year, the ongoing rebalancing of external imbalances and improving fundamentals should be positive for the EMEA markets.

Furthermore, despite further monetary easing, the attractive carry should stay intact in the low carry-environment in the G10 sphere. At the same time, the tail risk from the euro crisis has been reduced (see Theme # 4 in FX Top Trades 2013) and the expected uptrend in EUR/USD should support the CEE currencies versus other EM currencies.

RUB, PLN, HUF are the jokers but mind the differences

The candidates to benefit the most are the Russian rouble, Polish zloty and Hungarian forint. Probably the strongest arguments can be found for the Russian rouble. The Russian economy, despite some slowdown, looks solid with strong external balances. Furthermore, the central bank keeps an eye on inflation and might in fact hike in Q2 13, which would clearly be rouble positive. Besides, as the central bank is moving towards a freely floating rouble, it will stay away from FX interventions and widen the dual currency band. Even though it will undoubtedly increase the volatility, we believe that it will be positive in the sense of profiting from increased USD/RUB volatility.

Polish zloty and Hungarian forint should also perform well next year. Fairly good fundamentals, with continued improvement of external balances, should be PLN and HUF positive. Even though the local central banks will continue their easing cycle due to the marked economic slowdown, both currencies should continue to provide attractive carry especially on a three- to six-month horizon.

We continue to be less upbeat on the South African rand and the Turkish lira going into 2013, as stressed overvaluation limits gains.

Analyst Stanislava Pravdova +45 45 12 80 71 [email protected]

EONIA forward curve

0.075%

-0.04%

-0.02%

0.00%

0.02%

0.04%

0.06%

0.08%

0.10%

Dec 12 Mar 13 Jun 13 Sep 13

05-12-12 ECB dates EONIA


EUR swap rates at new all-time low

98 00 02 04 06 08 10 120

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7% %

2yr EUR swap

10y EUR swap


5y5y US Treasury rates and QE

08 09 10 11 12

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5% %

5y5y nominal rate (US Treasuries)

Black lines = QE announcements.


http://danskeanalyse.danskebank.dk/abo/FXTopTrades2013/$file/FXTopTrades_2013.pdf�

http://danskeanalyse.danskebank.dk/abo/FXTopTrades2013/$file/FXTopTrades_2013.pdf�


Weekly Focu

s

Weekly Focus

Latest research from Danske Bank 6/12 Flash Comment: ECB meeting - Rate cut discussed

The ECB president, Mario Draghi, surprised by announcing that a rate cut was discussed at this month’s ECB meeting.

5/12 Global Scenarios: The tide is turning

Global Scenarios is a quarterly analysis focusing on the outlook for the global economy. Read about the perspectives for and the most important risks to the global economy.

3/12 Flash Comment - China: November PMIs suggest moderate recovery

In line with recent hard data, the manufacturing PMIs suggest that the Chinese economy has stabilised and is now recovering moderately.

http://danskeresearch.danskebank.com/link/FlashCommentECBmeeting061212/$file/FlashComment_ECB_meeting_061212.pdf�

http://danskeresearch.danskebank.com/link/GlobalScenariosDec2012/$file/GlobalScenarios_Dec2012.pdf�

http://danskeresearch.danskebank.com/link/FlashCommentChina031212/$file/FlashComment_China_031212.pdf�


Weekly Focu

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Weekly Focus

Rates: ECB opens door for lower rates Operationally ready for negative interest rates

Yesterday’s ECB meeting proved more interesting than expected. Mario Draghi revealed that the council had been discussing rate cuts and that the ECB was operationally ready for negative interest rates (deposit rates). In combination with the downward revision of the staff growth forecasts for 2013 and 2014, the central bank’s easing bias becomes much more pronounced.

Although Draghi also noted the recent signs of stabilisation in economic data, this was by far overshadowed by the dovish tones. We believe that the likelihood of a further rate cut – possibly with the deposit rate moving into negative territory – has increased after yesterday’s meeting.

The market has already reacted to this. The EUR swap curve is at all-time lows and the German bond yield is back close to the summer lows. Looking at EONIA forwards and the 3M Euribor, strip rates declined 3bp in the June 2013 segment and about 7bp one year further out.

Room for EUR lower money market rates if data disappoints

The EONIA forward curve is now pricing a O/N fixing around 0.035% in the February maintenance period, down from 0.052% on Wednesday’s close. This compares with an O/N fixing of around 0.075%. It is hard to say whether an ECB deposit rate cut of 25bp to -0.25% would have a full impact on the EONIA fixing. If the ECB were to cut the deposit to -0.25%, we believe a reasonable expectation for the EONIA O/N fixing would be -10bp to -15bp. Based on this assumption, the market is currently pricing a c20% probability of a 25bp rate cut in February 2013 and around 40% for a rate cut in June 2013.

The option for negative ECB rates could pave the way for a further decline in the already very low EUR money market rates – in particular if economic data disappoints or if financial stress increases, which would intensify cut expectations.

Hence, we would expect to see EURIBOR fixings taking another slide lower in the coming weeks. More generally, risk-reward for carry roll-down trades at the front end of the EUR swap curve has improved on the back of yesterday’s meeting. As an another consequence, we will probably see more volatility in the short-end rates, as the ECB has now opened up for further cuts and the curve will be responding more to incoming data.

Will Fed QE-IV mark the bottom of US long rates?

The big event next week is the FOMC meeting, where the monetary policy committee will have to decide on the quantitative easing programme. Operation Twist is expiring and the Fed is expected shift to outright purchases of government bonds. Our US economist expects Twist to be substituted close to 1:1 with outright purchases. Looking at past history, QE has often coincided with a trough in long US rates and a following long-end driven steepening of the curve.

EONIA forward curve

0.075%

-0.04%

-0.02%

0.00%

0.02%

0.04%

0.06%

0.08%

0.10%

Dec 12 Mar 13 Jun 13 Sep 13

05-12-12 ECB dates EONIA


EUR swap rates at new all-time low

98 00 02 04 06 08 10 120

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7% %

2yr EUR swap

10y EUR swap


5y5y US Treasury rates and QE

08 09 10 11 12

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5% %

5y5y nominal rate (US Treasuries)

Black lines = QE announcements.


Senior Analyst Peter Possing Andersen +45 45 13 70 19 [email protected]

mailto:[email protected]�


Weekly Focu

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Weekly Focus

FX: Draghi pushes the euro lower Broad-based euro weakness

The euro was the big loser this week, weakening against all the G10 currencies with the exception of the Swiss franc (see margin chart).

The driver of the euro sell-off was not increased concerns about the US fiscal cliff or a general sell-off in risk assets. In fact, global stocks are marginally higher this week. What has been driving the euro weaker is the recent reversal of the rally on the European bond market (which until this week had seen yields in Spain and Italy fall very fast) and ECB president Draghi’s comments at yesterday’s ECB meeting (see Global Update Europe section page 6).

The ECB comments are particularly important for the currency market as a deposit rate cut would be far more euro negative than a refi rate cut. The reason for this is the potential impact on the money market. A refi rate cut would push money market rates lower but most likely only have a limited impact as e.g. the three-month Euribor is already fixing at just 0.19%. The introduction of a negative deposit rate would have a much stronger impact as it is not fully priced (there is only priced about 20% for a 25bp negative deposit rate by February) and as the breach of the zero per cent floor would open up for the possibility of further rate cuts into negative territory.

In that respect, the introduction of negative interest rates in Europe would qualify as a ‘game changer’ and would skew risks towards a weaker euro against currencies such as the Scandies, sterling and the commodity and emerging market currencies. The impact on EUR/USD would be less certain and largely depend on the coming easing measures by the Fed.

The FOMC meeting next week is expected to see the Fed announce a close to full conversion of its Operation Twist programme into unsterilised Treasury purchases. This in turn could imply up to about USD85bn in monthly purchases or potentially as much as USD1,000bn in 2013 – a very large expansion of the Fed’s balance sheet.

In other words, the near-term outlook for EUR/USD is fairly clouded and any direction for 2013 should depend on the relative size of monetary easing in the US and Europe. On balance, we still expect this relative balance to be tilted towards more easing in the US, which is why we added a EUR/USD option trade to position for a higher EUR/USD in six months when we published FX Top Trades 2013 earlier this week.

The next couple of months will show to what side the balance tilts, but in any case we do not expect a new strong trend in EUR/USD. The major central banks have killed the volatility in the market and unless a key tail risk is triggered we would expect most of the G10 currencies to more or less range-trade over the coming quarters. No matter if the ECB or the Fed comes out on top, we would be surprised to see a 10% spot move in EUR/USD.

1-week spot changes against EUR

-2% 0% 2%

CHFUSDSEKNOKGBPJPY

CADAUDNZD


Chief Analyst Arne Lohmann Rasmussen +45 45 12 85 32 [email protected]


Weekly Focu

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Weekly Focus

Credit: Christmas calmness Market commentary The past week has been quiet with low primary activity and subdued liquidity in secondary markets. Still, indices have performed well. Since last week’s edition, the benchmark investment grade CDS index (iTraxx Europe) and the high yield index (iTraxx Crossover) have tightened around 7bp and 24bp, respectively, trading at approximately 115bp and 473bp. The strong rally in credits continues towards year-end.

In last week’s edition we took a look at next year’s credit markets, and we want to dwell a bit more on the subject. What can we expect for 2013? Well, the headline is more of the same but less. That is, the same drivers for the strong 2012 performance in the credit markets are in place but look set to trigger less performance in 2013 simply as a result of the all-time low total yields and close to pre-crisis spread levels.

The main drivers for the strong 2012 performance were strong balance sheets and excess liquidity profiles of corporates and less political risks and deleveraging among banks. Mario Draghi’s ‘Whatever it takes’ comment spurred a strong rally in financials, which outperformed the strong performance of corporates. At the same time, search for yield has created a strong inflow of funds into credits. The hunt for yield comes on the back of very low govie and covered bonds yields (at least from non-periphery), driving increased attention and allocation to credits.

In 2013, awash liquidity should continue to benefit spread products such as credit and we expect more inflow into the asset class from both institutional and retail investors.

Capital preservation looks set to be in focus instead of capital appreciation, in our view. This especially means focus on IG names. Actually, credit has become a bit expensive compared with equities but as volatility is much lower and investors focus on safety and not appreciation of invested capital, credits should benefit.

From a technical viewpoint, credit will gain as IG issuance is likely to be lower than in 2012, although it is worth mentioning that 2012 was very busy – probably the second-highest level of issuance ever. Further, redemption volumes are high. HY issuance will be even higher than the record year of 2012 due to banks being in deleveraging mode and corporate treasures desire for diversification. Search for yields should secure acceptable investor interest for this asset class.

Thus, this creates asymmetrical risk-reward, in our view. Our base case is still that spreads will continue to grind slightly tighter but we stress that tail risk, e.g. the European debt crisis or the fiscal cliff, could cause significant spread widening. So, limited tightening potential but the potential of significant widening, i.e. asymmetrical risk-reward although we stress that our base case is for tighter spreads. As we expect limited spread tightening potential, carry should drive performance. Thus, we recommend lower-rated Scandinavian corporates. On financials, we likewise prefer going long maturity (outside the LTRO) and down the capital structure. In our view, extension risk is limited among larger Scandi banks.

iTraxx Europe (investment grade)

0

50

100

150

200

250

jul-09 jan-10 jul-10 jan-11 jul-11 jan-12 jul-12

bp

Source: Bloomberg, Danske Bank Markets

iTraxx Crossover (high yield)

0

200

400

600

800

1,000

1,200

jul-09 jan-10 jul-10 jan-11 jul-11 jan-12 jul-12

bp

Source: Bloomberg, Danske Bank Markets

Chief Analyst Thomas Hovard +45 45 12 85 05 [email protected]


Weekly Focu

s

Weekly Focus

Financial views

Equities • The equity market has already discounted a moderate recovery in the business cycle

and we see a risk of further market correction on weak Q3-Q4 corporate earnings and clear uncertainty regarding the economic effects of the overall global policy mix (fiscal and monetary policy) from the start of 2013. We lowered our recommendation on equities to Neutral in late August and before we can take steps to over- or under-weight equities we need more clarity on the 2013 scenario. For now, we recommend overweighting European equities, particularly healthcare and consumer cyclicals.

Fixed income • There is room for lower short EUR rates, as the ECB has opened up for negative deposit

rates. We see more upside to long rates in USD than in EUR. We see room for steeper swap curves in both EUR and USD.

• We are overweight Scandinavia versus Euroland.

Credit • Cash bonds remain well bid, reflecting ample liquidity and a search for yields.

Furthermore, investment grade credit continues to benefit from offering a relatively safe harbour that still offers a pick-up to depressed government bond yields.

• On the back of a strong investor bid, our base case is a slight spread tightening as the most likely scenario going into 2013. However, the spread tightening potential from current levels is not significant as we see it and risk-reward seems asymmetrical due to debt crisis contagion. Given the relatively steep credit curves, we see most value beyond three- to four-year maturities.

FX • The probability of a negative deposit rate in Europe has weighed on the euro and sent

EUR/USD back below 1.30. We still expect relative monetary policy to support EUR/USD in 2013, but it requires significant easing from the Fed as Operation Twist expires. The short-term outlook is clouded and we have to await clarification on what the Fed and ECB will deliver.

• We are quite negative on JPY. The Bank of Japan is turning much softer and the political pressure on the bank has intensified ahead of the 20 December election. Weak Japanese growth numbers have also weighed on JPY.

• EUR/SEK has been relatively stable over the past couple of weeks but we still see a risk of EUR/SEK moving higher. The Swedish economy has been hit hard by the low growth in the eurozone and the strengthening of SEK over the summer. We therefore expect a rate cut in December. NOK should continue to be supported by the lack of FX purchases by Norges Bank in November and December and by Norges Bank’s monetary policy. EUR/DKK is once again trading below the central parity at 7.46038. We expect the Danish central bank to keep the cross from moving significantly higher through intervention before resorting to an independent rate hike. Rate hikes are certainly not imminent in our view.

Equities and US 10Y yield

09 10 11 12

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1000105011001150120012501300135014001450 Index %

<<S&P500

US 10-year gov bond >>


EUR/USD and USD/JPY

May10

Sep Jan11

May Sep Jan12

May Sep

75.0

77.5

80.0

82.5

85.0

87.5

90.0

92.5

95.0

115

120

125

130

135

140

145

150

155

<<EUR/USD

USD/JPY>>


Credit spreads

08 09 10 11 12

2.02.53.03.54.04.55.05.56.06.5

2.55.07.5

10.012.515.017.520.022.525.0 % points % points

<< Eur high yield spread

US credit spread (Baa)>>


Commodity prices

Dec11 12

Feb Apr Jun Aug Oct Dec

3000310032003300340035003600370038003900

75

80

85

90

95

100

105

110 USD/barrel Index

<<Oil (WTI)

LME metal prices >>



Weekly Focu

s

Weekly Focus

Commodities • We see limited potential for commodities to move higher in the near term as risk

appetite is likely to suffer from fiscal cliff concerns. With a little help from the game-changing moves of major central banks and a stabilisation in Chinese activity, we continue to see some upside for prices early in 2013 but, as a whole, 2013 is set to be challenging in terms of demand. With the Saudis set to continue their oil equivalent of quantitative easing, oil prices should head below USD100/bbl late next year (geopolitics aside).


Weekly Focu

s

Weekly Focus

Macroeconomic forecast

Macro forecast, Scandinavia

Denmark 2011 0.8 -0.8 -1.3 0.2 0.3 7.0 5.2 2.8 6.2 -1.8 46.6 6.62012 0.1 0.9 0.0 1.5 -0.1 1.9 2.7 2.5 6.2 -3.8 45.6 6.02013 1.2 1.1 0.7 1.2 0.1 2.5 2.6 2.0 6.4 0.3 42.8 5.7

Sweden 2011 3.9 2.1 1.7 6.7 0.5 7.1 6.3 3.0 7.5 0.1 38.4 6.92012 1.0 1.6 0.4 3.3 -0.7 0.0 0.2 1.1 7.7 -0.4 38.6 6.62013 1.3 1.7 0.6 1.5 0.2 2.6 3.5 0.8 8.0 -1.0 39.0 6.8

Norway 2011 2.5 2.4 1.5 6.4 0.3 -1.4 3.5 1.2 3.3 13.8 49.5 -2012 3.5 3.5 1.9 8.1 -0.2 2.7 0.5 1.0 3.1 13.6 49.5 -2013 3.3 3.8 2.4 8.6 -0.2 0.9 4.3 1.6 3.0 12.5 49.5 -

Macro forecast, Euroland

Euroland 2012 -0.4 -0.9 0.0 -3.3 -0.6 2.4 -0.7 2.7 11.4 -3.4 90.1 1.12013 0.3 -0.2 -0.3 -0.7 0.0 1.9 0.9 1.8 12.1 -2.5 92.2 1.52014 1.3 0.4 -0.3 2.2 0.1 4.4 3.1 1.8 12.2 -2.6 93.5 1.6

Germany 2012 1.0 0.5 1.0 -4.4 0.0 5.0 2.6 2.5 7.1 -1.0 81.2 5.12013 1.1 0.3 0.5 -1.6 0.0 4.9 3.4 2.0 6.9 -1.1 82.4 4.52014 1.9 1.0 0.9 4.6 0.0 4.5 4.5 1.8 6.9 -0.8 81.1 4.3

France 2012 0.1 -0.1 1.3 0.4 1.5 2.5 0.1 2.3 9.6 -5.2 85.8 -2.72013 0.2 0.0 0.3 0.3 -0.1 2.5 1.5 2.1 10.2 -4.7 90.8 -2.52014 0.9 1.1 0.0 1.6 0.0 4.4 4.3 1.7 10.4 -4.0 92.8 -2.2

Italy 2012 -2.0 -3.2 -0.8 -7.7 -0.8 1.0 -7.2 2.9 8.4 -4.1 120.1 -3.12013 -0.4 -0.9 -0.4 -1.3 0.0 3.5 2.3 3.0 10.6 -2.4 124.2 -2.52014 1.1 1.1 -0.4 2.3 0.0 4.1 4.1 2.0 11.1 -1.3 122.3 -1.5

Spain 2012 -1.3 -1.7 -3.9 -8.6 0.5 3.9 -3.6 3.0 21.7 -8.5 68.5 -3.52013 -1.5 -2.1 -4.1 -4.3 0.0 7.5 3.6 1.9 24.9 -7.0 84.5 -2.82014 0.3 -0.5 -2.0 2.4 0.0 4.7 3.6 1.7 26.4 -5.5 92.0 -0.5

Finland 2011 2.7 2.5 0.1 4.6 - 2.6 5.7 3.4 7.8 -0.6 49.1 -1.22012 0.0 1.5 0.2 -1.0 - -2.0 -1.0 2.9 7.7 -0.7 52.5 -1.22013 1.0 1.0 0.5 1.5 - 1.5 1.0 2.6 7.9 -0.5 54.0 -0.7

Macro forecast, Global

USA 2012 2.2 1.8 -1.4 8.0 0.2 3.7 2.9 2.2 8.1 -8.6 100.0 -3.02013 2.1 1.6 -0.5 6.1 0.0 4.9 2.8 2.3 7.5 -7.7 102.0 -2.52014 2.8 2.3 -0.8 8.9 0.1 6.8 6.1 1.7 6.8 -6.3 102.0 -2.5

Japan 2011 -0.8 0.1 2.9 0.9 0.1 -0.1 6.3 -0.3 4.5 -10.1 229.7 3.52012 1.6 2.1 2.2 2.8 0.0 0.8 5.7 -0.2 4.3 -9.2 238.6 1.62013 0.7 0.5 1.1 2.2 - -0.9 2.2 0.1 4.2 -9.5 245.0 2.3

China 2011 9.2 - - - - - - 5.4 4.3 -1.2 33.0 2.82012 7.7 - - - - - - 2.7 4.3 -1.5 26.0 2.52013 8.6 - - - - - - 2.9 - -1.0 22.2 2.9

UK 2011 0.7 -0.8 0.3 -2.0 1.1 4.2 2.0 4.5 8.5 -8.3 82.5 -2.02012 -0.2 0.3 0.5 2.0 1.3 -0.4 3.3 2.7 8.8 -8.0 88.4 -1.52013 1.2 1.0 -1.1 2.0 1.3 2.0 3.5 2.0 8.5 -6.5 91.4 -1.2

Year GDP 1

Private

cons.1Public

cons.1Fixed

inv.1Stock

build.2Current

acc.4Im-

ports1

Public

debt4

Public

budget4

Ex-

ports1

Infla-

tion1

Unem-

ploym.3

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3Public

budget4

Current

acc.4Public

debt4

Unem-

ploym.3Public

budget4

Public

debt4Year

Year GDP 1

Private

cons.1Public

cons.1Fixed

inv.1Stock

build.2

Current

acc.4GDP 1

Private

cons.1Public

cons.1Fixed

inv.1Stock

build.2Ex-

ports1

Im-

ports1

Infla-

tion1

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


Weekly Focu

s

Weekly Focus

Financial forecast Bond and money markets

Currencyvs USD

Currencyvs DKK

USD 07-Dec - 576.5+3m - 574+6m - 561

+12m - 574

EUR 07-Dec 129.4 745.9+3m 130 746.0+6m 133 746.0

+12m 130 746.0

JPY 07-Dec 82.4 7.00+3m 83 6.91+6m 84 6.66

+12m 85 6.78

GBP 07-Dec 160.5 925.1+3m 159 910+6m 160 899

+12m 160 921

CHF 07-Dec 93.4 617.2+3m 93 617+6m 92 611

+12m 93 617

DKK 07-Dec 576.5 -+3m 574 -+6m 561 -

+12m 574 -

SEK 07-Dec 665.4 86.6+3m 654 87.8+6m 632 88.8

+12m 646 88.8

NOK 07-Dec 566.5 101.8+3m 562 102.2+6m 541 103.6

+12m 550 104.3

Equity markets

Regional

Price trend12 mth.

Regional recommen-dations

USA Affected by fiscal cliff fears 5%-10% UnderweightEmerging markets (USD) Awaiting Chinese recovery 5%-10% NeutralEurope (ex. Nordics) (EUR) Euro area crisis to abate 10%-15% OverweightNordics Strong macro balances 5%-10% Neutral

Commodities

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013

NYMEX WTI 103 93 92 97 103 100 97 94 96 99ICE Brent 118 109 109 111 115 110 105 100 112 108Copper 8,329 7,829 7,730 7,900 8,250 8,300 8,300 8,300 7,947 8,288Zinc 2,042 1,932 1,908 1,875 1,865 1,855 1,845 1,835 1,939 1,850Nickel 19,709 17,211 16,432 16,750 16,850 16,950 17,050 17,150 17,525 17,000Steel 522 457 380 385 380 375 370 365 489 373Aluminium 2,219 2,019 1,952 1,975 1,965 1,955 1,945 1,935 2,041 1,950Gold 1,690 1,612 1,656 1,681 1,706 1,731 1,756 1,781 1,660 1,743Matif Mill Wheat 210 212 259 250 240 230 220 210 233 225CBOT Wheat 643 641 872 841 793 745 713 680 749 733CBOT Corn 641 618 782 775 765 755 745 735 704 750CBOT Soybeans 1,272 1,426 1,675 1,625 1,575 1,525 1,475 1,425 1,500 1,500

0.50

Average

Key int.rate

0.250.250.250.25

1.75

0.00

0.750.75

0.100.10

0.50

10-yr swap yield

1.42

0.200.400.40

3m interest rate

2.15

0.75

0.10

0.50

0.00

0.20

0.18

0.500.500.50

0.000.00

0.75

0.50

1.30

1.25

0.10

0.28

1.50

1.001.001.00

1.501.75

0.31

0.19

0.18

0.52

0.01

0.300.300.30

0.180.18

0.05

0.20

0.200.20

0.050.05

0.450.30

0.45

1.201.20

1.89

7201.952.15

2.202.45

1.20

2.45

1.30

0.600.650.65

0.150.150.20

1.241.10

0.350.35

0.700.700.75

0.250.250.25

130133130

108112110

0.70

129.4

----

106.6

746746746

860.9

732.9

715

850840840

730

80.6

120.8

745.9

82.083.081.0

121122121

0.36

0.34

0.22

0.67

-0.01

0.48

0.400.400.40

0.35

2.08

Currencyvs EUR

2-yr swap yield

Risk profile3 mth.

Medium -5% to +5%

Price trend3 mth.

MediumHigh

748

07-Dec

-5% to +5%-5% to +5%

86

17,200

8,0002,025

1,701268

107

3302,090

20132012

1.851.64

2.002.30

1.802.002.15

0.800.901.05

1.842.052.252.45

0.831.051.151.25

3.60

2.202.35

1.90

2.012.10

1.66

Medium -5% to +5%

1,496

845

1.58

2.252.45

3.063.303.55

Source: Danske Markets


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Calendar Key Data and Events in Week 50

Period Danske Bank Consensus Previous

- CNY PPI (Sunday) y/y Nov -2.0% -2.8%

- CNY Industrial production (Sunday) y/y Nov 9.8% 9.8% 9.6%

- CNY Fixed assets investments (Sunday) y/y Nov 20.9% 20.8% 20.7%

- CNY Retail sales value (Sunday) y/y Nov 14.9% 14.6% 14.5%

- EUR Greek Prime Minister Samaras meets the chairman of CSU Seehofer (Sunday)

- DEM SPD federal party congress (Sunday)

- CNY CPI (Sunday) y/y Nov 2.2% 2.1% 1.7%

- CNY Trade balance USD bn Nov 26.85 32.05

- CNY Exports y/y Nov 9.0% 11.6%

- CNY Imports y/y Nov 2.0% 2.4%

0:50 JPY GDP, final q/q|ann. 3rd quarter -0.8%|-3.3% -0.9%|-3.5%

0:50 JPY GDP deflator, final y/y 3rd quarter -0.7% -0.7%

0:50 JPY Current account balance, s.a. JPY bn Oct 238.8 -142.0

0:50 JPY Bank lending y/y Nov

6:00 JPY Consumer confidence Index Nov 39.7

7:00 JPY Eco Watchers Survey: current (outlook) Index Nov 39.0 (41.7)

8:00 DEM Trade balance EUR bn Oct 15.8 16.9

8:00 DEM Current account EUR bn Oct 12.2 16.3

8:45 FRF Industrial production m/m|y/y Oct 0.1%|-2.1% -2.7%|-2.5%

9:00 DKK Current account DKK bn Oct 8.0 9.0

9:00 DKK CPI m/m|y/y Nov 0.0%|2.4% -0.1%|2.3%

9:00 DKK Exports (s.a.) m/m Oct -5.3%

9:30 SEK Industrial production s.a. m/m|y/y Oct -4.1%|-5.0%

9:30 SEK Industrial orders m/m|y/y Oct 1.2%|-5.3%

10:00 NOK Consumer prices m/m|y/y Nov 0.5%|1.1%

10:00 NOK Core inflation(CPI-ATE) m/m|y/y Nov 0.0%|1.3% 0.0%|1.1%

10:00 NOK Producer prices m/m|y/y Nov 0.4%|1.7%

10:00 ITL Industrial production m/m|y/y Oct -0.3%|… -1.5%|-4.8%

10:30 EUR Sentix investor expectations Net bal. Dec -3.0 -5.5

11:00 ITL GDP, final q/q|y/y 3rd quarter -0.2%|…

Tuesday, December 11, 2012 Period Danske Bank Consensus Previous

0:50 JPY Money supply M2+CD y/y Nov 2.2% 2.3%

1:01 GBP RICS House Price Balance Index Nov -7%

11:00 DEM ZEW economic sentiment Index Dec -7.0 -12.0 -15.7

11:00 DEM ZEW current situation Index Dec 4.0 6.0 5.4

11:15 EUR ECB announces allotment in 7-day (MRO)

11:15 EUR ECB announces allotment in 1-month (LTRO)

13:00 EUR ECB announces allotment in 7-day term deposits

13:30 USD NFIB small business optimism Index Nov 93.1

14:30 USD Trade balance USD bn Oct -42.3 -41.5

Monday, December 10, 2012



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Calendar - continued

Wednesday, December 12, 2012 Period Danske Bank Consensus Previous

0:50 JPY Machine orders m/m|y/y Oct 2.5%|-5.1% -4.3%|-7.8%

0:50 JPY Tertiary industry index m/m Oct -0.4% 0.3%

0:50 JPY Domestic CGPI m/m|y/y Nov 0.1%|-0.9% -0.3%|-1.0%

8:00 DEM HICP, final m/m|y/y Nov …|2.0% -0.1%|2.0% -0.1%|2.0%

8:45 FRF HICP m/m|y/y Nov 0.0%|1.8% 0.2%|2.1%

10:00 ITL Monti speaks in Rome

10:30 GBP Jobless Claims Change 1,000 Nov 5.0 10.1

10:30 GBP Average Earnings 3Ms/YoY Oct 1.9% 1.8%

10:30 GBP ILO Unemployment rate % Oct 7.9% 7.8%

11:00 EUR Industrial production m/m|y/y Oct …|-2.3% -2.5%|-2.3%

13:00 USD MBA Mortgage Applications 4.5%

14:30 USD Import prices m/m|y/y Nov -0.5%|… -0.5%|0.4%

14:30 EUR ECOFIN meeting on banking supervision

18:30 USD FOMC meeting % 0.25% 0.25%

20:00 USD Budget statement USD bn Nov -142.0 -137.3

20:15 USD Bernanke holds press conference

Thursday, December 13, 2012 Period Danske Bank Consensus Previous

- EUR European Council meeting

8:00 SEK PES Unemployment % Nov 4.6%

9:00 ESP HICP, final m/m|y/y Nov 0.5%|3.0%

9:15 CHF Producer & import prices m/m|y/y Nov -0.1%|0.4%

9:30 CHF SNB 3-month Libor target rate % 0.00%

9:30 SEK Unemployment % Nov 7.1% 7.1%

9:30 SEK CPI m/m|y/y Nov -0.3%|-0.1% -0.1%|0.4%

9:30 SEK Underlying inflation CPIF m/m|y/y Nov -0.2%|0.7% 0.1%|1.1%

10:00 EUR ECOFIN meeting on Greece and Cyprus

10:00 ITL HICP, final m/m|y/y Nov -0.3%|2.6%

10:00 EUR ECB monthly report Dec

14:30 USD Retail sales m/m Nov 0.5% 0.3% -0.3%

14:30 USD Retail sales less autos m/m Nov -0.2% -0.1% 0.0%

14:30 USD Retail sales less autos and gas m/m Nov -0.1% 0.2% -0.3%

14:30 USD PPI m/m|y/y Nov -0.3%|1.9% -0.5%|1.8% -0.2%|2.3%

14:30 USD PPI core m/m|y/y Nov 0.1%|2.2% 0.2%|2.2% -0.2%|2.1%

14:30 USD Initial jobless claims 1000 370 370



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Weekly Focus

Calendar - continued

Friday, December 14, 2012 Period Danske Bank Consensus Previous

- EUR European Council meeting

0:50 JPY Tankan non-manufacturing index (outlook) Index 4th quarter 8 (5)

0:50 JPY Tankan large manufacturers index (outlook) Index 4th quarter -3 (-3)

2:45 CNY HSBC flash manufacturing PMI Index Dec 50.5

5:30 JPY Industrial production, final m/m|y/y Oct 1.8%|-4.3%

9:00 FRF PMI manufacturing, preliminary Index Dec 44.9 44.5

9:00 FRF PMI services, preliminary Index Dec 46.2 45.8

9:30 DEM PMI manufacturing, preliminary Index Dec 47.4 47.1 46.8

9:30 DEM PMI services, preliminary Index Dec 50.2 50.3 49.7

10:00 EUR PMI manufacturing, preliminary Index Dec 46.7 46.6 46.2

10:00 EUR PMI composite, preliminary Index Dec 47.0 46.8 46.5

10:00 EUR PMI services, preliminary Index Dec 47.1 47.0 46.7

10:30 ITL General government debt EUR bn Oct 1995.1

11:00 EUR CPI m/m|y/y Nov …|2.2% -0.2%|2.2% 0.2%|2.2%

11:00 EUR CPI - core y/y Nov 1.5% 1.5% 1.5%

14:30 USD CPI m/m|y/y Nov -0.2%|1.9% -0.2%|2.1% 0.1%|2.2%

14:30 USD CPI ex. food & energy m/m|y/y Nov 0.1%|1.9% 0.2%|2.0% 0.2%|2.0%

14:58 USD Markit manufacturing PMI, preliminary Index Dec 52.4

15:15 USD Industrial production m/m Nov 0.2% 0.2% -0.4%

15:15 USD Capacity utilization Nov 77.9% 77.8%

23:00 USD Fed's Stein and Kocherlakota speak

During the week Period Danske Bank Consensus Previous

Sat 01 - 10 NOK Consumer confidence Net. bal. 4th quarter 23.4

Mon 10 - 15 CNY New yuan loans CNY bn. Nov 600 550.0 505.2

Mon 10 - 15 CNY Money supply M2 y/y Nov 14.1% 14.1%

Thu 13 - 14 EUR IMF and ECB hold joint conference on fiscal governance

Fri 14 - 18 CNY Actual FDI y/y Nov -3.1% -0.2%

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

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



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Disclosure This research report has been prepared by Danske Reseach, 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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Weekly Focus - Danske Bank...an increase of 0.5% m/m primarily driven by a major gain in auto sales following the drop in October. Ex autos, we look for retail sales to decline by