Danske Daily. Key news. Markets Overnight. Very aggressive BoJ announcement.

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1 Investment Research General Market Conditions 04 April 2013 Danske Daily Key news Very aggressive BoJ announcement. Focus today on ECB: 25% chance of a refi-rate cut but watch out for non-standard measures to improve credit conditions. BoE to stay put. In the Scandi region, watch out for retail sales in Norway and a speech by Norges Bank s Olsen. Markets Overnight Markets in caution mode ahead of central-bank meetings today after disappointing US data and as North Korea continues to step up its rhetoric against South Korea. Bank of Japan (BoJ) has just made its very aggressive announcement after the first meeting headed by new governor Kuroda. And Kuroda definitely left his mark. First of all, there is a very strong commitment to achieving the 2% inflation target: BoJ says that it will attempt to achieve the target at the earliest possible time with a time frame of about two years; this is a considerably stronger commitment to the inflation target than previously. In addition, the monetary framework is now completely changed: instead of the overnight call rate BoJ will now target the monetary base, which it will increase with JPY60-70trn. Hence, the size of asset purchases becomes less important. Net government bond purchases will be JPY50trn on an annual basis; this is also quite aggressive. As expected, the maturities of bond purchases will be increased, so that BoJ now can purchase government bonds with maturities up to 40 years (previously only less than 30 years). Note that the BoJ denotes the new programme one of Quantitative and Qualitative Monetary Easing (QQME). A first glance at the market reaction confirms that the BoJ delivered at least what the market had hoped for: USD/JPY higher and Nikkei gaining after the announcement. Yesterday s US data came in on the weak side, adding to recent data disappointments and thus hinting that a soft patch for US growth as a result of the federal budget cuts will not be avoided. The non-manufacturing ISM fell short of expectations, dropping to 54.4 last month (from 56.0) and the ADP report revealed private-employment growth running at a mere 158K in March, down from an (upward) revised 237K in February. Other employment indicators, however, hint at a continuously improving job market and our economists look for Friday s payrolls report to show 210K jobs added in March. The weaker data stories have dominated markets overnight with notably a very muted reaction to Fed s Williams saying last night that the substantial improvement in the labour market may arrive already by the summer. In equity markets the US indices were in the red at the close and have been tracked in Asia; Nikkei down 1.8% on JPY strengthening ahead of the BoJ statement.us bond yields fell 1-5bp with declines seen mainly in the 7-10Y segment. FX markets have seen rather diverse movements: JPY rose a little ahead of the BoJ announcement as did AUD after retail sales came in strong. Oil plunging after a large rise in US inventories. Market movers today: JPY: BoJ meeting SEK: services PMI NOK: retail sales, Norges Bank s Olsen speech EUR: services PMI, ECB meeting GBP. services PMI, BoE meeting USD: Evans, Bernanke, Yellen speaking Market overview Note: * The itraxx Europe Index shows the spread development for the most liquid investment grade CDS contracts in the euro credit market. **The itraxx Europe Crossover show the spread development of the most liquid non-investment grade CDS contracts in the euro credit market. ***The Markit CDX North America Investment Grade Index shows the spread development for the most liquid investment grade CDS contracts in the US credit market. Source: Bloomberg Senior Analyst Christin Tuxen tux@danskebank.dk 1 day +/-,% S&P500 (close) S&P500 fut (chng from close) Nikkei Hang Seng :00 +/-, bp US 2y gov US 10y gov itraxx Europe (IG) itraxx Xover (Non IG) /-, % EUR/USD USD/JPY EUR/CHF EUR/GBP EUR/SEK EUR/NOK USD Oil Brent, USD Gold, USD Important disclosures and certifications are contained from page 4 of this report.

2 Global Daily Focus today. Today the ECB meeting will attract prime attention. We estimate the likelihood of a rate cut to be around 25%. However, rather than cut we think Mario Draghi will present a new non-standard measure targeted at improving credit conditions for small and medium-sized companies, see ECB preview, 2 April. In the UK, the Bank of England is expected to be on hold this month, see BoE preview, 3 April. Ahead of the meetings we get service PMIs for the euro area and the UK. Focus will be on the first estimates for Spain and Italy as well as the UK, where the service PMI is expected to stay strong. In the US, Fed s Evans will speak on economic conditions and monetary policy and George on the economy. The speeches will probably illustrate different points of view, as Evans is notoriously dovish and George has voted against a continuation of the QE programme. Consequently, George s speech might provide some insight into arguments for an early exit from QE. Fixed income markets. The impact of today s ECB meeting on the rate markets is relatively uncertain. First, because it is not really clear what measure ECB will apply, should it decide to ease monetary policy. Second, because it is hard to tell what the market is pricing on refi rate. In line with our view, the market is not expecting any change in the deposit rate. If the ECB decides to cut the refi rate, we would expect some decline in front-end rates, as such a move would implicitly open the door for further easing. If the ECB instead adopts some alternative credit easing measure to aid the transmission mechanism to the real economy, this would be a general positive for risk assets. We would expect higher long-end rates and steeper curves in this case. If the ECB does nothing, we would regard this as a mild disappointment. Negative risk sentiment, flatter swap curve and steeper money market curves would then be the outcome. FX markets. ECB in focus and a refi-rate cut would clearly be EUR negative to the extent it leads to a flatter EURIBOR curve; we expect that a 25bp cut would lead EUR/USD to break below the 1.27 level that prevailed prior to the OMT announcement. In contrast, the introduction of any new measures to boost credit extension to the private sector should be EUR positive, as it would increase the likelihood that the eurozone could join the global recovery bandwagon; in this case, the size of the move in EUR/USD would depend crucially on the exact composition of any such programme. With net positioning now closing in on stretched territory for the euro, we stress, however, that should the ECB refrain from a cut (our base scenario), euro upside could certainly be in store, as investors would be likely to be ready to cover shorts and/or add longs. With BoE likely on hold for now sterling will likely take a breather today albeit we see continued weakness further out. Scandi Daily Today Statistics Denmark publishes the EMU budget balance and EMU gross government debt figures for We expect this to show that the budget deficit increased to around 4.1% of GDP last year from 1.8% of GDP in 2011 and thus did not comply with the EU-criteria of 3% of GDP. However, the increase is expected and due to the payment of early retirement contributions, which took place last year as a part of the early retirement reform. This was a one-off payment limited to last year, which further improves public finances in the long run and the increased deficit should therefore be of no concern; Denmark is set to comply with the EU-criteria again this year. Statistics Denmark will also publish revised Q4 National Account figures today; no major revisions expected. Yesterday we sent out a preview on Danmarks Nationalbank (DN) where we look at what the likely reaction from DN will be should the ECB decide to cut interest rates at today s meeting (not our base scenario though). ECB refi rate % E C B re fi ra te % Source: Reuters EcoWin US S&P500 future Tue Wed Thu Mon Wed Thu US 10y gov yield Global FX Scandi FX EUR/USD (LHS) USD/JPY (RHS) Tue Wed Thu Mon Wed Thu Tue Wed Fri Mon Tue Thu EUR/SEK (LHS) EUR/NOK (RHS) 8.28 Tue Wed Fri Mon Tue Sweden. Services PMI due for release April 2013

3 Norway. Retail sales data for February out today: after hitting the bottom in October last year, retail sales have increased for three months in a row. We expect this trend to continue, with a further gain of 0.2% m/m in February after a strong January. This would point to consumption growth of almost 1% q/q in Q1. Note also that Norges Bank s governor Olsen is speaking in Oslo this afternoon. Key figures and events Source: Bloomberg, Danske Bank Markets 3 04 April 2013

4 Today s market data: 04 April S&P500 Intraday, % STOCKS DJSTOXX50 Max 0.4 Max 0.4 OM XC Min -1.5 Min -1.4 OM XS OSE BX Grey line indicates closing of Danish markets DOW JONES NASDAQ 1 month 1.9% 1 month 2.8% S&P % Year-to-date 8.9% Year-to-date 5.1% NIKKEI () % FX & COMMODITIES EUR 17:00 +/- USD JPY day Max ## GBP month Min ## NOK Year-t-date SEK DKK PLN JPY day month GBP month Year-to-date CHF Year-t-date YIELDS & INTEREST RATES USD-Yields Intraday Spread, P o licy R ate 3M bp 17:00 +/-, bp USD2Y USD10Y 1.87 USD USD 10Y Max 0.3 Max 1.9 EUR USD 30Y Min 0.2 Min GBP JPY 10Y DKK SEK (-1)* 17:00 +/-, bp USD2Y (lhs) EUR/USD Intraday USD10Y (rhs) Eurostoxx Intraday, % Grey line indicates opening of US markets Close Close NOK DEM 10Y PLN DKK 10Y Go ld, $ CRB 1M future % -0.6% 0.3% +/- +/- -0.8% -1.1% -1.1% Oil, B rent, $ C R B, R aw Industrials SEK 10Y NOK 10Y PLN 10Y * As of closing previous trading day Y Yield Spread to Germany USDJPYGBPFRF ITL DKKSEKNOKPLN US Yield Curve ## M ax ## M ax ### 0.8 ## M in ## M in ### USD2Y USD5Y USD10Y D-t-D +/-, bp (right axis) (left axis) 1 month ago (left axis) German Yield Curve DEM2Y DEM5YR DEM10Y D-t-D +/-, bp (right axis) (left axis) 1 month ago (left axis) C redit spread, it raxx s. 11* 1 day 1 month Non-finan Credit spreads USD 10Y * Ask price ** Ask price Swap Spread, bp** Europe (IG) JPY 10Y HiVol Xover (N-IG) (-1)* 17:00 +/ EUR 10Y DKK 10Y Finan. Sr SEK 10Y Apr May Jul Aug Oct Nov Jan Feb Apr Finan. Sub NOK 10Y itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) :00 * As of closing previous trading day USD 17:00 +/- +/ April 2013

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