Danske Daily. Market movers today. Selected market news

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1 Investment Research General Market Conditions 29 May 2013 Danske Daily Market movers today We expect that German inflation has remained subdued in May. Core inflation is running at a very low level and commodity prices are held in check by positive supply side factors and fading Chinese demand. The euro area M3 release for April will give insight into the credit growth situation in the euro area tight credit is a key factor restraining growth currently. Further, German unemployment is expected to remain unchanged in May. In terms of central banks, Fed dove Rosengren (voter) will speak on the economic outlook this evening. Earlier in the day we will get the Bank of Canada interest rate decision. In Sweden all eyes will be on the Q1 GDP numbers. We look for some weak numbers, well below the Riksbank and consensus forecasts. See more in the Scandi section on page 2. Selected market news Market sentiment has been driven mainly by yesterday s strong US data. US Conference board s consumer confidence was much stronger than expected as it reached the highest level since the recession ended, fuelled by a strong improvement in both the assessment of the present situation and expectations. Our trend model for employment growth now points to a gain of 190K in May. If growth picks up in Q3 as we expect, this leaves the US on track for a September start of QE tapering. The Case-Shiller house price index showed that the recovery in the housing market has gained substantial strength with house prices up 10.9% in a year. The stronger-than-expected US data have caused fixed income markets to look more fragile with both the Bund and the US treasury market testing the upper part of their recent interest rate ranges. US stock markets focused on the prospect of stronger-than-expected growth and rallied further. In FX markets EUR/USD reacted immediately to the strong confidence data and fell yesterday, while it has been broadly stable overnight. The IMF early this morning lowered its forecast for China s GDP growth to 7.75% both this year and next (from 8% this year and 8.2% next year) adding that rapid growth in financing raises questions over the quality of investments and the repayment ability of companies and local governments. This has caused a decline in the Hang Seng index. Apart from that, the Asian session has been more upbeat, although the Japanese stock market continues to struggle to find direction. In Europe ECB's Noyer said yesterday that he is unconvinced of the need for negative rates and that there have been experiences in the past Not all are convincing. In some cases it even tended to trigger an increase in the rates of credit because the banks were compensating for a loss they were getting on their deposits with the central bank. We do not expect the ECB to cut the deposit rate to negative territory and indeed the above does not sound like a central bank that is just about to introduce negative deposit rates. 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 Selected readings from Danske Senior Analyst Frank Øland franh@danskebank.dk 1 day +/-,% S&P500 (close) 1660,1 0,63 S&P500 fut (chng from close) 1656,1 0,09 Nikkei 14475,5 1,14 Hang Seng 22767,4-0,68 17:00 +/-, bp US 2y gov 0,26 0,30 4,5 US 10y gov 2,11 2,22 10,7 itraxx Europe (IG) ,1 itraxx Xover (Non IG) ,0 +/-, % EUR/USD 1,286 1,285-0,10 USD/JPY 102, ,410 0,23 EUR/CHF 1,25 1,26 0,12 EUR/GBP 0,855 0,855 0,09 EUR/SEK 8,607 8,632 0,30 EUR/NOK 7,57 7,58 0,17 USD Oil Brent, USD 104,3 104,2-0,13 Gold, USD 1386,6 1386,7 0,01 Commodities forecast update FX hot picks: USD/JPY fight back Important disclosures and certifications are contained from page 5 of this report.

2 Scandi markets today In Sweden one long awaited GDP number for Q1 is finally due. While these numbers are inherently difficult to forecast, we still find it hard - though not impossible - to reach the Riksbank and market consensus forecasts of 1.5% y/y (wda) GDP growth. Should our guesstimate (0.7% y/y wda) prove less erroneous than our competitors', we will probably see a downward reaction in rates and an opposite move in EUR/SEK. Importantly, it might be the final nail in the Riksbank coffin of resistance to a July cut. Remember that both inflation and labour markets are below the Riksbank's current forecasts. Fixed Income markets The selling pressure in fixed income markets continues. It is driven by a combination of squaring out of low-for-long trades in the short end of the EUR market and a re-pricing of Fed QE expectations in the US, which is hitting the belly of the curve. The price action over the past few weeks has left the market fragile and yesterday US 10yr Treasury yields broke through the previous high of 8% - currently trading at 2.19%. This leaves room for a test of 2.25% with 2.40% as the next major support. We believe that 2.25% is a very likely target within the next few days. On top of the short-end sell-off, the US price action is putting pressure on the entire EUR market. For the 10yr German benchmark the next major support is 1.70% - also here the sell-off could have more legs, as market positioning is probably still bad. No major impending news today but given the elevated focus on Fed s tapering discussion Rosengren s speech might prove interesting, although he is not a heavy-weight FOMC member. FX markets Yesterday s strong US numbers gave support to the US dollar and EUR/USD has traded as low as overnight. If the move higher in especially US yields continues today, a break through the strong support level at is a possibility. Remember though, that the risk of an ECB cut into negative territory after ECB s Noyer s comments now looks rather distant. The latter is one of the key risks to the euro at the moment. The broadbased USD rally has also pushed USD/JPY higher and here the next strong resistance level to follow is US S&P500 future Mon Tue Thu Fri Mon Wed US 10y gov yield Mon Tue Wed Thu Tue Wed Global FX EUR/USD (LHS) USD/JPY (RHS) Mon Tue Thu Fri Mon Wed Today it will be Carney's last Bank of Canada decision and he will most likely maintain both the overnight rate at 0% and the long-standing hawkish bias in the statement. What to watch out for next (July meeting) in terms of CAD is whether incoming governor Poloz will remove the saying that over time some modest withdrawal [of current stimulus] will likely be required. However, with the Fed set for tapering QE in H2, it may not be the time for Poloz to retreat. While we look for USD/CAD to move higher on a 6M horizon we are not projecting a sustained break above 5 this year. Finally, in the Scandi FX markets all eyes will be on the Swedish GDP numbers. As we elaborated in Scandi markets ahead, 26 May, we expect the numbers for Q1 to be much weaker than expected by the Riksbank, which could push Swedish money market rates lower and EUR/SEK higher. If our prediction is correct, a test of the resistance level at is likely, which could open for a move towards Note that we still have a medium to long-term positive view on SEK. Scandi FX EUR/SEK (LHS) EUR/NOK (RHS) Mon Tue Thu Fri Mon May 2013

3 Key figures and events Source: Bloomberg, Danske Bank Markets 3 29 May 2013

4 Today s market data: 29 May STOCKS DJSTOXX50 Max 1,8 Max 2,2 OM XC Min -0, Min 0,1 1.3 OM XS ,6 0,6 OSE BX Grey line indicates closing of Danish markets S&P500 Intraday, % DOW JONES NASDAQ 1 month 4,2% 1 month 3,3% S&P ,2% Year-to-date 16,4% Year-to-date 9,4% NIKKEI () ,2% FX & COMMODITIES EUR 17:00 +/- USD 128,61 128,48-0,13 JPY 131,41 131,57 0,16 1 day 5,42-0, Max ## GBP 85,47 85,55 0,07 1 month -89,28 0,34 Min ## NOK 756,66 757,93 1,27 Year-t-date -288,70-6, , SEK 860,68 863,23 2,55 DKK 745,37 745,31-0,06 CRB C R B, R aw PLN 418,78 420,48 1,70 JPY 102,18 102,41 0,23 1 day 1,02 1 month -2,51 GBP 150,47 150,19-0,28 1 month -3,53 Year-to-date -3,45 CHF 97,51 97,72 0,21 Year-t-date -9,10 YIELDS & INTEREST RATES USD-Yields Intraday Spread, P o licy R ate 3M bp 17:00 +/-, bp 0.32 USD2Y USD10Y 2.20 USD 0,25 0,27 2 USD 10Y 2,11 2,22 11 Max 0,3 Max 2,2 EUR 0,50 0,20-30 USD 30Y 3,26 3, Min 0,2 Min 2, GBP 0,50 0,51 1 JPY 10Y 0,91 0, DKK 0,20 0, SEK 1,00 1,19 19 (-1)* 17:00 +/-, bp NOK 1,50 1,78 28 DEM 10Y 1,49 1, USD2Y (lhs) EUR/USD Intraday USD10Y (rhs) Eurostoxx Intraday, % Grey line indicates opening of US markets Close Close Go ld, $ 1386,65 1M future 285,91 PLN 3,00 2,64-36 DKK 10Y 1,55 1, ,9% +/- +/- SEK 10Y 1,83 1,87 5 NOK 10Y 2,17 2,17 0 PLN 10Y 3,41 3,45 4 * As of closing previous trading day 1,0% 1,0% 0,7% 0,9% 0,6% Oil, B rent, $ 104,15 Industrials 523,13 0,29-4,00-7, Y Yield Spread to Germany USDJPYGBPFRF ITL DKKSEKNOKPLN US Yield Curve ## M ax 16,590 ## M ax 1, ## M in 0,000 ## 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 May Jul Aug Oct Nov Jan Feb Apr May 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 +/- +/ May 2013

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