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 +45 41 95 02 29 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) 95 95 0,1 itraxx Xover (Non IG) 388 388 0,0 +/-, % EUR/USD 1,286 1,285-0,10 USD/JPY 102,180 102,410 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.
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 1.2842 overnight. If the move higher in especially US yields continues today, a break through the strong support level at 1.2796 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 102.61. US S&P500 future 1683 1683 1673 1673 1663 1663 1653 1653 1643 1643 1633 1633 Mon Tue Thu Fri Mon Wed US 10y gov yield 2.23 2.23 2.13 2.13 3 3 1.93 1.93 1.83 1.83 Mon Tue Wed Thu Tue Wed Global FX EUR/USD (LHS) USD/JPY (RHS) 1.302 103.4 102.5 1.292 101.6 1.282 100.7 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 8.6555 is likely, which could open for a move towards 8.7190. Note that we still have a medium to long-term positive view on SEK. Scandi FX EUR/SEK (LHS) EUR/NOK (RHS) 8.65 8.61 8.57 8.53 Mon Tue Thu Fri Mon 7.58 7.54 7.50 7.46 2 29 May 2013
Key figures and events Source: Bloomberg, Danske Bank Markets 3 29 May 2013
Today s market data: 29 May 2013 1.50 0.90 0.30 STOCKS DJSTOXX50 Max 1,8 Max 2,2 OM XC20 552 Min -0,3 0.90 1.30 Min 0,1 1.3 OM XS30 1244 0,6 0,6 OSE BX 496-0.30 15 16 17 18 19 20 21 Grey line indicates closing of Danish markets 129.5 S&P500 Intraday, % DOW JONES NASDAQ 1 month 4,2% 1 month 3,3% S&P500 1660 2819 1,2% Year-to-date 16,4% Year-to-date 9,4% NIKKEI () 14475 1,2% FX & COMMODITIES EUR 17:00 +/- USD 128,61 128,48-0,13 JPY 131,41 131,57 0,16 1 day 5,42-0,08 129.1 Max ## 129.1 GBP 85,47 85,55 0,07 1 month -89,28 0,34 Min ## NOK 756,66 757,93 1,27 Year-t-date -288,70-6,96 128.7 0,4 128.7 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 3,35 10 0.29 Min 0,2 Min 2,0 2.14 GBP 0,50 0,51 1 JPY 10Y 0,91 0,95 5 0 0 DKK 0,20 0,24 4 0.26 8 SEK 1,00 1,19 19 (-1)* 17:00 +/-, bp NOK 1,50 1,78 28 DEM 10Y 1,49 1,50 1 0.23 07 10 13 16 19 22 01 04 USD2Y (lhs) EUR/USD Intraday 128.3 07 10 13 16 19 22 01 04 USD10Y (rhs) 1.50 0.30-0.30 129.5 128.3 2 1.90 0.70 Eurostoxx Intraday, % 0.10 0.1 09 10 11 12 13 14 15 16 17 18 Grey line indicates opening of US markets Close Close 15409 3489 Go ld, $ 1386,65 1M future 285,91 PLN 3,00 2,64-36 DKK 10Y 1,55 1,57 2 1.9 0.7 0,9% +/- +/- 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 0,29-4,00-7,27 3.0 2.5 1.5 0.72 0.5 10Y Yield Spread to Germany 0.470.51 2.54 0.68 0.37 6 1.95 USDJPYGBPFRF ITL DKKSEKNOKPLN -0.5 - -0.55 3.0 2.5 1.5 0.5-0.5-3.0 2.5 1.5 US Yield Curve 16.0 14.0 1 1 8.0 ## M ax 16,590 ## M ax 1,500 6.0 0.8 ## M in 0,000 ## M in ### 4.0 0.5 USD2Y USD5Y USD10Y D-t-D +/-, bp (right axis) (left axis) 1 month ago (left axis) German Yield Curve 1.8 1.4 1.6 1.2 1.4 1.2 0.8 0.6 0.6 0.4 0.4 0.2 0.2 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. 20 0-3 200 180 160 Credit spreads USD 10Y * Ask price ** Ask price Swap Spread, bp** Europe (IG) 95-2 -6 140 JPY 10Y 17 18 2 HiVol 141-5 -17 120 500 100 400 Xover (N-IG) 388-9 -20 80 (-1)* 17:00 +/- 300 60 200 EUR 10Y 0 20 20 40 20 100 DKK 10Y 24 21-3 Finan. Sr. 137-6 -16 0 0 SEK 10Y 32 29-2 May Jul Aug Oct Nov Jan Feb Apr May Finan. Sub. 196-7 -51 NOK 10Y 43 39-3 itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) 800 700 600 17:00 * As of closing previous trading day USD 17:00 +/- +/- 4 29 May 2013
Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Services Authority (UK). Details on the extent of the regulation by the Financial Services Authority are available from Danske Bank upon request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank s research policies. Employees within Danske Bank s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Expected updates Danske Daily is updated on a daily basis. First date of publication Please see the front page of this research report for the first date of publication. Price-related data is calculated using the closing price from the day before publication. 5 29 May 2013
General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) ( Relevant Financial Instruments ). The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in this research report. This research report is not intended for retail customers in the United Kingdom or the United States. This research report is protected by copyright and is intended solely for the designated addressee. It may not be reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank s prior written consent. Disclaimer related to distribution in the United States This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for distribution in the United States solely to "U.S. institutional investors" as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely to U.S. institutional investors. Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not registered or qualified as research analysts with the NYSE or FINRA, but satisfy the applicable requirements of a non-u.s. jurisdiction. Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non- U.S. financial instruments may entail certain risks. Financial instruments of non-u.s. issuers may not be registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S. Securities and Exchange Commission. 6 29 May 2013