Investment Research General Market Conditions 14 January 2013 Danske Daily Key news Positive sentiment in Asian stock markets ahead of key economic data from China this week. EUR has strengthened and JPY weakened as central bank policies diverge. Bernanke might give more colour on Fed s exit strategy tonight. Market movers today: Euro area industrial production Fed Chairman Bernanke speaks ECB s Praet speaks Markets Overnight According to FT this morning, an EU draft on the direct recapitalisation of failing banks by the ESM, agreed in June, suggest that sovereigns will still have to bear much of the cost themselves. Countries such as Ireland and Spain had hoped that the agreement could be a game changer that would shift the cost of bank bailouts from their sovereign books to the ESM. Elsewhere, Greece approved a new round of tax increases on Saturday in order to receive the upcoming aid payment of EUR14.8bn from the IMF and the EU in March (see FT). In the US politicians are positioning for the coming debate over the debt ceiling. Latest, leading Democrats have said that they support President Obama taking all legal steps to avoid a US government debt default in the case that Republicans are not willing to support an increase of the debt ceiling. Under the current legislation, the President is allowed to mint platinum coins of whatever denomination he wants. The idea of using this as a measure to fund the government was first introduced as a joke by several bloggers but is now being used for bargaining purposes by Democrats. However, the Treasury department, the Fed and the White House have rejected using the platinum coin to fund the government (see WSJ). Friday was a quiet day in the US stock markets and the S&P 500 index ended up 0.4% over the week. This morning the sentiment in Asian stock markets is positive with Chinese shares taking the lead ahead of a row of economic data releases this week. In European bond markets, periphery spreads continued to tighten Friday against Germany and the 5-year Spanish government bond auction was very well received. In the US treasury market, 10-year yields moved slightly lower while 2-year yields were broadly unchanged leaving yields 2 to 6bp lower over the week as markets scaled back their expectations of an early Fed exit from QE. Market overview Note: * The itraxx Europe Index show 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. Source: Bloomberg 1 day,% S&P500 (close) 1472.1 0 S&P500 fut (chng from close) 1468.1 6 Nikkei 10801.6 1.40 Hang Seng 23395.5 6 17:00, bp US 2y gov 0.25 0.25 US 10y gov 1.90 1.87-3.5 itraxx Europe (IG) 102 102 itraxx Xover (Non IG) 421 423 1.4, % EUR/USD 1.334 1.339 7 USD/JPY 89.120 89.620 6 EUR/CHF 1.22 1.22 7 EUR/GBP 0.827 0.829 0.26 EUR/SEK 8.639 8.641 3 EUR/NOK 7.38 7.38 1 USD Oil Brent, USD 110.2 11 0.80 Gold, USD 1658.5 1666.9 0 In FX markets, JPY has continued to weaken as Prime Minister Abe is continuously putting pressure on Bank of Japan to ease monetary policy. EUR continued to strengthen on Friday both against USD and the Scandi currencies after the ECB meeting on Thursday closed the door for further rate cuts. Senior Analyst Signe Roed-Frederiksen +45 45 12 82 29 sroe@danskebank.dk Important disclosures and certifications are contained from page 4 of this report.
Global Daily Focus today. We have a relatively light data calendar today. In Europe November industrial production for the euro area and Italy will be released today. We expect euro area industrial production to have declined slightly in November but the pace should be easing compared to previous months. There are a lot of speeches from central bank officials in the calendar today but most of them will take place after market close in Europe. Fed Chairman Ben Bernanke is scheduled to speak about monetary policy and recovery from the global financial crisis. FOMC members Lockhart and Williams will also be speaking tonight. Finally, ECB board member Peter Praet is scheduled to speak about the European debt crisis this evening. Fixed income markets. On Friday the Euribor futures continued to sell off following Thursday s hawkish ECB meeting and as the 3m and 6m Euribor fixings rose. The short end of the market has now begun to focus on the impact from the repayment of the LTROs. This has also affected the longer end of the curve where the spread between USD and EUR swap rates is currently narrowing. It will be interesting to see how far the repricing of the money market can go and how big an impact it will have on the rest of the curve. The bearish momentum in the long end of the US seems to have faded. US 10yr Treasury rates are still hovering below 1.90% and focus is turning to the debt ceiling debate. This should limit the upward pressure on longer tenor rates - also in EUR swaps. For now we expect the long end ranges to hold. There is no major news scheduled for the bond market today FX markets. The trend of euro buying and yen selling continues. USD/JPY is about to break above 90 and EUR/USD has traded above 1.34 in response to a general sentiment shift on the euro - as illustrated by even EUR/CHF starting to move higher. IMM data show net euro positions slightly lower but remember that these data were compiled last Tuesday. JPY positioning has not moved much but it is supportive for our bearish view that the yen has been able to continue selling off even after IMM data showed short yen positions at stretched levels - indicating a more broad-based sell-off than just driven by speculative flows. Weak trend in Eurozone industrial production 10 % 5 0-5 -10-15 -20-25 07 08 09 10 11 12 Source: Reuters EcoWin US S&P500 future 1466 1456 Euroland IP (m/m) >> US 10y gov yield << Euroland IP (y/y) 1446 1446 Thu Fri Tue Wed Thu Mon 1.96 1.86 % 2 1 0-1 -2-3 -4-5 1466 1456 1.96 1.86 1.76 1.76 Thu Fri Mon Wed Thu Fri Scandi Daily No key data releases in Scandinavia today. Global FX 1.34 EUR/USD (LHS) USD/JPY (RHS) 89.5 Key figures and events Monday, January 14, 2013 Period Danske Bank Consensus Previous 10:00 ITL Industrial production m/m y/y Nov -% -1.1% -6.2% 11:00 EUR Industrial production m/m y/y Nov -% 0.2% -3.1% -1.4% -3.6% 17:55 USD Fed's Willams (non-voter, dove) speaks 18:40 USD Fed's Lockhart (non-voter, hawk) speks 20:30 EUR ECB's Praet speaks in Brussels 22:00 USD Fed's Bernanke (chairman, neutral) speaks 88.6 1.32 87.7 1.3 86.8 Thu Fri Tue Wed Thu Mon Scandi FX Source: Bloomberg, Danske Bank Markets 8.65 8.60 8.55 EUR/SEK (LHS) EUR/NOK (RHS) 7.40 7.36 7.32 8.50 Thu Fri Tue Wed Fri 7.28 2 14 January 2013
Today s market data: 14 January 2013 0 - DJSTOXX50 2647-0.1% Max 0.4 Max 0.7 OM XC20 523 0.2% Min -0.6 0 Min -0.9 OM XS30 1132 % -0.10-0.1 0.4 OSE BX 458-0.1% -0.60 15 16 17 18 19 20 21 Grey line indicates closing of Danish markets DOW JONES NASDAQ 1 month 4.1% 1 month 2.3% S&P500 1472 Year-to-date 3.2% Year-to-date 2.7% NIKKEI () 10802-0.1% EUR 17:00 USD 133.40 133.89 0.49 1666.85 113 133.9 133.9 JPY 118.89 119.98 9 1 day 4.05 9 Max ## GBP 82.72 82.93 0.21 1 month -29.25 1.88 133.4 133.4 Min ## NOK 738.06 738.16 0.10 Year-t-date -8.50-8 SEK 863.85 864.11 0.26 132.9 132.9 DKK 746.18 746.19 1 CRB C R B, R aw PLN 411.79 416-0.23 JPY 89.12 89.62 0 1 day 0.13 1 month 2.26 GBP 161.26 161.44 0.18 1 month 1.77 Year-to-date 1.96 CHF 91.28 91.28 0 Year-t-date 1.65 * The chart plots - 23:00 Fri and 23:00 Sun to Mon USD-Yields Intraday Spread, 0.27 P o licy R ate 3M bp 17:00, bp USD2Y USD10Y 1.93 USD 0.25 5 USD 10Y 1.90 1.87-4 0.26Max Max 1.9 EUR 0.75 0.20-56 USD 30Y 3.08 3.05-4 Min 0.2 Min 1.8 1.90 GBP 0 1 1 JPY 10Y 0.83 0.82-1 0.25 0 0 DKK 0.20 0.29 9 0.24 S&P500 Intraday, % EUR/USD Intraday 132.4 07 10 13 16 19 22 01 04 0.23 07 10 13 16 19 22 01 04 - -0.60 132.4 1.87 1.84 0.70-0 SEK STOCKS Eurostoxx Intraday, % -0.90-0.9 09 10 11 12 13 14 15 16 17 18 Grey line indicates opening of US markets FX & COMMODITIES YIELDS & INTEREST RATES 0 NOK 0 1.87 37 DEM 10Y 7 9 2 PLN 4.00 3.93-7 DKK 10Y 1.63 1.66 3, bp SEK 10Y 1.79 1.83 4 USD2Y (lhs) USD10Y (rhs) NOK 10Y 2.35 2.35 0 PLN 10Y 3.91 4.03 12 * The chart plots - 23:00 Fri and 23:00 Sun to Mon * As of closing previous trading day 1.22 22 0.7 - (-1)* Close Close 13488 3126 Go ld, $ 1M future 296.66 17:00 0.1% 0.1% % Oil, B rent, $ Industrials 534-0.46 8.32 1.64 10Y Yield Spread to Germany 3.0 2.55 2.44 2.5 0 7 0.77 0.28 7 0.24 USDJPYGBPFRF ITL DKKSEKNOKPLN - - -0.76 3.0 2.5 - - 1.8 1.6 1.4 1.2 0.8 0.6 0.4 0.2 US Yield Curve ## M ax 0.450-1.7 ## M ax ### 0.8 ## M in -3.180-2.2 ## M in ### -0.2-0.7-1.2-2.7-3.2 USD2Y USD5Y USD10Y D-t-D, bp (right axis) (left axis) 1 month ago (left axis) German Yield Curve 1.8 1.6 1.4 1.2 0.6 0.4 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. 91 0-6 200 180 160 Credit spreads * Ask price ** Ask price Swap Spread, bp** 17:00 USD 17:00 USD 10Y 3 5 2 Europe (IG) 102-1 -14 140 JPY 10Y 3 HiVol 155 0-21 120 500 100 400 Xover (N-IG) 423-2 -41 80 (-1)* 17:00 300 60 200 EUR 10Y 22 21-1 40 20 100 DKK 10Y 27 27 0 Finan. Sr. 128 0-25 0 0 SEK 10Y 42 43 1 Jan Mar Apr May Jul Aug Oct Nov Finan. Sub. 213 2-50 NOK 10Y 99 97-2 itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) 800 700 600 * As of closing previous trading day 3 14 January 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. 4 14 January 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. 5 14 January 2013