Investment Research General Market Conditions 13 December 2012 Key news The Fed surprises and introduces Evans rule and asset purchases of USD45bn. US stocks rallied but gave up the gains as fears over fiscal cliff returned. Eurozone agrees on common bank regulator as compromise is reached. Berlusconi may pull candidacy for president if Mario Monti runs. Markets Overnight The Fed surprised yesterday by announcing numerical threshold values for unemployment and inflation that will guide the first Fed funds rate hike see Flash Comment US: Another step up in easing, 12 December. The Fed funds rate is now expected to be held at its current level as long as the unemployment rate is above 6.5%, one-to-two year inflation expectations are not above 2.5% and longer-term inflation expectations remain well anchored. We did expect such a move but not until spring next year. In addition, the expiring Twist programme was fully replaced by outright treasury purchases of USD45bn per month. This means a significant expansion of the Fed s balance sheet in 2013 but this was expected. The announcement led to a strong rally in equity markets but the gains were erased as fears over the fiscal cliff returned. Fed Chairman Bernanke warned at the press conference that the Fed could not shield the economy from the cliff while House speaker Republican John Boehner told fellow Republicans not to make plans over Christmas see Marketwatch. S&P500 ended flat on the day. Japanese stocks got a further boost from a continued yen weakening. The more aggressive Fed adds to expectations that Bank of Japan will also step on the gas and pump more yen into the economy. EUR/USD also rose on the Fed announcement and US 10-year bond yields are higher as well. In Scandies both EUR/SEK and EUR/NOK increased yesterday evening. The eurozone finance ministers Thursday morning agreed on a common bank regulator see FT. ECB will now be supervisor for banks with assets of more than EUR30bn amounting to 150-200 banks. ECB also retains the power to intervene in any bank and give instructions to national supervisors but it is unclear exactly how strong this power is going to be. The agreement marks the first step towards a banking union and comes before the self-imposed year-end deadline. However, Germany s finance minister Wolfgang Schäuble made it clear that allowing funds from the ESM to be injected directly into ailing banks could not take place until well into 2014. Market movers today: US retail sales and PPI SNB meeting ECOFIN meeting Sweden CPI and unemployment Market overview 07:30 1 day,% S&P500 (close) 1428.5 4 S&P500 fut (chng from close) 1427.9 5 Nikkei 9742.7 1.68 Hang Seng 22465.7-0.17 17:00 07:30, bp US 2y gov 0.24 0.24 US 10y gov 1.66 1.72 5.5 itraxx Europe (IG) 114 115 0.5 itraxx Xover (Non IG) 462 464 1.6, % EUR/USD 1.304 1.308 0.34 USD/JPY 82.970 83.610 0.77 EUR/CHF 1.21 1.21 9 EUR/GBP 0.809 0.811 0.20 EUR/SEK 8.671 8.738 0.76 EUR/NOK 7.34 7.36 0.25 USD Oil Brent, USD 109.4 109.2-0.17 Gold, USD 1711.7 1695.9-0.92 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 Italy s Silvio Berlusconi made another surprising move by expressing that he is ready to give up his candidacy for presidency if technocrat prime minister Mario Monti will go to elections as leader of a broad moderate alliance see FT. Chief Analyst Allan von Mehren +45 45 12 80 55 alvo@danskebank.dk Important disclosures and certifications are contained from page 4 of this report.
Global Daily Focus today. In the euro area finance misters will meet and discuss aid for Greece and Cyprus. After the completion of its bond buy-back programme yesterday, Greece should today get the green light for disbursement of aid. EU leaders will also start their two-day meeting today with banking union and supervision heading the agenda. Finally, in the euro area both Italy and Spain will attempt to tap the bond market today. The Swiss central bank will today finish its quarterly monetary assessment with a press briefing at 10:00 CET. The 1.20 franc ceiling is expected to be maintained as the need for imminent action has eased after CHF has weakened slightly on the back of UBS s announcement earlier this week that it will charge for CHF deposits. In the data calendar the main event today is US retail sales for November. We expect the headline number to show a solid 0.5% m/m gain driven by strong auto sales but there will be larger than usual uncertainty due to the impact from Hurricane Sandy. In the US the fiscal cliff negotiations will continue to be in focus Fixed income markets. The Fed delivered more than was anticipated, as it moved ahead quicker than expected in using numerical thresholds to provide forward rate guidance. The decision on asset purchases was close to the consensus expectation, although the duration of the purchases is probably a little shorter than the market expected. The markets have so far reacted as one could expect given that the measures are viewed as credible in terms of restoring long-term growth and inflation expectations. Hence the US curve has steepened from the very long-end. Overall yesterday s decision supports the case for further steepening of the US curve going into 2013. Further, we continue to see value in being underweight US duration versus EUR given the more benign US outlook. Near term the risks to these views would be if the fiscal cliff is not resolved properly. The FX markets will use the day to digest the bold move by the Fed yesterday. The decision to announce numeric threshold values and fully replace the expiring Operation Twist with outright treasury purchases are expected to continue to weigh on USD today. Note that USD/JPY also moved higher yesterday afternoon despite the Fed move, underlining that Bank of Japan is going to take new easing measures after the general election on Sunday. The market will also keep an eye on the SNB meeting this morning. We firmly expect the 1.20 minimum target to be maintained. We have recently seen EUR/CHF moving slightly higher as several major banks have announced they will charge for deposits in CHF. Scandi Daily The final critical data in Sweden before next week's Riksbank policy meeting are released today. From a Riksbank perspective, new information about the labour market condition is probably the most important. There has been a gradual increase in layoffs through 2012 and that trend has accelerated of late. Last month (October) more than 10,000 announcements were reported bringing the YTD aggregate to 56,000 compared with 35,000 during the same period last year. It is not meaningful to forecast layoffs but anecdotal evidence suggests that November can be another bad month. SCB publishes unemployment data too. So far unemployment has not responded too much (there is typically a six-month lag between layoffs and unemployment) but we would guess that we will continue to see higher unemployment numbers going forward. Inflation has not been a problem for the Riksbank in a long time - at least not in terms of too high numbers. In fact, lower energy prices may push the CPI inflation rate, at least temporarily, below zero in November. Fed to expand balance sheet further 20 3 mth chg. SAAR 3 mth chg. SAAR 20 10 Retail sales ex. autos 10 0 0-10 Retail sales -10-20 -20-30 -30 06 07 08 09 10 11 12 Source: Reuters EcoWin US S&P500 future 1438 1438 1428 1428 1418 1418 1408 1408 1398 1398 Tue Wed Thu Mon Tue Thu US 10y gov yield 1.71 1.71 1.61 1.61 1.51 1.51 Tue Wed Fri Mon Tue Thu Global FX EUR/USD (LHS) USD/JPY (RHS) 1.318 83.8 1.308 83.1 1.298 82.4 1.288 81.7 Tue Wed Fri Mon Tue Thu Scandi FX EUR/SEK (LHS) EUR/NOK (RHS) 7.39 8.75 7.37 8.70 7.35 8.65 7.33 8.60 7.31 Tue Wed Fri Mon Tue Thu 2 13 December 2012
Key figures and events Thursday, December 13, 2012 Period Danske Bank Consensus Previous 8:00 SEK PES Unemployment % Nov 4.6% 9:15 CHF Producer & import prices m/m y/y Nov -0.1% % 9:30 CHF SNB 3-month Libor target rate % 0% 9:30 SEK Unemployment % Nov 7.1% 7.1% 9:30 SEK CPI m/m y/y Nov -0.3% -0.1% -0.1% % 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 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% % 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 Source: Bloomberg, Danske Bank Markets 3 13 December 2012
Today s market data: 13 December 2012 STOCKS S&P500 Intraday, % Eurostoxx Intraday, % Close 0.90 0.90 0.60 0.6 DJSTOXX50 2601 0.1% Max 1.1 Max 0.8 OMXC20 501-0.3% 0.50 Min -0.3 0.50 0.20 Min -0.6 0.2 OMXS30 1103-0.5% OSE BX 447 0.5% 0.10 0.10-0.20-0.2 Close -0.30-0.30-0.60-0.6 DOW JONES 13245 % 15 16 17 18 19 20 21 09 10 11 12 13 14 15 16 17 18 Gr ey line indicates closing of Danish mar kets Grey line indicates opening of US markets NASDAQ 3014-0.3% 1 month 3.9% 1 month 3.0% S&P500 1428 % Year-to-date 13.6% Year-to-date 9.8% NIKKEI (07:30) 9743 0.1% FX & COMMODITIES Oil, EUR/USD Intraday EUR 17:00 07:30 Gold, $ Brent, $ 13 13 USD 130.38 130.82 4 07:30 1695.90 109.19 JPY 108.18 109.37 1.19 1 day -15.76-0.31 130.6 Max ## 130.6 GBP 80.90 86 0.16 1 month -29.10 0.93 Min ## NOK 733.90 735.76 1.86 Year-t-date 132.20 1.81 130.2 130.2 SEK 867.13 873.76 6.63 DKK 746.02 746.03 1 CRB CRB, Raw 129.8 129.8 PLN 409.57 409.12-5 1M future Industrials 07 10 13 16 19 22 01 04 USD 17:00 07:30 07:30 295.19 523.72 JPY 82.97 83.61 0.64 1 day 1.35 2.67 1 month 3.78 GBP 161.16 161.38 0.22 1 month 3.04 18.49 Year-to-date 1.21 CHF 92.90 92.67-0.23 Year-t-date -10.11 6.88 YIELDS & INTEREST RATES USD-Yields Intraday Spread, 0.26 Policy Rate 3M bp 17:00 07:30, bp USD2Y USD10Y 1.72 USD 0.25 0.31 6 USD 10Y 1.66 1.72 6 0.25Max 0.3 Max 1.7 EUR 0.75 0.18-57 USD 30Y 2.85 2.92 7 Min 0.2 Min 1.6 1.69 GBP 0.50 0.52 2 JPY 10Y 0.70 0.73 3 0.24 0.23 0 0 1.66 DKK SEK 0.20 1.25 0.27 1.39 7 14 07:30(-1)* 17:00, bp NOK 1.50 1.87 37 DEM 10Y 1.32 1.33 1 0.22 1.63 PLN 4.25 4.19-6 DKK 10Y 3 5 2 07 10 13 16 19 22 01 04 SEK 10Y 1.45 1.46 0 USD2Y (lhs) USD10Y (rhs) NOK 10Y 2.17 2.17 0 PLN 10Y 3.88 3.87-1 * As of closing previous trading day 10Y Yield Spread to Germany 4.0 4.0 3.5 3.31 3.5 3.0 2.54 3.0 2.5 2.5 1.5 1.5 0.38 9 0.64 0.83 0.5 0.12 0.5-0.5 USDJPYGBPFRF ITL DKKSEKNOKPLN -0.28-0.5 - -0.61-1.8 1.6 1.4 1.2 0.8 0.6 0.2 US Yield Curve 6.0 5.0 4.0 3.0 ## Max 6.370 ## Max 1.100 ## Min 00 0.8 ## Min ### USD2Y USD5Y USD10Y D-t-D, bp (right axis) 07:30 (left axis) 1 month ago (left axis) 1.8 1.6 1.4 1.2 German Yield Curve 0.8 0.6 0.6 0.2 0.2 DEM2Y DEM5YR DEM10Y D-t-D, bp (right axis) 07:30 (left axis) 1 month ago (left axis) Credit spread, itraxx s. 11* Credit spreads Swap Spread, bp** 250 900 17:00 07:30 07:30 1 day 1 month 800 USD 10Y 4 5 0 200 700 Europe (IG) 115-1 -17 JPY 10Y 1 3 2 600 HiVol 177 0-26 150 500 Xover (N-IG) 464-1 -75 400 100 07:30(-1)* 17:00 300 EUR 10Y 27 27 0 50 200 100 DKK 10Y 66 66 0 Finan. Sr. 153 1-27 0 0 SEK 10Y 56 55-2 Dec Jan Mar Apr Jun Jul Sep Oct Dec Finan. Sub. 264-1 -48 NOK 10Y 94 94 0 Non-finan. 98-1 -9 itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) * As of closing previous trading day * Ask price ** Ask price 4 13 December 2012
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 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 13 December 2012
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 13 December 2012