Danske Daily. Market movers today. Selected market news

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1 Investment Research General Market Conditions March 24 Danske Daily Market movers today We have a light data calendar again today with only second tier releases such as manufacturing production in the UK, revised Q4 GDP in Italy and small business confidence in the US of secondary importance. EU finance ministers will meet this morning in connection with the ECOFIN meeting. They are likely to continue the discussion about banking union where the implementation and funding of a common resolution mechanism for failing banks remains the main sticking point. Possible aid for Ukraine could also be on the agenda. In Scandi focus will be on Swedish CPI. For more on Scandi markets see page 2. Selected market news Markets are having a very quiet start to the week. Most stock indices are trading broadly sideways and the same goes for US bond yields and EUR/USD. Most action has taken place in commodity markets following on the surface very weak trade data out of China. Iron ore showed the sharpest decline yesterday in more than four years and reached the lowest level since October 22. LME metal price index also plunged, hitting a two and a half year low. The drop in commodity prices has taken its toll on mining stocks such as Rio Tinto, Vale and BHP Billiton. Bank of Japan as expected did not announce any new easing measures in connection with today s monetary meeting. In the statement from the meeting there were only small changes in its view of the economy but it was less positive in its description of the development in exports. Exports are now described as having levelled off after previously having been described as picking up. ECB governing council member Christian Noyer yesterday said the ECB was not happy with the strength of the euro: When the euro tends to strengthen, it creates additional downward pressure on the economy and inflation, which in both cases isn t warranted. So we re not happy at the moment. Nevertheless, the euro strength apparently wasn t enough for ECB to act last week. Bundesbank president Sabine Lautenschlaeger reiterated last night in a WSJ interview that the ECB will act if necessary but that it saw no strong reason to act last week. She repeated that the ECB still has tools left such as cutting rates further, negative deposit rates and asset purchases. Market overview USD Oil Brent, USD Gold, USD 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 shows 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 7:3 day +/-,% S&P5 (close) S&P5 fut (chng from close) Nikkei Hang Seng : 7:3 +/-, bp US 2y gov US y gov itraxx Europe (IG) itraxx Xover (Non IG) /-, % EUR/USD USD/JPY EUR/CHF EUR/GBP EUR/SEK EUR/NOK Chief Analyst Allan von Mehren alvo@danskebank.dk Important disclosures and certifications are contained from page 5 of this report.

2 Scandi markets today The main event in Sweden will be February CPI data and especially the core rate (CPIF) which excludes effects of changed mortgage rates. The January inflation rate (-.% m/m and.4% y/y) came in.3pp below the Riiksbank s forecast and triggered increased expectations of another rate cut. Danske Bank s forecast.4% m/m and.3% y/y is.2pp below the Riksbank February forecast (market mean is one-tenth higher than Danske Bank s estimate) see below for FX comment. US S&P5 future We expect the current account surplus in Denmark to have declined slightly in January to around DKK8.5bn from DKK9.4bn in December However, this does not change the fact that the Danish current account balance at 7% of GDP the highest level in more than 6 years is more than healthy. This puts fundamental appreciation pressure on DKK and goes some way to explain why Danmarks Nationalbank has not needed to intervene in the FX market to support DKK in over a year, despite the current high negative carry on short EUR/DKK positions. Fixed income markets The front of the EUR curve more or less has removed the expectations for further ECB easing for the time being and EONIA is now priced to stay around the current level for several months ahead. In a interview yesterday with WSJ, the new ECB Executive Board member Lautenschläger restated the ECB position from last week: We ll act if it is necessary. But was no strong reason to act last week. So development in excess liquidity is likely to be the dominant factor for the money market in the near future, and for the week ahead we should expect EONIA at current levels. Even though Friday s LTRO repayment was the largest in 24 (bn), the new ECB forecast for autonomous factors declined even more (-35bn) leaving excess liquidity around 35bn. In the EUR govie space, Netherlands will be printing in the Apr-7 and Germany will be printing in the Apr-8 linker. Furthermore, Belgium announced a new 2Y syndicated deal to be issued. Among the Scandies there is also high activity today with Norway introducing a new Y with a NOK6bn print. Norway continue to trade around highs versus Germany. The Danish DMO announced yesterday a Kingdom of Denmark Mar-7 in USD which is expected to be today s business. FX markets Today, the FX market in Scandinavia will keep an eye on the inflation data in Sweden. Yesterday, we had much lower-than -expected inflation in Denmark, whereas Norway came in in line with the market consensus. In Sweden our forecast is slightly below the consensus estimate and if we are right the SEK might suffer slightly. But note that the deviation compared with the Riksbank forecast is not going to widen, which makes a spring rate cut less likely. We will also keep an eye on the government bond auction in Norway. NGBs have underperformed further this year, underlining that the demand for safe triple A bonds is low at the moment. Hence, if we see another poor auction it might weigh slightly on the NOK. But still NOK/SEK should be supported by yet another widening of the inflation difference between Norway and Sweden. For more on the Scandi markets and the NGB auction, see Scandi Markets Ahead that we published yesterday Fri Mon Tue Thu Fri Tue US y gov yield Fri Mon Wed Thu Fri Tue Global FX EUR/USD (LHS) USD/JPY (RHS) Fri Mon Wed Thu Sun Tue Scandi FX EUR/SEK (LHS) EUR/NOK (RHS) Fri Mon Wed Thu Sun 2 March 24

3 Key figures and events Tuesday, March, 24 Period Danske Bank Consensus Previous 8: SEK PES Unemployment % Feb 4.6% 9: EUR ECOFIN meeting in Brussels 9: DKK Exports (s.a.) DKK bn Jan 9: DKK Current account DKK bn Jan 9.4 9:3 SEK CPI m/m y/y Feb.4% -.3%.5% -.2% -.2%.2% : ITL GDP, final q/q y/y 4th quarter % -.8%.% % -.8% :3 GBP Industrial Production m/m y/y Jan.4%.8% :3 GBP Manufacturing production m/m y/y Jan.3% 3.2%.3%.5% :5 EUR ECB announces allotment in 7-day (MRO) 2:3 USD NFIB small business optimism Index Feb 94. Source: Bloomberg and Danske Bank Markets 3 March 24

4 Today s market data: March DJSTOXX % Max.3 Max. OM XC % -.2 Min Min -.2 OM XS3 36.%.3.6 OSE BX % DOW JONES Grey line indicates closing of Danish markets NASDAQ 4334 Grey line indicates opening of US markets month 3.2% month -.2% S&P Year-to-date.6% Year-to-date -.% NIKKEI (7:3) % JPY day Max ## 38.9 GBP month 5.55 Min ## NOK Year-t-date SEK DKK PLN USD 7: 7:3 +/- JPY day -.9 month 2.27 GBP month 5.79 Year-to-date.22 CHF Year-t-date USD-Yields Intraday Spread,.39 USD2Y USDY P o licy R ate 3M bp 7: 7:3 +/-, bp 2.8 USD USD Y Max.4 Max 2.8 EUR USD 3Y Min.4 Min GBP JPY Y DKK S&P5 Intraday, % USD2Y (lhs) EUR/USD Intraday USDY (rhs) SEK STOCKS Eurostoxx Intraday, % FX & COMMODITIES 39. EUR 7: 7:3 +/- USD : YIELDS & INTEREST RATES :3 7:3(-)* Close Close Go ld, $ 343. CRB M future 36. 7: +/- +/- Oil, B rent, $ +/-, bp NOK DEM Y PLN DKK Y % % % C R B, R aw Industrials SEK Y NOK Y PLN Y * As of closing previous trading day 3.9 Y Yield Spread to Germany USDJPYGBPFRF ITL DKKSEKNOKPLN US Yield Curve ## M ax.63 ## M ax ###.6.8 ## M in.4.6 ## M in ### USD2Y USD5Y USDY D-t-D +/-, bp (right axis) 7:3 (left axis) month ago (left axis) German Yield Curve DEM2Y DEM5YR DEMY D-t-D +/-, bp (right axis) 7:3 (left axis) month ago (left axis) C redit spread, it raxx s. * Credit spreads Swap Spread, bp** 7: 7:3 +/- 7:3 day month USD Y Europe (IG) 73 - JPY Y HiVol 9-6 Xover (N-IG) :3(-)* 7: +/- EUR Y DKK Y Finan. Sr SEK Y Finan. Sub NOK Y Non-finan. itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) * As of closing previous trading day * Ask price ** Ask price 4 March 24

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