Danske Daily. Market movers today. Selected market news

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1 Investment Research General Market Conditions 26 March 2015 Danske Daily Market movers today Euro M3 money supply is expected to show a further increase in February to 4.3% from 4.1% in January. Money supply growth has picked up recently and real M1 growth, which is a good leading indicator for GDP growth, now points to more than 2% growth later this year. Credit growth has also recovered lately and we look for a further increase in February. UK retail sales are expected to show an increase of 0.4% m/m. Retail sales have been very strong over the past 3-6 months but showed a small decline in January. However, we believe the trend in sales will remain robust driven by strong job gains and the low oil price. We thus look for a slight rebound in sales in February. In the US, initial jobless claims are expected to be broadly flat just below 300k. This is still a quite strong level and suggests that the lay-off rate is very low currently adding to the picture of a robust labour market. US Markit PMI service is also released. After falling sharply towards the end of 2014, it has recovered decently in the first two months of the year. We look for a broadly flat reading in March. We also have more Fed talk coming up today. James Bullard (non-voter, hawk) will speak this morning and likely reiterate his concern that market expectations of the rate path are different from the path laid out by the FOMC. He fears a sharp rise in volatility if the market gets surprised. Dennis Lockhart (voter, neutral) also speaks and normally being a neutral member he is worth listening to. However, he already stated last Friday that he thinks there is a high likelihood of a lift-off at one of the meetings in June, July or September. Unemployment data in Norway. For more on Scandi markets see page 2. Selected market news Overnight an airstrike led by Saudi Arabia has been launched against Houthi rebels in Yemen. Alleged Irani support to the (shia) rebels has for a while been a thorn in the side of the (sunni) Saudis and allies, and is the reason for the strike. Oil markets reacted promptly to the outlook for renewed unrest in the Middle East region with Brent crude oil jumping close to USD60/bbl overnight to now trading around the USD58 level. While Yemen itself is not a major oil producer with output of a mere 125 kb/d, the country controls part of the Bab el-mandeb strait, a key crude shipping route through which some 3.8 mb of oil pass every day. Thus, a geopolitical risk premium is back to be priced in oil despite the otherwise increasingly positive outlook for nuclear negotiations with Iran. Thus expect volatility to stay elevated in oil markets for now. Treasury yields a few bps higher on the day and equities are lower in the US and Asia alike. Yesterday s data releases added to the picture of US and euro-zone economic data surprises diverging in favour of the latter with notably weak US durable goods orders contrasting with a strong German Ifo. We think it will take a narrowing in the currently wide gap between surprise indices before EUR/USD sees the next sustained move lower. 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 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 Bank Nordic Outlook - March 2015 Senior Analyst Christin Tuxen tux@danskebank.dk 07:30 1 day,% S&P500 (close) S&P500 fut (chng from close) Nikkei Hang Seng :00 07:30, bp US 2y gov US 10y gov itraxx Europe (IG) itraxx Xover (Non IG) , % EUR/USD USD/JPY EUR/CHF EUR/GBP EUR/SEK EUR/NOK T Important disclosures and certifications are contained from page 6 of this report.

2 Scandi markets Two important figures in Sweden this morning. First, household lending, which is likely to accelerate further on the back of 1) front running ahead of FSA's mandatory amortisation starting on 1 August, 2) the government signalling a reduction of tax subsidies on renovation from 50 % to 30 % and 3) mortgage lending rates at record lows. The stage is set for credit acceleration! Second figure is the trade balance, which we expect to grind higher in February with help from improving European markets and the weak SEK. There is also PPI but this is probably of less importance as a gauge of inflationary pressures. Keep an eye on oil instead which has the potential to shift inflation further above Riksbank's path. Note Riksbank buys SEK 3bn of each SGB1051 and SGB1058 bonds in QE program (10 CET) Norges Bank surprised by keeping rates unchanged last week but did open the door to a rate cut before summer. Hence, all eyes will be on domestic economic data in the coming period for signs of the slowdown becoming entrenched. Today, SSB will publish unemployment figures for January (December-March). We expect the unemployment rate to climb slightly to 3.8%. In our view, the unemployment rate must rise to 4% before a rate cut in May could be realistic. Fixed income markets Since the middle of the month there has been a reversal of the 10y US Treasury-Bund spread from the historically wide level of 185bp. The softness in last week s FOMC message (where we now expect it to deliver the first rate hike in September instead of June) has turned it around but looking at recent data also gives an explanation. Yesterday s weak US durable goods report came after soft retail sales and industry production and it all points to a soft Q1 for the US economy. In Europe, however, Ifo yesterday was yet another positive surprise and points to the strongest quarterly growth since In our mind, these data suggest that the 10y Treasury-Bund spread tightening has further to go. Today, the Italian debt office will tap in the 10Y and 15Y linkers as well as tapping in the 2Y zero-coupon bond (CTZ 0% '17). The Italian linkers have been lagging the solid performance we have seen until recently in the French and German linkers, hence the real yield spreads have widened. Given that Italy will re-enter Barclays WGBI-index and EGBI-index with a substantial weight in both indices, the auction is a good chance to snap up some Italian linkers. The weight in the global index is some 7-8%, while the weight in the EGBI-index is some 32-33%. The EGBI-index currently only contains French and German linkers but it will expand with Italy and Spain, which will reduce the weight for France and Germany. In Scandinavia the Riksbank is kick-starting the QE programme with an auction in the 2Y and 10Y benchmarks. There was decent demand at the inaugural QE auctions. US S&P500 future Tue Wed Fri Mon Tue Thu US 10y gov yield Tue Wed Fri Mon Tue Thu Global FX EUR/USD (LHS) USD/JPY (RHS) Tue Wed Fri Mon Tue Thu Scandi FX EUR/SEK (LHS) EUR/NOK (RHS) Tue Wed Fri Mon Tue FX markets USD crosses remain under pressure following this week s US data disappointments; EUR/USD remains close to the post-fed March high just above We still believe it will take a sustained move for the better in terms of US versus euro-zone data surprises before we will see a next leg lower in EUR/USD. Strong US payrolls on 3 April is clearly a potential trigger March

3 EUR/CHF edged higher again yesterday to now trade above the 5 level. Whether the SNB helped foster the move higher in the cross should become evident when the weekly sight-deposit figures are released on Monday. In any case, the SNB has do to something to ensure deflation does not become further entrenched in the Swiss economy. Speculation has mounted that the SNB would embark on a new form of FX regime rather targeting the effective level of CHF but last week s meeting gave away little in the form of this, see SNB keeps hands off rates but keen to touch CHF still, 19 March. Rather, with the IMF nod to consider a foreign-currency asset-purchase scheme, we stress that this could be the route for the SNB to go down. The Riksbank may serve as inspiration here: worries about EUR/SEK downside led the Riksbank at a non-monetary policy meeting last week to cut rates further into negative and add to its QE programme. Similarly we believe in a SNB put and we look for the CHF to weaken against both the EUR and the USD on easier SNB policy on a 6-12M horizon, see FX Forecast Update: Draghi + Yellen = EUR/USD parity, 17 March. Today, watch out for speeches by SNB s Zurbrügg and D Moser who should both strike a dovish tone. Key figures and events Thursday, March 26, 2015 Period Danske Bank Consensus Previous 8:00 DEM GfK consumer confidence Net. Bal. Apr :45 FRF GDP, final q/q y/y 4th quarter 0.1% 0.2% 0.1% 9:30 SEK PPI m/m y/y Feb 0.2% 0.2% 9:30 SEK Trade balance SEK bn Feb :35 USD Fed's Bullard (non-voter, hawkish) speaks 10:00 NOK Unemployment (LFS) % Jan 3.8% 3.7% 3.7% 10:00 EUR Money supply (M3) y/y Feb 4.3% 4.3% 4.1% 10:00 EUR Loans to Households (adj. for sales and sec.) % Feb % 0.9% 10:00 EUR Loans to NFCs (adj. for sales and sec.) % Feb -0.6% -0.9% 10:30 GBP Retail Sales m/m y/y Feb 0.4% 4.7% 0.3% 4.5% -0.3% 5.4% 10:30 GBP Retail sales excl. auto m/m y/y Feb 0.4% 4.1% 0.3% 4.0% -0.7% 4.8% 13:30 USD Initial jobless claims K 291K 14:00 USD Fed's Lockhart (voter, dovish) speaks 14:30 CAD BoC governor Poloz speaks 14:45 USD Markit service PMI, preliminary Index Mar :45 USD Markit composite PMI, preliminary Index Mar :00 CHF SNB's Zurbrügg and D Moser speaking Source: Bloomberg, Danske Bank Markets 3 26 March

4 Today s market data: 26 March 2015 STOCKS S&P500 Intraday, % Eurostoxx Intraday, % Close DJSTOXX % Max 0.4 Max 0.2 OMXC % -0 Min Min OMXS % 0.6 OSE BX % Close DOW JONES % Grey line indicates closing of Danish markets Grey line indicates opening of US markets NASDAQ % 1 month -2.4% 1 month 1.6% S&P % Year-to-date 0.1% Year-to-date 14.7% NIKKEI (07:30) % FX & COMMODITIES EUR/USD Intraday EUR 17:00 07:30 Gold, $ USD : JPY day Max GBP month Min 109 NOK Year-t-date SEK DKK CRB Oil, Brent, $ CRB, Raw Industrials USD-Yields Intraday Spread, Policy Rate 3M bp 17:00 07:30, bp 0.61 USD2Y USD10Y USD USD 10Y Max 0.6 Max EUR USD 30Y Min 0.6 Min 1.8 GBP JPY 10Y USD2Y (lhs) 0 DKK USD Y (rhs) 1.84 SEK YIELDS & INTEREST RATES :30(-1)*, bp NOK DEM 10Y PLN DKK 10Y :00 SEK 10Y NOK 10Y PLN 10Y * As of closing previous trading day 10Y Yield Spread to Germany USD JPY GBP FRF ITL DKKSEKNOKPLN 3.0 US Yield Curve Max Max Min Min #### USD2Y USD5Y USD10Y D-t-D, bp (right axis) 07:30 (left axis) 1 month ago (left axis) German Yield Curve DEM2Y DEM5YR DEM10Y D-t-D, bp (right axis) 07:30 (left axis) 1 month ago (left axis) Non-finan. Credit spread, itraxx s. 11* 07:30 1 day 1 month Credit spreads USD 10Y * Ask price ** Ask price Swap Spread, bp** Europe (IG) JPY 10Y HiVol Xover (N-IG) :30(-1)* 17: EUR 10Y DKK 10Y Finan. Sr SEK 10Y Mar May Jun Aug Sep Nov Dec Feb Mar Finan. Sub NOK 10Y itraxx Europe (IG) (left axis) itraxx Xover (Non IG) (right axis) :00 * As of closing previous trading day 07: PLN M future USD 17:00 07:30 07: JPY day month GBP month Year-to-date CHF Year-t-date March

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