JUL 02 Danske Weekly Focus

8/9/2019 JUL 02 Danske Weekly Focus

1/21

1 | 02 July 2010www.danskeresearch.com

Investment Research

Market Movers ahead

ECB meeting on Thursday questions are expected to centre around additionalliquidity measures and the ECBs asset purchases.

Developments in Euroland bond markets and news out of southern Europe. US non-manufacturing ISM will it hold up better than its manufacturing sibling?

Monetary policy meeting at the Bank of England is not expected to bring anychanges.

Swedish industrial data and the governments net borrowing needs. Norwegian CPI.Global Update

Global PMIs have fallen fundamentals suggest a slowdown, but the European debtcrisis has likely accelerated the decline.

The Riksbank hiked rates by 25bp, as expected, and the repo path was revised slightlyhigher in 2010 and 2011, but lower in 2012-13.

The expiry of the one-year LTRO has brought the duration of Euroland money marketliquidity lower, which has put upward pressure on short-term rates.

The G-20 summit highlighted the change in policy focus from coordinated globalgrowth support to a more diverse agenda. In Europe, focus is on public finances and

in Asia attention has turned to inflation fighting.

Focus

The combination of general pressure on the euro and the SNB ceasing to intervene inthe FX market has opened the door to the downside in EUR/CHF.

We see a high probability of further support for the Swiss franc in the coming months.However, if the markets faith in the euro improves, profit-taking could lead to asharp upward correction in EUR/CHF a key risk to our forecast.

02 July 2010

Editors

Allan von Mehren

+45 4512 8055

[email protected]

Steen Bocian

+45 45 12 85 31

[email protected]

Weekly FocusFear of a major slowdown is mounting

Contents

Market movers ahead ........................................... 2

Global update................................................................... 4

Scandi Update ................................................................ 6

Focus: FX Strategy - CHF: Risks remain

for an even stronger franc ................................. 7Fixed Income: Slowdown fears pushyields lower .................................................................... 11

FX: Dollar suffers on weak data ................ 12

Commodities: Costs catching up withprices ................................................................................... 13

Credit ................................................................................... 14

Financial views........................................................... 15

Macroeconomic forecast .............................. 17

Financial forecast ................................................... 18

Calendar ........................................................................... 19

Leading indicators are rolling over Swedish Riksbank hikes repo rate

Source: OECD, Ecowin and Danske Markets Source: Riksbanken and Danske Markets

98 00 02 04 06 08 10

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Riksbank repo rateforecast, July

Riksbank repo rateforecast, April


2/21


Weekly Focus

Market movers ahead

Global

The only major event coming up next week is the ECB meeting on Thursday. Untilthen, markets will digest the US employment report and be driven by overall riskappetite. Developments in Euroland bond markets and news out of Southern Europe

will be important to watch.

In the US the coming week should be relatively quiet at least in terms of data andspeeches. US markets are closed on Monday to observe Independence Day (4 July).

The ISM non-manufacturing index will be the primary release and we look for a

decline to 54.4 given the recent weakness in housing and equity markets. The weekly

release of jobless claims could also attract attention given the recent increased

uncertainty about the state of the US labour market. After a stream of Fed speeches

this week, which have in general left an impression of the FOMC moving in a slightly

more dovish direction, there is only one speech scheduled for next week. Minneapolis

Fed President Kocherlakota (non-voter) will deliver a speech on policy and regulation

on Wednesday.

In the euro area next weeks key event will be the ECB meeting on Thursday. It willbe yet another interesting meeting, and there are many relevant topics to discuss at the

Q&A session. On 30 June the one-year covered bond purchase programme was

completed. The ECB has bought EUR60bn as planned, which it now aims to hold to

maturity. Mr Trichet is likely to be questioned about whether the programme could be

reopened. Questions will also address the effect from the expiry of the one-year Long-

term refinancing operation (LTRO) on 1 July. Two new ECB operations have been

introduced to finance the EUR442bn that matures with the 1Y LTRO. Fifty four per

cent of the expiring liquidity was rolled, which was in line with expectations, and

excess liquidity has thus declined. The ECB could be asked whether it plans to

introduce new liquidity facilities. There has been speculation about a new six-monthtender, which could explain the large roll in the six-day fine-tuning auction. Further,

Mr Trichet could be asked about the Securities Market Programme (SMP), which

covers the ECBs government bond purchases, and why the ECB is not doing more to

keep sovereign spreads in PIIGS against Germany lower. Mr Trichet is however not

likely to get specific on the SMP, which we saw at the meeting last month. Besides

the ECB meeting, we look out for German factory orders.

In the UK focus will be on Thursdays publication of May industrial productionnumbers and the BoE monetary policy meeting. While the June PMI and recent orders

data indicate a loss of momentum, the underlying trend remains for higher

manufacturing output. The BoE is not expected to bring any changes to the monetary

policy setting, despite the recent tight budget, as Sentance is expected to remain the

sole advocate for a tighter policy.

In Switzerland attention will focus on the June inflation numbers due out onTuesday. We expect the inflation rate to decline from 1.1% in May to 0.8% in June,

once again underlining that inflationary pressures do not necessitate early rate hikes.

It is also worth keeping an eye on Mondays retail sales data for May and the June

unemployment numbers due out on Thursday.

Next weeks calendar is extremely light in Asia. In China there will be no majorreleases this week and in Japan the only major release will be machinery orders for

May, which should confirm that business investments in Japan have bottomed out.

Modest inflation in Switzerland

Source: Reuters Ecowin

The euro debt crisis will continue to be

key for markets

Source: Reuters Ecowin and Danske Markets

US non-manu ISM: new orders tanked

in May but employment improved


Can German factory orders continue

up?


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3/21


Weekly Focus

Scandies

Denmark is heading for a rather heavy data calendar in the week ahead. Attentionwill focus particularly on business sales and purchases of goods and services and the

trade balance data for May, which should give us a snapshot of the condition of

exports and hence tell us whether the recovery in the Danish economy is taking hold.

The coming week will also see the release of industrial production data for May,

insolvencies and enforced sales of properties for June and current account numbers

for May (Friday).

In Sweden, we see industrial data (orders, production) and the governments netborrowing needs. Usually none of the above data has the power to make a lasting

impact on financial markets.

Due to the discrepancies in real hard data and sentiment indicators, we tend to rely

more on hard industrial data than the various survey data presented. This has proven a

successful strategy throughout the crisis and we believe this will continue to be the

case. To be consistent with our latest growth forecasts, industrial production should

average some 2% q/q in Q2, which means that the outcome for May should comedown somewhat compared with April not to render our industrial production forecast

obsolete.

The governments borrowing need is expected by the Swedish National Debt Office

(SNDO) to reach SEK18.9bn and we see no reason to deviate from that number in

either direction.

In Norway focus will be on the CPI numbers on Friday. We expect that the coremeasure will drop to 1.0% y/y in June from 1.5% in May. It is primarily due to a so-

called base effect, but it still underlines that inflation is currently not an issue in

Norway, and that Norges Bank is in no hurry to hike rates. Our forecast is below that

of Norges Bank which expects 1.17% according to the latest monetary policy report.

Headline inflation is expected to fall to 1.7% from 2.5%.

Market movers ahead

Source: Bloomberg and Danske Markets

Global movers Event Period Danske Consensus Previous

Mon 05-Jul 9:15 CHF Retail sales (real) y/y May 1.3%

Tue 06-Jul 9:15 CHF CPI m/m|y/y Jun -0.2%|0.8% -0.1%|1.1%

16:00 USD ISM (NAPM) non-manufacturing Index Jun 54.4 55.0 55.4

Wed 07-Jul 12:00 DEM Factory Orders m/m|y/y May 0.2%|.. 0.4%|24.9% 2.8%|29.6%

21:35 USD Fed's Kocherlakota (non-voter, neutral) speaks

Thu 08-Jul 1:50 JPY Machine orders m/m|y/y May 4.0%|9.4%

7:45 CHF Unemployment (sa) % Jun 4.0

10:30 G BP Industrial Production m/m|y/y May 0.4%3.2% -0.4%|2.1%

12:00 DEM Industrial production mm/|y/y May 0.8%|9.2% 0.9%|13.3%

13:00 GBP BoE rate announcement Jul 0.5% 0.5%

13:45 EUR ECB Announces Interest Rates 1.0% 1.0% 1.0%

14:30 USD Initial jobless claims 1000 460 472

14:30 EUR ECB's Trichet Speaks at ECB Monthly News Conference

Scandi movers Event Period Danske Consensus Previous

Thu 08-Jul 9:30 SEK CPI m/m|y/y Jun 0.1%|1.0% 0.1%|1.0% 0.2%|1.2%

Fri 09-Jul 9:30 SEK Industrial production m/m|y/y May 0.9%|7.3%

10:00 NOK Consumer prices m/m|y/y Jun -0.3%|1.7% -0.5%|2.5%

Machinery orders improving in Japan


Danish exports are improving


Important input to Q2 GDP

Source: Statistics Sweden

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% 3m/3 % 3m/3m

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Exports - Purchacesand sales by industri

Exports - official

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4/21


Weekly Focus

Global update

Everyone for themselves

The G-20 summit in Canada last week showed that the G-20 countries ambitions from

last year for coordinated macroeconomic support for the global economy and changes in

financial sector regulation are falling apart. Particularly, it has proved difficult to maintain

focus only on supporting growth. In Europe consolidation of public finances has now

become major priority. In Asia particularly in China focus has gradually shifted to

containing inflation and China cannot be expected to be as strong a growth engine for the

global economy as it has been since early-2008. And now there are signs that the global

recovery in manufacturing is starting to lose some steam. The big question is to what

degree this is just a temporary mid-term crisis or the prelude to a more severe slowdown?

Euroland survives the expiry of one-year refinancing operation

The key event in the euro area this week has certainly been the expiry of the ECB one-

year long-term refinancing operation (LTRO) worth EUR442bn. European money

markets were nervous ahead of expiry. The accumulated roll of the LTRO was 54%

(EUR243bn) in line with expectations. Read more here: Strategy: ECB - Duration on

liquidity falls significantly

On the data front, the week kicked off with the ECB report on monetary developments.

The report showed a decline in M3 growth to minus 0.2% y/y, which partly could be

explained by technical factors. On a positive note, the monetary data indicates that the

shrinking of bank credit may indeed have come to an end. For instance, loans to

households continue to improve. The June unemployment report from the German

Bundesbank showed that the German unemployment rate remained at 7.7% in June. In

month-on-month terms, however, unemployment fell by 21,000, bringing the

accumulated drop in unemployment since the beginning of the year to 182,000. German

employment growth was positive during May. Final manufacturing PMI in German was

revised 0.3 points higher, and is thus unchanged at 58.4 in June compared to May.

Overall PMIs seems to have peaked a few months ago. The latest volatility in commodity

prices lowered inflation in the euro area to 1.4% in June from 1.6% in May. There are

currently very limited inflationary pressures in the euro area, and unless commodity

prices spike we should expect inflation to remain relatively subdued.

Another round of weak US data

This weeks round of data (excluding the employment report which was not yet released

at the time of writing) did nothing to ease market fears of a significant slowdown ineconomic activity in the second half of the year.

"[Heading 2]"

Recovery in global manufacturing

losing steam

Source: Reuters Ecowin and Markit

Euro area inflation to remain subdued


Manufacturing PMI appears to have

peaked

Source: Reuters Ecowin and Markit

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France

Index

Spain

Italy
http://danskeanalyse.danskebank.dk/link/ECBLTRO010710/$file/ECB_LTRO_010710.pdfhttp://danskeanalyse.danskebank.dk/link/ECBLTRO010710/$file/ECB_LTRO_010710.pdfhttp://danskeanalyse.danskebank.dk/link/ECBLTRO010710/$file/ECB_LTRO_010710.pdfhttp://danskeanalyse.danskebank.dk/link/ECBLTRO010710/$file/ECB_LTRO_010710.pdfhttp://danskeanalyse.danskebank.dk/link/ECBLTRO010710/$file/ECB_LTRO_010710.pdfhttp://danskeanalyse.danskebank.dk/link/ECBLTRO010710/$file/ECB_LTRO_010710.pdfhttp://danskeanalyse.danskebank.dk/link/ECBLTRO010710/$file/ECB_LTRO_010710.pdf


5/21


Weekly Focus

The manufacturing ISM took an unusually large decline of 3.5 points with the new orders

indices hit hard, see Flash Comment - US: manufacturing slowdown fast-forwarded by

debt crisis. Fundamentals had been pointing to a slowdown in the manufacturing

production over H2, but the deterioration in financial markets has likely accelerated that

decline. While there is a direct negative impact from the decline in equity markets and

deterioration in credit markets there has likely also been a sentiment effect where

increased uncertainty has depressed demand. Consumers are also starting to react to the

deterioration and general rise in uncertainty. The conference boards measure of

consumer confidence fell back to its March level after two months of strong increases.

Furthermore, housing data is currently looking very weak. Pending home sales suffered a

significant decline of 30% in May which brings the index below the lows in 2008 and

2009. The level reflects the dynamics from the expiration of the first time home buyer

credit. The tax credit boosted sales during the spring, but this effect is now reversing as

home buyers have been moving forward the purchases of homes. While the tax credit has

made it very difficult to assess the underlying trend in the housing market, fundamentals

for home sales are relatively positive, as mortgage rates are close to an all time low andhousehold incomes are improving.

The recent weakness has also had an impact on the thinking of at least some FOMC

members. The tone in the Fed speeches over the recent week has in general been tilted in

a more dovish direction. Several speakers have mentioned the risks to the US economy

from the deterioration in financial market conditions induced by the European debt crisis.

This implies that the monetary policy normalisation process is effectively on standby but

so far, there is nothing that points to the Fed considering more QE.

Growth appears to be slowing in Asia

Data released in Asia during the past week suggests that growth is slowing. On balance it

still looks it should be regarded as growth moderation from exceptionally strong growth

in the previous quarters rather than a more severe slowdown. That said down side risk on

our growth forecast is increasing. Both Chinas two manufacturing PMIs declined in

June, see Flash Comment China: Growth appears to be slowing. The manufacturing

PMIs suggests GDP growth is poised to slow to around 9% AR in H2 2010 from

currently about 12% q/q AR. On the positive the risk of overheating in China is now

declining fast. In that sense, China is now building the foundation for a soft landing of

the economy. On the policy front, the risk of aggressive monetary tightening from the

Peoples Bank of China (PBoC) is declining, although we still expect the PBoC to hike its

leading interest rate in Q3.

In Japan the Tankan business survey for Q2 came in stronger than expected and suggeststhat growth has remained very strong in Q2, but is poised to slow in the coming quarters,

Flash Comment - Japan: Recovery on track according to Tankan. On the other hand, May

data in general has been disappointing with industrial production declining marginally

0.1% m/m and the unemployment rate unexpectedly increasing to 5.1% from 5.0% in the

previous month. Overall these data are still consistent with GDP growth of close to 4%

q/q AR in Q2 and slowing to around 2% q/q AR in H2 10.

A slowdown in US manufacturing

production is in the cards

Source Reuters Ecowin and Danske Markets

Home sales distorted by tax credit

Source Reuters Ecowin and Danske Markets

Tankan suggest solid growth in Japan,but poised to slow


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Manufacturing production >>

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http://danskeanalyse.danskebank.dk/link/FlashCommentISM010710/$file/FlashComment_ISM_010710.pdfhttp://danskeanalyse.danskebank.dk/link/FlashCommentISM010710/$file/FlashComment_ISM_010710.pdfhttp://danskeanalyse.danskebank.dk/link/FlashCommentISM010710/$file/FlashComment_ISM_010710.pdfhttp://danskeanalyse.danskebank.dk/link/FlashCommentISM010710/$file/FlashComment_ISM_010710.pdfhttp://danskeanalyse.danskebank.dk/link/FlashCommentChina010710/$file/FlashComment_China_010710.pdfhttp://danskeanalyse.danskebank.dk/link/FlashCommentJapan010710/$file/FlashComment_Japan_010710.pdfhttp://danskeanalyse.danskebank.dk/link/FlashCommentJapan010710/$file/FlashComment_Japan_010710.pdfhttp://danskeanalyse.danskebank.dk/link/FlashCommentChina010710/$file/FlashComment_China_010710.pdfhttp://danskeanalyse.danskebank.dk/link/FlashCommentISM010710/$file/FlashComment_ISM_010710.pdfhttp://danskeanalyse.danskebank.dk/link/FlashCommentISM010710/$file/FlashComment_ISM_010710.pdf


6/21


Weekly Focus

Scandi Update

Denmark revisions point to a more wobbly recovery

The most important indicators released during the past week were the revised Q1 GDP

numbers. At first glance, there appeared to be no major changes in the data and with Q1GDP growth of 0.5%, the Danish economic recovery remained on track.

However, significant revisions to some of the GDP components left the impression of a

slightly weaker recovery. Both exports and investment were revised sharply down,

although this was offset by stronger consumer and public spending. Consumer spending

growth was revised up from 1.1% q/q to 1.7% q/q, while public spending growth was

adjusted upward from 2.5% to 3.4% for 2009 and also proved to be DKK1bn higher in

Q1 10 than believed so far. This once again underlines the need for better control of

public spending. As such, we welcome the fiscal package presented by the Danish

government, which aims for zero growth in public spending during 2011-13.

The May jobless numbers supported our belief that Danish unemployment has peaked.

The official number of unemployed people declined once again, down by 2,000 from

April to May and unemployment has remained stable or slightly down since November

2009. Also, business indicators released during the week confirmed a more positive view

on the unemployment outlook and both the manufacturing and service industries expect to

expand their workforce during the coming months.

In spite of the improved labour market outlook, we do not expect a job recovery to be

waiting just around the corner. Danish businesses probably have further potential to

improve competitiveness and the economic recovery will only just be strong enough to

create new jobs in Denmark.

Sweden Riksbank initiates hiking phase

The Riksbank decided to raise interest rates by 25bp to 0.5% and also to make its hiking

phase more front-loaded. Taken in isolation, such actions should make financial marketsmore inclined to trade rates up. However, two of the executive board members (Karolina

Ekholm and Lars E O Svensson) decided to enter reservations to the decision and the

Riksbank made a slight downward revision to the repo rate path from 2012 onwards.

Furthermore, even the Riksbank itself seems to think that its view on the effects of fiscal

consolidation in Europe are too small, which is why its risk scenarios show a massive

downward bias in terms of repo rate outcomes. This leads the markets and to some

extent ourselves to think that the Riksbank might not even find the time to hike much

into 2011, with flat or even negative interest rate expectations a consequence.

Norway no consumer spending spree

In spite of lower inflation, solid real wage growth continued low interest rates, record-

high house prices and stable unemployment, consumer spending in Norway remains in

the doldrums. As consumer spending was again subdued in May, we have revised our

estimate of consumer spending growth down to 0.4% for Q2 10 and hence to 3.9% for

2010. Nonetheless, we expect overall growth in the Norwegian mainland economy to

remain just under 2% this year. Meanwhile, the June PMI numbers indicate that overall

industrial activity could now be accelerating in spite of signs of weakening growth in the

global economy. This could be because the long-awaited recovery in oil-related industries

has now taken off a view that is supported by a significant contribution from domestic

new orders. Furthermore, Norges Banks regional network recently showed a large

improvement in market outlook for oil-related industries.

Danish unemployment continues to

stabilise

Source: Statistics Denmark

Swedish Riksbank forecasting

flattener

Source: Riksbank

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Riksbank repo rateforecast, July

Riksbank repo rateforecast, April


7/21


Weekly Focus

Focus: FX Strategy - CHF: Risks remain for an evenstronger franc

EUR/CHF breaks below 1.31 for first time

The Swiss franc (CHF) has firmed more than 20% against the euro since the financial

crisis escalated in 2008, taking EUR/CHF below 1.31 for the first time. Since December

last year alone, when the Swiss National Bank (SNB) first allowed the franc to strengthen

significantly after maintaining a floor below EUR/CHF via intervention since March

2009 EUR/CHF has dropped by more than 12% (see chart 1).

Chart 1: Swiss franc hits new peak against the euro

Source: Reuters EcoWin

When a cork is kept below water

The explanation for the pronounced strengthening of the franc during the first six months

of the year can be found in two main factors:

General selling pressure on the EUR due to the European debt crisis: while thefranc has firmed 10% against the euro since New Year, the effective franc index has

only firmed 6%. This suggests that while the drop in EUR/CHF does represents

increased demand for the franc, it also very much represents an elevated risk premium

placed on the euro.

Shift in Swiss monetary policy: the franc has strengthened significantly despiteaccelerating intervention from the SNB in the first five months of the year (FX

reserves have grown by CHF144bn in 2010 more than triple the increase for all of

2009). At the same time, the economic outlook has improved further and core

inflation has inched higher, meaning the risk of deflation has eased. The combination

of a disproportionately large intervention requirement to prevent the franc

strengthening and the reduced risk of deflation (deflation risk was the reason the SNB

began to intervene in the FX market in 2009) have resulted in the SNB to a much

greater extent allowing the market to determine the price of the franc.

Key points

EUR/CHF has broken below 1.31for the first time and might test

even lower levels

The combination of generalpressure on the euro and the

SNB ceasing to intervene in the

FX market has opened the door to

the downside in EUR/CHF

We see a high probability that theunwinding of CHF loans combined

with a favourable relative growth

and interest rate outlook will

further support the franc in the

coming months. We have

therefore decided to revise lower

our EUR/CHF forecast to 1.30

(1.37) for 3M, 1.28 (1.37) for 6M,

and 1.35 (1.41) for 12M old

forecast in brackets

Increased speculative interest inthe franc and the use of short

EUR/CHF positions as a hedge

against a euro collapse mean that

the latest drop in EUR/CHF may

prove overdone. If the markets

faith in the euro improves, profit-

taking could lead to a sharp

upwards correction in EUR/CHF

a key risk to our forecast

Senior Analyst

Kasper Kirkegaard

+45 45 13 70 18

[email protected]


8/21


Weekly Focus

Significant probability that EUR/CHF will trade even lower

Fundamental support for the franc remains strong and is helping to drive a substantial

speculative demand. The Swiss economy by European standards looks strong: growth

is outpacing Euroland, the budget deficit is modest, government debt levels are low and

the current account surplus is high. Moreover, all the evidence suggests the SNB willtighten monetary policy before the ECB likely at the December meeting, but possibly

already in September meaning relative rates will, in contrast to previous economic

recovery periods, support the franc.

Chart 2: Relative rates have supported a lower EUR/CHF

07 08 09 10

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1.75EUR/CHF Bp

>

Source: Reuters EcoWin

As long as the euro remains under pressure (i.e. investors continue to demand a high risk

premium to hold euro) and the Swiss activity indicators remain strong, we see no reason

why EUR/CHF cannot drop further. Hence, in the short-to-medium-term, EUR/CHF

trading at levels between 1.25 and 1.30 should not be ruled out, as the unwinding of CHF

loans is currently reinforcing demand for the franc. Given the signal shift from the SNB

at its latest monetary policy meeting and that we see a significant risk of further

CHF loan closures, we have decided to revise lower our EUR/CHF forecast. We now

expect EUR/CHF at 1.30 in 3M (1.37), 1.28 in 6M (1.37) and 1.35 in 12M (1.41) old

forecast in brackets.


9/21


Weekly Focus

Chart 3: Risk picture still skewed towards a stronger franc

Source: Danske Markets

Significant risk to forecast in both directions

Increased speculative interest in the franc and the use of short EUR/CHF positions as a

hedge against a euro collapse mean that the latest move lower in EUR/CHF may prove

overdone. If the markets faith in the euro and risky assets in general improves, profit-

taking on long CHF positions could lead to a sharp upwards correction in EUR/CHF,

though probably not all the way back to levels above 1.45. Hence there are indications

that the latest drop in EUR/CHF represents an overshoot of what could be considered as

the fundamental level in the longer term (PPP estimate is 1.48). However, as long as the

Swiss economy continues to outperform and uncertainty on the euro remains high, we

expect that CHF will be able to maintain an expensive level against EUR for the rest of

the year.

There is also significant downside risks to EUR/CHF. In particular, further unwinding of

CHF loans could contribute to maintaining a high demand for the franc and even lower

levels for EUR/CHF. However, while we can conclude that borrowing in the Swiss franc

was significant ahead of the crisis (see table 1), there is great uncertainty about how much

of this borrowing remains - though recent trade suggests that there is still a significant

unwinding potential. CHF borrowing is under particular pressure in the economies

outside the eurozone (not least Hungary and Poland), as the currencies of these countries

have weakened significantly against the franc. And while declining interest rates over the

past year have meant that regular interest rate payments have not risen too steeply for the

average borrower (despite the strengthening of the CHF), the latest CHF strengtheningcould result in forced closures, as the principal has increased.


10/21


Weekly Focus

Borrowing in CHF a market snapshot from before the crisis struck

Low interest rates and relatively modest exchange rate fluctuations compared to other low-

yielding currencies made the franc a popular loan currency in the years up to the global recession

in 2008. Especially in countries such as Hungary, Poland and Iceland, CHF loans rose

dramatically during the upswing and in 2007 accounted for 31%, 17% and 23%, respectively, ototal borrowing according to SNB estimates. Surveys in Hungary suggest that the bulk of these

loans were taken out at up to 40% below current exchange rates hence the cost of borrowing

must have increased significantly for the average borrower.

Borrowing in CHF has also been significant in economies inside the eurozone and in economies

with a fixed exchange rate policy towards the euro. As can be seen from table 1, Austria,

Luxembourg and Denmark have been particularly keen on CHF loans.

Table 1: Loans to non-bank clients ( in CHF billion)

Source: Brown et al.,Swiss Franc Lending in Europe

, Swiss National Bank (SNB), February 2009.

Share of foreign currency loans Share of total loans

2002/04 2007 2007 2007

Euroland

Austria 45 84 69% 13.4%

Germany 64 60 13% 1.2%

France 13 30 11% 0.8%

Luxembourg 24 25 24% 7.9%

Greece 2 10 31% 0.2%

Italy 8 8 20% 0.3%

Others 7 21 4% 0.3%

Total 163 238 15% 1.2%

Non Euroland

Hungary 1.2 32.6 56% 31.3%

Poland 6.1 30.9 69% 16.9%

UK 12 23.8 4% 0.5%

Iceland n/a 12.4 48% 23.0%

Denmark 1.4 9.4 28% 4.0%

Croatia 0.2 7.7 25% 16.4%

Others n/a 5.4 13% 0.3%

Total n/a 122.2 11% 1.8%

Swiss f ranc loans


11/21


Weekly Focus

Fixed Income: Slowdown fears push yields lower

Soft US data scares the market

Global bond yields have continued to fall over the past week. German Bunds are once

again yielding close to record lows in the 2.5-2.6% range and the yield on the US 10-year

treasury has dropped below 3% for the first time since spring 2009.

The rapid move lower has mainly been driven by a round of negative surprises from the

US, where economic data has been weakening across the board and increased the concern

of a hard landing in the second half of the year. Consequently, the spread between US and

German 10-year bonds have been tightening significantly.

Concerns for a hard landing in H2 and the European debt crisis are likely to remain key

themes in the fixed income market in the coming months. This implies that the high

correlation to equity and credit markets is here for a while yet. Given our view that

leading indicators and underlying inflation will continue gradually lower over the course

of H2, the downward pressure on bond yields is likely to remain in place. That said webelieve that the bond markets have got a bit ahead of themselves with the current

valuation looking a little stretched.

We continue to believe that a global double-dip recession is quite unlikely and that

upcoming US labour market data will indicate that the recovery has become more

resilient. Furthermore, the earnings season is approaching and our equity research team

expects some encouraging news. In combination with evidence from incoming data we

believe that market fears of a hard landing will moderate, which could support risk taking

and give a small lift to bond yields in the coming month. However, market volatility is

likely to remain high and caution is warranted.

EONIA rates move higher on less demand for liquidity

The two-year Schatz yield stands out as an exception this week. While the general trend

has been for lower bond yields, the two-year Schatz yield has been moving higher. This

has been driven by a steepening in the EONIA curve, following the roll of the EUR442bn

12-month LTRO from June 2009. While the total allotment of EUR132bn into the three-

month tender and the six-day fine-tuning operations was quite as expected, it was

surprising that so much was allocated into the six-day allotment. Generally, this leaves

the EONIA market with a much lower duration on money market liquidity. Indeed this

makes any future exit from the ECB more flexible, which in turn explains the steeper

EONIA curve and the increase in two-year Schatz yield.

ECB meeting key event next week

The ECB meeting on Thursday is the key event for European fixed income markets next

week. The focus will be on the press conference and questions about the government

bond purchase programme and the liquidity operations. While there are plenty of options

for the ECB, it is not our main scenario that the ECB will announce new liquidity

measures or commit more explicitly to purchasing specific amounts of government debt.

That said the uncertainty surrounding the meeting is expected to be high.

Key events of the week ahead

ECB meeting. US Non-manufacturing ISM. Bond auction in Germany

(EUR5bln 10yr) and Austria (5yr

and 10yr).

Bond auction in US (USD12bn10yr TIPS).

US German 10yr spread is tightening

Source: Ecowin and Danske Bank

German 2Y yield

Source: Bloomberg and Danske Bank

Senior Analyst

Jesper Fischer-Nielsen

+45 45 12 85 18

[email protected]

Jan

09

Apr Jul Oct Jan

10

Apr

-100

-50

0

50

100

150

2.00

2.25

2.50

2.75

3.00

3.25

3.50

3.75

4.00

4.25

>


12/21


Weekly Focus

FX: Dollar suffers on weak data

US data has disappointed over the past couple of weeks and double-dip fears have

resurfaced. Consumer confidence has sky-dived, unemployment claims are up,

manufacturing is slowing and the housing market is once again plummeting without thegovernment incentives that boosted the market earlier this year.

For a long time, the market reaction to weak US numbers has been weaker risk appetite,

which has had a tendency to push EUR/USD lower. However, this week, EUR/USD

actually had a textbook reaction to the negative US data surprises and EUR/USD has

once again been pushed above 1.25 a move that probably was reinforced by the many

short euro positions that are currently in place in light of the European debt crisis.

It is also noteworthy that relative rates currently are working against the dollar. The two-

year swap spread between Euroland and the US has widened by 45bp in just a month to

currently +44bp. However, we doubt that EUR/USD will continue to trade higher in the

coming months. We believe the market will soon start to focus on the European debt

problems once again. It is also likely that that the European numbers will also start to

disappoint if the current weakness in the US economy continues.

Sterling has peaked for now

Since late May, EUR/GBP has traded around 6% lower as PIIGS debt concerns have put

the psychologically important 0.80 level back within reach. However, UK-related factors

have also exerted downward pressure on the cross: (i) the crisis budget to improve the

governments balance has been well-received, seemingly convincing investors that harsh

austerity measures can sustain the UKs top credit rating, without economic growth

coming to a standstill; and (ii) hawkish comments from BoEs Sentance and his vote for a

25bp hike at the last MPC meeting have fuelled speculation that the BoE may be moving

closer to reducing monetary stimulus. In our view, recent sterling strength seems

overdone; we still doubt that the UK will manage to avoid being downgraded, and despite

Sentances dissent, the MPC appears a long way from tightening policy. Also, our short-

term financial model indicates that an upward correction in EUR/GBP could be imminent.

Riksbank concerned about European debt crisis

As widely expected, the Riksbank this week hiked rates by 25bp to 0.5%. However, the

bank was less hawkish than expected, saying that the fiscal tightening that some countries

need to undertake is expected to dampen GDP growth in the euro area and in Sweden in

the longer run. The Riksbank revised its rate path in 2012 down by 50bp.

The market initially dumped the SEK as the downward revision was a surprise the

market. However, we still see value in Swedish kroner. Sweden is still well ahead of the

ECB and the Fed, and is the first major non-commodity central bank to hike rates.

In fact, the Riksbank perfectly expresses our view on the SEK in its Monetary Policy

report saying, Fundamental factors indicate that the krona will strengthen over thecoming years to the levels prevailing before the crisis. Swedish public finances are sound,

and GDP growth in Sweden is expected to be higher than abroad. A higher Swedish

policy rate relative to other countries is also expected to contribute to a stronger krona

rate.

Weekly changes against EUR

Source: Bloomberg

EUR-USD 2y swap spread has

widened

Source: Ecowin

EUR/GBP short-term financial model

Source: Ecowin

EUR/SEK trading on relative rates

Source: Ecowin

Chief Analyst

Arne Lohmann Rasmussen

+45 45 12 85 32

[email protected]

Senior Analyst

Sverre Holbek+45 45 14 88 82

[email protected]

-6.0%-4.5%-3.0%-1.5%0.0% 1.5%

AUD

NZD

CAD

USD

NOK

SEK

GBP

JPYCHF

Jan

10

Feb Mar Apr May Jun

0

10

20

30

40

50

60

70

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50EUR/USD Bp

>

EUR/GBP Spot EUR/GBP

Feb

08

Apr Jun Aug Oct Dec

09

Feb Apr Jun Aug Oct Dec

10

Feb Apr Jun

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00EUR/GBP

Jan

09

Mar May Jul Sep Nov Jan

10

Mar May Jul

9.00

9.25

9.50

9.75

10.00

10.25

10.50

10.75

11.00

11.25

11.5011.75

12.00

12.25

12.50-90

-80

-70

-60-50

-40

-30

-20

-10

0

10

20

30

40

50

bp

>


13/21


Weekly Focus

Commodities: Costs catching up with prices

Weekly update: headwinds from sentiment and tailwinds fromstorms

The past week has seen a further sell-off for both energy and base metals. In particular,copper has been hit hard by the softness in economic data with notably the Chinese and

Euroland PMIs suggesting that the manufacturing cycle may now have peaked. Our

economists point out that while the figures indicate above-trend growth for Q2, the

numbers also suggest that the industrial recovery is losing more steam, except in Italy and

Germany.

Although some headwinds from manufacturing sentiment are materialising now, oil

prices have received some support from the prospects of a distorting hurricane season this

year. However, the first major tropical storm this year, Hurricane Alex, has so far evolved

relatively favourably and stayed clear of oil fields. In addition, while grains have long

been lagging the rest of the commodity complex, the quarterly USDA report on US stocks

and acreage released this week showed that stocks of wheat, corn and soybeans fell in Q2.In particular, corn saw a significant increase as the report also showed that farmers have

planted fewer acres than previously estimated.

Forecast update: new price floors materialising

Crucially, the price slides seen not least in the base-metals complex imply that cost curves

may now be catching up with prices. For aluminium this is increasingly becoming an

issue, as both alumina and energy costs are on the rise, meaning that marginal Chinese

producers could thus soon be squeezed out. Some producers of zinc and nickel are also on

the brink of loss-making production at current prices levels. This could lead to cutbacks

in metals output in the near term. At the same time, the oil industry is also facing rising

costs going forward: due to offshore drilling restrictions, stricter safety standards and anincrease in insurance premiums, oil majors also look set to face higher pressure on

margins going forward. Overall, this suggests that both the oil and base metals markets

are seeing price floors materialising now.

Overall, the message from our last Commodities Monthly remains intact, new price levels

have been reached but the course of direction is in our view higher than now. As a result,

we have made few changes to our price forecasts this time. Thus, we still look for Brent

to average USD81 in 2010 (previously USD80) and USD90 in 2011 as the rebound in

energy demand continues and supply restraint leads to stock draws. We expect aluminium

to eventually see weakness from elevated stocks and unwinding of term deals, but will

also receive potential support from the launch of a new ETF and rising costs. Copper

should benefit from an improving housing/construction sector whereas steel could seesome seasonal weakness over the summer but perform again later in the year as OECD

activity gains pace.

To put our outlook for the rest of 2010 into perspective: over the winter of 2009-10 we

saw a decoupling of commodities from the US dollar during spring this year,

decoupling from fundamentals was a defining feature later in the year, we expect to see

commodities re-couple with both the dollar and fundamentals, both of which should

eventually prove broadly supportive for prices. Read more in our recent Commodities

Monthly.

Weekly changes

Source: Bloomberg, Danske Markets.

Week ahead

Chinese trade data (Mon) EIA Short-Term Energy Outlook

(Wed)

Euro-zone industrial production(Thu)

USDA WASDE (Fri)

Senior AnalystChristin Tuxen

+45 4513 7867

[email protected]

Danske Markets forecasts

Source: EcoWin, Danske Markets.

Note: index with 10Q2=100.

-10 -5 0 5 10

NY WTI

NY Gasoline

ICE Brent

Aluminium

Copper

Gold

LIFFE Wheat

Five-day change,%

90

100

110

120

130Al CuMatif Wheat Brent crudeSteel
http://danskeresearch.danskebank.com/Link/CommoditiesMonthly/$file/CommoditiesMonthly.pdfhttp://danskeresearch.danskebank.com/Link/CommoditiesMonthly/$file/CommoditiesMonthly.pdfhttp://danskeresearch.danskebank.com/Link/CommoditiesMonthly/$file/CommoditiesMonthly.pdfhttp://danskeresearch.danskebank.com/Link/CommoditiesMonthly/$file/CommoditiesMonthly.pdfhttp://danskeresearch.danskebank.com/Link/CommoditiesMonthly/$file/CommoditiesMonthly.pdfhttp://danskeresearch.danskebank.com/Link/CommoditiesMonthly/$file/CommoditiesMonthly.pdfhttp://danskeresearch.danskebank.com/Link/CommoditiesMonthly/$file/CommoditiesMonthly.pdf


14/21


Weekly Focus

Credit

Market commentary

It was a depressive start to the week for credit indices. European money markets started in

fragile mode ahead of the expiry of the 1Y liquidity facility on Thursday, as markets

feared a restricted access to liquidity for a number of banks. To bridge the resulting

liquidity gap, the ECB conducted an unlimited 3M auction on Wednesday. The result of

that auction was better than feared as banks put in bids for less liquidity than anticipated,

indicating that access to liquidity is satisfactory for most. In the short term, fears of

systemic stress therefore seem to have abated although it must be stressed that market

confidence remains fragile, as illustrated by the negative reaction to the negative rating

news on Spain which should not come as a surprise and be priced in already. The

iTraxx investment grade index currently trades at 134bp whereas the crossover index

trades at 595bp. Cash market activity is relatively subdued with investors seeming to

prefer World Cup football to outright bets in the credit market.

Like the Jabulani football, the direction in the credit market is hard to predict. We believe

that much of the bad news has already been discounted, but with weak consumer

confidence numbers coming out from the US as well as ongoing fiscal challenges in many

countries, growth is likely to slow in H2 2010. Substantial spread tightening therefore

seems unlikely in the short term. Still, we remain positive on non-financial credit on the

back of sound company fundamentals and improving credit metrics.

The primary market

After some busy weeks, activity in the primary market is levelling off slightly. Tensions

in the money market and a fast approaching summer holiday are likely culprits in our

view. Going forward, the next few weeks will probably decide whether we will see much

primary market activity during the summer. If markets remain downbeat in the short term

we believe the primary market will remain more or less inactive until the end of the

summer period. On the other hand, if markets regain confidence we believe that activity is

likely over the summer as was the case last year.

Table 1. Selected new issues during the week

Name Rating Coupon Maturity Currency Size

Bond spread on

issue date,

(bp)*

Credit Suisse Aa1/A+ FRN 3Y EUR 0.3bn 92

Deutsche Bahn Aa1/AA Fixed 15Y EUR 0.5bn 58bp

FIH (Gov. Guar.) Aaa/AAA FRN 3Y DKK 6.0bn 15Corio Baa1/BBB+ Fixed 7.5Y EUR TBD 200-220

Veolia A3/BBB+ Fixed 11Y EUR TBD 130bp

Hertz B1/B Fixed 5Y EUR 0.4bn Yield 8.5%

Note: Ratings are Moody's and S&P. * Mid-Swaps for Fixed, Discount Margin for floating

Source: Danske Markets & Bloomberg

iTraxx Europe (5Y CDS)

Source: Markit

iTraxx Crossover (5Y CDS)

Source: Markit

Senior Analyst

Henrik Arnt

+45 4512 8504

[email protected]

0

50

100

150

200

250

Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-1

bp

0

200

400

600

800

1,000

1,200

1,400

Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10

bp


15/21


Weekly Focus

Financial views

Equities Equity markets are discounting a recession due to the European crisis. This is a much

harder expectation than suggested by current leading indicators. Hence our worry is

for a hard landing. However, for now we place more probability on a slowdown with

positive growth rates and we believe that Q2 is likely to be a positive trigger for a

very nervous global stock market. We expect the financial sector to be surrounded by

uncertainty for a longer period. In the short term, we expect the sector to perform in

contrast to the significant underperformance seen in recent months and therefore

recommend a neutral stance (previously underweight). We reiterate our overweight

recommendations on Industrials, Consumer Staples and Energy.

Fixed Income Global: Risk sentiment remains the key driver of global bond yields, as financial

markets continue to trade on the European debt crisis and the fear of a hard landing in

the global economy. Following the recent sharp decline in yields, bond markets are

now pricing a substantial slowdown in H2. Until clear evidence of resilience in global

growth (i.e. solid job growth) and/or improvement in southern European debt markets

materialises, bond yields will remain depressed. Over the coming months we look for

moderately higher yields as incoming data will dampen fears of a hard landing.

However, markets are likely to remain very volatile.

Euroland intra-spreads: We remain overweight on Germany, Italy, the Netherlands,Austria and Ireland. We are underweight on France, Spain, Greece and Portugal. We

recommend 5Y Italy versus France and 30Y Italy versus Germany.

Scandinavian government bonds are performing well relative to Euroland and weremain overweight 10Y DGBs and 10Y SGBs vs France.

Credit The primary market has reopened and secondary market activity has also picked up

slightly going forward we expect liquidity to continue to improve. However, the

segregation of market access for northern and southern European issuers is becoming

clearer. Furthermore, banks are likely to remain under pressure for some time on the

back of sovereign distress and the austerity measures currently being undertaken.

We are positive on investment grade credit from non-financial companies. Companycredit metrics are sound and we thus consider the default risk in the short- to medium-

term as very low. Furthermore, companies of high credit quality offer an alternative

for investors seeking an exit from what they perceive to be risky sovereign exposure.

FX outlook The euro has received support as the ECB managed a reduction of its liquidity

provision without adding to already high market tension. Still, with Spain moving

closer to a downgrade, the focus of attention remains on the euro debt crisis and the

uptick in EUR/USD is likely to be temporary. EUR/GBP has fallen sharply and while

we see long-term value in sterling, the move looks overdone. EUR/CHF has

continued to push to new all-time lows, but with speculative investors already long in

the Swiss franc, a near-term correction cannot be ruled out, although the long-term

trend is for a stronger CHF.

Equities and US 10Y yield


EUR/USD and USD/JPY


Credit spreads


Commodity prices


Jan

10

Feb Mar Apr May Jun

2.9

3.1

3.3

3.5

3.7

3.9

925

975

1025

1075

1125

1175

1225

1275 Index %

US 10-year gov bond >>

07 08 09 10

1.5

2.5

3.5

4.5

5.5

6.5

0.0

5.0

10.0

15.0

20.0

25.0 % points % points

>

Jul

09

Sep Nov Jan

10

Mar May

2250

2500

2750

3000

3250

3500

3750

4000

55

60

65

70

75

80

85

90USD/barrel Index

LME metal prices >>


16/21


Weekly Focus

The SEK sold off on a dovish Riksbank statement. However, sound fundamentals andstrong growth momentum should warrant lower levels of EUR/SEK going forward.

Commodities

Although some headwinds from manufacturing sentiment are materialising forcommodities at the moment, bullish supply-side factors are increasingly in focus.While some further softness cannot be ruled out we expect prices to have some

limited potential left this year.


17/21


Weekly Focus

Macroeconomic forecast

Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.

Macro forecast, Scandinavia

Denmark 2009 -4.9 -4.6 2.5 -12.0 -1.7 -10.3 -13.2 1.3 3.5 -2.8 38.8 4.02010 1.8 2.7 1.2 -2.3 0.8 2.7 2.6 2.2 4.1 -5.6 42.0 3.22011 1.9 2.5 0.5 1.3 0.2 3.5 3.5 1.8 4.0 -4.5 46.5 2.5

Sweden 2009 -4.9 -0.8 2.1 -15.3 -1.5 -12.5 -13.4 -0.3 8.4 -1.3 39.5 7.62010 1.8 2.2 4.6 0.4 0.5 3.5 6.8 1.4 10.3 -2.8 43.1 5.92011 2.0 1.8 1.5 2.2 0.0 4.4 4.2 2.4 10.3 1.0 44.0 6.8

Norway 2009 -1.4 0.1 5.0 -7.9 -1.8 -4.2 -9.6 2.2 3.1 8.0 26.0 19.02010 3.1 5.0 3.1 -0.5 1.0 2.3 5.6 2.5 3.3 12.0 26.0 24.92011 1.7 4.4 2.5 0.0 0.0 1.4 7.3 1.9 3.4 10.0 - 17.0

Macro forecast, Euroland

Euroland 2009 -4.0 -0.5 2.3 -10.8 -0.8 -12.6 -11.4 0.3 9.4 -6.3 78.7 -0.72010 1.3 0.1 1.4 -2.0 0.4 7.9 5.8 1.4 9.8 -6.7 84.8 -0.32011 2.1 1.2 1.1 3.8 0.0 5.4 4.6 1.6 9.5 -6.0 88.5 -0.2

Germany 2009 -4.9 -0.1 3.4 -13.5 0.4 -14.5 -9.5 0.2 7.5 -3.5 73.0 4.02010 1.9 -1.0 2.1 9.9 0.1 8.9 8.8 1.0 8.1 -5.0 76.5 3.72011 2.7 1.7 1.4 7.4 0.0 7.0 6.7 1.2 7.6 -3.0 79.0 3.2

France 2009 -2.6 0.7 2.8 -7.0 -1.6 -10.7 -9.8 0.1 9.4 -8.3 78.0 -2.32010 1.6 1.3 1.7 -1.0 0.3 7.9 5.9 1.2 10.0 -8.5 82.0 -2.52011 1.8 1.4 1.0 4.2 0.1 6.2 6.2 1.5 9.7 -7.0 87.0 -2.2

Italy 2009 -5.1 -1.6 1.6 -13.1 -0.3 -19.2 -15.2 0.7 7.8 -5.3 114.6 -2.22010 1.3 0.9 1.3 0.1 0.2 8.0 6.0 1.9 8.6 -5.0 116.0 -2.02011 2.0 1.0 1.0 5.2 0.1 8.4 7.2 2.0 8.3 -4.5 117.5 -1.7

Spain 2009 -3.7 -5.1 5.0 -15.5 0.0 -12.0 -18.2 -0.3 18.1 -11.2 54.3 -5.22010 -0.3 -0.5 1.8 -5.6 0.0 7.2 4.6 0.9 20.1 -10.0 66.0 -4.12011 1.0 0.7 0.2 0.2 0.0 6.1 4.1 1.9 19.8 -8.5 73.0 -3.2

Finland 2009 -7.8 -2.1 0.7 -13.4 0.0 -24.3 -22.3 0.0 8.2 -2.2 44.0 1.42010 1.5 0.2 0.0 -4.0 0.0 4.0 2.0 1.4 10.0 -3.8 49.0 1.42011 2.5 1.5 0.5 3.5 0.0 9.0 5.5 2.0 9.2 -3.3 52.0 2.2

Macro forecast, Global

USA 2009 -2.4 -0.6 1.8 -18.3 -0.6 -9.6 -13.9 -0.3 9.3 -9.9 83.8 -2.92010 3.3 2.7 0.3 2.9 1.2 12.1 11.3 1.6 9.4 -10.2 91.6 -3.92011 3.2 2.7 9.4 2.8 -0.4 6.4 6.4 1.6 9.4 -8.8 96.8 -3.8

Japan 2009 -5.2 -1.1 1.6 -14.4 -0.3 -24.1 -16.9 -1.4 4.7 -8.0 220.0 2.82010 3.3 2.2 1.6 -1.1 -0.1 23.7 2.6 -1.0 4.3 5.2 220.4 3.42011 2.1 1.7 1.0 2.5 0.0 5.4 5.4 0.1 - - - 3.0

China 2009 8.7 - - - - - - -0.7 4.3 -3.3 23.6 5.82010 10.2 - - - - - - 3.3 4.0 -2.2 20.5 4.82011 9.5 - - - - - - 3.5 4.0 -2.2 20.5 5.5

UK 2009 -4.9 -3.2 2.8 -14.9 -1.2 -10.6 -13.3 2.2 7.6 -10.4 68.6 -1.32010 1.3 0.9 3.0 -2.0 1.1 4.4 0.9 3.2 8.0 -10.7 80.3 -2.02011 2.3 2.6 2.2 2.2 1.3 6.9 5.0 2.1 8.1 -8.8 88.2 -1.2

2009 -1.5 1.2 2.5 -3.7 1.0 -9.3 -5.7 -0.5 3.7 1.4 38.8 8.3

2010 2.0 1.8 0.5 2.1 -0.7 7.0 5.0 1.0 3.8 -1.0 40.0 9.02011 1.7 1.6 1.0 1.5 -0.2 4.0 4.0 1.2 3.5 -0.5 39.0 10.0

Y ear GDP

1

Private

cons.

1

Public

cons.

1

Fixed

inv.

1

Stock

build.

2

Ex-

ports

1

Im-

ports

1

Infla-

tion

1

Unem-

ploym.

3

Public

budget

4

Current

acc.

4

Public

debt

4

Current

acc.4

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Current

acc.4

Im-

ports1

Public

debt4

Public

budget4

Ex-

ports1

Infla-

tion1

Unem-

ploym.3

Switzer-

land

Y ear GDP1

Private

cons.1

Im-

ports1

Public

debt4

Public

budget4

Y ear GDP1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Infla-

tion1

Unem-

ploym.3


18/21


Weekly Focus

Financial forecast


Bond and money marketsCurrency

vs USD

Currency

vs DKK

USD 02-Jul - 595.8

+3m - 647+6m - 631

+12m - 587

EUR 02-Jul 125.0 744.9

+3m 115 744.0

+6m 118 744.0

+12m 127 745.0

JPY 02-Jul 88.0 6.77

+3m 95 6.83

+6m 99 6.36

+12m 102 5.73

GBP 02-Jul 151.9 904.8

+3m 137 886

+6m 139 875

+12m 155 909

CHF 02-Jul 106.8 557.7

+3m 113 572

+6m 108 581

+12m 106 552

DKK 02-Jul 595.8 -

+3m 647 -

+6m 631 -

+12m 587 -

SEK 02-Jul 767.4 77.6

+3m 817 79.1

+6m 780 80.9

+12m 724 81.0

NOK 02-Jul 644.4 92.4

+3m 665 97.3

+6m 644 97.9

+12m 598 98.0

PLN 02-Jul 331.3 179.8

+3m 343 188

+6m 335 188

+12m 307 191

Equity markets

Regional

Price trend

12 mth.

Regional recommen-

dations

USA 0% to +10% Underweight

Japan 0% to +10% Neutral

Emerging markets (USD) 0% to +10% Overweight

Pan-Europe (EUR) 0% to +10% Neutral

Nordics

Sweden 0% to +10% Neutral

Norway 0% to +10% Neutral

Denmark 0% to +10% Neutral

Commodities

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011

NYMEX WTI 81 81 80 85 87 89 92 94 82 91ICE Brent 79 81 79 84 86 88 91 93 81 90

Copper 7,274 7,072 7,200 7,500 8,000 8,400 8,600 8,700 7,261 8,425

Zinc 2,307 2,067 1,900 2,000 2,100 2,150 2,200 2,250 2,069 2,175

Nickel/1000 20 23 21 22 22 23 23 24 21 23

Steel 464 491 460 475 500 510 530 550 473 523

Aluminium 2,199 2,131 2,100 2,100 2,150 2,200 2,300 2,400 2,132 2,263

Gold 1,110 1,194 1,200 1,150 1,100 1,050 1,000 1,000 1,164 1,038

Matif Mill Wheat 126 131 132 123 120 127 127 127 128 125

CBOT Wheat 518 490 470 450 475 500 500 500 482 494

CBOT Corn 389 379 375 410 420 430 440 450 388 435

CBOT Soybeans 969 932 975 990 1,000 1,010 1,020 1,030 967 1,015

0.50

Average

Key int.

rate

0.13

0.130.13

0.75

3.25

0.25

1.00

1.00

0.10

0.10

0.50

10-yr swap yield

0.81

1.05

1.05

1.05

3m interest rate

3.75

1.00

0.10

0.50

0.25

1.05

1.00

0.70

0.75

0.75

4.10

4.10

0.50

1.00

1.00

0.50

1.90

0.25

0.10

1.13

3.50

2.00

0.50

1.00

1.50

3.50

2.00

2.50

3.50

3.50

0.53

0.78

0.24

0.73

0.11

0.450.45

1.15

0.65

0.65

0.15

0.30

0.24

0.30

4.10

3.77

0.50

1.00

1.10

1.10

1.35

1.30

0.80

2.78

760

2.65

3.00

3.20

3.50

2.30

5.80

5.20

5.00

4.25

3.00

1.60

1.65

1.95

0.60

0.95

1.60

1.70

2.00

1.45

1.95

1.55

1.60

1.95

0.50

0.65

1.00

115118

127

109

117

130

1.17

390

125.0

-

-

-

-

110.0

744

744

745

959.5

805.8

414.3

760

395

395

940

920

920

765

82.3

133.6

744.9

84.0

85.0

82.0

130

128

135

0.98

1.44

0.46

1.44

0.55

1.79

1.30

1.35

1.65

1.30

High

3.16

4.59

Currency

vs EUR2-yr swap yield

Risk

Low -5% to +5%

Price trend

3 mth.

-5% to +5%

-5% to +5%

High

High

Low

Average

High

364

02-Jul

-5% to +5%

-5% to +5%

-5% to +5%

-5% to +5%

73

19

6,330

1,740

1,212

140

72

430

1,926

20112010

3.60

3.01

3.60

3.60

3.00

3.10

3.40

4.80

3.25

3.50

1.45

1.55

1.60

3.39

3.60

3.75

3.20

3.04

5.37

5.85

6.10

6.35

4.05

1.89

2.00

2.15

2.50

957

500

2.89

2.90

3.45

4.09

4.30

4.45

2.94

2.70


19/21


Weekly Focus

Calendar


Key Data and Events in Week 27

Period Danske Bank Consensus Previous

- USD Independence Day - Market c losed9:15 CHF Retail sales (real) y/y May 1.3%

9:45 ITL PMI Services, Final Index Jun 53,6 53.5 53.7

9:50 FRF PMI Services, Final Index Jun 61.6 61.6 61.6

9:55 DEM PMI Services, Final Index Jun 54.6 54.6 54.6

10:00 EUR PMI Services, Final Jun 55.4 55.4 55.4

10:00 EUR PMI Composite, Final Index Jun 56.0 56.0 56.0

10:30 GBP PMI Services Jun 55.0 55.4

11:00 EUR Retail sales m/m|y/y May 0.3%|-0.5% 0.5%|-0.2% -1.5%|-1.8%


6:30 AUD RBA monetary policy meeting 4.50% 4.50% 4.50%

7:00 JPY Leading Economic Index, preliminary Index May 98.9 101.7

9:15 CHF CPI m/m|y/y Jun -0.2%|0.8% -0.1%|1.1%9:30 DKK Industrial production m/m May -0.8%

9:30 DKK Business Sales May

9:30 DKK Enforced sales (s.a.) Jun 455

16:00 USD ISM (NAPM) non-manufacturing Index Jun 54.4 55.0 55.4


8:45 FRF Trade Balance EUR bn. May -4.2

10:00 NOK Manufacturing Production m/m|y/y May 0.5%|.. 0.2%|3.0%

11:00 EUR GDP, s.a. - Final q/q|y/y 1st quarter 0.2%|0.6% 0.2%|0.6% 0.2%|0.6%

12:00 DEM Factory Orders m/m|y/y May 0.4%|24.9% 2.8%|29.6%

13:00 USD MBA Mortgage applications 8.8%

16:00 CAD Ivey PMI index Jun 64.0 62.7

21:35 USD Fed's Kocherlakota (non-voter, neutral) speaks


- JPY Eco Watchers Survey: Current Index Jun 47.7

1:50 JPY Machine orders m/m|y/y May 4.0%|9.4%

1:50 JPY Current Account Total JPY bn (s.a.) May 1199.8 1379.6

1:50 JPY Money supply M2+CD y/y Jun 3.1% 3.1%

1:50 JPY Bank Lending y/y Jun -2.0%

3:30 AUD Employment change Jun 15.0k 26.9k

7:45 CHF Unemployment (sa) % Jun 4.0

9:30 SEK CPI m/m|y/y Jun 0.1%|1.0% 0.1%|1.0% 0.2%|1.2%

10:30 GBP Industrial Production m/m|y/y May 0.4%3.2% -0.4%|2.1%

12:00 DEM Industrial production mm/|y/y May 0.8%|9.2% 0.9%|13.3%

13:00 GBP BoE rate announcement Jul 0.5% 0.5%

13:45 EUR ECB Announces Interest Rates 1.0% 1.0% 1.0%

14:30 USD Initial jobless claims 1000 460 472

14:30 EUR ECB's Trichet Speaks at ECB Monthly News Conference

21:00 USD Consumer credit bn. USD May -2.0 1.0

Monday, July 5, 2010

Tuesday, July 6, 2010

Wednesday, July 7, 2010

Thursday, July 8, 2010


21/21

Weekly Focus

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Documents

JUL 02 Danske Weekly Focus