DenDanske-Weekly-Focus-20100813

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Investment Research

Market Movers ahead US Senior Loan Officer survey with details on credit conditions and demand for loans

will be released on Monday. Local business surveys are expected to show somestrengthening while housing starts and building permits are expected to fall.

The Euro area is facing a calm week in terms of macro data. ZEW expectations arelikely to decline as market sentiment has turned more sour.

In Asia focus turns to Japanese GDP data for Q2. Consensus is for 0.6% q/q GDPgrowth but we see some downside risk to that forecast. USD/JPY has declined to anew low and speculation is rising over potential intervention from the Bank of Japan.

In Scandinavia attention will be on Norwegian Q2 GDP figures. We expect moderategrowth.

Global Update Financial markets have become increasingly concerned about the risk of a slump with

long-lasting repercussions. Data has turned softer in both Asia and the US.

The Fed decided to bring its exit to a halt and as a result we have postponed our expectations for a first Fed hike until Q4 11.

Euro area growth was strong in Q2, pulled up by Germany. Declining industrial production in June has raised concerns about growth in Europe too.

European government bond spreads widened. On Thursday the ECB was seen purchasing government bonds in the market and spreads began to narrow.

Focus Wheat prices have rallied since early July. We assess the fundamental situation in the

grains market and conclude that the recent rally is overdone and that a global foodcrisis is not imminent. In an alternative agflation scenario, the impact on inflation isnotable in particular in emerging markets.

13 August 2010

Editors

Allan von Mehren+45 4512 [email protected]

Steen Bocian+45 45 12 85 [email protected]

Weekly FocusFear of a slump

Contents

Market movers ahead ........................................... 2Global update................................................................... 4Scandi Update ................................................................ 6Focus: Agflation scenario unlikelydespite wheat rally .................................................... 8Equities: Only hard landing will havenegative effect on stock market .............. 13Fixed Income: Fed exit on hold .................... 14FX: USD recovers despite soft Fed ....... 15Commodities: Price correction................ 16Credit ................................................................................... 1Financial views........................................................... 18Macroeconomic forecast .............................. 19Financial forecast ................................................... 20Calendar ........................................................................... 21

Bond yields in record lows USD/JPY declines further

Source: Reuters Ecowin Source: Reuters Ecowin

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3 | 13 August 2010 www.danskeresearch.com

Weekly Focus

Scandies Denmark appears to have a quiet week ahead as far as economic indicators are

concerned. Monday will see the release of Q2 wage data by the Danish EmployersAssociation and Wednesday the publication of July car sales data. It will be

interesting to see if car sales indicate a growing appetite for spending by Danishhouseholds following the disappointing retail sales and payment card transaction data published recently.

No significant market movers are expected in Sweden in the coming week.

Q2 GDP numbers are due out in Norway in the coming week. There is no gettingaway from the fact that economic growth in Norway has been disappointing in recentquarters given the low level of interest rates and unemployment and the globalupswing. Part of the reason has been lower activity in the oil-related industry andhouseholds being cautious with their interest rate gains. The leading indicatorssuggest that growth was increasing towards the end of Q2 and that this has continuedinto Q3. We therefore expect that mainland GDP rose 0.4% q/q despite modestconsumption growth and indications of a negative contribution from net exports. Keepan eye on the effect on GDP of the sharp fall in power production in Q2. This issupply-side driven and provides no information on economic development, but it willaffect overall production growth.

Market movers ahead

Source: Bloomberg and Danske Markets

Global movers Event Period Danske Consensus Previous

Mon 16-Aug - USD Senior loan officers survey

14:30 USD Empire Manufacturing m/m Aug 7.5 8.25 5.08

19:00 USD NAHB Housing Market Index Index Aug 13 15 14

1:50 JPY GDP,preliminary q/q|ann. 2nd quarter 0.6%|2.3% 1.2%|5.0%

Tue 17-Aug 10:30 GBP CPI m/m|y/y Jul -0.1%|3.2% -0.2%|3.1% 0.1%|3.2%

11:00 DEM ZEW economic sentiment Index Aug 20.3 20.6 21.2

14:30 USD PPI m/m|y/y Jul 0.5%|4.5% 0.2%|4.2% -0.5%|2.8%14:30 USD Housing starts 1000 (m/m) Jul 540 (-1.6%) 560 (2.0%) 549 (-5.0%)

14:30 USD Building Permits 1000 (m/m) Jul 568 (-2.5%) 576 (-1.2%) 583 (2.1%)

15:15 USD Industrial production m/m Jul 0.4% 0.5% 0.1%

Wed 18-Aug 10:30 GBP BoE Minutes

Thurs 19-Aug 8:15 CHF Trade balance bn CHF Jul 1.82 1.77

10:30 GBP Retail Sales incl. Auto fuel m/m|y/y Jul 0.5%|1.2% 0.4%|1.1% 0.7%|1.3%

16:00 USD Philadelphia Fed. Index Aug 6.0 7.5 5.1

Scandi movers Event Period Danske Consensus Previous

Mon 16-Aug - DKK Wage growth (DA) y/y 2nd quarter 2.6%

Wed 18-Aug - DKK New car sales, july Jul

Thurs 19-Aug 10:00 NOK GDP (mainland) s.a. q/q|y/y 2nd quarter 0.1%|

10:00 NOK GDP (total) s.a. q/q|y/y 2nd quarter -0.1%|

Slowing wage growth in Denmark

Source: Danish Employers Association

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Weekly Focus

Global update

Fear of a downturn intensifies

This week financial markets became increasingly concerned about the risk of a slumpwith long-lasting repercussions. Data has turned softer in Asia particularly in China and recent US data has been weak. In the US, initial claims data weakened further and isnow at a level which is quite concerning and suggesting that the labour market may beslowing further. As a result of the disappointing signals from macro data, stock pricesfell, yields went lower, the oil price fell to below USD78/bbl and EUR/USD weakened.Due to increased concerns, the Fed decided to bring its exit to a halt and as a result wehave postponed our expectations for a first Fed hike until Q4 11.

The euro area provided very strong Q2 GDP figures, pulled up by 2.2% q/q growth inGermany, but industrial production declined in June, so concerns about European growthare materialising too.

European government bond spreads widened with Irish spreads widening the most, driven partly by concerns about the full cost of saving the Irish financial sector. On Thursday,the ECB was seen purchasing government bonds in the market and spreads began tonarrow.

Weak US data tilts the Fed in a more dovish directionThe round of weak US data received over the most recent months both for the labour market and private consumption has caused increased worries about the economicrecovery within the FOMC: the slowdown in the US economy has been more pronouncedin the first half of the year than preliminary data had suggested. While a slowdown in the

manufacturing sector had been widely anticipated, what is worrying the Fed and us, isthat the high growth rates in the early phase of the recovery have not been enough to spur a convincing recovery in the labour market.

This increased concern was reflected in the FOMC statement. The FOMC reviseddownward the near-term growth outlook and decided to reinvest the principal paymentsfrom the Feds portfolio of Agency and MBS holdings in longer-term Treasuries. Thisimplies that the balance sheet will be held constant and effectively puts the exit strategyon hold. While the amount of treasuries to be bought is insignificant, the decision sends astrong signal to markets. It provides a clear indication that rate hikes remain in theindefinite future and that the central bank is prepared for another round of quantitativeeasing if necessary. Given a softer H2 outlook and the FOMC shifting to an easing bias,we have revised our Fed Funds forecast. We now expect the first Fed Funds rate hike inQ4 11.

Renewed concerns about euro area peripheryThis week government bond spreads widened again with Irish spreads widening the most,driven by renewed concerns in particular about the full cost of the Irish banking crisis.This was partly fuelled by the fact that two banks bid at the ECBs weekly dollar liquidity

providing auction the first time there have been any bids since May indicating thatthey could not raise dollars in the market though dollar liquidity should be plenty. On

FOMC puts a floor on the balancesheet

Source: Reuters Ecowin and Danske Markets

Stock markets turn sour


EUR/USD weakens


ISM signals slowdown


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Weekly Focus

Thursday, the ECB purchased Irish government bonds and spreads narrowed. The ECBhas not been buying government bonds for significant amounts over the past four weeks,

but might now restart the programme with more significant buying.

Industrial production in the euro area declined 0.1% m/m in June, but GDP growth in Q2

has nevertheless been impressive particularly in Germany where growth stood at 2.2%q/q, the highest quarterly growth rate in decades. Greece is at the other end of thespectrum with a 1.5% q/q decline in GDP and unemployment that reached 12% in May.

The disappointing June production data could be a forewarning of a new slump inEurope, but we do not think so. Orders and confidence indicators still signal stronggrowth. Nevertheless, a slowdown should be expected after the strong Q2 performanceand given the weakness in other regions we are aware that euro area growth prospectscould quickly deteriorate.

On Wednesday, the Slovak parliament rejected its contribution to the aid package for Greece, but did approve its participation in the loan facility for countries in trouble. The

Commission regretted this breach of solidarity, but said that Slovakias decision wouldnot have any negative implication for the disbursement of the instalments of the loan.

More signs of slowing in AsiaThe past week offered more evidence that growth in Asia is coming down. In particular,China is seeing activity come off the boil. Industrial production growth fell to 13.4% y/yin July, down from a peak of 19.2% y/y late last year. House prices also show signs of cooling off, with annual growth rates falling again to 10.3% from 11.4% in June. AChinese slowdown has been expected and needed as inflationary pressures have been

building. But the recent data suggests that this cooling of the economy is happening faster than projected. Chinese tightening measures have included reducing credit growth and

measures to dent activity in housing. China has also told large companies to improveenergy efficiency in order to meet its target of a 20% reduction in energy intensity over 2005-2011. This has contributed to the decline in industrial activity.

Trade data also painted a picture of a slowing Chinese economy. Import growth levelledoff to 22.7% y/y in July after rising more than 80% y/y six months ago. Export growth isstill growing strongly, which means that the Chinese trade balance rose significantly. Thisis putting global imbalances back in the spotlight not least after US trade figuresshowed the opposite development in July. With US growth facing headwinds, this could

put protectionism back on the agenda in the US. Interestingly, China put a stop to theappreciation of CNY this week and instead it depreciated against USD. It may be aneffect of the weakening of EUR as China has said it will increasingly steer CNY against a

basket of currencies including EUR. It might also be the weaker data that is leading theChinese authorities to backtrack on the gradual appreciation. It clearly throws uncertaintyinto the outlook for CNY.

In India, industrial production growth has also showed the first signs of coming down.Production increased in June, but annual growth fell to 7.1% y/y from 11.3% y/y in May.

European spreads widen


Strong German growth


More cooling signs in China


CNY depreciating this week

Kilde: Reuters Ecowin

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USD/CNY


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Weekly Focus

Scandi UpdateDenmark Record current account surplusThe week's most talked-about release was undoubtedly the balance of payments for June.

The current account showed a surplus of no less than DKK8.5bn for the month and arecord surplus of almost DKK80bn over the past 12 months. This is a clear signal that theDanish economy remains competitive something which is not really in doubt, despitethe persistent scare stories. That said, these movements in the current account doexaggerate the health of the Danish economy and Danish industry. The record surplus isdue primarily to the very sharp downturn in domestic demand during the crisis, withrecord falls in both investment and private consumption in 2009.

While the current account took the prize for the week's most talked-about release, it wasnot the most important. Growth is everything right now, and the figures for industrial

production and exports of goods in June suggested that recent quarters' progress in theDanish economy continued in Q2. Industrial production was a particular surprise withgrowth of 1.2% from May to June despite a sharp increase in May. Goods exports, on theother hand, were a disappointment in June, but both industrial production and goodsexports performed well over Q2 as a whole, showing growth of 2.7% and 2.1%,respectively. The current account data also revealed a big increase in exports of servicesin Q2, so there is now much to suggest that exports in particular are propelling the Danisheconomy forward, while consumption seems to have been treading water of late.

Finally, the week brought disappointing inflation figures. Headline inflation climbed from1.7% in June to 2.3% in July, and core inflation (which excludes energy and food) from1.4% to 1.7%. Tax increases in isolation pushed up inflation by 0.6pp in July. On balance,we still reckon that inflation this year will end up at 2.2%.

Sweden - Inflation stays on track Inflation outcome in July was a pretty boring story, no surprises to speak about. CPIFturned out as expected (1.7 % y/y) while CPI landed at 1.1 % y/y, 0.1 percentage pointslower than expected (although that is well within the normal forecast error). Hence, thereis no reason to expect any reaction from Riksbank based on this outcome.

A look at price components does not reveal anything out of the ordinary either; they werein line with our forecasts. Clothing and shoe prices fell 6.7 % (normal July sales) and

petrol prices fell 2.7 % while electricity prices and mortgages costs rose 0.6 % and 2.3 %respectively, all very close to our calls.

The July outcome means that our inflation forecast remains largely intact. As the chart onthe right shows, lower CPIF suggests that the price increases for a majority of goods andservices are moderating, which is also backed by fundamental variables such as unitlabour costs and currency movement. Hence, it is solely Riksbanks rate hikes and as aconsequence higher mortgage costs that pull up CPI in our forecast. Our and Riksbanksinflation forecast for the next year or so are quite similar.

Record current account surplus inDenmark

Source: Statistics Denmark, ADAM

Fundamentals pull down CPIF

Source: Danske Markets

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7/22


Weekly Focus

Norway Central bank less gloomy than expectedAs expected, Norges Bank left interest rates alone at its meeting during the week. Nor were there any major surprises in its assessment of the economic and financial situation.All in all, things have panned out largely as expected since the bank published its

monetary policy report in June. If anything, the bank was perhaps a little less downbeatabout the global economy than the market currently seems to be. At the press conference,governor Svein Gjedrem attached particular weight to the tail risk associated with thesovereign debt crisis in Europe having decreased significantly since June, althougheconomic data have been somewhat weaker. The bank is therefore preparing for interestrates in Norway to normalise gradually even if the Fed and the ECB keep their ratesunchanged for a long period. Gjedrem noted that there is more to the world than justEurope and the US, pointing to strong growth in a number of countries in Asia and LatinAmerica, and it was probably the first time that economic growth in Colombia has comeup at a Norges Bank press conference.


8/22


Weekly Focus

Focus: Agflation scenario unlikely despite wheat rallyGlobal wheat prices have rallied since early July as estimates of notably Russian

production have been revised on an extended period of drought. We assess the

fundamental situation in the grains market and conclude that the recent rally is overdoneand that a new global food crisis is not imminent. Still, the recent price surge could putupward pressure on inflation in the near term in not least emerging markets but we viewthe risk of an agflation scenario as unlikely.

Russian drought leads rally in wheatEuropean milling wheat prices have risen from EUR140 per tonne to above EUR220 inless than two months, levels not seen since the summer of 2008. In recent days, wheat

prices have come off a peak however to now trade just above EUR200.

The panic rise was more or less solely caused by a supply shock. Wheat has risen on fearsthat Black-Sea production would be severely harmed by a prolonged period of very dryweather. Russia accounts for 9% of global production and 14% of exports but also outputfrom other major exporters in the region such as Ukraine and Kazakhstan may be at risk from an ongoing drought. In an attempt to contain domestic price rises, Russia last week announced an export ban to take effect from 15 August until year-end. Crucially, ongoingwildfires may not only destruct this seasons crop but could potentially hinder nextseasons plantings of winter wheat.

Further adding to likely production shortfalls is the fact that Canadian wheat was hit hard by heavy rains earlier in the year and Pakistani crop is now threatened by flooding.Combined with the fact that record harvests in recent years have led farmers to plant lesswheat, wheat stocks look set to decline significantly this year. This has spurred fears of aglobal food crisis similar to the one that hit the global economy in 2007/08 when risingfood prices led consumer prices to surge and inflation-targeting central banks to hikeinterest rates despite a significant slowdown in economic activity.

Wheat price rally on Black-Sea production shortfall

Source: EcoWin, Danske Markets.

Key points

Global wheat prices have ralliedon weather-related supply

concerns. We view the recentprice surge as overdone howeveras the global wheat market

remains well-supplied. The risk of a new global food crisis is small inour view-

We view the recent price surgeas overdone as the global wheat

market remains well-supplied and look for LIFFE prices to retreat toEUR175 per tonne before year-end.

As a result, we expect the inflationary impact to be limited. If

anything, emerging markets aremost at risk of an agflation scenario.

Wheat production by region

Source: USDA, Danske Markets.

Senior Analyst Christin Tuxen+45 4513 [email protected]

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9/22


Weekly Focus

Current situation is very different from 2007/08 crisisIn our view, the situation in the global grains market is very different from the one in2007/08 and provided no hoarding or new trade barriers are introduced, we look for markets to calm down in the near term and for the inflationary impact to be limited.

Longer term, the surge in wheat does however highlight a range of structural problems inthe agricultural sector.

First of all, global stocks of wheat are ample at present. Measured in terms of the stocks-to-use ratio, the market is well supplied with stocks available to honour almost 1/3 of yearly consumption; in the US the corresponding figure is above 80%. This is rather different from the situation in the summer of 2008 when US stocks-to-use ratio wasrunning at a mere 10%. In its August WASDE report, the US Department of Agriculture

projected a small decline in the ratio for the 2010/11 season from 28% to 26%, but this isstill a very comfortable level.

Wheat market fairly loose... ... but getting a little tighter this year

Source: USDA, Danske Markets. Source: USDA, Danske Markets.

Second, we should not forget that a supply reaction can happen fast in the grains market:when farmers observe higher prices they usually increase plantings of the grain inquestion for the next season. This is indeed what has been seen in recent years after

bumper harvests led to booming inventories. The planting season is about to start inAustralia and Argentina, which makes for a quick reaction to Black-Sea crop damage.

Third, prices of other grains and soft commodities have followed wheat up only to a verylimited extent (barley is the exception though). This highlights that the recent panic is sofar mainly contained to wheat. Notwithstanding, it cannot be ruled out that higher priceson wheat could crowd out plantings of other crops such as soybeans and corn. Stocks of these grains are also at decent levels but in particular the corn/maize market is somewhat

tight and could thus be vulnerable to production shortfalls arising from plantingsubstitution.

Fourth, the demand side should provide only limited support to prices. Crucially, we arecurrently in a different stage of the business cycle than was the case in 2008 whencapacity utilisation was high and underlying inflationary pressure significant as a result.Also, with focus shifting to second-generation biofuels, which use biomass etc. rather than grains as input, demand from the energy sector - and thus spill-over between foodand energy sectors - should be limited.

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10/22


Weekly Focus

Finally, whereas the 2007/08 rally was likely to have been partly caused by a rise inspeculative positions, this does not seem to have been the case to the same extent thistime round. Leading up to the price spike speculators were on average net short wheat butan extensive short-covering rally has reversed the situation such that non-commercials arenow net long. During the recent rally the ratio of non-commercial positions to total openinterest has in fact declined. This suggests that speculative flows into the sector have infact been reduced.

Overall, it is important to note that the current shock is rather different from the 2007/08one which arose from a demand shock: global grains stocks were low, the globaleconomy was booming, regulatory changes spurred demand for grains for biofuel

production and financial interest in commodities was accelerating.

Agflation scenario unlikely in the near term but longer-termoutlook highly uncertainThe UN Food and Agricultural Organisation has made an attempt to calm the markets,

saying that global inventories are indeed sufficient to compensate for the production. Thisweek the OECD joined the UN in playing down the impact of the Russian drought. Welargely agree with the view that there is little reason to panic as things are now, but theshort and the longer term implications of the wheat crisis are likely to differ.

We look for wheat prices to continue the downward correction and to retreat to EUR175 per tonne before year-end as the market wakes up to reality which remains elevatedglobal wheat stocks. During the course of 2011, wheat prices could rise a little from thisnewfound level as global demand ticks higher alongside close-to-trend economic growth(and sustained population growth). This assumes no further trade restrictions and anormal planting reaction to this years production shortfall. Notably, US and Europeanfarmers stand to benefit from the price increases as their crops have developed neatlywhile Black-Sea producers face a tough time.

Having said that, risks that the recent rally could spur further price rises along the grains physical supply/demand chain remain. Wheat, corn and rice are fairly close substitutes inconsumption as well as production and thus while the price rises so far are mainlyrestricted to wheat, spill-over cannot be ruled out. This could make the price rises more

broad-based and fuel inflation to a larger degree. Notwithstanding, there is little tightnessin neither wheat, coarse grains (incl. corn) or rice.

Also, speculation remains a joker and was at least partly blamed for the 2007/08 spike.However, investor interest in commodities has been muted in this recovery phase despiteloads of liquidity. Part of the reason for the limited flows into commodities as an assetclass is the contango structure that prevails in most futures markets, not least in grains:when putting their money in commodity futures investors thus incur a negative roll yielddue to the downward-sloping curve which must then be made up for by an even larger upward move in price levels.

Short covering in wheat


Little tightness across grain types


Milling wheat: Danske forecast vs. fwd


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11/22


Weekly Focus

Inflationary impact to be limitedThe fact that price rises have so far been contained to the wheat market suggests littleimminent pressure on consumer prices. On the whole, we do not expect agflation, i.e.inflationary pressure induced by rising prices of agricultural products, to become a

prevalent phenomenon within our forecast horizon.

Euroland: Expect only small inflationary effect from wheat rallyThe impact of the recent increase in global wheat prices on inflation in the euro area is setto be modest. Food products weigh 14.0% in euro-area inflation and the component mostaffected by a surge in wheat prices namely bread and cereals - only amounts to 2.6%.In addition, the wheat component of the total cost of e.g. a bread is small (wages etc. ismaking up the greater part of the price). Our main scenario for wheat prices is in line witheuro-area food price inflation at 1.1% this year and 2.2% in 2011 and with overallinflation reaching 1.5% in 2010 and 1.7% in 2011.

In an agflation scenario where wheat prices increase another 30% and we have spill-over to other grains etc, we estimate that euro-area food price inflation will reach 1.8%

this year and 3.5% next year which results in inflation reaching 1.7% and 2.0% in 2010and 2011, respectively. This could be enough to trigger the ECB to hike rates earlier thananticipated. The impact on inflation in 2010 is modest because increases in grain priceshave their biggest impact on inflation with a 3-4 months lag.

At the peak of the 2007/08 food price rally, Matif Milling wheat had increased 82% y/y inMarch 2008. Four months later euro-area food price inflation peaked at 7.0% and overallinflation peaked at 4.0%.

US: Insignificant impact on inflation from spike in wheat pricesThe recent run-up in wheat prices will not lead us to change our current forecast for USconsumer price inflation of 1.6% y/y in 2010 and 2011.

The impact on the CPI food index from the current wheat price shock will be a minor 0.3pp to the six month annualised inflation rate over the coming months as the shock feeds through to consumer prices with a lag. With the food index weighing just below14% in the overall CPI index this means that the current spike in wheat prices will add ainsignificant 0.04pp to our current estimate of annual headline CPI over the coming sixmonths before fading away gradually.

In an alternative agflation scenario with a general increase in prices on agricultural products and a run-up in the overall CRB foodstuffs index, we would get a moresignificant impact on US CPI. Assuming an increase in the CRB foodstuff index of 30%over the coming three months followed by a levelling out, this would start to show up inthe CPI food index in about six months. The peak effect of such a shock would occur in

spring 2011 with a boost to annual consumer food price inflation of around 6pp. CPI foodwould then gradually return to the underlying trend by end 2011.

The overall impact on headline CPI in 2011 in an agflation scenario would be a boostof 0.5pp taking annual CPI to 2.1% for the year, which is still a relatively low inflationrate. With the Fed targeting primarily core inflation, we do not expect any monetary

policy reaction to such a shock. On the contrary, a run-up in food inflation works as a taxincrease for the consumer and risks pushing real private consumption lower dampeningoverall economic growth.

Euroland: Inflation in main andagflation scenario

Source: Ecowin and Danske Markets

US food CPI and CRB foodstuff index


Senior Economist Frank land Hansen+45 [email protected]

Senior Analyst

Signe Roed-Frederiksen+45 [email protected]

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Agflation scenarium

Hovedscenarium

90 92 94 96 98 00 02 04 06 08 10

-3.0

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-1.0

0.0

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-20

-10

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20

30 %-change 6M AR %-change 6M AR

>


12/22


Weekly Focus

Emerging markets: effects of rising grains prices potentially largeFood makes up a larger share of the consumption expenditure in most emerging marketsincluding China, hence the risk of an agflation spiral is clearly higher in these countries.For example, in China food makes up 34% of the consumer-price index whereas thecorresponding figure for Russia is 40%. In addition, many developing countries not leastin Asia are closer to capacity limits than the developed world and hence face larger inflationary pressure. Indeed, policy tightening has already been initiated as a result in arange of countries.

On the whole, at current levels of grains price increases and amid a slowing global-growth environment, double-digit inflation rates do not seem likely for most developingcountries as a result of grains prices alone. Also, government subsidies are an integral partof the food pricing structure in many emerging markets, and thus world grains pricesshould have less than one-for-one impact on domestic ones.


13/22


Weekly Focus

Equities: Only hard landing will have negative effect onstock market

Equity market has already discounted mid-cycle slowdown inH2 10The ISM manufacturing index has been on the retreat for the past three months, so theglobal industrial cycle is clearly slowing. However, this is not in itself a problem for global equity markets. What is worrying equity markets is that the global consumptioncycle is apparently not picking up at the same rate as the industrial cycle is easing. Thisadds up to a slowdown scenario with lower growth than many analysts, among others theFed, had expected just a few months ago. However, in our view, the market has alreadydiscounted much lower growth than current indicators portend, and given this the equitymarket should be able to return 5-10% for the rest of the year. What could alter our viewon performance would be indications of a very pronounced slowdown. Potential triggers

for this would be rising private sector unemployment and/or the Chinese housing bubble bursting. The pace of deceleration intensifying would also suggest a harder landing. Nowafter a solid Q2 earnings season, the focus is back to macro numbers. Hence, we wouldfocus on the following data in the week ahead.

What to watch for signs of the industrial cycle slowingThe most important numbers in the coming week are the Philadelphia Fed for August(19 August) which is the earliest indicator of developments in ISM manufacturing andUS Leading Indicators for July (19 August). More specific indicators for the profile of the industrial deceleration will arrive earlier in the week with US Industrial Productionfor July (17 August). European macroeconomic numbers out last week showed positive

growth for German industrial exports, especially to the euro area, signalling increasinginvestment in capacity. Further indications of this may come from the German ZEWsurvey current situation for August (17 August). Earnings-wise, the main event will bethe half-year results from transport giant AP Mller Mrsk (H2 10, 18 August). Thecompanys outlook for H2 10 will be indicative of activity in the global transport sector and in China.

What to watch for signs of the consumption cycle acceleratingOf increasing importance and also a sign of consumer confidence is the US NAHBHousing Market Index for August (16 August). The US housing market has recently

been showing signs of deterioration. Uncertainty about wealth and job security is

extremely negative for consumer confidence and private consumption. US retail giantWalmart Stores will release its quarterly results on 17 August and this will be a major

pointer for both US and global retail sales. The more upmarket retail chain Target willalso be reporting its quarterly results (18 August) and this should both help confirm the

picture presented by Walmart and give an indication of premium goods sales. Also givingsome indication of developments at the more expensive end of the retail spectrum will beresults from Abercrombie & Fitch (17 August) and Home Depot (17 August). Bothcould surprise due to the positive earnings revisions in the industry this reporting season.

AnalystRikke Michaela Greve+45 [email protected]

Key events of the week

US leading indicators

Philadelphia Fed

US industrial production

NAHB Housing Market Index

German ZEW, current situation

Source: Danske Markets Equities

Key earnings reports of the week

AP Mller Mrsk H2 10

Walmart Stores Q2 10

Target Q2 10

Abercrombie & Fitch Q2 10 Home Depot Q2 10

Source: Danske Markets Equities, Reuters Ecowin


14/22


Weekly Focus

Fixed Income: Fed exit on holdFed move to easing bias and push bond yields even lowerThis week the Fed announced it will reinvest principal payments from its Agency/MBS

portfolio in long-term treasuries mainly the 2-10 segment to prevent the Fed balancesheet from shrinking. This will increase the net demand in this segment by USD150-200bn per year from 2011 and effectively put the Fed exit on hold.

It also indicates that further quantitative easing could be under consideration if the data picture continues to worsen throughout H2. Although some of the market reaction has been front-loaded ahead of the meeting, bond yields have continued down following themeeting. To investors the Fed is now signalling that the extended period is even more

prolonged than before, which has flattened the money market curve significantly.

The market has postponed the hike in the Fed funds rate to November 2011 and does notexpect it to reach 2% before summer 2013. We have revised our forecast and now

expect the Fed to deliver its first hike in Q4 11 (see Flash Comment FOMC: Fed putsexit on hold ).

On the back of the dovish Fed statement and the recent deterioration in the outlook, thecurve has flattened and long bond yields have moved lower in both the US and Germany.

New yield forecastsThe 10-year US Treasury benchmark is now yielding 2.73% - the lowest since March2009. In Germany the bund is yielding 2.41%, which is record low. Although the marketsmay be somewhat overbought we believe there is a risk of even lower bond yields inthe short-term . Investors will increasingly speculate in further QE on any negative datasurprises and risk appetite has begun to deteriorate.

We do not expect bond yields to move higher in the coming six months. Slowdown inleading indicators, easing underlying inflation pressures and dovish central banks arelikely to cap bond yields. Generally, our forecast is below the forward market in both theUS and Euroland/Germany. See our revised yield forecasts here .

Next week s focus is on US data and risk appetite Next week there are no big events in Europe apart from bond auctions in Ireland andGermany. In the US focus will be on housing data, which have been exceptionally weak after the expiry of the first-time-home buyer tax credit and on manufacturing surveysfrom the New York and Philadelphia areas. Generally, we expect data to be a bit

disappointing, which could push yields further down in particular if risk appetitedeteriorates further.

Key events of the week ahead

US NAHB housing market index(16 August)

Ireland to sell 2014 and 2020bonds (17 August)

US housing start and buildingpermits (17 August)

Germany to sell 10-year bonds(18 August)

US empire manufacturing (16

August) US Philadelphia Fed index (19

August)

Fed speeches from Bullard andEvans (19 August)

US money market curve flattens

Source: Bloomberg, Ecowin and Danske Markets

10 year bund yield close to record low


Senior Analyst

Peter Possing Andersen+45 45 13 70 [email protected]

08 09 10 11

-0.50

0.00

0.50

1.00

1.50

2.00

-0.50

0.00

0.50

1.00

1.50

2.00 % %

Danske

Futures 1 month agoFed funds

Futures

07 08 09 10

2.0

2.5

3.0

3.5

4.04.5

5.0

5.5

2.0

2.5

3.0

3.5

4.04.5

5.0

5.5

10yr German Bund yield

US 10yr Treasury yield% %
http://danskeanalyse.danskebank.dk/abo/FOMCmeeting10082010/$file/FOMC_meeting_10082010.pdfhttp://danskeanalyse.danskebank.dk/abo/FOMCmeeting10082010/$file/FOMC_meeting_10082010.pdfhttp://danskeanalyse.danskebank.dk/abo/FOMCmeeting10082010/$file/FOMC_meeting_10082010.pdfhttp://danskeanalyse.danskebank.dk/abo/FOMCmeeting10082010/$file/FOMC_meeting_10082010.pdfhttp://danskeanalyse.danskebank.dk/abo/NewYieldForecast13082010/$file/NewYieldForecast_13082010.pdfhttp://danskeanalyse.danskebank.dk/abo/NewYieldForecast13082010/$file/NewYieldForecast_13082010.pdfhttp://danskeanalyse.danskebank.dk/abo/NewYieldForecast13082010/$file/NewYieldForecast_13082010.pdfhttp://danskeanalyse.danskebank.dk/abo/NewYieldForecast13082010/$file/NewYieldForecast_13082010.pdfhttp://danskeanalyse.danskebank.dk/abo/NewYieldForecast13082010/$file/NewYieldForecast_13082010.pdfhttp://danskeanalyse.danskebank.dk/abo/FOMCmeeting10082010/$file/FOMC_meeting_10082010.pdfhttp://danskeanalyse.danskebank.dk/abo/FOMCmeeting10082010/$file/FOMC_meeting_10082010.pdf


15/22


Weekly Focus

FX: USD recovers despite soft FedLast week the Fed announced it would be re-investing principal payments from itsAgency and Mortgage Backed Securities in longer-term Treasuries and thereby keep its

balance sheet constant. It effectively puts the exit process from quantitative easing onhold for now.

The knee-jerk reaction was a weakening of the dollar against the euro and the yen. Thenew stimuli from the Fed will further add to dollar liquidity in the market and willeverything equal push US rates lower. The move underlines that the Fed has a strongcommitment to keep rates low for an extended period. However, the dollar quicklyreversed the losses and we saw a significant drop in EUR/USD from 1.33 to below 1.28.

Investors became concerned that the US economy is in fact in worse shape than previously thought: the FOMC might have some deeper understanding of the economy.The language from the FOMC statement also clearly illustrated that the committee has

been negatively surprised by the weakness in economic data. The worries about the USeconomy became a global issue and investors decided to rush back into the dollar atypical safe-haven reaction.

We will be publishing new FX forecasts on 16 August. They will like our currentforecasts imply a stronger dollar on a three- to six-month horizon. We do not expect thedollar appreciation to be the result of higher official US rates though our US economistdoes not see the first rate hike in the US before late 2011 and with already record low USinterest rates the downside is rather limited. In the eurozone, on the other hand, interestrates could still fall not least relative to the US particularly if the current strongEuropean numbers come to an end as the headwinds from lower Asian and US growth arefelt down the road.

Forecasting FX movements is, to a certain degree, about forecasting relative surprises inthe market. If we take a closer look at a so-called surprise index that trails economicsurprises relative to expectations, it is obvious that currently the market has beensurprised about the strength of European numbers relative to US numbers. We believe the

picture might change in the autumn. The market might have become a bit too euphoricabout European numbers and too pessimistic about US numbers. When Europe starts tofeel the current cold winds from the US and Asia, the picture is expected to reverse,adding to euro glooms.

SEK set for an exciting autumn

In this weeks issue of FX Crossroads we took a closer look at the outlook for the SEK.The Swedish krone has strengthened significantly against the euro this year and it is nolonger significantly undervalued. However, we still believe that strong macro numbersand rate hikes from the Riksbank will add further to SEK strength going forward.However, there are a few important events to follow in the coming months. The generalelection on 19 September could create some nervousness in the market, with the outcomehighly uncertain. But more importantly we keep an eye on the long SEK positioncurrently held by the Swedish Debt Office. It is expected to be unwound during theautumn. It could limit the gains for the SEK going forward.

Weekly changes

Source: Bloomberg

EUR/USD surprise index

Source: Bloomberg

Strong SEK performance

Source: Bloomberg

Chief analyst Arne Lohmann Rasmussen+45 4512 8532

[email protected]

Jun09

Jul Aug Sep Oct Nov Dec Jan10

Feb Mar Apr May Jun Jul Aug

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

-75

-50

-25

0

25

50

75

100

125

150Index

>

EUR surprises relativeto USD

USD surprises relative to EUR

Jan10

Feb Mar Apr May Jun Jul A ug

9.3

9.4

9.5

9.6

9.7

9.8

9.9

10.0

10.1

10.2

10.3

9.3

9.4

9.5

9.6

9.7

9.8

9.9

10.0

10.1

10.2

10.3

EUR/SEK
http://danskeanalyse.danskebank.dk/abo/FXCrossroads110810/$file/FXCrossroads_110810.pdfhttp://danskeanalyse.danskebank.dk/abo/FXCrossroads110810/$file/FXCrossroads_110810.pdfhttp://danskeanalyse.danskebank.dk/abo/FXCrossroads110810/$file/FXCrossroads_110810.pdfhttp://danskeanalyse.danskebank.dk/abo/FXCrossroads110810/$file/FXCrossroads_110810.pdf


16/22


Weekly Focus

Commodities: Price correctionCommodity prices have corrected in recent days. Oil has again fallen to close toUSD76/bbl after hitting USD82 last week. Metals have also been feeling the squeeze,

with copper and aluminium almost 5% off their peaks. Wheat has been an obviousexception due to the heat wave in Russia. You can read more about the outlook for wheatand the consequences for global inflation in this weeks theme article.

Weaker US growth outlook puts oil price under pressureCommodities are traditionally very business cycle-sensitive, and as there has been a stringof numbers especially from the US (employment, new orders and housing market) indicating weaker economic growth, it is no surprise to see commodities under pressure.

It is important to note here that oil prices in particular were supported by strong USdemand not least for distillates in Q2. If the US economy now faces a seriousslowdown this support will evaporate, although so far there is nothing in the numbers toindicate that US oil demand is falling appreciably. Overall demand was 19.5mb/d in the

past week, which equates to an increase of around 4% compared to the same week lastyear. The oil markets focus at the moment is on the US driving season, when petrolconsumption peaks. Petrol consumption in the US is currently 3% higher than in 2009.Likewise, US demand for jet fuel continues to climb. However, US oil consumption isunlikely to grow quite so fast in H2 2010. The same picture applies to China, where thelatest industrial indicators suggest growth will slow to some extent in the coming months.

In our view the US economy is not headed for a double-dip recession. However, giventhat global oil stocks are quite considerable at the moment, the current bearish trendmight continue in the coming week. Nevertheless, we still believe that the oil market will

find very robust support around USD70/bbl and indeed we doubt that prices will fall thisfar. Looking ahead to Q4, we still expect a further increase in oil prices as the economicdata begin to show that there will be no double dip in the US economy. Likewise, we alsoexpect that the long-awaited decline in oil stocks will materialise.

New oil report from the International Energy AgencyThe International Energy Agency published its latest oil market report last week. Thisleading agency yet again revised up its expectations for oil demand in 2010 and 2011.The IEAs forecast is now for an increase of 2.2% in 2010 and 1.5% in 2011, bringing itquite close to our own estimates. The upward revision is in itself positive for prices,though it is offset somewhat by supply also being revised up. Non-OPEC supply is now

expected to rise by 0.9mb/d. Given that the production of NGL is expected to increase by0.6mb/d, there is only scope for a very modest increase in OPEC production if globalstocks are to decline going forward. This currently seems to be proving difficult for OPEC its quota compliance fell further in July to 53% from 58% in June.

Weekly changes, %

Source: Bloomberg

Oil prices under pressure

Source

OPEC s quota compliance falling

Source: EIA

Chief Analyst Arne Lohmann Rasmussen+45 4512 8532

[email protected]

-7.5 -5.0 -2.5 0.0 2.5

ICE Brent

API2 coal

Aluminium

Copper

Gold

LIFFE Wheat

Five-day change, %

0

20

40

60

80

100OPEC compliance %


17/22


Weekly Focus

Credit

Market commentary

After some strong weeks negativity has crept back into the financial markets sendingequities lower and credit spreads wider. As is normally the case, the widening of spreadsstarted with CDS indices with cash bonds lagging but in the latest trading sessions cash

bonds have come under more pressure with Tier 1 leading the way.

Credit-specific news have been scarce throughout the week and the moves wider aretherefore mainly a reaction to the negative sentiment in the equity market after the FOMCmeeting on Tuesday. Fundamentally, we think the short to medium term outlook for credit is quite good for several reasons. First, companies are still acting conservativelywith modest investments and ongoing focus on cost cutting and generally default rates aremoving lower. Second, (short and medium term) visibility for the banking sector hassignificantly improved following the stress test. Third, the changes to the Basel III

proposal materially reduces the pressure on banks to issue longer dated bonds as the netstable funding ratio is postponed. Fourth, credit investors are generally cash rich andready to invest and we do not see a significant risk of outflow in the coming months. Allin all, we think that demand for credit is well underpinned and we do not anticipatespreads to widen dramatically unless economic numbers suggest that a double dip is set to

become a reality. Overall, we therefore consider a further widening of spreads a buyingopportunity and most likely some attractive opportunities may arise in the primary marketwhen we approach the end of August.

The primary marketSummer time around Europe as well as a weaker sentiment in the financial market are notexactly catalysts for primary market activity. Societe Generale issued a 5Y EUR 0.5bn

bond at 70bp above swaps and Statoil issued both a 7Y (USD 1.25bn) and a 30Y (USD0.75bn) bond at a price of Gov +90bp and 115bp respectively.

iTraxx Crossover (5Y CDS)

Source: Markit

iTraxx Europe (5Y CDS)

Source: Markit

Senior Analyst Henrik Arnt+45 4512 [email protected]

0

200

400

600

800

1,000

1,200

1,400

Jul/07 Jan/08 Jul/08 Jan/09 Jul/09 Jan/10 Jul/10

bp

0

50

100

150

200

250

Jul/07 Jan/08 Jul/08 Jan/09 Jul/09 Jan/10 Jul/10

bp


18/22


Weekly Focus

Financial views

Equities Despite a rally in risky assets, the gap between the stock markets implied earnings

expectations and analysts expectations has yet to be closed. Although we are nowhalfway through the Q2 earnings season with companies surprising on the positiveside, the double-dip fear among investors is still present. Both investors andcompanies fear 2011, especially if a slowdown in ISM is not offset by expected jobcreation and private consumption. Along with worsening signs in the US housingmarket, this dampens the positive signals and guidance upgrades from the companies.As we believe the stock market to discount too low growth expectations, we see roomfor performance of global equities. We reiterate our global market forecast of 10-15%end-year 2010.

Fixed Income Global: Focus in bond markets is on the fear of a hard landing in the global economy,

as both US and Chinese data have been consistently weak. With the outlook for continued weakening global leading indicators, low inflation and dovish central banks

possibly more QE yields could decline a bit further in the near term. On a 3-6month horizon we recommend a moderate overweight on duration in the 5-7 year sector. We are neutral on the US German spread.

Credit Some weakness has materialised lately but we remain of the opinion that credit is a good

place to be invested in the coming months. Companies are still acting conservativelywith modest investments and focus on cost cutting. Visibility for the banking sector has improved following the stress test and the changes to the Basel III proposal.Finally, credit investors are generally cash rich and ready to invest and we do not seea significant risk of outflow in the coming months.

As such we are positive on credit for the moment. In the longer term, however, it isinevitable that companies will feel the negative effect from the austerity measurescurrently being undertaken around Europe.

FX outlook A lot of bad news is already priced into USD but this isnt the case for EUR. Lower

levels are expected during autumn as risks for European debt markets remain. Chineseyen buying has sent USD/JPY lower, but downside is limited as BoJ is starting towake up. GBP is overbought against EUR and is a sell. CHF has a decent chance of acomeback if risk aversion rises.

SEK is vulnerable if global upswing cools and investors re-price central banks as theRiksbank is priced hard. Support from good Swedish data though. NOK is soft but isless hard priced potential for positive surprise by year-end if NB delivers hike.

Commodities Wheat has retreated somewhat after surging on weather-related supply concerns and

oil has moved below USD80 per barrel again. In our view, current market pricingcontinues to look a bit stretched given a large stock overhang of both commoditiesglobally. Base metals could also be in for a further correction as focus turns to a likely

bubble in the Chinese property sector.

Equities and US 10Y yield

Source: Reuters Ecowin

EUR/USD and USD/JPY


Credit spreads


Commodity prices


Feb10

Mar Apr May Jun Jul Aug

2.50

2.75

3.00

3.25

3.50

3.75

4.00

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

2.5

7.5

12.5

17.5

22.5

27.5 % points % points

>

Aug09

Oct Dec10

Feb Apr Jun Aug

2700

2900

3100

3300

3500

3700

62.5

67.5

72.5

77.5

82.5

87.5 USD/barrel Index

LME metal prices >>


19/22


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 -4.7 -4.6 3.4 -13.0 -1.7 -10.2 -13.2 1.3 3.6 -3.0 38.0 3.92010 1.5 2.8 1.6 -6.9 0.8 2.6 1.4 2.2 4.1 -5.6 42.1 4.12011 1.8 2.3 0.5 1.2 0.2 3.9 3.9 1.8 4.0 -4.5 46.5 4.1

Sweden 2009 -5.1 -0.8 1.7 -16.0 -1.5 -12.4 -13.2 -0.3 8.4 -2.1 38.9 7.22010 2.7 2.2 1.5 2.3 1.1 9.1 11.3 1.3 9.3 -3.5 43.6 6.32011 1.5 1.4 1.3 1.8 0.0 3.3 3.2 2.1 10.1 -4.1 47.2 6.6

Norway 2009 -1.6 0.2 4.8 -7.9 -2.1 -3.9 -10.3 2.1 3.1 8.0 26.0 19.02010 1.8 3.9 2.7 -7.2 0.8 1.1 1.9 2.5 3.3 12.0 26.0 24.92011 3.1 4.2 2.3 3.8 0.1 0.3 5.5 1.7 3.2 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 1.8 1.0 0.5 -3.0 0.0 4.0 3.5 1.4 9.0 -3.9 49.5 1.42011 2.5 1.5 0.0 4.0 0.0 8.0 5.0 2.0 8.6 -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 3.0 2.7 0.3 2.9 1.2 12.1 11.3 1.6 9.4 -10.2 91.6 -3.92011 3.0 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 8.32010 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

Publicdebt 4

Publicbudget 4

Year GDP 1Privatecons. 1

Publiccons. 1

Fixed inv. 1

Stock build. 2

Infla-tion 1

Unem-ploym. 3

Infla-tion 1

Unem-ploym. 3

Switzer- land

Year GDP 1Privatecons. 1

Im-ports 1

Currentacc. 4

Publiccons. 1

Fixed inv. 1

Stock build. 2

Ex-ports 1

Currentacc. 4

Im-ports 1

Publicdebt 4

Publicbudget 4

Ex-ports 1

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3

Public

budget4

Current

acc.4

Public

debt4

Year GDP1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2


20/22


Weekly Focus

Financial forecast

*Interest rate forecasts will be revised mid August. Source: Danske Markets

Bond and money marketsCurrency

vs USDCurrency

vs DKK

USD 13-Aug - 579.7+3m - 595+6m - 620

+12m - 587

EUR 13-Aug 128.5 745.1+3m 125 744.0+6m 120 744.0

+12m 127 745.0

JPY 13-Aug 86.0 6.74+3m 96 6.20+6m 100 6.20

+12m 102 5.73

GBP 13-Aug 156.5 906.9+3m 149 886+6m 141 875

+12m 155 909

CHF 13-Aug 105.3 550.6

+3m 104 572+6m 107 581

+12m 106 552

DKK 13-Aug 579.7 -+3m 595 -+6m 620 -

+12m 587 -

SEK 13-Aug 737.1 78.7+3m 752 79.1+6m 767 80.9

+12m 724 81.0

NOK 13-Aug 615.6 94.2+3m 612 97.3+6m 633 97.9

+12m 598 98.0

Equity markets

Regional

Price trend12 mth.

Regional recommen-dations

USA 0% to +10% UnderweightJapan 0% to +10% NeutralEmerging markets (USD) 0% to +10% OverweightPan-Europe (EUR) 0% to +10% Neutral

NordicsSweden 0% to +10% NeutralNorway 0% to +10% NeutralDenmark 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 90Copper 7,274 7,072 7,200 7,500 8,000 8,400 8,600 8,700 7,261 8,425Zinc 2,307 2,067 1,900 2,000 2,100 2,150 2,200 2,250 2,069 2,175Nickel/1000 20 23 21 22 22 23 23 24 21 23Steel 464 491 460 475 500 510 530 550 473 523Aluminium 2,199 2,131 2,100 2,100 2,150 2,200 2,300 2,400 2,132 2,263Gold 1,110 1,194 1,200 1,150 1,100 1,050 1,000 1,000 1,164 1,038Matif Mill Wheat 126 131 174 189 180 182 185 185 155 183CBOT Wheat 518 490 650 675 680 690 700 700 583 693CBOT Corn 389 379 375 410 420 430 440 450 388 435CBOT Soybeans 969 932 975 990 1,000 1,010 1,020 1,030 967 1,0151,057

753

2.69

2.853.30

3.893.753.80

2.832.80

2.85

3.10

1.73

1.601.602.10

4.25

2.753.20

1.001.001.40

3.192.802.80

2.75

20112010

2.602.74

2.753.00

2.552.603.05

76

21

7,2552,056

1,217213

76

4952,164

410

13-Aug

-5% to +5%-5% to +5%-5% to +5%

-5% to +5%-5% to +5%-5% to +5%

HighHighLow

AverageHighHigh

3.05

Currencyvs EUR

2-yr swap yield

Risk

Low -5% to +5%

Price trend3 mth.

0.73

1.30

0.44

1.29

0.52

1.62

1.301.351.75

0.65

82.1

135.3

745.1

84.085.082.0

130128135

947.2

791.1

760

940920920

765

128.5

----

110.5

744744745

0.400.400.70

125120127

120120130

1.05

0.550.651.35

1.691.85

0.751.05

1.151.101.50

3.55

2.60

1.651.652.051.25

1.300.80

2.62

7602.652.90

3.053.30

2.15

0.25

0.30

0.240.24

0.250.75

1.101.05

0.38

0.90

0.24

0.74

0.17

0.350.350.40

0.800.85

2.00

1.001.251.75

2.002.25

0.250.75

1.00

0.50

1.90

0.50

0.10

1.15

3.15

1.00

0.10

0.50

0.25

1.05

1.00

0.700.700.75

1.00

0.100.10

0.50

10-yr swap yield

0.96

1.051.051.05

3m interest rate

0.50

Average

Key int.rate

0.130.130.130.13

2.50

0.25

1.00


21/22


Weekly Focus

Calendar

Source: Danske Markets

Key Data and Events in Week 33

Period Danske Bank Consensus Previous

- USD Senior loan officers survey

- DKK Wage growth (DA) y/y 2nd quarter 2.6%1:01 GBP Rightmove House Prices m/m|y/y Aug -0.6%|3.7%

1:50 JPY Tertiary Industry Index m/m Jun -0.1% -0.9%

1:50 JPY GDP,preliminary q/q|ann. 2nd quarter 0.6%|2.3% 1.2%|5.0%

10:00 NOK Trade balance NOK bn Jul 25.4

11:00 EUR CPI, final m/m|y/y Jul -0.4%|1.7% 0.0%|

14:30 USD Empire Manufacturing m/m Aug 7.5 8.25 5.08

19:00 USD NAHB Housing Market Index Index Aug 13 15 14


- OTH Earn ings : Ca rl sbe rg , Abe rc rombie & F it ch , Wal -Mar t, Home Depot

3:30 AUD RBA August Minutes

10:00 EUR Current Account, s.a. EUR bn Jun -16.7

10:30 GBP CPI m/m|y/y Jul -0.1%|3.2% -0.2%|3.1% 0.1%|3.2%

10:30 GBP CPI Core m/m|y/y Jul |3.1%

11:00 EUR ZEW economic sentiment Index Aug 10.7

11:00 DEM ZEW economic sentiment Index Aug 20.3 20.6 21.2

11:00 DEM ZEW current situation Index Aug 24.0 14.6

14:30 USD PPI m/m|y/y Jul 0.5%|4.5% 0.2%|4.2% -0.5%|2.8%

14:30 USD Housing starts 1000 (m/m) Jul 540 (-1.6%) 560 (2.0%) 549 (-5.0%)

14:30 USD Building Permits 1000 (m/m) Jul 568 (-2.5%) 576 (-1.2%) 583 (2.1%)

14:30 USD PPI core m/m|y/y Jul 0.1%|1.3% 0.2%|1.3% 0.1%|1.1%

15:15 USD Industrial production m/m Jul 0.4% 0.5% 0.1%

15:15 USD Capacity utilization Index Jul 74.5% 74.1%

18:30 USD Fed 's Kocher l ako ta (non-vo te r, neut ra l) speaks


- OTH Earnings: Deere & Co, AP Moller - Maersk

- DKK New car sales, july Jul

7:00 JPY Leading Economic Index, final Index Jun 101.3 98.9

9:30 SEK Industry Capacity q/q|y/y 2nd quarter 84.9%|

10:30 GBP BoE Minutes13:00 USD MBA mortgage applications 0.6%


6:30 JPY All Industry Index m/m Jun -0.3% 0.2%

8:15 CHF Trade balance bn CHF Jul 1.82 1.77

10:00 NOK GDP (mainland) s.a. q/q|y/y 2nd quarter 0.1%|

10:00 NOK GDP (total) s.a. q/q|y/y 2nd quarter -0.1%|

10:30 GBP Retail Sales incl. Auto fuel m/m|y/y Jul 0.5%|1.2% 0.4%|1.1% 0.7%|1.3%

10:30 GBP Retail Sales ex. Auto Fuel m/m|y/y Jul 1.0%|3.1%

10:30 GBP Public Finances (PSNCR) bn. GBP Jul 20.9

10:30 GBP Broad money M4 m/m|y/y Jul 0.0%|3.0%

10:30 GBP Mortgage Approvals 1000 Jul 48

11:00 CHF ZEW indicator Aug 2.2

14:30 USD Initial jobless claims 1000 480 484

15:00 USD Leading indicator Index Jul 0.1% -0.2%

16:00 USD Philadelphia Fed. Index Aug 6.0 7.5 5.118:30 U SD F ed' s Bul la rd (vo te r, ne ut ra l) spe aks

19:00 USD Fed 's Evans (non -vo te r, neut ra l) speaks


13:00 CAD CPI m/m|y/y Jul -0.1%|1.0%

13:00 CAD CPI - BoC core rate m/m|y/y Jul -0.1%|1.7%


Fri 13 - 16 CNY Actual FDI y/y Jul 47.5 39.6%

Friday, August 20, 2010

During the week

Monday, August 16, 2010

Tuesday, August 17, 2010

Wednesday, August 18, 2010

Thursday, August 19, 2010


22/22

Weekly Focus

DisclosureThis report has been prepared by Danske Research, which is part of Danske Markets, a division of Danske Bank.

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Danske Bank research reports are prepared in accordance with the Danish Society of Investment Professionals

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Financial models and/or methodology used in this report

Calculations and presentations in this report are based on standard econometric tools and methodology.

Risk warning

Major risks connected with recommendations or opinions in this report, including as sensitivity analysis of

relevant assumptions, are stated throughout the text.

First date of publication

Please see the front page of this research report.

Expected updates

This report is updated on a weekly basis

DisclaimerThis publication has been prepared by Danske Markets for information purposes only. It has been prepared

independently, solely from publicly available information and does not take into account the views of Danske

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