Important disclosures and certifications are contained from page 17 of this report. www.danskeresearch.com

Investment Research — General Market Conditions

Market movers ahead

In the US, there is a heavy agenda, with the Jackson Hole Symposium running over

this weekend and major economic releases during the week. In terms of US data, we

estimate that job growth slowed to a still-solid 205,000 in August from a growth rate

of 235,000 on average over the past three months. We expect the manufacturing ISM

to decline from 52.7 to 52.2, while the non-manufacturing ISM should fall back to

57.8 in August, from an elevated 60.3 in July.

In the euro area, the main event next week is the ECB meeting. We expect Mario

Draghi to sound dovish, emphasising the open-endedness of the QE programme and

that the ECB is ready to use all available instruments if needed. We do not expect the

ECB to deliver further easing in September.

In the UK, we expect PMI figures for August to show a small decline in PMI services

to 56.8, from 57.4 in July, while we expect PMI manufacturing to increase marginally

to 52.2 in August, from 51.9 in July.

The Chinese stock market has stabilised in recent days. Next week, the main hurdle

for China’s stock market is the release of the official (NBS) manufacturing PMI. We

expect manufacturing PMI to decline to 49.8 in August, from 50.1 in July.

Global macro and market themes

A gradual recovery in China and oil prices should stabilise the emerging market

turmoil.

US and euro growth data still robust.

Rising pressure for more QE from the ECB points to lower yields short term.

Focus

Market Collapse: What now? Policy responses and market implications, 27 August.

Chinese growth important for

emerging markets assets

Oil prices expected to bottom soon

Source: Macrobond Financial Source: Macrobond Financial

.

28 August 2015

Editors Allan von Mehren +45 4512 8055 alvo@danskebank.dk Steen Bocian +45 45 12 85 31 steen.bocian@danskebank.dk

Weekly Focus

China and oil prices are key in the short term

Contents

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

Global Macro and Market Themes .......... 6

Scandi update ...................................................... 10

Latest research from Danske Bank

Markets .................................................................... 12

Macroeconomic forecast ............................ 13

Financial forecast .............................................. 14

Calendar .................................................................. 15

Financial views

Source: Danske Bank

Major indices

28-Aug 3M 12M

10yr EUR swap 1.04 1.15 1.50

EUR/USD 113 110 115

ICE Brent oil 48 50 62

28-Aug 6M 12-24M

S&P500 1988 0-5% 5-8%

2 | 28 August 2015

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Market movers

Global

There is a heavy agenda in the US, with the Jackson Hole Symposium running over

this weekend and major economic releases during the week. In terms of the Fed, the

most interesting speaker is Fed Vice Chair Stanley Fischer (voter, neutral), who is due

to speak on Saturday evening.

In general, US economic data has been solid over the past two months but several factors

could slow growth rates in manufacturing industry over coming months. In particular, data

shows a significant inventory build-up in both the manufacturing and retail sectors in Q2.

While demand continues to look solid and the fall in energy prices should boost private

consumption, we believe an inventory correction is due. Coupled with the negative

impact of a stronger USD and general increase in uncertainty, manufacturing production

and the ISM manufacturing index could weaken short term. For August, we expect the

manufacturing ISM to fall from 52.7 to 52.2, while we expect non-manufacturing ISM

to stay solid but fall back to 57.8 in August, from an elevated 60.3 in July.

In terms of the labour market, the Conference Board’s measure of the labour market (jobs

plentiful less jobs hard to get) has increased to a new cycle high in August, which is an

encouraging sign. However, taking a broader set of labour market indicators into account,

we estimate that job growth slowed to a still-solid 205,000 in August, from a growth rate

of 235,000 on average over the past three months. We estimate that the unemployment

rate declined one notch to 5.2% – not far from the FOMC’s NAIRU estimate of 5.0%.

During the coming week, Boston Fed President Eric S. Rosengren (non-voter, dove)

is due to speak on Tuesday and Richmond Fed President Jeffrey M. Lacker (voter,

hawk) will speak on ‘The Case Against further delay’ on Friday.

In the euro area, the main event next week is the ECB meeting. We expect the ECB to

sound dovish and slightly worried, as the lower oil price and stronger effective EUR are

challenging its outlook for a sustained adjustment in the inflation path. Added to this, the

5Y5Y inflation-linked swap rate suggests that inflation expectations are becoming de-

anchored. Based on this, we expect Mario Draghi to emphasise the open-endedness of the

QE programme and add that the ECB is ready to use all available instruments if needed.

Moreover, he is likely to put a lot more focus on the downside risks to the economic

outlook following the latest development in China together with the sell-off in equities

(see ECB preview: Dovish and slightly worried, 27 August).

Ahead of the meeting, ECB Vice-President Vitor Constâncio is due to speak at Jackson

Hole. He also spoke this week and did not sound particularly dovish, saying inflation

expectations had fallen due to oil prices and that it was not for the ECB to correct for

commodity prices. Hence, focus will be on whether he takes a more dovish stance in line

with comments from the ECB’s chief economist Peter Praet, who also spoke this week.

We will follow the release of August euro area inflation closely, as the oil price has

fallen and the stronger effective EUR is becoming a headwind to inflation. We expect

headline inflation to fall to 0.1% y/y, from 0.2% y/y in July. The lower print is driven

by a larger drag from energy price inflation, as the lower oil price has led to lower

gasoline prices. Core inflation should also fall to 0.9% y/y after surprising on the

upside in July and jumping to 1.0% for the first time since April 2014. Looking ahead,

we expect focus to be on core inflation and any indirect impact of the lower oil price,

as this would be likely to result in further easing from the ECB.

Business inventories built in Q2

Source: US Census bureau, Danske Bank Markets

The ECB will release new projections

Source: ECB, Eurostat, Danske Bank Markets

High deflation risk from oil price fall

Source: Eurostat, Danske Bank Markets

Downside risk to retail sales in the

near term but set to strengthen in H2

Source: Eurostat, European Commission

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In contrast, Euro area retail sales should be supported by the fall in the oil price.

However, the figure for release next week is for July, where the oil price decline had

not yet resulted in lower gasoline prices and thus not improved consumers’

purchasing power. Added to this, consumer confidence declined in July, probably

affected by the ongoing uncertainty about Greece. Based on this, we see downside

risk to the retail sales figure for July but we expect it to strengthen in H2.

German factory orders rebounded in Q2 due to stronger foreign orders, while domestic

orders have been the weak link. The latest uncertainty about China and the equity sell-

off have increased the risk of a continued cautious stance among businesses and,

although the weakness will not be reflected in the figure for July, focus will be on

whether there will be an impact on sentiment in the figures for coming months.

There will also be focus on the first release of the PMIs in the periphery. For the euro

area aggregate, the flash estimate for the service PMI in August increased to 54.3,

from 54.0 in July. However, the German and French flash estimates both showed a

decline of 0.2 index points, implying the increase should be driven by improvements

in the periphery countries. Regarding the manufacturing PMIs, the Italian figure has

increased to the highest level since 2011, while the Spanish figure has declined for

two months in a row.

In the UK, the most important data releases are the PMI figures for August. PMI

services still seems a bit elevated compared with overall growth in services. We

expect a small decline to 56.8 in August, from 57.4 in July. Despite the fall, the index

will still indicate a pickup in growth in services. PMI manufacturing is slightly below

PMI manufacturing in the euro area, so there is room for a small increase but the

scope is limited due to the strong sterling, which puts pressure on the manufacturing

sector in the UK. We expect PMI manufacturing to increase marginally to 52.2 in

August, from 51.9 in July. PMI construction is also due for release.

Bank of England Governor Mark Carney is scheduled to speak at Jackson Hole on

Saturday. No text will be released though.

China will continue be in focus next week. The Chinese stock market has stabilised

in recent days. Next week the main hurdle for China’s stock market will be the

official manufacturing PMI usually published by China’s National Bureau of

Statistics (NBS). The NBS manufacturing PMI is usually less volatile than the

Markit/Caixin Manufacturing PMI, which declined from 47.8 in July to 47.1 in

August. However, the direction for the two manufacturing PMIs tends to be the same.

Hence, this suggests the NBS manufacturing PMI will also decline in August, albeit

less. We expect the NBS manufacturing PMI to decline to 49.8 in August from 50.1 in

July. It is also worth watching the development in the Markit/Caixin service PMI and

the NBS non-manufacturing PMI. Both improved in July, suggesting that the service

industry has so far been resilient to the stock market turmoil that started in June.

In Japan, the main release next week is industrial production for July. We expect

industrial production to decline 0.1% m/m after increasing 1.1% m/m in the previous

month. The overall picture is that industrial production has started to stabilise after a

very weak start to the year. The capital spending survey for Q2 will also be released

next week. The capital spending survey is the most important new input in the first

revision of the GDP data and hence will give an idea of the direction of the first GDP

revision. Lastly, the final estimate for Nikkei/Markit Manufacturing PMI and

Nikkei/Markit service PMI will be released next week.

Periphery PMIs set to increase

Source: Markit PMI, Danske Bank Markets

PMI services still elevated

Source: Markit Economics, ONS

China’s NBS manufacturing PMI

poised to drop below 50 in August

Source: Macrobond Financial, Danske Bank

Markets

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Scandi

In Denmark, the Nationalbank will release its currency reserves data for August.

After four months in which it has intervened to the tune of some DKK142bn, it will

be exciting to see whether the central bank continued to buy kroner in August. From

April to July, the bank bought back roughly half the kroner it sold in January and

February.

Also coming up are GDP figures for Q2. Preliminary indicators have been relatively

negative, with weak figures for both exports and private consumption in Q2. On the

other hand, stockbuilding probably made a positive contribution, but this is unlikely to

be enough to compensate for exports and private consumption, which we expect will

pull down the overall picture. Unfortunately, there are no good indicators of

investment and public consumption, which makes it hard to come up with any exact

estimate, and statistical discrepancies can make the picture even more mixed. On

balance, we predict GDP growth of 0%, with a significant risk of negative growth.

The reason our main scenario is not negative is that there was growth across most of

Europe in Q2 and the Danish economy has tended to mirror developments elsewhere

in Europe in recent quarters. Even if Q2 does turn out to have been weak, we would

see that as a one-off, as underlying growth in the Danish economy still looks positive,

albeit nothing special.

We do not expect gross unemployment to have changed much since last month and

expect an unchanged rate of 4.7%.

Last up, we have housing prices for June, which will show whether the price increases

in the first five months of the year continued, or whether the market has begun to

cool.

In Sweden, the main event in the week ahead is the Riksbank’s monetary policy

announcement on Thursday (due at 09:30 CEST). Even though our main scenario

suggests the Riksbank will not act until December, we must stress that the all but

certain downward revision to the Riksbank’s inflation forecast will probably be of a

magnitude sufficient to warrant immediate action. Put another way, we see a 50/50

chance of a cut on Thursday. Other than the Riksbank, we are also due to receive

inherently uninformative PMI data (Tuesday and Thursday at 08:30 CEST for

manufacturing and services respectively). Of more interest, we also receive July

industrial orders and production (Friday at 09:30 CEST), which we hope will show

recent, positive, developments have strengthened further.

In Norway, the housing market has tightened further this year despite a weaker

economic outlook and rising unemployment and household borrowing has duly

accelerated. High property prices and high household debt levels also reduce the

central bank’s room to manoeuvre by making further rate cuts more risky. The

coming week brings new data for both housing prices and credit growth. We expect

aggregate credit growth to slow moderately to 5.7% y/y in July but lending to

households to continue to increase. The market may, therefore, become a little more

uncertain about whether Norges Bank will deliver the rate cut that we expect in

September. The week also brings PMI data for August, which will be very interesting

after the sharp fall in June and July.

Nationalbank has bought kroner for

the past four months

Source: Danmarks Nationalbank

Weak growth in Q2

Source: Statistics Denmark, Danske Bank

The Riksbank base effects won’t

materialise – revisions necessary!

Source: SCB, Riksbank. Danske Bank calculations

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Market movers ahead

Source: Bloomberg, Danske Bank Markets

Global movers Event Period Danske Consensus Previous

During the week Sat 29 GBP BoE's Mark Carney speaks

Sat 29 USD Fed's S.Fischer (voter, neutral) speaks

Sat 29 EUR ECB's Constancio speaks at Jackson Hole

Mon 31-Aug 1:50 JPY Industrial production, preliminary m/m|y/y Jul 0.1%I.. 0.1%I0.8% 1.1%|2.3%

Tue 01-Sep 3:00 CNY PMI manufacturing Index Aug 49.8 49.7 50.0

6:30 AUD Reserve Bank of Australia rate decision % 2.0% 2.0% 2.0%

10:30 GBP PMI manufacturing Index Aug 52.2 52.0 51.9

16:00 USD ISM manufacturing Index Aug 52.2 52.8 52.7

Wed 02-Sep 14:15 USD ADP employment 1000 Aug 200K 185K

Thurs 03-Sep 13:45 EUR ECB announces refi rate % 0.05% 0.05% 0.05%

13:45 EUR ECB announces deposit rate % -0.20% -0.20% -0.20%

14:30 EUR ECB's Draghi speaks at press conference

16:00 USD ISM non-manufacturing Index Aug 57.8 58.3 60.3

Fri 04-Sep 8:00 DEM Factory orders m/m|y/y Jul -0.5%I.. -0.6%I0.2% 2.0%|7.2%

14:30 USD Non farm payrolls 1000 Aug 205K 218K 215K

14:30 USD Private payrolls 1000 Aug 200K 215K 210K

14:30 USD Manufacturing payrolls 1000 Aug 2K 5K 15K

14:30 USD Unemployment % Aug 5.2% 5.3% 5.3%

14:30 USD Average hourly earnings, non-farm m/m|y/y Aug 0.2%|2.0% 0.2%|2.1%

Scandi movers

Mon 31-Aug 9:00 DKK GDP, preliminary q/q|y/y 2nd quarter 0.0%I1.4% 0.5%|...

10:00 NOK Norges Bank's daily FX purchases M Sep -700M

10:00 NOK Credit indicator (C2) y/y Jul 5.7% 5.8%

Tue 01-Sep 8:30 SEK PMI manufacturing Index Aug 54.5 55.2

Wed 02-Sep 16:00 DKK Currency reserves DKK bn Aug 583.2

Thurs 03-Sep 8:30 SEK PMI services Index Aug

9:30 SEK Riksbank, rate decision % -0.35% -0.35% -0.35%

9:30 SEK Riksbank holds monetary policy meeting

Fri 04-Sep 9:30 SEK Industrial production s.a. m/m|y/y Jul 0.5%I.. -1.0%|1.2%

9:30 SEK Service production m/m|y/y Jul 1.2%|3.1%

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Global Macro and Market Themes

China and oil prices are key in the short term

It seems that calm has been restored following the dramatic fall-out in equity markets

over the past week triggered by the turmoil in emerging markets (EM). The question is

whether or not this is sustainable (see Market Collapse: What now? Policy responses and

market implications, 27 August). In the short term, we believe two factors will be

decisive.

China: A key driver for EM assets is the development in China. An important factor

behind the current EM rout has been related to the very weak development in China

and fears of a hard landing. The market tends to focus a lot on PMI and has paid less

attention to other data that have pointed to recovery in housing, so the development in

PMI in coming months is important. If PMI fails to recover, the policy response will

be important. It has to be strong enough to convince the market that a recovery will

come eventually.

Oil prices: Another major factor putting pressure on EM is the sharp decline in oil

prices – and prices for other commodities too. Countries such as Brazil and Russia are

already in deep recession and the pain is growing by the day, with a further fall in

commodity prices. Brazil is heading for recession of -2% this year, the worst

performance in 25 years, and we expect Russia to face a decline of 5% in GDP in

2015. Stress is also rising in the Gulf region and the biggest African economy Nigeria.

A further decline in oil prices might break the camel’s back and lead to a financial

event in one of these countries that could add to fears over EM.

Chinese growth important for emerging market assets

Source: Bloomberg, Danske Bank

Key points

A gradual recovery in China and oil

prices should stabilise the

emerging market turmoil.

US and euro growth data still

robust.

Rising pressure for more QE from

the ECB points to lower yields

short term.

EUR/USD lower.

Very sharp sell-off

Source: Macrobond Financial, Danske Bank

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So, what should we expect on these fronts? When it comes to China, we believe it has

the tools needed to avoid a hard landing and orchestrate a slow recovery in H2. The

moderate easing this week shows it is likely to move gradually and evaluate as it goes

along. China has an aversion to big stimulus plans, as it has its eyes focused on a

continued structural deleveraging and focuses on economic and financial reforms.

However, it is unlikely it will allow a further deterioration of the economy without

stepping harder on the gas, as this could become a threat to social stability and weaken

the Chinese leadership. Regarding oil prices, the short term call is tough, as it depends on

how big the oil glut is in the short term. However, we believe prices are far below

marginal production costs now and that a moderate recovery in China will lead to a very

gradual rise in oil prices over coming quarters.

If the above falls into place, we believe it is enough to stabilise the situation. A joker is

the looming lift-off from the Fed. If markets calm down, the Fed is on track to raise

rates – our forecast is that this will happen in December. This will be another test of the

fragility of EM.

US and euro data still robust

On a positive note, developments in both the US and the euro area continue to be

robust and point to continued recovery. US GDP for Q2 was this week revised up to

3.7% q/q annualised (from 2.3%) and durable goods orders pointed to a recovery of US

investment growth in Q3. Initial jobless claims have also stayed at very low levels

pointing to a robust job market and continued decent growth in Q3.

In the euro area, the German ifo index and French business confidence for August both

increased from solid levels giving support to our case for a moderate rebound in growth

in H2. Real M1 growth also still points to continued recovery into 2016.

The data does not include effects from the latest shock but we don’t believe the latest

turmoil is enough to derail either the US or euro recovery. Our calculations based on

exports to EM and the effect of the currency appreciation versus EM shows that the EM

rout should so far only have a limited effect on economic activity. The unknown is how

big a sentiment effect we might get that could make business reduce investments and

hiring. We do expect some sentiment effect but overall mainly see the turmoil as reducing

growth in the magnitude of 0.1-0.2 percentage points over the coming quarters.

Keep an eye on Russia and Brazil and US oil sector

While the above factors should help facilitate a stabilisation, there are risk factors

that bares close watching. One fear is that a financial event takes place in some of the

above mentioned regions – Latin America, Russia, the Gulf region and Africa (major

commodity exporter). Stress is also rising in the US energy sector as witnessed by the

sharp rise in high yield spreads within the energy sector which constitute close to 20% of

the high yield spectrum. If bankruptcies start to take place it will create negative

headlines that could hit sentiment.

Oil prices expected to bottom soon

Source: Macrobond Financial, Danske Bank

US growth solid

Source: Macrobond Financial, Danske Bank

Euro business confidence trend up

Source: Macrobond Financial, Danske Bank

US high yield spreads moving higher

driven by shock to energy sector

Source: Macrobond Financial, Danske Bank

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Hence apart from the development in China and the oil market, we need to increasingly

focus more broadly on EM as commodity exporters are under increasing pressure from

the drop in both oil and metals prices.

Rising pressure on ECB from deflationary forces

The ECB is facing a rising pressure to increase the asset purchase program as

deflationary forces work to keep inflation far below their target for a prolonged period.

The trade weighted euro has strengthened around 5% over the past six months and the

sharp drop in commodity prices will keep both headline and core inflation below the 2%

target for a long time. Add to this that the markets long term inflation expectations have

fallen again lately to levels far below the ECB’s 2% inflation objective. We believe it

will be too early for the ECB to move already at next week’s meeting, see ECB

preview: dovish and slightly worried, 27 August 2015. But if inflation expectations fail to

move higher again, the euro strengthens further or economic sentiment takes a hit from

the EM turmoil, then the ECB will likely be forced to act by raising the program,

extending the program or both.

This will likely also put more downward pressure on bond yields, although the effect this

week was somewhat contra-intuitive as yields rose alongside a sharp drop in equity

markets. But we believe this is related to EM central banks selling foreign assets to

support their currencies and possible rebalancing by real money investors selling bonds to

buy equities. In the medium term we still look for yields to move higher as the recovery

continues and the output gaps narrow further. But for now the deflationary forces and

speculation in further ECB QE has taken over. These expectations are also seen to keep

peripheral euro bonds well supported and underpin continued search for yield in

corporate credit.

EUR/USD lower

The EUR is increasingly acting as a funding currency seeing appreciation in a risk off

environment and weakening when risk appetite returns. This was also evident this week.

As we are still moderately positive on the stock market and see the Fed hiking rates in

December, we believe a further decline in EUR/USD is in the cards. Our forecast on 3m

and 6m is for the cross to decline to 110 before recovering to 115 in 12m, see also FX

Strategy: The Fed, oil and revised FX forecasts, 24 August, 2015.

Brazil and Russia already in recession

before latest commodity price decline

Source: Macrobond Financial, Danske Bank

Euro 5Y5Y inflation expectations

falling again

Source: Macrobond Financial, Danske Bank

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Global market views

Source: Danske Bank Markets

Asset class Main factors

Equities

M oderately positive on 3M horizon, positive on 12M horizon The change in the Chinese FX policy regime has led to a fear of further growth slowdown in emerging

markets but, given the recent correction in equity markets globally, this should be priced in by now.

The driver for equity markets ahead is growth and the outlook in Japan, the US and Europe are still intact.

Add to this that the monetary policies of the ECB, PBoC, BoJ and BoE are still supportive for equity markets.

Bond market

Core yields: Bund yields lower short term, higher medium term Pressure for ECB QE rising, medium-term Fed hikes and lower unemployment.

US-Euro spread: Wider Policy divergence.

Peripheral spreads set to tighten gradually from here QE, improving fundamentals, search for yield.

Credit spreads set to remain stable but with bouts of vo latility Added liquidity from the ECB set to support spreads. Greece, China and the US rate hike could cause instability.

FX

EUR/USD – lower in 3-6M , range-trading thereafter USD strength postponed but not cancelled. USD strength set to return as first Fed hikes draw closer.

USD/JPY – range near-term – higher as Fed is repriced Relative monetary policy will continue to support the cross.

EUR/SEK – stuck between 9.30 and 9.60 near term, lower medium term Battle between Riksbank and ECB for now, further out EUR/SEK set to fall on Swedish growth outperformance.

EUR/NOK – choppy short term, then lower Poor liquidity caps downside potential short term, then lower on o il recovery, positioning and rel. fundamantals.

Commodities

Oil prices – range bound near-term, recovery in H2 Higher global growth, supply consolidation set to support recovery this year.

M etal prices trending higher Chinese growth concerns a near-term negative factor, supply side risks.

Gold prices set to correct lower still Trending down as first Fed hike draws closer. Geopolitical concerns a supportive factor.

Agricultural risks remain on the upside Trending up again, El Niño weather this year is key upside risk.

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Scandi update

First step towards normalisation of Danish monetary policy

On Wednesday afternoon the Nationalbank announced that “there is no longer a need for

the extraordinary measures that were launched following the capital inflow at the

beginning of the year”. As a result, the Ministry of Finance has decided, on the central

bank’s advice, to start issuing government bonds again from October 2015. The

Nationalbank also decided to lower its current account limits for banks from DKK174bn

to DKK63bn, which means that a smaller share of banks’ surplus liquidity can now be

deposited at 0.00% rather than -0.75%. To our eyes, this is a first step towards the

normalisation of Danish monetary policy, and we expect the Nationalbank to raise the CD

rate during the autumn. See also Fixed Income Strategy: Denmark to resume government

bond sales in October.

The week also brought a new Economic Survey where the Ministry of Finance left its

growth forecast for the Danish economy effectively unchanged with only a marginal

downward revision from 1.7% to 1.5% this year and from 2.0% to 1.9% next year. These

expectations are largely in line with our own. The government also revised down its

forecast for the budget balance by DKK27.6bn, due mainly to a less positive view of

pension yield tax revenue. It is worth noting, however, that revenue from this tax, which

is based on pension funds’ earnings, can fluctuate widely, and so nothing is set in stone

here.

Finally the week brought the monthly employment statistics for June that showed an

increase of 2,900 from May to June in the number of people in work and so an increase of

9,600 people from Q1 to Q2. This stands in stark contrast to the LFS data, which showed

a decrease of 7,000 people in Q2, so it will be interesting to see what the “official”

employment figures are when they are released on Monday together with the national

accounts.

Sweden – Oscillations not only in financial markets

The past week’s data was a mixed bag, when trade balance data demonstrated an

unexpected loss of momentum whereas retail sales made an impressive – albeit totally

predictable – weather-related jump. The trade balance is now lower than for the same

period last year, something we haven’t seen since the beginning of the year, and which

bears close attention over the coming months. However, for now, we choose to consider it

normal economic volatility. We expect next months’ outcomes to be closely watched for

a normalization in both retail sales and trade balance data.

Positive growth outlook

Source: Ministry of Finance, Danske Bank

Normalization ahead?

Source: SCB. Danske calculations.

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Norway – Weaker but no crisis

The week’s economic data came out marginally on the positive side. Unemployment is

rising, but still at a moderate rate, employment is continuing to grow, and private

consumption has picked up again over the summer despite a dive in consumer confidence.

The oil investment survey also showed that the industry still expects a more moderate

decrease in investment next year than this year. That said, the survey was conducted

before the latest drop in oil prices and therefore has less informational value than normal.

There is no doubt that growth in Norway is slowing, but the situation is nowhere near as

bleak as the industrial indicators are suggesting thanks to the stabilising factors in the

Norwegian economy. The reason why we nevertheless expect Norges Bank to cut interest

rates again in September is that oil prices are back below USD 50/bbl. The only thing that

could stop a rate cut now would be a surprise improvement in the regional network

survey published on 11 September.

Unemployment on the up

Source: Macrobond

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Latest research from Danske Bank Markets

27/8 Flash Comment - ECB preview: Dovish and slightly worried

Main focus on the drop in 5Y5Y inflation expectations that are again far below the ECB’s

2%-target

26/ 8 Flash Comment - Russian rouble: insulating free float

Rouble weakens on oil and Chinese woes. The central bank stays on the sidelines.

Russia’s budget is at risk on overvalued rouble.

25/8 Flash Comment: China - Financial markets force PBoC to ease

Peoples Bank of China (PBoC) today cut its leading interest rate by 25bp and the reserve

requirement ratio (RRR) for commercial banks by 50bp.

13 | 28 August 2015 www.danskeresearch.com

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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 2014 1.1 0.6 1.4 3.7 0.3 2.6 3.8 0.6 5.1 1.8 45.2 6.32015 1.7 1.9 1.0 0.2 -0.4 3.4 1.9 0.7 4.7 -1.0 38.6 7.12016 2.1 1.9 0.3 3.2 0.1 4.9 4.6 1.7 4.4 -2.1 37.9 6.8

Sweden 2014 2.3 2.4 1.9 7.4 0.2 3.3 6.6 -0.2 7.9 -2.1 43.9 5.72015 2.3 2.0 1.6 5.3 0.1 3.8 4.9 0.2 7.8 -1.8 44.5 5.42016 2.3 2.0 1.1 3.6 0.0 5.3 5.2 1.5 7.6 -0.9 44.8 5.4

Norway 2014 2.2 2.0 2.7 0.6 0.2 2.7 1.9 2.0 3.5 - - -2015 1.5 1.9 2.3 -1.8 0.7 1.6 3.4 2.1 4.0 - - -2016 2.3 2.0 2.2 1.9 0.1 1.5 3.0 2.0 3.8 - - -

Macro forecast, Euroland

Euroland 2014 0.9 1.0 0.6 1.1 -0.1 3.7 4.0 0.4 11.6 -2.4 92.0 2.52015 1.4 1.6 1.1 1.5 0.0 3.9 4.5 0.1 11.1 -2.1 91.8 2.62016 2.0 1.1 0.7 4.9 0.0 4.2 4.1 1.2 10.3 -1.7 90.6 2.5

Germany 2014 1.6 1.2 1.2 3.3 -0.1 3.7 3.4 0.8 5.0 0.2 74.5 7.12015 1.6 2.1 1.8 2.1 0.0 4.6 5.5 0.3 4.9 0.0 72.4 7.12016 2.5 1.6 0.8 6.5 0.0 5.0 5.3 1.8 4.7 0.2 69.6 6.7

France 2014 0.2 0.7 1.5 -1.2 -0.1 2.4 3.9 0.6 10.3 -4.4 95.5 -1.92015 1.0 1.6 1.5 -0.5 0.0 5.7 6.4 0.0 10.3 -4.5 98.1 -1.92016 0.9 0.8 0.5 3.1 0.0 3.6 4.0 1.3 10.2 -4.7 99.8 -2.2

Italy 2014 -0.4 0.3 -0.9 -3.2 0.3 2.4 1.6 0.2 12.7 -3.0 132.2 1.52015 0.5 0.8 0.5 -0.7 0.0 4.3 2.6 0.0 12.6 -2.7 133.8 1.52016 1.4 0.7 0.4 3.4 0.0 4.3 3.8 1.4 12.4 -2.2 132.7 1.8

Spain 2014 1.4 2.4 0.1 3.4 -0.1 4.2 7.6 -0.2 24.5 -5.6 98.1 0.52015 2.4 2.7 -0.7 5.3 0.0 5.1 5.8 -0.7 23.2 -4.5 101.2 0.72016 2.6 1.9 0.4 6.8 0.0 4.5 4.9 1.3 21.7 -3.7 100.6 0.9

Finland 2014 -0.1 -0.2 0.2 -5.1 - -0.4 -1.4 1.0 8.7 -3.2 59.3 -1.92015 0.5 0.6 0.0 -2.0 - 2.0 1.0 0.2 9.2 -3.1 62.0 -1.02016 1.4 0.5 -0.5 3.0 - 4.0 2.5 1.0 9.0 -2.7 63.5 -0.7

Macro forecast, Global

USA 2014 2.4 2.7 -0.6 5.3 0.0 3.4 3.8 1.6 6.2 -4.1 101.0 -2.32015 2.5 3.1 0.6 4.3 0.2 1.9 5.4 0.2 5.4 -2.9 104.0 -2.52016 2.7 2.9 0.9 5.2 -0.2 4.5 4.6 2.2 5.0 -2.6 103.0 -2.6

Japan 2014 -0.1 -1.4 0.3 2.6 0.1 8.4 7.4 2.4 3.6 -7.0 245.0 0.52015 1.0 0.0 0.9 0.8 0.2 7.6 5.0 1.0 3.3 -6.5 245.0 2.22016 1.4 1.4 1.2 1.2 -0.1 6.0 7.4 1.6 3.1 -6.2 246.0 2.0

China 2014 7.4 - - - - - - 2.0 4.3 -1.1 40.7 1.82015 6.8 - - - - - - 1.7 4.2 -0.8 41.8 2.42016 6.7 - - - - - - 2.3 4.2 -0.8 42.8 2.3

UK 2014 3.0 2.6 2.0 8.6 -0.2 0.5 2.4 1.5 6.2 -5.1 88.5 -5.42015 2.6 2.5 0.7 6.1 0.0 2.4 3.9 0.2 5.5 -4.0 87.6 -4.82016 2.5 2.3 -1.0 7.5 0.0 4.7 4.7 1.2 5.3 -2.3 86.8 -4.0

Current

acc.4

GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3

Public

budget4

Public

debt4

Year

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3

Public

budget4

Current

acc.4

Public

debt4

Current

acc.4

Im-

ports1

Public

debt4

Public

budget4

Ex-

ports1

Infla-

tion1

Unem-

ploym.3

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

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Financial forecast

Source: Danske Bank Markets

Bond and money markets

Currencyvs USD

Currencyvs DKK

USD 28-Aug - 661.6

+3m - 677.7

+6m - 677.7+12m - 648.3

EUR 28-Aug 112.8 746.3

+3m 110.0 745.5

+6m 110.0 745.5+12m 115.0 745.5

JPY 28-Aug 120.9 5.47

+3m 120.0 5.65

+6m 124.0 5.47+12m 127.0 5.10

GBP 28-Aug 154.1 1019.2

+3m 157.0 1050.0

+6m 157.0 1065.0+12m 160.0 1035.4

CHF 28-Aug 96.2 687.8

+3m 99.1 683.9

+6m 100.0 677.7+12m 97.4 665.6

DKK 28-Aug 661.6 -

+3m 677.7 -

+6m 677.7 -+12m 648.3 -

SEK 28-Aug 844.1 78.4

+3m 854.5 79.3

+6m 845.5 80.2+12m 782.6 82.8

NOK 28-Aug 828.0 79.9

+3m 863.6 78.5

+6m 840.9 80.6+12m 765.2 84.7

Equity Markets

Regional

Price trend12 mth.

Regional recommen-dations

USA (USD) Strong USD, muted earnings growth, expensive valuation 5-8% Underweight

Emerging markets (local curr) EM under pressure from change in China's FX policy 0-5% Underweight

Japan (JPY) Reflation, corporate governance, earnings growth, fair value 10-15% Overweight

Europe (ex. Nordics) Reflation, earnings growth, cheap EUR, fair value 10-15% OverweightNordics Earnings growth, expensive valuation 5-10% Overweight

Commodities

Average

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2016

NYMEX WTI 49 58 44 48 53 58 60 62 50 58

ICE Brent 55 63 50 52 57 62 64 65 55 62

Copper 5,808 6,043 5,200 5,400 5,600 5,700 5,800 5,900 5,613 5,750

Zinc 2,091 2,188 1,875 2,000 2,025 2,050 2,075 2,100 2,039 2,063

Nickel 14,410 13,065 10,500 12,000 12,500 13,000 13,500 14,000 12,494 13,250

Aluminium 1,813 1,787 1,600 1,750 1,800 1,850 1,900 1,950 1,738 1,875

Gold 1,219 1,193 1,125 1,110 1,115 1,120 1,125 1,130 1,162 1,123

Matif Mill Wheat (€/t) 190 182 195 205 210 210 210 205 193 209

Rapeseed (€/t) 360 370 395 390 405 420 435 435 379 424

CBOT Wheat (USd/bushel) 523 505 520 550 570 580 590 600 525 585

CBOT Corn (USd/bushel) 385 367 385 400 420 420 420 420 384 420CBOT Soybeans (USd/bushel) 990 966 960 925 950 975 1,000 1,025 960 988

High

Medium

Medium 0-8%

Medium 0-5%

0-3%

0-8%Medium 0-%

890

485

1.04

1.401.55

2.00

2.30

2.40

2.402.60

0.25

-

--

2.60

1.601.75

1.40

1.33

1.30

1.38

1.15

1.351.50

-

--

1.97

2.30

0.57

365

28-Aug

43

10,060

5,140

1,752

1,127

162

48

1,560

20162015

Currencyvs EUR

2-yr swap yield

Risk profile3 mth.

Price trend3 mth.

2.35

2.22

2.60

0.84

0.09

0.13

1.03

-0.66

0.32

0.10

0.100.20

1.25

73.2

2.95

70.072.0

109.0

110.0112.0

110.0

110.0115.0

132.0

136.4146.1

112.8

-

-

--

136.3

745.5

745.5745.5

952.2

934.1

880.0

940.0

925.0

930.0900.0

950.0

108.5

746.3

71.0

1.50

-0.25

1.011.15

1.00

-0.35

1.551.95

1.25

1.401.75

-

-

1.20

-0.35

-0.20

1.10

0.20

0.200.30

-

--

-0.21

-0.30

-0.35

10-yr swap yield

-0.32

0.05

0.050.05

3m interest rate

1.00

0.05

0.10

0.50

-0.75

0.05

-0.01

0.55

0.811.18

0.75

0.75

1.00

-0.85-0.85

-0.35

0.10

-0.06

Key int.rate

0.25

0.25

0.501.00

0.75

-0.85

0.05

0.05

0.100.10

0.50

1.00

-0.45

1.00

-0.45-0.45

0.05

0.75

0.33

-0.03

0.09

0.59

360

-0.30

-0.73

-

--

-0.05

-0.08

-0.05

0.54

0.781.35

-0.01

-0.01

0.20

0.15

15 | 28 August 2015 www.danskeresearch.com

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Calendar

Calendar

Source: Danske Bank Markets

Continued

Source: Danske Bank Markets

Calendar

Source: Danske Bank Markets

Continued

Source: Danske Bank Markets

Source: Danske Bank Markets

Key Data and Events in Week 36

During the week Period Danske Bank Consensus Previous

Sat 29 USD Jackson Hole symposium "Inflation dynamics and monetary policy"

Sat 29 GBP BoE's Mark Carney speaks

Sat 29 USD Fed's S.Fischer (voter, neutral) speaks

Sat 29 EUR ECB's Constancio speaks at Jackson Hole

Monday, August 31, 2015 Period Danske Bank Consensus Previous

- DEM Retail sales m/m|y/y Jul 1.0%I.. 1.3%I1.5% -2.3%I5.1%

1:50 JPY Industrial production, preliminary m/m|y/y Jul 0.1%I.. 0.1%I0.8% 1.1%|2.3%

7:00 JPY Housing starts y/y Jul 11.0% 16.3%

9:00 DKK GDP, preliminary q/q|y/y 2nd quarter 0.0%I1.4% 0.5%|...

9:00 DKK Gross unemployment s.a. K (%) Jul 125.5K (4.7%) 126K (4.7%)

9:30 SEK Wages (blue collars/white collars) y/y Jun 2.0%

10:00 NOK Norges Bank's daily FX purchases M Sep -700M

10:00 NOK Credit indicator (C2) y/y Jul 5.7% 5.8%

11:00 EUR CPI, preliminary y/y Aug 0.1% 0.1% 0.2%

11:00 EUR CPI - core % Aug 0.9% 0.9% 1.0%

11:00 ITL HICP, preliminary m/m|y/y Aug ..I0.2% -2.0%|0.3%

12:00 EUR Portugal, GDP, final q/q|y/y 2nd quarter 0.4%|1.5%

15:45 USD Chicago PMI Index Aug 54.8 54.7

Tuesday, September 1, 2015 Period Danske Bank Consensus Previous

- USD Total Vechicle Sales m Aug 17.30M 17.46M

3:00 CNY PMI manufacturing Index Aug 49.8 49.7 50.0

3:00 CNY PMI non-manufacturing Index Aug 53.9

3:35 JPY Nikkei Manufacturing PMI, final Index Aug 51.9

3:45 CNY Caixin Manufacturing PMI, final Index Aug 47.2 47.1

3:45 CNY Service PMI Index Aug 53.8

6:30 AUD Reserve Bank of Australia rate decision % 2.0% 2.0% 2.0%

8:30 SEK PMI manufacturing Index Aug 54.5 55.2

9:00 NOK PMI manufacturing Index Aug 47.5 45.8

9:15 ESP PMI manufacturing Index Aug 54.3 53.6

9:30 CHF PMI manufacturing Index Aug 49.9 48.7

9:45 ITL PMI manufacturing Index Aug 54.8 55.3

9:50 FRF PMI manufacturing, final Index Aug 48.6 48.6 48.6

9:55 DEM PMI manufacturing, final Index Aug 53.2 53.2 53.2

9:55 DEM Unemployment % Aug 6.4% 6.4% 6.4%

10:00 EUR PMI manufacturing, final Index Aug 52.4 52.4 52.4

10:30 GBP PMI manufacturing Index Aug 52.2 52.0 51.9

10:30 GBP Broad money M4 m/m|y/y Jul -0.5%|-0.3%

11:00 ITL GDP, final q/q|y/y 2nd quarter 0.2%I.. 0.2%|0.5%

11:00 EUR Unemployment % Jul 11.1% 11.1% 11.1%

14:30 CAD GDP m/m|y/y Jun 0.3%I.. -0.2%|0.5%

15:45 USD Markit manufacturing PMI, final Index Aug 52.9 52.9

16:00 USD ISM manufacturing Index Aug 52.2 52.8 52.7

16:00 USD ISM prices paid Index Aug 39.0 44.0

16:00 USD Construction spending m/m Jul 0.8% 0.1%

19:10 USD Fed's Rosengren (non-voter, dovish) speaks

Wednesday, September 2, 2015 Period Danske Bank Consensus Previous

- OTH Earnings - Time Warner, Standard Chartered, Societe Generale, UniCredit

- PLN Polish central bank rate decision % 1.5% 1.5% 1.5%

3:30 AUD GDP q/q|y/y 2nd quarter 0.4%I2.2% 0.9%|2.3%

9:00 DKK House and apartment prices Jun

9:30 SEK Current account SEK bn 2nd quarter 80.6

10:30 GBP PMI construction Index Aug 57.5 57.1

11:00 EUR PPI m/m|y/y Jul -2.2%|-0.1%

13:00 USD MBA Mortgage Applications %

14:15 USD ADP employment 1000 Aug 200K 185K

14:30 USD Unit labour cost, final q/q 2nd quarter -0.7% 0.5%

16:00 DKK Currency reserves DKK bn Aug 583.2

16:00 USD Factory orders m/m Jul 0.7% 1.8%

16:30 USD DOE U.S. Crude Oil Inventories K

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Source: Danske Bank Markets

Continued

Source: Danske Bank Markets

Calendar

Source: Danske Bank Markets

Continued

Source: Danske Bank Markets

Source: Danske Bank Markets

Thursday, September 3, 2015 Period Danske Bank Consensus Previous

3:30 AUD Retail sales m/m Jul 0.4% 0.7%

3:30 AUD Trade balance AUD m Jul -3100M -2933M

3:35 JPY Markit service PMI Index Aug 51.2

7:30 FRF ILO unemployment % 2nd quarter 10.3%

8:30 SEK PMI services Index Aug

9:15 ESP PMI Services Index Aug 59.6 59.7

9:30 SEK Riksbank, rate decision % -0.35% -0.35% -0.35%

9:30 SEK Riksbank holds monetary policy meeting

9:45 ITL PMI service Index Aug 53.5 52.0

9:50 FRF PMI service, final Index Aug 51.8 51.8 51.8

9:55 DEM PMI service, final Index Aug 53.6 53.6 53.6

9:55 DEM PMI composite, final Index Aug 54.0 54.0 54.0

10:00 EUR PMI services, final Index Aug 54.3 54.3 54.3

10:00 EUR PMI composite, final Index Aug 54.1 54.1 54.1

10:30 GBP PMI services Index Aug 56.8 57.5 57.4

10:30 GBP PMI composite Index Aug 56.6

11:00 EUR Retail sales m/m|y/y Jul 0.4%I.. 0.7%I.. -0.6%|1.2%

13:45 EUR ECB announces refi rate % 0.05% 0.05% 0.05%

13:45 EUR ECB announces deposit rate % -0.20% -0.20% -0.20%

14:30 EUR ECB's Draghi speaks at press conference

14:30 USD Initial jobless claims 1000

14:30 USD Trade balance USD bn Jul -4430.0 -4384.0

15:45 USD Markit service PMI, final Index Aug 55.2

15:45 USD Markit composite PMI, final Index Aug 55.0

16:00 USD ISM non-manufacturing Index Aug 57.8 58.3 60.3

Friday, September 4, 2015 Period Danske Bank Consensus Previous

- EUR Moody's may publish Portugal's debt rating

3:30 JPY Labor cash earnings y/y Jul 2.4% -2.5%

8:00 DEM Factory orders m/m|y/y Jul -0.5%I.. -0.6%I0.2% 2.0%|7.2%

8:45 FRF Consumer confidence Index Aug 94.0 93.0

9:00 DKK Forced sales (s.a.) Number Aug

9:00 DKK Bankruptcies (s.a.) Number Aug

9:15 CHF CPI m/m|y/y Aug -0.2%|-1.4% -0.6%|-1.3%

9:30 SEK Industrial production s.a. m/m|y/y Jul 0.5%I.. -1.0%|1.2%

9:30 SEK Service production m/m|y/y Jul 1.2%|3.1%

9:30 SEK Industrial orders m/m|y/y Jul 2.5%|11.8%

14:10 USD Fed's Lacker (voter, hawkish) speaks

14:30 USD Non farm payrolls 1000 Aug 205K 218K 215K

14:30 USD Private payrolls 1000 Aug 200K 215K 210K

14:30 USD Manufacturing payrolls 1000 Aug 2K 5K 15K

14:30 USD Unemployment % Aug 5.2% 5.3% 5.3%

14:30 USD Average hourly earnings, non-farm m/m|y/y Aug 0.2%|2.0% 0.2%|2.1%

14:30 USD Average weekly hours Hours Aug 34.5 34.6

14:30 CAD Net change in full time employment 1000 Aug -17.3

The editors do not guarantee the accurateness of figures, hours or dates stated above

For furher information, call (+45 ) 45 12 85 22.

17 | 28 August 2015 www.danskeresearch.com

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Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske

Bank’). The authors of the research report are Allan von Mehren, Chief Analyst and Steen Bocian, Chief

Economist.

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