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Investment ResearchGeneral Market Conditions

Key news

Equity markets gained in the US but lost steam in Asian trading

Bank of Japan kept its liquidity measures and the overnight rate unchanged

Chinas trade surplus climbed to an 18-month high in July

Markets Overnight

Investors returned to the US equity marketafter Fridays employment report sent stock

prices slightly lower, but trading was light. Speculations that the Fed might introduce new

measures to support economic growth in the FOMC statement this evening lent the

market some support. The S&P 500 posted a gain of 0.6% on the day driven by broad

based gains with the energy sector in the lead.

In Asia, equity markets are broadly lower this morning. In Japan, stocks initially got a lift

from the weaker JPY and improved earnings, but the Nikkei is down at the time of

writing. At its monetary policy meeting this morning, the Bank of Japan refrained from

adding measures to expand liquidity as it gauges the risks to the economy from the

strengthening of JPY. The central bank maintained both the benchmark overnight rate and

its assessment of the economy.

In China, the trade surplus beat market expectations and climbed to an 18-month high in

July, as exports surged 38.1% y/y while imports grew a less than expected 22.7%. The

data could add pressure on China to stimulate domestic demand and allow its currency to

appreciate faster than the modest rise in the yuan seen so far.

In bond markets, US yields increased slightly yesterday as market participants took

some profit ahead of the FOMC meeting tonight after last weeks rally. The 2-year note

was up 3bp while the 10-year treasury yield was stable.

In FX markets, USD has strengthened since European close while JPY has weakened

against most major currencies after hitting its strongest level since November towards

USD last week.

Wheat prices slid for a second day after prices surged to a 23-month high last week.

Stockpiles are considered sufficient to meet current demand and speculations that farmers

will plant more wheat is putting downward pressure on prices.

10 August 2010

Senior Analyst

Signe Roed-Frederiksen

+45 4512 8229

[email protected]

Market movers today:

All eyes on the FOMC meeting

tonight

Norwegian CPI

Market overview

Note:

* The iTraxx Europe Index show the spread

development for the most liquid investment grade CDS

contracts in the euro credit market.

**The iTraxx Europe Crossover show the spread

development of the most liquid non-investment grade

CDS contracts in the euro credit market.

Source: Bloomberg

Danske Daily

07:30 1 day +/-,%

S&P500 (close) 1127.8 0.55

S&P500 fut (chng from close) 1120.4 -0.46

Nikkei 9532.2 -0.42

Hang Seng 21580.6 -1.01

17:00 07:30 +/-, bp

US 2y gov 0.53 0.52 -0.8

US 10y gov 2.83 2.82 -0.6

iTraxx Europe (IG) 97 103 5.5

iTraxx Xover (Non IG) 383 470 87.4

+/-, %

EUR/USD 1.325 1.315 -0.73

USD/JPY 85.770 85.830 0.07

EUR/CHF 1.39 1.39 0.08

EUR/GBP 0.831 0.832 0.16

EUR/SEK 9.398 9.415 0.18

EUR/NOK 7.89 7.92 0.30

USD

Oil Brent, USD 81.0 80.4 -0.64

Gold, USD 1202.2 1200.7 -0.12


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2 | 10 August 2010www.danskeresearch.com

Danske Daily

Global Daily

Focus today: All eyes on the Fed today as the market is raising expectations that the Fed

will add more fuel to underpin the recovery. Although we believe the Fed will twist the

statement in a more dovish direction we dont expect it will add new measures at this

stage. This is likely to be a disappointment for the market and we see a risk of higheryields on back of the statement see alsoFed previewreleased today. Earlier in the day

we get unit labour costs and productivity for Q2 where we look for an increase of 0.4%

q/q annualised, lower than consensus of 1.6% q/q annualised.

Fixed income markets: Speculation over additional measures from the Fed has been

widespread but we see the risk skewed toward higher yields on the statement. This will

not change the downward trend in yields, though, and with Fed still expected to be on

hold for a very long time carry is king and investors still move out on the yield curve

keeping longer yields down. This has also led to substantial flattening of the 2-5 and 2-10

yield curve. The 5-year point looks expensive now on the curve but with the attractive

carry this may not go away in the short run.

FX markets: Focus will be on whether the Fed will address recent weeks weak US data

and perhaps open up for another round of monetary stimulus. The rate announcement will

probably not shake EUR/USD much, but a soft tone could send the dollar lower. Stock

performance remains the key driver of EUR/USD, but the relationship has been stronger

than at present.

Scandi Daily

In Norway the market will focus on inflation numbers. We believe that core inflation will

jump from 1.3% y/y in June to 1.5% y/y in July. Even though our forecast is marginally

above the consensus forecast of 1.4% y/y which is also the Norges Bank forecast, we

doubt we will see any significant market reaction. The Norwegian market is also awaiting

the FOMC meeting tonight.

Key figures and events

Source: Bloomberg and Danske Markets

Period Danske Bank Consensus Previous

8:00 DEM Inflation (HICP) m/m|y/y Jul 0.3%|1.2% 0.3%|1.2% 0.3%|1.2%

8:45 FRF Industrial production m/m|y/y Jun -0.2%|7.3% 1.7%|8.2%

9:30 DKK CPI m/m|y/y Jul -0.4%|1.9% -0.2%|1.7%

9:30 DKK Industrial production m/m Jun 4.4%

10:00 NOK Consumer prices m/m|y/y Jul -0.1%|1.9%

10:00 NOK Core inflation(CPI-ATE) m/m|y/y Jul -0.4%|1.4% 0.2%|1.3%

10:00 NOK Producer prices, incl. Oil m/m|y/y Jul 2.3%|11.4%

10:30 GBP Trade balance GBP mln. Jun -3817

11:15 EUR ECB Announces Allotment in 7-Day Refinancing Tender EUR bn 154.8

11:15 EUR ECB Announces Allotment in 1-Month Refinancing Tender EUR bn 49.4

14:30 USD Unit labour cost q/q 2nd quarter 0.4% 1.6% -1.3%

20:15 USD FOMC meeting % 0.25 0.25

Tuesday, August 10, 2010

Inflation in Norway still subdued

Source: Reuters Ecowin

US S&P500 future

Source: Danske Markets

US 10y gov yield


Scandi FX


Global FX


05 06 07 08 09 10

-1

0

1

2

3

4

5

6

-1

0

1

2

3

4

5

6% y/y % y/y

CPI

Core inflation (CPI-ATE)

1084

1094

1104

1114

1124

1084

1094

1104

1114

1124

Fri Mon Wed Thu Fri Tue

2.75

2.85

2.95

2.75

2.85

2.95


7.85

7.89

7.93

7.97

9.34

9.38

9.42

9.46


EUR/SEK (LHS) EUR/NOK (RHS)

85

85.6

86.2

86.8

87.4

1.298

1.318

1.338


EUR/USD (LHS) USD/JPY (RHS)
http://danskeanalyse.danskebank.dk/abo/FlashCommentFOMC100810/$file/FlashComment_FOMC_100810.pdfhttp://danskeanalyse.danskebank.dk/abo/FlashCommentFOMC100810/$file/FlashComment_FOMC_100810.pdfhttp://danskeanalyse.danskebank.dk/abo/FlashCommentFOMC100810/$file/FlashComment_FOMC_100810.pdfhttp://danskeanalyse.danskebank.dk/abo/FlashCommentFOMC100810/$file/FlashComment_FOMC_100810.pdf


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Danske Daily

Todays market data: 10 August 2010

+/-

DJSTOXX50

Max 1.0 Max 2.3 OMXC20

Min -0.3 Min 0.5 OMXS30

0.4 0.5 OSE BX

+/-

DOW JONES

NASDAQ

1month 1month S&P500

Year-to-date Year-to-date NIKKEI (07:30)

EUR +/-

USD -0.97

JP Y -0.74 1day

Max ## GBP 0.13 1month Min ## NOK 2.40 Year-t-date

0.5 SEK 1.68

DKK 0.04

PLN 0.83

USD +/-

JP Y 0.06 1day

1month GBP -1.40 1month

Year-to-date CHF 0.86 Year-t-date

+/-, bp

USD USD 10Y -1

Max 0.6 Max 2.9 EUR USD 30Y 0

Min 0.5 Min 2.8 GBP JPY 10Y 00 0 DKK

SEK +/-, bp

NOK DEM 10Y 0

PLN DKK 10Y -4

SEK 10Y -1

NOK 10Y 0

PLN 10Y 1* As of closing previous trading day

## M ax 0.790 ## M ax ###

## M in -0.360 ## M in ###

+/-

USD 10Y 0

Europe (IG) -1 -14 JPY 10Y 2

HiVol -2 -26

Xover (N-IG) -2 -65 +/-

EUR 10Y 1

DKK 10Y 0 0 -21 SEK 10Y 0

Finan. Sub. -1 -31 NOK 10Y 0

Non-finan. -1 -31* As of closing previous trading day

* Ask price ** Ask price

Oil,

Brent, $

64

32

172

172 64

0

38

17:00

27

7

32

Cre dit s pread, iT raxx s. 11*

1day

69

3.50

2.00

1.05 1.15

1.00

0.50

0.960.50

1025

470

5

07:30(-1)*

150

17:00

103

Finan. Sr.

1month

114

07:30

26

38

2.69

3.71 21

5.81

0

07:30(-1)*46

07:30

Swap Spread, bp**

3.34

2.612.65

2.58

3.34

5.82

2.58

2.53

0.90 4.01

1.03 1.030.75

17:00

2.53

-17.11

17:00

2.83

-3.75

-0.12

4.63

-8.79

07:30

13.97

YIELDS & INTEREST RATES

-10

132.47

103.70-10.95

789.23

131.50

4.02

2.82

274.59

83.19

479.74

-0.55

5.02

-0.70

Industrials

2.51

C R B

1M future

RB, Raw

1200.65

83.05

939.84

07:30

941.52

Gold, $

07:30

17:00

113.61 112.87

745.10

791.63

398.24397.41

745.06

15

105.44

17:00 07:30

85.77

159.49 158.09

85.83

Spread,

bp

80.4407:30

373

STOCKS

1.1% 9532 1.6%

FX & COMMODITIES

-11.71

0.40

Po l icy Rate

104.58

USD2Y USD10Y 0.25

3M

5.54

Close

2551 1.6%

-1.3%

425

2306

1074

0.5%

Close

1.4%

4.6%

10699

1128

0.8%

0.0%

0.4%

0.8%

5.0%

0.30

-1.50

0.72

0.25

1.25

0.090.06

0.81

3.29

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

USD JPYGBPFRF ITL DKKSEKNOKPLN

10Y Yield Spread to Germany

-0.4

-0.2

0.0

0.2

0.4

0.6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

USD2Y USD5Y USD10Y

US Yield Curve

D-t-D +/-, bp (right axis)

07:30 (left axis)

1 month ago (left axis)

-3.2

-2.7

-2.2

-1.7

-1.2

-0.7

-0.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

DEM2Y DEM5YR DEM10Y

German Yield Curve

D-t-D +/-, bp (right axis)

07:30 (left axis)

1 month ago (left axis)

-0.30

0.10

0.50

0.90

-0.30

0.10

0.50

0.90

15 16 17 18 19 20 21

S&P500 Intraday, %

Grey line indicates closing of Danish markets

0.5

1

1.5

2

0.50

1.00

1.50

2.00

09 10 11 12 13 14 15 16 17 18

Eurostoxx Intraday, %

Grey line indicates opening of US market s

2.79

2.81

2.83

2.85

0.49

0.51

0.53

0.55

07 10 13 16 19 22 01 04

USD- Yields Intraday

U SD 2Y (lhs) U SD 10Y (rhs)

131.3

131.8

132.3

132.8

131.3

131.8

132.3

132.8

07 10 13 16 19 22 01 04

EUR/USD Intraday

0

100

200

300

400

500

600

700

0

20

40

60

80

100

120

140

160

Aug Sep Nov Dec Feb Mar May Jun Aug

Credit spreads

iTraxx Europe (IG) (left axis)

iTraxx Xover (Non IG) (right axis)


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Danske Daily

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

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

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