jun 25 danskeweeklyfocus

8/9/2019 JUN 25 DanskeWeeklyFocus

1/22

www.danskeresearch.com

Investment Research

Market Movers ahead

G20 meeting with focus on financial regulation. US Congress compromise on financial regulation. ISM may be turning, but the declines from here will be very gradual. We look for

strong nonfarm payrolls data, reinforcing the belief in a full recovery in the US

economy with healthy job growth.

Roll over of ECB EUR442bn 12m LTRO. Riksbank meeting. We expect a 25bp hike. Danish currency reserve: will the growth continue?Global Update

US housing market data has been very, very weak, but durable goods orders point tostrong capex ahead.

PMI and Ifo in Euroland held up well. However, the indices may be topping at themoment, pointing to a slower pace of improvements in growth.

The Peoples Bank of China (PBoC) last weekend announced that it will abandon thede-facto USD peg that has been in place since mid-2008. Instead it will return to a

managed float targeting a basket of currencies. This will largely be a return to the

exchange rate system from before the financial crisis.

The UK has announced a tough austere emergency budget. The UK crisis budget iscomforting but relies on some very optimistic assumptions. The Chancellor sees the

debt burden peaking at 70% in three years time.

Focus

We have estimated the impact of the fiscal tightening that has already been putforward in the euro area for the coming years. This is projected to dampen euro area

growth by 1.0 percentage points in 2011 and less in the subsequent years.

25 June 2010

Editors

Allan von Mehren

+45 4512 8055

[email protected]

Steen Bocian

+45 45 12 85 31

[email protected]

Weekly FocusChina drops peg will it be appreciated?

Contents

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

Global update................................................................... 5

Scandi update ................................................................. 7

Focus: Research - Fiscal tightening is

unlikely to kill growth ............................................... 9Equities: Looking for signs of sustainedupswing ............................................................................. 12

Fixed Income: Rates - Risk on, risk off isthe name of the game ......................................... 13

FX: Swedens Riksbank in focus ............... 14

Commodities: Economy in focus ............ 15

Financial views........................................................... 16

Macroeconomic forecast .............................. 18

Financial forecast ................................................... 19

Calendar ........................................................................... 20

USD/CNY Change in US private payrolls

Source: Source: Ecowin

April

10

May June

6.78

6.79

6.80

6.81

6.82

6.83

6.84

6.78

6.79

6.80

6.81

6.82

6.83

6.84

96 98 00 02 04 06 08 10

-1000

-750

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0

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2/22

2 | 25 June 2010www.danskeresearch.com

Weekly Focus

Market movers ahead

Global

Next weeks US calendar includes the release of the two most important data reports.On Thursday the manufacturing ISM index is expected to remain unchanged, at 59.7.In spite of weak headlines, the details in the regional PMIs have been surprisingly

strong, indicating that the ISM will remain at its high level for another month. Over

the following months we do expect a moderate decline in the ISM as growth

momentum slows.

The second major event of the week will be Fridays release of the June employment

report. We expect the non-farm payrolls to fall 50,000, as Census workers are starting

to leave federal payrolls. Private payrolls, adjusted for the Census effect, are expected

to increase 200,000. Half of this effect stems from pent-up labour demand, as private

employment during the last few months has been crowded out by Census hiring (see

Research - US: A reality check on the job market). The other 100,000 represent an

underlying upward trend in employment.

Finally focus will be on data for pending home sales. Hence a strong figure on

Thursday will point towards a more robust recovery of the US housing market,

following a few months with weak numbers for both existing and new home sales.

Next week is kicked off in the euro area with the release of ECBs report onmonetary developments on Monday including M3 growth and data on monthly loan

flows. Lately loans to households have increased at a decent pace, while loans to non-

financial institutions have been looking softer. It will be interesting to see what effect

the euro debt crisis has had on the latest monetary developments. Further, some

labour market data will be released, including German unemployment figures and

euro area unemployment rate. We expect German unemployment to continue its

downtrend, while euro area unemployment should remain stable at 10.1%, whichshould be consistent with the PMIs released this week. By end next week final PMIs

will be released across the euro area.

Next weeks UK data include final Q1 GDP numbers likely to be confirmed at+0.3% q/q and PMI manufacturing data which probably will decline slightly from

Mays peak of 58. Nationwide house prices rose 0.5% in May but we are about to

enter a period with more moderate house price increases. The presentation of the

Governments emergency budget spurred positive comments from Fitch and Moodys

while S&P said it was too early to assess the impact on Britains AAA rating. Despite

the austere budget, we are also reluctant to conclude that the risk of a UK downgrade

is off the table but it will to a large extent depend on the will of British policy makers

from now on. Investors have reacted by buying sterling, sending the pound to a 25-

month high.

Interest in Switzerland will centre on leading growth indicators in the form of theKOF and PMI for June, released on Wednesday and Thursday respectively, which are

expected to confirm further strong growth in activity in Switzerland. Other things

being equal, this will increase the chances of the Swiss National Bank raising interest

rates in 2010. We still expect the first hike to come at the December meeting.

In China most May data will be released next week. Overall we expect the Chinesedata to confirm that the risk of an imminent overheating is subsiding. Year-on-year

CPI inflation is expected to edge slightly higher to 3.0% y/y from 2.8% y/y and it will

Swiss growth indicators in good shape

Source: Reuters Ecowin

Census crowding out in May to lift

private employment in June

Source: Reuters Ecowin and Danske Markets

Inflationary pressure appears to be

easing in China


96 98 00 02 04 06 08 10

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Weekly Focus

probably continue to increase in the coming months. However, producer price

inflation is now declining sharply on the back of lower commodity prices and house

prices appear to have stabilized. In addition it appears that growth in China peaked in

Q1 and growth in industrial production is expected to ease further to 16.6% y/y from

17.8% in the previous month.

In Japan attention will be on who will be Japans new Prime Minister followingYokio Hatoyamas resignation. The current finance minister, Naoto Kan, is the big

favourite which means there will probably be a minor government reshuffle in the

wake of the appointment of a new prime minister. We expect Q1 GDP growth to be

revised down to 4.1% q/q AR from 4.9% q/q AR in the first preliminary release,

mainly because corporate investments will be revised slightly lower.

Scandi

A raft of interesting data are on the agenda in Denmark. Tuesday brings figures forbusiness confidence in June in the form of the Statistics Denmarks business tendency

surveys, Wednesday brings revised GDP data for Q1, and Thursday brings bothunemployment and retail sales for May. The unemployment figures are particularly

eagerly awaited, and we expect an unchanged rate in May and so a further sign that

the number of jobless in Denmark has probably peaked. Official unemployment has

been stable since November last year.

In Sweden, trade balance, retail sales and PMI are all published during the weekahead. Since the onset of the financial crisis, survey data have proven a poor predictor

of economic developments which is why we will put more emphasis on retail sales

and trade balance data that will provide important input to our estimate of Q2 GDP-

growth.

But the main event will no doubt be the Riksbanks repo rate decision and the

accompanying fully fledged monetary policy report. We not only expect a hike of

25bp, but also foresee a quite hawkish Riksbank, possibly indicating a swifter initial

hiking phase. This does, however, not mean that we agree. To the contrary actually.

But the Riksbank has set its mind on rooting out any excesses on the housing market

and that the financial crisis is over and done with from a Swedish macro perspective.

Why wait seems to be its line of reasoning.

A busy week awaits in Norway. As mentioned previously, developments inhousehold borrowing are crucial with Norges Bank predicting negative real mortgage

rates for five years. With nominal income growth of 4-5% going forward, this will be

the line in the sand for growth in household debt. We expect household credit demand

to be very strong in May, helping to push overall credit growth up to 4.1%. Otherwise

we will probably see healthy retail sales data for May, showing that Norwegian

consumers are back in the game. The June PMI will also be very exciting in the light

of slightly lower global activity but signs of an upswing in oil-related industries.

While the LFS figures released during the past week could suggest that

unemployment is climbing, the coming weeks unemployment data from the

Norwegian Labour and Welfare Administration (NAV) for June will probably

indicate a continued downward trend. As can be seen from the chart, NAVs figures

generally pick up a turnaround in the labour market earlier than the LFS data.

Stable unemployment in Denmark

Source: Statistics Denmark

Important input to Q2 GDP

Source: Statistics Sweden

NAV data something to rely on

Source: Statistics Norway, Norwegian Labour and

Welfare Administration

APRJAN 10OCTJULAPRJAN 09

10

8

6

4

2

0

-2

-4

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8

6

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Thousands Thousands

Change in unemployment

07 08 09 10

-7.5

-2.5

2.5

7.5

12.5

17.5

3

5

7

9

11

13SEK bn % AR

>

00 02 04 06 08 10

30000

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60000

70000

80000

90000100000

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120000

30000

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50000

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110000

120000Unemployed Unemployed

AKU

NAV


4/22


Weekly Focus

Market movers ahead

Source: Bloomberg and Danske Markets

Global movers Event Period Danske Consensus Previous

Wed 30-Jun 11:30 CHF KOF Swiss leading indicator Index Jun 2.15 2.16

Thu 01-Jul 1:50 JPY Tankan - Lar ge Manufactur ing I ndex (outlook) Index 2nd quar ter 1 (4) -3 (1) -14 (-8)

1:50 JPY Tankan - Non-manufacturing Index (outlook) Index 2nd quarter -7 (1) -7 (-3) -14 (-10)

16:00 USD ISM, manufacturing Index Jun 59.7 59.0 59.7

Fri 02-Jul 14:30 USD Nonfarm payroll 1000 Jun -50 -110 431

Scandi movers Event Period Danske Consensus Previous

Thu 01-Jul 9:30 DKK Consumer confidence Jun 2.0 3.0


5/22


Weekly Focus

Global update

Another week of mid-summer blues

Another eventful week has passed. On Monday the markets woke to the news that China

will abandon its de-facto peg of CNY to USD, which has effectively been in place since

mid-2008. Instead, it will return to a managed float targeting a basket of currencies. This

boosted market confidence and risk appetite continued to recover early Monday.

However, markets soon ran out of steam as concerns about the European debt situation

returned to the agenda and another bunch of surprisingly weak US housing data and UK

budget tightening added to the concerns of a second half slowdown.

Generally, the markets remain very uncertain as opinion continues to sway between a

double-dip scenario and a sustained rebound. The onus of proof is definitely with the

optimists currently. With leading indicators beginning to move lower albeit from very

strong levels and continued negative newsflow out of Europe, we think this could be the

case for a while. That said, however, the markets already seem to be pricing a relatively

dire scenario. Hence, an indication of cyclical strength either from the labour market or

from strong Q2 earnings could be positive for risk appetite in the near term.

The mixed dataflow continues in the US

This weeks FOMC meeting provided very little news. As widely expected, the

committee downgraded the growth assessment slightly on the recent deterioration of

financial conditions and weaker housing data. The outlook remains for a moderate

recovery and the Fed continues to signal that rates will be kept exceptionally low for an

extended period. Over the past month, the market has adjusted its policy rate expectations

considerably lower, as the recent market turmoil has derailed the process towards

normalisation. An initial hike to 0.50% is not expected before June 2011, which leaves

our forecast for a March hike somewhat on the hawkish side.

Homes sales data for May disappointed badly with both new and existing home sales

declining. While existing home sales remain above their cyclical trough, new home sales

declined to an all-time low. The setback in new home sales was driven by a negative

payback from the expiration of the first-time-buyer tax credit, while the surprising drop in

existing home sales was related to problems with the processing of contracts. We are

quite convinced that the recent data is overstating the weakness, just as the prior months

have been overstating the strength due to the home buyer credit. The average picture still

shows an improvement with the annualised rate of total home sales still remaining about a

million above its cyclical trough.

Industry data continues to look solid, with new orders ex. transport up by 0.9% m/m over

the past month. Moreover, the details show that the demand for capital equipment

remains strong. Capital goods orders ex. defence and aircrafts is up by 28.7% AR 3m/3m,

which is the highest since 1997. Hence, there is little sign of a slowdown in the business

sector. Despite the recent more mixed data, we continue to expect Q2 GDP growth of

3.5% q/q AR, but some downside seems to be emerging to our 3.2% Q3 forecast.

Risk appetite under pressure again


"[Heading 2]"

Home sales on a bumpy ride


Strong capex recovery


jan

10

feb mar apr maj jun

1050

1075

1100

1125

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1225Index Index

S&P500

04 05 06 07 08 09 10

4.55.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0Units, mln. SAAR Units, mln. SAAR

Total home saleswith 6m avg

96 98 00 02 04 06 08 10

-50

-40

-30

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0

10

20

30

40

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40% 3m/3m, AR % 3m/3m, AR

Non-defence capital goodsorders ex. aircraft


6/22


Weekly Focus

Strong euro area momentum, but production set to slow

This week ifo, PMI and industrial orders confirmed that growth momentum is strong, but

that a slowdown in industrial production is to be expected as the recovery matures. Ifo

expectations declined, but the level nevertheless confirms that the rebound in Germany is

intact despite the debt crisis. We believe data will confirm that German growth has beenstrong in Q2 and we expect the economy to keep the momentum going in Q3.

The June flash PMI surveys indicate that we will see robust economic expansion in the

euro area in Q3. The German manufacturing sector still looks rather strong, while French

manufacturing is trailing. On the other hand, the French service sector appears to be

expanding at a rapid pace. Employment components support further labour market

stabilisation in the euro area. New orders and new export orders have declined for a

couple of months.

Euro area industrial orders only increased 0.9% m/m in April. The new orders report thus

sent the same signal as the confidence indicators. Namely that we should expect to see a

slowdown in industrial production growth in coming months. Keep in mind though that

the poor April reading came after a very strong March reading. We are still on an upward

trend with substantial momentum.

China abandons USD peg, but will it be appreciated

At the weekend China announced that it will abandon the de-facto USD peg that has been

in place since mid-2008 when the global financial crisis accelerated. Instead, it will return

to a managed float targeting a basket of currencies. This will largely be a return to the

exchange rate system from before the financial crisis accelerated in mid-2008. However,

we might see more two-way volatility in the USD/CNY exchange rate. PBoC has tried to

tone down expectations of a major appreciation. PBoC has effectively ruled out a major

one-off revaluation and since Monday CNY has appreciated by less than 0.5% against

USD. The announcement just ahead of the G20 summit this weekend is no coincidence.

China without doubt believes there could be a significant political payoff from just a

minor appreciation. This will probably be enough to avoid Chinas exchange rate policy

becoming a major issue at the G20 summit and it has reduced the likelihood of a trade

war with the US, albeit China will probably have to deliver more to satisfy US Congress.

We have not made any major changes to our CNY forecast. We still expect CNY to

appreciate by about 4% against USD over the next year, which is a bit more than the

market currently expects. This will not be enough to have any substantial macroeconomic

impact. We estimate it will shave 0.2% off GDP growth and reduce Chinas trade balance

surplus by USD12bn (0.2% of GDP). Nonetheless it will be a slight contribution to

avoiding overheating in China and rebalancing the global economy.

On the surface, Japans trade data for May looked a little bit weak as exports in current

prices declined 1.2% m/m. However, real exports increased 0.9% m/m following a solid

increase in the previous month and real imports surged for the second month in a row. As

seen in the chart, recent export data have actually been quite strong with no clear sign of a

slowdown in Q2. Nonetheless, we do expect growth in exports to start slowing in the

coming months.

Ifo expectations have peaked


PMI new orders have peaked


China abandons USD peg


Strong Asian exports


92 94 96 98 00 02 04 06 08 10

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40

48

5563

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>

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Korea

Jan. 2008 =100

Taiwan

Japan

Jan. 2008 =100

China


7/22


Weekly Focus

Scandi update

Denmark Consumers feeling blue again

We had an insight during the week into how consumers have taken the government's

recovery package, with consumer confidence tumbling from 3.0 in May to -1.5 in June.

Seasonal variations account for part of this, but this is far from the whole answer, as

seasonally-adjusted confidence fell from 1.6 to minus 1.3, which is a drop of almost three

points.

Consumer confidence took a knock across the board in terms of both the current

situation and the situation in a years time. A dimmer view of the situation in a years

time for both the economy as a whole and households own finances is not so surprising,

given all the talk about spending cuts, the shelving of tax reductions and lower child

benefit. On the other hand, it is somewhat mystifying that households are suddenly now

much more downbeat about the current situation, especially as incoming economic data

have been improving and both unemployment and employment have been largely

unchanged of late after several successive quarters of deterioration. In fact, consumers

also reckon that unemployment has peaked and will be marginally lower this time next

year, although they are less positive here than they were in May.

All in all, the confidence data are fuelling concerns that the recent improvement in private

consumption may have run out of steam. But it is too early to draw any firm conclusions

on the basis of the June figures and it will be interesting to see how consumer confidence

pans out in the coming months, as talk of recovery packages and austerity measures

presumably fade somewhat into the background. We remain cautiously optimistic about

private consumption.

Sweden

Still going strongLast week we received a batch of information from the National Institute for Economic

Research (NIER). As expected it was all good news: The business and consumer

confidence surveys strengthened leading the economic tendency indicator to a level

consistent with a growth situation much better than normal. In addition, the NIER

revised its forecasts in a generally more positive direction. However, despite being

positive on Swedish and international growth, the NIER still advocates very low rates for

as is the more fashionable wording an extended period of time. Furthermore, the

NIER is apparently more worried about the fiscal situation in many advanced economies

and therefore states that risks to the international forecasts and hence, Swedish export

growth are mainly on the downside.

Danish consumer confidence back in

negative territory

Source: Statistics Denmark, Danske Research

Getting stronger by the day

Source: Swedish National Debt Office

1009080706050403020100

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Consumer confidence, sa

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125 Net balances (100 = normal)

Economic tendency


8/22


Weekly Focus

Norway Negative real interest rates?

As expected, Norges Bank left interest rates alone at Wednesday's meeting. The new

monetary report revised down the expected interest rate path by 40-70bp, more or less as

we predicted. It appears that the next rate increase may not come until December, which

is rather later than we previously anticipated. The banks projections of economic growthboth domestically and abroad seem slightly on the low side and our own macro forecasts

suggest a roughly 50bp higher interest rate path over the next two to three years. Norges

Banks projections also indicate negative real mortgage rates (nominal mortgage rates

lower than wage inflation) for five successive years from 2009 to 2013. With the

household debt-to-income ratio still up at 190%, low real interest rates bring an

underlying risk of instability in the housing market and banks balance sheets further

ahead. We expect this to prompt Norges Bank to step up its rate increases in 2011-13. It is

therefore worth keeping an eye on growth in lending to households and house prices.

Debt-to-income ratio remains high

Source: Statistics Norway, Danske Bank

0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9

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< < H o u s e h o ld d e b t a s p c t. o f d is p o s a b le in c o m e


9/22


Weekly Focus

Focus: Research - Fiscal tightening is unlikely to killgrowth

The debt crisis has accelerated fiscal tightening in the euro area. If the tightening isaccelerated too much, it will kill growth.

We have estimated the impact of the tightening that has already been put forward.This is projected to dampen euro area growth by 1.0 percentage points in 2011.

The debt crisis has also resulted in significant euro weakening. This counters thenegative impact of the fiscal tightening as it improves euro area competitiveness.

Euro weakening is estimated to lift euro area growth in 2011 by 0.8 percentage points.The net effect of fiscal tightening and euro depreciation on growth is modest.

The most open economies should benefit the most from the euro weakening while thenegative impact of the debt crisis is felt the most in southern Europe.

The negative impact from fiscal tightening is also countered by a positive growthcontribution from interest rates, which due to the debt crisis are expected to stay low

for longer.

The overall effect of the debt crisis might however be somewhat more negative as thecrisis has increased uncertainty and resulted in tighter credit conditions, affecting the

weaker countries and institutions most.

From recovery plan to austerity measures

When the financial crisis hit the real economy in late 2008, there was a general agreement

to combat the crisis with a more lax fiscal policy. In the EU, this materialised as the

European Economic Recovery Plan put forward by the European Commission in

November 2008, which asked for countries to undertake discretionary spending cuts

worth around 1.2% of GDP. Most euro area member states thus undertook fiscal easing

even those with a budgetary situation that suggested they should in fact tighten. Fiscal

budgets then deteriorated rapidly primarily as a result of automatic stabilisers, but also

due to the discretionary measures.

The recession has now ended and it is time to tighten fiscal policy as was already foreseen

in the recovery plan. The process has, however, been speeded up by the European debt

crisis. Financial markets have pressured countries to deliver more and quicker fiscal

tightening than politicians would have otherwise opted for. Most notably, Greece, Spain

and Portugal have put forward additional austerity measures since the debt crisis hit.Germany has also presented a strict austerity plan despite its safe haven status.

Can austerity kill growth?

There are concerns that the accelerated fiscal tightening will kill growth. We have

estimated the fiscal tightening taking into account new measures recently announced by

some countries. We calculate that fiscal tightening will equal around 1.5% of GDP in

2011 and somewhat less in 2012-13. The impact on growth will depend on the design of

the specific measures and is notoriously difficult to estimate.

Government expenditures rocketed

Source: Reuters Ecowin and own calculations

Mind the gap


Debt below 60% of GDP... nope


Senior Economist

Frank land Hansen

+45 4512 85 26

[email protected]

Senior Analyst

Lars Tranberg Rasmussen

+45 45128534

[email protected]

01 02 03 04 05 06 07 08 09

35,0

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52,5 % of GDP, 4q moving average % of GDP

Greek government expenditures

Greek government revenues

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10/22


Weekly Focus

According to simulations on the new OECD model, a reduction in euro area fiscal

expenditure by 1% of GDP will reduce the euro area GDP level by 0.8% in the first year

and about the same in year two, but diminishing thereafter. It should be noted that a fiscal

rule has been applied in the OECD simulation, so that the 1% decline in expenditure is

followed by a 0.2% annual decline in taxes for five years.

In the short run, expenditure cutting tends to dampen growth more than tax rises.

Estimates on the impact of various fiscal instruments can be found in a recent OECD

paper on The Effects of Fiscal Policy on Output. Here the impact of a 1% of GDP

reduction in government consumption (not total government expenditure) is found to be a

0.6% reduction in GDP after a year while a 1% of GDP increase in income tax only

dampens activity by 0.2% after a year. The austerity measures put forward so far have

focused more on expenditure cutting than increasing revenues. We assess that roughly

two-thirds of the budget tightening comes from expenditure cutting. Using the results

from the new OECD model and assuming that the impact on activity of rising revenues is

roughly half of that of reducing expenditures, we find that fiscal tightening will lower

GDP growth by about 1.0% in 2011, 0.7% in 2012 and 0.6% in 2013.

Euro depreciation to the rescue

The negative growth impact of fiscal tightening is countered by the positive impact from

euro depreciation, which was to a large extent triggered by the debt crisis. The overall

effect of the debt crisis on euro area growth might thus be much smaller than the above

calculations indicate. The nominal effective exchange rate has declined 14% since it

peaked in late October last year. According to the new OECD model, a 10% depreciation

increases the GDP level by 0.7% in the first year, 1.3% in year two and 1.7% in year

three. Compared with a situation where the effective exchange rate had remained at its

peak level, the euro depreciation is then estimated to enhance euro area GDP growth by

roughly one percentage point this year, 0.8 percentage points in 2011, 0.6 percentagepoints in 2012 and 0.1 percentage points in 2013.

The combined effect of fiscal tightening and euro depreciation is thus to increase

growth by 1.0 percentage point in 2010, while growth is dampened by 0.2 percentage

points in 2011 and 0.1 percentage points in 2012.

The back of the envelope calculations that we have presented here are clearly based on a

number of debatable assumptions. The conclusion should nevertheless be pretty clear.

The fiscal tightening expected to take place in the coming years will dampen growth

significantly. But it isnt strong enough to push the economy back into recessionary

territory. Most importantly, the euro depreciation that has resulted from the debt crisis

gives a boost to growth this year and should significantly counter the drag from fiscalpolicy in 2011-12.

Euro weakening


Fiscal tightening countered by euro

depreciation

Source: Danske Markets

Exports to non-euro area


Impact on GDP

growth, %-point

Fiscal tightening 0,0 -1,0 -0,7 -0,6

Euro depreciation 1,0 0,8 0,6 0,1

Combined effect 1,0 -0,2 -0,1 -0,5

2010 2011 2012 2013

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Spain

Ireland

Germany

Greece


11/22


Weekly Focus

Winners and losers from a weaker euro

The most open economies will benefit the most from the euro weakening while the

negative impact of the debt crisis is felt the most in southern Europe. The winners are

Ireland and Germany with exports to non-euro area countries at 53% of GDP and 24% of

GDP respectively, while Spain and Greece have non-euro area export shares of around10% of GDP.

Lower rates

The negative impact from fiscal tightening is also countered by a positive growth

contribution from interest rates, which due to the debt crisis are expected to stay low for

longer. Lower rates may add about 0.2 percentage points to euro area growth in 2011.

Countries and banks with lower ratings are however suffering from higher spreads and

the drying-up of credit markets. This amplifies the bipolar nature of the euro area

recovery.

Confidence crisis is a key risk to growth

A key risk for the growth outlook is an escalation of the debt crisis. Global leading

indicators are currently coming off their recent peaks, indicating that global growth

momentum is about to decline. If this decline gets traction, the double-dip camp will

raise their voices and fears about fiscal sustainability might get another hit, which would

put upward pressure on sovereign funding costs and cause more negative dynamics in

money and credit markets. If confidence sinks again, it is easy to imagine higher risk

premiums materialising, which would be a significant blow to the fragile recovery. While

this effect is difficult to gauge, it could push the euro area back into recession if

conditions gets worse.

Euro area: fiscal outlook


2010 2011 2012 2013 2010 2011 2012 2013 Total

Germany -2.5% 0.4% 1.0% 0.8% -61.4 10.1 26.1 21.5 -3.7

France 0.0% 2.2% 0.9% 1.2% 0.0 44.8 19.1 26.6 90.4

Italy -0.1% 0.7% 0.8% 0.0% -1.6 11.3 13.5 0.0 23.2

Spain 3.7% 3.7% 1.5% 1.7% 39.2 40.0 17.1 20.4 116.8

Netherlands -1.3% 0.9% 0.4% 0.0% -7.5 5.4 2.5 0.0 0.3

Belgium 1.4% 0.5% 0.7% 0.0% 4.8 1.8 2.6 0.0 9.2

Greece 8.1% 4.6% 2.0% 1.8% 18.8 10.4 4.6 4.3 44.4

Austria -1.1% 0.7% 0.6% 0.5% -3.1 2.0 1.8 1.6 2.3

Portugal 2.0% 4.1% 1.8% 1.6% 3.4 7.2 3.3 3.0 16.8Finland -1.1% 0.5% 0.5% 0.5% -2.0 0.9 1.0 1.0 1.9

Ireland 5.2% 2.2% 1.7% 1.6% 8.4 3.8 3.0 3.0 19.7

Others -0.2% 1.4% 0.6% 0.0% -0.4 1.2 0.8 0.5 2.8

Total 0.0% 1.5% 1.0% 0.8% -1 139 95 82 324

Fiscal tightening from previous year, % GDP,

% of GDP EUR bn

Lower rates


But wider spreads


Confidence indicators have peaked


jan

10

feb mar apr maj jun

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5% %

...2 year

German 10 year government bonds

...5 year

jan

10

feb mar apr maj jun

0,0

2,5

5,0

7,5

10,0

12,5

15,0

0,0

2,5

5,0

7,5

10,0

12,5

15,0 %-point, 5-year spread to GermanyGreece

Ireland

Portugal

ItalySpain

92 94 96 98 00 02 04 06 08 10

15

25

35

45

55

65

-100

-50

0

50

100

150 Indeks Indeks

Ifo expectations (minus 50) >>

PMI composite >>

Belgium "leading" indicator (+50) >>


12/22


Weekly Focus

Equities: Looking for signs of sustained upswing

Focus on stock market performance

Leading indicators for OECD and BRIC have all shown significant growth softness sincethe start of Q2 10. This softness has already been spotted by investors who are now

pricing in below-trend earnings expectations in global and US stocks and a full-scale

double-dip recession for European equities. What is not yet priced into the stock market is

the possibility of a speedy and deep economic setback in H2 10 and 2011. This is what is

currently worrying investors. In the coming week, we look out for the following data that

in various ways could indicate market direction.

Pace of deceleration of economic activity

ISM manufacturing for June (1 July) and Chinese PMI for June (30 June) are both

important global industrial cycle indicators. We have recently seen signs of deceleration

in both ISM and Chinese PMI, although both have stayed in a high range for months. The

importance lies in the pace of the deceleration in the global industry cycle. A forceful

downturn right now without clear signs of the consumer cycle taking over from the

industrial cycle could exacerbate investors economic concerns.

Sustainability of the economic upswing

Economic sustainability needs strong private demand, and next week will see the release

of some important data. In Europe, we will receive eurozone private consumption proxy

releases from German and Spanish retail sales for May (28+29 June) while indications

of the US durable consumption trend can be derived from US domestic vehicle sales for

June (1 July). The most important piece of data on the sustainability agenda is however

the US job report for June (2 July) where a strong number on private employment

should remove fears of the job-less recovery triggered by the May report. Another earlyindicator of future and sustainable consumption is EU residential credit growth, which is

given as a part of the Eurozone M3 for May (28 June).

European company pricing power

One of our concerns remains deflation in output prices which could erode corporate

earnings in the coming months if it continues. Eurozone PPI for May (2 July) should

provide an indication of how domestic European companies are affected by the

weakening of the euro via the higher prices on imports. We know that exports will be

positively affected by the weaker euro but what about domestic-oriented companies?

Cost of imports should, together with the underlying trend in final goods pricing, give an

indication of domestic companies corporate profitability.

Earnings momentum likely to strengthen in Q2 earnings season

While in the long run it is worrisome for the global economy that companies are not

hiring, it is, in the short run, very positive for company earnings. Since Q1 reports and

before the Q2 earnings season starts, corporate earnings revisions have been positive and

pre-announcements for Q2 suggest that S&P500 companies will report strong earnings.

We think Q2 is likely to be a positive trigger for the very nervous global stock market.

OECD LEI & S&P1200 Global

Source: Danske Markets Equities, Reuters Ecowin

Analyst

Rikke Michaela Greve

+45 45128056

[email protected]

Key events of the week

ISM Manufacturing US change in private employment Chinese PMI Eurozone PPISource: Danske Markets Equities


13/22


Weekly Focus

Fixed Income: Rates - Risk on, risk off is the name ofthe game

Risk on, risk off is the name of the game

Markets continue to be almost universally ruled by risk. However, the link is maybe not

quite as strong as previously. That said it could be a game of risk on risk off all through

the summer with risk appetite dictating movements in yields and rates.

It is hard to point to a single factor changing the risk sentiment perhaps it is doomsday

fatigue or the start of the World Cup! Economic news over the period has been less than

stellar with especially US data disappointing. The relatively confident actions from the

ECB and the SNB perhaps also helped paint a picture of central banks in control. Finally

a relatively well-received Spanish auction, the planned publication of bank stress tests

and recently the change in Chinese FX policy (see Flash Comment - China resumes

appreciation) may also have added to the optimism.

More differentiation between bond yields in the euro area

A closer look at the intra-European bond spreads shows a mixed picture the stronger the

country the better the performance seems to describe the movements in recent weeks. For

instance spreads between France and the Netherlands on the one hand and Germany on

the other have narrowed significantly recouping the lions share of the widening seen in

recent weeks. Also Italy has performed very well in June so far.

On the other hand, spreads between Greece and Germany continue to widen and the

Portuguese spread has also had a very hard time. There remains great doubt about the

long-term will and ability of Greece to repay its debts. Many fear that once the Greek

primary budget surplus turns positive some time down the road a debt restructuring will

become too tempting compared to continued austere belt tightening.

It is clearly positive that markets have begun to discriminate more instead of the

indiscriminate selling seen very early this month. It is also positive if markets and

economies can move on without Greece performing given the troubles facing Greece

and the ongoing default risk that will probably remain high for a long time. It is also

noticeable that it is the countries where ECB buying has been the strongest that have had

it the hardest so far this month.

The important country going forward seems to be Spain due to the size of the economy,

the financial system and the size of its challenges in reducing its deficit, halting the debt

explosion and digesting the housing market bubble.

More risk-on than risk-off days to come

We expect the economic data to support risk appetite in the weeks and months ahead -

e.g. we look for a strong labour market report this week and expect ISM to hold up

reasonably well.

We also believe that the combined actions by the EU, IMF and not least the ECB will

keep the lid on the eurozone debt crisis. The upcoming publication of stress tests on banks

may also help ease fears on financial markets a little.

Key events of the week ahead

G20 meeting ISM and non-farm payrolls. Look

for a strong increase in private

payrolls

How is the debt crisis impactingM3 and the credit growth in the

euro area?

5-year spread vs Germany

Source: Ecowin


Source: Ecowin


Source: Ecowin

Senior Analyst

Jesper Fischer-Nielsen

+45 45 12 85 18

[email protected]

Jan

09

Apr Jul Oct Jan

10

Apr

0

200

400

600

800

1000

1200

1400

0

200

400

600

800

1000

1200

1400 bp

bp

Greece

Dec

09

Jan

10

Feb Mar Apr May Jun

0

50

100

150

200

250

300

350

400

450

500

0

50

100

150

200

250

300

350

400

450

500bp bp

Portugal

Italy

Ireland

Spain

Mar

10

Apr May Jun

0

20

40

60

80

100

120

0

20

40

60

80

100

120bp bp

Belgium

Netherlands

France
http://danskeanalyse.danskebank.dk/abo/FlashCommentChina210610/$file/FlashComment_China_210610.pdfhttp://danskeanalyse.danskebank.dk/abo/FlashCommentChina210610/$file/FlashComment_China_210610.pdfhttp://danskeanalyse.danskebank.dk/abo/FlashCommentChina210610/$file/FlashComment_China_210610.pdfhttp://danskeanalyse.danskebank.dk/abo/FlashCommentChina210610/$file/FlashComment_China_210610.pdfhttp://danskeanalyse.danskebank.dk/abo/FlashCommentChina210610/$file/FlashComment_China_210610.pdfhttp://danskeanalyse.danskebank.dk/abo/FlashCommentChina210610/$file/FlashComment_China_210610.pdf


14/22


Weekly Focus

FX: Swedens Riksbank in focus

The Riksbank meeting on 1 July is set to be the all-dominating event in the Scandinavian

markets next week. Like other analysts, we forecast a rate hike of 25bp. While the hike

should not come as any great surprise, it is expected to give a further boost to the Swedishkrona (SEK). SEK is already popular with investors due to the healthy state of

government finances in Sweden and an export-driven economy that has finally shifted up

a gear. The hike will mark Sweden as the first major, non-commodity-dominated country

to raise interest rates this year.

That said, the rate hike is not entirely a foregone conclusion. The past week saw Norges

Bank revise down its interest rate forecast considerably on worries about developments in

the European economy and the consequences of the fiscal tightening that is happening in

Europe at the moment. So far, however, a majority of Riksbank members have denied this

will have any significance for Swedish monetary policy. One should also remember that

the policy rate in Norway is 2.0% but just 0.25% in Sweden. If, contrary to expectations,

the Riksbank follows Norges Bank and keeps rates unchanged, a major sell-off in SEK

could ensue. In other words the risk to SEK is not symmetrical.

UKs crisis budget boosts pound

The UKs new Chancellor of the Exchequer, George Osborne, last week presented his

long-awaited crisis budget. Government benefits will be cut significantly and VAT is to

be raised by 3 percentage points to 20%. The budget was viewed as relatively tight by the

market and has in the markets opinion removed at least for some time the risk of a

credit rating downgrade by the international rating agencies. Moodys has already

announced that the budget supports the countrys current Aaa credit rating, while S&P on

the other hand has stated that a sustained effort is needed to maintain the UKs top rating.

Overall, though, the budget has lent support to the pound and EUR/GBP has fallen to

0.82 its lowest level since late 2008.

However, we doubt the pound will continue to be firm. The tight budget will limit growth

and render a rate hike from the Bank of England unnecessary for a very long time. The

risk is rather that the central bank may be forced to soften monetary policy further via a

return to quantitative easing. Furthermore, S&Ps comments underline that the risk of a

downgrade remains. It is also worth noting that the UKs budget projections are based on

growth expectations that the majority of economists consider rather optimistic.

G20 meeting with less focus on China

Given Chinas recent revaluation of the yuan, Chinese exchange rate policy is no longerexpected to attract as much attention as earlier at the coming weekends G20 meeting,

though there could still be criticism centred on whether China is letting its currency

appreciate quickly enough. Since last weekend the Chinese yuan has strengthened by

around 0.5% against the greenback. However, the market only expects a further firming

of 2% over the next 12 months, which in our opinion is below what the US would like to

see. Nevertheless, the big themes at G20 will be the rolling back of expansive fiscal

policies and financial regulation.

Relative rates support SEK

Source: Ecowin

Yuan strengthening limited so far

January

10

February March April May June

6.795

6.800

6.805

6.810

6.815

6.820

6.825

6.830

6.835

6.795

6.800

6.805

6.810

6.815

6.820

6.825

6.830

6.835

USD/CNY

Source: Ecowin

Weekly change against EUR, %

Source: Bloomberg

Chief Analyst

Arne Lohmann Rasmussen

+45 4512 8532

[email protected]

-3.0% -1.5% 0.0% 1.5% 3.0%

NOK

CAD

AUD

SEK

NZD

USD

CHF

GBP

JPY


15/22


Weekly Focus

Commodities: Economy in focus

Following a start to the week with risk on and decent commodity price rises after the

Chinese announced that they would allow the yuan to appreciate, commodities retreated

again towards the end of the week as the market was spooked by the softer tone struck by

economic data out of both the US and Euroland. Oil rose close to USD80 and copper hit

USD6,700 on Monday on speculation that a rise in purchasing power in China would fuel

imports of commodities. Simultaneously, gold prices hit new record highs as safe-haven

demand was replaced by inflation fears.

Although we think that USD80 will be tested again, it is worrisome that US crude stocks

continue to see build at a time of year when an increase in refining operations should start

to take its toll. However, one of the reasons of the lack of seasonal adjustment in

inventories is that refiners have extended the maintenance period this year, leading to

weaker-than-usual demand for crude. However, the uptick in refining margins as

highlighted by higher distillate and gasoline crack spreads recently suggests that refining

capacity utilisation could be on the rise. This should lead crude stock to come down but in

order for oil prices to move firmer into the USD80-90 range, product demand would have

to show more pronounced strength.

IEA: economy to remain key driver for oil prices

This week the International Energy Agency (IEA) published its Medium-Term Oil

Market Report in which two oil-demand scenarios are assessed: a higher- and a lower-

GDP scenario (with the former the IEAs base case based on IMF growth projections).

The report stressed that the shape and extent of the economic recovery is likely to remain

the primary driver of oil market balances in the years to come, and also emphasised that

the unusually uncertain economic environment could add to price volatility.

In the higher-GDP outlook, demand growth averages +1.4% y/y after 2009 but oil

intensity is expected to gradually improve as efficiency gains take effect. As a result of

waning non-OPEC supply, the market tightens substantially and OPEC spare capacity is

projected to fall below 5% in 2014. While this scenario has the potential to lead to higherprices, the IEA stresses that a diminishing price elasticity of demand means that income

effects will likely outweigh any price effects on demand. Total consumption is thus

forecast to average 89 mb/d by 2014 (vs. 83 mb/d in 2009). In contrast, the lower-GDP

scenario entails significantly lower demand growth of below 0.5% y/y. But, at the same

time, non-OPEC supply is lower as investment declines as well. On balance, the IEA

estimates that OPEC spare capacity would in this case be close to current levels of around

8%. This situation would lead to a relatively comfortable market which could imply lower

price volatility.

In any case, demand growth is likely to be driven mainly by the non-OECD region and to

arise predominantly from transportation and petrochemical sectors, with the latter leading

to a rise in relative demand for lighter fuels. Refining is expected to adapt to these

structural changes as new upgraded capacity is coming on stream. The IEA also seesglobal usage of biofuels bounce back after having been pushed down the energy agenda

during the recession, notwithstanding the ongoing fuel vs. foodstuffs debate. Regarding

financial flows, the agency stressed the lack of firm evidence that speculators drive prices

but warned that regulatory crack-downs may add to volatility.

Although we largely agree with the IEA on the demand outlook and see risks to our case

for crude prices to head into the USD80-90 range towards the end of the year as chiefly

on the downside in the short term, we also think the oil cost curve has seen an important

upward level shift following recent restrictions on deepwater drilling. Thus, longer term,

we probably have to become used to USD70+ oil prices.

Weekly changes

Source: Bloomberg, Danske Markets.

US crude oil stocks keep rising

Source: EcoWin, Danske Markets.

Senior Analyst

Christin Tuxen

+45 4513 7867

[email protected]

Crack spreads widening

Source: EcoWin, Danske Markets.


16/22


Weekly Focus

Financial views

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

a much harder expectation than suggested by current leading indicators. Hence ourworry is a hard landing. For now however we place more probability on a slowdown

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

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

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

in contrast to significant underperformance in recent months and therefore

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

recommendations on Industrials, Consumer Staples and Energy.

Fixed Income

Global: A game of risk on/risk off all through the summer with risk appetite dictatingmovements in yields and rates could be on the cards.

If risk appetite rebounds further, yields will eventually follow suit by moving higher.We expect some relief in bond markets in the coming weeks as the crisis takes a step

back. In addition, continued strong macro data out of the big countries should provide

some cushioning.

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

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

Scandinavian government bonds are performing well and we remain overweight 2YDGBs and 5Y SGBs vs France and long 10Y DGBs vs France. We are long on

Norwegian krone T-bills on an outright basis with open currency exposure.

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

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

segregation of market access for Northern and Southern European issuers is becoming

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

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

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

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

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

exposure.

FX Outlook EUR/USD failed to break 1.24 as risk appetite ran out of steam. We think

dysfunctional debt markets in Southern Europe and relative rates will weigh on the

euro going forward. The UK emergency budget calmed markets but we find only

limited downside potential in EUR/GBP now risk/reward is bad. The Swiss central

bank now sounds less concerned about the CHF appreciation and it seems that market

forces will now play a more important role in setting the value of the Swiss franc,

which in our view points to further appreciation.

SEK and NOK are expected to benefit further from rate hikes and strongfundamentals. SEK is attractive ahead of the Riksbank meeting (1 July).

Equities and US 10Y yield


EUR/USD and USD/JPY


Credit spreads


Commodity prices


Dec

09

Jan

10

Feb Mar Apr May Jun

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

4.0

925

975

1025

1075

1125

1175

1225

1275 Index %US 10-year gov bond >>

07 08 09 10

1.5

2.5

3.5

4.5

5.5

6.5

0.0

5.0

10.0

15.0

20.0

25.0 % points % points

>

Jun

09

Aug Oct Dec

10

Feb Apr Jun

2250

2500

2750

3000

3250

3500

3750

4000

55

60

65

70

75

80

85

90USD/barrel Index

LME metal prices >>


17/22


Weekly Focus

Commodities

After a short-lived recovery during which oil rose close to USD80 again, commoditieshave in general again been sold off in the past week. We look for prices to remain

relatively steady around newfound levels in the near term but still project rising prices

later in the year as the strength of the OECD recovery could surprise the market.


18/22


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

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

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

Macro forecast, Euroland

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

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

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

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

Spain 2009 -3.7 -5.1 5.0 -15.5 0.0 -12.0 -18.2 -0.3 18.1 -11.2 54.3 -5.22010 -0.3 -0.5 1.8 -5.6 0.0 7.2 4.6 0.9 20.1 -10.0 66.0 -4.1

2011 1.0 0.7 0.2 0.2 0.0 6.1 4.1 1.9 19.8 -8.5 73.0 -3.2Finland 2009 -7.8 -2.1 0.7 -13.4 0.0 -24.3 -22.3 0.0 8.2 -2.2 44.0 1.4

2010 1.5 0.2 0.0 -4.0 0.0 4.0 2.0 1.4 10.0 -3.8 49.0 1.42011 2.5 1.5 0.5 3.5 0.0 9.0 5.5 2.0 9.2 -3.3 52.0 2.2

Macro forecast, Global

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

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

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

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

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

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

Public

debt4

Public

budget4

Y ear GDP1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Infla-

tion1

Unem-

ploym.3

Infla-

tion1

Unem-

ploym.3

Switzer-

land

Y ear GDP1

Private

cons.1

Im-

ports1

Current

acc.4

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Current

acc.4

Im-

ports1

Public

debt4

Public

budget4

Ex-

ports1

Ex-

ports

1

Im-

ports

1

Infla-

tion

1

Unem-

ploym.

3

Public

budget

4

Current

acc.

4

Public

debt

4

Y ear GDP

1

Private

cons.

1

Public

cons.

1

Fixed

inv.

1

Stock

build.

2


19/22


Weekly Focus

Financial forecast


Bond and money markets

Currency

vs USD

Currency

vs DKK

USD 25-Jun - 602.8

+3m - 647+6m - 631

+12m - 587

EUR 25-Jun 123.5 744.3

+3m 115 744.0

+6m 118 744.0

+12m 127 745.0

JPY 25-Jun 89.7 6.72

+3m 95 6.83

+6m 99 6.36

+12m 102 5.73

GBP 25-Jun 149.7 902.1

+3m 137 886

+6m 139 875

+12m 155 909

CHF 25-Jun 110.0 548.1

+3m 119 543

+6m 116 543

+12m 111 528DKK 25-Jun 602.8 -

+3m 647 -

+6m 631 -

+12m 587 -

SEK 25-Jun 777.0 77.6

+3m 817 79.1

+6m 780 80.9

+12m 724 81.0

NOK 25-Jun 649.6 92.8

+3m 665 97.3

+6m 644 97.9

+12m 598 98.0

PLN 25-Jun 332.8 181.1

+3m 343 188

+6m 335 188

+12m 307 191

Equity markets

Regional

Price trend

12 mth.

Regional recommen-

dations

USA 0% to +10% Underweight

Japan 0% to +10% Neutral

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

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

Nordics

Sweden 0% to +10% Neutral

Norway 0% to +10% Neutral

Denmark 0% to +10% Neutral

Commodities

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011

NYMEX WTI 81 78 80 85 87 89 92 94 81 91

ICE Brent 79 79 79 84 86 88 91 93 80 90

Copper 7,274 7,300 7,500 7,800 8,200 8,600 8,650 8,700 7,468 8,538

Zinc 2,307 2,150 2,200 2,400 2,500 2,500 2,550 2,550 2,264 2,525

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

Steel 464 525 550 575 580 585 590 600 529 589

Aluminium 2,199 2,200 2,250 2,300 2,400 2,400 2,400 2,400 2,237 2,400

Gold 1,110 1,175 1,150 1,100 1,050 1,000 1,000 1,000 1,134 1,013

Matif Mill Wheat 126 133 133 132 127 133 133 133 131 132

CBOT Wheat 518 480 470 450 475 500 500 500 480 494

CBOT Corn 389 370 375 400 410 420 430 440 384 425

CBOT Soybeans 969 960 975 1,000 1,025 1,050 1,075 1,100 976 1,063959

478

2.90

2.90

3.45

4.12

4.30

4.45

2.99

2.70

3.04

5.38

5.85

6.10

6.35

4.05

1.95

2.00

2.10

2.45

4.80

3.25

3.50

1.45

1.55

1.60

3.44

3.60

3.75

3.20

20112010

3.60

3.20

3.60

3.60

3.00

3.10

3.40

76

19

6,694

1,875

1,245

130

76

448

1,965

346

25-Jun

-5% to +5%

-5% to +5%

-5% to +5%

-5% to +5%

-5% to +5%

-5% to +5%

High

High

Low

Average

High

High

3.13

4.59

Currency

vs EUR2-yr swap yield

Risk

Low -5% to +5%

Price trend

3 mth.

1.04

1.31

0.48

1.45

0.60

1.64

1.30

1.35

1.65

1.30

82.5

135.8

744.3

84.0

85.0

82.0

137

137

141

959.3

802.1

410.9

760

395

395

940

920

920

765

390

123.5

-

-

-

-

110.7

744

744

745

0.50

0.65

1.00

115118

127

109

117

130

1.22

0.60

0.80

1.45

1.70

2.00

1.45

1.95

1.55

1.60

1.95

5.80

5.20

5.00

4.25

3.00

1.60

1.65

1.951.35

1.30

0.80

2.69

760

2.65

3.00

3.20

3.50

2.30

0.15

0.30

0.24

0.30

4.10

3.75

0.25

0.75

1.10

1.10

0.54

0.74

0.25

0.73

0.11

0.450.45

1.15

0.65

0.65

3.50

2.00

0.50

1.00

1.50

3.50

2.00

2.50

3.50

3.50

4.10

4.10

0.25

0.75

1.00

0.50

1.90

0.25

0.10

1.13

3.75

1.00

0.10

0.50

0.25

1.05

1.00

0.70

0.75

0.75

1.00

0.10

0.10

0.50

10-yr swap yield

0.73

1.05

1.05

1.05

3m interest rate

0.50

Average

Key int.

rate

0.13

0.130.13

0.75

3.25

0.25

1.00


20/22


Weekly Focus

Calendar


Key Data and Events in Week 26

Period Danske Bank Consensus Previous

- DEM Inflation (HICP), Prelimnary m/m | y/y Jun 0.2%|1.0% 0.2%|1.0% 0.1%|1.2%1:50 JPY Retail trade m/m|y/y May -0.1%|4.8% 0.5%|4.9%

9:30 SEK Trade balance SEK bn May 7.8 6.9

10:00 EUR M3 Money supply y/y May 0.1%|0.4% -0.2%|-0.1%

10:00 DEM Retail sales m/m|y/y May 1.0%|-3.1%

14:30 USD Personal income m/m May 0.5% 0.5% 0.4%

14:30 USD Private consumption expenditure, monthly index May -0.1% 0.1% 0.0%

18:30 USD Fed's Warsh (voter, neutral) speaks


- NOK Credit indicator (C2) y/y May 4.1% 4.0%

1:30 JPY Household Spending y/y May 0.3% -0.7%

1:30 JPY Unemployment rate % May 5.0 5.0 5.1

1:30 JPY Job-to-applicant ratio May 0.49 0.49 0.481:50 JPY Industrial production, preliminary m/m|y/y May 0.2%|20.5% 0.0%|20.3% 1.3%|25.9%

7:00 JPY Small Business Confidence Index Jun 46.7

8:00 CHF Consumption indicator May 1.763

8:45 FRF Consumer confidence Net bal. Jun -38

9:00 ESP Inflation (HICP), Preliminary y/y Jun 1.8%

9:30 SEK Retail sales m/m|y/y May 1.0%|0.3% -0.2%|-1.2%

10:30 G BP Net Consumer Credit GBP bn Jun 0.0 -0.1

10:30 GBP Mortgage Approvals 1000 May 50.8 49.9

10:30 GBP Broad money M4 m/m|y/y Jun 0.0%|2.8%

11:00 EUR Business Climate Indicator Index Jun 0.34

11:00 EUR Industrial Confidence Net balanc Jun -6 -6

11:00 EUR Consumer confidence Net balanc Jun -18 -17

11:00 EUR Services confidence Net balanc Jun 3

16:00 USD Consumer confidence Index Jun 63.0 62.5 63.3


1:15 JPY Manufacturing PMI Index Jun 55.0 54.7

3:30 JPY Wages y/y May 0.8% 1.5%

9:30 DKK GDP q/q|y/y 1st quarter 0.2%|-3.2% 0.2%|-3.2%

9:55 DEM Unemployment rate % Jun 7.6 7.7 7.7

10:00 NOK Retail sales, s.a. m/m|y/y May 0.8%| 0.2%|-5.1%

10:30 GBP GDP, final q/q|y/y 1st quarter 0.3%|-0.2% 0.3%|-0.2%

11:00 EUR CPI Flash estimate y/y Jun 1.5% 1.5% 1.6%

11:00 ITL Inflation (HICP), Preliminary m/m|y/y Jun 0.2%|1.5% 0.2%|1.5% 0.1%|1.6%

11:30 CHF KOF Swiss leading indicator Index Jun 2.15 2.16

13:00 USD MBA Mortgage applications Index -5.9%

15:45 USD Chicago PMI Index Jun 60.1 59.0 59.7

19:30 USD Fed's Lockhart (non-voter, neutral)

Monday, June 28, 2010

Tuesday, June 29, 2010

Wednesday, June 30, 2010


21/22


Weekly Focus

Calendar - continued



1:50 JPY Tankan - Large Manufacturing Index (outlook) Index 2nd quarter 1 (4) -3 (1) -14 (-8)

1:50 JPY Tankan - Non-manufacturing Index (outlook) Index 2nd quarter -7 (1) -7 (-3) -14 (-10)

3:00 CNY NBS Manufacturing PMI Index Jun 53.0 53.3 53.93:30 AUD Retail sales m/m May 0.3% 0.6%

4:30 CNY HSBC Manufacturing PMI Index Jun 52.5 52.7

8:30 SEK Swedbank PMI Index Jun 64.5 66.0

9:00 NOK PMI Index Jun 50.0 50.0 50.1

9:15 ESP PMI Manufacturing, Final Index Jun

9:30 DKK Unemployment, s.a. K (%) May 114.3 (4.1%) (4.1%)

9:30 DKK Retail sales, volume m/m|y/y May 3.0%| -4.2%|-7.1%

9:30 SEK Riksbank, Rate decision Jun 0.50% 0.25%

9:30 CHF PMI Index Jun 66.0 66.4

9:45 ITL PMI Manufacturing, Final Index Jun 53.7 53.9 54.0

9:50 FRF PMI Manufacturing, Final Index Jun 54.9 54.9

9:55 DEM PMI Manufacturing, Final Index Jun 58.1 58.2 58.1

10:00 EUR PMI Manufacturing, Final Index Jun 55.6 55.7 55.6

10:30 GBP PMI Manufacturing Index Jun 57.5 58.0

14:30 USD Initial jobless claims 1000 460 457

16:00 USD ISM prices paid Index Jun 75.0 72.0 77.5

16:00 USD ISM, manufacturing Index Jun 59.7 59.0 59.7

16:00 USD Pending home sales m/m|y/y May -15.2%| 6.0%|24.6%

16:00 USD Construction spending USD bn May -0.6% 2.7%

23:00 USD Total Vehicle Sales m Jun 11.40 11.64


1:50 JPY Monetary Base y/y Jun 3.7%

9:00 NOK Unemployment nsa. (NAV) % Jun 2.8% 2.7%

10:30 GBP PMI Construction Index Jun 58.3 58.5

11:00 EUR Euroland PPI m/m|y/y May 0.2% 0.9%|2.8%

11:00 EUR Unemployment % May 10.1 10.1 10.1

14:30 USD Unemployment % Jun 9.7% 9.8% 9.7%

14:30 USD Nonfarm payroll 1000 Jun -50 -110 431

14:30 USD Private payrolls 1000 May 200 113 41

16:00 USD Factory Orders m/m May -0.5% 1.2%

16:00 DKK Currency reserves (Change) DKK bn Jun 440.5 (36.4)


Mon 28 - 30 GBP Nationwide House Prices m/m|y/y Jun 0.3%|8.9% 0.5%|9.8%

Friday, July 2, 2010

During the week

Thursday, July 1, 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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Calculations and presentations in this report are based on standard econometric tools and methodology.

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

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Please see the front page of this research report.

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jun 25 danskeweeklyfocus

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