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

Investment Research

Market Movers ahead

We expect the ECB to announce an aggressive QE programme.

In the euro area survey data should confirm the latest signs of recovery.

The US Markit PMI should continue to signal GDP growth around 2.5% q/q AR.

In the UK we expect the unemployment rate to decline to 5.9%.

We expect Chinese GDP growth to stay unchanged at 7.3% y/y in Q4.

Despite lower inflation, the Bank of Japan should not increase the pace of its QE.

In the Scandi market the focus will be on monetary policy following the SNB move.

In Denmark, we expect two rate cuts of 10bp on a 12M horizon.

Global macro and market themes

SNB scraps the floor on EUR/CHF in a pre-emptive move ahead of ECB. This could

force more easing by Scandinavian central banks.

The ECB is set to deliver aggressive QE next week. The potential for a decline in

bund yield is limited, the periphery should benefit and EUR/USD move lower.

Labour market slack debate resurfaces in US after a drop in wages in December.

Markets postpone first rate hike in the US; we still expect the first rate hike by mid-

2015.

Focus

ECB meeting: ECB will buy government bonds and Impact of broad-based QE.

16 January 2015

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

Weekly Focus

ECB to go for full-blown QE

Contents

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

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

Scandi Update....................................................... 9

Latest research from Danske Bank

Markets ................................................................. 11

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

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

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

Financial views

Source: Danske Bank

We expect a fast pace of increase in

the ECB’s balance sheet SNB scraps floor on EUR/CHF

Source: ECB, Danska Bank Markets Source: Macrobond

Major indices

16-Jan 3M 12M

10yr EUR swap 0.69 0.80 1.00

EUR/USD 116 114 117

ICE Brent oil 49 70 84

16-Jan 6M 12-24M

S&P500 1993 0-5% 5-8%

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Market movers

Global

Disappointing data in the US on wage inflation and retail sales in December has

created some uncertainty on the strength of the US recovery. The market pricing of

the first fed funds rate hike has been pushed to November/December this year but we

still believe that it will come earlier, most likely at the June FOMC meeting. Higher

uncertainty on US growth also means that markets are currently more sensitive to

incoming US economic data. The data release with the highest potential market

impact is the preliminary Markit PMI for January. In line with consensus, we expect

the PMI to stay broadly unchanged at 54.0, which is consistent with GDP growth

around 2.5% q/q AR. However, a sizeable surprise in either direction is likely to have

a larger than usual market impact.

The FOMC will move into the silent period ahead of the 28 January FOMC meeting,

which means that we will not get any Fed comments to the data releases next week.

However, this afternoon/evening Kocherlakota, Williams and Bullard will speak.

Otherwise, the coming week in the US will be dominated by data on the housing

market, kicking off with the NAHB index for January Tuesday. We expect the NAHB

to stay unchanged at 57, but expect both building permits (we estimate +1.0% m/m)

and housing starts (we estimate +4.0% m/m) to surprise on the upside. The MBA

purchase mortgage application index has increased substantially in the past two weeks

and employment in the construction sector in December was a significant positive

surprise.

Please be aware that US markets are closed on Monday due to Martin Luther King

day.

In the euro area we expect the ECB to announce a purchase programme in

government bonds. The new measure is expected as inflation continues to edge lower

in the euro area. Additionally, the current unconventional measures seem to be

insufficient in boosting the ECB’s balance sheet towards the ECB’s soft target of

EUR3trn. The ECB could choose to stay on hold and argue that the significantly

negative contribution from the HICP energy component will be transitory. But we do

not expect this, as risks of second round effects are significant. In particular, the risk

of lower nominal wage growth should not be neglected. For the effects of QE see

Impact of broad based QE, 16 January 2015.

We expect euro area manufacturing PMI to have increased from 50.6 to 50.9 in

January on the back of increasing activity, particularly in Germany. The

improvements in both the German ZEW and IFO expectations suggest euro area PMIs

will move higher in coming months. However, with the Greek election coming up on

25 January, some risk could be reflected in the survey data as the uncertainty related

to the election weighs down on business sentiment.

German ZEW expectations are expected to move to 40 in January from 34.9 as Sentix

expectations (which are good at leading ZEW expectations) increased in January. If

the ZEW expectations increase further, that would be the third month in a row that

ZEW expectations climb higher, thereby offsetting a large part of the index’s decline

which happened over the course of 2014.

Further, notice that euro area consumer confidence in January is due for release and

we expect an improvement to -10.0 from -11.0. Looking at other survey indicators the

Housing market to continue gradual

imporvement

Source: Macrobond

PMI manufacturing projected to edge

higher

Source: Macrobond Financial

ZEW expectations set to show more

improvement

Source: Macrobond Financial

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euro area growth momentum seems to be gaining traction. As real wage growth is

supported by the large decline in gasoline prices we expect consumer sentiment to

move higher in the coming months, though risk from the Greek election and weakness

in Russia are negative factors.

In the UK next week, we get news from the labour market. We expect that ILO

unemployment (3-month average) declined further in November in line with the fall

in the claimant count level in November. The labour market continues to improve and

even though the pace has slowed we expect that the unemployment rate declined to

5.9 % in November from 6.0 % in October. The average weekly earnings figures for

November are also worth noting, as real wage growth turned positive in October for

the first time since 2009. This is explained both by the recent acceleration in nominal

wage growth and by CPI inflation dropping on the back of the lower food and oil

prices. As CPI inflation declined further both in November and December 2014 - and

is likely to stay low also during 2015 - we may see positive real wage growth for

some time. If this is the case, this will support economic activity in the UK. That said,

wage growth is still subdued and only in line with productivity growth, implying that

the recent pick up in wage growth has to continue in order to increase core inflation.

Retail sales figures for December are also due for release.

The minutes from the Monetary Policy Committee meeting in January are released on

Wednesday. As expected, the BoE maintained the Bank Rate at 0.5 % and the size of

the Asset Purchase Programme at GBP375bn. That said, the minutes may reveal news

regarding the internal debate on the first interest rate hike, as two members have been

in favour of increasing the Bank Rate immediately at every meeting since August

2014.

In China the most important release next week will be Q4 GDP. We expect GDP

growth to stay unchanged at 7.3% y/y in Q4 compared with Q3. Quarter-on-quarter

we expect GDP growth to ease a bit to 1.7% q/q from 1.9% q/q in line with the

moderate decline in China’s manufacturing PMIs in Q4. For 2014 as a whole GDP

growth is expected to be 7.4%, only marginally below the Chinese government’s

target of 7.5% GDP growth in 2014. The government is expected to cut its target for

GDP growth in 2015 to 7.0%. Hence, at the moment there is no severe pressure for

more fiscal and monetary stimulus policy albeit we still expect the People’s Bank of

China (PBoC) to cut the reserve requirement twice by 50bp in H1 15.

In China industrial production, fixed asset investment and retail sales and property

prices for December will also be released next week. In line with consensus we expect

growth in industrial production to accelerate to 7.4% y/y in December from 7.2% y/y

in November. However, because of one extra working day in December 2014

compared to December in the previous year there is upside risk on industrial

production. We also expect growth in retail sales to accelerate slightly to 11.9% y/y

from 11.7% y/y partly due to a slight pick up in inflation in December. We expect

growth in fixed asset investment to ease to 15.5% YTD y/y in December from 15.8%

YTD y/y in November, but the underlying picture is that that investment demand has

started to stabilize.

Finally, the flash estimate for HSBC manufacturing PMI for January will also be

released next week. We expect to see stabilisation in December in the wake of the

moderate decline in the previous month. However, so far the impact from the interest

rate cut by the People’s Bank of China in November has been very modest.

Labour market continues to improve

but at a slower pace

Source: ONS and Danske Bank

Moderate slowdown in China but close

to the government’s target

Source: Macrobond and Danske Bank Markets

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In Japan the most important event is the Bank of Japan (BoJ) meeting on

Wednesday. As in the rest of the world there is currently considerable downward

pressure on inflation from lower crude oil prices. Inflation, adjusted for the direct

impact from the consumption tax hike in April last year, declined to 0.7% y/y in

November and we expect it to decline further to 0.4% y/y in December and bottom

out at just 0.2% y/y in the spring (see chart). Hence, inflation will move substantially

below the BoJ’s 2% inflation target in the coming months and the big question is how

the BoJ will respond to this. It is unavoidable that the BoJ will have to revise its

inflation forecast markedly lower in connection with its meeting. In its latest forecast

from October the BoJ expected inflation to be 1.7% in fiscal year 2015 (ending March

2016). Currently our inflation forecast for fiscal year 2015 is just 1.1%. We believe

that the BoJ’s view will be similar to the Fed’s, in the sense that it will regard the

current decline in inflation as temporary and will not ease further as long as growth

improves and inflation expectations do not decline substantially. The BoJ has set itself

an implicit deadline in fiscal year 2016 for reaching its 2% inflation target. Despite

the recent sharp decline in inflation, it is actually still possible to reach the inflation

target, because the base impact from current lower crude oil prices will push headline

inflation markedly higher in late 2015 and early 2016 (see chart). Hence, despite

lower inflation we do not expect the BoJ to increase the pace of its aggressive QE

programme further, but admittedly the likelihood that the BoJ could be forced into

more easing is increasing.

The flash estimate for the Markit/JMMA manufacturing PMI for January will also be

released in Japan next week. We expect it to improve slightly to 52.2 from 52.0

underscoring that manufacturing has recovered in the wake of the tax hike last year.

Scandi

In Denmark the coming week brings news from the household sector in the form of

consumer confidence. We expect the indicator to climb from 6.0 in December to 8.0

in January, due partly to falling petrol prices, which have meant more money in

people’s pockets. We also normally see an increase in confidence in January after all

the expense of December. Pulling in the other direction, there has been considerable

uncertainty in financial markets recently. Statistics Denmark will also be releasing

retail sales figures for December.

In Sweden the most important market event to digest this week is not a number. It is

rather the implications of the Swiss National Bank’s removal of the EURCHF floor

for the possibility that the Riksbank will introduce FX measures. The SEK has been

pressured past months by the idea that Riksbank would resort to such measures. We

have fought that idea on three fronts: 1) it would mean that Sweden would be

changing its currency regime, which is cumbersome, 2) weakening an already weak

currency is likely to be viewed as a ‘beggar-thy-neighbour’ policy and not welcomed

by countries with competing industries, 3) it is an ineffective way to raise inflation

because the impact of the currency on import prices in SEK has been virtually non-

existent in past years. The reason is that import prices in foreign currencies are

probably falling even more. The SNB’s cap removal makes it even more unlikely that

the Riksbank would embark on such a path now. Whether the fact that the SNB cut its

policy rate to -0.75% has any implications for the Riksbank’s repo rate still remains to

be seen.

December unemployment should behave well and not cause any disruptions. We

expect trend and seasonally adjusted unemployment both to print 7.9%. It basically

Drop in inflation puts pressure on

Bank of Japan

Source: Macrobond Financial, Danske Bank

Markets

Consumer confidence expected to pick

up in January

Source: Statistics Denmark

SEK weakness reached its zenith?

Source: Macrobond Financial

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means the unemployment rate continues to move sideways. The Swedish labour

market is actually doing quite well. Employment growth has been fair for a number of

years despite the fact that the unemployment rate is seen as ‘elevated’. The reason for

this is actually a positive: there is a strong influx of workers into the labour force,

apparently because they have a decent chance of finding a job. In some sense, it is

quite the opposite to the US experience.

There are no market movers in Norway next week.

Market movers ahead

Source: Bloomberg, Danske Bank Markets

Global movers Event Period Danske Consensus Previous

Tue 20-Jan 3:00 CNY Industrial production y/y Dec 7.40% 7.40% 7.20%

3:00 CNY Real GDP q/q|y/y 4th quarter 1.70%|7.30% 1.70%|7.20% 1.90%|7.30%

10:00 EUR ECB survey of professional forecasters

11:00 DEM ZEW expectations Index Jan 40.0 39.0 34.9

Wed 21-Jan - JPY BoJ monthly economic report

- JPY BoJ announces annual rase in monetary base JPY trn 80 80 80

10:30 GBP ILO Unemployment rate % Nov 5.90% 5.90% 6.00%

Thurs 22-Jan 9:30 SEK Unemployment s.a. % Dec 7.90% 7.80%

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 USD Initial jobless claims 1000

Fri 23-Jan 2:45 CNY HSBC manf. PMI, preliminary Index Jan 49.6 49.6 49.6

10:00 EUR PMI manufacturing, preliminary Index Jan 50.9 51.0 50.6

10:00 EUR PMI services, preliminary Index Jan 52.0 52.0 51.6

15:45 USD Markit manufacturing PMI, preliminary Index Jan 54.0 54.0 53.9

16:00 USD University of Michigan Confidence, preliminary Index Jan 93.7 94.1 93.6

Scandi movers Event Period Danske Consensus Previous

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Global Macro and Market Themes

SNB scraps floor on EUR/CHF

The Swiss National Bank (SNB) this week surprised the market by abandoning its

1.20 floor on EUR/CHF and simultaneously lowering the target range for the Libor

interest rate by 50bp to between -1.25% and -0.25%. The interest rate on the sight deposit

account was similarly cut by 50bp to -0.75%.

It appears that the SNB has increasingly regarded the EUR/CHF floor as an unsustainable

monetary policy due to possible QE from the ECB and increasing divergence between

monetary policy in the euro area and the US. As seen in the chart (bottom right), the

SNB’s balance sheet has expanded much faster than other major central banks’ and is

now close to 100% of GDP. It is also possible that substantial safe-haven inflows in

December and January, not least from Russia, have forced the SNB to step up its

intervention in the FX market substantially.

It certainly looks like a fundamental change in the framework for the SNB’s monetary

policy although it has indicated that it will continue to intervene in the FX market. Within

the new monetary framework there again appears to be a larger reliance on interest rates.

EUR/CHF has plunged about 15% in the wake of the announcement. In the short run,

we could see further appreciation pressure on CHF from both QE and possible safe-

haven inflows from uncertainty in connection with the Greek election and Russia. Hence,

further interest rate cuts by the SNB cannot be ruled out.

Pre-emptive move ahead of ECB QE

The move by the SNB is to a large extent regarded as a pre-emptive move ahead of next

week’s ECB meeting. Hence, the move has also increased expectations that the ECB will

deliver a relatively aggressive QE programme next week and bond yields have plunged

globally on the back of the SNB’s move. By loosening its ‘peg’ to the EUR, the SNB has

created expectations that it will diversify its FX reserves somewhat from EUR. This has

added further depreciation pressure on EUR.

The move also highlights that there could be a large spill-over effect to other European

central banks, not least the Scandinavian ones, due to potential QE by the ECB. It cannot

be ruled out that some will even start to question the sustainability of a peg to the EUR,

but we do not expect Denmark’s EUR peg to be questioned.

ECB expected to deliver strong QE programme

We expect the ECB to deliver relatively aggressive QE in connection with next week’s

ECB meeting (see Euro area outlook for 2015: ECB will buy government bonds, 15

January 2015). Specifically, we expect the ECB to announce a bond purchase

programme of EUR750bn running until September 2016. In our view, this is more

than expected not least because the implication is that the monthly purchases will be large

and, in our view, the pace of purchases will be more important than the size of the

programme.

Key points

SNB scraps floor on EUR/CHF in

pre-emptive move ahead of ECB

ECB to deliver aggressive QE at

this week’s meeting

Potential for decline in bund yield

limited, periphery will benefit and

EUR/USD move lower

SNB could force more easing by

Scandinavian central banks

Labour market slack debate

resurfaces in US after drop in

wages

Markets postpone first rate hike in

the US to end-2015

EUR/CHF plunge after SNB scraps

floor

Source: Macrobond Financial

SNB monetary framework

unsustainable

Source: Macrobond Financial

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Despite our expectations of a relatively large QE programme, the potential for a further

decline in bund yields is probably limited at the current juncture. The peripheral spreads

should tighten further versus Germany and Portugal is set to be the biggest

beneficiary. Finally, we expect EUR/USD to continue to move lower. For our in-depth

view on the market implications, see Euro area outlook for 2015: Impact of broad-based

QE, 16 January 2015.

Downward pressure on EUR/DKK is also mounting following the SNB’s abandonment of

the EUR/CHF and the pressure could intensify further in the wake of QE. Hence, we now

expect the Danish central bank to cut its deposit rate twice by 10bp to -0.25% in

2015 with the first cut in Q1, see Yield Forecast Update - Denmark to cut twice after

SNB move and more QE from ECB and Research Denmark: The Danish peg is

indisputable, both 16 January 2015.

Debate about labour market slack resurfaces in the US

On the surface, the US labour market report for December was strong. Non-farm payrolls

in December increased a decent 252,000 and, for Q4 as a whole, the average monthly

gains in non-farm payrolls improved to 289,000 from 239,000 in the previous quarter. In

addition, the unemployment rate declined markedly to 5.6% from 5.8% and is now at its

lowest level since May 2008. The Fed estimates that that the unemployment rate

consistent with ‘full’ employment is in the range of 5.2-5.5%.

However, according to the household survey, the decline in the unemployment rate was

largely due to a continued decline in the labour force and the labour force participation

ratio continues to decline. More importantly, growth in average weekly earnings in the

private sector eased to just 1.4% y/y from 1.9% y/y in November.

In addition, retail sales were a great disappointment in December, dropping 0.9% m/m.

Lower gasoline prices and weak auto sales weighed on retail sales in December, but even

excluding gasoline and autos, retail sales declined 0.3% m/m in December. This might

indicate that the world’s economy’s sole strong growth engine might not currently be

running as efficiently as many believed.

Markets postpone first Fed hike to December

With headline inflation also poised to move lower in the coming months on the back of

lower crude oil prices, the conclusion in financial markets has been that the Fed can

afford to be patient. Financial markets are not pricing in the first rate hike until December

2015 and expect the Fed-fund rate to be only about 1.0% by the end of 2016. We

maintain our view that the Fed is most likely to start hiking interest rates by mid-

2015, although uncertainty is admittedly increasing.

First, it is important to emphasise that we do not have a clear picture of the amount of

slack in the US economy. While growth in average hourly earnings is subdued and has

been slowing recently, other indicators for wage growth paint a different picture. For

example, the more reliable employment cost index only published on a quarterly basis has

shown gradual improvement in earnings growth and even a substantial acceleration in

wage growth in Q2 and Q3 (see chart 3). The employment cost index for Q4 will be

released on 30 January. It will be extremely important to what extent the slowdown in

wage growth is confirmed in this result.

Bond yield plunge on SNB move and

disappointing US data

Source: Macrobond Financial

US is close to full employment

Source: Macrobond Financial

Different signals on wage growth

Source: Macrobond Financial

Trend in retail sales decent despite

disappointment in December

Source: Macrobond Financial

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Second, while retail sales were weak in December, it is important to bear in mind that the

decline in December comes on the back of relatively strong retail sales in the previous

month. Growth in retail sales in Q4 still looks reasonable if we exclude autos and

gasoline. Hence, private consumption still looks decent in Q4 and the outlook for private

consumption in the US is based on the strong fundamentals from strong employment

growth and lower gasoline prices. This is also confirmed in the marked improvement in

consumer confidence in recent months.

We maintain our view that the Fed will start hiking the funds rate in mid-2015. Hence, the

short end of the US yield curve, in our view, remains sensitive to a re-pricing. Our main

arguments are that 1) the Fed will ignore the decline in headline inflation likely to be seen

in the coming months as long as the labour market continues to improve and core

inflation does not start to slide substantially; 2) an acceleration in wage growth, in our

view, is not a necessary condition for the Fed to start hiking as the implication would be

that the Fed is behind the curve. If wage growth stays subdued in an environment with

continued decline in the unemployment rate, it will, in our view, probably be important

for the pace of interest rate increases, but with less impact on when the Fed starts to

increase interest rates.

Global market views

Source: Danske Bank Markets

Asset class Main factors

Equities

Positive on 3m horizon, moderately positive on 12m horizon Strong US outlook, moderate Chinese growth, a sharp drop in the o il price and

QE from ECB and BoJ and stimulus from PBoC is supportive of equities. In addition equities are still

attractive versus bonds

Bond market

M edium term moderate rise Strenthening G3 growth and Fed hikes getting closer. ECB QE supporting EGB markets.

US-Euro spread: Wider 2-5y, stable longer maturities Policy divergence drives short-end spread wider, longer-end spread stable

Peripheral spreads to continue gradual tightening Neg. policy rate, QE expectations and improving fundamentals support search for yield.

Credit spread to remain stable, but with bouts of vo latility Added liquidity from ECB, stable fundamentals and search for yield

FX

EUR/USD - Lower short- and medium-term Lower on 0-6 months on diverging growth and monetary policy

USD/JPY - Higher Relative monetary policy, Fed hikes and outflows will remain supported by pension reform

EUR/SEK - Near-term risk tilted to the upside Near-term risk tilted to the upside, lower medium term on valuation and relative monetary policy

EUR/NOK - To edge higher short-term on o il, lower during 2015 Oil prices lower short term, higher medium term

Commodities

Oil prices - close to the bottom, recovery during the year Higher global growth, supply consolidation to support recovery this year. Limited risk of supply disruptions

M etal prices sideways before trending up during the year Chinese growth concerns a near-term negative factor, supply side risks.

Gold prices 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, extreme weather is key upside risk.

Markets vulnerable to re-pricing of fed

Source: Macrobond Financial, Danske Bank

Markets

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Scandi Update

Denmark – approaching zero inflation

The week’s inflation figures revealed that consumer prices slowed from 0.5% in

November to 0.3% in December. This means that inflation for 2014 as a whole was just

0.6%, the lowest since 1953, dragged down by petrol prices in particular. There is also

much to suggest that inflation will fall even further in January and could very well dip

below zero. This should be seen in the light of further falls in petrol prices, but there have

also been reductions in duties on energy for heating. Although inflation could flip into

deflation in January, we expect prices to pick up again from February, with inflation

probably ending the year above 1%. It should in any case be remembered that any such

deflation would be benign.

Estate agent chain home published its December data for the housing market during the

week, completing the picture for 2014. The figures show rising prices for both houses and

apartments, along with rising levels of turnover. House prices increased nationwide by an

average of 2.8% from 2013 to 2014, with improvements in all five regions, while

apartment prices fared somewhat better, gaining 6.7% on average. We expect the housing

market to continue to recover in the coming years, buoyed by low interest rates and high

employment.

Sweden – inflation surprise eases pressure on Riksbank

Swedish December inflation turned out quite a bit higher than expected. Actually, the

outcome was 0.2 percentage points higher than the Riksbank’s forecast for CPIF. As this

is the last figure ahead of the Riksbank’s rate decision on 12 February, the outcome

definitely takes some pressure off the Executive Board.

Does this mean inflation is turning higher now? No, not in the near-term. Although we

expected prices on airline tickets and charter packages to have risen sharply, that

assumption was obviously not strong enough. Airline ticket prices surged 57% on the

month and charter packages rose 7 % m/m. These two categories by themselves explain

the bulk of the surprise, adding some 0.15-0.2 percentage points to inflation. That said,

this is not a shift up in the inflation path. It is rather the effect of the long Christmas

holidays causing a tremendous surge in demand. There are strong indications that this

effect will fully reverse next month, in effect making it a ‘blip’ on the inflation path.

Looking at trends, however, we note that domestic price/service price pressure appears to

have bottomed while import price/goods price pressure is still declining. Hence, the

former actually suggests that the inflation cycle may be starting to bottom out. If

oil/energy should start to stabilize, there is also a case that we have seen the most of

deflationary pressures.

Inflation in 2014 the lowest since

1953

Source: Statistics Denmark

Is the inflation tide turning?

Source: Danske Bank Markets, Macrobond

Financial

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Norway – exporters over the moon

The drop in oil prices means that oil investment will fall by around 12% this year,

dragging mainland GDP growth down by around 1pp. However, the weaker krone that

has accompanied the slide in oil prices is excellent news for traditional exporters, and the

value of exports from the mainland economy grew by more than 6% q/q in Q4. Greater

profitability and market share will gradually push up production volumes and so the need

for labour at these businesses, helping offset the negative effects from lower oil

investment and soften the downturn in the Norwegian economy. How strong this effect

will be, and what the net result will be, will depend on how far oil investment falls, how

much the krone weakens, and how this impacts on mainland industry. If we are right in

thinking that oil prices will begin to recover in H2 this year, so reducing the downside

risk to oil-related industries, we should gradually see a somewhat stronger krone.

Mainland businesses benefiting from

weak krone

Source: Macrobond Financial

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Latest research from Danske Bank Markets

16/1 Research Denmark: The Danish peg is indisputable

There is no reason to expect Denmark to leave the peg vis-a-vis the euro despite the

monetary changes in Switzerland yesterday.

16/1 Yield Forecast Update - Denmark to cut twice after SNB move and more QE from

ECB

Monthly yield forecast update

16/1 Euro area outlook for 2015: Impact of broad-based QE

The expected ECB QE programme will support economic activity through a number of

channels and hence it strengthens our view of a stronger recovery.

15/1 Flash Comment Denmark: Denmark next in line to cut after SNB move

Downwards pressure on EUR/DKK is mounting following the SNB’s move today. It

supports our call for a unilateral Danish 10bp cut of the key policy rate to minus 0.15% in

Q1 this year.

15/1 Global Business Cycle Monitor: More signs of euro recovery

Leading indicators continue to suggest that the euro area and Japan are recovering and

thus converging a bit with the US economy. The US indicators have come away from

their high levels but still point to robust growth.

15/1 Euro area outlook for 2015: ECB will buy government bonds

The ECB is expected to announce government bond purchases at the meeting in January

as both of its two contingencies for further easing have been triggered.

14/1 Euro area outlook for 2015: Deflation but the good kind

The euro area slipped into deflation in December 2014 and we expect the inflation rate to

remain negative during most of 2015.

13/1 UK: CPI inflation was 0.5% y/y in December - lowest since May 2000

UK CPI inflation in December 2014 came out lower than expected at 0.0% m/m and 0.5

% y/y. Inflation is now at the lowest rate since May 2000.

13/1 7:02 Euro-area outlook for 2015: short-term weakness fades

The weakness in euro activity in 2014 was due to external factors, which affected

business sentiment and implied companies stepped on the brakes.

12 | 16 January 2015 www.danskeresearch.com

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12/1 Flash Comment Denmark: Inflation set to stay above that in the euro area

Inflation in Denmark was slightly higher than expected in December, lifted by temporary

factors.

12/1 Euro-area outlook for 2015: recovery despite deflation

We expect euro-area GDP growth to be above consensus in 2015 despite our view of

deflation in 2015.

9/1 Flash Comment US: Solid job growth but no inflation

Despite solid job growth, wage pressures are absent

13 | 16 January 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 0.9 0.4 0.9 2.2 0.3 2.8 3.8 0.6 5.1 2.3 44.5 6.82015 1.6 1.9 0.9 2.2 -0.1 2.3 2.9 0.6 4.9 -2.4 42.5 6.42016 2.0 2.0 0.6 4.0 0.1 4.2 4.6 1.5 4.7 -2.4 43.0 5.9

Sweden 2014 1.8 2.3 1.5 4.6 0.3 2.2 4.9 -0.2 7.9 -1.9 40.2 5.12015 2.0 1.6 1.5 3.4 0.1 3.2 3.7 0.3 7.6 -1.6 42.0 5.02016 1.9 1.8 0.8 2.1 0.0 5.0 4.5 1.2 7.3 -1.0 42.3 4.8

Norway 2014 2.6 1.8 3.3 1.2 0.4 0.4 2.6 2.1 3.5 - - -2015 1.8 2.0 2.5 -5.5 -0.1 0.8 3.8 2.8 3.7 - - -2016 2.3 2.2 2.2 1.3 0.0 0.9 3.3 2.0 3.7 - - -

Macro forecast, Euroland

Euroland 2014 0.9 0.9 0.9 0.6 -0.1 3.7 3.6 0.4 11.6 -2.6 92.7 2.52015 1.5 1.5 0.9 1.5 0.0 4.6 4.3 -0.1 11.4 -2.3 92.8 2.62016 2.1 1.1 0.7 5.4 0.0 4.2 4.1 1.6 10.9 -1.9 91.5 2.5

Germany 2014 1.5 1.2 1.1 2.8 -0.1 4.1 3.7 0.8 5.1 0.2 74.5 7.12015 1.9 1.9 1.1 2.1 0.0 5.5 5.4 0.2 5.0 0.0 72.4 7.12016 2.6 1.6 0.8 6.8 0.0 4.9 5.3 2.1 4.7 0.2 69.6 6.7

France 2014 0.3 0.3 2.0 -1.7 -0.1 2.1 2.9 0.6 10.4 -4.4 95.5 -1.92015 0.6 0.8 0.8 -0.8 0.0 3.4 3.2 0.1 10.4 -4.5 98.1 -1.92016 0.9 0.6 0.4 3.1 0.0 3.4 4.0 1.3 10.2 -4.7 99.8 -2.2

Italy 2014 -0.4 0.3 -0.2 -2.6 0.3 2.0 0.4 0.2 12.6 -3.0 132.2 1.52015 0.5 0.6 0.2 -1.4 0.0 3.7 2.3 0.1 12.6 -2.7 133.8 1.52016 1.2 0.5 0.4 3.4 0.0 4.3 3.8 1.0 12.4 -2.2 132.7 1.8

Spain 2014 1.3 2.3 0.8 2.5 -0.1 4.6 7.7 -0.2 24.7 -5.6 98.1 0.52015 2.3 2.4 0.3 4.8 0.0 6.0 7.0 -0.8 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 -0.2 -0.2 0.2 -4.5 - 1.5 -0.5 1.0 8.6 -2.2 59.5 -1.52015 0.5 -0.2 0.0 0.0 - 3.0 1.5 0.9 9.0 -2.2 61.5 -1.02016 1.3 0.5 0.0 3.0 - 4.0 3.0 1.2 8.8 -1.5 62.5 -0.5

Macro forecast, Global

USA 2014 2.4 2.4 0.0 5.3 0.0 3.2 3.6 1.6 6.2 -4.1 101.0 -2.32015 3.1 3.1 1.3 6.5 0.0 4.7 5.7 0.1 5.4 -2.9 104.0 -2.52016 2.7 2.8 0.8 5.6 0.0 4.5 5.3 2.6 4.9 -2.6 103.0 -2.6

Japan 2014 0.4 -0.9 0.3 4.2 0.2 7.9 7.0 2.6 3.6 -8.1 245.0 0.32015 1.2 1.0 1.1 0.7 0.3 7.2 3.5 1.4 3.5 -6.7 245.0 1.02016 1.6 1.4 1.2 0.8 0.4 7.6 7.0 1.7 3.3 -6.3 246.0 1.1

China 2014 7.4 - - - - - - 2.0 4.3 -1.1 40.7 1.82015 7.2 - - - - - - 2.2 4.2 -0.8 41.8 2.42016 6.8 - - - - - - 2.7 4.2 -0.8 42.8 2.3

UK 2014 3.0 2.3 1.1 7.8 -0.2 -1.6 -0.8 1.5 6.2 -3.5 80.0 -4.72015 2.8 2.5 0.7 6.1 0.0 2.4 3.9 1.5 5.5 -1.9 81.1 -3.52016 2.8 2.3 -1.0 7.5 0.0 4.7 4.7 2.0 5.5 -0.2 . -2.9

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

14 | 16 January 2015 www.danskeresearch.com

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Financial forecast

Source: Danske Bank Markets

Please note that the current FX forecast does not reflect the recent

event in Switzerland. An updated FX forecast will be realeased

during next week.

Bond and money markets

Currencyvs USD

Currencyvs DKK

USD 16-Jan - 641.1

+3m - 652.5

+6m - 663.8+12m - 635.3

EUR 16-Jan 116.0 743.5

+3m 114.0 743.9

+6m 112.0 743.5+12m 117.0 743.3

JPY 16-Jan 116.5 5.50

+3m 121.0 5.35

+6m 124.0 5.35+12m 126.0 5.06

GBP 16-Jan 151.8 973.4

+3m 148.0 978.8

+6m 147.0 991.3+12m 148.0 940.8

DKK 16-Jan 641.1 -

+3m 652.5 -

+6m 663.8 -+12m 635.3 -

SEK 16-Jan 811.0 79.1

+3m 815.8 80.0

+6m 821.4 80.8+12m 769.2 82.6

NOK 16-Jan 758.1 84.6

+3m 824.6 79.1

+6m 803.6 82.6+12m 726.5 87.4

Equity Markets

Regional

Price trend12 mth.

Regional recommen-dations

USA (USD) Strong growth & earnings, expensive 5-8% Neutral

Emerging markets (local curr) Commodity-related equities are pressured 0-5% Underweight

Japan Monetary easing, attractive pricing 10-15% Overweight

Europe (ex. Nordics) Stagnating economy, cheap valuation 5-10% OverweightNordics Cyclical profile, expensive 5-10% Overweight

Commodities

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2016

NYMEX WTI 54 58 66 74 78 80 82 82 63 81

ICE Brent 58 62 70 78 82 84 86 86 67 85

Copper 6,800 6,925 7,050 7,175 7,300 7,375 7,375 7,375 6,988 7,356

Zinc 2,325 2,350 2,375 2,400 2,425 2,450 2,450 2,450 2,363 2,444

Nickel 17,500 18,000 18,500 19,000 19,250 19,500 19,500 19,500 18,250 19,438

Aluminium 2,025 2,075 2,125 2,175 2,225 2,250 2,250 2,250 2,100 2,244

Gold 1,190 1,180 1,170 1,160 1,150 1,150 1,150 1,150 1,175 1,150

Matif Mill Wheat (€/t) 177 180 182 183 185 186 188 190 181 187

Rapeseed (€/t) 347 354 357 361 364 367 371 374 355 369

CBOT Wheat (USd/bushel) 565 575 580 585 590 595 600 605 576 598

CBOT Corn (USd/bushel) 385 395 400 405 410 415 420 425 396 418CBOT Soybeans (USd/bushel) 1,050 1,070 1,080 1,090 1,100 1,110 1,120 1,130 1,073 1,115

Medium

Medium

Medium 0-8%

Medium 0-5%

0-5%

0-5%Medium 0-5%

990

537

0.69

1.001.10

1.74

1.70

1.90

2.002.40

2.25

1.151.30

1.10

1.03

0.95

1.00

0.80

0.851.00

0.75

0.800.85

1.55

1.85

0.44

382

16-Jan

47

14,475

5,630

2,063

1,266

195

49

1,791

20162015

Currencyvs EUR

2-yr swap yield

Risk profile3 mth.

Price trend3 mth.

2.35

1.84

2.65

0.66

0.10

0.14

0.82

0.33

0.15

0.150.15

1.10

76.4

3.15

75.079.0

114.0

112.0117.0

139.0

139.0147.0

116.0

-

-

--

135.1

743.9

743.5743.3

940.4

879.1

850.0

930.0

900.0

920.0900.0

940.0

743.5

76.0

0.35

0.350.35

0.16

0.25

1.402.00

1.10

1.401.75

0.20

0.200.25

1.00

1.00

0.25

1.10

0.25

1.031.41

0.25

0.06

0.10

0.56

0.46

0.741.32

-0.02

-0.02

0.20

0.15

0.20

0.25

1.25

0.00

0.000.00

1.00

1.00

1.20

1.20

0.20

-0.02

0.55

0.751.10

0.05

0.50

0.30

0.00

0.10

0.25

1.00

0.18

0.19

0.10

0.25

355

Average

Key int.rate

0.25

0.25

0.501.00

1.00

0.05

0.05

0.100.10

0.50

10-yr swap yield

0.21

0.10

0.100.10

3m interest rate

1.20

0.05

0.10

0.50

15 | 16 January 2015 www.danskeresearch.com

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Calendar

Source: Danske Bank Markets

Key Data and Events in Week 4

During the week Period Danske Bank Consensus Previous

Sat 10 - 15 CNY New Yuan loans CNY bn. Dec 675 880 852,7

Sat 17 USD Fed's Lockhart (voter, dovish) speaks

Monday, January 19, 2015 Period Danske Bank Consensus Previous

1:01 GBP Rightmove House Prices m/m|y/y Jan -3.30%|7.00%

5:30 JPY Industrial production, final m/m|y/y Nov -0.60%|-3.80%

6:00 JPY Consumer confidence Index Dec 38.5 37.7

10:00 EUR Current account EUR bn Nov 20.5

Tuesday, January 20, 2015 Period Danske Bank Consensus Previous

3:00 CNY Industrial production y/y Dec 7.40% 7.40% 7.20%

3:00 CNY Retail sales value y/y Dec 11.90% 11.70% 11.70%

3:00 CNY Real GDP q/q|y/y 4th quarter 1.70%|7.30% 1.70%|7.20% 1.90%|7.30%

3:00 CNY Fixed assets investments y/y Dec 15.50% 15.70% 15.80%

10:00 EUR ECB survey of professional forecasters

11:00 DEM ZEW current situation Index Jan 13.0 12.0 10.0

11:00 DEM ZEW expectations Index Jan 40.0 39.0 34.9

16:00 USD NAHB Housing Market Index Index Jan 57.0 58.0 57.0

22:45 NZD CPI q/q|y/y 4th quarter 0.00%|0.90% 0.30%|1.00%

Wednesday, January 21, 2015 Period Danske Bank Consensus Previous

- JPY BoJ monthly economic report

- JPY BoJ announces annual rase in monetary base JPY trn 80 80 80

0:30 AUD Westpac Consumer Confidence Index (% m/m) Jan 91.1|-5.7%

3:00 CNY FDI y/y Dec 22.10% 22.20%

5:30 JPY All industry activity index m/m Nov 0.00% -0.10%

6:00 JPY Leading economic index, final Index Nov 103.8

10:30 GBP ILO Unemployment rate % Nov 5.90% 5.90% 6.00%

10:30 GBP Average Earnings 3Ms/YoY Nov 1.7% 1.4%

10:30 GBP Minutes from MPC meeting

13:00 USD MBA Mortgage Applications %

14:30 USD Building permits 1000 (m/m) Dec 1060K (1.00%) 1055K (0.30%) 1052K (-3.70%)

14:30 USD Housing starts 1000 (m/m) Dec 1070K (4.00%) 1040K (1.20%) 1028K (-1.60%)

16:00 CAD Bank of Canada rate decision % 1.00% 1.00%

16 | 16 January 2015 www.danskeresearch.com

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Calendar - continued

Source: Danske Bank Markets

Thursday, January 22, 2015 Period Danske Bank Consensus Previous

9:00 ESP Unemployment rate % 4th quarter 23.7% 23.7%

9:00 DKK Consumer confidence Net. bal. Jan 8 6

9:00 DKK Retail Sales m/m|y/y Dec 0.80%|0.80%

9:30 SEK Unemployment % Dec 7.40% 7.40%

9:30 SEK Unemployment s.a. % Dec 7.90% 7.80%

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 USD Initial jobless claims 1000

14:30 EUR ECB's Draghi holds press conference

16:00 EUR Consumer confidence, preliminary Net bal. Jan -10.0 -10.5 -10.9

Friday, January 23, 2015 Period Danske Bank Consensus Previous

- EUR Fitch may publish Belgium's debt rating

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

- EUR S&P may publish Belgium's debt rating

2:35 JPY Markit/JMMA manufacturing PMI, preliminary Index Jan 52.2 52.0

2:45 CNY HSBC manf. PMI, preliminary Index Jan 49.6 49.6 49.6

8:45 FRF Business confidence Index Jan 94.0

9:00 FRF PMI manufacturing, preliminary Index Jan 48.0 48.2 47.5

9:00 FRF PMI Services, preliminary Index Jan 50.0 51.0 50.6

9:30 DEM PMI manufacturing, preliminary Index Jan 51.8 51.6 51.2

9:30 DEM PMI service, preliminary Index Jan 52.5 52.4 52.1

10:00 EUR PMI manufacturing, preliminary Index Jan 50.9 51.0 50.6

10:00 EUR PMI composite, preliminary Index Jan 51.7 51.7 51.4

10:00 EUR PMI services, preliminary Index Jan 52.0 52.0 51.6

10:30 GBP Retail Sales m/m|y/y Dec -0.60%|1.60% 1.60%|6.40%

14:30 CAD CPI m/m|y/y Dec -0.50%1.70% -0.40%|2.00%

14:30 CAD Retail sales m/m Nov 0.00% 0.00%

15:45 USD Markit manufacturing PMI, preliminary Index Jan 54.0 54.0 53.9

16:00 USD Existing home sales m (m/m) Dec 5.05M (2.4%) 4.93M (-6.1%)

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

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

17 | 16 January 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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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 research report, including a sensitivity analysis

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