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Capital Markets Overview

Capital Markets Overview. December 2006 Martin Vozar. Global Trends. Commodities:

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Capital Markets Overview

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  1. Capital MarketsOverview December 2006 Martin Vozar

  2. Global Trends Commodities: • Crude oil raised from a mid of November on speculations possible output cuts by the OPEC may trim U.S. inventories. Crude oil for January delivery climbed by 12.5% from a mid of November. OPEC agreed to cut production by 1.2 million barrels a day from Nov. 1.

  3. Global Trends • Fixed income: • US: As expected, the FOMC heldpolicy rates unchanged at 5.25% on 12 December monetary policy meeting. New meeting is planed at 12/12/06. • Japan: The BoJ held its key interest rate at 0.25% on 16 November monetary policy meeting. • Europe:As expected, the ECB increased its key policy rate by 25bp to 3.50% on 7 December meeting.

  4. US – Economy • Initial jobless claims for the week ended of 3 December declined to 324.000 from a very high level 358.000 the week before 11/24 (11/17, 323,000). Four week avg. grew to 328.800 from 307.250 reached last month. • New home sales declining by –3.2% from September to an annual amount of 1.004 million that was slower than previously reported. • • The University of Michigan’s preliminary index of consumer sentiment was slightly below expectations and decline from 92.1 the prior month to 90.2 in December. • The ISM’s index of non-manufacturing business, which account for almost 90 percent of the U.S. economy, rose to 58.9 last month, from 57.1 in October.

  5. US – Economy • American CPI prices fell last month. The CPI MoM dropped –0.5% in October following -0.5% decrease in September. The Core CPI decreased to 0.1% for a fourth consequently month a row. • Headline YOY CPI prices decreased to 1.3 percent in October (September 2.1%). Core prices dropped to 2.7 percent (September 2.9%). • Headline YOY PPI fell in October by -1.6% from +0.6% a month earlier. The PPI core decreasedin October to -0.9% (MoM).

  6. US – FX Market • The dollar slid to the lowest in almost one and half year against the euro on anticipation further evidence of a cooling economy will validate the Federal Reserve’s decision to keep borrowing costs unchanged and increased probability of early rates cut. The FED paused after a two-year series of rate increases in August.

  7. US – Fed funds rate & rates forecast • Fed leave’s its benchmark interest rates at 5.25% on 25 October FOMC meeting. • Yield of the U.S. treasuries are decreased from last month levels. Mainly on short and mid term maturity.

  8. US – Bond Markets vs FED’s Rates

  9. US – Bond markets spread

  10. US - Yield Curve Changes

  11. EU – Economy • Unemployment in Euro zone unexpectedly fell to a five-year low in October as optimism in the economic outlook encourage companies to hire. The jobless rate in the EMU dropped to 7.7% • Inflation in EMU accelerated in November for the first month in seven as falling oil prices exhausted. CPI rose on a MoM basis by 0.1 percent. Core CPI was constant at 1.5% on a YoY basis. • M3 growth in Euro zone dropped in October. The M3 reached 8.5% from a year earlier after gaining an annual 8.5 percent in September. • In November, the German IFO survey unexpectedly rose in November, matching a 15-year high, as export and investment prospects improved in Europe’s largest economy. The IFO climbed to 106.8 from 105.3 in October.

  12. ECB actions & rates forecast • As expected, the ECB changed basic rate by 25bpto 3.50% on 7 December meeting. ECB Rates Forecast

  13. EMU - Bond Markets vs ECB’s Rates

  14. EMU – Bond markets spread

  15. EMU - Yield Curve Changes

  16. US vs. EU Yield Curve changes

  17. US vs. EU 10y Bonds Spread changes

  18. Slovak MM, Fixed income and FX • November CPI increased to 4.3 % from October’s level 3.7% YoY. The monthly CPI increased by 0.6% (0.2% in October). The Core CPI increased to 0.4% MoM (0.1% in October). • October PPI decreased to 7.1 % from September’s level 7.5% YoY. The monthly PPI increased by 0.1% (-0.7% in September). • GDP grew a record 9.8% in 3Q 2006 as companies boosted inventories. 2Q 2006 +6.7%. • Budget balance in November dropped to –7.0 bill. SKK. • Unemployment rate fall under to 9.3% in October, 9.8% in September.

  19. Slovak MM, Fixed income and FX • The Slovak koruna rose to a record against the euro after report showed very strong expansion of GDP. The Slovak koruna has gained 7.3 percent versus EUR in the past year. The SKK compared with the American dollar gained more than 20% in the past year.

  20. Slovak MM, Fixed income and FX

  21. Slovak MM, Fixed income and FX

  22. CEE Central banks actions • Central Banks from CEE region, interest rates and new hike expectations: • SKK unchanged 4.75 %(new meeting 12/19/2006, exp. +25bp) • HUF unchanged8.00%(new meeting 12/18/2006, exp. +25bp) • PLN unchanged 4.00%(new meeting 12/20/2006, stable exp.) • CZK unchanged 2.50%(new meeting 12/20/2006, stable exp.)

  23. CEE Yields

  24. CEE Yield curves comparison

  25. CEE Exchange rates & 3M Yields (52W)

  26. Credit Markets Overview

  27. Credit trends • Credit spreads tightened further until the end of October. But, during the November the spreads started to widen slightly. At the end of the month they returned to their initial levels as at the beginning of the month. • The market is relatively stable. Even though we see the risk of potential spread widening in the future.

  28. Credit trends Fitch Global Corporate Finance Rating Actions: • Global corporate finance rating performance proved mostly positive in the first three quarters of 2006 • Upgrades dominated global corporate finance rating activity for the 2006 three-quarter period with 180 total downgrades and 393 upgrades.

  29. Investment portfolio managementContacts:Jan Pataky Head of Investment portfolio management (+421 2) 5850 5463 pataky.jan@slsp.sk Andrea Osuchova Portfolio Manager (+421 2) 5850 5392 osuchova.andrea@slsp.skLubomir Golany Portfolio Manager (+421 2) 5850 5412 golany.lubomir@slsp.sk Alena Teplicanova Quant Analyst (+421 2) 5850 5382 teplicanova.alena@slsp.skMartin Vozar Research (+421 2) 5850 5388 vozar.martin@slsp.skMichal Klestinec Research (+421 2) 5850 5403 klestinec.michal@slsp.sk

  30. Disclaimer:This report is meant as supplementary economic information for our clients and is based on information available on the date of printing. Our analysis and conclusions are of a general nature and do not take into account the individual circumstances or needs of investors such as income potential, tax situation or the level of risk he or she is prepared to undertake. Information about previous performance does not guarantee future performance. Although we judge our sources to be reliable, we do not accept any responsibility for the completeness and accuracy of our information. This report is neither an offer to sell nor an offer to buy any securities. Erste Bank der oesterreichischen Sparkassen AG confirms that it has approved any investment advertisements contained in this material. Erste Bank der oesterreichischen Sparkassen AG is regulated by the Financial Securities Authority for the conduct of investment business in the UK.

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