• Markets:

    −Market sentiment dropped further yesterday as turmoil in the Spanish banking sector added to signs of a deepening of the euro crisis. Demand for safe assets continues to weigh on the euro and USD and JPY appreciated further yesterday. EUR/USD dropped below 1.24 and trades at 1,2395 this morning, the lowest level since July 2010 and USD/JPY dropped back below 79. Markets direction is all most one way traffic at the moment and the only thing that could change the game right now seems to be a policy response. We might see some support for the euro when the expected ‘yes’ in the Irish referendum is (most likely) confirmed by the exitpolls this morning and officially tonight. However, any euro performance is expected to be short-lived and we would continue to sell both EUR/USD and EUR/GBP on up-ticks.

    −European leaders and central bankers speaks more and more openly of a possible Greek euro exit. Yesterday, the Danish central bank governor, Niels Bernstein, in an interview on Bloomberg assured that the Danish Krone will survive in case of a breakup of the euro. According to Niels Bernstein the central bank will continue to intervene and cut interest rates if necessary.

    −We expect that the current financial stress will continue and that the inflow into kroner will continue as well and the likelihood of a new interest rate cut by the Danish central bank is increasing day by day. We think the probability of an independent Danish rate cut today is close to 50% with risk in our view slightly tilted towards a cut. If we see a rate cut, renewed performance for DGSs and lower money market rates are expected in Denmark. EUR/DKK is not expected to react much. However, the marginal move higher in EUR/DKK yesterday could point in the direction that Nationalbanken waits with its independent rate cut until next week when the ECB is expected to cut rates and Nationalbanken will have to change rates anyway.

    −We recommend DKK based clients with net EUR expenses to utilize current negative interest rate spread against EUR and buy EUR on 12M forwards. See next page for a 12M strategy with risk of 12M extension.