New Economy Banks & Old Habits

Couple of remarkable quotes I read today.

Let's start with bank equity analysts at Danske Bank:

The Swedish banks told the market in September that losses had peaked. It was confirmed by the Q3 reports. But do we believe that we have seen the worst? Do we believe that Swedish banks are able to come through as deep a recession as this with loan losses only reaching some 20bp on their Nordic books? If that is the case, Sweden has rewritten the text books and if there something the market loves it is the so-called new economy, where base rules are removed from the textbooks.

Despite remaining sceptical about the ‘Swedish miracle’, we don’t see any reason why a continued positive share price performance should not be supported by strong earning figures as long as the central banks stay on hold. And even the first couple of interest rate hikes would probably be interpreted positively as revenue-boosting by the market.

Smoking something? Or chewing?

Dominic Bryant, the economist at BNP Paribas, wrote on Spain, Germany and Eurozone today:

A continuation of old habits – wage indexation and a two tier labour market in Spain and export reliance in Germany is a sure fire way to undermine growth in the eurozone for years to come. The fact that in recent months we have seen something of a return to old patterns, highlighted by a widening in the Spanish trade deficit and German trade surplus, suggests there is a lot of work to do in this area. Simply relying on fiscal and monetary stimulus does not cut it.

And Anna Piretti, the economist at BNP Paribas, wrote on US CPI released yesterday:

Over the past year, consumer prices have generally surprised markets on the upside, as a series of special factors (the cash-for-clunkers program, a surge in tobacco taxes) and the recent rebound in commodity prices pushed consumer prices higher in spite of mounting spare capacity in the economy. The latest CPI reading extended this trend, with total and core CPI increasing by 0.3% m/m and by 0.2% respectively in October, one-tenth of a percent above market’s expectations. For both indexes, the upward surprise was largely the result of a surge in vehicle prices, which rose by 1.7% from their September levels, marking the largest monthly gain in almost 30 years. In addition, gasoline prices increased by 1.6%, providing further support to the headline CPI reading.

Click on chart to enlarge, courtesy of BNP Paribas.

EconomPic has been digging deeper the US CPI surface.

Think what you want!