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Today's big stories

The German economy surged back into growth last year
You might want to bet on European stocks over American ones this year, and here's why – Read Now
JPMorgan kicked off earnings season with better-than-expected results

Hot Dog!

What’s Going On Here?

Data out on Friday showed Germany's economy bounced back into growth last year, and here’s hoping the wurst is behind the country.

What Does This Mean?

Germany’s economy went from shrinking 4.6% in 2020 to growing 2.7% last year. That’s a definite improvement, but it’s still way behind the 4.5% economists are expecting from France, Italy, and Spain. Then again, Germany’s economy is much more dependent on manufacturing, which has been hit hard by supply bottlenecks over the past year – not least the chip shortage that forced its carmakers to furlough a fifth of their workers. Mix in the country’s highest inflation in 30 years, and you can see why Germany might end up lagging behind. Still, there might be light at the end of the Eurotunnel: Germany’s central bank thinks the country’s economy will surge after spring and grow 4.2% this year.

Why Should I Care?

The bigger picture: It’s not just Germany.
It can’t be easy for Germany to see an ex (a Brex?) doing so much better, with data out on Friday showing that the UK economy returned to pre-pandemic levels in November. The country’s services, manufacturing, and construction sectors all grew more than expected between October and November. Issue is, the data reflects a pre-Omicron state of affairs, and economists aren’t optimistic about what’s happened since: they reckon the economy will actually have shrunk in December and January.

For markets: In for a penny…
That data could convince the Bank of England that the UK economy is strong enough to raise interest rates again next month – something the European Central Bank seems determined to avoid until 2023. And since the prospect of higher interest rates – and therefore higher returns on investments – makes a country’s currency more attractive to international savers and investors, the British pound has found itself hovering around its highest level relative to the euro in two years.

You might also like: Six ways to prepare for breakneck interest rate hikes.

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Analyst Take

Can Europe Finally Beat America In 2022?

Stéphane Renevier, Analyst

What’s Going On Here?

Europe hasn’t exactly put up much of a fight against America in the past.

If you’d invested in US stocks over the past 3 years, you’d have made an 80% return. Compare that to Europe’s 35%, and it’s clear the region’s been out for the count.

But this could be the year Europe picks itself up and starts swinging again.

For one thing, its stocks are valued much more attractively than their American counterparts, whose prices are sky-high by most metrics.

And for another, US stock prices are at risk because of the looming threat of interest rate hikes. America’s stock market is far more dependent on at-risk tech stocks, after all.

So that’s today’s Insight: why Europe might finally beat the reigning champ, and how to invest in the region if you want to back the underdog.

Read or listen to the Insight here

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