America’s Loss Is Europe’s Gain

America’s Loss Is Europe’s Gain
Carl Hazeley

over 2 years ago3 mins

  • Data out of the US is showing the economy slowing down, especially in areas most sensitive to a spreading Delta variant.

  • That could force investors to look elsewhere for “coronavirus recovery” trade ideas, and focus on the opportunity in Europe.

  • Current US worries could spread to Europe, though, so you might be able to profit either way using share options to bet on eurozone coronavirus recovery winners.

Data out of the US is showing the economy slowing down, especially in areas most sensitive to a spreading Delta variant.

That could force investors to look elsewhere for “coronavirus recovery” trade ideas, and focus on the opportunity in Europe.

Current US worries could spread to Europe, though, so you might be able to profit either way using share options to bet on eurozone coronavirus recovery winners.

Mentioned in story

There’s been a lot of talk about the Delta variant’s risk to US economic growth, and new data is showing that it could already be having a negative effect, giving spending in key “reopening categories” – sectors and subsectors that stand to benefit as economies return to their pre-pandemic state – a knock. But dig into this data a little deeper, and you’ll start to see a very interesting opportunity start to take shape.

1. Airlines

The number of travelers moving through airport checkpoints fell to its lowest in over three months last week. That could be down to the end of summer vacations, sure, but look more closely and you’ll see that bookings have slowed down and cancelations have risen. And with some airlines specifically citing Delta as a concern, it’s hard not to lay the blame at the variant’s feet.

Source: Bloomberg
Source: Bloomberg

2. Hotels

Hotel occupancy has now been on the decline for four weeks in a row, according to STR. Lower room prices don’t seem to be helping much, either: they’ve been falling for the last three weeks. In fact, occupancy is way down versus the same time in 2019 across the largest major US cities.

Source: Bloomberg
Source: Bloomberg

3. Restaurants

Unlike hotels and airlines, restaurant data tells you what’s going on locally. And according to OpenTable’s data on seated, eat-in diners, there’s been “a pronounced decline in late July and August”. The company went on to say, “While several factors could be at play here, we believe the primary driver of the downturn is diners’ concerns about the rise in Covid cases.”

Source: Bloomberg
Source: Bloomberg

4. Jobs

US jobs data has generally been stronger than expected this year, as the economy bounces back and jobs that were lost get refilled. But you might want to look more closely at jobs that require close contact with others: there’s been a decline in postings on jobs board Indeed for things like dental office and child-care jobs, where it’s difficult to steer clear of the virus. And if people keep cutting back on shopping, travel, and, eating out, other job postings could start to dry up too.

Source: Bloomberg
Source: Bloomberg

What’s the opportunity here?

All of this data is in keeping with some recent analysis from Goldman Sachs, which has pointed out that America’s “stay home” categories are growing quickly again, while the country’s reopening categories are shrinking.

Source: Goldman Sachs
Source: Goldman Sachs

But here’s what’s interesting: it’s the completely opposite story in Europe. In fact, recent data showed reopening categories improving, with domestic European activity levels – activity that doesn’t involve crossing international borders – actually remaining above pre-pandemic levels.

Source: Goldman Sachs
Source: Goldman Sachs

Simplistically, then, you might want to buy European stocks likely to benefit from a full reopening, however gradual it may be. These stocks (dark blue) have been lagging the European stock market (light blue) as a whole.

European reopening beneficiaries
European reopening beneficiaries

US worries could spread to Europe in a heartbeat, mind you, and the Delta variant can spread even faster. So you might worry buying any stocks would leave you exposed to increased volatility and the uncertain direction of markets.

That’s where share options could help: option prices for stocks and sectors related to the reopening are – despite the rise in cases – near pandemic lows, making now an attractive time to buy.

Options give you a way to profit from increased volatility. So if prices rise, you can execute your right to buy and pocket a gain. But even if they don’t rise high enough – or if they fall – the value of your options should rise in line with volatility. So either way, you could eke out a profit.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG