Daily Brief: Germany's Been Through Some Ups And Downs, But Here's Hoping The Wurst Is Behind It

Daily Brief: Germany's Been Through Some Ups And Downs, But Here's Hoping The Wurst Is Behind It

about 2 years ago3 mins

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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.

Germany GDP

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.

UK GDP

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.

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JPMorgan Kicked Off Earnings Season With Better-Than-Expected Results

JPMorgan image

JPMorgan reported better-than-expected earnings on Friday, so what’s a US investment bank got to do to get a positive reaction around here?

What does this mean?

There were deals akimbo last quarter, and JPMorgan’s investment banking division – which advises on mergers and acquisitions and charges fees for the privilege – duly saw its revenue climb by a better-than-expected 28% last quarter compared to the same time in 2020. The bank added $1.8 billion in loan loss reserves to its bottom line too – that is, cash it had put aside during the pandemic in case customers couldn’t cover their debts. All in all, JPMorgan’s profit topped expectations last quarter, helping take 2021’s full-year profit to a record high.

And yet. Investors still sent the investment bank’s stock down 3% after the announcement, probably because the results beat expectations by the smallest margin in seven quarters. In fact, JPMorgan would’ve missed estimates altogether if not for the release of that $1.8 billion – and any leftover loan loss reserves won't last forever…

Bank stocks
Source: The Wall Street Journal

Why should I care?

The bigger picture: Let earnings season begin.

JPMorgan wasn’t the only banking giant to provide an update on Friday: Wells Fargo and Citi also reported better-than-expected results, if for very different reasons. The dealmaking frenzy helped drive revenue from Citi’s investment banking segment 43% higher than the same time last year, while rising demand for loans saw Wells Fargo lend 5% more cash to customers in the second half of the year.

For markets: Start as you mean to go on.

JPMorgan’s lukewarm reception wasn’t a surprise: investors have daft expectations of banks right now, given that this year’s all-but-inevitable interest rate hikes will allow them to make more on the loans they offer. Such is why an index tracking US bank stocks jumped more than 10% last week – its best start to a year on record. So consider this a warning shot: investors aren’t going to be forgiving of less-than-stellar results from finance’s heavy-hitters.

US bank stocks
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