almost 3 years ago • 3 mins
Fresh data showed the US economy was firing on all cylinders again last quarter, even as Europe surrendered to a double-dip recession.
What does this mean?
The US economy grew at an annualized rate of 6.4% last quarter – a marked acceleration from the quarter before. That was largely down to an 11% uptick in the biggest contributor to the US economy: consumer spending. Clearly, then, the second government stimulus check and rapid job growth have worked wonders.
Europe wasn’t quite so lucky: its economy shrank 0.6% from the quarter before, officially plunging the region into a “double-dip” recession – that is, two periods of contraction separated by a brief stint of expansion. “My bad,” said Germany: Europe’s biggest and worst-hit economy shrank by 1.7% as consumers halted their spending till the sitüation sörts itself out.
Why should I care?
The bigger picture: The gap between both economies is growing.
The regions’ diverging economic performances mainly comes down to the diverging success of their vaccine rollouts. Almost a third of the US population has been fully vaccinated, which has allowed many states to relax their pandemic restrictions. Compare that to major European economies like Germany, France, and Italy, where less than 10% of the populations have had both jabs. At this rate, economists reckon, Europe won’t make up the ground it’s lost from the pandemic until mid-2022 – while the US should be back up to speed in the next few months.
Zooming in: Big government isn’t going away.
The stimulus checks – along with various other support measures – are a big part of why US government spending grew by an annualized 6% last quarter. That’s the biggest jump since 2002, and the government isn’t stopping there: the US president’s recently proposed two more spending plans – one focused on infrastructure and the other on families – that would infuse trillions more dollars into the country’s economy over the next decade.
Keep reading for our next story...
Barclays reported a better-than-expected quarterly profit on Friday, but investors saw something very different when they squinted more closely at the British investment bank’s results.
What does this mean?
It’s true, Barclays’ profit came in 30% higher than expected, and its stock trading segment’s revenue grew twice as fast as those of its rivals last quarter. But that’s not quite the whole story. See, the revenue it makes from two of its major businesses – advising companies on raising money and enabling investors to trade bonds, currencies, and commodities – only grew about half as fast as other banks. And given that French bank BNP Paribas also saw revenue from its bond, currency, and commodity trading business drop off, investors seemed to take it as a sign that both banks were losing market share – and they sent both companies’ shares down.
Why should I care?
For markets: Investors made a rod for banks’ backs.
Neither BNP Paribas nor Barclays’ results were bad exactly, but investors had been hoping for something outstanding. After all, European banks HSBC, Santander, and Deutsche Bank all reported strong earnings last week, with the latter even posting its best quarter since 2014. That preemptively lifted investors’ expectations, and the region’s banking stocks along with them.
The bigger picture: Activist investors may have had a point.
The drawback of a riskier investment banking segment like trading is that a favorable environment can vanish as quickly as it appeared, just like it did for Barclays. That’s partly why a prominent activist investor was pushing for the bank to focus on the reliable – if unexciting – business of savings and loans. And now that rising bond yields are driving up that business’s profitability, the activist in question may feel vindicated…
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.