Eurozone growth was weaker than expected in Q2, heightening concerns about the region’s recovery and adding to the big-picture considerations for a U.S. Federal Reserve that’s considering taking up interest rate policy next month under mounting pressure.
As for traders, their key consideration may be just who has the stronger economy right now.
"The economic data confirms the U.S. is still the best house on a bad block," says Sam Stovall, chief equity strategist at S&P Capital IQ.
"With U.S. economic growth at 2.3%, it’s still a half-speed growth rate when compared to longer-term averages,” he says. “Europe's growth is relatively anemic, but better than still being in recession.”
More Than a Coat of Paint?
As reported Friday, gross domestic product (GDP) growth in the eurozone slipped to 0.3% in Q2, missing the 0.4% that industry economists expected and marking a slowdown from the 0.4% logged in Q1. Economists were expecting at least a steady clip of growth following an aggressive bond-buying stimulus program from the European Central Bank launched in March.
Barclays downgraded its 2015 eurozone GDP outlook to a 1.3% year-over-year pace in the wake of the Q2 report.
The “bad block” of economies covers much of the globe. Europe and Japan continue to struggle; both of their central banks are still in easing mode. The U.S. remains the only advanced central bank in this group that’s expected to hike monetary policy rates in late 2015 or early 2016.
From All Angles
Traders looking for ways to play the economic differential might explore U.S. multinational stocks that offer domestic and international exposure farther afield than a single region (figure 1), says JJ Kinahan, chief market strategist at TD Ameritrade.
"U.S. multinational stocks offer some exposure to many countries without potentially risky overexposure to Europe," Kinahan says. "For instance, General Motors [GM] has less than 1% exposure to Europe, while having 47% of its revenues exposed to China.”