Continental Europe has a reputation as a “bombed-out economic has-been”, says The Observer, so investors will be pleased to see that it is looking unusually sprightly. Euro-area GDP increased by an unexpectedly strong 0.6% in the first three months of the year.
That’s the fastest quarterly pace since 2008 and leaves both the UK and America standing. The jobless rate has fallen to 10.2%, the lowest since the peak of the euro crisis in 2011. Household consumption and business investment appear to have more than made up for a lacklustre global environment.
France did especially well, registering the biggest boost in consumption since 2004 and the highest business investment in at least five years. Meanwhile, Italy’s unemployment rate declined to a three-year low, fuelling hopes of an end to stagnation in the labour market.
Take US profits with some salt
S&P 500 reporting seasons are always worth keeping an eye on, says The Economist. The companies are “a barometer of the world economy” as they make up 33% of global market value and earn half their revenue abroad. But it’s important to bear in mind that the figures often aren’t quite what they seem. The reporting season “has become a carnival of confusion, obfuscation and fibbing that would make even a presidential candidate blush”.
All companies must file their results according to Generally Accepted Accounting Principles (GAAP). But the figure they like to present investors with, the so-called “adjusted” numbers, often contain a more generous interpretation of one-off charges, or other forms of “distracting propaganda”.
Sometimes there are several versions; General Electric, for example, has over six earnings numbers. The gap between reported earnings and the official GAAP profits is now around 30%, according to Morgan Stanley – the widest it has been since 2009. So investors in American firms should take the profit figures with a hefty pinch of salt.