The sector most sensitive to currency effects is the information technology segment. 58% of its turnover is generated outside the United States. In the United States, the strength of the note is causing a stir among several multinationals. The list of plaintiffs could grow with the results of the tech giants.<\/p>\n
What is happening in the currency market is starting to worry big American companies. Already faced with galloping inflation \u2013 which reached 9.1% in June \u2013 and an increasingly perceptible slowdown in global growth, they must now contend with the strength of the greenback.<\/p>\n
The dollar index \u2013 which compares it to a basket of other international currencies \u2013 has been soaring since June 2021. It has already gained almost 20% in just over a year and returned to its highest level in two decades. This enabled it, among other things, to achieve parity with the euro EURUSD 0.03% at the beginning of this month.<\/p>\n
This relatively exceptional rise is supported by two main factors. First, the dollar is considered a haven in case of shocks in the financial markets. It was, for example, strongly acclaimed in March 2020, when the health crisis caused a panic on equities.<\/p>\n
But what triggered this new run on the dollar were monetary policy expectations. The Federal Reserve (Fed) completely changed its tune last year to fight rising prices. And unsurprisingly, this attracts foreign investors looking for yield.<\/p>\n
Earnings Pressure<\/p>\n
This strength of the dollar is not at all to the liking of large American companies since they make part of their turnover outside the United States. According to Morgan Stanley’s calculations, each year-over-year percentage point increase in the U.S. dollar index translates to a 0.5 percentage point drop in earnings growth for the S&P 500.<\/p>\n
“The strength of the dollar comes at an inopportune time for companies already facing pressure on margins and increasingly weak demand,” said its analysts.<\/p>\n
Several American multinationals have already sounded the alarm. It said last week that exchange rates slashed its revenue by 6 points of growth for the second quarter. Or 900 million dollars flown away. And to warn that the negative impact on its balance sheet could amount to 3.5 billion dollars by the end of the year.<\/p>\n
Tech giants’ revenues under threat<\/p>\n
The pharmaceutical group Johnson & Johnson and the video-on-demand platform Netflix also alerted. And the list is very likely to grow this week with expected results from Apple, Coca-Cola and Microsoft. According to data compiled by FactSet, about 40% of the revenues of S&P 500 companies come from abroad. The sector most sensitive to currency effects is the information technology segment. 58% of its turnover is generated outside the United States.<\/p>\n
The question remains whether the rise of the dollar will continue over the next few months. Unlike in previous years, the authorities do not seem alarmed by the situation on the currency market, being more concerned about inflation. For its part, the greenback retreated slightly. After peaking in mid-July, the US currency recorded its worst weekly performance in nearly two months on a statistic showing a slowdown in economic activity.<\/p>\n","protected":false},"excerpt":{"rendered":"