Dollar dollar which is anjes for a US multinational company
Large US multinational companies must immediately begin to show the positive effects of the fall of the dollar in recent months, reversing the situation in recent years when the Greenback power has harmed the company with significant foreign income.
Dxy Dollar Index, which measures the power of Buck against six main currencies, down about 10% for this year, because the US trade policy is changing rapidly and concerns about US growth and government debt.
About half of the decline occurred since April 2, when US President Donald Trump announced import tariffs that were too large against trading partners who began to panic about investing in US assets.
For the April-June period, the index, which was highly weighted towards the euro, an average of 99.74, down 6.5% from the first quarter, the biggest decline like that in a row in a row in more than 30 years. The effect of the dollar slide is expected to begin to appear in the second quarter revenue season just took place.
While the fall of the dollar reflects investor concerns about the power of the US economic, it can help several companies. Weaker US currencies make it cheaper for multinational companies to change foreign profits into dollars, while also increasing the competitiveness of exporter products.
“This is a very big step,” said Greg Boutle, Head of US Equity & Derivative Strategy at BNP Paribas. “This will flatter a little income of this little quarter and also feed the way for guidance.”
The impact of the dollar on the overall income is usually small, but can grow more meaningful when the currency experiences a large swing.
Every 10% decline in the dollar is translated into a surprise of about 2%, at the S&P 500 level, according to estimates of the research company and Macro Hive strategy.
That will be welcomed by investors who are increasingly worried about the impact of income from trade policies and developing tariffs. The second quarter profit reporting season starts this week.
“Whatever the tapping guidance, skip or in the future will be without the FX effect, it will be a little better with that,” Boutle said.
The disadvantage of this year’s dollar, after a 7% increase in 2024, which injured the results of the company last year, surprised many market observers.
“Of course many companies come to the year assuming the sacred wind
That’s upside down. That’s positive for income, “said Patrick Kaser, a portfolio manager at the Global Brandywine.
While revenue growth is expected to slow down from the first quarter, weaker dollars can help balance the possible tariff effects.
Analysts estimate the growth of the second quarter revenue of 5.8% year-to-year compared to 13.7% in the first quarter, LSEG data shows.
Even in the first quarter, the dollar was a resistance to the growth of S&P 500-year-to-year revenue of around 1%, but now it can lift an income growth of around 0.5% in the second quarter, according to David Lefkowitz, the head of the US equity in UBS Global Management.
“If the dollar remains at these levels, the increase in the year-to-year base will be even greater,” Lefkowitz said, estimating the dollar could produce an elevator to the growth of S&P 500 years-to-year revenue of around 1% and 1.5% for each of the third and fourth quarters.
Foreign exposure
The S&P 500 company produced around 41% of their income from outside the United States, according to Factset.
Companies with a big exposure to the Asia-Pacific region, especially focusing on Euro, which appreciated 12% of money while Yen rose around 6%.
However, not all index constituents are equally influenced by the dollar swing.
The information technology sector is peak on the list with the most international revenue exposure, around 55%, followed by the material and communication service sector, respectively 52%and 49%, according to Factset.
For example, on Tuesday, BMO Capital Markets Analyst Brian Pitz raised the estimated growth of the second quarter revenue for Netflix NFLX to 17.2% from 16.4%, most of which were driven by weaker dollars. Netflix will report the results on Thursday.
Investors are divided based on the impact of a weaker dollar on stock prices. Some, like Lefkowitz UBS, believe that there are benefits that have been valued by Wall Street and will not significantly move the market during the income report, but others still anticipate positive encouragement.
“Many investors of the purchase side are clearly very aware of this, but however, we don’t think it is in the consensus number of the sales side,” said BNP’s Boutle.
“So we just think it created a mechanical tailwind for income.”
However, analysts warn not to calculate the large increase to the stock price of the beat of income driven by a weaker dollar.
Many companies, including chip makers, are established to benefit from weaker dollars, also the most vulnerable to the hit of the tariff, said Viresh Kanabar Macro Sarang Research Analyst.
Investors can also be preoccupied with potential impacts that can be seen by companies from the recent section of the Bill of Cutting Taxes and Sweeping Expenditures.
“In an environment where nothing else happens, the steps in the dollar will be important,” said Kaser Brandywine. “With all the other things that happen, I don’t think the effects of the currency will be as big as in an environment that may be calmer in terms of macroeconomic and geopolitics.”
Source: Reuters
