The strong dollar has wiped billions of dollars off the second-quarter sales of US companies, prompting many analysts to cut their earnings guidance for the remainder of the year.
The list of bellwethers stomaching multimillion or multibillion-dollar hits has grown in recent days after the US currency surged to its highest level in 20 years.
IBM, Netflix, Johnson & Johnson and Philip Morris were among the companies to warn last week that the strengthening dollar could weaken revenues in the coming months.
That group is expected to swell in the coming days as titans of the technology industry such as Apple, Google-owner Alphabet and Microsoft — which generate a substantial portion of their business outside of the US — release quarterly results.
The currency shock has muddled an earnings period that was being closely studied for signs of a weakening global economy, as high inflation and tighter monetary policy weigh on business and consumer demand.
The dollar has been buoyed by the Federal Reserve, with policymakers in Washington quickly raising interest rates in an effort to cool inflation, which in June hit a 40-year high. They are expected to deliver another jumbo rate rise this week.
US companies with large businesses abroad suffer as the strong dollar lowers the value of their international sales and makes them less competitive compared with local rivals.
Go deeper The Fed must emulate the tactics of Volcker’s fight against inflation, writes former chair of the US Federal Deposit Insurance Corporation Sheila Bair.
Five more stories in the news
1. UK and France to get board seats on satellite tie-up The governments in Paris and London will each take up a seat on the board of an enlarged European satellite operator which aims to challenge billionaire space entrepreneurs Elon Musk and Jeff Bezos. Eutelsat and OneWeb confirmed today they are in talks to merge and bring low earth orbit capabilities to more customers.
2. China plans three-tier data strategy to avoid US delistings China is preparing a system to divide US-listed Chinese companies into three separate groups, two people familiar with the plans have told the Financial Times. The companies would be divided into those with non-sensitive data, those with sensitive data and others with “secretive” data which would have to delist. The plan is a potential concession by Beijing to try to stop American regulators from delisting hundreds of Chinese groups.
3. Jair Bolsonaro kicks off re-election bid The far-right Brazilian president launched his re-election campaign in Rio de Janeiro yesterday in front of thousands of supporters by burnishing his conservative credentials while making overtures to women voters. Bolsonaro faces an uphill battle if he is to win October’s election, with polls putting him 10 to 15 percentage points behind leftwing former leader Luiz Inácio Lula da Silva.
4. US military chief warns of ‘significant’ increase in Chinese aircraft intercepts General Mark Milley, chairman of the US joint chiefs of staff, said China was conducting “dangerous intercepts” against American military aircraft and ships and was also targeting Canada, Australia, Japan and Washington’s other allies. Meanwhile, the controversy surrounding Nancy Pelosi’s planned trip to Taiwan is deepening. Several people suggest in private that China is threatening possible military action if the trip goes ahead in August.
5. Sergei Lavrov counters accusation Russia is ‘exporting hunger’ Russia’s foreign minister yesterday met Egyptian president Abdel Fattah al-Sisi as part of a tour of several African nations designed to counter western accusations that Moscow’s invasion of Ukraine has led to a global food crisis. Lavrov’s comments came on the day Russia admitted responsibility for a series of missile strikes that hit the key Ukrainian port of Odesa. Two cruise missiles hit the port a day after Moscow signed a deal allowing Kyiv to resume grain exports.
The day ahead
Market outlook Future trading suggests Wall Street is set for a quiet start to the week as investors await the Federal Reserve’s latest interest rate decision and the impact of tighter monetary policy on surging inflation. The S&P 500 finished 0.9 per cent lower on Friday, taking its losses for the year to 17 per cent.
Texas manufacturing: A regional survey from the Dallas Federal Reserve will give an insight into the Lone Star state’s manufacturing activity. Big businesses, including Caterpillar and Chevron, have been expanding in Texas, drawn by the promise of low taxes and less regulation. But Texas’s power grid operator warned earlier this month of possible rolling blackouts due to the heatwave.
Company earnings Whirlpool, the home appliance manufacturer, is expected to report that revenue in the second quarter slid 2 per cent from a year ago to $5.2bn. The company earlier this year raised prices in all regions where it does business to offset rising raw material costs and made the decision to exit Russia in the wake of its war in Ukraine. Logitech also releases earnings and investors will be looking for any insights on consumer spending from the computer hardware maker.
UK leadership race The BBC hosts a live head-to-head TV debate between Rishi Sunak and Liz Truss, the final candidates in the running to replace Boris Johnson as prime minister. Find out who their cabinet favourites are.
Pope Francis apologises to indigenous peoples of Canada The pontiff is expected to apologise to the indigenous people of Canada for generations of abuse and cultural suppression at Catholic residential schools across the country. Pope Francis will visit the small Alberta prairie community of Maskwacis, site of the former Ermineskin Indian Residential School, now largely torn down. (Reuters)
What else we’re reading
Companies cannot win America’s culture wars US companies have for decades written cheques to politicians on both sides of the political divide to buy access and advance their interests. Yet executives are increasingly caught between two sides on topics they never wanted to be debating, like abortion. Some business leaders are now wondering whether to lie low.
Jane Fraser keeps Citigroup out of harm’s way — for now Global financial markets have had a turbulent year, and for Wall Street veterans that raises a familiar concern: How is Citigroup going to screw up this time, writes US Financial Editor Gary Silverman. But to many analysts’ and investors’ surprise its recent results were better than expected. A good start for chief executive Jane Fraser and her new backer Warren Buffett.
Investors, tread warily in emerging markets After eye-popping price drops in the first half of the year, more analysts are recommending higher across-the-board exposure to emerging market assets. But historically cheap pricing may not be enough given macroeconomic headwinds, writes Mohamed El-Erian.
Rethinking insurance: how prevention is better than a claim The insurance sector is evolving, with technologies such as wearable devices making it easier to collect real-time data on customers. This has become instrumental in developing schemes focused on preventing claims, such as offering consumers incentives for physical activity.
Imposter syndrome is actually the human condition A bit of self-doubt is part of a healthy professional life, so why do we label it as a disease? Women, in particular, are fed up with being told how to change to operate better in a given environment, writes Viv Groskop, because it ignores the reality of an imperfect world.
How to lead
Ottoline Leyser is the Regius Professor of Botany at Cambridge university. The 57-year-old professor is also head of the body trying to turn Britain into a “science superpower”. She thinks we have valuable leadership lessons to learn from vegetables and believes in the value of collaborative research and supporting people who take “astonishing intellectual risks”.
Thank you to those readers who voted in Friday’s poll. A total of 85 per cent supported blocking Donald Trump from running for the presidency in 2024. On the same day as the poll ran, Trump’s former political adviser Steve Bannon was convicted of contempt of Congress. I’ll be back in your inboxes tomorrow — Gordon.
