Here's the outlook for corporate financial results as the worsening global economy is poised to lift the US dollar higher
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Jason Ma
Oct 12, 2022, 16:43 IST
The US dollar hit 20-year highs this year.NiseriN/Getty Images
Good morning, this is Jason Ma and today's edition highlights the outlook for corporate financial results as the US dollar rises.
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The worsening prospects for the global economy point to continued strength for the greenback. The International Monetary Fund predicted Tuesday that growth worldwide will slow to 2.7% in 2023 from 3.2% in 2022.
"As the global economy is headed for stormy waters, financial turmoil may well erupt, prompting investors to seek the protection of safe-haven investments, such as US Treasuries, and pushing the dollar even higher," the IMF warned.
Here's what a strong dollar means for stocks as earnings season heats up.
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1. Don't set your hopes too high for quarterly sales, according to Goldman Sachs analysts, who said in a note that the strong dollar will weigh on S&P 500 companies, which are often multinational corporations with significant international exposure.
The dollar has been among the best-performing assets of 2022, largely on the back of aggressive rate hikes by the Federal Reserve. And in the third quarter, the trade-weighted US dollar rose by 9% from a year ago, Goldman said, warning that fewer S&P 500 firms will beat consensus sales forecasts.
"The move in FX means most firms will announce 3Q results in regular terms but will undoubtedly emphasize their performance on a 'constant currency' basis," according to the note.
In an interview with the Financial Times, the premier also dismissed speculation he would cut short BOJ Governor Haruhiko Kuroda's tenure.
While most central banks are raising interest rates to combat high inflation, the Bank of Japan has kept interest rates in negative territory and has maintained a cap on its 10-year yield via bond purchases to fight deflation.
5. DoorDash, Lyft and Uber all fell Tuesday after the Labor Department unveiled a proposal on how companies classify workers. The proposed rule would base the determination of whether to classify a worker as a contractor or employee on a broad assessment, such as if the gig work is an "integral" part of a company's business. That could ease the way to reclassifying drivers from independent contractors to full-scale employees, entailing additional costs and requirements.
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6. The Fed needs more than a plunging market to end its aggressive current rate hike policy, Ned Davis Research said in a note. Instead, the Fed likely needs one of three things to happen: evidence that inflation is headed lower, softness in the labor market, or an inability for companies to get funding. Until then, it's premature for investors to call a peak in bond yields.
7. Vladimir Putin's plan to weaponize Russian gas supplies against Europe has failed, according to Yale professor Jeffrey Sonnenfeld, who said the EU now sources just 9% of its gas from Russia, down from 46% before the war. And with China not rushing to build more gas pipelines to make up for Russia's lost sales, "the only losers from this gas blackmail are Putin and his enablers," he wrote in a Financial Times column.
10. The US Dollar Index has been rallying over the past week after coming down from 20-year highs. The recent moves track those of the 10-year US Treasury yield, which slid last month after the Bank of England announced emergency gilt purchases. Take a look at the greenback's relentless advance of the past year and a half.
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Curated by Jason Ma in Los Angeles. Feedback or tips? Email jma@insider.com.
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