U.S. dollar may be a headwind, but not a train
The chase by Frances Horodelski:
According to Sam Stovall, S&P Capital IQ, the U.S. dollar weighted index is now trading two standard deviations above its 200 day moving average [UTF-8?]– a relatively wide divergence which could set traders up for a pullback. Unfortunately, the net short positions against the U.S. dollar [UTF-8?]aren’t yet back to levels they were at in November although they continue to build - five weeks in a row for the short euro vs USD and Canadian dollar vs USD for four weeks according to [UTF-8?]Scotiabank’s FX strategist. The CAD short is the widest since last May. Short positions grow until they [UTF-8?]don’t and to bet against them is best to do so when they have peaked and turned down [UTF-8?]– [UTF-8?]doesn’t look like that is the case yet.
Investors will be hearing a lot about the strength of the U.S. dollar and the implications for multinational U.S. companies. Remember almost half of the S&P 500 revenue comes from outside the U.S. A rising dollar can crimp the return from those sales (a higher dollar results few euros for example being translated back). But, as in most things finance, it [UTF-8?]isn’t that simple. Remember companies hedge, they have costs in the local currency, profits [UTF-8?]aren’t immediately repatriated, there are debt offsets. So, while the U.S. dollar is a headwind for many companies (see [UTF-8?]Microsoft’s report from last night), it [UTF-8?]isn’t necessarily a train. And a final item. Again, according to Sam Stovall, a strong dollar encourages international investors to come to the U.S. [UTF-8?]– they see a strong economy and a strong dollar [UTF-8?]– win-win. Having said all that, so far in the past 12 hours we have seen negative FX commentary from Microsoft, United Technologies, Pfizer, Dupont and Procter & Gamble.
On another note, for the weak Canadian dollar, again, there are lots of things to consider. Canadian companies (many) have U.S. dollar denominated debt. This has just become a bigger load. A strong U.S. dollar can translate into a revenue win for some companies, but the low level of interest rates can be a negative for pension funds (i.e. a lower discount rate used for future liabilities can increase the present value of those liabilities increasing the underfunded nature of these plans). Again, these are complex calculations and [UTF-8?]aren’t immediate [UTF-8?]– but all get into the hopper of consideration.
As for news today [UTF-8?]– it will be driven by the earnings stories. Microsoft is weak (down 7%) as hot money leaves the room (stock up 30% in the past year) on an inline quarter but tough comparisons in the remaining quarters of the [UTF-8?]company’s fiscal year. Today there are 31 S&P 500 companies reporting from Caterpillar through 3M to Apple and Yahoo. In Canada, we have some earnings fun with Metro just releasing its first fiscal quarter with earnings of $1.35 vs $1.31, revenue beating estimates, same store sales +3.8%, a dividend hike (by a nickel) and a 3-for-1 split). Caterpillar misses by a dime but guides 2015 to $4.75 from a street estimate of $6.69 [UTF-8?]– ouch. They blame global economic sluggish for weak sales.
The economic calendar is full in the U.S. with durable goods, Case Shiller home price index, Markit services PMI, new home sales, consumer confidence. All market moving items. Meanwhile the 30-year U.S. treasury bond is trading right near an all-time low.
At BNN today [UTF-8?]we’ll highlight all the news and what it means for you. But also note that we will be covering trees (on Commodities), fixed income (Market Call), earnings (all day), the Fed (FOMC meeting tomorrow and no-one is expecting a rate move but considerable time might be quietly dropped in favour of just the patient wording) and the Super Bowl. The PBO (the Parliamentary Budget Office) will be releasing an indepth analysis of how low oil prices will hurt [UTF-8?]Ottawa’s bottom line. That is at 10 am eastern today.
Markets are down (more than 100 points) in New York as first, no one is at the office as everyone is staying home due to weather plus in the midst of earnings season there is a tendency to sell the news.
Finally, more potential bad news from Russia according to Stratfor. Nearly 20% of Russian banks (200) risk collapse in 2015 due to the collapsing ruble. February is a big month for the country when it comes to debt maturities according to Barclays. On February 2nd and 13th, the giant energy company Rosneft has $500M and $7 billion in debt due [UTF-8?]– the latter is the largest external debt payment of the year. On February 4th, Gazprom has a $958M payment (and another on June 1st). February 11th, a $328M convertible bond is due at TMK [UTF-8?]– although absolutely small, it is a financial challenge for the company. Lukoil has $1.5 billion due in June. Tough times.
Every morning Business Day Host Frances Horodelski writes a "chase note" to BNN's editorial staff listing the stories and events that willbe in the spotlight that day. Click here to have it delivered to your inbox before the trading day begins.
PROGRAM ALERT: [UTF-8?]Berman’s Call and Commodities have moved!
Berman’s Callwith Larry Berman and Pamela Ritchie now airs Mondays at 11am ET/8am PT.Commodities with Andrew Bell airs weekdays at 11:30am ET/8:30am PT. Click here to see [UTF-8?]BNN’s complete program schedule.
Tuesday January 27 AM Guest Line Up
7:30 am - The Street - Oil's Volatility
Bill Baruch, Senior Market Strategist, iiTrader
8:30 am - The Street - GoDaddy on why it's Super Bowl ad spendign is worth every penny
Barbara Rechterman, Chief Marketing Officer, GoDaddy
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Robert Kokonis, President and Managing Director, AirTrav Inc.
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