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King Dollar - Be Careful What You Wish For

It's so good to be the cleanest dirty shirt, right? Wrong...



As the dollar has strengthened in recent weeks, so the performance of stocks in the S&P 500 most dependent on overseas revenue has collapsed... and furthermore, a strong dollar implies (all else being equal) a weaker oil price and as is already evident from Energy stocks, likely means significant capital-spending cutbacks among E&P firms...

Not exactly the escape velocity, rates will rise, Fed is only leaving coz things are so awesome, King Dollar meme now is it...

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As Barclays previously warned...  it is the root cause of dollar strength that is most important

While the S&P 500 may not be correlated to the dollar and translation may be dismissed as accounting, dollar strength is important, in our opinion, because it is a symptom of decelerating international economic growth. This is particularly true for Europe, which is the second largest market for S&P 500 companies. European growth has continued to slow and our 2014 GDP estimate is now just 0.7%. In addition, deflation remains a concern, with recent inflation readings of just 0.5% and long-term expectations falling below 2%. Outside of Europe, China has slowed, Japan is growing at just 1.1%, and Brazil is grappling with recession.


For the S&P 500, which derives upwards of 30% of sales from outside the U.S., decelerating international growth is surely a risk.



Source: Bloomberg