Rising tariffs and a depreciating dollar are casting a shadow over corporate profit expectations this earnings season, with potential for further losses in upcoming quarters. The dollar has hit a three-year low against the euro and a ten-year low against the Swiss franc, prompting concerns among European companies. This adds to the challenges faced by stock markets already grappling with economic slowdown risks due to trade policies.
With 60% of sales for companies in the STOXX 600 index coming from overseas, the dollar's devaluation is unwelcome. It reduces the value of U.S. earnings when converted to local currencies. Companies like SAP SE are particularly affected, as its CFO noted the dollar's depreciation poses a medium-term risk to earnings, with impacts expected to become more significant next year as currency hedges expire.
Heineken anticipates a strong euro could reduce its revenue by €1.72 billion this year. BioMerieux and WH Smith Plc have also highlighted exchange rate risks in their reports. Analysts predict the trade war could further weaken the dollar and potentially trigger a U.S. recession, contributing to an 8.6% decline in the S&P 500 this year and narrowing gains in European markets.
