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US Dollar, JPY May Rise if Q3 Earnings Show Wounds from Trade War

US Dollar, JPY May Rise if Q3 Earnings Show Wounds from Trade War

2019-10-23 00:00:00
Dimitri Zabelin, Junior Currency Analyst
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US Dollar Forecast, Japanese Yen, Boeing Stock Price, Caterpillar Earnings –TALKING POINTS

  • US Dollar, Japanese Yen may rise if corporate earnings spook markets
  • Weaker earnings from industrial giants may highlight toll of trade war
  • China WTO complaint against US could undermine cross-pacific talks

Learn how to use political-risk analysis in your trading strategy!

The US Dollar and Japanese Yen may rise if corporate earnings from industrial giants Caterpillar and Boeing miss their Q3 estimates and highlight the costs of the US-China trade war. Globally, the manufacturing sector has been hit the hardest by the cross-Pacific trade dispute which is now finding itself in the thralls of another economic conflict between the US and EU.

Chart showing US Manufacturing PMI

Furthermore, Boeing also has to contend with ongoing investigations over two deadly crashes of its 737 MAX passenger jets. On October 17, share prices dropped over nine percent after news broke that the company may have withheld key information during the aircraft’s certification process. A poor earnings report could inspire liquidation across equity markets and place a premium on anti-risk assets like JPY and USD.

Want to learn more about equity markets? Be sure to follow @PeterHanks on Twitter!

Boeing Stock Price – Daily Chart

Chart showing Boeing Stock Price

Boeing stock price chart created using TradingView

As for Caterpillar 3Q earnings, a softer print may speak to a wider underlying weakness afflicting the US economy. As the world’s largest construction and equipment manufacturer, the company serves as a bellwether for industrial production, a crucial part of global growth that is downstream from the services sector. Therefore, a weaker revenue stream may amplify global growth fears and boost haven-linked assets.

The IMF and World Bank continue to warn policymakers that the trajectory for the global economy continues to be tilted to the downside as major powerhouse economies experience a “synchronized slowdown”. The crisis lender recently published the weakest post-recession growth projection for at 3.3 percent for 2019. Companies and economies that are positioned at the beginning of the global supply chain are feeling the heat.

Caterpillar Stock Price Down Over 22 Percent Year-to-Date

Chart showing Caterpillar Stock Price

Caterpillar stock price chart created using TradingView

By far the biggest headwind to the global economy is the US-China trade war and echoing disruption of cross-border supply chains. Despite both sides coming close to a “Phase 1” deal, a setback in negotiations may be coming after the US House passed a controversial bill supporting the Hong Kong protestors. Beijing immediately responded and said it will retaliate.

This came shortly before news broke on Monday that China is seeking to impose retaliatory tariffs up to $2.4 against the US in a WTO case dating back to an Obama-era dispute. A panel of officials at the dispute-settling body will review Beijing’s appeal on October 28. If the WTO rules in China’s favor, Chinese officials may take advantage of it and use it as leverage in trade talks with the US. Will Washington remain even-tempered?

US DOLLAR TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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