Dove or Ivory? A Case Study on Currency Impacts

By Jeremy Schwartz, Director of Research at WisdomTree

“Given the divergence of central bank policies, currencies are among the most important investment topics today. If the U.S. dollar continues to strengthen, it may be a headwind to U.S. multinationals earning revenue abroad, while boosting foreign companies that are earning revenue in the United States.

As an example, let’s compare the Procter & Gamble Company (P&G) to Unilever PLC (UNA), both multinational companies with well-known household brands. These two companies have very similar business models and often compete with each other, but they are incorporated in different countries, the U.S. and the Netherlands, and hence trade in different currencies, the U.S. dollar and the euro, respectively.

P&G should be negatively impacted by a stronger dollar because foreign sales are converted back into dollars at unfavorable exchange rates.
• UNA should benefit from a weaker euro because its foreign sales would be repatriated back into euros.

The most recent warning from P&G about the impact from a stronger dollar is below:

“The October–December 2014 quarter was a challenging one with unprecedented currency devaluations,” said A.G. Lafley, P&G’s chairman, president and CEO. “Virtually every currency in the world devalued versus the U.S. dollar, with the Russian ruble leading the way.” He also said, “The outlook for the year will remain challenging. Foreign exchange will reduce fiscal 2015 sales by 5% and net earnings by 12%, or at least $1.4 billion after tax.” Read more »


The oil rig count is not important — yet

“This chart from Deutsche Bank’s Torsten Sløk shows that to date, the decline in rig count has not put a dent in production as less-efficient wells are taken offline”.

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