Forex Trading Library

Q1 Earnings Season Impact on Forex

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The Earnings season is ramping up towards its peak next week, and it’s already having an impact on currency markets. Generally, Forex is immune to what happens to one or another stock in particular. But earnings season tends to be different, in which virtually all major corporations around the world update investors on their latest financials. If a trend in those reports develops, it can hurt or aid risk sentiment and shake up the currency market.

This time around, earnings season is particularly relevant because we are waiting to see when central banks will get around to cutting rates. Economic performance and pricing are key elements to that decision. Business reports on whether they have experienced growth or not, and whether they have raised prices or expect to do so, will likely factor into the decision to start easing rates.

Getting the Right Insight

Besides the general feel for the economy, some major businesses can provide valuable insight into economic trends that could affect the currency. For example, major logistics companies such as Maersk, FedEx or Posco reporting a speeding up or slowing down in shipping could be a sign of trade trends. Less trade generally implies that the economy is slowing down, which could make it more likely for the central bank to start easing.

Meanwhile, reports from banks and credit card companies provide valuable insight into consumer demand. For example, data from major US credit agencies shows that Americans are increasingly struggling to make ends meet. Not only have American consumers taken out record amounts of debt to deal with higher inflation, more and more of them are unable to pay off their credit card loans. This inability to pay is called a “delinquency” and delinquency rates have risen to the highest level they have been since the latest sub-prime crisis.

Shaking Up the Market

Stocks have been trying to ride improved investor sentiment since the start of the year to reach new record highs.This has helped commodity currencies and come at the expense of safe havens. But that trend has started to reverse with the latest earnings reports, as investors increasingly worry about the resilience of the economy. The dollar has gotten stronger, one of the factors pushing the USDJPY to multi-decade highs in the lead up to the BOJ’s meeting at the end of the week.

Although some of this negative sentiment has been offset by tech stocks that have remained bullish, feeding the AI frenzy. The next batch of earnings that could affect the markets are industrials, followed by consumer firms. Major global companies like Volkswagen, General Electric and Airbus can give some insight into demand trends and whether the economy is holding up.

Keeping Up With the Trends

Consumer firms like groceries can provide some clearer indications of the impact of inflation and monetary policy. If supermarkets are finding it easy to pass on increased costs to consumers, then the economy can be understood as being relatively healthy and the central bank might keep rates higher for longer. But if supermarkets are underperforming and see price pressures, then the central bank might be more likely to move towards cutting rates.

The Earnings season will extend to about mid-May, which will give investors a clearer picture of the state of the global economy. This is a crucial juncture as it presages the start of the June rate decision cycle in which at least one of the major central banks is expected to start cutting. But that could change if the generally mixed trend in earnings so far were to change.

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