The Trump administration 2.0, true to its favorite method of fiscal and trade Molotov cocktails, has succeeded in making the dollar as stable as a Chinese cryptocurrency. As a result, capital flows are jumping from one currency to another, repositioning themselves in the euro, the pound, or the Swiss franc.
European companies are less smug. A 10% appreciation of the euro and a 8.5% rise in the pound look very good on paper. But in real life, it mainly amounts to sticking an invisible tax on everything exported to the US. Less competitiveness, more headaches, as Panmure Liberum analyzes in a study published this morning entitled "Dollar downturn: What it means for European stocks."
The dollar has fallen sharply against major currencies, including the euro
The Stoxx Europe 600, which derives an average of 16% of its revenue from the United States, is beginning to feel the impact. This figure rises to 18% for the 50 largest European companies. The Atlantic bias of the British FTSE 100 is even more pronounced, at 18.3%. The praises of globalization have long been sung, but when the dollar falters, it is an entire model that takes on water.
Multinationals that manufacture at home and sell to Uncle Sam are now doing some painful arithmetic: same volume, fewer dollars, converted at an unfavorable rate, equals lower earnings. And the excuses are already ready for the next conference calls: expect "unfavorable exchange rate effects" and a return to "constant exchange rate" performance.
And above all, healthcare!
Unsurprisingly, healthcare is on the front line. Novo Nordisk (61% of its revenue in the US), Fresenius Medical Care (66%) and AstraZeneca (43%), for example. Add to that Washington's new tariff threats on pharmaceuticals, and you have a waiting room atmosphere.
Luxury follows, as always, but this time not for good reasons. LVMH, Pandora and Brunello Cucinelli are discovering that American tourists with reduced purchasing power – or worried about inflation – are not buying as much as they used to. It's unfortunate, but it's the flip side of the coin when you rely heavily on foreign customers in general and American customers in particular.
Of course, there are a few winners. Companies with dollar-denominated debt are temporarily benefiting from less painful repayments. And those that manufacture in the US without selling much there are doing better, at least for now. Added to this are the "non-losers," mainly sectors that are relatively unaffected by the dollar's missteps, such as insurance, real estate, and financial services.
But for most major European stocks, the weak dollar remains a source of pressure, particularly during a global economic slowdown and with margins potentially under strain. If the US currency continues to slide, analysts are likely to revise their forecasts for European companies.
*The title is a nod to Oscar Wilde and his play The Importance of Being Earnest, which does not quite capture the wordplay of the English title.
