A strong euro has helped U.S. companies extend their sales outperformance over Europe to multi-year highs in the first quarter, according to Reuters data – though experts expect the trend to begin to reverse later this year.
Renewed confidence in the European economy and persistent weakness in the dollar have driven the euro up 16 percent against the U.S. currency from the first quarter last year to the end of March 2018.
That means euro zone companies reporting first-quarter earnings for 2018 have seen dollar revenues shrink by roughly a sixth in a year.
Some 74 percent of companies on the U.S. S&P 500 that have reported in first quarter have beaten analysts’ estimates for sales, compared with just 22 percent on Europe’s Stoxx 600, according to data from Thomson Reuters I/B/E/S/.
Euro zone exporters suffer from a strong currency as they make large chunks of their sales and revenues in foreign currencies, which are then worth less when translated back into euros.
The rising euro also results in higher costs and a pressure to raise prices, potentially making exporters less competitive.
Euro zone industrials, and consumer cyclicals, sectors dominated by exporters, have been delivering weaker than expected first-quarter revenues, Reuters data shows, with some of the biggest negative earnings surprises.
The strong euro is also part of the rationale for some brokers recommending investors shift from the more cyclical parts of the market to defensives, as cyclical sectors are both more exposed to global growth and to the negative currency effect.
