September 30, 2019 / 1:01 PM / 8 months ago

RPT-Wall St Week Ahead-Data will show damage of tariffs, strong dollar on U.S. goods exporters

 (Repeat column originally published on Sept 27, no changes)
    By Stephen Culp
    NEW YORK, Sept 27 (Reuters) - It's no longer a probability,
it's a reality: the escalating U.S.-China trade war and the
strengthening dollar appear to be inflicting measurable damage
on U.S. goods makers that rely on global markets.
    Market participants will get a picture of the extent to
which trade tensions and currency have hurt U.S. manufacturers
when the Institute for Supply Management (ISM) releases its
purchasing managers index (PMI) for September on
    Its August report showed the manufacturing sector, which
accounts for about 12% of the U.S. economy, contracting in for
the first time in 3-1/2 years, and more worryingly, its export
component hit a more than 10-year low. 
    "The exporters are at least a half a step or full step
closer to the predicted recession," said Robert Pavlik, chief
investment strategist, senior portfolio manager at SlateStone
Wealth LLC in New York.  
    The August report's New Export Orders plunged to 43.3, its
lowest level since April 2009, when the United States was in the
throes of the great recession.
    A PMI reading below 50 indicates contraction.
    In the August PMI survey, manufacturers told ISM "business
is starting to show signs of a broad slowdown," and that
"tariffs continue to be a strain on the supply chain and the
economy overall."
    China already has implemented tariffs on about $110 billion
in U.S. goods, in return for President Donald Trump's tariffs on
Chinese imports. Beijing announced additional retaliatory
increases in August. The first tranche took effect at the
beginning of this month and the second is due to follow on Dec.
    U.S. goods would already be more expensive on global markets
due to a stronger dollar, which has been boosted by simmering
geopolitical unease and negative interest rates in Europe.
Market-rattling tit-for-tat tariff hikes from Washington and
Beijing have created a perfect storm.
    "Geopolitical tensions do two things," said Peter Tuz,
president of Chase Investment Counsel in Charlottesville,
Virginia. "They compel big companies to sit back and not spend
as much as they would." 
    "And as tensions increase and the dollar rises,
(U.S.)products become more expensive and you see demand fall
    The dollar index, which measures the greenback
against a basket of major world currencies, hit a 29-month high
on Sept. 3, the very day ISM released its dismal PMI report.
    Indeed, in the first quarter of 2018, during which Trump
fired the opening salvo in the trade war, the negative currency
impact on North American corporate earnings was an estimated $40
million, according to cloud treasury services firm Kyriba. One
year later, that number ballooned to $23.4 billion.     
    The arrival of third-quarter earnings season next month will
provide a clearer view of the damage the trade war and strong
dollar have wrought on companies' bottom lines.
    Over the last year, third-quarter analyst earnings estimates
for a basket of 15 top U.S. exporters by dollar value have
dropped by an average of 17.3%, according to Refinitiv data, and
by 12.3% in the last three months.
    Fourth-quarter estimates for the same companies have been
revised down 15.6% on average since September 2018 by 10.3%
since June. 
    Third-quarter earnings estimates for Apple Inc are
7.4% lower than they were a year ago, and down 16.7% for the
essential October-December holiday quarter. Non-U.S. revenue
contributes 63.1% of the iPhone maker's total.
    General Electric Co gets about 61.5% of its revenue
from abroad. Analysts currently see the conglomerate's
third-quarter earnings coming in 44.6% below the level seen a
year ago, and its fourth-quarter EPS estimates are now 43.5%
    Chipmakers, particularly vulnerable to trade concerns and
technology exchange issues, have seen their earnings estimates
slashed most. 
    Micron Technology Inc relies on non-U.S. business for
88.1% of its revenue. Third quarter earnings estimates for the
company have plunged 83.4% over the last year and 42% from last
    Overseas customers contribute 97.4% of Qualcomm Inc's
 revenue. Analysts have slashed their third quarter
earnings estimates for the company by 47.7% over the last year.
    Nike Inc, which derives 62.5% of its revenues from
overseas, reported its first-quarter earnings for fiscal year
2020 on Tuesday. The sportswear company's revenue and profit
beat analyst estimates, but it said currency and trade concerns
remained headwinds and it expects the impact of tariffs will be
"most pronounced" in the current quarter. 
    "The manufacturing side of our economy is in the early
stages of a recession and we should be concerned about the
possibility of a full recession spreading here and around the
world," said Tim Ghriskey, chief investment strategist at
Inverness Counsel in New York. 
    "If (the ISM PMI) export number remains weak that will point
to deepening overseas weakness," Ghriskey added. "But a strong
number would surprise me given what's happening around the

 (Reporting by Stephen Culp; Editing by Alden Bentley and David
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