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By Oren Laurent
President, Banc De Binary
These past couple of months have been an intensely fearful time in the US, with four cases of Ebola diagnosed last month, for the first time in the country. The public is on the lookout for symptoms of the highly contagious disease, including vomiting, bleeding and fever, and there is still no cure. For 70% of those infected thus far, the result has been death.
In reaction to the Ebola scare in the US, financial analysts across the globe speculated that the fearful American public would abstain from visiting public places as much as possible. It is commonly stated that at the heart of any economy is consumer confidence. When consumer confidence is down, it usually creates a domino effect on the rest of the economy, first affecting revenues, and further down the line, forcing CEOs to turn to layoffs.
Indeed, by mid-October the situation seemed bleak. Stock of the Walt Disney Company fell down to $82, and consumer fear all across the board only seemed to be spreading exponentially. But, then something funny happened. The USD started to strengthen, and this time around, it had nothing to do with a Federal Reserve statement, or a Janet Yellen speech. This past Friday, the S&P 500 closed at 2,018.05, setting a new record closing-price, while the dollar index, a measure of the USD against six major currencies, rose to 86.886, a 0.86% increase.
This time around, the redeeming factor for the US economy was earnings season. The third quarter has revealed spectacular numbers from American companies. When you look at the wide variety of companies in the US that are far exceeding expectations, it becomes quite clear how the USD is doing so well. Those who have only been following the big names might have gotten the wrong impression. While Apple’s and Texas Instruments’ reports were stellar, Facebook, Google, and Twitter all experienced selloffs in reaction to their earnings reports. That being said, a quick look at the indices charts reveals the real trend. In the two weeks leading up to Friday, the DOW climbed 9%, the S&P 10% and the NASDAQ 11%.
Prior to the spike there was a selloff of American companies due to Ebola scares, but those fears casually slipped into the background when revenues and growth rates came in strong on earnings reports.
The lesson here? When analysing currencies, and the strength of a given economy, it’s important to take into account more than just the top headlines. In the past month, Facebook earnings were not what brought about the USD’s climb. Nor can the climb be attributed to the often over-hyped announcements of America’s central bank. The big X-factor this past month was the CEOs of the S&P, Dow and NASDAQ companies. They symbolise the courage of the American public, who discovered their resilience in the face of the Ebola scare. From October 16 to 31, Disney stock made a comeback from $82 per share to $91. And when Mickey smiles, the whole world smiles with him.
