It May Get Rough, But not for the Jpy bulls
Written by A Forex View From Afar on Wednesday, October 22, 2008As the markets head toward earnings season, things get clearer each day in regard to how companies see the period ahead; job cuts and lower earnings forecasts. With slowing demand, companies try to reduce expenses, and for the majority of companies, especially in the service based industry, the human work-force represents the single biggest expense. This is usually catalogued as a fixed cost, since no matter how big or small the backlog of orders, wages will remain the same. As a consequence, companies seek to reduce the work labor as much as possible. For example, Pfizer Inc. cut 11,000 jobs in the last period.
The second thing that affects the markets are lower earnings estimates, which are said to be the worst in recent memory. In addition, analysts foresee corporations trying to keep a stack cash available at any time, because of the credit crisis, which has already made both short and long term funding more expensive. S&P analyst say dividends might plunge another 10% this quarter, reaching the biggest decline since 1958.
Put the recent news one on top of these little gems, and we will end up with another reason not to be too enthusiastic when looking at the equity markets. Slowly, the yen may become the best performer this year of the major currencies, seriously, the lower yielder may shine through, even with a BOJ rate cut.
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