The US economy posted a slower than expected 1.1% growth in the first quarter. (Representative)
Increased concerns about the strength of consumers and the global economy have been put to rest – at least for now – after some of the world’s best-known companies posted better-than-expected numbers.
Unilever Plc reported sales on Thursday that were above expectations, maintaining the surprise after Nestle SA started the week with a similar beating. Carlsberg A/S noted its full-year profit outlook and LVMH reported 18% sales growth as Chinese shoppers splurged on luxury handbags and jewelry.
The good news was not limited to consumer goods. Alphabet Inc. Results from Google and Microsoft Corp boosted Big Tech, and Europe’s banks added to the largely positive mood.
The data paint a picture of a world where households, businesses and economies have largely resisted a string of inflation and rising interest rates, and a delayed recession some forecast will take hold this year.
But it is still grinding and cracks are showing. Importantly, share-price reaction to recent results has been muted at best as investors remain concerned about the outlook.
Also on Thursday, beverage maker Keurig Dr Pepper Inc reported quarterly earnings that beat average analyst estimates. Household and personal care products seller Church & Dwight Co. cited strong consumer demand as it issued guidance that was above analyst estimates. Mastercard Inc. reported that spending on its cards rose in the first three months of the year, topping estimates, as the payments giant continues to reap the benefits of a travel boom.
“Earlier this year we were expecting to see a recession in many economic sectors, and it really hasn’t come,” said Eleanor Taylor Jolydon, co-head of global equities at Union Bancaire Privé. And while the market’s earnings expectations were revised down, “it was a great relief to see that the first quarter has been quite a good one in a number of areas.”
Meanwhile beverages firm Pernod Ricard SA forecast annual profit growth of 10% even after its quarterly sales fell short of expectations.
“Today we see great resilience in Europe,” said Alexandre Ricard, President and Chief Executive. “so far so good.”
Automakers including Mercedes-Benz Group AG and Renault SA are also doing better than expected, despite inflationary pressures on buyers. They are benefiting from a strong order book that has been piled up by long stretches of supply-chain problems, but the question is how long the tailwind can last.
american consumer
The US economy took some of the shine off the news on Thursday, posting slower-than-expected growth of 1.1% in the first quarter. Consumer spending, however, rose 3.7%, the fastest in nearly two years.
“The consumer is the backbone of the US economy, and the consumer is resilient,” said Lindsey Piegazza, chief economist at Stifel Nicolaus & Company in Chicago.
Among the many factors that push and pull demand, inflation is a major one. Consumers see it in news headlines, experience it in supermarket stores and feel it in their pocket.
“It is far from certain that there will be deflationary pressures in the second half of the year,” said Alan Jopp, chief executive of Unilever. Officials pointed to pressure on wages and food products such as sugar.
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There are other reasons to be cautious about the latest earnings season, too. The better-than-expected results can be partly explained by a sharp cut in analysts’ estimates, which lowered the bar for companies to outperform. On the other hand, data from Bloomberg Intelligence shows that nearly 83% of S&P 500 firms have so far beaten first-quarter estimates — the largest proportion since the second quarter of 2021 — with the average stock outperforming the index by just 0.2%. % has performed better. Result day.
And those that missed expectations have been punished to a large extent by underperforming the benchmark by about 3%.
In Europe, the Stoxx 600 index has struggled to maintain its first-quarter rally since the start of the reporting season.
“It would be naïve to interpret an early positive start to earnings season as a sign of higher stock market performance,” said Anika Gupta, director of macroeconomic research at WisdomTree. They noted that “the banking crisis led to tighter lending standards, more rate hikes by the European Central Bank, sticky core inflation, currency headwinds and a global economic slowdown.”
Some consumer power may be thanks to the scale of savings following the pandemic. But it is not an endless resource. And it could decline even faster as mortgage rates rise, adding to the pressure on borrowers. This is a particular risk in the UK, where a housing affordability crisis is brewing.
“Every household in the country has spent a lot of time paying attention to the prices of individual products,” said Simon Roberts, chief executive of grocery chain J Sainsbury’s Plc. “Clients are watching every penny and every pound. Some of that behavior has certainly accelerated over the past few months.”
Many consumer companies see Europe as a weak spot. Unilever chief financial officer Graeme Pitkeithley said consumer sentiment in the region was already lower than in its other markets.
“We are very cautious going forward,” said Nestle CFO Francois-Xavier Roger. “We see in some markets, especially in Europe for example, consumption volumes are in negative territory.”
On the pricing front, the reduction in commodity prices is yet to translate fully through to shopkeepers as companies did not increase costs and were holding back to protect margins.
On Thursday, Carlsberg warned that the impact on demand from higher beer prices and higher inflation “remains uncertain.”
At some point a reckoning is coming, according to Bernstein analyst Bruno Montaigne.
“Something has to change,” he said. Either volumes now begin to fall, bringing inflation under control, or they remain strong, causing prices to rise even more, which then leads to recession. “How long shall we go on dancing to this tune?”
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)