Signals

McDonald’s has suffered its first global drop in sales since 2020, as consumers around the world balk at the higher cost of burgers, fries and soft drinks. Comparable sales at the fast-food chain fell 1 per cent year on year in the three months to the end of June, sliding in both international locations and in  McDonald’s US base. The company’s chief executive Chris Kempczinski said consumers were “more discriminating with their spend”.

 In the past days several high-profile US companies have cautioned about softening demand. Jim Peters, chief financial officer of Whirlpool, the S&P 500 appliance maker, said on Thursday that consumers were “weary” and demand was particularly weak from “discretionary” buyers — people looking to upgrade their fridge or washing machine rather than replace something that was broken. Shares in UPS, the delivery company often seen as a bellwether for the broader economy, dropped 12% on Tuesday after it missed analyst estimates and scaled back its forecasts for the rest of the year.

In Europe, shares in French luxury giant LVMH, home to Louis Vuitton, sank 5% on Wednesday 24^th July, after it logged a 14% drop in net profit in the first half of the year. Europe’s automobile shares dropped led by a tumble in Stellantis. Even Renault share price dropped after alliance partner Nissan Motor slashed its full-year outlook after its first-quarter profit was almost completely wiped. Nestle, the world’s biggest packaged food company, lowered its sales outlook, leading to a drop in Nestle Share prices.

The message from all this is that the current earnings season has shown that major European and US firms reported weaker-than-expected results. These disappointing earnings highlight potential vulnerabilities and suggest that economic pressures are taking a toll on even the most robust sectors, as slowing consumer demand is still very much there. US consumers are showing signs of peaking after helping to prop up the world’s largest economy since the pandemic, according to a growing number of companies, economists and investors. The above shaky corporate earnings season has fuelled concerns that consumer strength has peaked, despite data  on the 25^th July showing stronger than expected US GDP growth in the second quarter, thanks in part to consumption spending. On Friday, a measure of US consumer sentiment fell to its lowest level in eight months as inflation and election uncertainty weakened the economic outlook. In Europe consumer confidence remains under its long-term average, although recently there have been some improvements in this sentiment in countries like Germany and the Netherlands.

The coming weeks and months are going to be critical, with regards the economic data to be released as depending on this data it could be that the Fed would start decreasing interest rates, whilst the ECB accelerates the rate of which it had planned such rate cuts.