Eurozone retail sales rebound as euro strengthens against US dollar

Retail sales in the Eurozone edged up by a modest 0.1% in July 2024, bouncing back from a 0.4% decline in June, according to data released by Eurostat on Thursday.

This timid increase was in line with economists’ forecasts, reflecting the region’s sluggish recovery. In the broader European Union, retail sales rose by 0.2% in July, also reversing a 0.4% decline from the previous month.

On a year-on-year basis, retail sales index fell by 0.1% in the Eurozone, highlighting the persistent challenges facing consumer spending across the currency bloc. In contrast the European Union saw a 0.4% annual increase in retail trade volume.

Sectoral breakdown and member state performance

In terms of sectoral performance, July saw varying results across different categories in the Eurozone. Sales of food, drinks, and tobacco rose by 0.4%, while non-food products, excluding automotive fuel, registered a 0.1% increase. However, sales of automotive fuel in specialised stores dropped by 1.0%.

Across the European Union, similar trends were observed, with sales of food, drinks, and tobacco rising by 0.5%, non-food products (excluding automotive fuel) up by 0.2%, and automotive fuel sales falling by 1.4% in specialised stores.

Among member states for which data was available, Croatia recorded the highest monthly growth in retail trade volume, with a 2.9% increase. Austria and Slovakia followed, both posting 1.8% growth, while Slovenia saw a 1.6% rise. On the other end of the spectrum, Luxembourg experienced the sharpest decline, with a 2.1% drop, followed by Romania (-1.8%) and Cyprus (-1.1%).

Market reactions

The euro remained firm at 1.11 against the US dollar, rising 0.2% on Thursday, reaching levels last seen in late August.

This strength in the single currency came as traders ramped up bets on interest rate cuts by the Federal Reserve, with the market’s heightened focus on the upcoming US employment report, scheduled for Friday.

Market speculation surrounding the size of the potential rate cut has intensified. According to the CME FedWatch tool, there is now a 41% probability of a 50-basis-point cut at the Federal Reserve’s 18 September meeting, up from 34% the previous week.

The US jobs data on Friday is seen as pivotal, with weaker-than-expected employment growth and a further rise in the unemployment rate from July likely to fuel expectations of a larger rate cut.

In the bond markets, European sovereign yields remained relatively stable. Germany’s 10-year Bund yield was flat at 2.22%, while the spread between Italian BTPs and Bunds narrowed by 3 basis points to 1.37 percentage points. Meanwhile, the spread between Spanish Bonos and Bunds remained unchanged at 0.82 percentage points.

Equity markets in Europe showed a muted performance following Wednesday’s sell-off. The Euro Stoxx 50 index was down by 0.2% as of 11:15 a.m. Central European Time.

French and Dutch equities recorded slight losses, while Italy and Germany saw marginal gains. Spain’s IBEX 35 index outperformed its peers, rising 0.5% on the back of gains from its banking sector.

Among large-cap stocks, Dutch semiconductor equipment maker ASML continued its downward trend, falling by 1.8% after a sharp 5.9% drop on Wednesday, which was triggered by a downgrade from UBS. Other notable laggards included French luxury giant LVMH, down 1.8%, as well as Air Liquide and Essilor, which both dropped 1.9% and 1.6%, respectively.

Conversely, utility stocks were the standout performers within the Euro Stoxx 50 index. Germany’s RWE surged by 3.8%, while France’s ENGIE climbed 1.8%.