Euro zone retail sales rose 0.1% in July, recovering from a decline in June, and the euro rose to 1.11 against the dollar on growing expectations of a Federal Reserve interest rate cut ahead of Friday’s jobs report.
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Eurozone retail sales rose just 0.1% in July 2024, recovering from a 0.4% decline in June, data from Eurostat showed on Thursday.
The modest increase was in line with economists’ expectations and reflected the region’s sluggish recovery. Across the European Union, retail sales rose 0.2% in July, reversing a 0.4% decline from the previous month.
On a year-on-year basis, the euro zone retail sales index fell 0.1%, highlighting the challenges that consumer spending across the currency zone continues to face. In contrast, retail trade volumes in the European Union increased 0.4% year-on-year.
Sectoral breakdown and member state performance
Looking at sector performance, the Eurozone saw mixed results across different categories in July: sales of food, beverages and tobacco increased by 0.4%, while non-food products excluding motor fuel increased by 0.1%, although sales of motor fuel in specialist stores decreased by 1.0%.
Similar trends were seen across the European Union, with sales of food, beverages and tobacco increasing by 0.5%, non-food products (excluding motor fuel) increasing by 0.2%, and sales of motor fuel in specialist stores decreasing by 1.4%.
Among Member States for which data is available, Croatia had the highest monthly growth in retail trade volume, increasing by 2.9%, followed by Austria and Slovakia, both with increases of 1.8%, and Slovenia, which increased by 1.6%. Meanwhile, Luxembourg recorded the steepest decline with a decrease of 2.1%, followed by Romania (-1.8%) and Cyprus (-1.1%).
Market reaction
The euro held firm at 1.11 against the dollar, up 0.2% on Thursday to its highest level since late August.
The strength in the single currency came as markets turned their attention to U.S. employment data due to be released on Friday, as traders stepped up bets on an interest rate cut by the Federal Reserve.
Market speculation is growing over the size of a potential rate cut: The odds that the Federal Reserve will cut rates by 50 basis points at its Sept. 18 meeting have risen to 41% from 34% last week, according to the CME FedWatch tool.
Friday’s U.S. employment report is seen as crucial and could raise hopes of a bigger rate cut if it shows weaker-than-expected job growth and the unemployment rate rises further from July.
In the bond market, European government bond yields remained relatively stable: German 10-year Bund yields remained stable at 2.22%, while the yield spread between Italian BTPs and German Bunds narrowed by 3 basis points to 1.37 percentage points, while the yield spread between Spanish Bonos and German Bunds remained unchanged at 0.82 percentage points.
European stock markets were muted following Wednesday’s sell-off, with the Euro Stoxx 50 index down 0.2% as of 11:15 a.m. CET.
French and Dutch stocks posted small declines, while Italian and German stocks posted modest gains. Spain’s IBEX 35 index rose 0.5%, outperforming other indexes on the back of gains in the banking sector.
Among large caps, Dutch semiconductor equipment maker ASML continued its downward trend, dropping 1.8%, following a 5.9% plunge on Wednesday triggered by a UBS downgrade. Other notable laggards included French luxury goods giant LVMH, down 1.8%, and Air Liquide and Essilor, down 1.9% and 1.6%, respectively.
In contrast, utilities were the standout performers in the Euro Stoxx 50 index, with Germany’s RWE up 3.8% and France’s ENGIE up 1.8%.
