Euro Area Retail Sales Fall Short of Forecasts to Test the ECB Outlook

It was a relatively quiet start to the week for the European markets. Euro area retail sales figures for January drew interest this morning.

In January, retail sales across the euro area increased by 0.3% versus a forecasted 1.0% rise. Retail sales slid by 1.6% in December.

According to Eurostat,

• Compared with December 2022, the retail trade volume of food, drinks, & tobacco increased by 1.8%, with the sales volume of non-food products rising by 0.8%.
• However, automotive fuel sales volume slid by 1.5%.
• Year-over-year, retail sales declined by 2.3%.
• Automotive fuel sales increased by 5.4%, while the retail sales of food, drinks, & tobacco slid by 5.0%.
• Non-food product sales fell by 1.0%.

Significantly, consumption remains a material consideration for the ECB and the euro area economic outlook.

In the latest ECB Economic Bulletin, the ECB noted that rising wage growth and declining energy price inflation should ease the loss of purchasing power and support consumption. Consumer confidence would need to improve to support the ECB’s outlook on consumption.

Things have worked out for the ECB thus far. According to the prelim inflation figures for February, energy price inflation softened from 18.9% to 13.7%, with euro area consumer confidence improving marginally in February.

However, easing inflationary pressures and improving consumer confidence trends would have to translate into a sustained pickup in consumer spending to support the ECB’s economic outlook.

The January numbers will question the ECB’s policy goals and more optimistic economic outlook.

After the ECB policy meeting minutes on Thursday, investors also need to monitor ECB member speeches. ECB Chief Economist Philip Lane will deliver a speech this morning. Forward guidance beyond March would move the dial.

EUR/USD Reacts to Euro Area Retail Sales

Ahead of the retail sales figures, the EUR/USD fell to an early low of $1.06234 before rising to a pre-stat high of $1.06574.

However, in response to the numbers, the EUR/USD slipped to a post-stat low of $1.06253 before rising to a high of $1.06316.

The EUR/USD was down 0.03% to $1.06309 this morning.

Up Next

Looking ahead to the US session, it is a quiet day on the US economic calendar. Factory orders for January will draw interest. While service sector activity remains robust, inflation sticky, and the labor market tight, manufacturing sector woes continue to test investor sentiment toward the US economy. A sharper-than-forecasted fall in factory orders would support the slow and steady Fed rhetoric. Economists forecast factory orders to fall by 1.8%.

Beyond the stats, investors should also monitor Fed chatter ahead of Fed Chair Powell’s testimony on Tuesday. Hawkish commentary would test EUR/USD support.