Will Eurozone Retail Sales Disappoint Amid Inflation Pressures?

August 03, 2022 10:15

Market expectations are not high ahead of the release of Eurozone Retail Sales today, as inflation and recession fears continue to pressure the bloc’s economy and investors are bracing for a tighter monetary policy.

Retail Sales are expected to have fallen to minus 1.7 percent in June compared to 0.2 percent in the same period last year. When looking at the big picture, it’s clear that the retail sales sector has declined significantly since January 2022, when the benchmark was at 8.5 percent, falling to 1.9 percent by the end of the first quarter. By the end of the second quarter, there may be a dip into negative territory that could weigh on overall growth.

The bloc’s economy also faces considerable changes in the availability of credit as the European Central Bank (ECB) tightens monetary supply by raising interest rate guidance. Other than that, the Eurozone’s inflation reached an all-time high of 8.9 percent in July versus 8.6 percent in June, increasing the likelihood of a more hawkish interest rate policy in the near-term.

News from the Eurozone’s manufacturing sector only adds to the cloudy outlook, after the latest S&P Global Purchasing Manager’s Index (PMI) fell to 49.8 in July compared to 52.1 in June.

On the brighter side, unemployment levels in Europe are at a historic low of 6.6 percent, according to the latest figures from Eurostat. This is likely to support the economy and if high crude oil prices continue to subside it would relieve much of the inflationary pressures in the manufacturing and retail sales sectors. At the time of writing, spot crude oil prices are heading below $95 per barrel.

The Eurozone’s economic performance continues to weigh on the EURUSD as the EUR faces an uphill battle to regain the ground lost in the second quarter and beginning of the third quarter.

In other trading news, the US ISM Services PMI is out today and the benchmark is expected to remain in growth territory even amid the technical recession in the world’s largest economy. The Services PMI may have fallen from 55.3 in June to 53.5 in July, according to market expectations. Any surprises to the upside or downside may move the USD currency pairs. 

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Sarah Fenwick
Sarah Fenwick Financial Writer, Admirals London

Sarah Fenwick's background is in journalism and mass communications. She has worked as a correspondent covering Swiss Stock Exchange news and written about finance and economics for 15 years.