Eurozone retail sales still remain on a contractionary footing despite January’s 1.2% monthly bounce. The underlying retail sales trend remains decidedly lower, with no chance of near term recovery. If the ECB wanted to see a very clear barometer of the recession storm encircling the Eurozone, it is the collapse in consumer confidence in the last few years. Deepening fiscal austerity is taking a very deep bite out of consumer demand. There is a very sharp squeeze on real incomes from higher taxes and rising energy costs, exacerbated by unemployment at a record level in the euro area. The only way to turn this around is going to come through greater policy stimulus and stronger growth. This is not going to come via fiscal means as pressure remains on Eurozone governments to clear up their budgetary mess.
The finger continues to point at more easing from the ECB. This week may be too soon for the ECB to cut rates as it might be seen as hitting the panic button after the Italian elections. It does not want to be accused of moving for political considerations. But as sure as night follows day, the ECB will have to cut rates again soon and feed more quantitative easing into the beleaguered Eurozone economy to stop the recession turning into a complete rout. The directional bias for the euro will remain lower as the message sinks in that the ECB will be going exactly the same way as the Fed, BOE and BOJ in the coming months – and they will need to do QE in much bigger size than they have delivered so far.
Highlights
Euro Zone Jan Retail Sales 1.2 Pct M/M - (Reuters Poll Forecast 0.2 Pct)
Euro Zone Jan Retail Sales -1.3 Pct Y/Y - (Reuters Poll Forecast -2.9 Pct)
Euro Zone Dec Retail Sales Confirmed At -0.8 Pct M/M, -3.0 Pct Y/Y (Pvs -3.4 Pct)
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