Retail sales in Europe came in significantly below expectations in this morning’s data published by Eurostat. Analysts had expected a fall of circa -0.7%, however, at -1.6% down the figure has taken the analyst community by surprise. It must be taken on board that this is an ‘official’ stats release and not a survey published by private interest groups, such as Markit Economics, or the UK’s BRC who we’ll refer to during this blog entry…
In other news published by Markit Economics this morning they reveal that the UK service sector slowed for the third successive month. This high impact news event may have caused a momentary sell off in sterling as the print came in below expectations. Despite the third miss in series, at 58.3 and the lowest reading in the past seven months, the figure is still significantly ahead of the median fifty level which signals growth from contraction.
In other UK news the retail body responding to the retail industry, the BRC (British retail consortium), notes that stores are deflating their prices in their efforts to woo customers, by one percent over the past year. As we’ve noted before on first inspection this deflation phenomena appears to be good news for the customer and consumers in general, however, similar to the USA, the UK’s service sector is hugely reliant on retail with consumers accounting for circa 70% of economic performance. If shops charge less > they make less cash > they employ less people > they charge less…a vicious spiral that’s difficult to escape from. Deflation is now at its ‘worst’ point since the data series began in 2006. The next retail figures, published later this month for the UK, will prove to be fascinating.
In Europe Markit had some better news, with the economy expanding according to their survey at its fastest rate since 2011. Output in the Eurozone economy expanded for the seventh successive month in January. At 52.9, up from 52.1 in December.
That optimistic print was actually bettered by Spain where the latest services data courtesy of Markit shows the fastest increase since July 2007. The headline seasonally adjusted Business Activity Index rose to 54.9 in January from 54.2 in December, signalling a third successive monthly increase in activity in the sector.
Japanese wages have fallen for the 19th month in succession. Workers’ regular cash earnings, excluding overtime, fell by 0.2 per cent in December, their 19th consecutive monthly decline. One of prime minister Abe’s plans to increase inflation involves convincing Japan’s company bosses to hike staff pay to encourage consumers to spend.
Asian markets’ efforts at a ‘relief rally’ died out as investors remain cautious and fleeting early gains failed to bring indices close to the levels seen before the emerging market turmoil began. Signs of stability are prevalent however.
Volume of retail trade down by 1.6% in euro area
In December 2013 compared with November 2013, the seasonally adjusted volume of retail trade1 fell by 1.6% in the euro area (EA17) and by 0.8% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In November retail trade increased by 0.9% and 0.8% respectively. In December 2013 compared with December 2012 the retail sales index decreased by 1.0% in the euro area and rose by 0.1% in the EU28. The average volume of retail trade for the year 2013, compared with 2012, fell by 0.9% in the euro area and by 0.2% in the EU28.
UK service sector growth slows in January, but remains elevated
The UK service sector remained on a strong growth footing at the start of 2014, with activity and new business both continuing to rise markedly albeit at the slowest rates since mid-2013. Capacity came under renewed pressure, with backlogs rising at the sharpest rate since May 1997. Employment growth remained marked as a result, with recruitment in part bolstered by positive business expectations for activity. Confidence was at its highest since March 2010. The headline Business Activity Index recorded a level of 58.3 during January. That was down from 58.8 during December and the lowest reading for seven months. Growth has now weakened for three months in succession, though remains comfortably above its long-run trend.
Eurozone economy expands at fastest pace since June 2011
Output in the Eurozone economy expanded for the seventh successive month in January. At 52.9, up from 52.1 in December, the final Markit Eurozone PMI Composite Output Index posted its highest reading since June 2011, but nudged lower from the flash estimate of 53.2. The upturn was led by the manufacturing sector, where accelerated growth of both total new orders and new export business drove the rate of expansion in production to a near three-year record. The recovery in the service sector remained subdued in comparison, with business activity only rising at a modest pace – albeit a three-month high.
Spanish Services activity increases at fastest pace in six-and-a-half years
The Spanish service sector made a positive start to 2014 as both activity and new orders continued to expand solidly. Moreover, employment stabilised, ending a sequence of job shedding which stretched back to March 2008. However, companies still discounted output prices sharply, while input costs rose following no change in December. The headline seasonally adjusted Business Activity Index rose to 54.9 in January from 54.2 in December, signalling a third successive monthly increase in activity in the sector. Furthermore, the solid expansion was the sharpest since July 2007.
BRC-Nielsen UK Shop Price Index
Helen Dickinson BRC Director General Overall shop prices reported deflation for the ninth consecutive month in January, accelerating to 1.0% from 0.8% in December. This is the deepest level of deflation since the series began in December 2006. Food inflation slowed to 1.5% from 1.7% in December. Non-food reported annual deflation of 2.7% in January from 2.3% in December. Helen Dickinson, British Retail Consortium Director General, said: “Shop prices are falling at their fastest rate for 7 years, a new record for our data. January is always a key month for sales and promotions but discounts have been deeper and more widespread.
Market overview at 10:00 am UK time
The ASX 200 closed down 0.52%, the Hang Seng down 0.60%, with the Nikkei rising by 1.23%. Euro STOXX is up by 0.39%, CAC up 0.45%, DAX is flat, with the FTSE up 0.43%.
Looking towards the New York open; the DJIA equity index future is down 0.03%, SPX down 0.09%, NASDAQ equity index future is down 0.10%.
NYMEX WTI oil is up 1.03% at $98.19 per barrel, with NYMEX nat gas down 0.60% at $5.34 per therm. COMEX gold is up 0.44% at $1256.70 per ounce with COMEX silver up 0.86% at $19.59 per ounce.
The euro dropped 0.4 percent to 136.84 yen early in London. It touched 136.23 yesterday, the weakest since Nov. 22nd. Europe’s common currency declined 0.1 percent to $1.3507. The yen climbed by 0.3 percent to 101.31 per dollar following a 0.7 percent slide yesterday, the most since Jan. 14th. The euro declined toward a 10-week low against the yen before data today that may show retail sales fell in the region amid speculation the European Central Bank will reinforce its commitment to lower rates.
The yen has strengthened by 5.5 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The dollar has gained 1.4 percent and the euro has slipped 0.5 percent.
U.S. 10-year yields fell one basis point to 2.62 percent early in London. The 2.75 percent note due in November 2023 rose 2/32, or 63 cents per $1,000 face amount, to 101 3/32. The yield climbed five basis points yesterday, the biggest increase since Dec. 31st. A basis point is 0.01 percentage point.
Japan’s 20-year bond yield declined to as low as 1.405 percent, the least since April. Australia’s 10-year borrowing cost advanced three basis points to 4.02 percent, compared with yesterday’s low of 3.93 percent, the least since October. Treasuries rose, snapping their worst decline this year, as analysts said employment reports this week will show the U.S. economy is having trouble picking up.
Germany’s 10-year yield was little changed at 1.64 percent early London time, after slipping to 1.63 percent yesterday, the lowest since Aug. 5th. The price of the 1.75 percent bund maturing in February 2024 was at 100.94.
Europe’s largest economy last sold five-year securities at an auction on Jan. 15th, attracting an average yield of 0.90 percent. Investors bid for 1.7 times the securities allotted. German 10-year government bond yields approached a six-month low before a report that economists said will show retail sales in the euro area fell, strengthening the case for more European Central Bank stimulus.
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