UK Retail Sales Fall Stokes Recession Worries, German Producer Price Fall Extends to Sixth Month

Bridgette Randall
19 Jan, 2024
Frankfurt

European markets advanced for the second day in a row in Friday's trading, and bond yields edged higher.

Investors shifted their attention to the latest economic data after a week of hawkish comments from policymakers pushing against the rate-cut narrative.

Investors are also awaiting comments from European Central Bank president Christine Lagarde delivered at a gathering of political and business leaders in Davos, Switzerland.

Lagarde is expected to reiterate the need to keep higher interest rates for longer until inflation is on a sustained path towards the 2% level.

 

German Producer Price Declined Sixth Consecutive Month  

The German producer price index declined for the sixth month in a row in December after energy prices declined.

Producer prices declined 8% in December after falling at a 7.9% annual rate in the previous month, Destatis reported Friday.

Energy prices declined 23.5% and electricity prices fell 35.6%, driving fertilizer prices down by 37.3%.

On the other hand, prices of consumer durable goods increased by 3.2%, food prices rose by 2.8%, and capital goods advanced by 3.9%.

In all of 2023, producer prices decreased by 2.4%.

 

UK Retail Sales Decline Raises Recession Risk

UK retail sales declined the most in nearly three years in December from the previous month, the Office for National Statistics reported Friday.

Retail sales in December declined 3.2% from the previous month, reversing the 1.4% gain in November. which was driven by early Christmas shopping. 

On a yearly basis, retail sales declined 2.4% after increasing at an annual pace of 0.2% in the previous month and dropping to their lowest level since 2018.

Non-food store sales declined 3.9%, partly because consumers advanced their purchases earlier than usual in November.

The cost of living crisis and the surge in inflation have negatively impacted the real income of consumers, and consumers have reacted by keeping their spending on basic items and avoiding discretionary purchases.

Consumer spending was weak across several categories of products, and department store sales declined 7.1%, household goods store sales fell 3.0%, and apparel sales decreased 1.5%.

Food store sales declined by 3.1%, and automotive fuel sales fell by 1.9%.

The broad decline covering food and non-food items in the month stoked fears of a recession, and the statistical agency said that the retail sales weakness could push the UK economy into a technical recession in the fourth quarter.

 

Europe Indexes and Yields

The DAX index increased 0.4% to 16,638.77, the CAC-40 index rose 0.4% to 7,429.14, and the FTSE 100 index increased 0.5% to 7,499.01.

The yield on 10-year German bonds edged up to 2.31%; French bonds inched higher to 2.84%; the UK gilts edged lower to 3.91%; and Italian bonds held at 3.90%.

The euro edged lower to $1.087, the British pound inched lower to $1.267, and the U.S. dollar gained to 86.91 Swiss cents.

Brent crude advanced $0.63 to $79.67 a barrel, and the Dutch TTF natural gas increased by €0.52 to €28.51 per MWh.

 

Europe Stock Movers

BASF SE increased 0.4% to €43.68 after the German chemical company estimated a swing to a net income of €225 million in 2023.

Deliveroo PLC decreased 0.7% to 133.60 pence after the UK-based food delivery company said 2023 earnings are expected to be slightly ahead of its estimate.

4imprint Group soared 14.4% to 5,300.0 pence after the direct seller of promotional products said its sales and earnings for the full year are likely to exceed the previous year.