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German Retail Sales Rise, Euro Rises

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Germany, UK consider further blocking; The eurozone economy is improving, albeit worse than expected.

According to Germany’s Federal Statistics Office, retail sales rose 5.6% (year-on-year) in November, better than expectations of 3.9% but less than the 8.6% increase in the previous month. In monthly terms, retail sales rose 1.9% in November, down from October’s 2.6% rise but well ahead of the 2% forecast.

The Federal Bureau of Statistics linked the expansion to a surge in online sales and home improvement spending.

Retail sales are expected to grow by 4% this year, despite the pandemic’s disastrous effects on economic activity. This is good news for Germany, which is currently battling the spread of the virus.

To limit the spread of the virus, the German government is considering extending the nationwide lockdown by three weeks. Most German states have already agreed to introduce the measure, which is due to be announced on Tuesday after a meeting with Chancellor Angela Merkel.

Schools, shops and services have been closed since mid-December due to COVID-19, which has infected 1,796,216 people and killed 35,632. With the new measures, the restrictions would end on January 31Holy instead of January 10Thursday.

Employment ended a 14-year streak of growth when it fell 1.1% year-on-year, the steepest decline since 1993, according to recently released data. Markit Economics reported a slower expansion in the manufacturing sector in December as the manufacturing PMI came in at 58.3 after 58.6 the previous month.

German Chancellor Angela Merkel recently concluded a Comprehensive Investment Agreement with China, which would further improve economic relations between the two countries. The decision was made despite requests from President-elect Joe Biden because the deal would make it more difficult to align European Union policies with those of the United States.

With the New Year holiday last week, no data on the European economy was available.

This week, Markit Economics reported that the European Union’s manufacturing sector expanded less than expected, with a manufacturing PMI reading of 55.2, down from 55.5 the previous month. Predictions were that it would remain unchanged.

So far this week, the euro has gained 1.21% against the US dollar, snapping a two-week losing streak. It was also able to recover against sterling, advancing 1.88 percent and snapping a three-week losing streak.

The euro’s recent gains may be related to the UK’s decision to introduce further restrictions due to the uncontrolled spread of the recently identified strain of COVID-19. This autumn it pared the pound’s gains from a post-Brexit trade deal.

“Sterling lost ground against the euro yesterday as the market reacted poorly to the prospect of a third national lockdown in England,” explained an analyst at Caxton FX. “With Brexit now out of the way, the economic backdrop will be a more significant driver of the pound both today and in the coming months.”

The European Central Bank, now in the midst of an ongoing policy review, provided further stimulus in December, expanding its emergency bond-buying program by 500 billion euros. ECB Governing Council member Pablo Hernandez de Cos called on the bank’s board to explore other options that could help reduce the volume of bond purchases.

“I think yield curve management is an option worth exploring,” commented de Cos. “The experience of these central banks suggests that if yield curve steering is sufficiently credible, it allows the central bank to achieve a yield curve configuration with a lower amount of actual purchases, thus increasing efficiency.”

Eurozone growth data has not changed since our last report. Inflation remained in line with analysts’ expectations, although well below the ECB’s target. The latest unemployment rate signals a slight decline in the labor market to 8.4% after 8.3% in September.

Analysts expect the eurozone economy to grow by 4.3% this year, according to a survey of economists led by the Financial Times. This figure contrasts sharply with the International Monetary Fund’s projection of 5.2%.

When it comes to unemployment, analysts are more pessimistic with a forecast of over 10%, which is significantly higher than in the last reading.

Basic diagram

  • Tomorrow, IHS Markit will release both composite and service PMIs for the Eurozone.
  • Retail sales data is expected on Thursday.
  • Data on the consumer price index, business climate and industrial confidence will also be released on Thursday.
  • November unemployment data will be published on Friday.

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