August 16, 2022

European Retail Shares Hit Lowest Value since COVID Outbreak

On Friday, European retail stocks declined to their lowest level since 2020, when the global coronavirus crisis had hit. This happened after Zalando, the online fashion retailer, issued a profit warning, and data indicated that consumer confidence had reached a new low in Britain.

Consecutive Declines

The retail sector of the STOXX 600 index recorded consecutive declines for the fourth week and came down to the lowest levels last recorded in March 2020. While the broader market gained 1.14% for the day, the retail sector was underperforming and had already dipped by 1.4%.

On Thursday, Zalando saw its shares plunge to a low last seen in December 2018. This was after the German retailer warned that the second quarter of the year was going to be a weak one and also cut its outlook for the year due to deteriorating macro conditions. At 0900 GMT, the company’s shares were already down by 12.8%.

European Stocks in Trouble

Since the beginning of the year, there has already been a decline in European stocks as a whole and they have eroded one-third of their overall value so far. On Friday, data showed that consumers in Britain had cut down their spending in the previous month due to the rapidly increasing inflation. Likewise, consumer confidence had declined to a new low in the month of June as well.

There was a 0.5% drop in sales volume in the month of May in Britain. This was slightly less than the 0.7% decline that had been predicted by economists. The GfK survey, which is considered as the biggest gauge of consumer confidence in Britain, also saw a decline that brought it to its lowest levels that were last seen in 1974.

Sterling Improves

Even though the data for the day was disappointing for Britain, its currency was able to record a gain for the first time in four weeks against the US dollar. The data was deemed better than expected, due to which the Sterling was able to make progress, despite the political turmoil in Britain.

Prime Minister Boris Johnson’s Conservative party lost two by-elections on Thursday and this has given rise to uncertainty about his future. This obviously took a toll on the stock indexes in Britain. But, the same could not be said for the British pound, as it was able to record a 0.24% increase against the dollar for the day.

However, the currency remained flat against the euro for the most part. The single currency also saw a little bit of gains against the US dollar, which brought it up from the low of $1.05 it had reached thrice in this week.

The European Central Bank and the Bank of England has committed to hiking interest rates to balance surging inflation, but analysts have predicted that their stance would be softer than expected. The US Federal Reserve, on the other hand, is expected to be aggressive, as it has already been, which was reiterated by the Fed chairman, Jerome Powell.

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