With the release of the latest European retail sales data from Eurostat this week, we have our first look at May overall retail sales and April sales of textiles, clothing, and footwear.

Starting from a broader perspective, growth in overall retail demand grew a year-over-year 2.8% in May, the fastest in three months.  Lagged a month, sales of textiles, clothing, footwear and leather goods in specialized stores across the EU shrank for the second straight month in April (off -1.0%).  In fact, this sector is the only key retail sector that contracted in April (chart 3).  Chart 2 shows this sector's performance failed to match the expansion in the broader retail market again in April, the sixth straight time this has occurred.

This latest reading reinforces our earlier view that sales of textiles, clothing, and footwear across the European Union may see little to no growth in 2016 (chart 4).  In fact, over the last fifteen years, any January-April sales expansion or contraction was followed by a similar expansion or contraction in full-year sales eleven of those years.

Our economic analysis this month will focus on the Brexit, for obvious reasons. 

We are rather humored by the global market hysteria surrounding the Brexit.  Why? According to World Bank stats, Britain accounts for less than 4% of global output and its exports to E.U. states account for 14% of its GDP; meaning even if new trade barriers increase between the E.U. and U.K. their trade accounts for less than .5% of total global trade. When you look at Brexit's economic impact in this way, the global economic panic has more to do with traders' and speculators' banter than actual economics impacting real goods and services...but when has that stopped traders?

The pound volatility and devaluation are a short-term concern.  The currency remains a global hedge for governments looking to balance their portfolio of euros and dollars.  If China's economy were stronger, one would see a move by Beijing to push the yuan forward to make it a top three trading currency. As it stands now, China is in need of a cheap RMB to help its manufacturing sector. The bigger concern than sovereign debt is that private equity investments into European companies will be on hold due to confidence concerns - which means we do believe there may be some continued Fx volatility until we have a clearer picture of who will lead Britain after Prime Minister David Cameron officially steps down. There is also uncertainty surrounding Scotland's potential departure from the U.K. in order to stay in the E.U. That means a stronger dollar over the rest of the year as governments move relatively more debt to dollars than pounds in coming months, and it means a U.S. interest rate hike is unlikely until late in the year (if at all). In the long term, we do not see parity with the dollar, but rather we hypothesize Fx rates settling in around 1.30-1.35 dollars to per pound by year-end depending on political stability in Parliament.

For Britain, a declining pound means their exports will be cheaper for European consumers, which could help offset the pain from any E.U. tariffs that might be reinstituted after the official exit.  If one looks at the E.U. economy now and into the future, it would be quite foolish to raise any new harsh barriers to trade.  As current tempers in Brussels fade and reality sets in, there could easily be negotiations in the coming years to ensure customs and trade barriers, work visas, and many business standards remain close to current policy. This is all the more likely since an official exit is a minimum of two years away from now. To that point, as we move further away from the emotion of the vote and as Europe continues to feel economic pain, it could be assumed that Britain's official exit date from the E.U. may be slow-walked to over a decade to ease economic uncertainty and soft land the exit.