Closing out the week for Australia, we have the first potentially market-moving economic data after the RBA meeting.
As expected, the bank cut interest rates. But that only leaves open the question as to when it will cut them again.
So, it’s back to tracking data! Especially those related to employment, since that’s what Governor Lowe reiterated the central bank was intent upon.
Given the slashed rate, the expectation would be that consumer sentiment should improve as more money is available to the market.
Lower rates are meant to be a disincentive for savers and incentivize taking on debt with cheaper loans. However, retail sales have remained below since the best result this year, before the RBA started cutting rates.
The Other Events
We should note that the RBA will be publishing its Financial Stability Report at the same time as the Retail Sales data.
Because we just had a meeting, the effect of the FSR is likely to be dwarfed by the sales data. Though analysts will be looking for clues as to how the central bank sees the economy evolving over the next six months.
The report could change some of the math around when the next rate cut is.
Currently, we aren’t expecting the RBA to take action until next year.
There are just two more policy meetings before January. But, with the rate approaching zero, analysts are now on the hunt for comments relating to unconventional measures that the RBA might take if they don’t get the desired rebound in the economy.
What to Expect from the Data
Expectations are for monthly retail sales to have increased by just 0.2% in September, compared to -0.1% in August.
The average growth in consumer spending over the last couple of years has been around 0.3%. In fact, results above 0.5% are rare. Ups and downs in the data series are normal, but there are some possibilities of a stronger market reaction.
While negative results are common, generally they are one-offs. If the results were to disappoint into negative territory, we could see some further weakness in the AUD.
On the other hand, a result above 0,5% would potentially see strength in the currency. It might be indicative of the RBA’s policy finally having an effect.
The Unconventional Data
Lost in the discussion about the effects of the trade war, and the slump in the Australian economy is the importance of foreign shopping.
Australia is the primary foreign destination for luxury shopping outside of China for Chinese nationals. And they represent a substantial portion of retail trading.
With the currency controls put in place by China in response to the ramp-up in tariffs from the US, it was initially thought that Chinese shopping in Australia would take a hit.
While Chinese investment did drop, this was not reflected in luxury spending. This is especially true in Melbourne and Sydney. In fact, not only are existing luxury brands stepping up their investments in the area, but more brands are opening up new locales.
The best performers are independent retail sellers, who are able to offer a personalized experience to customers wary of buying online.
As the antipodean summer kicks off, an increase in tourist arrivals could help keep retail sales healthy despite other structural issues in the economy. Visitors might keep the service sector performing even if exports are still under pressure.
However, unless it translates into inflation, it’s not likely to interest the RBA.