Thursday, August 04, 2011

Retail. What's the damage? Could the Bank actually cut rates?

NSW retail volumes, year to June

Food down 0.6%
Household goods down 1.9%
Clothing footwear accessories down 6.2%
Department stores down 1.9%
Other retailing up 7.9%
Cafes restaurants down 7.9%

Victoria retail volumes, year to June

Food up 1.6%
Household goods up 6.3%
Clothing footware accessories up 3.9%
Department stores down 0.6%
Other retailing up 7.8%
Cafes restaurants down 0.9%

The Australian share market has dived to its lowest point in about a year and the Aussie dollar has slid 1.5 US cents on concern about a much worse than expected economic news from the United States and Australian retail figures showing spending at a standstill.

Interest rate markets are now aggressively predicting a rate cut just one day after Reserve Bank governor Glenn Stevens said his board was considering pushing rates up.

By late yesterday the futures market had priced in a 62 per cent chance of rate cut at the Bank’s September 6 board meeting, up from a 28 per cent chance a day earlier.

The implied probability of two rate cuts by December soared to more than 100 per cent (meaning on balance more is expected) compared to 5 per cent the day before. A Credit Suisse Group AG index showed traders expecting three rate cuts totalling 0.75 percentage points by mid next year.

Westpac chief economist Bill Evans, who publicly predicted rate cuts a month ago took no joy from finding the market had caught up with him.

‘‘I don’t treat it as being particularly encouraging that our view is being justified; it can disappear tomorrow,” he told The Age.

Australia’s retail spending figures were the worst for 50 years...
In the month of June spending slipped 0.1 per cent. Over the financial year to June spending grew 2.6 per cent, the weakest growth since 1961-62.

When price rises were taken into account spending scarcely grew at all during 2010-11, the volume of goods sold inching up by 0.6 per cent, much less than Australia’s population.

In NSW the aversion to spending was severe. Unpublished Bureau of Statistics figures made available to The Age show the volume of food bought over the year down almost 1 per cent over the year, the volume of clothes and shoes down 6 per cent and the use of cafes and restaurants down 8 per cent.

“One of the reasons consumers are cautious is that we are still living with the aftershocks if you like of the global financial crisis,” said Treasurer Wayne Swan. “Another reason is the fact the stock market has not returned to the levels that it was at prior to the crisis.”

Victoria was spared the worst of the damage with the volume of goods bought during 2010-11 up in 4 of the 6 categories identified by the Bureau compared to NSW where it was down in all but one of the categories.

The S&P ASX200 Australian sharemarket index fell 100.8 points, or 2.27 per cent Wednesday to 4,332.8 points while the broader All Ordinaries index lost 102 points, or 2.26 per cent, at 4,408.3 points.

On Wall Street the Dow Jones index fell 2.2 per cent on the back of news that personal spending dropped for the first time since the United States recession.

IG Markets research analyst Ben Potter said Australian trading was ‘‘ugly’’ with Auistralia’s spending data amplifiying the bad newzs from the US.

‘It seems the US debt issue has been forgotten and everyone’s focusing on the terrible growth data- we had GDP on Friday, manufacturing on Monday, and Tuesday, personal spending dropped for the first time in two years.

‘‘Everyone is seriously questioning whether the US economy is actually recovering at all and if it’s headed for a double-dip recession.’’

The Australian dollar dived from 107.40 US cents to 106.88 within seconds of the retail news.

“It started off the day fairly weak following the steep sell-off on Wall St then we had the Australian retail sales figures,” said CMC Markets senior dealer Tim Waterer. “They triggered a downside.

Over 24 hours the dollar lost 1.5 US cents.

HSBC chief economist and former Reserve Bank official Paul Bloxham said the Bank still had a ‘‘tightening bias’’ and was likely to lift rates later this year despite the market sentiment.

‘‘The continuation of the mining investment boom continues to offset the impact of the higher exchange rate and interest rates on the non-mining sector,” he said. “I still think the Australian story is a very positive one.’’

Trade figures released yesterday showed Australia’s fourth consecutive monthly surplus.

Exports fell by 0.1 per cent in June while imports rose by 2.6 per cent. More detailed figures show consumer imports fell 0.6 per cent while the imports of capital goods such as mining equipment jumped 7.3 per cent.

Published in today's SMH and Age

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