Wall Street's new highs; Australian Retail Sales the focus locally
US stocks have notched-up another record high, as the S&P500 closes in on the 3000-mark.
Another record-reaching session
US stocks have notched-up another record high, as the S&P 500 closes in on the 3000-mark. The ASX 200 yesterday came close to its own psychological milestone, nearing the 6700-level. The highs came on a light-day’s trade on Wall Street, however, with US markets trading-in a shorted session in ahead of the Independence Day holiday. Currency markets were more volatile, with commodity currencies climbing courtesy of several positive trade balance data out of New Zealand, Canada and Australia. And the USD dipped, following the release of soft ADP employment data, and a Tweet from US President Trump accusing Europe and China of currency manipulation.
Signs of slowing growth
Having passed the weekend’s G20 meeting, market participants seem to be looking at the global economic outlook with clearer-eyes. Calmly and sensibly – risk assets are still climbing and the VIX is trading lower – traders are pricing in a lower growth and inflation world, seemingly as much due to cyclical factors, as it is to the trade-war. In commodity markets: oil prices are shifting lower, as are industrial metals. And in fixed income: the yield on benchmark US 10-Year Treasuries hit a new multi-year low yesterday of 1.96%; while US 5-Year Breakevens are suggesting an implied rate of inflation around 1.50%.
Building Approvals and Trade Balance data beats
The Australian economic data released yesterday belied these concerns. Australian Building Approvals figures, along with Trade Balance numbers were printed, and beat expectations. Building approvals expanded 0.7%, against a forecast of 0.0%; and the trade plus expanded to $5.75b, supported by a healthy lift in both imports and exports last month. The market reaction to the positive news was limited, however. The ASX lifted slightly, led by a boost in the industrials and REITS. But the AUD barely budged, with markets seemingly forming the judgement that the data does little shift neither the nation’s economic fundamentals, nor the RBA’s likely interest rate outlook.
Retail Sales highlights today’s calendar
Local Retail Sales data headlines today’s data docket, and it’s a print that takes on slightly greater significance given the outcome of Tuesday’s RBA meeting. The Reserve Bank made special mention of consumption being a potential drag on the Australian economy, and the “main domestic uncertainty”, as softening property prices and lower wages growth stifle spending. The data today isn’t expected to be spectacular, but its forecast to be a better month-on-month print to that which came last month: economists consensus estimates are for 0.2% growth, up from a -0.1% contraction.
What today’s Retail Sales data means
The RBA, according to the press-release accompanying its decision on Tuesday, expects a “pick-up in growth of household disposal income” to improve retail spending over-time. It’s an allusion to the fact lower debt repayments for households, in light of recent interest rate cuts, ought to free up consumers’ capacity to spend in the future. Today’s data pertains to the month of May, so it will probably not reflect the (assumed) lift in consumer activity that should accompany rate-cuts. Nevertheless, it will provide a base-line for how the RBA’s recent actions impact future retail sales data, as lower-rates flow through the economy.
The broader challenges to consumption growth
The real question, in the bigger picture, is what propensity do Australian consumers have to spend? Indeed, disposal income, on the aggregate, ought to increase because of recent rate cuts. But we remain in a low-wage growth environment – something that an only an unemployment-rate around 4.5%, according to the RBA, will remedy; and property prices, through stabilizing recently, are still looking sluggish. Furthermore, household debt remains very high, and recent GDP data has showed Australians are displaying a tendency to defer spending, and use extra income to pay this down. Given this dynamic, it may not be a surprise consumer confidence remains flat.
Retail Sales data’s market implications
For market participants, the health of consumer discretionary sector, as well as, of course, the AUD, remain in focus in light of the recent spate of soft Retail Sales data. Regarding the former, that sector is demonstrating signs of general price consolidation, as the benefits of lower interest rates become fully-discounted, and weak domestic consumptions weighs on earnings growth. The AUD will be more sensitive in the short-term to any consumption figures: the market is divided about whether a rate cut ought to occur before December. Poor Retail Sales data will bring forward expectations of another cut, which would weigh further on the AUD.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Live prices on most popular markets
You might be interested in…
Find out what charges your trades could incur with our transparent fee structure.
Discover why so many clients choose us, and what makes us a world-leading provider of spread betting and CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.