Retail numbers limit A$ fall

<p>Today’s Australian retail sales numbers are a continuation of positive news, which really commenced from the beginning of June this year. A 1% monthly rise […]</p>

Today’s Australian retail sales numbers are a continuation of positive news, which really commenced from the beginning of June this year. A 1% monthly rise in what many consider to still be a timid retail environment should be taken in the context of still very low unemployment, solid GDP growth and inflation at the lower end of the central bank’s target range.

There has been a case that recent retail numbers, as evident anecdotally from Coles and Woolworths reporting last week, were impacted by government stimulus payments and while this is probably true, we don’t think it necessarily detracts from an otherwise strong economy. The jury is still out on the Reserve Bank of Australia’s (RBA) decision to cut rates next week but consensus is still sitting at a hold decision. In the meantime, AUD is riding high finding solid support at 1.0465 against USD despite Fed inaction overnight.

Many economists who forecasted deep rate cuts by the RBA continue to question the numbers and point to excuses but the fact is that the RBA would be proud with what it has managed to achieve. Successive quick cuts to make sure the economy doesn’t fall into a downward spiral while maintaining a vigilant stance on long term inflation pressure. The mining and investment pipeline, while discretionary around timing, won’t escape Australia and so any further cuts will further compound inflationary pressure in the medium term. The RBA will be mindful of this. The reason for cutting aggressively this year was to make sure the demand and consumption side doesn’t fall over, and clearly from recent data, it hasn’t.

China to boost steel production

Separately, City Index’s call in June that the economy was in the early stages of a big turnaround seemed very contrarian at the time. We called a resumption in house price gains and a boost to the steel industry as our key points of reference. On house prices, many of the doomsday scenarios of property prices collapsing haven’t panned out.

On the steel industry, recent news tends to suggest that China is considering a tax rebate to further encourage steel production volumes to rise. China’s Ministry of Industry and Information Technology is considering a plan under which selected steelmakers that sell high-end steel products to exporters would be exempt from the 17-percent value-added tax, according to Shanghai Securities News. This will provide support for iron ore and coal markets over the next few months, insulating the likes of BHP, Rio Tinto and Fortescue Metals from further price falls.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.