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We’ve had two important points of economic data drop today for the land down under – retail sales at home, and, what’s happening across the sea with our largest trading partner, China.
Let’s start with the domestic data – where we’ve learned that retail sales growth is officially the weakest on record (excluding the introduction of GST, and the COVID years.)
The long story short is that we’re seeing multiple pressures on the Australian consumer, even as the household savings ratio starts to bounce back from historic lows. In short: people are holding onto money. Could this be the start of the mortgage cliff?
After all, recent results from Bank of Queensland (ASX:BOQ) – Australia’s bank most exposed to mortgages – showed arrears are on the uptick. Other independent research has also concluded nearly one third of all Australian mortgage holders are at risk of mortgage stress.
Economy watchers (and RBA watchers) will surely be keeping an eye on things.
So what about retail?
Following a +0.2% rise in retail sales in February, the March data released by Australian Bureau of Statistics (ABS) on Tuesday points to a sharp turnaround.
In March, Australian retail sales fell -0.4%. The ASX200 appeared to respond favourably to the news, though, by no great dramatic performance.
The signal is largely one being considered a sign of cost of living pressures continuing to bite.
Retail turnover has, in fact, been flat for two quarters. On a YoY basis, Australian retail sales growth is up only +0.8%. This could imply people are cutting back on goods while services inflation remains sticky – particularly in housing. Last week we got a read of +3.6% CPI that spooked the markets.
But RBA watchers may take some solace from today’s commentary from the ABS – especially those hoping ANZ Bank get it right when they say the RBA will cut rates -25bps in November 2024.
“Underlying retail turnover has been flat for the past six months and was up only 0.8 per cent compared to March 2023,” ABS head of retail Ben Dorber said.
“Outside of the pandemic period and introduction of the GST, this is the weakest growth on record when comparing turnover to the same time in the previous year.”
The news doesn’t exactly scream a bull case for the RBA to hike rates at its next meeting on May 7.
And what’s this about China?
The Chinese economy matters for Australia for a few reasons, but there’s two very big ones.
The first one is obvious: iron ore sales. Treasurer Jim Chalmers has been saying for months that as iron ore prices fall, driven by a weaker Chinese demand base due to that country’s property sector woes, our budget surplus will falter.
(With that said, SGX iron ore futures are back to US$116/tn.)
The second reason China’s economy matters for us is the value of the AUD, which whether you like it or not, is largely seen as something of a canary in the coalmine for the Chinese economy.
Basically, a strong AUD implies a robust China – and we aren’t seeing that in forex right now.
Which is why it’s interesting that – should you trust the Chinese data – factory activity is at a 14 month high, which we learned on Tuesday.
Chinese industrial production hit pre-COVID levels back in February of this year, even as the country struggles with deflationary pressure, which it’s been grappling since mid-late 2023.
All in all, it’s hard to make sense of China right now – a lot of the numbers don’t appear to add up, but the country is deeply complex and language barriers make reliable high-quality analysis more difficult.
But one thing is certain: inflationary pressure interplays aside, a strong China makes for a stronger Australia.
Also worth noting is that the CH50 index is having a fairly good week, compared to its recent doldrums.
M&G Investments equities chief Fabiana Fedeli revealed on Monday that firm had exposed itself to Chinese markets early 2024; while Philips CEO Roy Jakobs expects a recovery in H2CY2024 – though, a lot of people are saying that.
