Daily Commentary BY THE CURVE TEAM –

Retail Sales Surge

12th of January, 2018

Australian retail sales joined the global uptick in Activity in November with a solid gain making the mid-year slump a distant memory. Meanwhile monetary policy normalisation at the global level is starting to gather more pace.

After a mid-year slump in retail sales, which saw two consecutive monthly declines in July and August bookended with weak months either side, retail sales continued their resurgence in November. Total sales were up 1.2% against expectations of a 0.4% rise, building on the 0.5% bounce from October.

The sales outcome in November was linked largely to the release of the iPhone X and iPhone 8 as well as the recent introduction of the Black Friday November sales event according to the ABS. If we look more broadly, this effect was seen in a number of developed economies with the US, UK, Canada and the Eurozone all seeing a similar phenomena in November.

Its a welcome sign from a consumer who continues to fight against the headwinds of weak wages growth at a time of record household debt. We now eagerly await the data for the key Christmas period and post Christmas sales to see if the momentum from October and November is sustained.

Overnight the key news came from the minutes from the most recent ECB meeting. The crucial sentence from the minutes was that a “gap appeared to be emerging between favourable economic conditions and a policy stance that remained in a crisis configuration.”

This is the latest piece of evidence suggesting the ECB is getting closer to following in the footsteps of the Fed, BoE and BoC in removing emergence settings of monetary policy.

Despite the globe moving away from emergency settings of monetary policy and the consumer bouncing back the past two months, expectations for Australia’s cash rate are still below where they were three months ago. A move higher in the cash rate is still not fully priced to the end of the year with little sign of a follow up before the second half of 2019.

David Flanagan

Director - Interest Rate Markets