Daily Commentary BY THE CURVE TEAM –

Retail Sales Surprises

5th of April, 2018

Trade talks continue to dominate headlines across the globe with the tit for tat between the US and China continuing to gather momentum. This looks to have overshadowed the key release domestically yesterday, of which was a bit of a surprise.

Quickly on the trade front, late yesterday afternoon China announced a retaliation to the US protectionist policies with tariffs of their own. Market sentiment initially turned risk off, however this quickly reversed as the response was deemed sensible given the circumstances and both parties indicated they are willing to negotiate.

Back home and given the RBA’s ongoing concerns around the consumer, the release of the Retail Sales figures for February seemed to contradict these woes. Retail Sales came in well above expectations, lifting 0.6% in February following a rise of 0.2% in January.

Looking deeper and it appears there was a clear lift in discretionary spending, not only in household purchases.

Given the backdrop of low consumption and high debt levels, the result should sit well with the RBA. However, future releases will paint a clearer picture as to whether this is a volatile read or we are actually seeing a shift in household spending dynamics.

That being said, household indebtedness remains at record levels and wages don’t look to be going anywhere anytime soon, it may be some time before we see persistent strength in household spending.

Looking to the day ahead and the trade balance will have the markets watching.

Oliver Parsons

Client Relationship Manager