Daily Commentary BY THE CURVE TEAM –

Retail Sales Slow

22nd of October, 2020

Retail sales, which has been one of the few upsides to the economy during Covid-19, has begun to tail off.

Preliminary data for September shows a fall of 1.5% for September in retail sales, which makes for two consecutive monthly falls. Annual growth is 5.2%, leaving retail sales 4.6% above pre-Covid levels.

It is worth differentiating overall consumption from retail sales. If the fall in retail sales is being offset by increasing expenditure on services, then the effect on GDP will be more muted.

All states recorded a decline in the September data. Next month, with JobKeeper and JobSeeker payments being amended, it would not be surprising to see further falls.

Victoria continuing to ease lockdowns should provide an upside for retail sales. It is unclear whether this upside can offset expected falls in other states.

Following the RBA minutes on Tuesday, the market has already begun pricing in the anticipated easing of monetary policy. Bank Bill Swap rates, which are used as a reference rate for many variable rate investments, fell comfortably below 0.10% (the amount banks earn on their exchange settlement accounts). This implies the market is expecting a reduction in the cash rate target.

Rates on investments have been immediately affected by this change. Term Deposits tend to follow these rates but are more lagged. Should the RBA ease policy on November 3, it would be natural to expect more downward pressure on rates across the economy.

Josh Stewart

Client Relationship Manager