Fresh Insights into Retail and Housing Strength

On February 2, 2025, the latest data on retail sales indicates stronger-than-expected consumer spending, a trend that could impact future decisions by the Reserve Bank of Australia concerning interest rates. While the anticipation for a potential cut in rates remains strong, the unexpected rise in retail figures could complicate this scenario.

Traders have shown a 90% confidence level that the Reserve Bank will implement a 25 basis point rate cut on February 18. This speculation arose following a weaker inflation report released at the end of January. As part of the ongoing evaluation of Australia's economic conditions, the Australian Bureau of Statistics is set to disclose retail spending data for December shortly.

In addition, CoreLogic will provide insights into the real estate market with its home value index, indicating whether the housing decline has persisted into January. Previous months saw minor sales increases thanks to early Black Friday promotions, contributing to a 0.5% rise in October and 0.8% in November. Despite these fluctuations, economists from NAB, including Tapas Strickland and Taylor Nugent, suggest that the retail result is unlikely to significantly influence the Reserve Bank's policy decisions.

NAB recently adjusted its rate cut predictions from May to February given that the trimmed mean inflation—considered the central bank's preferred metric—was only 0.5% for the December quarter. This decrease was mainly attributed to unexpected drops in housing costs experienced in late 2024.

As for the housing market, AMP's chief economist Shane Oliver predicts a modest continuation of the trend, with a potential 0.1% drop in national home prices expected in January, mirroring the decline recorded in December. Nevertheless, the federal government's goal of constructing 1.2 million new homes over the next five years faces challenges due to a lack of housing supply, despite some recent increases in building activities and dwelling approvals.

Data on building approvals for December is also set to be released soon. Although there has been a gradual increase since the start of 2024, November's figure at 14,998 approvals still fell short of the needed 20,000 approvals each month to meet the government's ambitious target.

On a broader scale, many investors are keeping an eye on developments in the U.S. The upcoming employment data, including non-farm payroll figures set to be released on Friday, will be critical as the American labor market remains tight with an unemployment rate of 4.1%.

In the technology sector, major firms such as Amazon and Alphabet are expected to report their earnings soon following significant scrutiny after news of a new Chinese AI competitor emerged. Meanwhile, U.S. stock markets faced declines recently due to tariffs imposed by the Trump administration on imports from Canada, Mexico, and China. The Dow Jones Industrial Average recorded a drop of 337.47 points, while other indexes noted similar losses.

Despite these fluctuations in the U.S. market, the Australian share futures took a slight hit, falling 16 points from their previous record high achieved just days ago. In contrast, the Australian stock market recently reached its highest-ever level, with the S&P/ASX200 index rising significantly, surpassing its previous record.

retail, housing, economy