Fresh Insights on Retail and Housing Strength

On February 2, 2025, news emerged regarding the strength of Australia’s retail sales and housing market, which has implications for future interest rates set by the central bank. The recent retail sales figures exceeded expectations, which could lessen the likelihood of an interest rate cut by the Reserve Bank of Australia (RBA).

Currently, traders anticipate over a 90% probability that the RBA will implement a 25 basis point reduction in interest rates on February 18. This is fueled by a softer inflation report released at the end of January, which showed a decrease in the trimmed mean inflation rate to 0.5% for the December quarter, primarily due to weak housing costs.

The Australian Bureau of Statistics is set to reveal further details on the economy's health with retail spending data for December. Property data firm CoreLogic will also publish its monthly home value index to indicate whether the ongoing housing downturn persisted into January.

Analysts at NAB, including Tapas Strickland and Taylor Nugent, suggest that although a decline in turnover is expected after earlier Black Friday sales boosted October and November figures, the outcome will likely not influence the RBA's standpoint. They highlighted the earlier prediction by NAB, which shifted its anticipated rate cut from May to February after the inflation data was released.

As a potential endpoint for the housing market's difficulties, AMP chief economist Shane Oliver forecasts a slight 0.1% decrease in national home prices, aligning with the downward trend witnessed in December. Meanwhile, the Australian federal government has set an ambitious goal to construct 1.2 million new homes over the next five years, although a lack of new supply is predicted to stabilize home values despite an increase in building activities and dwelling approvals.

Data on building approvals for December will also be provided by the statistics bureau on Monday. While the figures show a gradual improvement from the lowest levels at the start of 2024, the November total of just under 15,000 approvals remains well short of the 20,000 approvals needed each month to meet the government's housing target.

In addition to local developments, many investors are closely watching events in the United States, particularly the upcoming employment data slated for release on Friday. The U.S. economy continues to display resilience, with the unemployment rate holding steady at 4.1%.

Meanwhile, tech giants such as Alphabet and Amazon are among the notable companies set to announce their earnings, following a turbulent period in the tech sector. U.S. stock markets faced declines recently, partly in response to President Donald Trump's announcement of new tariffs on imports from Canada, Mexico, and China, which caused the Dow Jones Industrial Average to drop significantly.

Despite the fluctuations in the stock market, the Australian share market reached new heights last Friday, surpassing its previous records. The benchmark S&P/ASX200 index climbed to an all-time high, reflecting ongoing optimism among investors.

Retail, Housing, Economy