Australian Stocks Edge Higher as Weak Retail Sales Dampen Rate Hike Expectations

Australian stocks edged higher on Tuesday after a surprise 0.4% fall in March retail sales to $35.7 billion, which reduced expectations of Reserve Bank rate hikes in September. The benchmark ASX 200 index gained 0.35%, with technology stocks slipping 0.1%. The weaker retail sales data led to a reduction in the probability of a rate hike in September from 50% to 25%.

The big miners had mixed results, with BHP up slightly and Rio Tinto down, while lithium miners like Arcadium Lithium and IGO saw strong gains. The top gainer was Arcadium Lithium, while the biggest laggard was engineering firm Worley after a major shareholder sold a stake.

Why this matters: The weak retail sales data, which was a 'big miss', showed that households are under stress from high interest rates and sticky high inflation, which is not expected to change anytime soon. This suggests that consumers are pulling back on retail spending due to high cost of living pressures, and the underlying retail turnover has been flat for the past six months, which is the weakest growth on record when compared to the same time in the previous year.

The surprise 0.4% fall in March retail sales was driven by falls in clothing, footwear and personal accessories (down 4.3%), department stores (down 1.6%), household goods (down 1.4%), other retailing (down 0.3%), and cafes, restaurants and takeaway food services (down 0.2%). The 'Taylor Swift effect ' that boosted turnover in February proved to be temporary, with an instant reversal in March. The largest falls were recorded in New South Wales (down 1.1%) and Victoria (down 0.8%), which had previously seen large rises in February.

The unexpected drop in consumer spending has reduced expectations of interest rate hikes by the Reserve Bank of Australia (RBA) in September. The Australian dollar (AUD) declined 0.17% against the US dollar following the release of the retail sales data. A weaker-than-expected retail sales figure suggests the RBA may hold off on further rate hikes, which could put downward pressure on the AUD.

The S&P ASX 200 is 0.21% higher at 7,653.30, with the best performing sector being Materials, up 0.73%, and the worst performing sector being Industrials, down 0.48%. The best performing large cap is IGO, trading 4.48% higher, while the worst performing large cap is Worley, trading 8.95% lower. The data from the Australian Bureau of Statistics reflects shifting consumer spending patterns and the impact of high interest rates on households.

Key Takeaways

• Australian stocks rose 0.35% despite 0.4% fall in March retail sales.
• Weak retail sales data reduced probability of RBA rate hike in September.
• Lithium miners saw strong gains, while Worley fell due to major shareholder sell-off.
• Retail turnover flat for 6 months, weakest growth on record year-over-year.
• Unexpected drop in consumer spending may prompt RBA to hold off on rate hikes.