Fresh Data to Illuminate Retail and Housing Strength

On February 2, 2025, stronger retail sales figures emerged, potentially complicating prospects for a central bank interest rate cut in Australia. Despite this, investors remain convinced that mortgage relief is imminent.

Market analysts were pricing in over a 90% likelihood that the Reserve Bank of Australia (RBA) would reduce rates by 25 basis points on February 18, following a surprisingly low inflation report at the end of January. The Australian Bureau of Statistics is set to release retail spending data for December, which will provide further insight into consumer behavior.

The CoreLogic home value index will also be published, signaling whether the housing market downturn persisted into January. Earlier months saw a boost from Black Friday sales, reflected in retail turnover rising by 0.5% in October and 0.8% in November, but analysts from NAB, including Tapas Strickland and Taylor Nugent, suggest that the anticipated December results are unlikely to change the RBA's perspective either way.

NAB had recently updated its expectations for a rate cut from May to February after the trimmed mean inflation—the RBA's favored measure—came in at 0.5% for the December quarter. This decline was primarily driven by weaker housing costs observed towards the end of 2024.

In addition to retail sales, the market will be watching CoreLogic’s home value index, with AMP's chief economist, Shane Oliver, forecasting a further 0.1% dip in national home prices, consistent with the decline seen in December. The decreasing housing supply is expected to support home values despite a recent uptick in building activity and approvals.

The statistics bureau will also announce building approval figures for December. Although there is a gradual increase from early 2024's lows, November’s approvals were still significantly short of the 20,000 needed monthly to meet the federal government's ambitious target of constructing 1.2 million new homes within five years.

Meanwhile, developments in the United States are capturing investor attention. Employment figures will be released on Friday, with predictions focusing on the non-farm payroll data. The U.S. labor market remains tight at a rate of 4.1%. Major tech companies like Amazon and Alphabet are among those set to report earnings, following significant upheaval caused by the news of Chinese AI competitor DeepSeek.

On Wall Street, U.S. stocks experienced a downturn with the announcement of tariffs by President Donald Trump—25% on imports from Canada and Mexico and 10% on Chinese goods. The Dow Jones Industrial Average decreased by 337.47 points, or 0.75%, closing at 44,544.66. The S&P 500 fell by 30.64 points, or 0.50%, to 6,040.53, while the Nasdaq Composite lost 54.31 points, or 0.28%, settling at 19,627.44.

Australian share futures also dipped, dropping 16 points, or 0.18%, to 8491. However, the local share market had a strong finish recently, reaching its highest level ever, with the benchmark S&P/ASX 200 index rising 38.6 points, or 0.45%, to 8,532.3, surpassing its previous record from December.

Retail, Housing, Economy