Australian Retail Sales Shows Weakness

Alan Penny

5 December 2019

3 min read

AUD coin on Australian flag

  • Australian retail sales flat
  • Shows far-reaching effects of US/China trade war
  • Yet another sign of a global slowdown

During the early hours of Thursday, the Australian government released retail sales for month over month. As a result, there are potential signs that there are troubles around the world due to the US/China trade talks. Remember, Australia is highly sensitive to the Chinese economy, and if there are fewer demands for Australian commodities, this will certainly have a ripple effect on the entire Australian economy.

The number and its influence

The retail sales figure for month over month in Australia came out at 0.0%, as opposed to the anticipated 0.3% by pundits. This flat number is much worse than anticipated. It could be part of the overall malaise that can be seen in Australia as the citizens await the outcome of what is one of the biggest drivers of their economy.

This flat number is much worse than anticipated. It could be part of the overall malaise that can be seen in Australia

What makes this particularly difficult for Australia itself is that it has no way to control what’s going on. Essentially, the officials in Beijing and Washington are going to determine what happens in Australia going forward. Australia itself has very little influence on the trade talks if any.

Going forward

Going forward, it’s a simple matter of what’s going on between the Americans and the Chinese as to how Australia trades. That being said, recently the Australian dollar gained a bit as markets are forward-looking. This is perhaps due to moves in the right direction when it comes to the trade talks.

One of the easiest trades recently has been trading the Australian dollar in reflection of what’s going on between the Americans and the Chinese. They are a short-term trade, but clearly money managers are out there trading the Aussie based upon that.

It is very likely that Australian stocks and currency will continue to be highly sensitive to what’s happening there. These assets are unfortunately driven by algorithmic traders that jump into the market on headlines and move things rapidly. It should be noted that things are starting to tilt a little bit in favor of Australia when it comes to the currency markets and the stock market. Perhaps that is in anticipation of the initial “Phase 1 deal” coming out.

Long-term vs short-term

Trading anything in Australia has to be thought of as a longer-term prospect because there simply isn’t enough out there to hang your hat on yet. But there are signs indicating a bit of optimism from time to time.

Even though these Australian numbers showed just how sensitive Australia is to the trade war, Australia itself offers an extraordinarily significant amount of value. That’s because the currency is trading near historic lows, and the stock market has under-performed.

Beyond that, traders will also look towards copper, aluminum, coal, and of course silver and gold companies to take advantage of any positivity that is coming from those trade war negotiations. Every pullback has been a buying opportunity. Therefore it looks as if Australia is going to turn the corner, at least from an asset standpoint. Economic figures tend to lag.

Written By
Alan Penny

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