Eating out, department store spending up, so what does it mean for rates?

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For the fifth consecutive month, retail trade figures in Australia are up according to the Australian Bureau of Statistics, with some suggesting this could be the catalyst for a further interest rate rise.

According to the data, total retail turnover was up 0.9% in April and again in May, and while this is positive news, is it enough for the RBA to raise rates again so soon, especially on the back of an 0.5% increase in June?

Taking a closer look at the data, it shows that while retail spending is up, it has slowed considerably compared to the first quarter of 2022, as spending from January to March increased at least 1.6% each month.

abs retail trade figures up

Given that April and May only achieved growth of 0.9%, this is an indication that consumers may be starting to feel the effect of rising inflation and interest rates.

It seems that those in South Australia are spending more with retail turnover up 1.9% followed by NSW and Victoria, which are both up more than 1%, while Queensland and the ACT spent less in May.

Not surprisingly, department stores were the big winners with spending up 5.1% followed by cafes, restaurants and takeaway food with spending up 1.8% in May, while clothing, footwear and personal accessory retailing was down 1.4%.

We know that pent-up demand caused by successive lockdowns has driven increased spending in the past year, while supply chain issues have pushed inflation to higher levels.

It may be that the current figures are a sign that demand is easing, and things are returning to normality.

For investors, the broader retail sector is unlikely to do well in the coming months; therefore, I recommend they be very selective when looking for opportunities.

The best and worst performing sectors this week

The best performing sectors include Energy up more than 3% followed by Consumer Staples and Materials, which are just in the green so far for the week. The worst performing sectors include Information Technology and Communication Services, as both are down more than 2% followed by Consumer Discretionary, which is down more than 1%.

The best performers in the S&P/ASX top 100 stocks include Iluka Resources up more than 6% followed by Worley, Computershare, The Star Entertainment Group and WDS, which are all up more than 4%. The worst performing stocks include Evolution Mining down more than 29% following a downgrade in its production forecast for Gold, followed by Northern Star Resources down more than 14% and Carsales.com down more than 11%.

What's next for the Australian stock market

The Australian stock market started this week up nearly 3% in the first two days, however, these gains were wiped out in the following two days, which highlights how volatile our market is at present.

After experiencing six straight days of rises, it is not unexpected to see the market fall for a few days and is nothing to worry about.

That said, if the market was bullish, these down days would not be as severe as what we have just experienced, which may be a warning sign. As I have stated previously, on numerous occasions, it is too early to tell if the All Ordinaries Index had stopped falling and the past two days have only added weight to this.

Given this, I believe it is wise to assume further falls are likely and if this is correct, we will soon see price challenge the low of 6581 points set on June 20. If the market does fall, it will find strong support around 6200 points and it is unlikely to fall below that level.

Right now, I recommend investors sit tight and get ready for the next opportunity to buy that will come in the not-too-distant future.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.