Index sags, with retailers under the pump

RETAIL equities took a battering yesterday as the sharemarket extended Thursday's losses.

By InvestSMART · 16 Jul 2011

By InvestSMART ·
16 Jul 2011

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RETAIL equities took a battering yesterday as the sharemarket extended Thursday's losses.

The market remained in the red for the whole session after Wall Street resumed its slide overnight following a one-day respite.

The S&P/ASX 200 Index finished 17.2 points lower, or 0.38 per cent, at 4473.5 almost where it began.

The consumer discretionary index dropped 0.86 per cent to finish at 1284 points, its lowest result for the week. AMP Capital chief economist Shane Oliver said David Jones's announcement on Wednesday that it had slashed its sales and profit guidance continued to weigh on retail stocks.

Dr Oliver said investors were also worried about economic instability in Europe and stalling negotiations over the US debt ceiling.

Retailers faced many pressures that were pushing down the consumer discretionary index,

he said.

"Wages and rents are rising in line with inflation . . . those key costs are going up. I think in the next few months it will be a pretty hard slog for retailers."

Dr Oliver said he expected retail equities to rise in the lead-up to the Christmas spending period. "There's plenty of scope for a rebound but I find it hard to see consumer spending picking up any time soon."

However, in the long term he saw retailers remaining under pressure. "I don't see a return to the strength in retail prior to the global financial crisis," he said.

BT Financial chief economist Chris Caton said that in the past five years Australian consumers had shown a tendency to save their disposable income. The household savings ratio reached 11.5 per cent in the latest quarter, the highest savings rate since the mid-1980s.

David Jones fell 5? to $3.15 while Myer shed 5? to $2.43. Woolworths lost 5?, finishing at $27.35.

BHP Billiton was down 71? to $42.89 and Fortescue dipped 1? to $6.41. Rio Tinto went against the tide, climbing 41? to $81.36.

Three of the big four banks closed lower. CBA ended steady at $49.02 but ANZ lost 20? to $20.78, NAB 6? to $23.40 and Westpac 19? to $20.58.

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Frequently Asked Questions about this Article…

How did the ASX 200 and consumer discretionary index perform in the latest trading session?

The article reports the S&P/ASX 200 finished 17.2 points lower (about 0.38%) at 4,473.5. The consumer discretionary index fell about 0.86% to 1,284 points, its lowest result for the week.

Why did retail stocks slide and what factors are weighing on retailers?

The article cites David Jones’ cut to sales and profit guidance as a key trigger, along with investor worries about economic instability in Europe and stalling US debt‑ceiling talks. AMP Capital’s Shane Oliver also pointed to rising costs such as wages and rents (in line with inflation) that are squeezing retailers.

Which major retailers were hit hardest and what were their share prices?

According to the article, David Jones fell to about $3.15, Myer dropped to about $2.43, and Woolworths finished near $27.35 — each being reported as down roughly around the same magnitude on the day.

What did AMP Capital’s Shane Oliver say about the near‑term and long‑term outlook for retail equities?

Shane Oliver told the article he expects a possible lift in retail equities in the lead‑up to the Christmas spending period, but he finds it hard to see consumer spending picking up soon. In the longer term he expects retailers to remain under pressure and does not foresee a return to the pre‑Global Financial Crisis strength.

How are household saving trends affecting consumer spending and retail stocks?

The article quotes BT Financial’s Chris Caton noting Australian consumers have tended to save more of their disposable income over the past five years. The household savings ratio reached 11.5% in the latest quarter — the highest since the mid‑1980s — which can dampen consumer spending and put pressure on retail stocks.

How did major resources and mining stocks trade on the day?

The piece reports BHP Billiton slipped to about $42.89, Fortescue dipped to roughly $6.41, while Rio Tinto bucked the trend and climbed to about $81.36.

What happened to the big four banks in this market move?

Three of the big four banks closed lower. CBA was steady at $49.02, while ANZ, NAB and Westpac finished lower at about $20.78, $23.40 and $20.58 respectively, as reported in the article.

As an everyday investor, what short‑term signals from this article should I watch for in retail stocks?

Based on the article, watch for company profit guidance (like David Jones’ announcement), indicators of consumer spending and the household savings ratio, inflation‑driven cost pressures (wages and rents), and broader macro risks such as European instability or US debt‑ceiling negotiations. The article also notes the potential for a seasonal lift ahead of Christmas, even if longer‑term pressure remains.