Surprise retail spending data winds stocks

The S&P/ASX 200 closed 19.5 points (0.42%) higher at 4,610.7, but it underperformed Asia and the US because surprisingly weak local economic data — notably a 0.6% drop in May retail spending — dented investor confidence and made the Reserve Bank look less likely to lift the cash rate. That domestic weakness also softened the Aussie dollar, weighing on the market compared with stronger Wall Street and Asian gains.

The Bureau of Statistics reported retail spending fell 0.6% in May (vs. an expected 0.3% rise), which hit retail-sector sentiment. Woolworths fell about 5% to $27.72, Myer was down about 1% to $2.58 and Harvey Norman eased to around $2.42. The surprise data led investors to sell or avoid retail names on concern consumer demand is softer than expected.

Because retail spending came in well below forecasts, the market took it as a sign of weaker domestic demand, making the RBA less likely to raise the cash rate at its meeting. In short, the weak retail print reduced expectations for near-term rate hikes.

Mining and resources stocks outperformed: BHP Billiton firmed about 0.6% to $44.02 and Rio Tinto rose roughly 0.4% to $83.15. Airline competitors also benefited after the grounding of Tiger Airways — Virgin Blue gained around 3% and Qantas jumped about 12% to $1.97. Smaller stocks that had been sold for tax reasons also bounced back, including Karoon Gas Australia, which rose to $5.62.

Murchison Metals warned that costs at its embattled Oakajee port and rail project had blown out. That announcement prompted a notable share price decline during the session as investors reacted to higher project costs and increased execution risk.

The big banks were overall market laggards, closing as much as about 0.2% lower. Commonwealth Bank was the exception, rising approximately 0.3% to $52.06, making it the standout among lenders on the day.

The grounding of Tiger Airways reduced competition on some routes, which investors saw as positive for listed competitors. As a result, Virgin Blue gained around 3% and Qantas soared roughly 12% to $1.97 on expectations of improved demand or pricing power for surviving carriers.

Key themes: light trading volumes because the US market was closed for the Independence Day holiday; domestic economic data (retail spending and weak building approvals) can quickly shift rate expectations and sector performance; tax-related selling and subsequent repurchases can boost smaller beaten-up stocks; and company-specific news (project cost blowouts, airline groundings) can produce sharp stock moves even on a broadly mixed market day.