Australia's retail sales exceeded expectations in October, sending mixed signals on the economy following below-view economic growth figures earlier this week.
Retail sales rose 0.4 percent from the month before, above expectations for a flat reading in a Reuters poll, and compared with September's upwardly revised 1.3 percent increase.
"Momentum in retail sales is solid after the dim dark years of 2010-13 for retailers. Clearly the combination of low interest rates, gains in household wealth and new home completions are helping offset soft consumer sentiment and news of rising unemployment," said Shane Oliver, head of investment strategy and chief economist at AMP Capital.
"The reversal of the "two speed" economy is also clearly evident in the retail sales data with NSW shooting the lights out with 9.8 percent growth in retail sales over the year to October and Victoria solid at 6.1 percent growth, but Western Australia now languishing with just 2.7 percent growth over the same period," he said.
Goldman Sachs welcomes the improvement in recent sales momentum. "If it can be sustained through the Christmas period, we believe there will be some additional tailwinds building in 2015 to sustain momentum through the course of the year," it said in a note.
However, it warned that "there are reasons to remain cautious in the very near term.. given still low levels of confidence, income headwinds, and confirmation in yesterday's National Accounts data that the positive signs in the monthly retail sales data did not translate to the consumption component of (gross domestic product) in 3Q 2014."
Trade data released at the same time showed imports fell a seasonally-adjusted 2.0 percent from September, while exports rose 2.0 percent. This brought the trade deficit to 1.32 billion Australian dollars, compared with expectations of a 1.9 billion deficit.
As expected, Australia's trade deficit narrowed due in part to reduced fuel imports and a strong lift in bulk commodity exports, Goldman said in a separate note. "Given recent spot price falls for bulk commodities, we do not believe the gains seen in the latter will be sustained. In fact, looking forward, while an eventual lift in LNG exports should contribute to a sequential improvement in the trade balance (perhaps from mid-2015), we expect the trade balance to remain under pressure in the near-term as weak spot commodity price dynamics continue to flow through to the official data."
The data send mixed signals on Australia's economy after a slower-than-expected third-quarter growth reading on Wednesday led to increased calls for the Reserve Bank of Australia (RBA) to undertake easing measures.
The economy expanded 2.7 percent on year in the third quarter, undershooting expectations for growth of 3.1 percent, as construction spending fell, while sliding export prices hit incomes.
"The balance of risks over the last few weeks have now changed such that the next move by the RBA will likely be a cut," Oliver said, highlighting lower commodity prices, a limited decline in the trade-weighted Australian dollar, low inflation, and a pick-up in non-mining sectors of the economy.
"I am now allowing for one 0.25 [basis point] cut in the cash rate in either February or March and a 50/50 chance of another 0.25 [basis point] cut in the June quarter and then flat rates after that for the remainder of 2015," Oliver said. "This should ensure that the [Australian dollar] continues to slide to around $0.75 by the end of 2015."
On Tuesday, the RBA kept interest rates unchanged at a record low of 2.5 percent, reiterating its outlook for a period of stability in rates, despite increasing speculation the central bank would move to cut rates next year.