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UBS Report Good News For Retailers Bad News For Interest Rates

UBS has upgraded their Australian consumer discretionary spend data as shares in retailers including JB Hi Fi, Myer and Harvey Norman climb this month on the expectation of a lift in sales due to the amount of money set to hit the Australian economy.

UBS has upgraded their index to overweight based on its June quarter Evidence Lab survey of about 1000 adults in late May and early June.

The results were “clearly positive” as aggregate spending intentions for the next 12 months rose further into positive territory to the highest point since at least 2019 the Company claims.

During the past 30 days JB Hi Fi shares have climbed 8.98%, Harvey Norman 3.09%, Myer 20.90% and Wesfarmers 2.32%.

UBS Claims that improvements in trading were evident across multiple industries; especially in areas that were previously weak.

JB Hi Fi and Harvey Norman are both expecting a surge in demand for new AI powered notebooks.

“Importantly, spending intentions by income level over the next 12 months are strongest for middle-income households earning $48k to $120k per year,” says UBS Australia equity strategist Richard Schellbach.

“Meanwhile income expectations continued to rebound, also driven by middle-income households.”

The positive news comes as some analysts are tipping a rise in Reserve Bank Rates

Schellbach says the lift in spending intentions suggests large tax cuts worth $23bn – almost 1 per cent of GDP – will likely be largely spent by consumers once the tax cuts get underway next month.

Observers claim that while this is good for retailers it’s not necessarily good for inflation control.

The UBS research found that households reported their financial outlook was supported by a resilient labour market fuelling perceptions of higher job security, and rising asset prices, but they were more worried about rising interest rates.

Indeed, household expectations for interest rates over the next year were materially higher.

Schellbach claims this probably reflects the RBA turning more hawkish over recent months, and now clearly stating they are considering hiking rates again.

“The survey’s accurate calling of this cycle has been against consensus and other surveys,” Mr Schellbach says. “Recent months have seen an unusual level of dispersion in the views on the economy / consumer from both economists and stock analysts.

“In an uncertain backdrop, we are even more inclined to pay attention to our survey’s findings.” he claims.



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