Data published yesterday showed South Africa’s retail sales outperformed market expectations and jumped +3.2% y/y in August. This compares to a revised +1.7% y/y increase (prior: +2.0%) in the month prior and Bloomberg’s median forecast of +2.3% y/y. August’s print marked the sixth consecutive month of expansion, a welcome outcome for an industry characterised by stagnation since 2019. Given South Africa’s dependence on consumption to enhance domestic growth prospects, retail sales must remain in expansionary territory. The combination of post-GNU optimism bolstering consumer confidence, a stronger ZAR, decelerating inflation, and the start of the SARB’s rate-cutting cycle continue to support retail activity. However, tight monetary conditions and still-negative consumer sentiment limit the upside, while high unemployment remains a structural drag on spending levels.
With nothing of interest on the local data card today, the spotlight will be fixed on international releases and events. First off will be the ECB’s policy update, at which a 25bp rate cut is expected. The ECB kicked off its rate-cutting cycle in June this year, holding steady in July amid upside risks to domestic price stability, before cutting by 25bp again last month. The case for action has increased significantly since the Governing Council last met in September, and even its more hawkish members seem to acknowledge that. Business surveys suggest downside risks to the outlook for GDP growth have risen since the ECB’s last meeting. Inflation is below the central bank’s 2% target for the first time since 2021, and underlying price pressures are ebbing.
Across the Atlantic, US retail sales data will also be of interest today. In y/y terms, the retail sales data has been softening recently, and while there are some signs of deterioration in the US labour market, retail sales may lose momentum. Interest rate cuts operate with a lag, and the full effects of the Fed’s initial move will only reflect in several months. Nonetheless, this will be an important data set that will offer insight into consumptive demand and whether it has softened enough to warrant the Fed’s stance.