Australian Discretionary Retailers Reach Record High on Interest Rate Cut Hopes

Australian discretionary retailers saw a record-breaking third consecutive session on Thursday, driven by optimism over cooling inflation data. The expectation of an interest rate cut as early as February has raised hopes of increased consumer spending on non-essential items.

The S&P ASX 200 Consumer Discretionary sub-index experienced a 1.6% gain on Thursday, continuing its record-setting streak from Tuesday and Wednesday.

Analysts predict that Australian discretionary retailers will benefit from the anticipated interest rate cuts in 2025, providing consumers with additional disposable income for electronics, footwear, and other non-essential purchases.

Inflation data released on Wednesday indicated the slowest price growth in nearly four years during the last quarter of 2024. Easing home prices contributed to cooling core inflation, paving the way for the Reserve Bank of Australia to reduce borrowing costs potentially as soon as February.

Australia's major banks, including Commonwealth Bank of Australia, National Australia Bank, Westpac, and ANZ, anticipate interest rate cuts to commence next month.

"Anticipations of a February cut have stimulated the local market, particularly interest-sensitive stocks in the tech and consumer discretionary sectors," noted Stella Ong, market analyst at Superhero, a share trading platform.

Reduced interest rates and taxes are anticipated to boost consumer confidence and increase spending, which has declined over the past two years due to rising living costs.

"The consumer outlook for 2025 appears more promising, with tax and rate cuts alleviating some of the cumulative pressures on household budgets, leading to a potential return to average spending growth," stated equity analysts at Morgan Stanley.

Wesfarmers, Australia's leading conglomerate with retail businesses like Target and Kmart, led the sub-index's rise with a 1% gain on Thursday. Gaming company Aristocrat Leisure surged by 3.5%.

Morgan Stanley expressed optimism for Kmart and Wesfarmers' hardware division, Bunnings. Electronics retailer Harvey Norman and quick-service restaurant Guzman y Gomez also saw growth, each gaining 1.5% on Thursday.