Market falls, but can retail buck the trend? Economy roundup

Australian share prices have tumbled this morning as growing fears about the US outlook and the resignation of Foster’s chief executive Trevor O’Hoy shook the market.

The S&P/ASX200 has fallen 2.5% on Friday’s close to 5453.3 at 12.15pm, with much of the decline coming in the first 15 minutes of trading. Financials have been the biggest losers, with Macquarie and Babcock & Brown both down more than 7% this morning.

A sense of confusion about just how bad things are likely to get in the US has been the key reason for the negative market sentiment today.

US markets closed up last night following the release of data showing an unexpected increase in pending home sales in April to their highest level since October last year.

But markets across Asia, including Australia, are still caught up by employment figures released in the US on Friday that showed the jobless rate there jumping 0.5% in May to 5.5%, the country’s highest unemployment rate since 2004.

All in all, the mixed results have led many market watchers to conclude that no-one really knows what is going to happen in the US – and there is nothing markets hate more than uncertainty.

Amidst all the gloom, however, there was some good market news this morning from an unlikely source, given the soft retail sales figures of recent months – electronic goods retailer JB Hi-Fi.

JB Hi-Fi bucked the trend of recent profit downgrades from retailers to announce it is upgrading its profit forecast for 2007-08 from $57-$60 million to $64 million. That would represent an increase 58% on the previous year’s profit of $40.4 million.

JB Hi-Fi chief executive Richard Uechtritz says Australians’ love affair with technology shows no signs of stopping. “Whilst consumers may be cutting back on furniture, fashion, eating out, that new renovation and holidays, interest in home entertainment remains strong and we are the undoubted leaders in that space.”

In other economic news, housing finance data for April released today confirms the weak state of much of Australia’s residential housing industry, with the value of new loans for houses and apartments falling 3% seasonally adjusted.

A 4.9% fall in loans by interest rate-sensitive owner occupiers was entirely responsible for the figure, while investment housing loans increased 1.4%, perhaps reflecting strong rental yield levels across the nation.

And the Australian dollar has lost a fair bit of value against the greenback in recent days after US Treasury Secretary Henry Paulson said he would “never” rule out intervention to prop up the US dollar.

That sent the Australian dollar below US94c, but it has since recovered slightly to be trading at US95c at midday today.