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Australia’s Weak Retail, Mining Profits Drive Up Rate-Cut Bets

Australian retail sales stagnated in October and mining profits dropped last quarter, sending the nation’s currency lower as investors raised bets on an interest-rate cut tomorrow.

Sales held at A$21.6 billion ($22.5 billion) from a month earlier, when they rose 0.5 percent, a Bureau of Statistics report showed in Sydney today. Gross operating profits fell 2.9 percent in the third quarter from three months prior, led by a 12.2 percent fall in mining companies’ earnings, a separate government report showed.

The data intensify pressure on Reserve Bank of Australia Governor Glenn Stevens to lower the benchmark rate by a quarter percentage point to 3 percent as he seeks to revive industries outside resources. The nation’s unemployment rate jumped to a 2 1/2-year high in September and held there in October, and a private report today showed help-wanted ads fell in November for an eighth month.

The “disappointing data” make a rate cut tomorrow “even more likely,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “The RBA won’t like sitting on the sidelines if the economy is clearly in need of more stimulus.”

Traders are pricing in a 91 percent chance Stevens and his board will lower borrowing costs tomorrow, up from 88 percent prior to the reports, swaps data compiled by Bloomberg show. The local dollar bought $1.0413 at 1:12 p.m. in Sydney, compared with $1.0426 before the releases.

Household Goods

Economists had forecast a 0.4 percent rise in retail sales in October, according to the median estimate in a Bloomberg survey. The report showed spending on household goods fell 1.6 percent, and consumers spent 0.3 percent less at cafes and restaurants. They spent 0.9 percent more at food stores, the only category to advance, it showed.

Harvey Norman Holdings Ltd., Australia’s largest electronics retailer, said last month that first-quarter earnings probably fell about 20 percent as it closed stores and sales dropped 10 percent.

Weakness in the retail industry and lower projected mining investment prompted job losses in the economy. Australian help-wanted notices dropped for an eighth straight month in November, sliding 2.9 percent, an Australia & New Zealand Banking Group Ltd. report showed today. Economists predict a Dec. 6 government report will show unemployment rose to 5.5 percent.

Today’s business profits report showed that from a year earlier, earnings declined 13 percent.

Rate Cuts

Stevens has lowered the cash rate by a total of 1.5 percentage points from November 2011 to October this year. He held at 3.25 percent last month, citing faster-than-expected inflation last quarter and a stabilizing global outlook.

A TD Securities Inc. gauge of inflation released today showed a decline in November for the first time in five months, falling 0.1 percent amid drops in the cost of vegetables and fuel.

Prices in Australia have been restrained by the strength of the nation’s currency, which has averaged above parity with the U.S. dollar for the past two years as the resource investment boom and international institutions seeking a safe haven from global turmoil buy the currency. That hurt industries outside of the resources industry vulnerable to international competition.

Australian manufacturing contracted for a ninth month in November as producers cited the currency’s sustained strength and weak demand at home and abroad, the Australian Industry Group said in a survey released today.

Treasurer Wayne Swan said yesterday that growth in Australia, the world’s biggest exporter of iron ore and coal, may have slowed last quarter as commodity prices fell.

Gross domestic product probably expanded 3.1 percent in the three months to Sept. 30 from a year earlier, according to the median estimate of 25 economists surveyed by Bloomberg News before a Dec. 5 government report. That’s slower than an annual growth rate of about 4 percent in the first half of the year.

Today’s company profits report showed inventories, a component of GDP, swelled 1.1 percent last quarter, compared with analysts’ prediction for a 0.4 percent gain.

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