The Financial Pizza Index: A Crispy Crust Warning Light To The Australian Stock Market

The stockbroking and options team at CMC Markets, those expert commentators on the local Australian scene, has come up with a new indicator for the health of the economy.

They’re calling it the Pizza Index and apparently this indicator is flashing red today, saying “sell”.

The new index is based loosely on the idea of the Lipstick Index which says that when times are tough, consumers move away from big ticket purchases and instead spend on small luxuries such as lipstick.

Domino’s Pizza reported its full year numbers today with net profit up 50% to $45.8 million for the 12 months to June 30.

And the pizza experts gave a rundown of recent sales growth, for the five weeks starting July 1.

Domino’s focuses on the value end of the market and its current campaign is based around a $4.50 a pizza.

“I may be working in the wrong part of town, but you can’t buy a takeaway lunch for $4.50 anywhere close to our offices,” says Michael McCarthy, Chief Market Strategist at CMC.

“The theory on the options desk is that as times get tougher, consumers move more towards the value end of the takeaway spectrum.

“They buy cheaper pizza.”

Domino’s has operations in Australia, Japan and Europe. The recent sales numbers suggest consumers are tightening their belts:

Five Week Sales from July 1
Europe +14.8%
Australia +10.3%
Japan +6.9%

“On top of a weekly drop in a consumer sentiment index of 5.3%, and a report that credit card balances fell in June (modestly), a drop in July sales for (electronics retailer) JB Hifi, a picture of weakening consumer activity emerges,” McCarthy says.

“Let’s be clear, they are not spelling out a market disaster.”

Today also showed rising business confidence and a better than expected lift in house prices. However, the geopolitical tensions – particularly in Ukraine and Iraq – which last week gave the market a belting are unresolved.

“In the short term, pizza sales up could equal consumer activity down,” McCarthy says.

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