1 00:00:08,160 --> 00:00:10,680 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Aylmer, 2 00:00:10,680 --> 00:00:13,379 Sean Aylmer: and as always at this time on a Monday morning, 3 00:00:13,380 --> 00:00:16,650 Sean Aylmer: I'm joined by economist Stephen Koukoulas. You'll find him thekouk. 4 00:00:16,650 --> 00:00:21,150 Sean Aylmer: com and on Twitter using the handle @ TheKouk, T- H- E- K- O- U- 5 00:00:21,150 --> 00:00:22,860 Sean Aylmer: K. Stephen, good morning. 6 00:00:23,370 --> 00:00:24,390 Stephen Koukoulas: Very good morning, Sean. 7 00:00:24,900 --> 00:00:27,479 Sean Aylmer: What a week the last week's been. How about that 8 00:00:27,480 --> 00:00:28,680 Sean Aylmer: Reserve Bank, eh? 9 00:00:29,100 --> 00:00:33,390 Stephen Koukoulas: Reserve Bank, and then the governor maybe just hosing down 10 00:00:33,390 --> 00:00:36,720 Stephen Koukoulas: some of his hawkishness, so that was an interesting thing. 11 00:00:36,720 --> 00:00:39,180 Stephen Koukoulas: Obviously, the fun and frivolity of the US payrolls on 12 00:00:39,180 --> 00:00:41,519 Stephen Koukoulas: Friday night. So it was all happening, as they say. 13 00:00:42,030 --> 00:00:44,280 Sean Aylmer: Now, let's talk about the Reserve Bank. They obviously lifted 14 00:00:44,280 --> 00:00:48,330 Sean Aylmer: interest rates 25 basis points, but then the governor, Philip 15 00:00:48,330 --> 00:00:53,040 Sean Aylmer: Lowe, spoke. And certainly, the sense by the end of 16 00:00:53,040 --> 00:00:57,840 Sean Aylmer: it all is that perhaps rates won't go as far, 17 00:00:57,840 --> 00:00:59,970 Sean Aylmer: or maybe I'm overreading that. I don't want to use 18 00:00:59,970 --> 00:01:02,460 Sean Aylmer: the word hawkish here, Steve. I want to use something 19 00:01:02,460 --> 00:01:06,330 Sean Aylmer: in English. Yeah, I mean, we didn't end the week 20 00:01:06,330 --> 00:01:08,640 Sean Aylmer: thinking that rates were going to be a lot higher 21 00:01:08,640 --> 00:01:09,720 Sean Aylmer: than where we started the week. 22 00:01:10,319 --> 00:01:13,800 Stephen Koukoulas: Indeed. It was one of those funny ones, because the 23 00:01:13,800 --> 00:01:17,789 Stephen Koukoulas: market reacted by actually having money market yields, money market 24 00:01:17,790 --> 00:01:21,510 Stephen Koukoulas: interest rates, falling when they were being increased in official 25 00:01:21,569 --> 00:01:25,890 Stephen Koukoulas: interest rate terms. And that was because in the statement 26 00:01:25,950 --> 00:01:29,190 Stephen Koukoulas: that accompanied the rate hike on Tuesday, plus Dr. Lowe 27 00:01:29,190 --> 00:01:33,750 Stephen Koukoulas: spoke at a financial review conference the following morning... He did 28 00:01:33,750 --> 00:01:37,560 Stephen Koukoulas: acknowledge, and it's something that's evident, the economy is slowing. 29 00:01:37,740 --> 00:01:42,600 Stephen Koukoulas: Inflation has peaked and the unemployment rate is edging up. 30 00:01:43,020 --> 00:01:47,970 Stephen Koukoulas: So if you were to perhaps extrapolate those assessments of 31 00:01:47,970 --> 00:01:52,380 Stephen Koukoulas: the economy, weaker growth, higher unemployment, lower inflation, and the 32 00:01:52,380 --> 00:01:55,500 Stephen Koukoulas: fact that there's already now 350 basis points of interest 33 00:01:55,500 --> 00:01:58,680 Stephen Koukoulas: rate hikes in the kitty, so to speak, and they 34 00:01:58,680 --> 00:02:01,320 Stephen Koukoulas: haven't had their full effect on the economy, the markets 35 00:02:01,320 --> 00:02:05,430 Stephen Koukoulas: have thought, " Well, maybe there's not a whole lot more 36 00:02:05,430 --> 00:02:07,110 Stephen Koukoulas: that the RBA is going to do." They're going to 37 00:02:07,140 --> 00:02:10,800 Stephen Koukoulas: sit back and actually look at the data and maybe, 38 00:02:10,830 --> 00:02:13,350 Stephen Koukoulas: just maybe, this is the peak or very, very near 39 00:02:13,350 --> 00:02:14,940 Stephen Koukoulas: the peak of the interest rate hiking cycle. 40 00:02:15,990 --> 00:02:18,300 Sean Aylmer: Okay. Now, one piece of data they do want to 41 00:02:18,300 --> 00:02:22,889 Sean Aylmer: look at is the employment market in Australia. We have 42 00:02:22,889 --> 00:02:26,040 Sean Aylmer: labor force figures out this week, but it just seems 43 00:02:26,040 --> 00:02:28,769 Sean Aylmer: to me the Central Bank and Philip Lowe, the governor, 44 00:02:29,250 --> 00:02:32,070 Sean Aylmer: just seems pretty comfortable with the labor market. 45 00:02:33,120 --> 00:02:36,120 Stephen Koukoulas: They are. And in fact, one of the things that 46 00:02:36,120 --> 00:02:40,560 Stephen Koukoulas: they touched onto... They're still concerned that the labor market 47 00:02:40,560 --> 00:02:43,710 Stephen Koukoulas: is tight, that it's very hard to find labor. And 48 00:02:43,710 --> 00:02:45,750 Stephen Koukoulas: that even though, what was it now, two weeks ago 49 00:02:45,750 --> 00:02:49,470 Stephen Koukoulas: or so, we had the relatively subdued wage price index 50 00:02:49,470 --> 00:02:53,340 Stephen Koukoulas: coming in below market expectations. But they're still worried that 51 00:02:53,340 --> 00:02:56,550 Stephen Koukoulas: this tight labor market's going to feed into future wage 52 00:02:56,550 --> 00:03:00,270 Stephen Koukoulas: pressures. And look, it's a legitimate concern when you've got 53 00:03:00,270 --> 00:03:03,780 Stephen Koukoulas: a sub- 4% unemployment rate, which we still currently have. 54 00:03:04,260 --> 00:03:06,690 Stephen Koukoulas: And that's sort of why he still has a bias 55 00:03:06,690 --> 00:03:08,550 Stephen Koukoulas: to hike interest rates. And as we just discussed, whether 56 00:03:08,550 --> 00:03:11,340 Stephen Koukoulas: he acts on that bias remains to be seen. And 57 00:03:11,639 --> 00:03:13,110 Stephen Koukoulas: as you touched on, one of the things that's going 58 00:03:13,110 --> 00:03:16,290 Stephen Koukoulas: to be absolutely critical, we're going to be focusing all 59 00:03:16,290 --> 00:03:18,870 Stephen Koukoulas: our attention on here in Australia on Thursday, is the 60 00:03:18,870 --> 00:03:22,769 Stephen Koukoulas: labor force release. Because if we get another slightly softer 61 00:03:22,770 --> 00:03:26,130 Stephen Koukoulas: number, employment doesn't increase terribly much or the unemployment rate 62 00:03:26,130 --> 00:03:28,919 Stephen Koukoulas: ticks up another 10th of a percent, then that would 63 00:03:28,919 --> 00:03:32,070 Stephen Koukoulas: be clear evidence that the labor market's softening and the 64 00:03:32,070 --> 00:03:35,250 Stephen Koukoulas: concerns about a price wage spiral... or is it a wage 65 00:03:35,250 --> 00:03:38,460 Stephen Koukoulas: price spiral? One or the other, will not be well- 66 00:03:38,460 --> 00:03:42,210 Stephen Koukoulas: founded. And that would actually just reinforce this rates on 67 00:03:42,210 --> 00:03:44,130 Stephen Koukoulas: hold for at least the next couple of months if 68 00:03:44,130 --> 00:03:47,040 Stephen Koukoulas: we were to get a weak labor force number on Thursday. 69 00:03:47,370 --> 00:03:50,220 Sean Aylmer: So in somewhat of an irony, if we came and 70 00:03:50,220 --> 00:03:53,190 Sean Aylmer: had a tick up in the unemployment rate and perhaps 71 00:03:53,190 --> 00:03:55,140 Sean Aylmer: didn't create some jobs, that might be good news. 72 00:03:55,830 --> 00:03:58,110 Stephen Koukoulas: Well, it'd be good news for mortgage holders, indeed. Well, 73 00:03:58,260 --> 00:04:00,180 Stephen Koukoulas: those of them who didn't lose their job, I suppose. 74 00:04:00,180 --> 00:04:02,520 Stephen Koukoulas: But it is one of those things that, yes, the 75 00:04:02,520 --> 00:04:06,360 Stephen Koukoulas: labor market is always a critical issue for most central 76 00:04:06,360 --> 00:04:09,390 Stephen Koukoulas: banks when they're assessing monetary policy. And when you get 77 00:04:09,390 --> 00:04:12,870 Stephen Koukoulas: the unemployment rate increasing, albeit from what was a 48- 78 00:04:12,870 --> 00:04:16,560 Stephen Koukoulas: year low at 3. 4% late last year, it's the 79 00:04:16,560 --> 00:04:19,770 Stephen Koukoulas: direction that matters for central banks. If you've got that 80 00:04:19,770 --> 00:04:23,400 Stephen Koukoulas: momentum towards a slight upturn in the unemployment rate and employment's 81 00:04:23,970 --> 00:04:25,620 Stephen Koukoulas: a little bit soggy... And we do know that things 82 00:04:25,620 --> 00:04:28,620 Stephen Koukoulas: like job ads, job vacancies are trending lower, they have 83 00:04:28,620 --> 00:04:32,550 Stephen Koukoulas: turned. The good news would be that, " Phew, they've got 84 00:04:32,550 --> 00:04:36,390 Stephen Koukoulas: enough rate hikes in the pipeline." Some of this financial 85 00:04:36,450 --> 00:04:40,230 Stephen Koukoulas: pressure and stress that's probably there for some household that's 86 00:04:40,230 --> 00:04:43,170 Stephen Koukoulas: highly leveraged that, yeah, we could probably have a little 87 00:04:43,170 --> 00:04:45,270 Stephen Koukoulas: bit of a sigh of relief that there's not that 88 00:04:45,630 --> 00:04:49,140 Stephen Koukoulas: oppressive rate hiking cycle still coming through the pike. 89 00:04:49,140 --> 00:04:53,670 Sean Aylmer: Now, the National Australia Bank business conditions and business sentiment 90 00:04:53,730 --> 00:04:56,700 Sean Aylmer: survey is out this week. It's fairly closely watched, this 91 00:04:56,700 --> 00:04:57,390 Sean Aylmer: one, Stephen. 92 00:04:57,600 --> 00:05:00,989 Stephen Koukoulas: It is. It's one of the charts that the RBA puts in 93 00:05:00,990 --> 00:05:04,980 Stephen Koukoulas: its chart pack. It's often referred to in the RBA 94 00:05:05,070 --> 00:05:07,170 Stephen Koukoulas: statements on monetary policy and these sorts of things. So 95 00:05:07,170 --> 00:05:09,540 Stephen Koukoulas: they look at it, and I look at it. Lots 96 00:05:09,540 --> 00:05:10,979 Stephen Koukoulas: of people look at it, because it's got lots of 97 00:05:10,980 --> 00:05:15,060 Stephen Koukoulas: lovely information. It's not just business confidence, business sentiment. They 98 00:05:15,060 --> 00:05:17,670 Stephen Koukoulas: also have a whole lot of questions about expected hiring 99 00:05:17,670 --> 00:05:19,830 Stephen Koukoulas: intentions, so it's a bit of a leading indicator on 100 00:05:19,830 --> 00:05:24,450 Stephen Koukoulas: employment. What's happening to your selling prices and input prices. 101 00:05:24,810 --> 00:05:27,299 Stephen Koukoulas: So that's a critical issue for the inflation momentum. And 102 00:05:27,600 --> 00:05:30,720 Stephen Koukoulas: interestingly, in the last few months, they've actually tilted down. 103 00:05:30,750 --> 00:05:33,029 Stephen Koukoulas: I think that's in line with the falls in a 104 00:05:33,029 --> 00:05:35,490 Stephen Koukoulas: lot of energy prices. We know the price of oil's 105 00:05:35,490 --> 00:05:38,490 Stephen Koukoulas: down and some of the supply chain issues are being 106 00:05:38,490 --> 00:05:40,409 Stephen Koukoulas: addressed. I won't say they're being completely solved, but the 107 00:05:40,410 --> 00:05:43,560 Stephen Koukoulas: supply chain problems aren't as bad today as they were, 108 00:05:43,560 --> 00:05:46,260 Stephen Koukoulas: say, six or nine months ago. And so it's closely 109 00:05:46,260 --> 00:05:49,380 Stephen Koukoulas: watched. And if those trends continue, then we'll get just 110 00:05:49,380 --> 00:05:52,140 Stephen Koukoulas: that other snippet of information that, yeah, maybe inflation is 111 00:05:52,140 --> 00:05:56,010 Stephen Koukoulas: starting to really be squeezed out of the economy. Partly 112 00:05:56,010 --> 00:05:58,200 Stephen Koukoulas: from global conditions, but also from the rate hikes that 113 00:05:58,200 --> 00:05:59,040 Stephen Koukoulas: the RBA has delivered. 114 00:05:59,580 --> 00:06:01,529 Sean Aylmer: And just the other one this week locally, which is 115 00:06:01,529 --> 00:06:03,690 Sean Aylmer: interesting, is the Westpac Consumer Sentiment Survey. 116 00:06:03,990 --> 00:06:05,940 Stephen Koukoulas: Oh, yes. And we're a miserable lot, aren't we, we consumers? 117 00:06:05,940 --> 00:06:05,941 Sean Aylmer: We are. 118 00:06:05,941 --> 00:06:10,169 Stephen Koukoulas: Yeah. And the funny thing, or... Funny? The odd thing about 119 00:06:10,170 --> 00:06:13,710 Stephen Koukoulas: the consumer sentiment numbers is that at the moment, we 120 00:06:13,710 --> 00:06:17,160 Stephen Koukoulas: are more gloomy than we were at the worst of 121 00:06:17,160 --> 00:06:20,760 Stephen Koukoulas: the COVID lockdowns. We're gloomier now than we were during 122 00:06:20,760 --> 00:06:23,700 Stephen Koukoulas: the global financial crisis, what's that, 13, 14 years ago? 123 00:06:24,120 --> 00:06:26,820 Stephen Koukoulas: We are really gloomy. And I think that's the power 124 00:06:26,820 --> 00:06:29,490 Stephen Koukoulas: of cost of living pressures. Not just those people with 125 00:06:29,490 --> 00:06:31,950 Stephen Koukoulas: a mortgage, but a lot of other people, when they 126 00:06:31,950 --> 00:06:34,679 Stephen Koukoulas: look at the price of their basket of goods and 127 00:06:34,680 --> 00:06:37,260 Stephen Koukoulas: services that they buy every month and it's increasing more 128 00:06:37,260 --> 00:06:40,500 Stephen Koukoulas: than their wages, people feel a bit annoyed. And that's 129 00:06:40,500 --> 00:06:43,860 Stephen Koukoulas: why consumer sentiment's so miserable. I'm not sure whether we're going to 130 00:06:43,860 --> 00:06:46,169 Stephen Koukoulas: get any rebound given that the survey was done after 131 00:06:46,170 --> 00:06:47,219 Stephen Koukoulas: the rate hike last week. 132 00:06:47,790 --> 00:06:49,950 Sean Aylmer: Are you ever gloomy, Stephen? 133 00:06:50,370 --> 00:06:52,529 Stephen Koukoulas: Oh, I'm gloomy when my horses get beaten. 134 00:06:52,529 --> 00:06:56,070 Sean Aylmer: Oh, yeah. So you're gloomy a fair bit then, if 135 00:06:56,070 --> 00:06:56,251 Sean Aylmer: that's the case. 136 00:06:56,251 --> 00:06:59,850 Stephen Koukoulas: Oh, but that only lasts a minute or a minute and a half. I'm 137 00:06:59,850 --> 00:07:00,690 Stephen Koukoulas: happy after that. 138 00:07:00,690 --> 00:07:00,960 Sean Aylmer: Yeah. That's true. 139 00:07:00,960 --> 00:07:04,289 Stephen Koukoulas: But yeah, look, only those sorts of things. I'm an 140 00:07:04,290 --> 00:07:06,960 Stephen Koukoulas: optimist at heart. But then again, when we're chatting about 141 00:07:06,960 --> 00:07:08,549 Stephen Koukoulas: the economy, you've still got to call it as you 142 00:07:08,550 --> 00:07:12,510 Stephen Koukoulas: see it. And when growth's slowing, unemployment's rising, yeah, that's 143 00:07:12,510 --> 00:07:15,060 Stephen Koukoulas: sort of not a nice combo. And we're, yeah, as 144 00:07:15,060 --> 00:07:18,030 Stephen Koukoulas: we were just discussing, in the early stages perhaps of that 145 00:07:18,720 --> 00:07:21,180 Stephen Koukoulas: combination coming through 2023. A little bit more will be 146 00:07:21,180 --> 00:07:21,960 Stephen Koukoulas: revealed this week. 147 00:07:22,500 --> 00:07:23,610 Sean Aylmer: Stephen, have a great week. 148 00:07:24,090 --> 00:07:24,331 Stephen Koukoulas: Thanks, Sean. 149 00:07:24,331 --> 00:07:27,960 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. You can 150 00:07:27,960 --> 00:07:30,540 Sean Aylmer: find him at thekouk. com and follow him on Twitter 151 00:07:30,840 --> 00:07:34,920 Sean Aylmer: using the handle @ TheKouk. I'm Sean Aylmer, and this is Fear and Greed - The Week Ahead.