1 00:00:08,500 --> 00:00:11,670 Sean Aylmer: Welcome to Fear and Greed- The Week Ahead, back with us this morning 2 00:00:11,670 --> 00:00:14,810 Sean Aylmer: as resident economist, Stephen Koukoulas, you'll find him at thekouk. 3 00:00:14,810 --> 00:00:18,910 Sean Aylmer: com and on Twitter using the handle TheKouk that's T- H- E- K- O- U- 4 00:00:18,950 --> 00:00:20,570 Sean Aylmer: K. Stephen, good morning. 5 00:00:20,770 --> 00:00:21,640 Stephen Koukoulas: Good morning, Sean. 6 00:00:21,940 --> 00:00:24,759 Sean Aylmer: You must be exhausted after all that economic news last week. 7 00:00:25,079 --> 00:00:28,230 Stephen Koukoulas: There was lots. Well, we had the RBA board meeting. 8 00:00:28,230 --> 00:00:31,080 Stephen Koukoulas: We had a very important speech from the RBA governor 9 00:00:31,080 --> 00:00:33,320 Stephen Koukoulas: Philip Lowe, the press club and we had the quarterly 10 00:00:33,320 --> 00:00:36,420 Stephen Koukoulas: statement on monetary policy. So it was a real... In 11 00:00:36,420 --> 00:00:39,220 Stephen Koukoulas: a sense recasting on what the people who pulled the 12 00:00:39,220 --> 00:00:42,780 Stephen Koukoulas: trigger on interest rates are thinking, the Reserve Bank and 13 00:00:42,780 --> 00:00:46,040 Stephen Koukoulas: we had a run of news on things like the 14 00:00:46,040 --> 00:00:49,850 Stephen Koukoulas: international trade balance which was still pretty hefty, building approvals 15 00:00:49,850 --> 00:00:53,250 Stephen Koukoulas: which were surprisingly strong. So it was a lot to digest. 16 00:00:53,750 --> 00:00:56,040 Sean Aylmer: Now, one thing we'll get into the details of some 17 00:00:56,040 --> 00:00:57,900 Sean Aylmer: of the Reserve Bank stuff shortly but what I did 18 00:00:57,900 --> 00:01:00,240 Sean Aylmer: like when anyone ends up at the National Press Club, 19 00:01:00,240 --> 00:01:02,300 Sean Aylmer: it happened with Scott Morrison a couple of weeks ago, 20 00:01:02,330 --> 00:01:06,700 Sean Aylmer: Philip Lowe, last week. When you get journalists asking questions, 21 00:01:07,069 --> 00:01:10,250 Sean Aylmer: they're just a little less polite, I think than market 22 00:01:10,250 --> 00:01:12,699 Sean Aylmer: economists or bureaucrats. So you kind of tend to get to 23 00:01:12,790 --> 00:01:13,980 Sean Aylmer: the nitty gritty stuff. Would you agree? 24 00:01:14,410 --> 00:01:16,649 Stephen Koukoulas: They cut to the chase. Yes and I thought and 25 00:01:16,650 --> 00:01:18,770 Stephen Koukoulas: this is something that I think Philip Lowe's developed in 26 00:01:18,770 --> 00:01:21,750 Stephen Koukoulas: the last six to 12 months as he's been open 27 00:01:21,750 --> 00:01:24,800 Stephen Koukoulas: to a lot more Q & A from market economists and 28 00:01:24,800 --> 00:01:29,240 Stephen Koukoulas: journalist including at the Press Club last week. His answers 29 00:01:29,350 --> 00:01:33,640 Stephen Koukoulas: and his discussion of points when he's verbalizing them is 30 00:01:33,640 --> 00:01:35,929 Stephen Koukoulas: much better than reading the written statement if you like. 31 00:01:36,260 --> 00:01:36,440 Sean Aylmer: Yeah. 32 00:01:36,470 --> 00:01:38,600 Stephen Koukoulas: Yeah. You can drill in and sort of scratch the 33 00:01:38,600 --> 00:01:41,140 Stephen Koukoulas: surface a bit and I must say that if he 34 00:01:41,140 --> 00:01:43,569 Stephen Koukoulas: had more of that, what do we call it a 35 00:01:43,569 --> 00:01:46,930 Stephen Koukoulas: bit more of an open relaxed idea and talking about 36 00:01:46,930 --> 00:01:50,100 Stephen Koukoulas: the risk. He's acknowledging as all economists should do that 37 00:01:50,300 --> 00:01:51,940 Stephen Koukoulas: he doesn't know all of the answers. 38 00:01:51,990 --> 00:01:51,991 Sean Aylmer: Yeah. 39 00:01:51,991 --> 00:01:54,680 Stephen Koukoulas: And when he talks about the risks, he's very informative. 40 00:01:55,270 --> 00:01:57,620 Sean Aylmer: Yeah. I mean, that's what I did think about. I mean, Philip Lowe obviously 41 00:01:57,620 --> 00:01:59,810 Sean Aylmer: a very smart economist. 42 00:02:00,170 --> 00:02:00,570 Stephen Koukoulas: Oh indeed. Yeah. 43 00:02:00,570 --> 00:02:02,840 Sean Aylmer: He knows his stuff really well. So when he actually 44 00:02:02,880 --> 00:02:04,880 Sean Aylmer: is in front of the media like that or market 45 00:02:04,940 --> 00:02:07,320 Sean Aylmer: economists, it's not that anyone is ever going to trick 46 00:02:07,320 --> 00:02:09,760 Sean Aylmer: him. And he's kind of humble enough to actually just 47 00:02:09,760 --> 00:02:11,560 Sean Aylmer: say, look, we don't know about that and that's kind of good. 48 00:02:12,160 --> 00:02:14,929 Stephen Koukoulas: Yeah and here's our forecast, here's our central case but 49 00:02:14,930 --> 00:02:16,850 Stephen Koukoulas: we acknowledge there are risks to it. And in fact, 50 00:02:16,850 --> 00:02:19,940 Stephen Koukoulas: he started his speech last week with a table saying, 51 00:02:19,940 --> 00:02:21,560 Stephen Koukoulas: well, this is what we said a year ago and 52 00:02:21,560 --> 00:02:24,340 Stephen Koukoulas: this is actually what happened. Of course, they were wrong 53 00:02:24,340 --> 00:02:25,359 Stephen Koukoulas: and that's not a criticism. 54 00:02:25,490 --> 00:02:25,730 Sean Aylmer: Yeah. 55 00:02:25,730 --> 00:02:27,440 Stephen Koukoulas: But as he was saying, he was wrong, we've been 56 00:02:27,440 --> 00:02:31,620 Stephen Koukoulas: wrong but the economic news has been materially better than 57 00:02:31,620 --> 00:02:33,809 Stephen Koukoulas: we are assuming. So let's celebrate the good news. 58 00:02:34,050 --> 00:02:35,919 Sean Aylmer: So what did they say? I mean, what do we 59 00:02:35,919 --> 00:02:38,110 Sean Aylmer: know now that we didn't know a week ago? 60 00:02:38,389 --> 00:02:41,329 Stephen Koukoulas: Yeah, well, we know that the Reserve Bank has acknowledged that 61 00:02:41,330 --> 00:02:45,160 Stephen Koukoulas: inflation is considerably higher than it was assuming. We know 62 00:02:45,160 --> 00:02:48,600 Stephen Koukoulas: that they're acknowledging that the unemployment rate is lower than 63 00:02:48,600 --> 00:02:52,190 Stephen Koukoulas: they were assuming or forecasting and that the labor market is 64 00:02:52,190 --> 00:02:54,530 Stephen Koukoulas: still very tight. But what they did say was put 65 00:02:54,530 --> 00:02:57,489 Stephen Koukoulas: a little bit of a flesh on this discussion about 66 00:02:57,820 --> 00:03:01,140 Stephen Koukoulas: imminent rate hikes and they're not imminent according to Dr. 67 00:03:01,150 --> 00:03:06,180 Stephen Koukoulas: Lowe, that the RBA of the view that omicron variant 68 00:03:06,220 --> 00:03:08,110 Stephen Koukoulas: might just cause a little bit of a bump in 69 00:03:08,110 --> 00:03:10,020 Stephen Koukoulas: the road for the economy in the next month or 70 00:03:10,020 --> 00:03:12,730 Stephen Koukoulas: two, in terms of the hard economic data for January 71 00:03:12,730 --> 00:03:15,260 Stephen Koukoulas: and February, when we eventually get that and that they 72 00:03:15,260 --> 00:03:18,690 Stephen Koukoulas: can afford to wait. So the expectations for rate hikes 73 00:03:18,690 --> 00:03:21,400 Stephen Koukoulas: which were building to the middle of this year for 74 00:03:21,400 --> 00:03:23,530 Stephen Koukoulas: the first hike have now been pushed back to the 75 00:03:23,530 --> 00:03:26,079 Stephen Koukoulas: latter part of this year. So there's still rate hikes 76 00:03:26,080 --> 00:03:29,230 Stephen Koukoulas: priced into the market and Dr. Lowe acknowledged that but 77 00:03:29,230 --> 00:03:31,550 Stephen Koukoulas: they're not happening anytime soon. 78 00:03:32,210 --> 00:03:34,679 Sean Aylmer: It seems like the smart money is on very late 79 00:03:34,680 --> 00:03:36,600 Sean Aylmer: this year or the first half of next year. 80 00:03:37,760 --> 00:03:40,210 Stephen Koukoulas: It seems to be around about that. Yeah. When I 81 00:03:40,210 --> 00:03:44,280 Stephen Koukoulas: see some of the market economists who are good at 82 00:03:44,280 --> 00:03:48,240 Stephen Koukoulas: forecasting monetary policy from the RBA, the Bill Evans from Westpac 83 00:03:48,240 --> 00:03:54,650 Stephen Koukoulas: and the team from CBA, they're suggesting August September- ish 84 00:03:55,090 --> 00:03:57,340 Stephen Koukoulas: as the first hike and maybe one or two in 85 00:03:57,340 --> 00:04:00,870 Stephen Koukoulas: the final months of 2022. So that's sort of reflecting 86 00:04:00,870 --> 00:04:02,660 Stephen Koukoulas: what the market's now pricing in as well. So if 87 00:04:02,660 --> 00:04:05,410 Stephen Koukoulas: we look at the futures strip, they've got the cash 88 00:04:05,410 --> 00:04:09,700 Stephen Koukoulas: rate ending this year just a little under 1%. So 90 89 00:04:09,700 --> 00:04:11,740 Stephen Koukoulas: basis points, if you like of interest rate hikes by 90 00:04:11,740 --> 00:04:12,970 Stephen Koukoulas: the end of 2022. 91 00:04:13,520 --> 00:04:15,590 Sean Aylmer: Okay. That was last week. We'll be back in a 92 00:04:15,590 --> 00:04:21,870 Sean Aylmer: moment and get into the week ahead. Now, Stephen, there 93 00:04:21,870 --> 00:04:24,820 Sean Aylmer: was other details out last week around, trade as you 94 00:04:24,820 --> 00:04:27,790 Sean Aylmer: mentioned and house prices and credit data and what have we got 95 00:04:27,790 --> 00:04:28,320 Sean Aylmer: this week? 96 00:04:28,760 --> 00:04:31,560 Stephen Koukoulas: This week's pretty good. We've got the retail sales numbers 97 00:04:31,560 --> 00:04:33,690 Stephen Koukoulas: which is sort of the final version of the preliminary 98 00:04:33,690 --> 00:04:36,370 Stephen Koukoulas: numbers that were released recently and we know that in 99 00:04:36,370 --> 00:04:41,070 Stephen Koukoulas: December as Omicron started hitting around Christmas time that people did 100 00:04:41,070 --> 00:04:44,850 Stephen Koukoulas: hunker down. So retail sales probably down around about 4% 101 00:04:45,580 --> 00:04:49,150 Stephen Koukoulas: for the month. So that's not to be unexpected but 102 00:04:49,150 --> 00:04:51,540 Stephen Koukoulas: it should be said followed a couple of months of 103 00:04:51,540 --> 00:04:54,910 Stephen Koukoulas: very strong growth including with the... What do they call 104 00:04:54,910 --> 00:04:56,400 Stephen Koukoulas: the black Friday sales, which at the end of- 105 00:04:56,760 --> 00:04:56,850 Sean Aylmer: Black Friday. 106 00:04:57,380 --> 00:05:00,100 Stephen Koukoulas: November, sorry. So we've got some volatility in the retail 107 00:05:00,100 --> 00:05:03,000 Stephen Koukoulas: sales. We've also got job ads, demand for labor still 108 00:05:03,000 --> 00:05:05,419 Stephen Koukoulas: seems to be very strong and we've got the really 109 00:05:05,420 --> 00:05:10,060 Stephen Koukoulas: important NAB Business Survey and the consumer sentiment numbers from 110 00:05:10,060 --> 00:05:15,170 Stephen Koukoulas: Westpac. So how we consumers responding to the virus and 111 00:05:15,170 --> 00:05:17,640 Stephen Koukoulas: low interest rates and the volatility and the stock market and 112 00:05:17,640 --> 00:05:20,229 Stephen Koukoulas: things like that. And of course business, what are their 113 00:05:20,230 --> 00:05:24,120 Stephen Koukoulas: plans for hiring, for CapEx and for just their general 114 00:05:24,170 --> 00:05:25,359 Stephen Koukoulas: optimism about the economy? 115 00:05:25,779 --> 00:05:28,330 Sean Aylmer: So really there's plenty of things. The NAB Business Survey, 116 00:05:28,540 --> 00:05:31,860 Sean Aylmer: job ads around the labor market which of course remain 117 00:05:31,860 --> 00:05:34,510 Sean Aylmer: central to what we're talking about earlier on and when 118 00:05:34,510 --> 00:05:36,099 Sean Aylmer: the Reserve Bank does anything on rates. 119 00:05:36,580 --> 00:05:39,650 Stephen Koukoulas: Indeed. And that's what Dr. Lowe was talking about last 120 00:05:39,650 --> 00:05:43,160 Stephen Koukoulas: week in all of his various commentary that it is 121 00:05:43,160 --> 00:05:46,830 Stephen Koukoulas: labor costs that are the critical issue for them when it 122 00:05:46,830 --> 00:05:50,250 Stephen Koukoulas: comes to being confident that inflation's going to be well 123 00:05:50,250 --> 00:05:52,670 Stephen Koukoulas: within the target band for an extended period of time 124 00:05:52,670 --> 00:05:55,750 Stephen Koukoulas: or before they trigger rate hikes. So the labor cost 125 00:05:55,750 --> 00:05:58,120 Stephen Koukoulas: argument, of course, with the tightening in the labor market 126 00:05:58,120 --> 00:06:01,200 Stephen Koukoulas: is really the fundamental point and if we look at 127 00:06:01,200 --> 00:06:04,190 Stephen Koukoulas: just where the INZ job ads are coming from, where 128 00:06:04,190 --> 00:06:06,490 Stephen Koukoulas: the update will come later this week. It's from a 129 00:06:06,490 --> 00:06:10,490 Stephen Koukoulas: really strong base, demand for labor is running rampant. I 130 00:06:10,490 --> 00:06:13,960 Stephen Koukoulas: think it's fair to say that. And that 4.2% unemployment 131 00:06:13,960 --> 00:06:16,359 Stephen Koukoulas: rate that we saw a couple of weeks ago for 132 00:06:16,360 --> 00:06:19,229 Stephen Koukoulas: the month of December, again, Dr. Lowe and I think 133 00:06:19,230 --> 00:06:23,460 Stephen Koukoulas: most economists now forecasting that if the job ads continue 134 00:06:23,460 --> 00:06:26,440 Stephen Koukoulas: to grow that the economy continues to expand at a 135 00:06:26,440 --> 00:06:30,620 Stephen Koukoulas: pretty decent pace. We're going to have unemployment below 4% 136 00:06:31,330 --> 00:06:33,529 Stephen Koukoulas: for the first time in almost 50 years. It's an 137 00:06:33,529 --> 00:06:34,440 Stephen Koukoulas: extraordinary time. 138 00:06:34,760 --> 00:06:36,210 Sean Aylmer: One thing he did say last week which I thought 139 00:06:36,210 --> 00:06:38,080 Sean Aylmer: was interesting. He was asked directly by one of the 140 00:06:38,080 --> 00:06:40,589 Sean Aylmer: journalists, whether immigration played a role or the lack of 141 00:06:40,589 --> 00:06:42,990 Sean Aylmer: immigration played a role in the jobs market and he 142 00:06:43,150 --> 00:06:46,969 Sean Aylmer: basically said, look, it's about fiscal and monetary policy more. 143 00:06:46,970 --> 00:06:50,659 Sean Aylmer: So that does mean though that fiscal and monetary policy 144 00:06:50,660 --> 00:06:52,710 Sean Aylmer: when they tighten and the Reserve Bank have started and 145 00:06:52,710 --> 00:06:56,029 Sean Aylmer: that albeit not with rates, fiscal policy, Josh Frydenberg has 146 00:06:56,029 --> 00:06:58,870 Sean Aylmer: said, he can't just keep handing out money. That will 147 00:06:59,110 --> 00:07:00,450 Sean Aylmer: do something to the labor market. 148 00:07:00,810 --> 00:07:04,690 Stephen Koukoulas: It will. Certainly the slight tightening in the fiscal policy 149 00:07:04,690 --> 00:07:07,210 Stephen Koukoulas: and the prospective tightening in monetary policy. Yeah. We know 150 00:07:07,300 --> 00:07:09,640 Stephen Koukoulas: they're about to end their bond buying program. In fact, 151 00:07:09,730 --> 00:07:12,080 Stephen Koukoulas: later this week on the 10th of February. So they're 152 00:07:12,390 --> 00:07:15,170 Stephen Koukoulas: starting to position themselves for less easy policy. Let's call 153 00:07:15,170 --> 00:07:17,910 Stephen Koukoulas: it that. And that will have the desired effect of 154 00:07:17,910 --> 00:07:20,010 Stephen Koukoulas: calling the economy down and don't forget they're only doing 155 00:07:20,010 --> 00:07:23,390 Stephen Koukoulas: it because the economy's improving. So while the labor market 156 00:07:23,390 --> 00:07:25,640 Stephen Koukoulas: is running rampant and we are heading for a sub 157 00:07:25,640 --> 00:07:30,240 Stephen Koukoulas: 4% unemployment rate. What comes with that is a probable 158 00:07:30,440 --> 00:07:33,800 Stephen Koukoulas: lift in labor costs and with that is a probable 159 00:07:33,800 --> 00:07:37,270 Stephen Koukoulas: sustained increased inflation. And as we're just saying, the RBA want to see 160 00:07:37,490 --> 00:07:39,540 Stephen Koukoulas: it not move from a probable to an actual. 161 00:07:39,760 --> 00:07:39,880 Sean Aylmer: Yeah. 162 00:07:39,880 --> 00:07:42,580 Stephen Koukoulas: Because they don't want to hike rates prematurely and find that in 163 00:07:42,580 --> 00:07:46,110 Stephen Koukoulas: six and nine months, whoops, we probably shouldn't have hiked. 164 00:07:46,260 --> 00:07:48,380 Stephen Koukoulas: That's their thinking at the moment, even though we know 165 00:07:48,380 --> 00:07:51,830 Stephen Koukoulas: around the world that the Bank of England, the RBNZ, 166 00:07:51,830 --> 00:07:55,330 Stephen Koukoulas: the Fed, even the ECB last week, European Central Bank were 167 00:07:55,330 --> 00:08:00,020 Stephen Koukoulas: talking the possibility, Christine Lagarde, the possibility of rate hikes 168 00:08:00,020 --> 00:08:03,180 Stephen Koukoulas: in the Euro zone which is something that really spooked 169 00:08:03,180 --> 00:08:03,790 Stephen Koukoulas: the markets. 170 00:08:04,060 --> 00:08:05,130 Sean Aylmer: Stephen, have a great week. 171 00:08:05,420 --> 00:08:06,040 Stephen Koukoulas: Thank you, Sean. 172 00:08:06,450 --> 00:08:09,280 Sean Aylmer: That was economist, Stephen Koukoulas better known as TheKouk. You 173 00:08:09,280 --> 00:08:11,670 Sean Aylmer: can find him at thekouk. com and follow him on 174 00:08:11,670 --> 00:08:14,670 Sean Aylmer: Twitter using the handle TheKouk. I'm Sean Aylmer and this 175 00:08:14,670 --> 00:08:15,800 Sean Aylmer: is Fear and Greed- The Week Ahead.