1 00:00:08,940 --> 00:00:11,340 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. This is 2 00:00:11,340 --> 00:00:12,990 Sean Aylmer: where we take a look at the big events, reports 3 00:00:12,990 --> 00:00:15,450 Sean Aylmer: and releases coming up this week that give insight into 4 00:00:15,450 --> 00:00:17,909 Sean Aylmer: the economy and a look back at what happened last week, too. 5 00:00:18,130 --> 00:00:20,610 Sean Aylmer: I'm Sean Aylmer and every Monday, I'm joined for The Week 6 00:00:20,610 --> 00:00:23,400 Sean Aylmer: Ahead by economist Stephen Koukoulas. You'll find him at thekouk.com 7 00:00:24,270 --> 00:00:28,920 Sean Aylmer: and on Twitter using the handle @TheKouk. Stephen, good morning. 8 00:00:28,950 --> 00:00:30,630 Sean Aylmer: Are you disappointed the Olympics are over? 9 00:00:31,110 --> 00:00:33,720 Stephen Koukoulas: Oh, yes. I've had so much fun. They've been a 10 00:00:33,720 --> 00:00:37,500 Stephen Koukoulas: wonderful distraction from all these other COVID related issues. And 11 00:00:37,920 --> 00:00:40,230 Stephen Koukoulas: I must confess, I've got into sports I didn't really 12 00:00:40,229 --> 00:00:43,420 Stephen Koukoulas: know existed or how they function. Skateboarding. Who would have thought it? 13 00:00:43,920 --> 00:00:47,250 Sean Aylmer: Skateboarding! Oh, well we're all fans of skateboarding at the moment. That was fantastic, 14 00:00:47,250 --> 00:00:48,910 Sean Aylmer: that fellow last week where he won the gold. 15 00:00:49,050 --> 00:00:51,390 Stephen Koukoulas: Yeah. And that canoeing thing. I've often thought, what if 16 00:00:51,390 --> 00:00:53,160 Stephen Koukoulas: your kids came up and said, Oh, Dad, I'd really 17 00:00:53,159 --> 00:00:55,020 Stephen Koukoulas: love to learn to do that canoeing thing. I don't 18 00:00:55,020 --> 00:00:56,520 Stephen Koukoulas: even know where you take them because I don't know 19 00:00:56,520 --> 00:01:00,140 Stephen Koukoulas: where there's a canoeing course that runs down those rapid rivers. 20 00:01:00,150 --> 00:01:02,130 Stephen Koukoulas: But anyway, it's much easier to just do running and 21 00:01:02,130 --> 00:01:06,570 Stephen Koukoulas: swimming I guess. I watched it and enjoyed it. And the 22 00:01:06,569 --> 00:01:08,220 Stephen Koukoulas: gold that we got there was fabulous. 23 00:01:08,280 --> 00:01:12,660 Sean Aylmer: That's right. It was. So last week in between watching 24 00:01:12,660 --> 00:01:15,120 Sean Aylmer: the Olympics, pretty big day on the economics front. What 25 00:01:15,120 --> 00:01:16,440 Sean Aylmer: do you make of all everything that went on with 26 00:01:16,440 --> 00:01:17,580 Sean Aylmer: the Reserve Bank last week? 27 00:01:18,150 --> 00:01:19,920 Stephen Koukoulas: It was all about the Reserve Bank. Last week we 28 00:01:19,920 --> 00:01:23,370 Stephen Koukoulas: saw the board meeting where they held policy steady. They 29 00:01:23,370 --> 00:01:26,760 Stephen Koukoulas: didn't adjust their bond buying or the yield curve control, 30 00:01:26,760 --> 00:01:29,009 Stephen Koukoulas: let alone the official interest rate, of course. But they 31 00:01:29,520 --> 00:01:32,880 Stephen Koukoulas: clearly were still optimistic. And this was borne out later 32 00:01:32,880 --> 00:01:35,819 Stephen Koukoulas: in the week on the Friday when Governor Phil Lowe 33 00:01:35,819 --> 00:01:38,610 Stephen Koukoulas: appeared before the House of Reps Committee on Economics and 34 00:01:38,610 --> 00:01:41,220 Stephen Koukoulas: answered a few questions, and they put out their quarterly 35 00:01:41,220 --> 00:01:43,920 Stephen Koukoulas: statement on monetary policy. So to summarise all of that, 36 00:01:44,520 --> 00:01:46,589 Stephen Koukoulas: I think it's fair to say that they're seeing this 37 00:01:46,590 --> 00:01:49,680 Stephen Koukoulas: lockdown period now as clearly a negative shock to the economy. 38 00:01:49,860 --> 00:01:52,990 Stephen Koukoulas: These lockdowns that are occurring all over half of Australia 39 00:01:52,990 --> 00:01:56,250 Stephen Koukoulas: now will leave the September quarter GDP with a big negative, 40 00:01:56,880 --> 00:01:58,890 Stephen Koukoulas: something around about minus two per cent, which is a 41 00:01:58,890 --> 00:02:02,309 Stephen Koukoulas: pretty bad result. But as the Reserve Bank is saying, 42 00:02:02,640 --> 00:02:06,120 Stephen Koukoulas: they reckon that the trajectory is really just an air pocket, 43 00:02:06,120 --> 00:02:08,760 Stephen Koukoulas: I suppose, and that when we get the lockdowns ended, 44 00:02:08,760 --> 00:02:12,000 Stephen Koukoulas: when the vaccination rates are at a decent level, probably 45 00:02:12,000 --> 00:02:13,860 Stephen Koukoulas: towards the end of this year or certainly by the 46 00:02:13,860 --> 00:02:18,780 Stephen Koukoulas: first quarter of next year, they are saying that by 2023, 47 00:02:18,780 --> 00:02:22,169 Stephen Koukoulas: unemployment will be down to four per cent, that inflation 48 00:02:22,169 --> 00:02:24,300 Stephen Koukoulas: will be back to within their target band, two and 49 00:02:24,300 --> 00:02:27,150 Stephen Koukoulas: a quarter per cent. So still the lower part of their band, 50 00:02:27,150 --> 00:02:29,640 Stephen Koukoulas: but within the band for the first time in several years. 51 00:02:29,650 --> 00:02:34,320 Stephen Koukoulas: So they're still upbeat, despite the current, I suppose, pain 52 00:02:34,320 --> 00:02:35,580 Stephen Koukoulas: that the economy is going through. 53 00:02:36,000 --> 00:02:39,330 Sean Aylmer: The bank's been, I suppose, a steady hand on the tiller. When 54 00:02:39,330 --> 00:02:41,070 Sean Aylmer: people were saying they need to lift interest rates, they 55 00:02:41,070 --> 00:02:44,100 Sean Aylmer: kind of didn't change their line. And then more recently, 56 00:02:44,100 --> 00:02:46,530 Sean Aylmer: when they've said that they're going to have to actually 57 00:02:46,530 --> 00:02:49,769 Sean Aylmer: pull back from reducing bond buying, they didn't change their line. 58 00:02:49,980 --> 00:02:51,960 Sean Aylmer: So far, they've done a pretty good job, I'd say. 59 00:02:52,110 --> 00:02:54,150 Stephen Koukoulas: I think they've learned a lot from the pandemic in 60 00:02:54,150 --> 00:02:56,880 Stephen Koukoulas: the sense that in a way pre-pandemic they were reluctant 61 00:02:56,880 --> 00:02:59,310 Stephen Koukoulas: to cut. I recall the debate then. They were looking 62 00:02:59,310 --> 00:03:01,920 Stephen Koukoulas: at house prices and things like that. And in a way, 63 00:03:01,919 --> 00:03:03,450 Stephen Koukoulas: they may have taken their eye off the ball a 64 00:03:03,450 --> 00:03:06,120 Stephen Koukoulas: little bit because inflation back then was still very, very low, too. 65 00:03:06,120 --> 00:03:08,470 Stephen Koukoulas: But obviously, with the pandemic, they were forced to cut 66 00:03:08,470 --> 00:03:12,660 Stephen Koukoulas: to near-zero. The QE (Quantitative Easing) program was huge. The yield curve control, 67 00:03:12,660 --> 00:03:15,660 Stephen Koukoulas: the term funding facility for the banks were all super 68 00:03:15,660 --> 00:03:19,410 Stephen Koukoulas: stimulatory policies. And that was, also we've got to remember, 69 00:03:19,410 --> 00:03:21,540 Stephen Koukoulas: back at the beginning of this year before the budget 70 00:03:21,870 --> 00:03:25,440 Stephen Koukoulas: that was handed down by Treasurer Frydenberg, there was a 71 00:03:25,620 --> 00:03:28,890 Stephen Koukoulas: change in the strategy from both the RBA and the 72 00:03:28,889 --> 00:03:32,100 Stephen Koukoulas: government towards full employment. They said that, look, we want 73 00:03:32,100 --> 00:03:35,550 Stephen Koukoulas: to let the economy really run along until we get 74 00:03:35,550 --> 00:03:38,910 Stephen Koukoulas: unemployment into the fours, wages growth back above three per 75 00:03:38,910 --> 00:03:43,620 Stephen Koukoulas: cent per annum and they changed tack. And other than 76 00:03:43,620 --> 00:03:45,960 Stephen Koukoulas: these latest lockdowns, which, of course, are important, that was 77 00:03:45,960 --> 00:03:47,430 Stephen Koukoulas: sort of on track. We've got to remember that the 78 00:03:47,430 --> 00:03:49,830 Stephen Koukoulas: unemployment rate fell below five per cent last month and 79 00:03:50,160 --> 00:03:51,450 Stephen Koukoulas: the economy was really strong. 80 00:03:51,990 --> 00:03:54,990 Sean Aylmer: Just before we leave last week. House prices are still 81 00:03:54,990 --> 00:03:56,720 Sean Aylmer: booming along that property market. 82 00:03:57,210 --> 00:04:00,870 Stephen Koukoulas: Yes, the CoreLogic numbers came out early last week and confirmed, 83 00:04:01,200 --> 00:04:03,660 Stephen Koukoulas: and I heard Tim Lawless talking about them, too, that 84 00:04:03,900 --> 00:04:06,300 Stephen Koukoulas: the market's still very strong. It's across all cities. And 85 00:04:06,300 --> 00:04:08,920 Stephen Koukoulas: while there's a bit of variation from city to city, yeah, 86 00:04:08,940 --> 00:04:11,730 Stephen Koukoulas: there are big, big annual growth rates in the cities, 87 00:04:11,730 --> 00:04:14,580 Stephen Koukoulas: in the regions, that these low interest rates and the 88 00:04:14,580 --> 00:04:17,039 Stephen Koukoulas: fact that we can't spend money travelling overseas means that 89 00:04:17,040 --> 00:04:19,890 Stephen Koukoulas: people are pumping money into housing. It is still very, 90 00:04:19,890 --> 00:04:22,799 Stephen Koukoulas: very strong. The 64 dollar question, I guess, is, will 91 00:04:22,800 --> 00:04:24,659 Stephen Koukoulas: these lockdowns just put a bit of a dent in 92 00:04:24,660 --> 00:04:28,850 Stephen Koukoulas: that house price growth, but for the moment, still remarkably buoyant. 93 00:04:29,550 --> 00:04:31,230 Sean Aylmer: Well, that was last week. We'll be back in a 94 00:04:31,230 --> 00:04:32,760 Sean Aylmer: moment and get into the week ahead. 95 00:04:38,260 --> 00:04:42,460 Sean Aylmer: I'm with economist Stephen Koukoulas, a.k.a. The Kouk. So, Stephen, a bit quieter 96 00:04:42,460 --> 00:04:43,670 Sean Aylmer: on the economic front this week? 97 00:04:44,350 --> 00:04:48,040 Stephen Koukoulas: Yeah, we've only really got the business confidence measures from 98 00:04:48,040 --> 00:04:51,130 Stephen Koukoulas: our friends at NAB and the Westpac monthly consumer sentiment 99 00:04:51,130 --> 00:04:55,090 Stephen Koukoulas: number comes out and they'll have been surveying the business 100 00:04:55,089 --> 00:04:58,719 Stephen Koukoulas: and consumer sector while these lockdowns have been in full force. 101 00:04:58,720 --> 00:05:02,320 Stephen Koukoulas: And so, gosh, it'd be no surprise to see both 102 00:05:02,320 --> 00:05:05,170 Stephen Koukoulas: of them taking a bit of a hit. Clearly, consumers 103 00:05:05,170 --> 00:05:08,859 Stephen Koukoulas: are feeling anxious and uncertain and locking down people is 104 00:05:08,860 --> 00:05:11,650 Stephen Koukoulas: not a good thing. So no surprises there if we 105 00:05:11,650 --> 00:05:14,350 Stephen Koukoulas: get a pretty decent pullback in consumer sentiment. We've got 106 00:05:14,350 --> 00:05:17,380 Stephen Koukoulas: to recall that last year, at the height of the 107 00:05:17,380 --> 00:05:20,530 Stephen Koukoulas: lockdown's consumer sentiment fell about 30 percentage points. So it 108 00:05:20,529 --> 00:05:23,650 Stephen Koukoulas: was a big fall. For the NAB business confidence survey, look, 109 00:05:23,650 --> 00:05:27,670 Stephen Koukoulas: not quite as big a fall as expected because businesses 110 00:05:27,670 --> 00:05:30,370 Stephen Koukoulas: are still pretty resilient in amongst this and the big business sectors, 111 00:05:30,370 --> 00:05:33,160 Stephen Koukoulas: probably still doing quite well. And, you know, the export 112 00:05:33,160 --> 00:05:35,610 Stephen Koukoulas: sector is still chugging along and all the rest of it. 113 00:05:35,620 --> 00:05:38,110 Stephen Koukoulas: So maybe the business sector will be a bit more resilient. 114 00:05:38,110 --> 00:05:40,690 Stephen Koukoulas: But nonetheless, there are still going to be probably a 115 00:05:40,690 --> 00:05:42,670 Stephen Koukoulas: bit of a dip in the optimism from business. 116 00:05:43,089 --> 00:05:45,219 Sean Aylmer: And what we will get this week, which I find 117 00:05:45,220 --> 00:05:48,279 Sean Aylmer: interesting as earnings season sort of kicks off properly this week, 118 00:05:48,580 --> 00:05:50,589 Sean Aylmer: is some of the really big companies telling us what's 119 00:05:50,589 --> 00:05:53,380 Sean Aylmer: happening on the ground. And Commonwealth Bank reports this week 120 00:05:53,589 --> 00:05:56,740 Sean Aylmer: now they're expected to announce some sort of major capital initiative, 121 00:05:56,740 --> 00:05:59,620 Sean Aylmer: potentially a huge dividend. But what CommBank, because it is so 122 00:05:59,620 --> 00:06:01,750 Sean Aylmer: big and it's got its finger in so many pies 123 00:06:01,750 --> 00:06:04,659 Sean Aylmer: around the economy, often what they're talking about, you get 124 00:06:04,660 --> 00:06:06,969 Sean Aylmer: a really close up view on what's happening with lending 125 00:06:06,970 --> 00:06:08,350 Sean Aylmer: and defaults and that sort of thing. 126 00:06:08,680 --> 00:06:11,300 Stephen Koukoulas: Oh, definitely. And in fact, the bank reporting period is 127 00:06:11,680 --> 00:06:14,050 Stephen Koukoulas: really a guide on the economy because, as you said, 128 00:06:14,380 --> 00:06:17,180 Stephen Koukoulas: they are the lenders of the mortgage market. You know, 129 00:06:17,200 --> 00:06:19,720 Stephen Koukoulas: the big banks, I think, dominate about 85, 90 per cent 130 00:06:19,720 --> 00:06:21,820 Stephen Koukoulas: of the mortgage market. So what they're seeing is going 131 00:06:21,820 --> 00:06:24,730 Stephen Koukoulas: to be really important. They also know what we consumers 132 00:06:24,730 --> 00:06:27,910 Stephen Koukoulas: are doing with our debit cards and credit cards and 133 00:06:27,910 --> 00:06:29,589 Stephen Koukoulas: all the rest of it. And they can see what 134 00:06:29,589 --> 00:06:31,750 Stephen Koukoulas: the business sector is doing, as well, is business credit 135 00:06:31,750 --> 00:06:34,300 Stephen Koukoulas: growth picking up? So they're going to be a really 136 00:06:34,300 --> 00:06:37,810 Stephen Koukoulas: interesting barometer for how the economy is going. And as 137 00:06:37,810 --> 00:06:40,450 Stephen Koukoulas: you said, one of the biggest things that is interesting 138 00:06:40,720 --> 00:06:44,020 Stephen Koukoulas: for economists is if there's any uptick in bad and 139 00:06:44,020 --> 00:06:47,380 Stephen Koukoulas: doubtful debts and provisioning for bad loans and the like. 140 00:06:47,380 --> 00:06:49,810 Stephen Koukoulas: And clearly, that's what I'm assuming that's not going to 141 00:06:49,810 --> 00:06:51,849 Stephen Koukoulas: be the case. Certainly the last couple of quarters, the 142 00:06:51,850 --> 00:06:54,790 Stephen Koukoulas: banks wound down those estimates as the economy has done well. 143 00:06:54,790 --> 00:06:57,670 Stephen Koukoulas: So it'll be fascinating to see how our biggest companies 144 00:06:57,670 --> 00:06:58,089 Stephen Koukoulas: are performing. 145 00:06:58,450 --> 00:07:01,250 Sean Aylmer: And the other one there is the big commodity companies. 146 00:07:01,360 --> 00:07:05,040 Sean Aylmer: Rio has already reported but BHP, Fortescue, some of the 147 00:07:05,050 --> 00:07:08,440 Sean Aylmer: battery metals companies, some of the gold companies, the oil 148 00:07:08,440 --> 00:07:11,200 Sean Aylmer: and gas guys, you know, commodities has really helped us 149 00:07:11,200 --> 00:07:14,500 Sean Aylmer: ride the wave recently. But there's just a sense that, 150 00:07:14,500 --> 00:07:16,570 Sean Aylmer: you know, with COVID cases in China rising and that, 151 00:07:16,570 --> 00:07:17,770 Sean Aylmer: maybe it's peaked. 152 00:07:18,280 --> 00:07:20,500 Stephen Koukoulas: Well, that's the curious thing. Up until now, the figures 153 00:07:20,500 --> 00:07:23,530 Stephen Koukoulas: have been stunning. The prices and volumes have been pretty good. 154 00:07:23,890 --> 00:07:25,460 Stephen Koukoulas: But again, just at the end of last week, it 155 00:07:25,460 --> 00:07:27,550 Stephen Koukoulas: was interesting, we saw the iron ore price coming off 156 00:07:27,550 --> 00:07:31,360 Stephen Koukoulas: quite dramatically, albeit from a stunningly high level. But just 157 00:07:31,360 --> 00:07:33,730 Stephen Koukoulas: about 10 days ago, the iron ore price was around 158 00:07:33,730 --> 00:07:37,270 Stephen Koukoulas: about $US220 dollars a tonne. At the end of last week, 159 00:07:37,270 --> 00:07:40,810 Stephen Koukoulas: it had dropped to about $US175. So obviously at $US175, 160 00:07:41,050 --> 00:07:43,930 Stephen Koukoulas: these companies are still making a truckload of money, but 161 00:07:44,050 --> 00:07:47,050 Stephen Koukoulas: it's down about $US45 dollars a tonne. So that super-duper 162 00:07:47,290 --> 00:07:49,960 Stephen Koukoulas: profit that we're probably going to be seeing later this 163 00:07:49,960 --> 00:07:52,630 Stephen Koukoulas: week from the big iron ore companies, in particular, might 164 00:07:52,630 --> 00:07:54,570 Stephen Koukoulas: just be starting to come off the boil. 165 00:07:55,210 --> 00:07:57,580 Sean Aylmer: Enjoy your week, Stephen. Thanks for talking to us this morning. 166 00:07:58,210 --> 00:07:58,870 Stephen Koukoulas: As always, Sean, thank you. 167 00:07:59,110 --> 00:08:01,660 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 168 00:08:01,840 --> 00:08:04,180 Sean Aylmer: You can find him at thekouk.com and follow him on 169 00:08:04,180 --> 00:08:07,570 Sean Aylmer: Twitter using the handle @TheKouk. I'm Sean Aylmer and this 170 00:08:07,570 --> 00:08:09,130 Sean Aylmer: is Fear and Greed, The Week Ahead.