1 00:00:08,560 --> 00:00:11,619 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. This is where we take 2 00:00:11,619 --> 00:00:13,780 Sean Aylmer: a look at the big events, reports and releases coming up 3 00:00:13,780 --> 00:00:16,360 Sean Aylmer: this week that give insight into the economy and look 4 00:00:16,360 --> 00:00:19,040 Sean Aylmer: back at what happened last week too. I'm Sean Aylmer 5 00:00:19,239 --> 00:00:20,970 Sean Aylmer: and every Monday I'm joined for the week ahead by 6 00:00:20,970 --> 00:00:24,579 Sean Aylmer: economist Stephen Koukoulas. You'll find him at thekouk. com and 7 00:00:24,579 --> 00:00:28,310 Sean Aylmer: on Twitter using the handle, @ TheKouk. Stephen, good morning. 8 00:00:28,950 --> 00:00:29,790 Stephen Koukoulas: Good morning, Sean. 9 00:00:29,790 --> 00:00:32,830 Sean Aylmer: That was quite the week, last week, wasn't it? 10 00:00:33,570 --> 00:00:35,660 Stephen Koukoulas: It was. And it wasn't just the Melbourne Cup where 11 00:00:36,229 --> 00:00:38,510 Stephen Koukoulas: I might highlight, I didn't back the winner, Verry Elleegant. It was a 12 00:00:38,510 --> 00:00:42,470 Stephen Koukoulas: stunning result, but nonetheless, the other things that were way 13 00:00:42,540 --> 00:00:46,360 Stephen Koukoulas: more important were central bank meetings, including our own Reserve 14 00:00:46,360 --> 00:00:50,260 Stephen Koukoulas: Bank who kept rates steady, obviously. Nobody expects them to 15 00:00:50,260 --> 00:00:54,970 Stephen Koukoulas: move at all, but they did abandon the targeting for 16 00:00:54,980 --> 00:00:59,950 Stephen Koukoulas: the 2024 bonds, which was widely expected, given the previous week, 17 00:00:59,950 --> 00:01:02,290 Stephen Koukoulas: we had seen the bond market sell off in reaction 18 00:01:02,290 --> 00:01:07,110 Stephen Koukoulas: to the inflation numbers. That was something. And Dr. Lowe, RBA governor 19 00:01:07,190 --> 00:01:10,380 Stephen Koukoulas: in his press conference, which happened after the meeting. I 20 00:01:11,430 --> 00:01:13,440 Stephen Koukoulas: thought it was a fabulous press conference because he actually 21 00:01:13,440 --> 00:01:16,660 Stephen Koukoulas: outlines a lot of the issues that they're mulling over. 22 00:01:16,660 --> 00:01:20,100 Stephen Koukoulas: And while he still was trying to discount what the 23 00:01:20,100 --> 00:01:22,119 Stephen Koukoulas: markets are pricing in, and that is rate hikes starting 24 00:01:22,120 --> 00:01:24,610 Stephen Koukoulas: in the middle of next year. He was open to 25 00:01:24,610 --> 00:01:27,069 Stephen Koukoulas: the view that, " Hey, if we are wrong on our forecast. 26 00:01:27,069 --> 00:01:29,330 Stephen Koukoulas: If the economy turns out to be better, inflation and 27 00:01:29,330 --> 00:01:32,480 Stephen Koukoulas: wage pressures start lifting, well, we might be in a 28 00:01:32,480 --> 00:01:35,720 Stephen Koukoulas: position to hike rates earlier than expected." But the other 29 00:01:35,720 --> 00:01:39,569 Stephen Koukoulas: big news too, the US Federal Reserve met. Again, kept 30 00:01:39,569 --> 00:01:42,440 Stephen Koukoulas: rates steady, but they announced a tapering of their quantitative easing. 31 00:01:43,050 --> 00:01:45,170 Stephen Koukoulas: That's their bond buying is going to be scaled back 32 00:01:45,630 --> 00:01:48,590 Stephen Koukoulas: over the next few months. And again, that was broadly 33 00:01:48,590 --> 00:01:54,080 Stephen Koukoulas: as expected, but again, Fed chairperson, Powell, was suggesting that 34 00:01:54,140 --> 00:01:57,310 Stephen Koukoulas: the inflation spike that we're seeing is transitory or more 35 00:01:57,310 --> 00:02:00,230 Stephen Koukoulas: transitory than permanent. That's why they're happy to just take 36 00:02:00,230 --> 00:02:04,020 Stephen Koukoulas: this gentle approach to withdrawing a lot of the stimulus. 37 00:02:04,350 --> 00:02:06,450 Stephen Koukoulas: And over in the UK, our friends at the Bank 38 00:02:06,450 --> 00:02:09,660 Stephen Koukoulas: of England. Well, it was really a 50/ 50 call I guess, 39 00:02:09,660 --> 00:02:11,660 Stephen Koukoulas: but they surprised a lot of the market by keeping 40 00:02:11,660 --> 00:02:14,900 Stephen Koukoulas: rates on hold as well. The big three central banks 41 00:02:14,900 --> 00:02:18,470 Stephen Koukoulas: for us, Aussie, UK and in the US all kept 42 00:02:18,470 --> 00:02:19,109 Stephen Koukoulas: rates steady. 43 00:02:19,150 --> 00:02:22,590 Sean Aylmer: And I think the European Union Central Bank too also 44 00:02:22,910 --> 00:02:26,180 Sean Aylmer: said that they were probably a bit more sanguine is 45 00:02:26,180 --> 00:02:27,989 Sean Aylmer: the word, about inflation than others thought. 46 00:02:28,310 --> 00:02:30,310 Stephen Koukoulas: Indeed. And there'd been a pricing of rate hikes at the end of 47 00:02:30,630 --> 00:02:34,010 Stephen Koukoulas: '22 into the yield curve for the Eurozone. And okay, 48 00:02:34,010 --> 00:02:36,060 Stephen Koukoulas: it was only 10 or 20 basis points by the 49 00:02:36,060 --> 00:02:39,180 Stephen Koukoulas: end of 2022 that were priced in. Nonetheless, with Eurozone 50 00:02:39,310 --> 00:02:45,100 Stephen Koukoulas: economy still struggling, unemployment, very, very high. Inflation, not quite 51 00:02:45,100 --> 00:02:49,400 Stephen Koukoulas: as obvious as in the US and UK, Canada and Australia. 52 00:02:50,100 --> 00:02:53,290 Stephen Koukoulas: They were more suggesting that, Hey, this is a really 53 00:02:53,290 --> 00:02:56,829 Stephen Koukoulas: transitory issue. It's linked to the supply chain blockages that 54 00:02:56,830 --> 00:03:00,760 Stephen Koukoulas: they're experiencing, particularly in their auto industry. The manufacturing sector 55 00:03:01,020 --> 00:03:03,350 Stephen Koukoulas: there has been really caught up. Perhaps they had a 56 00:03:03,350 --> 00:03:05,230 Stephen Koukoulas: slightly different take on it, given the nature and the 57 00:03:05,230 --> 00:03:06,300 Stephen Koukoulas: structure of their economy. 58 00:03:07,620 --> 00:03:09,870 Sean Aylmer: One thing I always find interesting about the central banks 59 00:03:09,870 --> 00:03:12,060 Sean Aylmer: and particularly, the Reserve Bank of Australia, which is the 60 00:03:12,060 --> 00:03:15,710 Sean Aylmer: one I know best, they are very, very data driven. 61 00:03:16,860 --> 00:03:20,669 Sean Aylmer: Phil Lowe, particularly who has a PhD from MIT in 62 00:03:20,669 --> 00:03:23,470 Sean Aylmer: the US and has always been a real data man. 63 00:03:23,850 --> 00:03:26,010 Sean Aylmer: Data matters to them. And so they don't go by 64 00:03:26,010 --> 00:03:30,000 Sean Aylmer: feel. And so often, a lot of their prognosis really 65 00:03:30,000 --> 00:03:32,060 Sean Aylmer: is on facts rather than what they feel. 66 00:03:32,500 --> 00:03:35,900 Stephen Koukoulas: That's very perceptive because I remember when Glenn Stevens was governor. 67 00:03:36,080 --> 00:03:37,900 Stephen Koukoulas: And he was the previous governor prior to Lowe. But 68 00:03:38,260 --> 00:03:41,690 Stephen Koukoulas: they used to act preemptively, was the word. That they 69 00:03:41,690 --> 00:03:45,280 Stephen Koukoulas: would anticipate, Hey, inflation's probably picking up over the next 70 00:03:45,280 --> 00:03:48,850 Stephen Koukoulas: six to 12 months that we're seeing the early stages 71 00:03:48,850 --> 00:03:50,330 Stephen Koukoulas: of a tightening in the labour market. So we're going 72 00:03:50,420 --> 00:03:53,810 Stephen Koukoulas: to hike early. In a sense they were going to head 73 00:03:53,810 --> 00:03:56,010 Stephen Koukoulas: off inflation at the past, so to speak. They would 74 00:03:56,010 --> 00:03:59,589 Stephen Koukoulas: be preemptive, whereas you're quite right. Dr. Lowe tends to 75 00:03:59,590 --> 00:04:03,130 Stephen Koukoulas: rely on the hard data before he's, I'll call it 76 00:04:03,130 --> 00:04:05,330 Stephen Koukoulas: being forced to act. But obviously, if inflation does pick 77 00:04:05,330 --> 00:04:07,900 Stephen Koukoulas: up or doesn't pick up as the case recently, he'll 78 00:04:07,900 --> 00:04:11,120 Stephen Koukoulas: wait to see that before he reacts. I think he 79 00:04:11,120 --> 00:04:13,570 Stephen Koukoulas: made that clear again last week in his commentary too, 80 00:04:13,570 --> 00:04:18,070 Stephen Koukoulas: that he needs to see inflation well entrenched in that 81 00:04:18,070 --> 00:04:20,390 Stephen Koukoulas: two to three band, preferably the upper half of that band. 82 00:04:20,420 --> 00:04:23,960 Stephen Koukoulas: He needs to see wages picking up to 3% plus, 83 00:04:23,960 --> 00:04:27,549 Stephen Koukoulas: was exactly what he was saying before he'll even consider 84 00:04:27,550 --> 00:04:30,720 Stephen Koukoulas: hiking interest rates. That's his current strategy. Now, look, things 85 00:04:30,720 --> 00:04:33,469 Stephen Koukoulas: can change. But as you point out, we will be 86 00:04:33,470 --> 00:04:36,540 Stephen Koukoulas: looking at those data with more curiousity than we normally 87 00:04:36,540 --> 00:04:38,589 Stephen Koukoulas: do when they start coming up in the early part 88 00:04:38,589 --> 00:04:39,190 Stephen Koukoulas: of next year. 89 00:04:39,820 --> 00:04:42,800 Sean Aylmer: And just briefly, the other data out last week, the quarterly retail 90 00:04:42,800 --> 00:04:46,020 Sean Aylmer: sales figures, the worst quarter ever, I think on record. 91 00:04:46,020 --> 00:04:46,900 Stephen Koukoulas: Yes. Yes. 92 00:04:46,920 --> 00:04:50,160 Sean Aylmer: International trades come off and building approvals. I mean, what's 93 00:04:50,160 --> 00:04:51,320 Sean Aylmer: going on in all those areas? 94 00:04:51,410 --> 00:04:53,610 Stephen Koukoulas: Weak numbers all around in a sense because yes, the 95 00:04:53,610 --> 00:04:57,610 Stephen Koukoulas: retail sales numbers, no surprise. It's the September quarter, Victoria, 96 00:04:57,830 --> 00:05:00,540 Stephen Koukoulas: New South Wales, the ACT were all locked down. ACT had 97 00:05:00,850 --> 00:05:04,060 Stephen Koukoulas: a 30% decline in retail spending. Wow, that's a big 98 00:05:04,060 --> 00:05:04,760 Stephen Koukoulas: amount for us Canberrans. 99 00:05:04,760 --> 00:05:05,090 Sean Aylmer: That was you, Stephen, specifically. 100 00:05:05,090 --> 00:05:10,250 Stephen Koukoulas: I was stuck at home. I couldn't go out. But nonetheless, 101 00:05:10,480 --> 00:05:11,789 Stephen Koukoulas: it was down four and a half per cent for the 102 00:05:11,790 --> 00:05:13,540 Stephen Koukoulas: quarter and that's going to put a great big hole 103 00:05:13,540 --> 00:05:17,489 Stephen Koukoulas: in September quarter GDP. But again, we know that. Whether 104 00:05:17,490 --> 00:05:19,870 Stephen Koukoulas: it's minus three or minus four, in a sense doesn't matter. 105 00:05:19,870 --> 00:05:23,740 Stephen Koukoulas: We know that's the COVID, the Delta lockdown that was occurring. 106 00:05:23,990 --> 00:05:26,270 Stephen Koukoulas: But we also saw building approvals coming off. That's the 107 00:05:26,300 --> 00:05:29,010 Stephen Koukoulas: end of a lot of the government stimulus plans. And 108 00:05:29,010 --> 00:05:32,920 Stephen Koukoulas: we also saw the international trade surplus still $12 billion 109 00:05:32,920 --> 00:05:35,979 Stephen Koukoulas: for the month. Wow. But it's down from about $15 110 00:05:35,980 --> 00:05:39,070 Stephen Koukoulas: billion a couple of months ago. Iron ore prices are falling. 111 00:05:39,290 --> 00:05:42,390 Stephen Koukoulas: Some of the volumes of exports are starting just to 112 00:05:42,630 --> 00:05:44,980 Stephen Koukoulas: taper off a little bit too. Look, the trade position's 113 00:05:44,980 --> 00:05:47,690 Stephen Koukoulas: still very strong, but I think over the coming months, 114 00:05:47,690 --> 00:05:50,000 Stephen Koukoulas: we'll probably see those trade circles numbers starting to shrink 115 00:05:50,000 --> 00:05:50,360 Stephen Koukoulas: a little. 116 00:05:50,810 --> 00:05:52,820 Sean Aylmer: Well, that's last week. We'll be back in a moment 117 00:05:52,820 --> 00:05:54,160 Sean Aylmer: and get into the week ahead. 118 00:05:59,190 --> 00:06:03,740 Sean Aylmer: I'm with economist, Stephen Koukoulas, aka the Kouk. Stephen, the labour force 119 00:06:03,740 --> 00:06:05,849 Sean Aylmer: is the big one this week. What do you expect 120 00:06:05,850 --> 00:06:06,140 Sean Aylmer: from it? 121 00:06:06,630 --> 00:06:09,310 Stephen Koukoulas: Yes. For the month of October, we did have the 122 00:06:09,360 --> 00:06:12,520 Stephen Koukoulas: early signs of some of the reopening in New South Wales, 123 00:06:12,520 --> 00:06:16,800 Stephen Koukoulas: which will probably spark some recovery in employment. Victoria was 124 00:06:16,800 --> 00:06:18,690 Stephen Koukoulas: a little later in the month. And the way the 125 00:06:18,690 --> 00:06:21,440 Stephen Koukoulas: bureau of statistics calculate the numbers, that they tend to 126 00:06:21,440 --> 00:06:23,820 Stephen Koukoulas: do it in the first part of each calendar month. 127 00:06:24,300 --> 00:06:27,289 Stephen Koukoulas: We may not get that rebound in employment in Victoria 128 00:06:27,290 --> 00:06:30,210 Stephen Koukoulas: coming through. But nonetheless, New South Wales, obviously a third 129 00:06:30,210 --> 00:06:32,360 Stephen Koukoulas: of the Australian economy in terms of population and the 130 00:06:32,360 --> 00:06:36,510 Stephen Koukoulas: labor market. We'll probably see, gosh, something of the order 131 00:06:36,510 --> 00:06:40,110 Stephen Koukoulas: of 50 to 75,000 jobs coming back. And that's after about 300, 132 00:06:40,120 --> 00:06:43,080 Stephen Koukoulas: 000 jobs were lost in the prior two months, so at the 133 00:06:43,190 --> 00:06:45,640 Stephen Koukoulas: start of the rebound. More interesting will be the next 134 00:06:45,640 --> 00:06:47,790 Stephen Koukoulas: few months. But look, this is a number that we're getting. 135 00:06:47,940 --> 00:06:51,450 Stephen Koukoulas: Unemployment again, quirky, depending on that participation rate, but probably 136 00:06:51,450 --> 00:06:54,690 Stephen Koukoulas: staying around about four and three quarter per cent plus or 137 00:06:54,700 --> 00:06:57,450 Stephen Koukoulas: minus the odd 10th of a per cent. An improvement in 138 00:06:57,810 --> 00:07:01,400 Stephen Koukoulas: the labour market, linked to the reopening, but we are not 139 00:07:01,400 --> 00:07:03,860 Stephen Koukoulas: yet there where we are going to have the labour force numbers 140 00:07:03,860 --> 00:07:07,850 Stephen Koukoulas: capturing the full reopening. Which will probably be when we 141 00:07:07,850 --> 00:07:11,400 Stephen Koukoulas: get the November and then the December employment numbers. Particularly December, 142 00:07:11,400 --> 00:07:14,590 Stephen Koukoulas: once we've got virtually all states pretty much back to 143 00:07:14,590 --> 00:07:16,760 Stephen Koukoulas: normal and the employment rebound occurring then. 144 00:07:17,230 --> 00:07:18,330 Sean Aylmer: We're not New Zealand, Stephen? 145 00:07:18,850 --> 00:07:21,450 Stephen Koukoulas: No, we are not. But we saw in New Zealand, 146 00:07:21,450 --> 00:07:24,200 Stephen Koukoulas: the unemployment rate dropping to a quite staggering 3.4% in 147 00:07:25,170 --> 00:07:28,840 Stephen Koukoulas: the September quarter. And there's lessons there for us, for 148 00:07:29,200 --> 00:07:31,700 Stephen Koukoulas: the Reserve Bank of Australia and the Australian economy as 149 00:07:31,700 --> 00:07:35,190 Stephen Koukoulas: they manage this recovery. We've got to remember that pre- COVID, 150 00:07:35,190 --> 00:07:37,600 Stephen Koukoulas: that New Zealand had an unemployment rate of 4%. The 151 00:07:37,600 --> 00:07:40,020 Stephen Koukoulas: US was three and a half per cent and we only got 152 00:07:40,020 --> 00:07:43,140 Stephen Koukoulas: down to 5%. We were still well above these other economies. 153 00:07:43,730 --> 00:07:46,050 Stephen Koukoulas: There's something there for the RBA and for the government 154 00:07:46,090 --> 00:07:47,950 Stephen Koukoulas: when we look at our labour market and whether we 155 00:07:47,950 --> 00:07:50,770 Stephen Koukoulas: can get a sub- 4% unemployment rate as well. 156 00:07:51,490 --> 00:07:53,710 Sean Aylmer: And this week also, we've got National Australia Bank business 157 00:07:53,710 --> 00:07:56,150 Sean Aylmer: conditions and Westpac consumer sentiment, which we all like to 158 00:07:56,150 --> 00:07:56,790 Sean Aylmer: keep an eye on. 159 00:07:57,060 --> 00:08:00,270 Stephen Koukoulas: We do. They're nice contemporary indicators of how consumers and 160 00:08:00,270 --> 00:08:04,470 Stephen Koukoulas: businesses are feeling. With the lockdowns ending, both of these 161 00:08:04,470 --> 00:08:08,500 Stephen Koukoulas: surveys will capture how businesses and consumers were feeling about 162 00:08:08,500 --> 00:08:11,080 Stephen Koukoulas: the fact that borders are reopening, shops are opening. The 163 00:08:11,080 --> 00:08:14,730 Stephen Koukoulas: hospitality sector is coming back. Tourism is starting to come back, 164 00:08:14,730 --> 00:08:17,210 Stephen Koukoulas: at least domestically in particular. A little bit of international. 165 00:08:17,630 --> 00:08:21,100 Stephen Koukoulas: I'd be expecting to see nice, big increases in consumer 166 00:08:21,330 --> 00:08:24,010 Stephen Koukoulas: and business conditions when we see those numbers later this week. 167 00:08:24,320 --> 00:08:25,330 Sean Aylmer: Have a great week, Stephen. 168 00:08:25,570 --> 00:08:25,970 Stephen Koukoulas: Thank you, Sean. 169 00:08:26,340 --> 00:08:28,980 Sean Aylmer: That was economist Stephen Koukoulas, better known as the Koul. 170 00:08:29,240 --> 00:08:31,360 Sean Aylmer: You can find him at thekouk. com and follow him 171 00:08:31,360 --> 00:08:34,449 Sean Aylmer: on Twitter using the handle @ TheKouk. I'm Sean Aylmer and 172 00:08:34,490 --> 00:08:36,010 Sean Aylmer: this is Fear and Greed - The Week Ahead.