1 00:00:08,310 --> 00:00:10,650 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean 2 00:00:10,710 --> 00:00:14,280 Sean Aylmer: Aylmer and as always, I'm joined by economist Stephen Koukoulas. 3 00:00:14,580 --> 00:00:19,470 Sean Aylmer: You'll find him at thekouk.com. thekouk. com and on Twitter using 4 00:00:19,470 --> 00:00:21,720 Sean Aylmer: the handle TheKouk. Stephen, you're pretty excited at the moment. 5 00:00:22,260 --> 00:00:25,230 Stephen Koukoulas: I'm very excited. There's so much going on in economics, 6 00:00:25,230 --> 00:00:30,180 Stephen Koukoulas: financial markets, monetary policy, inflation, commodity prices. I don't know 7 00:00:30,180 --> 00:00:30,750 Stephen Koukoulas: where to look. 8 00:00:30,930 --> 00:00:32,670 Sean Aylmer: Currencies, what about them? Euro? 9 00:00:32,670 --> 00:00:36,900 Stephen Koukoulas: Well, the US dollar. Yes, it's going gangbusters. The euros 10 00:00:36,900 --> 00:00:38,940 Stephen Koukoulas: back to parity with the US dollar. The Aussie dollars 11 00:00:38,940 --> 00:00:44,070 Stephen Koukoulas: at 67.5ish thereabouts and huge issues going on all over 12 00:00:44,070 --> 00:00:46,560 Stephen Koukoulas: the place. Too much information is never too much. 13 00:00:46,890 --> 00:00:49,830 Sean Aylmer: That's right. Now, the really big one, I mean, in 14 00:00:49,830 --> 00:00:52,379 Sean Aylmer: fact there was two lots of really, really important information 15 00:00:52,380 --> 00:00:54,240 Sean Aylmer: last week. One was obviously the labor force, but also 16 00:00:54,240 --> 00:00:57,510 Sean Aylmer: the consumer/ business sentiment stuff. Let's start with the labor 17 00:00:57,510 --> 00:00:58,830 Sean Aylmer: force. Incredible numbers. 18 00:00:58,950 --> 00:01:02,850 Stephen Koukoulas: Employment rose by 88,000 in the month of June. An 19 00:01:02,850 --> 00:01:07,020 Stephen Koukoulas: incredible result. The unemployment rate, which was even more staggering, 20 00:01:07,020 --> 00:01:10,290 Stephen Koukoulas: fell to 3. 5%. The last time it was that 21 00:01:10,290 --> 00:01:14,100 Stephen Koukoulas: low was 1974. So a fresh 48 year low for 22 00:01:14,100 --> 00:01:18,930 Stephen Koukoulas: the unemployment rate. And it's something that nobody anticipated. Nobody 23 00:01:18,930 --> 00:01:21,539 Stephen Koukoulas: even a year ago was thinking that we'd get much 24 00:01:21,540 --> 00:01:24,810 Stephen Koukoulas: below 4%. So a staggering result. When you look at 25 00:01:24,810 --> 00:01:28,170 Stephen Koukoulas: the number of people unemployed, a little under 500,000, we've 26 00:01:28,170 --> 00:01:30,510 Stephen Koukoulas: actually got more job vacancies in Australia than we do 27 00:01:30,510 --> 00:01:34,080 Stephen Koukoulas: have people unemployed. It says to me that we're going to get even 28 00:01:34,080 --> 00:01:37,650 Stephen Koukoulas: lower unemployment numbers in the next few months, which is 29 00:01:37,650 --> 00:01:39,630 Stephen Koukoulas: a remarkable thing and I guess a sign that the 30 00:01:39,630 --> 00:01:41,819 Stephen Koukoulas: economy's still chugging along at a reasonable clip. 31 00:01:42,480 --> 00:01:45,780 Sean Aylmer: And it certainly won't dissuade the Reserve Bank from going 32 00:01:45,780 --> 00:01:46,620 Sean Aylmer: hard on rates. 33 00:01:47,100 --> 00:01:50,160 Stephen Koukoulas: No, well, they're meeting in early August now. I think 34 00:01:50,160 --> 00:01:51,960 Stephen Koukoulas: the big thing for them will be the June quarter 35 00:01:51,960 --> 00:01:55,170 Stephen Koukoulas: CPI, which comes out on the 27th. That's next week. 36 00:01:55,680 --> 00:01:59,130 Stephen Koukoulas: The inflation numbers of course are elevated around the world. 37 00:01:59,130 --> 00:02:00,630 Stephen Koukoulas: We're going to get a high result. I don't think 38 00:02:00,630 --> 00:02:02,370 Stephen Koukoulas: there's any questions, just a matter of how high will 39 00:02:02,370 --> 00:02:05,640 Stephen Koukoulas: it be. But again, the market's now speculating that, do 40 00:02:05,640 --> 00:02:09,330 Stephen Koukoulas: they go 75? I think 50 basis point hike in 41 00:02:09,330 --> 00:02:11,850 Stephen Koukoulas: early August is baked in. I think everybody's thinking that. 42 00:02:12,270 --> 00:02:14,820 Stephen Koukoulas: And if we get an elevated inflation number in about 43 00:02:14,820 --> 00:02:17,820 Stephen Koukoulas: 10 days time, then we got to be having speculation 44 00:02:17,820 --> 00:02:20,820 Stephen Koukoulas: growing of a 75 basis point move. As we saw 45 00:02:20,820 --> 00:02:23,100 Stephen Koukoulas: from the Bank of Canada last week, they slammed on 46 00:02:23,100 --> 00:02:26,220 Stephen Koukoulas: a hundred point move, which again nobody was anticipating. But 47 00:02:26,220 --> 00:02:30,300 Stephen Koukoulas: again, it's their fight inflation vigil that sort of forced 48 00:02:30,300 --> 00:02:31,560 Stephen Koukoulas: them to go so aggressively. 49 00:02:32,070 --> 00:02:33,990 Sean Aylmer: Do you think, I mean, give us a little history 50 00:02:33,990 --> 00:02:36,570 Sean Aylmer: lesson here. Last time we had unemployment at this level 51 00:02:36,570 --> 00:02:41,340 Sean Aylmer: was 1974. We then ran into stagflation on the back 52 00:02:41,340 --> 00:02:44,580 Sean Aylmer: of inflation expectations. Is that why central banks are going 53 00:02:44,580 --> 00:02:45,750 Sean Aylmer: so hard at the moment? 54 00:02:46,200 --> 00:02:48,120 Stephen Koukoulas: I think so. I think that lesson from the mid 55 00:02:48,120 --> 00:02:50,669 Stephen Koukoulas: 70s was dreadful and it really took, well, it took 56 00:02:50,669 --> 00:02:52,980 Stephen Koukoulas: us 15 years to get over it. But even in 57 00:02:52,980 --> 00:02:55,680 Stephen Koukoulas: the US, the Paul Volcker, he was chairperson of the 58 00:02:55,680 --> 00:03:00,030 Stephen Koukoulas: Federal Reserve and he hiked US interest rates to 15, 16% 59 00:03:00,030 --> 00:03:03,389 Stephen Koukoulas: in the late 70s, early 80s to squeeze inflation out. 60 00:03:03,389 --> 00:03:06,540 Stephen Koukoulas: And I remember the debate, fight inflation first, but it 61 00:03:06,540 --> 00:03:08,910 Stephen Koukoulas: even took the US what, seven, eight years to get 62 00:03:08,910 --> 00:03:12,360 Stephen Koukoulas: that inflation rate back down, again, a nasty recession. So 63 00:03:12,360 --> 00:03:15,540 Stephen Koukoulas: that's the lesson. So in a sense, it's a similar 64 00:03:15,540 --> 00:03:17,310 Stephen Koukoulas: sort of thing. And we are hoping that we don't 65 00:03:17,310 --> 00:03:19,620 Stephen Koukoulas: have a recession of course, but that we can sort 66 00:03:19,620 --> 00:03:23,160 Stephen Koukoulas: of slow the economy sufficiently to get inflation down. And 67 00:03:23,160 --> 00:03:25,020 Stephen Koukoulas: that's the debate that's going on right now. And of 68 00:03:25,020 --> 00:03:27,810 Stephen Koukoulas: course there are some people, very smart people who are 69 00:03:27,810 --> 00:03:30,600 Stephen Koukoulas: expecting the US to dip into recession in any event. 70 00:03:31,110 --> 00:03:34,020 Sean Aylmer: We think of a recession as a bad thing, and 71 00:03:34,020 --> 00:03:37,320 Sean Aylmer: obviously the human toll is very challenging. If you think 72 00:03:37,320 --> 00:03:40,680 Sean Aylmer: of it on the long term in terms of economic 73 00:03:40,680 --> 00:03:43,650 Sean Aylmer: cycles, sometimes they have to happen though, don't they? 74 00:03:44,040 --> 00:03:45,690 Stephen Koukoulas: Oh, this will get me shot down. It's the Paul 75 00:03:45,690 --> 00:03:48,330 Stephen Koukoulas: Keating recession we had to have in the early 1990s. 76 00:03:49,320 --> 00:03:52,890 Stephen Koukoulas: And he's been ridiculed for that. But again, you don't 77 00:03:52,890 --> 00:03:54,570 Stephen Koukoulas: want a recession. You want to try to avoid them 78 00:03:54,570 --> 00:03:56,220 Stephen Koukoulas: because as you said, the human cost in terms of 79 00:03:56,220 --> 00:03:59,160 Stephen Koukoulas: unemployment, business closures and these sorts of things are not 80 00:03:59,160 --> 00:04:04,110 Stephen Koukoulas: good and that's why economic policy tries very, very hard 81 00:04:04,110 --> 00:04:07,020 Stephen Koukoulas: to avoid them. But occasionally when there are excesses in 82 00:04:07,020 --> 00:04:10,200 Stephen Koukoulas: the economy, you need to cut out those excesses in 83 00:04:10,200 --> 00:04:11,550 Stephen Koukoulas: a sense. And one way you can do that is 84 00:04:11,550 --> 00:04:16,290 Stephen Koukoulas: through monetary policy, through aggress rate hikes and certainly slower growth 85 00:04:16,290 --> 00:04:19,109 Stephen Koukoulas: is needed. And then the debate comes, if you go 86 00:04:19,110 --> 00:04:21,570 Stephen Koukoulas: one step too many, in terms of your rate hikes, 87 00:04:21,810 --> 00:04:24,179 Stephen Koukoulas: you do get that hard landing for the economy and 88 00:04:24,180 --> 00:04:26,850 Stephen Koukoulas: a recession comes and that's when you cleanse that high 89 00:04:26,850 --> 00:04:28,860 Stephen Koukoulas: inflation out of the system and you can hopefully go 90 00:04:29,460 --> 00:04:32,100 Stephen Koukoulas: on a path for a decade or so of decent 91 00:04:32,100 --> 00:04:32,790 Stephen Koukoulas: economic growth. 92 00:04:33,240 --> 00:04:35,370 Sean Aylmer: Well, also just want to mention consumer and business conference 93 00:04:35,370 --> 00:04:37,800 Sean Aylmer: figures out last week. Now we know the consumer isn't 94 00:04:37,800 --> 00:04:41,039 Sean Aylmer: quite as happy as they've been in recent months, but 95 00:04:41,040 --> 00:04:43,710 Sean Aylmer: even business confidence has come off just a touch. 96 00:04:44,070 --> 00:04:46,680 Stephen Koukoulas: Yeah. Well we know, yes, the consumers are feeling pretty 97 00:04:46,680 --> 00:04:49,020 Stephen Koukoulas: gloomy. In fact, it's come back to some of those 98 00:04:49,020 --> 00:04:51,900 Stephen Koukoulas: weakest levels that we've seen since the pandemic or the 99 00:04:51,900 --> 00:04:56,339 Stephen Koukoulas: mid 2000s recession and that sort of fear is in 100 00:04:56,339 --> 00:04:59,250 Stephen Koukoulas: the consumer's minds as they're paying still well over $ 2 101 00:04:59,490 --> 00:05:02,310 Stephen Koukoulas: a liter for petrol and the cost of living pressures 102 00:05:02,310 --> 00:05:03,930 Stephen Koukoulas: are acute, and of course the rate hikes are coming 103 00:05:03,930 --> 00:05:07,169 Stephen Koukoulas: through right now. So that's clear, I guess, in a 104 00:05:07,170 --> 00:05:11,670 Stephen Koukoulas: sense. But the business confidence numbers were okay. They did 105 00:05:11,670 --> 00:05:15,270 Stephen Koukoulas: trend down again. And a lot of the detail of 106 00:05:15,270 --> 00:05:18,419 Stephen Koukoulas: that business report from NAB was that inflation pressures are 107 00:05:18,420 --> 00:05:20,700 Stephen Koukoulas: showing up there, their cost of opening their doors every 108 00:05:20,700 --> 00:05:23,400 Stephen Koukoulas: morning if you like is increasing at the fastest pace 109 00:05:23,400 --> 00:05:27,300 Stephen Koukoulas: on record. That high inflation rate, while we consumers focus 110 00:05:27,300 --> 00:05:29,310 Stephen Koukoulas: on it, on how much it's impacting our wallet and 111 00:05:29,339 --> 00:05:32,580 Stephen Koukoulas: how much we spend each week. For a business person, 112 00:05:32,610 --> 00:05:34,799 Stephen Koukoulas: it's the cost of the inputs, the widgets, if you 113 00:05:34,800 --> 00:05:38,310 Stephen Koukoulas: like that goes into the manufacturing process that's causing them 114 00:05:38,310 --> 00:05:40,020 Stephen Koukoulas: to be a bit more fearful of the outlook too. 115 00:05:40,020 --> 00:05:43,680 Stephen Koukoulas: So business not quite as gloomy as the consumer, but 116 00:05:43,680 --> 00:05:46,409 Stephen Koukoulas: nonetheless, there's a bit of a tapering off in business 117 00:05:46,410 --> 00:05:47,190 Stephen Koukoulas: sentiment as well. 118 00:05:48,089 --> 00:05:49,770 Sean Aylmer: This week not a lot on, I mean, after so 119 00:05:49,770 --> 00:05:52,140 Sean Aylmer: much excitement in recent weeks, we've got the minutes of 120 00:05:52,140 --> 00:05:54,480 Sean Aylmer: the July board meeting, the Reserve Bank July board meeting. 121 00:05:54,480 --> 00:05:57,210 Sean Aylmer: We've got the Governor of the Reserve Bank, Philip Lowe 122 00:05:57,210 --> 00:05:59,820 Sean Aylmer: and Michele Bullock, who's number two, the Deputy Governor speaking. 123 00:06:01,230 --> 00:06:04,380 Sean Aylmer: It's not exactly a rest week but maybe you should 124 00:06:04,380 --> 00:06:06,300 Sean Aylmer: have a bit of a relaxation there, Stephen because next 125 00:06:06,300 --> 00:06:07,230 Sean Aylmer: week we've got CPI. 126 00:06:07,470 --> 00:06:10,320 Stephen Koukoulas: Yeah, well the data flow from the Bureau of Stats 127 00:06:10,320 --> 00:06:13,020 Stephen Koukoulas: is pretty low key this week. I think there's a 128 00:06:13,020 --> 00:06:15,479 Stephen Koukoulas: couple of very, very, very minor indicators that nobody will 129 00:06:15,480 --> 00:06:18,360 Stephen Koukoulas: look at. But as you said, it's Reserve Bank speak 130 00:06:18,360 --> 00:06:21,180 Stephen Koukoulas: this week. So you've got the minutes of the decision 131 00:06:21,180 --> 00:06:24,179 Stephen Koukoulas: to hike 50 basis points earlier this month. We'll look 132 00:06:24,180 --> 00:06:26,820 Stephen Koukoulas: at that for fine detail on why they chose 50 133 00:06:26,820 --> 00:06:30,570 Stephen Koukoulas: and not some other number, analysis of inflation, labor market 134 00:06:30,600 --> 00:06:33,570 Stephen Koukoulas: tightness. These sort of things that we've been discussing just 135 00:06:33,570 --> 00:06:35,580 Stephen Koukoulas: a moment ago will be part of the entrails of 136 00:06:35,580 --> 00:06:38,730 Stephen Koukoulas: the minutes. But perhaps more importantly, because here we are 137 00:06:39,330 --> 00:06:42,240 Stephen Koukoulas: a few weeks after that decision to hike rates earlier 138 00:06:42,240 --> 00:06:43,619 Stephen Koukoulas: this month, we've got the governor, as you said, the 139 00:06:43,620 --> 00:06:47,130 Stephen Koukoulas: Deputy Governor, Michele Bullock, giving talks on the economy, that'll 140 00:06:47,130 --> 00:06:51,270 Stephen Koukoulas: be including, I'm assuming in their discussion, these recent labor 141 00:06:51,270 --> 00:06:56,370 Stephen Koukoulas: force numbers, the developments in inflation, and really interestingly the 142 00:06:56,370 --> 00:06:59,700 Stephen Koukoulas: debate that's also starting to brew as commodity prices come 143 00:06:59,700 --> 00:07:03,060 Stephen Koukoulas: off, the oil price is 95 US dollars a barrel 144 00:07:03,060 --> 00:07:06,750 Stephen Koukoulas: or thereabouts, was 120. Lumber prices, which (inaudible) into 145 00:07:06,750 --> 00:07:10,200 Stephen Koukoulas: construction are falling. So are we seeing a turning point 146 00:07:10,200 --> 00:07:14,220 Stephen Koukoulas: in inflation from that leading indicator through commodities? That's what 147 00:07:14,220 --> 00:07:16,530 Stephen Koukoulas: we'll be looking at the Reserve Bank to give any 148 00:07:16,530 --> 00:07:18,030 Stephen Koukoulas: updates, any insights on. 149 00:07:18,540 --> 00:07:19,410 Sean Aylmer: Enjoy the week, Stephen. 150 00:07:19,830 --> 00:07:20,460 Stephen Koukoulas: Thank you, Sean. 151 00:07:20,850 --> 00:07:23,850 Sean Aylmer: That was economist Stephen Koukoulas, better known as TheKouk. You 152 00:07:23,850 --> 00:07:25,980 Sean Aylmer: can find him at thekouk. com and follow him on 153 00:07:25,980 --> 00:07:29,040 Sean Aylmer: Twitter using the handle The Kouk. I'm Sean Aylmer and this 154 00:07:29,040 --> 00:07:30,420 Sean Aylmer: is Fear and Greed - The Week Ahead.