1 00:00:05,920 --> 00:00:07,960 Speaker 1: Welcome to Fear and Greed Q and A, where we 2 00:00:08,000 --> 00:00:11,559 Speaker 1: ask and answer questions about business, investing, economics, politics and more. 3 00:00:11,640 --> 00:00:14,080 Speaker 1: I'm Michael Thompson, and every Monday we take a look 4 00:00:14,120 --> 00:00:16,880 Speaker 1: at the week ahead for the economy. Diana Messina is 5 00:00:16,920 --> 00:00:19,680 Speaker 1: the Deputy Chief Economist at AMP. Deanna. Welcome back to 6 00:00:19,680 --> 00:00:20,680 Speaker 1: Fear and Greed Q and A. 7 00:00:21,120 --> 00:00:23,080 Speaker 2: Hey, Michael, big. 8 00:00:22,880 --> 00:00:25,680 Speaker 1: Week this week? Do you get excited before when you 9 00:00:25,720 --> 00:00:29,440 Speaker 1: know you've got something like September quarter CPI data coming out? 10 00:00:29,640 --> 00:00:31,680 Speaker 1: Do you get excited knowing that, hey, at least there's 11 00:00:31,680 --> 00:00:33,400 Speaker 1: something to really sink my teeth into. 12 00:00:34,240 --> 00:00:37,640 Speaker 2: Sometimes I guess, But this time around, I'm not because 13 00:00:38,720 --> 00:00:41,720 Speaker 2: I think it's going to be one of those outcomes 14 00:00:41,960 --> 00:00:45,000 Speaker 2: where you can't you can't be too sure of your 15 00:00:45,760 --> 00:00:47,680 Speaker 2: of your thought process about what it means for the 16 00:00:47,680 --> 00:00:50,320 Speaker 2: Reserve Bank because it can really go either way. I mean, 17 00:00:50,360 --> 00:00:54,160 Speaker 2: the key thing that we're watching for is is the 18 00:00:54,160 --> 00:00:57,200 Speaker 2: CPI data enough low enough for the Reserve Bank to 19 00:00:57,240 --> 00:01:00,520 Speaker 2: cut rates in November? And I think the boys decision 20 00:01:00,520 --> 00:01:04,559 Speaker 2: itself is going to be split because the CPI data 21 00:01:04,600 --> 00:01:06,520 Speaker 2: does look like it's going to be higher than the 22 00:01:06,600 --> 00:01:10,040 Speaker 2: RBA has been expecting. So they were forecasting annual growth 23 00:01:10,080 --> 00:01:11,880 Speaker 2: and the trim mean to be around two and a 24 00:01:11,920 --> 00:01:15,560 Speaker 2: half percent, which basically implies like a zero point six 25 00:01:15,600 --> 00:01:19,560 Speaker 2: percent increase in the quarterly trim mean, and the consensus 26 00:01:19,800 --> 00:01:23,200 Speaker 2: numbers are somewhere at about zero point eight percent. So 27 00:01:24,040 --> 00:01:26,640 Speaker 2: the actual miss from the RBA's point of view is 28 00:01:28,080 --> 00:01:33,760 Speaker 2: on their forecast, you know, relatively moderate, i'd say, And 29 00:01:34,160 --> 00:01:36,680 Speaker 2: I think that some on the board will be reading it, 30 00:01:36,720 --> 00:01:41,360 Speaker 2: will be reading the CPI figures as reading it in 31 00:01:41,400 --> 00:01:44,080 Speaker 2: a hawkish way, and they'll be worried that it's just 32 00:01:44,160 --> 00:01:47,080 Speaker 2: too high to just to find another rate cut. Same time, though, 33 00:01:47,160 --> 00:01:50,560 Speaker 2: you had the weak labor force report for September and 34 00:01:50,600 --> 00:01:52,360 Speaker 2: we saw the unemployment rate rising to four and a 35 00:01:52,400 --> 00:01:57,160 Speaker 2: half percent. So it's sort of the dual mandate goals 36 00:01:57,800 --> 00:02:00,080 Speaker 2: moving in the wrong direction for the reserve banks. So 37 00:02:00,120 --> 00:02:02,320 Speaker 2: I think the CPI figures are going to lead to 38 00:02:02,320 --> 00:02:06,520 Speaker 2: a lot of confusion and economists debating about what the 39 00:02:06,600 --> 00:02:07,360 Speaker 2: right thing is to do. 40 00:02:07,920 --> 00:02:09,720 Speaker 1: What would it need to be in order to make 41 00:02:09,720 --> 00:02:12,320 Speaker 1: it clear, in order to make it a very clear 42 00:02:12,360 --> 00:02:15,200 Speaker 1: and easy decision for the RBA. What would you actually 43 00:02:15,240 --> 00:02:17,200 Speaker 1: need to see this week with CPI? 44 00:02:17,720 --> 00:02:19,880 Speaker 2: I think if you've got a CPI a quarterly trim 45 00:02:19,880 --> 00:02:23,000 Speaker 2: mean of zero point six percent or less. I think 46 00:02:23,040 --> 00:02:25,560 Speaker 2: that would be a much easier decision for the Reserve Bank, 47 00:02:25,600 --> 00:02:27,799 Speaker 2: and it was coming in love with forecasts. They can 48 00:02:27,919 --> 00:02:31,120 Speaker 2: be a bit more comfortable around cutting rates in November, 49 00:02:31,400 --> 00:02:34,160 Speaker 2: and then if it was a quarterly number of one 50 00:02:34,200 --> 00:02:37,480 Speaker 2: percent or above, then there would be a clear signal 51 00:02:37,639 --> 00:02:40,080 Speaker 2: not to cut interest rates that that would be a 52 00:02:40,200 --> 00:02:43,720 Speaker 2: very big miss from a forecasting point of view. Any 53 00:02:43,800 --> 00:02:47,040 Speaker 2: quarterly trim mean between zero point seven and point nine, 54 00:02:47,080 --> 00:02:48,480 Speaker 2: I think you're in a bit of a gray zone. 55 00:02:48,520 --> 00:02:51,680 Speaker 2: You can probably still debate that at nauseum as to 56 00:02:51,680 --> 00:02:52,800 Speaker 2: what the central pass. 57 00:02:52,720 --> 00:02:57,240 Speaker 1: Do now Now that we get monthly inflation figures right 58 00:02:57,280 --> 00:03:00,960 Speaker 1: and I know that it's not a comprehensive view, and 59 00:03:01,000 --> 00:03:02,919 Speaker 1: that's going to be changing. I think next month, isn't 60 00:03:02,960 --> 00:03:06,960 Speaker 1: it that the monthly inflation figures become a much broader look. 61 00:03:08,680 --> 00:03:12,440 Speaker 1: But how much room is there for a surprise in 62 00:03:12,480 --> 00:03:16,560 Speaker 1: the quarterly data considering we do get a monthly inside, 63 00:03:16,919 --> 00:03:17,240 Speaker 1: I mean. 64 00:03:17,440 --> 00:03:19,520 Speaker 2: There is still the room for a surprise. We have 65 00:03:19,600 --> 00:03:23,280 Speaker 2: seen that before in other times where the monthly CPI 66 00:03:23,560 --> 00:03:27,280 Speaker 2: led us astray. It was running too hot earlier this 67 00:03:27,400 --> 00:03:30,240 Speaker 2: year and everyone was saying the reserve banks not going 68 00:03:30,240 --> 00:03:33,639 Speaker 2: to cut, and the quarterly came in actually a bit 69 00:03:33,680 --> 00:03:37,560 Speaker 2: lower than forecasts, so it definitely can lead our forecast astray. 70 00:03:37,680 --> 00:03:41,040 Speaker 2: Not every single component is surveyed every single month, and 71 00:03:41,800 --> 00:03:44,840 Speaker 2: there is a lot of volatility when you survey the 72 00:03:44,880 --> 00:03:47,120 Speaker 2: components that you do survey every single month. I think 73 00:03:47,160 --> 00:03:51,240 Speaker 2: that the ABS is still figuring out the best way 74 00:03:51,680 --> 00:03:56,320 Speaker 2: to survey all the different components, and that's why the CPI, 75 00:03:56,520 --> 00:03:59,200 Speaker 2: the monthly CPI is still called an indicator. It's not 76 00:03:59,240 --> 00:04:02,280 Speaker 2: actually a full data set yet. And even though the 77 00:04:02,320 --> 00:04:05,320 Speaker 2: Reserve Bank says, well, we don't really pay as much 78 00:04:05,360 --> 00:04:07,240 Speaker 2: attention to it as we would do the quarterly, they 79 00:04:07,240 --> 00:04:08,640 Speaker 2: still do pay a lot of attention to it because 80 00:04:08,680 --> 00:04:11,040 Speaker 2: they talk about it all the time, and market pricing 81 00:04:11,080 --> 00:04:12,680 Speaker 2: moves off the back of it. So you have to 82 00:04:12,720 --> 00:04:14,400 Speaker 2: look at it and you have to understand it, which 83 00:04:14,440 --> 00:04:17,159 Speaker 2: is what I guess my frustration is is we know 84 00:04:17,240 --> 00:04:19,200 Speaker 2: it's not a great release, yet we still have to 85 00:04:19,279 --> 00:04:21,960 Speaker 2: place all this emphasis on it and put time looking 86 00:04:21,960 --> 00:04:25,080 Speaker 2: at the components. I mean, some economists love it. Me personally, 87 00:04:25,680 --> 00:04:28,320 Speaker 2: I think it's been I think it's it hasn't improved 88 00:04:28,360 --> 00:04:30,560 Speaker 2: the monitary policy setting process. I think it's led to 89 00:04:30,640 --> 00:04:34,760 Speaker 2: more confusion and led to more volatility in market pricing, 90 00:04:34,760 --> 00:04:37,560 Speaker 2: which hasn't really been that helpful. Is just given economists 91 00:04:37,560 --> 00:04:38,160 Speaker 2: more airtime. 92 00:04:39,720 --> 00:04:42,080 Speaker 1: That's not a bad thing though, Right, But next month 93 00:04:42,120 --> 00:04:45,480 Speaker 1: that'll change, Right do you do because they are going 94 00:04:45,520 --> 00:04:48,279 Speaker 1: to become a more comprehensive set of numbers next month? 95 00:04:49,000 --> 00:04:51,599 Speaker 1: Do you see it becoming more useful than and perhaps 96 00:04:51,720 --> 00:04:53,240 Speaker 1: less of an inconvenience? 97 00:04:53,240 --> 00:04:57,280 Speaker 2: Perhaps eventually, But the Reserve Bank themselves said that they 98 00:04:57,320 --> 00:05:02,080 Speaker 2: have to see how the full monthly data moves. 99 00:05:03,480 --> 00:05:06,440 Speaker 1: In the next six to tow the RBA waiting for 100 00:05:06,480 --> 00:05:08,680 Speaker 1: more data that's going to be. 101 00:05:09,520 --> 00:05:12,760 Speaker 2: I think basically because the season So this is getting 102 00:05:12,760 --> 00:05:16,159 Speaker 2: a bit technical, but the trimmed mean on the monthly 103 00:05:16,240 --> 00:05:18,680 Speaker 2: data is not seasonally adjusted the same way as the 104 00:05:18,760 --> 00:05:23,160 Speaker 2: quarterly trim mean, So the implications that you get from 105 00:05:23,160 --> 00:05:25,440 Speaker 2: looking at the monthly trim mean is not the same 106 00:05:25,480 --> 00:05:28,280 Speaker 2: as the quarterly So they're waiting for the seasonal adjustment 107 00:05:28,320 --> 00:05:32,039 Speaker 2: process for the two to become more reliable. But that 108 00:05:32,080 --> 00:05:34,599 Speaker 2: will take some months of data basically to work through. 109 00:05:34,880 --> 00:05:36,839 Speaker 2: I think that's what they're eventually waiting for that. I 110 00:05:36,839 --> 00:05:39,440 Speaker 2: think Michelle Bullok said in a press conference last time, 111 00:05:39,520 --> 00:05:41,400 Speaker 2: or maybe the time before, that it will still be 112 00:05:41,440 --> 00:05:44,480 Speaker 2: some time before they can fully rely on the new 113 00:05:44,640 --> 00:05:47,200 Speaker 2: monthly inflation data. So sometime in twenty twenty six. 114 00:05:47,360 --> 00:05:49,279 Speaker 1: All right, So long story, short though, in terms of 115 00:05:49,320 --> 00:05:54,279 Speaker 1: this week's data release the September quarter, potential for a 116 00:05:54,320 --> 00:05:58,880 Speaker 1: lot of debate over what it's going to mean. Yeah, okay, 117 00:05:58,880 --> 00:05:59,279 Speaker 1: I think so. 118 00:05:59,400 --> 00:06:02,920 Speaker 2: I think. I mean, I still see market pricing as 119 00:06:03,080 --> 00:06:07,920 Speaker 2: probably expecting a cut in November, even I mean, unless 120 00:06:07,920 --> 00:06:10,000 Speaker 2: we get a really big surprise to the CPI. But 121 00:06:11,640 --> 00:06:14,560 Speaker 2: I think that the weakness in the labor market is 122 00:06:15,480 --> 00:06:18,240 Speaker 2: leading a lot of analysts and probably markets as well, 123 00:06:18,279 --> 00:06:23,760 Speaker 2: to expect that that should take a higher weting or 124 00:06:23,800 --> 00:06:26,640 Speaker 2: a larger share of thought in the Reserve banks decision 125 00:06:26,680 --> 00:06:28,799 Speaker 2: making process when it meets. 126 00:06:29,320 --> 00:06:32,160 Speaker 1: Okay, also this week, I mean that is the headline obviously, 127 00:06:32,160 --> 00:06:34,839 Speaker 1: but also this week, I think we've got input export data. 128 00:06:35,000 --> 00:06:37,640 Speaker 1: In simple terms, why does that matter? What does it 129 00:06:37,680 --> 00:06:38,080 Speaker 1: tell us? 130 00:06:38,480 --> 00:06:41,240 Speaker 2: Well, it is second or even thirdier data, I'd say, 131 00:06:41,279 --> 00:06:44,839 Speaker 2: I mean, it's sort of another price indicator for the economy, 132 00:06:44,920 --> 00:06:48,680 Speaker 2: and we get forecasts for the terms of trade using 133 00:06:48,680 --> 00:06:50,400 Speaker 2: those sub numbers. I mean, it will be interesting to 134 00:06:50,440 --> 00:06:52,960 Speaker 2: see if any of our important export numbers have been 135 00:06:53,000 --> 00:06:55,960 Speaker 2: impacted by tariffs around the world. But you know, it's not. 136 00:06:56,800 --> 00:07:00,000 Speaker 2: It sort of just confirms parts of the CPI. It doesn't. 137 00:07:00,120 --> 00:07:02,520 Speaker 2: I don't think it really gives us a new signal 138 00:07:02,760 --> 00:07:05,960 Speaker 2: into anything. Maybe some of the components will be interesting, though. 139 00:07:06,360 --> 00:07:09,960 Speaker 1: Okay, let's look overseas now, because I'm interested to know. 140 00:07:10,400 --> 00:07:13,000 Speaker 1: We're in the middle of earning season in the US, 141 00:07:13,040 --> 00:07:16,119 Speaker 1: and last week we have companies like Tesla. This week, 142 00:07:16,200 --> 00:07:22,120 Speaker 1: in the space of just two days, there will be Microsoft, Alphabet, Amazon, Apple, 143 00:07:22,440 --> 00:07:26,960 Speaker 1: and Meta. Investors obviously pay a lot of attention to this, 144 00:07:27,200 --> 00:07:30,080 Speaker 1: but what about an economist. How much I suppose can 145 00:07:30,120 --> 00:07:33,520 Speaker 1: you tell about an economy by the performance of these 146 00:07:33,520 --> 00:07:35,520 Speaker 1: companies and by watching these results come through. 147 00:07:35,920 --> 00:07:37,600 Speaker 2: I mean, a lot of economists don't pay as much 148 00:07:37,640 --> 00:07:42,680 Speaker 2: attention to earning season, but we do because there is 149 00:07:43,400 --> 00:07:46,440 Speaker 2: It's a good forward looking indicator for the economy and 150 00:07:46,480 --> 00:07:50,080 Speaker 2: for markets in particular. You can't have positive economic growth 151 00:07:50,080 --> 00:07:53,520 Speaker 2: without some form of earnings growth, and the share market 152 00:07:53,560 --> 00:07:56,280 Speaker 2: doesn't tend to rise unless you have positive earnings growth, 153 00:07:56,320 --> 00:07:58,880 Speaker 2: So it is important. I mean people tell me that 154 00:07:58,920 --> 00:08:01,480 Speaker 2: economists talk you riddles. I think that equity analysts talk 155 00:08:01,480 --> 00:08:03,120 Speaker 2: in riddles sometimes as well. I find it hard to 156 00:08:03,200 --> 00:08:05,560 Speaker 2: understand what they're trying to say sometimes, so it is 157 00:08:06,160 --> 00:08:07,840 Speaker 2: it can be a bit of a difficult read to 158 00:08:08,280 --> 00:08:11,560 Speaker 2: read between the lines about what the equity analyst is 159 00:08:11,560 --> 00:08:14,840 Speaker 2: saying about the companies. But my best read on it 160 00:08:14,880 --> 00:08:17,120 Speaker 2: is that earnings growth in the US is still doing 161 00:08:17,280 --> 00:08:20,360 Speaker 2: really well, and most analysts are expecting it to be 162 00:08:20,480 --> 00:08:22,760 Speaker 2: up by about ten percent over the year to September, 163 00:08:22,800 --> 00:08:25,520 Speaker 2: which is really good. I mean in Australia it's much lower, 164 00:08:25,600 --> 00:08:28,600 Speaker 2: down five percent or even below. The tech sector though, 165 00:08:28,640 --> 00:08:32,079 Speaker 2: is still running at about seventeen twenty percent earnings growth, 166 00:08:32,080 --> 00:08:35,679 Speaker 2: so it's really again the outformost. So when those companies 167 00:08:35,720 --> 00:08:38,120 Speaker 2: report that you mentioned, you know, if they're not showing 168 00:08:38,760 --> 00:08:41,760 Speaker 2: quite strong earnings growth around fifteen to twenty percent, then 169 00:08:42,240 --> 00:08:44,599 Speaker 2: I think that sort of like with the Tesla and 170 00:08:44,640 --> 00:08:47,000 Speaker 2: the Netflix result in the market may get a little 171 00:08:47,000 --> 00:08:50,000 Speaker 2: bit spooked again that earnings growth in the tech sector 172 00:08:50,040 --> 00:08:51,840 Speaker 2: is likely to soften right now. 173 00:08:51,880 --> 00:08:55,160 Speaker 1: Aside from US earnings, the other big thing coming out 174 00:08:55,160 --> 00:08:58,240 Speaker 1: of the States this week the federal Reserve is meeting 175 00:08:58,760 --> 00:09:02,400 Speaker 1: Tuesday and Wednesday US time. What are we going to see. 176 00:09:02,600 --> 00:09:05,040 Speaker 2: Well, most expecting a rate cut from the Fed. They've 177 00:09:05,080 --> 00:09:08,160 Speaker 2: already cut rates by one point two five percent and 178 00:09:08,679 --> 00:09:11,640 Speaker 2: another cut is expected by another zero point two five percent. 179 00:09:12,000 --> 00:09:14,800 Speaker 2: I mean, I think it's the balance between what's more 180 00:09:14,840 --> 00:09:17,360 Speaker 2: important the inflation figure, which are still pretty elevated in 181 00:09:17,400 --> 00:09:20,280 Speaker 2: the US headline and core numbers are running at around 182 00:09:20,280 --> 00:09:24,000 Speaker 2: three percent, but the lad market is weakening and unraveling 183 00:09:24,000 --> 00:09:27,000 Speaker 2: a little bit faster than the FED was expecting. So 184 00:09:27,400 --> 00:09:29,679 Speaker 2: I mean, I think that the decision may may not 185 00:09:29,760 --> 00:09:32,679 Speaker 2: be unanimous. I think that there may be some board 186 00:09:32,679 --> 00:09:35,160 Speaker 2: members who don't agree to cut rates. At the same time, 187 00:09:35,240 --> 00:09:38,719 Speaker 2: some Trump appointees like Mirror will probably be saying that 188 00:09:38,720 --> 00:09:41,600 Speaker 2: they should cut rates by more. So I think that 189 00:09:41,600 --> 00:09:44,720 Speaker 2: that's why analysts are expecting another rate cut from the FED, 190 00:09:44,760 --> 00:09:46,760 Speaker 2: and potentially another one before the end of this year. 191 00:09:47,240 --> 00:09:49,280 Speaker 1: And the other thing out of the US this week 192 00:09:49,480 --> 00:09:53,520 Speaker 1: is GDP data, if we actually get it. Considering the 193 00:09:53,840 --> 00:09:55,280 Speaker 1: government shutdown. 194 00:09:55,640 --> 00:09:58,520 Speaker 2: So the statistics agencies in the US can actually recall 195 00:09:58,640 --> 00:10:02,240 Speaker 2: people back to important releases, So hopefully we do get 196 00:10:02,280 --> 00:10:05,760 Speaker 2: the GDP figures. I've been surprised at how strong a 197 00:10:05,840 --> 00:10:08,520 Speaker 2: GDP growth has been in the US, and for the 198 00:10:08,559 --> 00:10:11,800 Speaker 2: September quarter, expectations are for it to be at an 199 00:10:11,800 --> 00:10:13,960 Speaker 2: annualized pace of two or two and a half percent, 200 00:10:14,000 --> 00:10:16,720 Speaker 2: which is pretty good. We had that weakness in the 201 00:10:16,720 --> 00:10:19,360 Speaker 2: March quarter which was then reversed, so clearly no signs 202 00:10:19,520 --> 00:10:22,600 Speaker 2: of a recession. Even if you look at the components 203 00:10:22,600 --> 00:10:26,079 Speaker 2: across US GDP, it's the growth has sort of been 204 00:10:26,080 --> 00:10:29,040 Speaker 2: coming a little bit from every single sector. I think 205 00:10:29,440 --> 00:10:31,440 Speaker 2: a lot of economists will be looking for the breakdown 206 00:10:31,480 --> 00:10:35,520 Speaker 2: between imports and exports to see any impacts of the tariffs. 207 00:10:35,559 --> 00:10:38,920 Speaker 2: So have we seen a decline in imports relative to exports. 208 00:10:38,920 --> 00:10:41,440 Speaker 2: I think it is probably likely to show that. But 209 00:10:41,520 --> 00:10:43,160 Speaker 2: given that in the first three months of this year 210 00:10:43,200 --> 00:10:45,839 Speaker 2: we had that really big rise in imports as people 211 00:10:45,840 --> 00:10:48,800 Speaker 2: were trying to front load any tariff impacts, that's probably 212 00:10:48,800 --> 00:10:51,160 Speaker 2: going to be a reversal of that. I mean, Trump 213 00:10:51,200 --> 00:10:53,280 Speaker 2: will say this is all thanks to his policies and 214 00:10:53,320 --> 00:10:56,480 Speaker 2: thanks to the Republican policies, but I think it's a 215 00:10:56,480 --> 00:10:59,600 Speaker 2: reflection of the fact that the US is still doing okay. Yes, 216 00:10:59,600 --> 00:11:02,520 Speaker 2: there aretential pockets of weakness like an laid market, but 217 00:11:02,679 --> 00:11:05,520 Speaker 2: growth overall is still holding up relatively well. 218 00:11:05,800 --> 00:11:08,079 Speaker 1: All Right, it is a big week ahead, Diana, thank 219 00:11:08,080 --> 00:11:09,319 Speaker 1: you for talking to Fear and Greed. 220 00:11:09,559 --> 00:11:11,800 Speaker 2: Thanks Michael, always a pleasure that was a MP. 221 00:11:11,800 --> 00:11:14,640 Speaker 1: Deputy Chief Economist, Diana Messina. I'm Michael Thompson and this 222 00:11:14,760 --> 00:11:15,880 Speaker 1: is Fear and Greed Q and a