1 00:00:07,950 --> 00:00:10,980 Jennifer Duke: Welcome to Fear & Greed - The Week Ahead. I'm Jennifer Duke 2 00:00:10,980 --> 00:00:14,009 Jennifer Duke: and I'm joined by economist Stephen Koukoulas. You'll find him 3 00:00:14,009 --> 00:00:16,650 Jennifer Duke: at thekouk. com, that's T- H- E- K- O- U- K . 4 00:00:16,739 --> 00:00:20,280 Jennifer Duke: com, and on X, using the handle @ TheKouk. Stephen, good morning. 5 00:00:20,940 --> 00:00:22,080 Stephen Koukoulas: Very good morning to you, Jen. 6 00:00:23,250 --> 00:00:25,169 Jennifer Duke: First of all, let's go through last week. What were 7 00:00:25,170 --> 00:00:26,790 Jennifer Duke: some of the key takeaways? We had a lot going 8 00:00:26,790 --> 00:00:28,139 Jennifer Duke: on with the RBA to start with. 9 00:00:28,830 --> 00:00:30,869 Stephen Koukoulas: We did. We had the RBA Minutes coming out earlier 10 00:00:30,870 --> 00:00:33,690 Stephen Koukoulas: in the week, and that was a description and an 11 00:00:33,809 --> 00:00:37,019 Stephen Koukoulas: explanation, I suppose, about why they kept rates steady for 12 00:00:37,019 --> 00:00:39,659 Stephen Koukoulas: a third straight month, as it turned out, in early- 13 00:00:39,659 --> 00:00:44,098 Stephen Koukoulas: September board meeting. So, look, if anything, there's still bias 14 00:00:44,098 --> 00:00:48,150 Stephen Koukoulas: to hike interest rates and it's important, but they realize 15 00:00:48,150 --> 00:00:50,610 Stephen Koukoulas: that there's a lot of rate hiking in the pipeline, 16 00:00:50,610 --> 00:00:53,789 Stephen Koukoulas: which is still to impact on economic activity. They are 17 00:00:53,789 --> 00:00:57,360 Stephen Koukoulas: pleased to see the inflation rate coming down from above 18 00:00:57,360 --> 00:01:00,480 Stephen Koukoulas: 8% at the end of 2022, now it's below 5% 19 00:01:01,230 --> 00:01:03,960 Stephen Koukoulas: on the most recent reading. They're detecting a bit of 20 00:01:03,960 --> 00:01:07,289 Stephen Koukoulas: a softening in the labor market. Labor- market conditions are 21 00:01:07,289 --> 00:01:10,319 Stephen Koukoulas: still very strong, but there's a turning point. The unemployment 22 00:01:10,319 --> 00:01:12,839 Stephen Koukoulas: rate has been creeping up. So you put all those 23 00:01:12,870 --> 00:01:15,869 Stephen Koukoulas: things into the RBA mix, in the melting pot, and 24 00:01:15,870 --> 00:01:19,979 Stephen Koukoulas: it was on hold, but with a slightly hawkish bias. 25 00:01:19,980 --> 00:01:23,459 Stephen Koukoulas: So that was one of the big domestic issues. The 26 00:01:23,459 --> 00:01:27,000 Stephen Koukoulas: other big thing globally was the bond market selloff. Last 27 00:01:27,000 --> 00:01:29,580 Stephen Koukoulas: week, even though the US Federal Reserve was on hold 28 00:01:29,580 --> 00:01:32,069 Stephen Koukoulas: in terms of its interest- rate settings, the Bank of 29 00:01:32,069 --> 00:01:36,899 Stephen Koukoulas: England was on hold, the bond markets just exploded, in 30 00:01:36,900 --> 00:01:38,880 Stephen Koukoulas: a bad way that is too, because we had yields 31 00:01:38,880 --> 00:01:40,800 Stephen Koukoulas: in, say, the U. S. 10- Year Treasury, as sort 32 00:01:40,800 --> 00:01:44,729 Stephen Koukoulas: of the global benchmark, hitting 4. 5%. We're getting close 33 00:01:44,730 --> 00:01:48,180 Stephen Koukoulas: to a 20- year high on bond yields. And look, 34 00:01:48,180 --> 00:01:50,550 Stephen Koukoulas: the reasons aren't clear. Given that central banks are on 35 00:01:50,550 --> 00:01:54,420 Stephen Koukoulas: hold, including the Fed, a lot of clever people are trying to work 36 00:01:54,420 --> 00:01:57,090 Stephen Koukoulas: out what's happening. Could be linked to commodity prices, and 37 00:01:57,300 --> 00:01:59,610 Stephen Koukoulas: we all know what's happening to oil and petrol prices 38 00:01:59,610 --> 00:02:02,940 Stephen Koukoulas: here, but other commodities have lifted as well. Could be 39 00:02:02,940 --> 00:02:06,720 Stephen Koukoulas: linked to the pretty parlous position of the US budget. 40 00:02:06,840 --> 00:02:10,320 Stephen Koukoulas: They're running massive budget deficits there. So yeah, it was 41 00:02:10,320 --> 00:02:12,419 Stephen Koukoulas: an interesting move on the bond market because, of course, 42 00:02:12,419 --> 00:02:14,970 Stephen Koukoulas: that has implications for, well, just about every other market 43 00:02:14,970 --> 00:02:15,570 Stephen Koukoulas: around the world. 44 00:02:16,530 --> 00:02:18,389 Jennifer Duke: It's definitely one we'll keep watching, I think, for The 45 00:02:18,389 --> 00:02:20,490 Jennifer Duke: Week Ahead. What else are we expecting? I know we've 46 00:02:20,490 --> 00:02:22,470 Jennifer Duke: got some monthly CPI figures coming out. 47 00:02:23,400 --> 00:02:26,220 Stephen Koukoulas: Big week ahead. Yes, as you said, the monthly CPI 48 00:02:26,220 --> 00:02:30,600 Stephen Koukoulas: is the one that everybody, including the RBA and the new governor, Michelle 49 00:02:30,600 --> 00:02:33,389 Stephen Koukoulas: Bullock, are watching very closely because that's the big game 50 00:02:33,389 --> 00:02:37,950 Stephen Koukoulas: in town, how quickly is inflation falling. Market expectations, because 51 00:02:37,950 --> 00:02:40,350 Stephen Koukoulas: this is for the month of August, we had, perhaps, 52 00:02:40,350 --> 00:02:43,108 Stephen Koukoulas: just a little bit of that petrol price hike impacting 53 00:02:43,109 --> 00:02:46,830 Stephen Koukoulas: the headline figure. Now, obviously, that'll be trimmed out of 54 00:02:46,830 --> 00:02:49,710 Stephen Koukoulas: the underlying measure, so we should be seeing a bit 55 00:02:49,710 --> 00:02:52,679 Stephen Koukoulas: more of a tick lower in terms of the underlying 56 00:02:52,679 --> 00:02:57,269 Stephen Koukoulas: inflation rate. But headline inflation hovering just under 5%, perhaps, 57 00:02:57,900 --> 00:03:00,749 Stephen Koukoulas: if that happens, and I guess you'll get confirmation in 58 00:03:00,749 --> 00:03:04,590 Stephen Koukoulas: the three- month moving averages, trying to get rid of 59 00:03:04,590 --> 00:03:06,690 Stephen Koukoulas: some of that volatility in the month- on- month series 60 00:03:06,690 --> 00:03:11,910 Stephen Koukoulas: showing inflation's still continuing to decelerate back towards the target. 61 00:03:12,000 --> 00:03:14,670 Stephen Koukoulas: If that's the case, then we feed through, gosh, we're 62 00:03:14,790 --> 00:03:17,369 Stephen Koukoulas: looking a couple of weeks ahead to the October board 63 00:03:17,369 --> 00:03:20,610 Stephen Koukoulas: meeting and another on- hold decision, which is pretty much 64 00:03:20,610 --> 00:03:22,800 Stephen Koukoulas: being priced into the markets right now. 65 00:03:23,280 --> 00:03:25,260 Jennifer Duke: What else should we be expecting over the rest of 66 00:03:25,260 --> 00:03:25,560 Jennifer Duke: the week? 67 00:03:26,849 --> 00:03:28,829 Stephen Koukoulas: A couple of big numbers. The other one is retail 68 00:03:28,830 --> 00:03:31,679 Stephen Koukoulas: trade, and we know that that's been very weak since 69 00:03:31,679 --> 00:03:35,190 Stephen Koukoulas: the latter part of last year, that we've basically had 70 00:03:35,190 --> 00:03:39,510 Stephen Koukoulas: seven months of retail trade just bouncing around, unchanged, a 71 00:03:39,510 --> 00:03:41,910 Stephen Koukoulas: couple months up, a couple months down. And that's with 72 00:03:41,910 --> 00:03:44,999 Stephen Koukoulas: very strong population growth. And of course, even though inflation's 73 00:03:45,000 --> 00:03:47,639 Stephen Koukoulas: falling, prices are still going up. So in nominal terms, 74 00:03:47,639 --> 00:03:52,680 Stephen Koukoulas: we've got this weakness in consumer spending. Consumers responding quite 75 00:03:53,160 --> 00:03:56,250 Stephen Koukoulas: accurately, in my view, to cost- of- living pressures, to 76 00:03:56,250 --> 00:03:59,700 Stephen Koukoulas: the interest- rate hiking cycle that's obviously being delivered. Consumer 77 00:03:59,700 --> 00:04:02,370 Stephen Koukoulas: sentiment we saw last week, even though it inched up 78 00:04:02,639 --> 00:04:04,769 Stephen Koukoulas: a little bit, is still at a very low level. 79 00:04:04,770 --> 00:04:07,469 Stephen Koukoulas: So consumers are feeling pretty glum. And we know that 80 00:04:07,469 --> 00:04:11,159 Stephen Koukoulas: when consumers are glum, they tend to close their wallets 81 00:04:11,160 --> 00:04:14,040 Stephen Koukoulas: or not use their credit cards because they're concerned about 82 00:04:14,040 --> 00:04:18,330 Stephen Koukoulas: their personal finances and, perhaps, this pressure on their finances. 83 00:04:18,330 --> 00:04:21,990 Stephen Koukoulas: So another soft number for retail trade expected later this 84 00:04:21,990 --> 00:04:23,849 Stephen Koukoulas: week. The other thing which is sort of interesting is 85 00:04:23,849 --> 00:04:27,450 Stephen Koukoulas: job vacancies. We mentioned before that the labor market's pretty 86 00:04:27,450 --> 00:04:31,560 Stephen Koukoulas: tight. Demand for labor's still solid, but I think we're 87 00:04:31,560 --> 00:04:34,409 Stephen Koukoulas: seeing a turning point in the labor market. So all 88 00:04:34,410 --> 00:04:37,410 Stephen Koukoulas: eyes on job vacancies to see whether there's any further 89 00:04:37,860 --> 00:04:40,349 Stephen Koukoulas: turn lower in the number of job vacancies that are 90 00:04:40,349 --> 00:04:40,738 Stephen Koukoulas: out there. 91 00:04:41,849 --> 00:04:43,950 Jennifer Duke: And one big trend that we're starting to see is 92 00:04:43,950 --> 00:04:47,008 Jennifer Duke: a lot of industrial action in Australia and overseas. Is 93 00:04:47,010 --> 00:04:49,110 Jennifer Duke: that to do with those job vacancies, do you think? 94 00:04:50,220 --> 00:04:54,479 Stephen Koukoulas: Oh, look, it is interesting. We've got the car and 95 00:04:54,480 --> 00:04:57,960 Stephen Koukoulas: the Hollywood strikes in the US, which is sort of 96 00:04:57,960 --> 00:05:00,359 Stephen Koukoulas: very unusual for the US, which has a history of 97 00:05:00,360 --> 00:05:03,359 Stephen Koukoulas: very low industrial disputation. And Australia's been a little bit 98 00:05:03,360 --> 00:05:06,299 Stephen Koukoulas: of an uptick, too, over recent times. And yes, I 99 00:05:06,299 --> 00:05:08,580 Stephen Koukoulas: think you're right. I think it is cost- of- living 100 00:05:08,580 --> 00:05:12,300 Stephen Koukoulas: pressures. And the workforce, if we can use that term, 101 00:05:13,170 --> 00:05:16,470 Stephen Koukoulas: are feeling these pressures. They're seeing incredible profits in this 102 00:05:16,980 --> 00:05:19,529 Stephen Koukoulas: perception or, indeed, the reality that the corporate sector has 103 00:05:19,529 --> 00:05:22,259 Stephen Koukoulas: done very well over the last few years, profits are 104 00:05:22,260 --> 00:05:26,339 Stephen Koukoulas: strong, as we see, and that the wage share in 105 00:05:26,339 --> 00:05:28,680 Stephen Koukoulas: the economy is still very, very low compared to the 106 00:05:28,680 --> 00:05:31,110 Stephen Koukoulas: profit share, which has been booming. And when you've got 107 00:05:31,110 --> 00:05:33,690 Stephen Koukoulas: an unemployment rate here and in the US, it's below 108 00:05:33,690 --> 00:05:37,739 Stephen Koukoulas: 4%, the labor movement is in a position to sort 109 00:05:37,740 --> 00:05:40,049 Stephen Koukoulas: of flex a bit of their industrial muscle. So, yes, 110 00:05:40,049 --> 00:05:41,669 Stephen Koukoulas: I think it is linked to cost- of- living pressures 111 00:05:41,670 --> 00:05:45,120 Stephen Koukoulas: and what is still a relatively tight labor market, but 112 00:05:45,510 --> 00:05:49,170 Stephen Koukoulas: it clearly is a disruptive influence on the economy. But 113 00:05:49,380 --> 00:05:52,650 Stephen Koukoulas: the workers are using this advantage that they've got, I 114 00:05:52,650 --> 00:05:55,618 Stephen Koukoulas: suppose, and demand for labor being very strong to maybe 115 00:05:55,620 --> 00:05:57,270 Stephen Koukoulas: squeeze out a bit of a pay rise or two. 116 00:05:57,990 --> 00:05:59,729 Jennifer Duke: Definitely. I think it's going to be a very big 117 00:05:59,730 --> 00:06:01,650 Jennifer Duke: few days ahead. Stephen, have a great week. 118 00:06:02,219 --> 00:06:03,150 Stephen Koukoulas: Thank you, Jen. You, too. 119 00:06:03,690 --> 00:06:06,720 Jennifer Duke: And that was economist Stephen Koukoulas, better known as The Kouk. You 120 00:06:06,720 --> 00:06:09,238 Jennifer Duke: can find him at thekouk. com and follow him on 121 00:06:09,240 --> 00:06:13,139 Jennifer Duke: X, using the handle @ TheKouk. I'm Jennifer Duke, economics correspondent 122 00:06:13,139 --> 00:06:15,748 Jennifer Duke: at Capital Brief and filling in for Sean Aylmer. And 123 00:06:15,750 --> 00:06:17,279 Jennifer Duke: this is Fear & Greed - The Week Ahead.