1 00:00:08,070 --> 00:00:10,560 Sean Aylmer: Welcome to Fear and Greed: The Week Ahead. I'm Sean Aylmer 2 00:00:10,590 --> 00:00:13,139 Sean Aylmer: and as usual, this time on a Monday morning, I'm 3 00:00:13,139 --> 00:00:16,590 Sean Aylmer: joined by economist Stephen Koukoulas. You'll find him at thekouk. 4 00:00:16,590 --> 00:00:19,199 Sean Aylmer: com, T- H- E- K- O- U- K. com, or 5 00:00:19,199 --> 00:00:22,440 Sean Aylmer: on Twitter using the handle TheKouk. Stephen, good morning. 6 00:00:22,860 --> 00:00:23,610 Stephen Koukoulas: Good morning, Sean. 7 00:00:24,270 --> 00:00:27,180 Sean Aylmer: Quite the labor market we have here in Australia, Stephen. 8 00:00:27,900 --> 00:00:31,410 Stephen Koukoulas: Well, last week's news was again a surprise to the 9 00:00:31,410 --> 00:00:35,759 Stephen Koukoulas: consensus. We had more than 30,000 jobs created. Again, the 10 00:00:35,760 --> 00:00:40,979 Stephen Koukoulas: unemployment rate stayed at 3. 5%, so just within a tiny 11 00:00:40,979 --> 00:00:44,939 Stephen Koukoulas: fraction of it being at a fresh 49- year low. 12 00:00:45,659 --> 00:00:48,269 Stephen Koukoulas: So whichever way you cut it, there's still some residual 13 00:00:48,269 --> 00:00:52,379 Stephen Koukoulas: demand for workers. Even though the economy's slowing down, there's 14 00:00:52,379 --> 00:00:54,660 Stephen Koukoulas: still some hiring going on. So it might just be 15 00:00:54,660 --> 00:00:57,540 Stephen Koukoulas: still a little bit of catch up from the COVID 16 00:00:57,540 --> 00:01:01,410 Stephen Koukoulas: lockdowns, that when there was this very acute skills and 17 00:01:01,410 --> 00:01:03,990 Stephen Koukoulas: labor shortage. So maybe there's that residual hiring going on, 18 00:01:03,990 --> 00:01:07,110 Stephen Koukoulas: but whichever way you cut it's a good result. It's 19 00:01:07,110 --> 00:01:10,319 Stephen Koukoulas: a really nice to see the unemployment rate staying at 3. 5%. 20 00:01:11,699 --> 00:01:13,589 Sean Aylmer: Yeah though it's kind of a double- edged sword, isn't 21 00:01:13,590 --> 00:01:16,590 Sean Aylmer: it? Because we heard Michele Bullock, the incoming Reserve Bank 22 00:01:16,590 --> 00:01:19,350 Sean Aylmer: governor, talk about the need for us to lose jobs 23 00:01:19,350 --> 00:01:21,239 Sean Aylmer: and to get the unemployment rate up to 4.5%. So 24 00:01:24,240 --> 00:01:26,039 Sean Aylmer: it's not all good news when you have a strong 25 00:01:26,039 --> 00:01:26,669 Sean Aylmer: labor market. 26 00:01:27,240 --> 00:01:29,520 Stephen Koukoulas: Yeah, the lower the unemployment rate, the more likely we 27 00:01:29,520 --> 00:01:31,170 Stephen Koukoulas: are to see interest rates go up, as a rule 28 00:01:31,170 --> 00:01:34,800 Stephen Koukoulas: of thumb. It's not, again, not locked into the mix. 29 00:01:34,800 --> 00:01:36,929 Stephen Koukoulas: But yeah, if we do get a very strong labor 30 00:01:36,930 --> 00:01:39,840 Stephen Koukoulas: market, it's a sign that perhaps there's some wage pressures 31 00:01:39,840 --> 00:01:43,110 Stephen Koukoulas: going. So Michele Bullock's point was a good one. I 32 00:01:43,110 --> 00:01:46,169 Stephen Koukoulas: think when she's discussing what sort of unemployment rate do 33 00:01:46,170 --> 00:01:49,860 Stephen Koukoulas: we need to keep wages in check and therefore inflation 34 00:01:49,860 --> 00:01:52,020 Stephen Koukoulas: in check, she and the Reserve Bank have come up 35 00:01:52,020 --> 00:01:55,050 Stephen Koukoulas: with a figure of about 4. 5%. The test of 36 00:01:55,050 --> 00:01:58,290 Stephen Koukoulas: that will actually be probably next month when we get 37 00:01:58,290 --> 00:02:01,200 Stephen Koukoulas: the June quarter wages numbers, because it would be quite 38 00:02:01,200 --> 00:02:06,180 Stephen Koukoulas: interesting and might well suggest that that 4. 5% that 39 00:02:06,180 --> 00:02:07,980 Stephen Koukoulas: Ms. Bullock was looking at might be a little high. 40 00:02:08,280 --> 00:02:11,610 Stephen Koukoulas: If we get wages growth still hanging around that 3. 41 00:02:11,850 --> 00:02:15,599 Stephen Koukoulas: 6, 3. 7 3. 8% annual growth rate with an 42 00:02:15,599 --> 00:02:18,930 Stephen Koukoulas: unemployment rate really locked in at 3.5%, maybe the 4. 5% 43 00:02:19,410 --> 00:02:21,629 Stephen Koukoulas: 's too high and the Reserve Bank fear of this 44 00:02:21,630 --> 00:02:25,380 Stephen Koukoulas: wage price spiral might not be quite as likely as 45 00:02:25,380 --> 00:02:26,430 Stephen Koukoulas: they're hinting at. 46 00:02:27,330 --> 00:02:29,820 Sean Aylmer: You are an optimist, Stephen, no doubt about that. And 47 00:02:29,820 --> 00:02:33,270 Sean Aylmer: that of course brings us onto this week and the CPI, the 48 00:02:33,270 --> 00:02:35,190 Sean Aylmer: inflation figures are out. It's the big one. 49 00:02:36,030 --> 00:02:39,270 Stephen Koukoulas: Huge. It's the quarterly CPI as well as the monthly 50 00:02:39,270 --> 00:02:41,970 Stephen Koukoulas: CPI. We know that the Bureau of Statistics has been 51 00:02:42,629 --> 00:02:46,110 Stephen Koukoulas: experimenting, I suppose is the word, with a monthly inflation number, which 52 00:02:46,380 --> 00:02:48,600 Stephen Koukoulas: isn't as comprehensive as the quarterly number. It's still a 53 00:02:48,600 --> 00:02:52,079 Stephen Koukoulas: really interesting indicator of price pressures, particularly when inflation has 54 00:02:52,080 --> 00:02:55,258 Stephen Koukoulas: been the big worry for the economy over the last 55 00:02:55,258 --> 00:02:57,630 Stephen Koukoulas: couple of years. But the quarterly result, that's the one 56 00:02:57,630 --> 00:03:00,750 Stephen Koukoulas: that's got all of the bells and whistles included in 57 00:03:00,750 --> 00:03:06,150 Stephen Koukoulas: it. So the market's looking for another further moderate deceleration 58 00:03:06,150 --> 00:03:09,899 Stephen Koukoulas: in inflation coming in annual terms from 7% down to 59 00:03:09,900 --> 00:03:13,319 Stephen Koukoulas: around about 6. 4%, I think, is the consensus. That 60 00:03:13,320 --> 00:03:16,409 Stephen Koukoulas: implies a quarterly increase of about 1. 2%. We know 61 00:03:16,410 --> 00:03:19,050 Stephen Koukoulas: that there's still a few price pressures going on in 62 00:03:19,080 --> 00:03:22,680 Stephen Koukoulas: the services side of the economy. Anything lower than that 63 00:03:22,680 --> 00:03:26,280 Stephen Koukoulas: will be most welcome. It'll be hinting that clearly that 64 00:03:26,280 --> 00:03:29,849 Stephen Koukoulas: inflation's on a downward trajectory and let's hope that there's 65 00:03:29,849 --> 00:03:32,280 Stephen Koukoulas: downside surprise, the number that comes out later this week. 66 00:03:33,330 --> 00:03:35,249 Sean Aylmer: Okay, so if we do get a number that's 6% 67 00:03:35,760 --> 00:03:38,100 Sean Aylmer: or lower, is that enough for the Reserve Bank to 68 00:03:38,160 --> 00:03:39,150 Sean Aylmer: stay on pause? 69 00:03:41,070 --> 00:03:43,230 Stephen Koukoulas: A very, very good question. In concert with the labor 70 00:03:43,230 --> 00:03:47,370 Stephen Koukoulas: force numbers and again, other global developments that'll be part 71 00:03:47,370 --> 00:03:50,700 Stephen Koukoulas: of their thinking, I think when we look at the 72 00:03:50,700 --> 00:03:52,649 Stephen Koukoulas: annual figure, you've got to remember that, so even with 73 00:03:52,650 --> 00:03:56,460 Stephen Koukoulas: this June quarter 2023 number, we have got the quarterly 74 00:03:56,460 --> 00:04:00,690 Stephen Koukoulas: increases in inflation in September last year, December last year, 75 00:04:00,690 --> 00:04:03,240 Stephen Koukoulas: and they were higher results and the RBA hiked because 76 00:04:03,240 --> 00:04:05,670 Stephen Koukoulas: of them. So to have a look at them again, 77 00:04:05,670 --> 00:04:08,459 Stephen Koukoulas: you'd almost be double counting. So in a sense, that's 78 00:04:08,460 --> 00:04:10,649 Stephen Koukoulas: where we look at the quarterly results. And so that's 79 00:04:10,650 --> 00:04:13,860 Stephen Koukoulas: where the situation is. If the quarterly figure's near 1% 80 00:04:14,460 --> 00:04:18,060 Stephen Koukoulas: say, you annualize that. That's approximately 4%. So you can 81 00:04:18,990 --> 00:04:22,200 Stephen Koukoulas: cut and dice the numbers 101 different ways. But if we 82 00:04:22,200 --> 00:04:26,219 Stephen Koukoulas: get a figure below 6%, you are getting enough momentum 83 00:04:26,219 --> 00:04:29,099 Stephen Koukoulas: to the downside to at least keep the discussion at 84 00:04:29,100 --> 00:04:32,010 Stephen Koukoulas: the board meeting next week, that do we hold or 85 00:04:32,010 --> 00:04:33,270 Stephen Koukoulas: do we only go 25? 86 00:04:33,779 --> 00:04:36,210 Sean Aylmer: Okay, Stephen. So the other bit of economic news out 87 00:04:36,300 --> 00:04:37,980 Sean Aylmer: this week is retail sales. 88 00:04:38,639 --> 00:04:41,370 Stephen Koukoulas: Retail sales for June, and you might recall that in 89 00:04:41,370 --> 00:04:43,200 Stephen Koukoulas: May we had a bit of a jump in retail 90 00:04:43,200 --> 00:04:47,009 Stephen Koukoulas: sales. 0. 7% was the previous month's result. It was 91 00:04:47,549 --> 00:04:50,669 Stephen Koukoulas: said to be linked to a few special sales, more 92 00:04:50,670 --> 00:04:54,659 Stephen Koukoulas: aggressive discounting from retailers as they're dealing with the weakness 93 00:04:54,660 --> 00:04:57,659 Stephen Koukoulas: in retail spending. So the market consensus now is for 94 00:04:57,660 --> 00:05:00,479 Stephen Koukoulas: a flat result in the month of June, which will 95 00:05:00,480 --> 00:05:03,450 Stephen Koukoulas: be indicating that in volume terms for the June quarter, 96 00:05:03,960 --> 00:05:06,750 Stephen Koukoulas: the last three months together, we'll get a figure that's 97 00:05:06,750 --> 00:05:10,260 Stephen Koukoulas: broadly flat. So we consumers responding to cost of living 98 00:05:10,260 --> 00:05:12,750 Stephen Koukoulas: pressures, to the interest rate hikes that have been delivered 99 00:05:12,750 --> 00:05:16,020 Stephen Koukoulas: obviously, and we consumers and the retail sales numbers will 100 00:05:16,020 --> 00:05:18,330 Stephen Koukoulas: be pretty soggy. I don't think we're going to get 101 00:05:18,330 --> 00:05:21,750 Stephen Koukoulas: a strong number, particularly also given where consumer sentiment is, 102 00:05:21,750 --> 00:05:24,030 Stephen Koukoulas: and that's been very, very weak for the last well 103 00:05:24,180 --> 00:05:25,800 Stephen Koukoulas: 12 months and getting weaker, in fact. 104 00:05:26,339 --> 00:05:30,359 Sean Aylmer: Indeed. Just quickly, we also have the US interest rate 105 00:05:30,360 --> 00:05:32,909 Sean Aylmer: setting body, the Fed Open Market Committee meeting this week. 106 00:05:32,910 --> 00:05:33,779 Sean Aylmer: Will they go on rates? 107 00:05:34,678 --> 00:05:37,980 Stephen Koukoulas: Look, I think so. Again, really important. You were discussing 108 00:05:37,980 --> 00:05:39,960 Stephen Koukoulas: what the Reserve Bank might think about next week at 109 00:05:39,960 --> 00:05:42,779 Stephen Koukoulas: its board meeting. What's happening in the global economy is 110 00:05:42,779 --> 00:05:46,169 Stephen Koukoulas: very, very important. And so what happens in the US 111 00:05:46,170 --> 00:05:50,160 Stephen Koukoulas: of course dominates your market sentiment. It dominates economic conditions. 112 00:05:50,880 --> 00:05:53,219 Stephen Koukoulas: On balance, I think the Fed goes that even though 113 00:05:53,219 --> 00:05:55,799 Stephen Koukoulas: we had a lovely downward surprise to inflation in the 114 00:05:55,799 --> 00:05:59,369 Stephen Koukoulas: US a week or 10 days ago, your annual inflation's 115 00:05:59,369 --> 00:06:03,060 Stephen Koukoulas: down to 3%, it hit 9%, it's down to three. 116 00:06:03,060 --> 00:06:06,360 Stephen Koukoulas: So who says interest rates don't work? They do. So 117 00:06:06,360 --> 00:06:08,549 Stephen Koukoulas: that's the discussion that the Fed's going to be looking at. 118 00:06:08,550 --> 00:06:11,429 Stephen Koukoulas: And similar to Australia, they've got signs that the economy 119 00:06:11,700 --> 00:06:15,928 Stephen Koukoulas: is slowing, inflation's falling, but they've got a really resilient 120 00:06:15,928 --> 00:06:18,330 Stephen Koukoulas: labor market. They've got an unemployment rate around about 3. 121 00:06:18,930 --> 00:06:22,229 Stephen Koukoulas: 5% as well, and maybe just one final hike. That 122 00:06:22,230 --> 00:06:24,930 Stephen Koukoulas: might be the thing that the chairman of the Federal 123 00:06:24,930 --> 00:06:29,039 Stephen Koukoulas: Reserve delivers, Jerome Powell, a 25 point hike taking the 124 00:06:29,099 --> 00:06:33,540 Stephen Koukoulas: US interest rates to around 5.5%. That might just be 125 00:06:33,570 --> 00:06:37,620 Stephen Koukoulas: about it, but there's a slight probability they're on hold. 126 00:06:37,620 --> 00:06:40,290 Stephen Koukoulas: But yeah, it's always a bit of a mugs game, 127 00:06:40,500 --> 00:06:43,740 Stephen Koukoulas: forecasting things when we don't know exactly what they're thinking. 128 00:06:44,670 --> 00:06:46,169 Sean Aylmer: Indeed. Stephen, have a great week. 129 00:06:46,830 --> 00:06:47,400 Stephen Koukoulas: Thank you, Sean. 130 00:06:48,240 --> 00:06:51,149 Sean Aylmer: That was economist Stephen Koukoulas. You can find him a thekouk. 131 00:06:51,150 --> 00:06:54,420 Sean Aylmer: com and on Twitter using the handle TheKouk. I'm Sean 132 00:06:54,420 --> 00:06:56,520 Sean Aylmer: Aylmer and this is Fear and Greed: The Week Ahead.