1 00:00:08,700 --> 00:00:11,190 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. This is 2 00:00:11,190 --> 00:00:13,070 Sean Aylmer: where we take a look at the big events, reports and 3 00:00:13,070 --> 00:00:15,480 Sean Aylmer: releases coming up this week that give insight into the 4 00:00:15,480 --> 00:00:17,760 Sean Aylmer: economy and a look back at what happened last week too. 5 00:00:18,280 --> 00:00:20,049 Sean Aylmer: I'm Sean Aylmer and every Monday I'm joined for The 6 00:00:20,050 --> 00:00:23,480 Sean Aylmer: Week Ahead by economist Stephen Koukoulas. You'll find him at thekouk. 7 00:00:23,480 --> 00:00:29,110 Sean Aylmer: com and on Twitter using the handle, @ thekouk, T- H- E- K- O- U- K. Stephen, 8 00:00:29,340 --> 00:00:29,820 Sean Aylmer: good morning. 9 00:00:30,290 --> 00:00:31,050 Stephen Koukoulas: Good morning, Sean. 10 00:00:31,570 --> 00:00:33,590 Sean Aylmer: Stephen, let's kick off. There are three big pieces of 11 00:00:33,590 --> 00:00:36,020 Sean Aylmer: news over the last week, one was labour force, the 12 00:00:36,020 --> 00:00:38,129 Sean Aylmer: other was sentiment and the third is what's happening with 13 00:00:38,130 --> 00:00:39,250 Sean Aylmer: inflation in the US. 14 00:00:39,710 --> 00:00:42,769 Stephen Koukoulas: Yeah, look, it was a number that was lower than 15 00:00:42,770 --> 00:00:46,849 Stephen Koukoulas: market expectations, in terms of employment, fell 46,000, the unemployment 16 00:00:46,850 --> 00:00:51,960 Stephen Koukoulas: rate spiked to 5. 2%, participation rate also rose. So 17 00:00:52,430 --> 00:00:54,550 Stephen Koukoulas: people sort of think, " Oh gee, isn't this a bad number?" 18 00:00:54,550 --> 00:00:57,040 Stephen Koukoulas: But in fact, when you analyse what the Bureau of 19 00:00:57,040 --> 00:01:00,760 Stephen Koukoulas: Statistics said about the number, the survey was conducted in 20 00:01:00,760 --> 00:01:04,750 Stephen Koukoulas: the period up to 9 October, New South Wales was 21 00:01:04,750 --> 00:01:07,830 Stephen Koukoulas: still in lockdown, Victoria and the ACT certainly were. So 22 00:01:08,069 --> 00:01:11,150 Stephen Koukoulas: these numbers reflect the full extent of the lockdown. So 23 00:01:11,150 --> 00:01:14,920 Stephen Koukoulas: there was no employment response, as the lockdown ends. So we'll see 24 00:01:14,920 --> 00:01:19,319 Stephen Koukoulas: those improving labour market numbers in the months ahead, but basically, 25 00:01:19,319 --> 00:01:21,150 Stephen Koukoulas: they just... Look, they didn't really add a lot to 26 00:01:21,150 --> 00:01:23,610 Stephen Koukoulas: the debate at all. We're more likely to be seeing 27 00:01:23,990 --> 00:01:26,839 Stephen Koukoulas: the effects of the ending of the lockdowns in the 28 00:01:26,890 --> 00:01:29,340 Stephen Koukoulas: monthly employment numbers in the next few months, not in 29 00:01:29,340 --> 00:01:30,540 Stephen Koukoulas: the one that we saw last week. 30 00:01:30,860 --> 00:01:32,700 Sean Aylmer: Okay. So just before we jump into the US, the 31 00:01:32,700 --> 00:01:36,110 Sean Aylmer: National Australia Bank Business conditions and Westpac Consumer Sentiment indexes, 32 00:01:36,380 --> 00:01:37,530 Sean Aylmer: people are happier. 33 00:01:37,980 --> 00:01:41,830 Stephen Koukoulas: Businesses certainly are, yes. The NAB survey had business confidence, 34 00:01:41,830 --> 00:01:47,410 Stephen Koukoulas: conditions, trading conditions, the employment outlook all spiking higher. Again, 35 00:01:47,410 --> 00:01:51,290 Stephen Koukoulas: that's an expectations type response. So they're seeing the end 36 00:01:51,290 --> 00:01:53,870 Stephen Koukoulas: of the lockdowns as a reason to ramp up their 37 00:01:53,870 --> 00:01:56,890 Stephen Koukoulas: hiring and profitability and trading conditions. So that was a 38 00:01:56,890 --> 00:01:59,750 Stephen Koukoulas: good bit of news and consumers too. Not as high 39 00:01:59,750 --> 00:02:02,550 Stephen Koukoulas: as it was 12 months ago when the first round 40 00:02:02,550 --> 00:02:05,490 Stephen Koukoulas: of COVID ended, but nonetheless, consumers are still feeling pretty 41 00:02:05,490 --> 00:02:08,070 Stephen Koukoulas: good. And with, hey, the stock market doing well, house 42 00:02:08,070 --> 00:02:09,739 Stephen Koukoulas: prices going up, who wouldn't be happy? 43 00:02:10,120 --> 00:02:12,630 Sean Aylmer: Steven, the inflation figures in the US last week, they 44 00:02:12,630 --> 00:02:13,810 Sean Aylmer: kind of shocked markets a bit. 45 00:02:14,270 --> 00:02:17,210 Stephen Koukoulas: To be frank, they were shocking, they were truly shocking. 46 00:02:17,210 --> 00:02:22,040 Stephen Koukoulas: We had the headline inflation number at 6. 2% annual, 47 00:02:22,300 --> 00:02:25,840 Stephen Koukoulas: the highest since 1990 when Paul Volcker was trying to 48 00:02:25,840 --> 00:02:28,769 Stephen Koukoulas: squeeze inflation out of the US economy, which he did 49 00:02:28,770 --> 00:02:31,200 Stephen Koukoulas: very well, by the way. And even the core readings, 50 00:02:31,200 --> 00:02:33,540 Stephen Koukoulas: because a lot of the increase was petrol prices and 51 00:02:33,600 --> 00:02:35,769 Stephen Koukoulas: oil and these sorts of things, but even the core 52 00:02:35,770 --> 00:02:39,739 Stephen Koukoulas: reading of inflation was 4. 6% in annual terms. Again, that 53 00:02:39,740 --> 00:02:41,880 Stephen Koukoulas: was the highest in about 30 years too. So there's 54 00:02:41,880 --> 00:02:44,940 Stephen Koukoulas: this debate that has been going on for a few months 55 00:02:44,940 --> 00:02:48,669 Stephen Koukoulas: now, is this spike in inflation transitory, some of the 56 00:02:48,740 --> 00:02:52,180 Stephen Koukoulas: effects of the COVID crisis on supply chains and these 57 00:02:52,180 --> 00:02:54,300 Stephen Koukoulas: sorts of things, or is there something more sort of 58 00:02:54,300 --> 00:02:57,960 Stephen Koukoulas: entrenched, I suppose, in the inflation numbers? And this number's 59 00:02:57,960 --> 00:03:00,460 Stephen Koukoulas: telling me that it's a little bit more entrenched. Temporary 60 00:03:00,460 --> 00:03:02,700 Stephen Koukoulas: is temporary, and we've now got, I think it's five 61 00:03:02,700 --> 00:03:06,049 Stephen Koukoulas: months where the annual inflation reading's been well above 4%, 62 00:03:06,400 --> 00:03:09,480 Stephen Koukoulas: again, as we said, to 6%, and there's no signs 63 00:03:09,480 --> 00:03:12,079 Stephen Koukoulas: at all that it's starting to come off. So the 64 00:03:12,080 --> 00:03:15,169 Stephen Koukoulas: market's sort of got a bit spooked about that. This is an 65 00:03:15,169 --> 00:03:18,560 Stephen Koukoulas: assessment, well, should the fed be hiking, certainly ending their 66 00:03:18,960 --> 00:03:21,570 Stephen Koukoulas: quantitative easing on the back of what looks to be 67 00:03:21,570 --> 00:03:25,010 Stephen Koukoulas: something a little more permanent than just this temporary spike 68 00:03:25,010 --> 00:03:25,700 Stephen Koukoulas: in prices? 69 00:03:25,980 --> 00:03:27,889 Sean Aylmer: We talked a little bit about this on the Saturday 70 00:03:27,889 --> 00:03:31,290 Sean Aylmer: show, the concept that what the fed does in monetary 71 00:03:31,290 --> 00:03:34,450 Sean Aylmer: policy is kind of exported to other parts of the world. 72 00:03:34,960 --> 00:03:38,030 Stephen Koukoulas: Indeed, the US is still the dominant economy and financial 73 00:03:38,030 --> 00:03:40,330 Stephen Koukoulas: markets, of course, the biggest in the world and what 74 00:03:40,330 --> 00:03:43,360 Stephen Koukoulas: happens there does have a huge influence on the rest 75 00:03:43,360 --> 00:03:45,720 Stephen Koukoulas: of the world. So, in a funny way, if we 76 00:03:45,720 --> 00:03:48,900 Stephen Koukoulas: look around other major central banks, so the ECB in 77 00:03:48,900 --> 00:03:50,830 Stephen Koukoulas: Europe, the Bank of England, Bank of Canada, our own 78 00:03:50,830 --> 00:03:53,850 Stephen Koukoulas: RBA here, they've been holding off rate hikes even though 79 00:03:53,850 --> 00:03:56,190 Stephen Koukoulas: markets have been pricing them in and sort of prodding 80 00:03:56,190 --> 00:03:58,350 Stephen Koukoulas: them to go. The Bank of England was a case 81 00:03:58,350 --> 00:04:01,470 Stephen Koukoulas: in point a week or two ago when they held rates steady when 82 00:04:01,770 --> 00:04:04,240 Stephen Koukoulas: the consensus in the market is that they would hike and hike 83 00:04:04,240 --> 00:04:07,100 Stephen Koukoulas: early. So what happens in the fed will be really 84 00:04:07,100 --> 00:04:10,870 Stephen Koukoulas: important for global markets. And it's a really important signal 85 00:04:10,870 --> 00:04:13,839 Stephen Koukoulas: too for currency markets. We know our own RBA would 86 00:04:13,840 --> 00:04:15,910 Stephen Koukoulas: prefer the Aussie dollar would be a little bit weaker 87 00:04:16,180 --> 00:04:19,220 Stephen Koukoulas: than stronger. And if the fed hikes, that should push 88 00:04:19,220 --> 00:04:21,260 Stephen Koukoulas: the US dollar higher and our own Aussie dollar low, 89 00:04:21,260 --> 00:04:23,290 Stephen Koukoulas: so that's good news. But there does come a point 90 00:04:23,290 --> 00:04:24,979 Stephen Koukoulas: that even in that, that you can have too much of 91 00:04:24,980 --> 00:04:27,230 Stephen Koukoulas: a good thing. And if the Aussie dollar were to 92 00:04:27,230 --> 00:04:30,510 Stephen Koukoulas: weaken on the back of early and reasonably aggressive fed 93 00:04:30,529 --> 00:04:33,580 Stephen Koukoulas: hikes, the RBA would have to do something about that, and that 94 00:04:33,900 --> 00:04:37,410 Stephen Koukoulas: is, of course, follow the lead and hike rates accordingly. 95 00:04:38,029 --> 00:04:39,790 Sean Aylmer: Well that's last week, we'll be back in a moment 96 00:04:39,980 --> 00:04:41,180 Sean Aylmer: and get into the week ahead. 97 00:04:41,180 --> 00:04:50,170 Sean Aylmer: I'm with economist, Stephen Koukoulas, aka the Kouk. So Stephen, 98 00:04:50,420 --> 00:04:53,700 Sean Aylmer: what have we got in the next few days? The Reserve Bank board minutes tomorrow? 99 00:04:54,020 --> 00:04:56,560 Stephen Koukoulas: Yeah, the minutes tomorrow, that'll actually be quite interesting because 100 00:04:56,560 --> 00:05:00,420 Stephen Koukoulas: that was the meeting two weeks ago where they ended 101 00:05:00,420 --> 00:05:03,460 Stephen Koukoulas: their bond targeting, the April 2024 bond, the 0. 1%, which 102 00:05:04,550 --> 00:05:07,140 Stephen Koukoulas: they let go, so to speak. And that bond yield 103 00:05:07,140 --> 00:05:11,000 Stephen Koukoulas: has subsequently spiked to round about 1% so that was on 104 00:05:11,000 --> 00:05:14,150 Stephen Koukoulas: the back of the higher inflation numbers, the better economic news, 105 00:05:14,150 --> 00:05:16,660 Stephen Koukoulas: the end of lockdown. So that was something that we 106 00:05:16,660 --> 00:05:19,529 Stephen Koukoulas: will be reading closely in the minutes, but also just 107 00:05:19,529 --> 00:05:22,290 Stephen Koukoulas: their take on the economy, as we've just been discussing, the 108 00:05:22,290 --> 00:05:25,529 Stephen Koukoulas: job ads and job vacancies market is strong, the business 109 00:05:25,529 --> 00:05:28,800 Stephen Koukoulas: confidence numbers are strong, housing is still going gangbusters in 110 00:05:28,800 --> 00:05:31,140 Stephen Koukoulas: terms of prices. So there's a lot of things that 111 00:05:31,140 --> 00:05:33,409 Stephen Koukoulas: we'll be digesting just from the board minutes to see 112 00:05:33,410 --> 00:05:35,660 Stephen Koukoulas: what their take on the economy is. Of course, they 113 00:05:35,660 --> 00:05:37,470 Stephen Koukoulas: said there's no rate hikes coming in the next couple 114 00:05:37,470 --> 00:05:39,560 Stephen Koukoulas: of years so it'll be interesting to see if they 115 00:05:39,560 --> 00:05:42,140 Stephen Koukoulas: put much flesh on the bones of that comment from 116 00:05:42,200 --> 00:05:43,619 Stephen Koukoulas: Governor Lowe a couple of weeks ago. 117 00:05:43,960 --> 00:05:46,620 Sean Aylmer: And Governor Lowe is also speaking this week, so maybe 118 00:05:46,620 --> 00:05:48,170 Sean Aylmer: he might get asked that very same question. 119 00:05:48,770 --> 00:05:52,550 Stephen Koukoulas: And the topic of his speech is inflation so he's 120 00:05:52,550 --> 00:05:54,839 Stephen Koukoulas: clearly alert to the issues that are going on, not 121 00:05:54,839 --> 00:05:58,520 Stephen Koukoulas: just domestically with inflation numbers, but also globally, as we 122 00:05:58,520 --> 00:06:01,550 Stephen Koukoulas: were just discussing about the US inflation rate. So it'll 123 00:06:01,550 --> 00:06:04,679 Stephen Koukoulas: be interesting to see whether they've updated and adjusted their forecast 124 00:06:04,680 --> 00:06:07,000 Stephen Koukoulas: for inflation on the basis of what we are actually seeing, 125 00:06:07,000 --> 00:06:09,650 Stephen Koukoulas: the hard news is inflation's high rather than lower. 126 00:06:09,970 --> 00:06:13,170 Sean Aylmer: What I find interesting, the Reserve Bank only talks when 127 00:06:13,170 --> 00:06:17,300 Sean Aylmer: it has something to say. So, therefore, whatever Phil Lowe 128 00:06:17,300 --> 00:06:20,220 Sean Aylmer: says this week will be interesting, one way or another. 129 00:06:20,670 --> 00:06:23,820 Stephen Koukoulas: That's exactly right, Sean. Look, the Reserve Bank could speak 130 00:06:23,820 --> 00:06:26,729 Stephen Koukoulas: every day though. I'm sure they get dozens of invitations 131 00:06:26,730 --> 00:06:29,610 Stephen Koukoulas: to speak at various events. So the fact that he said, " Yes, 132 00:06:29,610 --> 00:06:32,169 Stephen Koukoulas: I'll come out of my Martin Place bunker and I'll 133 00:06:32,170 --> 00:06:35,420 Stephen Koukoulas: talk about inflation" is telling me and will be telling 134 00:06:35,420 --> 00:06:37,760 Stephen Koukoulas: the markets that he does have something material to say. 135 00:06:37,960 --> 00:06:40,790 Sean Aylmer: And then, the Wage Price Index measure is out this week. 136 00:06:41,100 --> 00:06:44,790 Stephen Koukoulas: Yeah. That's out on Wednesday. The discussion about higher wages 137 00:06:44,790 --> 00:06:46,450 Stephen Koukoulas: growth is yet to show up in the hard and 138 00:06:46,450 --> 00:06:49,470 Stephen Koukoulas: official data. We've got plenty of anecdotes that there's a 139 00:06:49,470 --> 00:06:52,930 Stephen Koukoulas: skills shortage, firms are outbidding each other, there's poaching their 140 00:06:52,930 --> 00:06:56,720 Stephen Koukoulas: competitors' staff and wages are going up. This might show 141 00:06:56,720 --> 00:07:00,220 Stephen Koukoulas: the first hints that that's occurring, because until now, wages 142 00:07:00,220 --> 00:07:03,940 Stephen Koukoulas: growth's been pretty low. So again, like the inflation story, 143 00:07:03,940 --> 00:07:05,960 Stephen Koukoulas: like the interest rate story, we'll be looking at these 144 00:07:05,960 --> 00:07:08,960 Stephen Koukoulas: wages numbers for just a hint whether these anecdotes are 145 00:07:08,960 --> 00:07:10,130 Stephen Koukoulas: turning into hard data. 146 00:07:10,550 --> 00:07:13,320 Sean Aylmer: Given that there's not actually a lot of information out this week, it's 147 00:07:13,320 --> 00:07:14,530 Sean Aylmer: going to be really interesting still. 148 00:07:14,870 --> 00:07:17,740 Stephen Koukoulas: Oh, it is, it is. And again, just this focus 149 00:07:17,740 --> 00:07:21,580 Stephen Koukoulas: on anecdotes or in fact, hard evidence from some of the... 150 00:07:21,620 --> 00:07:23,940 Stephen Koukoulas: I might call it second tier data. But if you 151 00:07:23,940 --> 00:07:27,380 Stephen Koukoulas: look at what SEEK and Indeed and these sorts of 152 00:07:27,630 --> 00:07:31,480 Stephen Koukoulas: labour hire and labour advertising companies produce each week, there's 153 00:07:31,480 --> 00:07:34,110 Stephen Koukoulas: a couple of really interesting little data points that just 154 00:07:34,110 --> 00:07:36,550 Stephen Koukoulas: pop up every now and then that show how the 155 00:07:36,550 --> 00:07:40,100 Stephen Koukoulas: number of job ads, job vacancies, skilled vacancies, these sorts 156 00:07:40,100 --> 00:07:42,250 Stephen Koukoulas: of things are out there. They're actually the things that a 157 00:07:42,250 --> 00:07:44,100 Stephen Koukoulas: lot of us are focusing on as we try just 158 00:07:44,100 --> 00:07:47,280 Stephen Koukoulas: to get a handle on whether this demand for labour's, again, 159 00:07:47,280 --> 00:07:48,840 Stephen Koukoulas: just a temporary thing, or a bit of a knee 160 00:07:48,840 --> 00:07:50,720 Stephen Koukoulas: jerk reaction to the end of lockdowns, or whether there's 161 00:07:50,720 --> 00:07:53,730 Stephen Koukoulas: something more important there that does spill over into these 162 00:07:53,730 --> 00:07:56,870 Stephen Koukoulas: high wage claims that we think are starting to unwind. 163 00:07:57,150 --> 00:07:58,160 Sean Aylmer: Steven, have a great week. 164 00:07:58,380 --> 00:07:59,040 Stephen Koukoulas: Thank you, Sean. 165 00:07:59,320 --> 00:08:01,710 Sean Aylmer: That was economist Stephen Koukoulas, better known as the Kouk. 166 00:08:01,750 --> 00:08:03,800 Sean Aylmer: You can find him at thekouk. com and follow him 167 00:08:03,800 --> 00:08:07,070 Sean Aylmer: on Twitter using the handle, @TheKouk. I'm Sean Aylmer and 168 00:08:07,070 --> 00:08:08,670 Sean Aylmer: this is Fear and Greed, The Week Ahead.