1 00:00:09,910 --> 00:00:12,639 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. This is 2 00:00:12,640 --> 00:00:14,410 Sean Aylmer: where we take a look at the big events, reports 3 00:00:14,410 --> 00:00:16,630 Sean Aylmer: and releases coming up this week that give insight into 4 00:00:16,630 --> 00:00:18,730 Sean Aylmer: the economy and a look back at what happened last 5 00:00:18,730 --> 00:00:21,610 Sean Aylmer: week too. I'm Sean Aylmer and every Monday, I'm joined for the week 6 00:00:21,610 --> 00:00:24,850 Sean Aylmer: ahead by economist Stephen Koukoulas. You'll find him at thekouk.com, 7 00:00:27,100 --> 00:00:33,340 Sean Aylmer: my favourite word to spell and on Twitter using the handle @TheKouk. Stephen, 8 00:00:33,340 --> 00:00:34,000 Sean Aylmer: good morning. 9 00:00:34,380 --> 00:00:35,530 Stephen Koukoulas: A very good morning to you, Sean. 10 00:00:35,710 --> 00:00:38,170 Sean Aylmer: I know you can't wait to talk about the week 11 00:00:38,170 --> 00:00:41,809 Sean Aylmer: coming up, but let's talk about last week quickly. First, inflation. 12 00:00:41,950 --> 00:00:43,180 Sean Aylmer: What do you reckon of that number? 13 00:00:43,330 --> 00:00:46,479 Stephen Koukoulas: Yeah, it came pretty much bang on expectations. You know, the, I'll 14 00:00:46,690 --> 00:00:48,520 Stephen Koukoulas: talk about the annual figures, the annual figure for the 15 00:00:48,520 --> 00:00:51,310 Stephen Koukoulas: headline rate was 3.8 per cent. You might think, wow, that's 16 00:00:51,310 --> 00:00:54,070 Stephen Koukoulas: a very strong lift in inflation. But we've got to 17 00:00:54,070 --> 00:00:57,640 Stephen Koukoulas: remember that things like childcare costs rose by about 2000 18 00:00:57,640 --> 00:01:00,400 Stephen Koukoulas: per cent. That's because they were basically free a year 19 00:01:00,400 --> 00:01:02,140 Stephen Koukoulas: ago in the depths of the pandemic, and they've just 20 00:01:02,140 --> 00:01:04,690 Stephen Koukoulas: reverted back to where they were. So that's why just 21 00:01:04,690 --> 00:01:08,080 Stephen Koukoulas: about everybody ignored the headline figure and instead focused on 22 00:01:08,080 --> 00:01:11,380 Stephen Koukoulas: the trimmed mean or the underlying measures of inflation. And 23 00:01:11,380 --> 00:01:13,610 Stephen Koukoulas: they showed a little bit of a pickup, you know, 24 00:01:13,670 --> 00:01:17,290 Stephen Koukoulas: still below the RBA's (Reserve Bank of Australia's) 2-3 per cent target. They were increasing 25 00:01:17,560 --> 00:01:20,470 Stephen Koukoulas: about 1.6, 1.7 per cent, depending on which one you 26 00:01:20,470 --> 00:01:25,390 Stephen Koukoulas: used up from about 1.25 per cent, six to nine 27 00:01:25,390 --> 00:01:28,300 Stephen Koukoulas: months ago. So in a sense, there is just this 28 00:01:28,300 --> 00:01:31,360 Stephen Koukoulas: little bit of a pulse in the inflation rate. But 29 00:01:31,360 --> 00:01:33,880 Stephen Koukoulas: of course, we're still a long way from the 2-3 30 00:01:34,180 --> 00:01:36,940 Stephen Koukoulas: target as I just mentioned. We need the economy to 31 00:01:36,940 --> 00:01:40,030 Stephen Koukoulas: be growing for a good year or more above trend. 32 00:01:40,270 --> 00:01:42,910 Stephen Koukoulas: We need the unemployment rate to be below five per cent 33 00:01:42,910 --> 00:01:46,509 Stephen Koukoulas: for their inflation figures to be, you know, at that 34 00:01:46,510 --> 00:01:50,100 Stephen Koukoulas: comfortable level that they'd even vaguely consider adjusting interest rates. 35 00:01:50,320 --> 00:01:52,570 Sean Aylmer: And of course, the Sydney lockdowns isn't going to add 36 00:01:52,570 --> 00:01:53,290 Sean Aylmer: to inflation. 37 00:01:53,500 --> 00:01:55,150 Stephen Koukoulas: That's the other thing. Again, I think a lot of 38 00:01:55,150 --> 00:01:58,330 Stephen Koukoulas: the numbers and the analysts and market economists are looking 39 00:01:58,330 --> 00:02:00,220 Stephen Koukoulas: at the data right now thinking, well, hey, these are 40 00:02:00,220 --> 00:02:04,120 Stephen Koukoulas: sort of where we were pre the Sydney lockdown in particular, 41 00:02:04,120 --> 00:02:07,840 Stephen Koukoulas: but even the mini lockdowns in South Australia and Victoria. But, you know, clearly, 42 00:02:07,840 --> 00:02:11,500 Stephen Koukoulas: it's the Sydney one. I've seen different estimates where New 43 00:02:11,500 --> 00:02:14,440 Stephen Koukoulas: South Wales state product like the state domestic product if 44 00:02:14,440 --> 00:02:15,820 Stephen Koukoulas: you know what I mean, is going to be down 45 00:02:15,820 --> 00:02:19,480 Stephen Koukoulas: about seven per cent in the September quarter, and that 46 00:02:19,840 --> 00:02:22,830 Stephen Koukoulas: is a third of the Australian economy. So national GDP 47 00:02:22,830 --> 00:02:25,090 Stephen Koukoulas: is probably going to be around about minus two per cent 48 00:02:25,090 --> 00:02:28,030 Stephen Koukoulas: for the September quarter. That's a big hit. And that's 49 00:02:28,030 --> 00:02:32,590 Stephen Koukoulas: obviously dominating what was fabulous news on the economy up 50 00:02:32,590 --> 00:02:35,320 Stephen Koukoulas: until three or four weeks ago. Now we've got to 51 00:02:35,320 --> 00:02:39,190 Stephen Koukoulas: digest probably, you know, a quarter or so of disappointing news. 52 00:02:39,190 --> 00:02:41,320 Stephen Koukoulas: The unemployment rate's inevitably going to jump in the next 53 00:02:41,320 --> 00:02:43,540 Stephen Koukoulas: two or three months. And then we've got to really 54 00:02:43,780 --> 00:02:46,840 Stephen Koukoulas: sit back and think, well, when the lockdowns end, when 55 00:02:46,840 --> 00:02:50,320 Stephen Koukoulas: we've got the greater vaccination rates going through society, then 56 00:02:50,320 --> 00:02:54,310 Stephen Koukoulas: will we return to that growth path that was seeing 57 00:02:54,310 --> 00:02:56,620 Stephen Koukoulas: the unemployment on track to the low four per cents. Yeah, 58 00:02:56,620 --> 00:02:59,440 Stephen Koukoulas: that's an argument for probably three or four or five 59 00:02:59,440 --> 00:03:00,010 Stephen Koukoulas: months away. 60 00:03:00,320 --> 00:03:02,260 Sean Aylmer: OK, the one thing that has happened in the last 61 00:03:02,260 --> 00:03:04,330 Sean Aylmer: two or three weeks is that the steam has come 62 00:03:04,330 --> 00:03:06,790 Sean Aylmer: out of the argument about interest rates needing to be 63 00:03:06,790 --> 00:03:09,700 Sean Aylmer: lifted in late 2022, 2023. 64 00:03:09,960 --> 00:03:12,130 Stephen Koukoulas: Yeah, look, I think that's a dead duck now. And 65 00:03:12,130 --> 00:03:14,620 Stephen Koukoulas: it did have credibility a few weeks ago because we 66 00:03:14,620 --> 00:03:18,669 Stephen Koukoulas: were seeing even global conditions starting to improve or continuing 67 00:03:18,669 --> 00:03:21,490 Stephen Koukoulas: to improve, I should say, that the global economy was 68 00:03:21,490 --> 00:03:24,100 Stephen Koukoulas: giving Australia a bit of a helping hand. And here domestically, 69 00:03:24,370 --> 00:03:28,120 Stephen Koukoulas: we had had that strength in the economy that led 70 00:03:28,540 --> 00:03:31,030 Stephen Koukoulas: some good forecasters out there thinking that the RBA would 71 00:03:31,030 --> 00:03:35,650 Stephen Koukoulas: have to revisit its pledge to keep rates steady till 2024. 72 00:03:35,800 --> 00:03:38,860 Stephen Koukoulas: I think right now, even at the RBA, they're going 73 00:03:38,860 --> 00:03:42,760 Stephen Koukoulas: through this process of thinking, well, we've just got to 74 00:03:42,760 --> 00:03:45,430 Stephen Koukoulas: do nothing in a sense in terms of certainly tightening 75 00:03:45,640 --> 00:03:48,430 Stephen Koukoulas: until we just get through this lockdown in New South Wales, 76 00:03:48,430 --> 00:03:50,890 Stephen Koukoulas: until we get some sort of confirmation that this vaccination 77 00:03:50,890 --> 00:03:53,740 Stephen Koukoulas: rates going to allow society to return to some sort 78 00:03:53,740 --> 00:03:54,400 Stephen Koukoulas: of normalcy. 79 00:03:54,790 --> 00:03:56,650 Sean Aylmer: Well, that was last week. In a moment, I'll be 80 00:03:56,650 --> 00:03:59,230 Sean Aylmer: back with Stephen Koukoulas to talk about what's coming up 81 00:03:59,230 --> 00:03:59,680 Sean Aylmer: this week. 82 00:04:05,190 --> 00:04:07,290 Sean Aylmer: Stephen, the first week of the month is always very exciting 83 00:04:07,290 --> 00:04:08,760 Sean Aylmer: for you and this week, I can tell is going 84 00:04:08,760 --> 00:04:11,400 Sean Aylmer: to be extremely exciting, but it's also exciting for me. 85 00:04:11,440 --> 00:04:12,030 Sean Aylmer: Do you know why? 86 00:04:12,390 --> 00:04:13,500 Sean Aylmer: No, why is that, Sean? 87 00:04:13,650 --> 00:04:18,750 Sean Aylmer: Because it's no longer dry July. And I've been very 88 00:04:18,750 --> 00:04:21,360 Sean Aylmer: proud of myself over the last four weeks. I almost 89 00:04:21,360 --> 00:04:24,420 Sean Aylmer: did it. And as a result, I mean, not that 90 00:04:24,420 --> 00:04:26,839 Sean Aylmer: I kind of tend to drink very much anyway, but 91 00:04:26,839 --> 00:04:29,370 Sean Aylmer: I just don't have to put any restrictions on and 92 00:04:29,370 --> 00:04:30,200 Sean Aylmer: it's pretty exciting. 93 00:04:30,370 --> 00:04:31,890 Stephen Koukoulas: And do you know what? You don't have to be an 94 00:04:31,890 --> 00:04:34,320 Stephen Koukoulas: excessive drinker to be enjoying just a beer or a 95 00:04:34,320 --> 00:04:36,120 Stephen Koukoulas: glass of wine at the end of the day too. So 96 00:04:36,240 --> 00:04:37,980 Stephen Koukoulas: I had a dry Monday, I think once, but I 97 00:04:37,980 --> 00:04:39,960 Stephen Koukoulas: can't remember which Monday it was. But anyway,... 98 00:04:39,990 --> 00:04:41,640 Sean Aylmer: I reckon by the end of this week you'll need 99 00:04:41,640 --> 00:04:43,140 Sean Aylmer: a drink because there's so much going on. 100 00:04:43,500 --> 00:04:45,840 Stephen Koukoulas: This week is huge and it's all about the RBA. 101 00:04:45,990 --> 00:04:49,979 Stephen Koukoulas: We've got the board meeting tomorrow on Tuesday, again, as 102 00:04:49,980 --> 00:04:52,620 Stephen Koukoulas: we were just saying prior to the break, what's their view 103 00:04:52,620 --> 00:04:55,500 Stephen Koukoulas: on the economy and the effect of these lockdowns? I 104 00:04:55,500 --> 00:04:58,680 Stephen Koukoulas: dare say that will be the sole focus of analysts 105 00:04:58,680 --> 00:05:00,900 Stephen Koukoulas: views on what the RBA is saying. And clearly, it's 106 00:05:00,900 --> 00:05:03,570 Stephen Koukoulas: got to be negative. The assessment will be how negative 107 00:05:03,570 --> 00:05:07,200 Stephen Koukoulas: is the RBA viewing it? And related to that is well, 108 00:05:07,200 --> 00:05:09,690 Stephen Koukoulas: will there be any further policy change? Will they just 109 00:05:09,690 --> 00:05:12,570 Stephen Koukoulas: revisit this wind back in the bond buying that was 110 00:05:12,570 --> 00:05:16,260 Stephen Koukoulas: there last month when they went from the five billion 111 00:05:16,290 --> 00:05:18,419 Stephen Koukoulas: a week to four billion? Will they just ramp that 112 00:05:18,420 --> 00:05:20,370 Stephen Koukoulas: up a bit as a signal that they are continuing 113 00:05:20,370 --> 00:05:23,219 Stephen Koukoulas: to provide plenty of liquidity in the system? Look, in a sense, 114 00:05:23,339 --> 00:05:27,210 Stephen Koukoulas: I don't think that matters much for tomorrow's meeting. Again, as 115 00:05:27,360 --> 00:05:29,790 Stephen Koukoulas: we've just been saying, it really matters over the next 116 00:05:29,790 --> 00:05:32,190 Stephen Koukoulas: couple of months when the lockdowns end, what the hit to 117 00:05:32,190 --> 00:05:35,070 Stephen Koukoulas: the economy from the lockdowns has been and whether we're 118 00:05:35,070 --> 00:05:36,750 Stephen Koukoulas: going to get that pick up. And even the RBA 119 00:05:36,750 --> 00:05:37,660 Stephen Koukoulas: doesn't know that yet. 120 00:05:38,430 --> 00:05:41,250 Sean Aylmer: Also, Governor Philip Lowe's talking or appearing before the House 121 00:05:41,250 --> 00:05:43,770 Sean Aylmer: of Reps committee later in the week, which means we'll 122 00:05:43,770 --> 00:05:45,660 Sean Aylmer: get a better insight into what he's thinking. 123 00:05:46,140 --> 00:05:48,090 Stephen Koukoulas: Yes, it's always a lot of entertainment. There's a couple 124 00:05:48,089 --> 00:05:50,300 Stephen Koukoulas: of good people on that House of Reps committee that 125 00:05:50,540 --> 00:05:52,200 Stephen Koukoulas: that give him a bit of a hard time from 126 00:05:52,200 --> 00:05:54,539 Stephen Koukoulas: Andrew Leigh and Tim Wilson from either side of the 127 00:05:54,540 --> 00:05:57,659 Stephen Koukoulas: political fence. So they always like to give the governor 128 00:05:57,660 --> 00:06:00,299 Stephen Koukoulas: a bit of a tough time. Look, they'll quiz him on, 129 00:06:00,300 --> 00:06:04,170 Stephen Koukoulas: you know, again, I suppose, how they've missed their inflation 130 00:06:04,170 --> 00:06:06,599 Stephen Koukoulas: target yet again with the inflation numbers that came out 131 00:06:06,600 --> 00:06:10,589 Stephen Koukoulas: last week and what their view on the unemployment, wage 132 00:06:10,589 --> 00:06:14,490 Stephen Koukoulas: inflation linkages are. That's an important part of that whole 133 00:06:14,490 --> 00:06:18,390 Stephen Koukoulas: sort of more medium-term process of getting the economy back 134 00:06:18,390 --> 00:06:21,180 Stephen Koukoulas: on track in a sustained sort of way. And I 135 00:06:21,180 --> 00:06:22,470 Stephen Koukoulas: dare say there's going to be a lot of questions 136 00:06:22,470 --> 00:06:25,650 Stephen Koukoulas: on housing affordability. You know, we saw Labor announce the 137 00:06:25,650 --> 00:06:29,339 Stephen Koukoulas: ditching of their negative gearing reforms, which, of course, would 138 00:06:29,339 --> 00:06:31,140 Stephen Koukoulas: have put a bit of a dampener on house prices 139 00:06:31,140 --> 00:06:33,779 Stephen Koukoulas: had they got up at the last election. So and 140 00:06:33,779 --> 00:06:36,990 Stephen Koukoulas: we know housing is such a hot button issue for 141 00:06:36,990 --> 00:06:39,810 Stephen Koukoulas: the electorate, for politicians and the like. And certainly, Tim 142 00:06:39,810 --> 00:06:42,630 Stephen Koukoulas: Wilson is very big on the housing story. So I 143 00:06:42,630 --> 00:06:44,630 Stephen Koukoulas: dare say the governor might well get a bit of 144 00:06:44,730 --> 00:06:47,640 Stephen Koukoulas: curry about what their views are with this house price 145 00:06:47,640 --> 00:06:50,669 Stephen Koukoulas: boom continuing and what that means for affordability and what 146 00:06:50,880 --> 00:06:51,710 Stephen Koukoulas: can be done about it. 147 00:06:51,960 --> 00:06:54,660 Sean Aylmer: And of course, CoreLogic comes out and will update us with 148 00:06:54,660 --> 00:06:57,240 Sean Aylmer: the July growth in house prices as well. 149 00:06:57,420 --> 00:07:00,390 Stephen Koukoulas: Yes, that'll be before the RBA governor's appearance. And look, 150 00:07:00,420 --> 00:07:03,029 Stephen Koukoulas: we do know from their daily house price series that 151 00:07:03,029 --> 00:07:04,739 Stephen Koukoulas: it's going to be an increase of around about 1.5 152 00:07:05,310 --> 00:07:08,279 Stephen Koukoulas: per cent for the month of July. Sydney, probably top 153 00:07:08,279 --> 00:07:11,040 Stephen Koukoulas: of the pops with a monthly increase of two per cent, 154 00:07:11,340 --> 00:07:14,130 Stephen Koukoulas: an annualised rate of around about 20 per cent. So 155 00:07:14,130 --> 00:07:18,060 Stephen Koukoulas: Sydney is strong. But even the weakest capital cities like Perth 156 00:07:18,060 --> 00:07:20,280 Stephen Koukoulas: are still growing at 10, 12, 13 per cent in 157 00:07:20,280 --> 00:07:23,580 Stephen Koukoulas: annual terms. So, you know, those numbers will just put fuel 158 00:07:23,580 --> 00:07:26,840 Stephen Koukoulas: on the fire of this raging housing market. 159 00:07:27,300 --> 00:07:29,010 Sean Aylmer: What I think it'll be interesting this week, 'cause there is a few 160 00:07:29,010 --> 00:07:33,000 Sean Aylmer: other numbers around, job ads, building approvals, the retail spending 161 00:07:33,000 --> 00:07:35,850 Sean Aylmer: as well, just whether or not we start to see 162 00:07:36,480 --> 00:07:38,850 Sean Aylmer: the steam coming out of the market, because as you 163 00:07:38,850 --> 00:07:41,940 Sean Aylmer: said earlier on in the discussion, all the numbers had 164 00:07:41,940 --> 00:07:44,280 Sean Aylmer: been so good until the Sydney lockdown. But job ads 165 00:07:44,280 --> 00:07:46,740 Sean Aylmer: should be reflected on that. Building approvals, not so much 166 00:07:46,740 --> 00:07:50,190 Sean Aylmer: the lockdown, but the HomeBuilder stimulus fades. So the numbers 167 00:07:50,190 --> 00:07:53,040 Sean Aylmer: this week might not be quite as good as we've seen. 168 00:07:53,550 --> 00:07:56,430 Stephen Koukoulas: Yeah, there are good reasons to think that, yes, the monthly scorecard 169 00:07:56,430 --> 00:07:58,530 Stephen Koukoulas: on a couple of these indicators will be a bit weaker. 170 00:07:58,530 --> 00:08:00,900 Stephen Koukoulas: Job ads are probably going to be down in Sydney 171 00:08:00,900 --> 00:08:04,410 Stephen Koukoulas: right now. No one's putting up the 'for hire' signals in 172 00:08:04,410 --> 00:08:07,260 Stephen Koukoulas: the windows at the moment. So they'll probably come down 173 00:08:07,260 --> 00:08:09,000 Stephen Koukoulas: a little bit. And we do know that the building 174 00:08:09,000 --> 00:08:11,910 Stephen Koukoulas: approvals numbers have already been weakening for the last couple 175 00:08:11,910 --> 00:08:14,610 Stephen Koukoulas: of months, will probably weaken a little bit further. Those 176 00:08:14,610 --> 00:08:19,050 Stephen Koukoulas: very positive stimulatory measures from federal and state governments for HomeBuilder, 177 00:08:19,440 --> 00:08:22,710 Stephen Koukoulas: very successful. We saw a really big surge in new 178 00:08:22,710 --> 00:08:25,920 Stephen Koukoulas: dwelling approvals, late 2020 and the early part of 2021, 179 00:08:26,310 --> 00:08:28,920 Stephen Koukoulas: so they're probably down just on that reason. Not anything 180 00:08:28,920 --> 00:08:31,800 Stephen Koukoulas: to do with the lockdowns occurring although they won't help. 181 00:08:32,220 --> 00:08:34,620 Stephen Koukoulas: And retail spending, we know from the preliminary numbers they 182 00:08:34,620 --> 00:08:37,800 Stephen Koukoulas: were -1.8 in June. No reason to think that number is 183 00:08:37,920 --> 00:08:39,750 Stephen Koukoulas: going to be revised all that much. But we do 184 00:08:39,750 --> 00:08:43,199 Stephen Koukoulas: get the June quarter retail sales numbers, which feeds into 185 00:08:43,200 --> 00:08:45,689 Stephen Koukoulas: the June quarter GDP numbers, which come out in another 186 00:08:45,690 --> 00:08:48,690 Stephen Koukoulas: few weeks. Again, they're likely to be pretty soft. So 187 00:08:48,690 --> 00:08:51,420 Stephen Koukoulas: maybe some of this good news on the economy that 188 00:08:51,420 --> 00:08:54,240 Stephen Koukoulas: we've been speaking about is just starting to show up 189 00:08:54,240 --> 00:08:56,340 Stephen Koukoulas: in a couple of these monthly indicators. 190 00:08:56,340 --> 00:08:58,050 Sean Aylmer: And international trade. Another big one. 191 00:08:58,350 --> 00:09:02,460 Stephen Koukoulas: Oh, another fabulous surplus. Look, 12, 13 billion for the month 192 00:09:02,460 --> 00:09:05,590 Stephen Koukoulas: for the international trade surplus. You know, iron ore prices, 193 00:09:05,590 --> 00:09:07,330 Stephen Koukoulas: even though they came off a little bit towards the 194 00:09:07,330 --> 00:09:09,369 Stephen Koukoulas: end of last week, just under 200 US dollars a 195 00:09:09,370 --> 00:09:12,939 Stephen Koukoulas: tonne are still really high. And of course, the interesting 196 00:09:12,940 --> 00:09:16,150 Stephen Koukoulas: thing is that the coking coal and other coal prices 197 00:09:16,150 --> 00:09:20,770 Stephen Koukoulas: are booming right now. Supply apparently globally has been restricted. 198 00:09:20,770 --> 00:09:24,190 Stephen Koukoulas: And that's seeing these prices feed into Australian exports. So 199 00:09:24,190 --> 00:09:27,819 Stephen Koukoulas: we're going to get an absolutely stonking trade surplus, probably 200 00:09:27,820 --> 00:09:30,410 Stephen Koukoulas: a new record, well above 10 billion dollars for one month. 201 00:09:30,620 --> 00:09:31,630 Sean Aylmer: Stephen, enjoy your week. 202 00:09:31,870 --> 00:09:32,350 Stephen Koukoulas: Thanks, Sean. 203 00:09:32,620 --> 00:09:35,200 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 204 00:09:35,350 --> 00:09:37,840 Sean Aylmer: You can find him at thekouk.com and follow him on 205 00:09:37,840 --> 00:09:42,970 Sean Aylmer: Twitter using the handle @TheKouk. I'm Sean Aylmer and this 206 00:09:42,970 --> 00:09:44,709 Sean Aylmer: is Fear and Greed, The Week Ahead.