1 00:00:08,130 --> 00:00:10,199 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I'm Sean 2 00:00:10,200 --> 00:00:14,279 Sean Aylmer: Aylmer, and as always, I'm joined by economist Stephen Koukoulas. 3 00:00:14,280 --> 00:00:17,399 Sean Aylmer: You'll find him at thekouk. com and on Twitter using 4 00:00:17,400 --> 00:00:19,560 Sean Aylmer: the handle TheKouk. T- H- E- K- O- U- K. 5 00:00:19,920 --> 00:00:20,820 Sean Aylmer: Stephen, good morning. 6 00:00:20,940 --> 00:00:21,720 Stephen Koukoulas: Good morning, Sean. 7 00:00:22,230 --> 00:00:23,970 Sean Aylmer: A bit going on this week, but what a week 8 00:00:23,970 --> 00:00:26,220 Sean Aylmer: last week was. What do you reckon to those inflation 9 00:00:26,220 --> 00:00:27,899 Sean Aylmer: figures and what's it mean for rates? 10 00:00:28,410 --> 00:00:30,900 Stephen Koukoulas: Well, the inflation numbers in a funny way, if you 11 00:00:30,900 --> 00:00:34,529 Stephen Koukoulas: take a step back, they were only a smidge, one 12 00:00:34,529 --> 00:00:39,240 Stephen Koukoulas: or two tenths above expectations, but they created, well, a 13 00:00:39,240 --> 00:00:45,750 Stephen Koukoulas: firestorm in financial markets, that had everybody rushing to put 14 00:00:45,750 --> 00:00:48,269 Stephen Koukoulas: in a call for a hike from the RBA when 15 00:00:48,269 --> 00:00:50,969 Stephen Koukoulas: they meet on Melbourne Cup Day. And we had Michelle 16 00:00:50,969 --> 00:00:54,029 Stephen Koukoulas: Bullock, the RBA governor, giving a couple of interactions, a 17 00:00:54,029 --> 00:00:56,880 Stephen Koukoulas: couple of chats, including to the Senate where she said, 18 00:00:56,880 --> 00:00:59,520 Stephen Koukoulas: look, we haven't really updated our forecast yet. They're sort 19 00:00:59,520 --> 00:01:02,639 Stephen Koukoulas: of broadly in line with what we were thinking. The 20 00:01:02,639 --> 00:01:06,089 Stephen Koukoulas: Treasurer, he butted in to. So Jim Charmers came out 21 00:01:06,090 --> 00:01:08,279 Stephen Koukoulas: talking about cost of living pressures and said, yeah, they're 22 00:01:08,280 --> 00:01:11,459 Stephen Koukoulas: broadly consistent with the Treasury forecast. So we had this 23 00:01:11,459 --> 00:01:16,920 Stephen Koukoulas: almighty kerfuffle over a relatively small forecast missed on the 24 00:01:16,920 --> 00:01:21,599 Stephen Koukoulas: inflation rates. And look, wow, I think it'll be the 25 00:01:21,599 --> 00:01:24,090 Stephen Koukoulas: data that's released this week, which will determine whether or 26 00:01:24,090 --> 00:01:26,789 Stephen Koukoulas: not we get that rate hike or not on Melbourne 27 00:01:26,789 --> 00:01:27,240 Stephen Koukoulas: Cup day. 28 00:01:28,020 --> 00:01:31,440 Sean Aylmer: Okay, so what data do we have coming out this week 29 00:01:31,440 --> 00:01:34,380 Sean Aylmer: that we should be keeping a very close eye on 30 00:01:34,380 --> 00:01:36,809 Sean Aylmer: given what you just said? Retail trade, let's start there. 31 00:01:37,530 --> 00:01:40,620 Stephen Koukoulas: The retail trade is the biggie. That's the one that's 32 00:01:40,620 --> 00:01:43,289 Stephen Koukoulas: really important. It makes up a pretty significant part of 33 00:01:43,289 --> 00:01:47,519 Stephen Koukoulas: the overall GDP profile that what we consumers, you and 34 00:01:47,520 --> 00:01:51,330 Stephen Koukoulas: me and all the listeners, spend in the shops, grocery 35 00:01:51,330 --> 00:01:54,840 Stephen Koukoulas: stores and in cafes, restaurants, these sorts of things. That's 36 00:01:55,080 --> 00:01:57,779 Stephen Koukoulas: what retail sales are basically. And they're a big part 37 00:01:57,780 --> 00:02:00,210 Stephen Koukoulas: of the economy, as I mentioned. And they've been weak 38 00:02:00,300 --> 00:02:03,120 Stephen Koukoulas: for the last, well, for last 10 or 11 months, since the 39 00:02:03,120 --> 00:02:05,879 Stephen Koukoulas: end of 2022, that as the rate hikes from the 40 00:02:05,879 --> 00:02:08,670 Stephen Koukoulas: middle of last year started to bite here, we consumers 41 00:02:08,910 --> 00:02:10,889 Stephen Koukoulas: were hunkering down on the back of those rate hikes. 42 00:02:10,889 --> 00:02:14,849 Stephen Koukoulas: We've had inflation rising by more than wages indeed. And 43 00:02:14,849 --> 00:02:16,889 Stephen Koukoulas: that was confirmed last week too, just by the way, 44 00:02:16,889 --> 00:02:20,219 Stephen Koukoulas: with those inflation numbers. And we consumers have been responding 45 00:02:20,219 --> 00:02:24,119 Stephen Koukoulas: to that by trimming back our expenditure. So the lead 46 00:02:24,119 --> 00:02:26,250 Stephen Koukoulas: into the number that we get out later this week 47 00:02:26,250 --> 00:02:29,130 Stephen Koukoulas: is going to be absolutely fascinating. If we do get 48 00:02:30,150 --> 00:02:34,139 Stephen Koukoulas: an okay figure, and by, okay, I mean probably growth of only 0.2 or 0. 49 00:02:34,139 --> 00:02:38,940 Stephen Koukoulas: 3% month on month, so not strong, it might just 50 00:02:38,940 --> 00:02:42,900 Stephen Koukoulas: tilt the RBA to say, hey, maybe consumer spending's weak 51 00:02:42,900 --> 00:02:46,710 Stephen Koukoulas: but not catastrophic. Inflation's a little bit higher than we 52 00:02:46,710 --> 00:02:48,660 Stephen Koukoulas: would like. It's still coming down, but not as quickly 53 00:02:48,660 --> 00:02:50,610 Stephen Koukoulas: as we would like. And that would feed into the 54 00:02:50,610 --> 00:02:53,550 Stephen Koukoulas: narrative of the rate hike next week. But if we 55 00:02:53,550 --> 00:02:58,199 Stephen Koukoulas: do get another shocker, another bad result, we've had a 56 00:02:58,199 --> 00:03:00,419 Stephen Koukoulas: whole lot of the retail companies coming out this last 57 00:03:00,419 --> 00:03:03,150 Stephen Koukoulas: little while confirming that sales are down and margins are 58 00:03:03,150 --> 00:03:05,310 Stephen Koukoulas: down, so if that shows up in these retail sales 59 00:03:05,310 --> 00:03:08,010 Stephen Koukoulas: numbers, then the RBA might think, well, we've done enough. Yes, 60 00:03:08,010 --> 00:03:10,290 Stephen Koukoulas: that inflation rate's a little bit uncomfortable, but we can 61 00:03:10,679 --> 00:03:13,319 Stephen Koukoulas: sort of tolerate that as the economy slows down. So 62 00:03:13,530 --> 00:03:15,450 Stephen Koukoulas: retail sales are the biggie for this week. 63 00:03:15,839 --> 00:03:19,290 Sean Aylmer: It really highlights just how close the call is about a rate 64 00:03:19,290 --> 00:03:20,010 Sean Aylmer: lift next week. 65 00:03:21,360 --> 00:03:24,930 Stephen Koukoulas: And it genuinely is. Looking at the futures market, and dare 66 00:03:24,930 --> 00:03:27,389 Stephen Koukoulas: I say it, even the betting markets, there's literally an 67 00:03:27,389 --> 00:03:29,790 Stephen Koukoulas: even money each of two sort of proposition right now. 68 00:03:29,790 --> 00:03:32,580 Stephen Koukoulas: And unless there's a well- placed journalist out there who 69 00:03:32,580 --> 00:03:36,930 Stephen Koukoulas: writes something about what the RBA's thinking or we get 70 00:03:37,260 --> 00:03:39,660 Stephen Koukoulas: a run of shock numbers, not just domestically, but also 71 00:03:39,660 --> 00:03:43,080 Stephen Koukoulas: internationally, what's happening in geopolitics and things can have an 72 00:03:43,080 --> 00:03:44,580 Stephen Koukoulas: influence. And I know we're only a week and a 73 00:03:44,580 --> 00:03:46,980 Stephen Koukoulas: bit away from the next Board meeting, but if there 74 00:03:46,980 --> 00:03:50,670 Stephen Koukoulas: were to be a couple of shock indicators coming out 75 00:03:50,670 --> 00:03:52,889 Stephen Koukoulas: of the US or China, out of the Eurozone, or 76 00:03:52,889 --> 00:03:56,640 Stephen Koukoulas: as I said, a geopolitical disaster emerging, then that might influence 77 00:03:56,640 --> 00:03:58,500 Stephen Koukoulas: the RBA. But for the here and now, it's a 78 00:03:58,500 --> 00:04:02,910 Stephen Koukoulas: genuinely close call. Oh, I'll use the Melbourne Cup metaphor, 79 00:04:02,910 --> 00:04:04,020 Stephen Koukoulas: it's a photo finish. 80 00:04:04,800 --> 00:04:07,320 Sean Aylmer: Indeed. Look, a couple of other data out this week. 81 00:04:07,320 --> 00:04:08,250 Sean Aylmer: Building approvals? 82 00:04:08,639 --> 00:04:10,949 Stephen Koukoulas: Yeah building approvals. Not unimportant, but one of the things 83 00:04:10,949 --> 00:04:13,740 Stephen Koukoulas: that we do know, desperately know, is that we need 84 00:04:14,040 --> 00:04:17,370 Stephen Koukoulas: in Australia to build a lot more houses to accommodate 85 00:04:17,370 --> 00:04:21,450 Stephen Koukoulas: the strong demographic changes, the population growth through immigration and 86 00:04:21,450 --> 00:04:24,330 Stephen Koukoulas: foreign students coming to Australia to study, all those good 87 00:04:24,330 --> 00:04:26,159 Stephen Koukoulas: things about the economy. But we just don't have enough 88 00:04:26,160 --> 00:04:29,159 Stephen Koukoulas: houses. So building approvals have been lagging for the last 89 00:04:29,160 --> 00:04:32,760 Stephen Koukoulas: 12 months. It'd been nice to see a small increase, 90 00:04:32,940 --> 00:04:35,760 Stephen Koukoulas: a 3 or 4% month on month increase to signal 91 00:04:36,120 --> 00:04:39,510 Stephen Koukoulas: a turning point in construction activity. But I fear we 92 00:04:39,510 --> 00:04:41,910 Stephen Koukoulas: might not get anything that good because we still keep 93 00:04:41,910 --> 00:04:47,969 Stephen Koukoulas: hearing stories of building companies going under or confronting genuine and 94 00:04:47,969 --> 00:04:51,960 Stephen Koukoulas: severe cost pressures. And look, I think the building and 95 00:04:51,960 --> 00:04:54,150 Stephen Koukoulas: construction sector's got a couple of more months of weakness 96 00:04:54,150 --> 00:04:56,520 Stephen Koukoulas: before we hopefully, hopefully get a turning point next year. 97 00:04:57,089 --> 00:04:58,290 Sean Aylmer: And it's the end of the month, so we'll get 98 00:04:58,290 --> 00:05:02,099 Sean Aylmer: house price data as well. Those people who forecast 20% 99 00:05:02,099 --> 00:05:05,279 Sean Aylmer: drops in house prices, well, I hope they're all listening 100 00:05:05,279 --> 00:05:06,210 Sean Aylmer: to you right now, Stephen. 101 00:05:06,210 --> 00:05:08,610 Stephen Koukoulas: Well I hope they are too and you've got to take your 102 00:05:08,610 --> 00:05:10,770 Stephen Koukoulas: wins when you get them. But look, we do know 103 00:05:10,770 --> 00:05:13,320 Stephen Koukoulas: from the high frequency CoreLogic data, the ones that they put 104 00:05:13,320 --> 00:05:16,109 Stephen Koukoulas: out daily for the five cities, that we're probably going 105 00:05:16,110 --> 00:05:20,159 Stephen Koukoulas: to get another month on month increase of about 1% 106 00:05:20,610 --> 00:05:26,370 Stephen Koukoulas: Australia wide. Sydney, Perth, Brisbane, doing very, very well. Adelaide 107 00:05:26,370 --> 00:05:29,159 Stephen Koukoulas: still doing very strongly Melbourne the laggard. It's still going 108 00:05:29,160 --> 00:05:32,010 Stephen Koukoulas: up, it's still increasing, and the rest of the country 109 00:05:32,010 --> 00:05:36,029 Stephen Koukoulas: sort of just registering small increases. But again, I love 110 00:05:36,029 --> 00:05:39,180 Stephen Koukoulas: Economics 101, Sean, when you get (inaudible) strong demand, 111 00:05:39,420 --> 00:05:42,810 Stephen Koukoulas: population growth, weak supply, low levels of construction, what happens 112 00:05:42,810 --> 00:05:45,000 Stephen Koukoulas: to price? It goes up. And that's exactly what we're 113 00:05:45,060 --> 00:05:47,670 Stephen Koukoulas: seeing on housing right now, even with these interest rate 114 00:05:47,670 --> 00:05:48,930 Stephen Koukoulas: hikes that have already been delivered. 115 00:05:49,529 --> 00:05:50,669 Sean Aylmer: Stephen, enjoy your week. 116 00:05:50,940 --> 00:05:51,928 Stephen Koukoulas: Will do, Sean. Thank you. 117 00:05:52,410 --> 00:05:55,020 Sean Aylmer: That was Economist Stephen Koukoulas better known as The Kouk. 118 00:05:55,020 --> 00:05:57,570 Sean Aylmer: You can find him at thekouk. com and follow him 119 00:05:57,570 --> 00:06:00,540 Sean Aylmer: on X using the handle TheKouk. I'm Sean Aylmer and 120 00:06:00,540 --> 00:06:02,340 Sean Aylmer: this is Fear and Greed, The Week Ahead.