1 00:00:08,619 --> 00:00:11,119 Sean Aylmer : Welcome to The Fear and Greed, The Week Ahead. This 2 00:00:11,119 --> 00:00:12,640 Sean Aylmer : is where we take a look at the big events, 3 00:00:12,640 --> 00:00:15,480 Sean Aylmer : reports and releases coming up this week that give insight 4 00:00:15,480 --> 00:00:17,390 Sean Aylmer : into the economy and a look back at what happened 5 00:00:17,390 --> 00:00:20,090 Sean Aylmer : last week, too. I'm Sean Aylmer and every Monday I'm 6 00:00:20,090 --> 00:00:23,460 Sean Aylmer : joined for The Week Ahead by economist Stephen Koukoulas. You'll 7 00:00:23,460 --> 00:00:27,110 Sean Aylmer : find him at thekouk.com and on Twitter using the handle, @TheKouk. 8 00:00:27,740 --> 00:00:31,930 Sean Aylmer : Stephen last week, retail trade, job vacancies, RBA credit data. 9 00:00:31,930 --> 00:00:34,170 Sean Aylmer : There was a fair bit going on, CoreLogic house prices 10 00:00:34,170 --> 00:00:37,810 Sean Aylmer : of course. The economy seems to be in slightly a 11 00:00:37,810 --> 00:00:41,290 Sean Aylmer : holding pattern really, while people are wondering about inflation and 12 00:00:41,290 --> 00:00:43,900 Sean Aylmer : wondering about offshore pressures and exactly what's going on. 13 00:00:44,390 --> 00:00:46,319 Stephen Koukoulas: Indeed, I think that's a nice summary of what we're 14 00:00:46,320 --> 00:00:48,590 Stephen Koukoulas: seeing because some of the numbers were a bit weaker. 15 00:00:48,890 --> 00:00:51,920 Stephen Koukoulas: Not surprisingly the job ads were down in the three 16 00:00:51,920 --> 00:00:54,670 Stephen Koukoulas: months to August. I think that was the reporting period for them. 17 00:00:54,810 --> 00:00:57,500 Stephen Koukoulas: And again, of course, with lockdowns firms aren't rushing to 18 00:00:57,740 --> 00:01:01,580 Stephen Koukoulas: hire people. Having said that though, they're only down a bit. 19 00:01:02,960 --> 00:01:06,300 Stephen Koukoulas: The level is still well above where we were this 20 00:01:06,300 --> 00:01:08,929 Stephen Koukoulas: time last year. So it says to me that when 21 00:01:08,930 --> 00:01:11,740 Stephen Koukoulas: we do get over these lockdowns and that we open 22 00:01:11,740 --> 00:01:15,000 Stephen Koukoulas: up the domestic and international borders, the economy is going 23 00:01:15,000 --> 00:01:19,040 Stephen Koukoulas: to be doing well. Retail sales were down as expected, same reasons. 24 00:01:19,300 --> 00:01:22,069 Stephen Koukoulas: But things like building approvals and housing credit we're up. 25 00:01:22,069 --> 00:01:25,130 Stephen Koukoulas: House prices were up. So this housing side of the 26 00:01:25,130 --> 00:01:28,720 Stephen Koukoulas: economy is one that's really putting a real bit of 27 00:01:28,720 --> 00:01:31,589 Stephen Koukoulas: momentum into the recovery that's going to be coming. The 28 00:01:31,590 --> 00:01:34,040 Stephen Koukoulas: big question is, will it continue? And of course, we've 29 00:01:34,040 --> 00:01:38,610 Stephen Koukoulas: got a discussion emerging quite intensively last week that the 30 00:01:39,060 --> 00:01:41,380 Stephen Koukoulas: regulators might want to just crack down on some of 31 00:01:41,380 --> 00:01:43,990 Stephen Koukoulas: the ease in credit, ease at which people can get 32 00:01:43,990 --> 00:01:46,789 Stephen Koukoulas: access to credit, which of course would dampen house prices. 33 00:01:46,790 --> 00:01:49,380 Stephen Koukoulas: So yes, the housing market looking good for now, but 34 00:01:49,380 --> 00:01:50,220 Stephen Koukoulas: will it continue? 35 00:01:50,930 --> 00:01:52,860 Sean Aylmer : The other numbers we've got out last week was the 36 00:01:52,860 --> 00:01:58,480 Sean Aylmer : final budget outcomes for 2020/ 2021, the last financial year. And 37 00:01:58,600 --> 00:02:00,970 Sean Aylmer : the bottom line was $80 billion better or something. I 38 00:02:00,970 --> 00:02:03,230 Sean Aylmer : suppose it just means it's a better starting point for 39 00:02:03,230 --> 00:02:03,770 Sean Aylmer : this year. 40 00:02:04,360 --> 00:02:08,880 Stephen Koukoulas: Yes. It came in at $134 billion for the financial year 2021, 41 00:02:09,340 --> 00:02:12,630 Stephen Koukoulas: $80 odd billion lower than was budgeted for when the 42 00:02:12,630 --> 00:02:15,900 Stephen Koukoulas: budget was initially handed down. And the reasons for that were a couple, 43 00:02:16,130 --> 00:02:19,090 Stephen Koukoulas: the economy performed better than expected. The labour market was 44 00:02:19,090 --> 00:02:21,419 Stephen Koukoulas: much better. And of course the labour market is really 45 00:02:21,419 --> 00:02:23,810 Stephen Koukoulas: powerful in terms of its impact on the bottom line. 46 00:02:24,200 --> 00:02:27,310 Stephen Koukoulas: If you're not paying, for example, unemployment benefits and you're 47 00:02:27,310 --> 00:02:30,070 Stephen Koukoulas: collecting more income tax, that's one reason. And if the 48 00:02:30,070 --> 00:02:32,350 Stephen Koukoulas: economy's stronger people spend more. So there was a lot 49 00:02:32,350 --> 00:02:35,049 Stephen Koukoulas: of extra excise coming through. And the big one of 50 00:02:35,050 --> 00:02:38,630 Stephen Koukoulas: course was company profits, with this staggeringly strong iron ore 51 00:02:38,630 --> 00:02:41,560 Stephen Koukoulas: price over the last 12 months and other commodities too 52 00:02:41,840 --> 00:02:44,299 Stephen Koukoulas: and other businesses. We're seeing that in the ASX right now 53 00:02:44,300 --> 00:02:47,790 Stephen Koukoulas: that the business sector was doing well, making profits, and 54 00:02:47,790 --> 00:02:49,790 Stephen Koukoulas: when they make a profit, they pay company tax. So 55 00:02:50,090 --> 00:02:52,820 Stephen Koukoulas: the improvement of the budget was there. Of course, it'll take 56 00:02:52,850 --> 00:02:54,960 Stephen Koukoulas: a bit of a hit with the current financial year. 57 00:02:55,169 --> 00:02:59,040 Stephen Koukoulas: These lockdowns now are in the 2021/2022 financial year. So we 58 00:02:59,040 --> 00:03:01,340 Stephen Koukoulas: have to wait until the mid-year update on the budget 59 00:03:01,340 --> 00:03:03,570 Stephen Koukoulas: in the middle of December to see just whether that 60 00:03:03,570 --> 00:03:06,520 Stephen Koukoulas: improvement or the narrowing of the budget deficit is continuing. 61 00:03:06,830 --> 00:03:09,400 Sean Aylmer : Well that's last week. We'll be back in a moment and get into 62 00:03:09,400 --> 00:03:10,090 Sean Aylmer : the week ahead. 63 00:03:15,110 --> 00:03:19,090 Sean Aylmer : I'm with economist, Stephen Koukoulas, AKA The Kouk. Stephen, it's a big week for the 64 00:03:19,090 --> 00:03:20,440 Sean Aylmer : central bank, for the Reserve Bank. 65 00:03:20,820 --> 00:03:23,850 Stephen Koukoulas: A huge week yes. We've got the board meeting tomorrow, 66 00:03:24,280 --> 00:03:27,440 Stephen Koukoulas: not a lot expected. I think as we're just discussing prior 67 00:03:27,440 --> 00:03:29,660 Stephen Koukoulas: to the break, that the RBA is, like all of us, 68 00:03:29,660 --> 00:03:32,770 Stephen Koukoulas: just wanting to see how the economy gets out of 69 00:03:32,770 --> 00:03:35,650 Stephen Koukoulas: this downturn. We know that the September quarter GDP numbers 70 00:03:35,650 --> 00:03:38,440 Stephen Koukoulas: are weak. We know the labour market numbers that have 71 00:03:38,440 --> 00:03:42,300 Stephen Koukoulas: been reported are all over the place. Zero hours worked 72 00:03:42,300 --> 00:03:44,589 Stephen Koukoulas: by many people who still have a job. So there's 73 00:03:44,590 --> 00:03:47,150 Stephen Koukoulas: that quirk in the numbers that just needs to be 74 00:03:47,150 --> 00:03:49,470 Stephen Koukoulas: ironed out of the data. And I think the RBA 75 00:03:49,470 --> 00:03:53,060 Stephen Koukoulas: is just going to simply say, they've got optimism about a recovery 76 00:03:53,130 --> 00:03:56,790 Stephen Koukoulas: when the lockdowns end, they've got optimism that the labour 77 00:03:56,790 --> 00:04:00,380 Stephen Koukoulas: market will continue to tighten and they'll do nothing on policy. 78 00:04:00,380 --> 00:04:02,830 Stephen Koukoulas: So I think the easiest forecast I've had in many 79 00:04:02,830 --> 00:04:06,080 Stephen Koukoulas: a long day is that, cash rates unchanged, the other 80 00:04:06,110 --> 00:04:09,590 Stephen Koukoulas: QE (Quantitative Easing) measures, the bond buying, will be unchanged. And they'll 81 00:04:09,590 --> 00:04:13,180 Stephen Koukoulas: just probably update their assessment that they've got optimism that 82 00:04:13,190 --> 00:04:15,520 Stephen Koukoulas: the recovery is coming through. And as we were just 83 00:04:15,520 --> 00:04:19,130 Stephen Koukoulas: discussing too, they may spend an extra paragraph or two 84 00:04:19,370 --> 00:04:21,839 Stephen Koukoulas: looking at the housing market because that is something that's 85 00:04:21,839 --> 00:04:24,630 Stephen Koukoulas: clearly moving into the middle of their radar. Are we 86 00:04:24,630 --> 00:04:27,640 Stephen Koukoulas: having an element or a risk of financial instability from 87 00:04:27,640 --> 00:04:30,700 Stephen Koukoulas: this incredible growth in credit, this incredible growth in house prices? 88 00:04:31,040 --> 00:04:34,380 Sean Aylmer : Beautiful segue into the Reserve Bank's financial stability report, which 89 00:04:34,380 --> 00:04:35,789 Sean Aylmer : also comes out late this week. 90 00:04:36,220 --> 00:04:39,349 Stephen Koukoulas: Yes, later this week. Every six months, the RBA (Reserve Bank of Australia) does 91 00:04:39,350 --> 00:04:44,060 Stephen Koukoulas: produce a financial stability report. And of course, arguably depending 92 00:04:44,390 --> 00:04:45,839 Stephen Koukoulas: on where we are in the economic cycle, that can be 93 00:04:45,839 --> 00:04:48,359 Stephen Koukoulas: one of the most interesting things that the RBA produces. 94 00:04:48,380 --> 00:04:51,590 Stephen Koukoulas: Because it does look at the health of the banks, 95 00:04:52,020 --> 00:04:55,640 Stephen Koukoulas: are they lending recklessly or is there any evidence of 96 00:04:56,130 --> 00:04:59,200 Stephen Koukoulas: loan arrears and bad debts and that poison that we 97 00:04:59,200 --> 00:05:01,720 Stephen Koukoulas: hate to see in the banking sector? Also looks at 98 00:05:01,720 --> 00:05:04,839 Stephen Koukoulas: insurance companies, what's happening to the household sector. We know 99 00:05:04,839 --> 00:05:07,460 Stephen Koukoulas: that the household sector has got very high levels of 100 00:05:07,460 --> 00:05:11,050 Stephen Koukoulas: debt at the moment. We're borrowing lots to buy houses predominantly. 101 00:05:11,420 --> 00:05:15,380 Stephen Koukoulas: And they examine some of the more esoteric sides of 102 00:05:15,380 --> 00:05:17,870 Stephen Koukoulas: the banking system and the insurance sector and the like, 103 00:05:17,870 --> 00:05:21,210 Stephen Koukoulas: to see whether they can detect any greater risk of 104 00:05:21,210 --> 00:05:24,410 Stephen Koukoulas: financial instability looming. Because if that is the case, then 105 00:05:24,810 --> 00:05:27,049 Stephen Koukoulas: of course they've got to mitigate against that risk. So 106 00:05:27,420 --> 00:05:30,680 Stephen Koukoulas: the financial stability report will be something that on Friday 107 00:05:30,680 --> 00:05:34,820 Stephen Koukoulas: this week will be trawled over for any bits of information 108 00:05:34,820 --> 00:05:36,719 Stephen Koukoulas: that suggests that there's any concerns. At the moment I 109 00:05:36,720 --> 00:05:41,060 Stephen Koukoulas: don't think there are. The banking reporting shows that bad 110 00:05:41,060 --> 00:05:43,979 Stephen Koukoulas: debts or loan arrears are still very, very low. But maybe the 111 00:05:43,980 --> 00:05:46,460 Stephen Koukoulas: RBA can scratch the surface of some of those numbers 112 00:05:46,460 --> 00:05:49,000 Stephen Koukoulas: to see whether there's anything underlying some of the financial 113 00:05:49,000 --> 00:05:49,919 Stephen Koukoulas: stability that's there. 114 00:05:50,110 --> 00:05:53,450 Sean Aylmer : Another interesting one this week will be international trade. Is it 115 00:05:53,450 --> 00:05:56,490 Sean Aylmer : too early to see those changes in commodity prices, particularly 116 00:05:56,490 --> 00:05:57,430 Sean Aylmer : iron ore come through? 117 00:05:57,700 --> 00:05:59,370 Stephen Koukoulas: Yeah, look a little early to see that. Look, we're 118 00:05:59,370 --> 00:06:02,610 Stephen Koukoulas: looking for another massive surplus. Gosh, once you start getting 119 00:06:02,620 --> 00:06:04,900 Stephen Koukoulas: $10, $11, $12 billion surpluses per month- 120 00:06:05,110 --> 00:06:05,111 Sean Aylmer : Yeah, incredible. 121 00:06:05,111 --> 00:06:07,470 Stephen Koukoulas: The odd billion here or there, it's a bit hard to forecast. 122 00:06:07,470 --> 00:06:09,210 Stephen Koukoulas: But look, I think it is still a little early. 123 00:06:09,460 --> 00:06:11,779 Stephen Koukoulas: Volumes have just come off a little bit too, but 124 00:06:11,779 --> 00:06:15,170 Stephen Koukoulas: don't forget we've also had this incredible lift in natural 125 00:06:15,170 --> 00:06:17,310 Stephen Koukoulas: gas and coal prices. Again, it might be early to 126 00:06:17,310 --> 00:06:20,099 Stephen Koukoulas: have that offset. So there are so many moving parts 127 00:06:20,100 --> 00:06:22,640 Stephen Koukoulas: on this international trade number that the export revenue's going 128 00:06:22,720 --> 00:06:25,290 Stephen Koukoulas: to be strong. The import side's probably going to be 129 00:06:25,290 --> 00:06:28,190 Stephen Koukoulas: a little bit weak because imports are being held back 130 00:06:28,190 --> 00:06:31,430 Stephen Koukoulas: by the current lockdown. So as we were just discussing, we 131 00:06:31,430 --> 00:06:33,969 Stephen Koukoulas: consumers aren't spending as much and perhaps some of the 132 00:06:33,970 --> 00:06:38,250 Stephen Koukoulas: investment decisions which require machinery and equipment, which is predominantly imported, 133 00:06:38,370 --> 00:06:41,610 Stephen Koukoulas: are being postponed. But look, another big surplus is on 134 00:06:41,610 --> 00:06:44,789 Stephen Koukoulas: the cards, whether it's $10 or $12 billion, it doesn't really matter. 135 00:06:44,790 --> 00:06:47,500 Stephen Koukoulas: But we're getting a real boost to our economy from 136 00:06:47,500 --> 00:06:48,370 Stephen Koukoulas: the export sector. 137 00:06:48,610 --> 00:06:49,589 Sean Aylmer : Enjoy your week, Stephen. 138 00:06:49,740 --> 00:06:50,279 Stephen Koukoulas: Thank you, Sean. 139 00:06:50,640 --> 00:06:53,310 Sean Aylmer : That was economist Stephen Koukoulas, better known as The Kouk. 140 00:06:53,320 --> 00:06:56,360 Sean Aylmer : You can find him at thekouk.com and follow him on 141 00:06:56,360 --> 00:07:00,140 Sean Aylmer : Twitter using the handle @TheKouk. I'm Sean Aylmer and this is Fear 142 00:07:00,140 --> 00:07:01,210 Sean Aylmer : and Greed, The Week Ahead.