1 00:00:08,490 --> 00:00:11,610 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I'm Sean Aylmer. And as 2 00:00:11,610 --> 00:00:15,450 Sean Aylmer: always, I'm joined by economist Stephen Koukoulas. You'll find him 3 00:00:15,450 --> 00:00:17,430 Sean Aylmer: at thekouk. com, T- H- E- K- O- U- K. 4 00:00:17,640 --> 00:00:21,210 Sean Aylmer: com, and on Twitter using the handle TheKouk. Stephen, good 5 00:00:21,210 --> 00:00:23,310 Sean Aylmer: morning. How is COVID for you? 6 00:00:24,270 --> 00:00:26,880 Stephen Koukoulas: COVID is slowly getting better. It's one of these funny 7 00:00:26,880 --> 00:00:30,180 Stephen Koukoulas: diseases that the worst of the aches and pains have 8 00:00:30,180 --> 00:00:33,720 Stephen Koukoulas: past, thank goodness. And it's just this strange fatigue. 9 00:00:33,720 --> 00:00:33,780 Sean Aylmer: Yeah. 10 00:00:33,780 --> 00:00:37,710 Stephen Koukoulas: So a very, very odd illness. And my sympathies to 11 00:00:37,770 --> 00:00:40,019 Stephen Koukoulas: many other people who have had it. But yes, it's 12 00:00:40,020 --> 00:00:41,640 Stephen Koukoulas: not nice. I can assure you of that. 13 00:00:42,270 --> 00:00:45,120 Sean Aylmer: Now, last week really was all about the reserve bank. 14 00:00:45,120 --> 00:00:47,970 Sean Aylmer: We've got the minutes of the board meeting. Phil Lowe 15 00:00:48,030 --> 00:00:50,940 Sean Aylmer: spoke as well. I'm not sure what to make of 16 00:00:50,940 --> 00:00:51,960 Sean Aylmer: last week, Stephen. 17 00:00:52,740 --> 00:00:56,550 Stephen Koukoulas: He didn't say anything terribly new, because the path is 18 00:00:56,550 --> 00:00:59,940 Stephen Koukoulas: still there for further interest rate hike. So next week, 19 00:00:59,940 --> 00:01:02,610 Stephen Koukoulas: in fact, we've got the July board meeting. And he 20 00:01:02,610 --> 00:01:05,640 Stephen Koukoulas: indicated that they're going to be looking at either 25 21 00:01:05,640 --> 00:01:08,400 Stephen Koukoulas: basis points or 50 basis points. Now, the market's pretty 22 00:01:08,400 --> 00:01:11,130 Stephen Koukoulas: much got the 50 priced in, so I think that's 23 00:01:11,130 --> 00:01:13,740 Stephen Koukoulas: what they're probably going to be delivering. But his other 24 00:01:13,740 --> 00:01:17,009 Stephen Koukoulas: analysis of the economy on wages, look, he put a 25 00:01:17,010 --> 00:01:20,760 Stephen Koukoulas: bit of a damper on these calls for super strong 26 00:01:20,760 --> 00:01:23,850 Stephen Koukoulas: wage increases, saying that wages growth should be around about 27 00:01:23,850 --> 00:01:25,919 Stephen Koukoulas: three and a half percent for it to be consistent 28 00:01:25,920 --> 00:01:29,010 Stephen Koukoulas: with the two to three inflation target. He mentioned that 29 00:01:29,640 --> 00:01:32,100 Stephen Koukoulas: the labor market's still nice and tight and still strong. 30 00:01:32,100 --> 00:01:35,459 Stephen Koukoulas: He indicated that the household sector's still in pretty good 31 00:01:35,459 --> 00:01:38,250 Stephen Koukoulas: shape that, with wages growth picking up a bit and 32 00:01:38,310 --> 00:01:42,390 Stephen Koukoulas: unemployment low, that we are all doing okay. But we sort of 33 00:01:42,390 --> 00:01:44,250 Stephen Koukoulas: knew that anyway. So in a sense, he was just 34 00:01:44,250 --> 00:01:46,410 Stephen Koukoulas: sort of reiterating the fact that yeah, rates are going 35 00:01:46,410 --> 00:01:50,010 Stephen Koukoulas: up slowly but surely, and that inflation's still a problem. 36 00:01:51,240 --> 00:01:53,280 Sean Aylmer: Look, I mean, we'll get a few more indicators this 37 00:01:53,280 --> 00:01:55,920 Sean Aylmer: week about how the economy's traveling, so let's start with 38 00:01:55,920 --> 00:01:57,000 Sean Aylmer: retail sales. 39 00:01:57,900 --> 00:02:00,450 Stephen Koukoulas: Yes. Well, we know that we consumers have been spending 40 00:02:00,450 --> 00:02:04,110 Stephen Koukoulas: like crazy since the lockdowns ended late last year and 41 00:02:04,320 --> 00:02:07,500 Stephen Koukoulas: the first three or four months of 2022 have been 42 00:02:07,500 --> 00:02:09,899 Stephen Koukoulas: strong. Look, we're expecting a little bit of a pullback 43 00:02:09,900 --> 00:02:13,470 Stephen Koukoulas: in retail spending. I think the consensus is for about 44 00:02:13,470 --> 00:02:16,320 Stephen Koukoulas: a half a percent decline in retail spending. And that's 45 00:02:16,320 --> 00:02:18,780 Stephen Koukoulas: sort of linked to cost of living pressures that we are 46 00:02:18,780 --> 00:02:20,970 Stephen Koukoulas: sort of closing our wallets on some things while we're 47 00:02:20,970 --> 00:02:23,490 Stephen Koukoulas: having to open them up to just fill up the 48 00:02:23,490 --> 00:02:25,950 Stephen Koukoulas: car with petrol or to buy fruit and veggies and 49 00:02:25,950 --> 00:02:28,440 Stephen Koukoulas: food and these sorts of things. So what we're actually 50 00:02:28,440 --> 00:02:31,079 Stephen Koukoulas: seeing is a bit of a sticker shock, I suppose, 51 00:02:31,080 --> 00:02:33,510 Stephen Koukoulas: to the high cost of living. So the market's actually 52 00:02:33,510 --> 00:02:37,560 Stephen Koukoulas: pricing in yeah, a moderate decline in retail spending, albeit 53 00:02:37,560 --> 00:02:39,989 Stephen Koukoulas: after many months of super duper strength. 54 00:02:40,380 --> 00:02:42,120 Sean Aylmer: And of course, the one we're all waiting for is 55 00:02:42,120 --> 00:02:43,440 Sean Aylmer: house prices for June. 56 00:02:44,010 --> 00:02:47,370 Stephen Koukoulas: Yes. Our friends at CoreLogic, it'll show a fall in 57 00:02:47,370 --> 00:02:50,520 Stephen Koukoulas: house prices. We know from some of their daily indicators 58 00:02:50,520 --> 00:02:52,889 Stephen Koukoulas: that we are probably going to get house prices at 59 00:02:52,889 --> 00:02:56,040 Stephen Koukoulas: a nationwide level down close to 1%. 60 00:02:56,880 --> 00:02:57,240 Sean Aylmer: Wow. 61 00:02:57,389 --> 00:02:59,850 Stephen Koukoulas: Again, a big divergence from city to city. We know 62 00:02:59,850 --> 00:03:02,580 Stephen Koukoulas: that Sydney's going to be down about 1. 5%, which 63 00:03:02,580 --> 00:03:03,900 Stephen Koukoulas: is a pretty chunky decline. 64 00:03:03,900 --> 00:03:04,470 Sean Aylmer: In the month. 65 00:03:04,530 --> 00:03:06,570 Stephen Koukoulas: For the month, month on month. So the second month 66 00:03:06,570 --> 00:03:10,410 Stephen Koukoulas: of decline, Melbourne down about 1%, but we know that places 67 00:03:10,410 --> 00:03:12,870 Stephen Koukoulas: like Adelaide and Brisbane are still growing at around about 68 00:03:12,870 --> 00:03:15,750 Stephen Koukoulas: 1%. So this, what do we call it? The patchwork 69 00:03:15,750 --> 00:03:18,001 Stephen Koukoulas: housing market is coming through in the house price (inaudible) 70 00:03:18,001 --> 00:03:21,180 Stephen Koukoulas: , but in aggregate, we've got the decline occurring, rate 71 00:03:21,180 --> 00:03:23,100 Stephen Koukoulas: hikes clearly having some impact already. 72 00:03:23,669 --> 00:03:26,370 Sean Aylmer: Okay. And job vacancy is also this week. Of course, 73 00:03:26,370 --> 00:03:28,500 Sean Aylmer: the labor market is just so tired at the moment. 74 00:03:29,010 --> 00:03:31,830 Stephen Koukoulas: Yeah. This is the one that is, as we're alluding 75 00:03:31,830 --> 00:03:35,190 Stephen Koukoulas: to, that Dr. Lowe's being strong about. And anybody looking 76 00:03:35,190 --> 00:03:37,410 Stephen Koukoulas: at the economy can realize that demand for labor is 77 00:03:37,410 --> 00:03:40,890 Stephen Koukoulas: still very strong. The vacancy series has been trending up and up 78 00:03:40,950 --> 00:03:45,000 Stephen Koukoulas: and up. That demand for labor is still very, very 79 00:03:45,000 --> 00:03:48,720 Stephen Koukoulas: strong out there. So we're expecting to see another increase 80 00:03:48,720 --> 00:03:51,990 Stephen Koukoulas: in the job vacancy series, just indicating that if the 81 00:03:51,990 --> 00:03:56,130 Stephen Koukoulas: normal correlations between demand for labor and the unemployment rate 82 00:03:56,130 --> 00:03:59,220 Stephen Koukoulas: hold, that we're on track to see a three and 83 00:03:59,220 --> 00:04:02,520 Stephen Koukoulas: a half percent unemployment rate by the September quarter this 84 00:04:02,520 --> 00:04:05,400 Stephen Koukoulas: year. So again, another strong result likely on the labor 85 00:04:05,400 --> 00:04:06,090 Stephen Koukoulas: market side. 86 00:04:06,480 --> 00:04:08,280 Sean Aylmer: And we also get credit growth numbers. 87 00:04:09,150 --> 00:04:11,670 Stephen Koukoulas: Credit growth. Yes, we're still borrowing, or the numbers are 88 00:04:11,670 --> 00:04:14,370 Stephen Koukoulas: likely to show that we are still borrowing. So despite the weakness 89 00:04:14,370 --> 00:04:17,490 Stephen Koukoulas: in the house prices that we're just touching on, housing finance 90 00:04:17,490 --> 00:04:19,380 Stephen Koukoulas: is picking up. A lot of that is linked now 91 00:04:19,380 --> 00:04:22,680 Stephen Koukoulas: to investors coming back out of the woodwork and perhaps 92 00:04:22,680 --> 00:04:25,650 Stephen Koukoulas: owner occupiers just slowing down a little bit. That'll be 93 00:04:25,650 --> 00:04:27,510 Stephen Koukoulas: interesting to see in the credit numbers to see what's 94 00:04:27,510 --> 00:04:30,000 Stephen Koukoulas: going on there, but we're also going to get the 95 00:04:30,029 --> 00:04:33,779 Stephen Koukoulas: business credit numbers. Again, another element why a recession is 96 00:04:33,779 --> 00:04:36,360 Stephen Koukoulas: very unlikely is that we do know that the business 97 00:04:36,360 --> 00:04:39,360 Stephen Koukoulas: sector is still relatively upbeat. We know that business confidence 98 00:04:39,360 --> 00:04:42,600 Stephen Koukoulas: is pretty good. And we're likely to see business credit 99 00:04:42,600 --> 00:04:45,719 Stephen Koukoulas: continuing to grow. Businesses are borrowing, they're investing, and that'll 100 00:04:45,720 --> 00:04:47,340 Stephen Koukoulas: show up in the credit data later this week. 101 00:04:47,730 --> 00:04:50,220 Sean Aylmer: Now, in this week, we end the financial year in 102 00:04:50,220 --> 00:04:53,070 Sean Aylmer: Australia of course works in financial years. It's been quite 103 00:04:53,070 --> 00:04:55,380 Sean Aylmer: a 12 months off for the economy, hasn't it? 104 00:04:56,040 --> 00:04:59,610 Stephen Koukoulas: Oh, remember it started off the September quarter last year, 105 00:04:59,610 --> 00:05:02,640 Stephen Koukoulas: which was the first quarter of this financial year, was 106 00:05:02,640 --> 00:05:06,089 Stephen Koukoulas: when the Eastern side of the economy of the country 107 00:05:06,089 --> 00:05:09,300 Stephen Koukoulas: was locked down. We had lockdowns in New South Wales, 108 00:05:09,300 --> 00:05:13,020 Stephen Koukoulas: Victoria, Queensland, the ACT. And they only really ended in that 109 00:05:13,020 --> 00:05:15,300 Stephen Koukoulas: early part of October. And then of course we had 110 00:05:16,140 --> 00:05:19,440 Stephen Koukoulas: central bank having interest rates at zero and still having 111 00:05:19,440 --> 00:05:21,390 Stephen Koukoulas: QE. And of course, all of that's coming to an 112 00:05:21,390 --> 00:05:24,570 Stephen Koukoulas: end as we celebrate the 30th of June later this 113 00:05:24,570 --> 00:05:27,720 Stephen Koukoulas: week. And it's been a situation too, where the budget 114 00:05:27,720 --> 00:05:30,779 Stephen Koukoulas: deficit is still big. We've got government debt still on 115 00:05:30,779 --> 00:05:33,720 Stephen Koukoulas: track to hit a trillion dollars. And with this rise 116 00:05:33,720 --> 00:05:36,600 Stephen Koukoulas: in bond yields, that there's a question there for Treasurer 117 00:05:36,600 --> 00:05:38,430 Stephen Koukoulas: Jim Chalmers to have a little look at whether he 118 00:05:38,430 --> 00:05:41,070 Stephen Koukoulas: can start repairing the budget, because if he doesn't and 119 00:05:41,070 --> 00:05:44,820 Stephen Koukoulas: interest rates stay high, this time next financial year he's 120 00:05:44,820 --> 00:05:46,830 Stephen Koukoulas: going to be pumping a lot of money just paying 121 00:05:46,830 --> 00:05:48,300 Stephen Koukoulas: interest on that level of government debt. 122 00:05:48,660 --> 00:05:51,960 Sean Aylmer: I just hope that the next financial year isn't quite 123 00:05:52,470 --> 00:05:55,830 Sean Aylmer: as crazy as this last financial year. Would you agree? 124 00:05:56,940 --> 00:06:01,080 Stephen Koukoulas: Oh, yes. Maybe it's wishful thinking, but yeah, unfortunately it 125 00:06:01,080 --> 00:06:04,200 Stephen Koukoulas: seldom happens, but a year where there's just moderate growth 126 00:06:04,200 --> 00:06:05,580 Stephen Koukoulas: in the stock market. 127 00:06:05,580 --> 00:06:05,640 Sean Aylmer: Yeah, yeah. 128 00:06:05,640 --> 00:06:09,089 Stephen Koukoulas: The economic conditions are okay. Not too hot, not too 129 00:06:09,089 --> 00:06:12,420 Stephen Koukoulas: cold. We're near full employment. Inflation comes back into the 130 00:06:12,420 --> 00:06:15,750 Stephen Koukoulas: target range. These costs of living pressures are bait. But 131 00:06:15,750 --> 00:06:19,349 Stephen Koukoulas: boy, we're ending this financial year with none of the 132 00:06:19,350 --> 00:06:22,950 Stephen Koukoulas: above really happening because we've got these commodity price levels 133 00:06:22,950 --> 00:06:25,680 Stephen Koukoulas: at incredible highs. Even though they're coming off a bit 134 00:06:25,950 --> 00:06:27,930 Stephen Koukoulas: and we've got pressure on central banks around the world 135 00:06:27,930 --> 00:06:30,510 Stephen Koukoulas: to keep hiking and hiking. It's going to be a 136 00:06:30,510 --> 00:06:33,390 Stephen Koukoulas: very curious end to this financial year in the new 137 00:06:33,390 --> 00:06:36,360 Stephen Koukoulas: one. I'd put my money on it being pretty choppy 138 00:06:36,360 --> 00:06:37,589 Stephen Koukoulas: and pretty unpredictable. 139 00:06:37,980 --> 00:06:39,000 Sean Aylmer: Stephen, have a good week. 140 00:06:39,480 --> 00:06:40,110 Stephen Koukoulas: Thank you, Sean. 141 00:06:40,500 --> 00:06:42,809 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 142 00:06:43,200 --> 00:06:45,299 Sean Aylmer: You can find him at thekouk. com and follow him 143 00:06:45,300 --> 00:06:48,630 Sean Aylmer: on Twitter using the handle TheKouk. I'm Sean Aylmer, and 144 00:06:48,630 --> 00:06:50,220 Sean Aylmer: this is Fear and Greed, The Week Ahead.