1 00:00:06,040 --> 00:00:08,039 Speaker 1: Welcome to Fear and Greed Q and A, where we 2 00:00:08,080 --> 00:00:11,720 Speaker 1: ask and answer questions about business, investing, economics, politics and more. 3 00:00:11,760 --> 00:00:14,280 Speaker 1: I'm Michael Thompson and every Monday morning we are joined 4 00:00:14,280 --> 00:00:16,919 Speaker 1: by economist Stephen Coucoulis to look at the week ahead. 5 00:00:17,160 --> 00:00:19,360 Speaker 1: You'll find him at the Kook dot com, which is 6 00:00:19,480 --> 00:00:23,119 Speaker 1: th ko uk dot com and on X using the 7 00:00:23,160 --> 00:00:26,639 Speaker 1: handles the Kirk. Stephen, good morning, very good morning. This 8 00:00:26,720 --> 00:00:28,240 Speaker 1: is almost one of those days where you don't know 9 00:00:28,240 --> 00:00:31,600 Speaker 1: where to start. There has been so much happening last 10 00:00:31,640 --> 00:00:34,560 Speaker 1: week and so much to come this week. We'll start 11 00:00:34,560 --> 00:00:39,400 Speaker 1: with the big one from last week, right the GDP figure, 12 00:00:39,400 --> 00:00:42,000 Speaker 1: the September quarter GDP figure. We had the economy growing 13 00:00:42,040 --> 00:00:45,320 Speaker 1: at two point one percent annually, zero point four percent 14 00:00:45,440 --> 00:00:49,199 Speaker 1: for the quarter. It was a little below some expectations, 15 00:00:49,200 --> 00:00:51,199 Speaker 1: but overall, what do we make of it? It was a 16 00:00:51,360 --> 00:00:53,639 Speaker 1: pretty good story overall, right. 17 00:00:53,880 --> 00:00:55,880 Speaker 2: And I think it's more the composition of what we 18 00:00:55,960 --> 00:00:59,000 Speaker 2: saw than the actual numbers. Not only the annual figure 19 00:00:59,240 --> 00:01:01,720 Speaker 2: was only about one tenth below expectations because the previous 20 00:01:01,760 --> 00:01:04,399 Speaker 2: quarter was revised up. Without getting to the entrails of that, 21 00:01:05,480 --> 00:01:09,000 Speaker 2: we look at the components. We've had sort of what 22 00:01:09,040 --> 00:01:13,399 Speaker 2: we've been wanting to see for several years. Business investment 23 00:01:13,600 --> 00:01:21,280 Speaker 2: growing solidly, strongly, dwelling investment, so new housing construction continuing 24 00:01:21,319 --> 00:01:24,840 Speaker 2: to increase, household consumption growing at an okay pace, so 25 00:01:24,880 --> 00:01:27,440 Speaker 2: we consume as are spending a little bit more, a 26 00:01:27,480 --> 00:01:30,520 Speaker 2: bit of a slowing in government demand, so that that 27 00:01:30,600 --> 00:01:32,480 Speaker 2: debate that we've got about all the governments spending too 28 00:01:32,520 --> 00:01:35,960 Speaker 2: much money and crowding out the private sector is fading. 29 00:01:35,959 --> 00:01:38,360 Speaker 2: I won't say it's over yet, but it's just you know, this, 30 00:01:38,640 --> 00:01:41,000 Speaker 2: this is the quarter where you're seeing these turning points 31 00:01:41,000 --> 00:01:45,240 Speaker 2: in these really important key drives of the economy coming through, 32 00:01:46,040 --> 00:01:50,200 Speaker 2: and it's just a nice story you have on the economy, 33 00:01:50,280 --> 00:01:53,520 Speaker 2: rather than you know, being concerned about the lack of investment, 34 00:01:53,600 --> 00:01:58,040 Speaker 2: the poor productivity. It was a it was a decent result. 35 00:01:58,160 --> 00:01:59,880 Speaker 2: It was a sort of seven and a half out 36 00:01:59,880 --> 00:02:02,080 Speaker 2: of ten when the last year we've been seeing fours 37 00:02:02,120 --> 00:02:04,520 Speaker 2: and fives out of ten for most of the economic data. 38 00:02:04,600 --> 00:02:07,720 Speaker 1: So by comparison, you were nearly doing a jig off 39 00:02:07,720 --> 00:02:08,440 Speaker 1: the back of that lie. 40 00:02:08,760 --> 00:02:10,400 Speaker 2: Oh well, I sort of did, because it's been such 41 00:02:10,400 --> 00:02:12,880 Speaker 2: a long time since I've done a gig on economic data. 42 00:02:12,919 --> 00:02:15,840 Speaker 2: But you know when you see when you see CAPEX 43 00:02:15,919 --> 00:02:20,320 Speaker 2: business investment rising, in your dwelling investment starting to pick up, 44 00:02:20,680 --> 00:02:23,240 Speaker 2: you think that, hey, this could be the trend. And again, 45 00:02:23,639 --> 00:02:26,239 Speaker 2: I know we've sort of always put caveats against one 46 00:02:26,280 --> 00:02:29,000 Speaker 2: month of data one quarter of data in this instance, 47 00:02:29,280 --> 00:02:30,840 Speaker 2: but it's a little bit more than that because the 48 00:02:30,840 --> 00:02:34,600 Speaker 2: previous revisions that I mentioned suggests that there's just more 49 00:02:34,639 --> 00:02:37,239 Speaker 2: than just a little bit of a sliver of light 50 00:02:37,320 --> 00:02:40,399 Speaker 2: coming through in terms of that optimism that's coming through. So, yeah, 51 00:02:40,720 --> 00:02:42,440 Speaker 2: good news on the economy. Hooray. 52 00:02:42,760 --> 00:02:45,239 Speaker 1: All right, What about then household spending because we also 53 00:02:45,320 --> 00:02:47,679 Speaker 1: had that last week when we saw household spending I 54 00:02:47,680 --> 00:02:50,240 Speaker 1: think it was up one point three percent in October 55 00:02:50,400 --> 00:02:53,560 Speaker 1: five point six percent for the year. I want to 56 00:02:53,600 --> 00:02:56,280 Speaker 1: talk to you here about the wealth effect because this 57 00:02:56,400 --> 00:03:00,320 Speaker 1: does come up a fair bit and this idea of 58 00:03:00,400 --> 00:03:03,959 Speaker 1: perceived wealth being the thing that helps kind of fuel spending. 59 00:03:03,960 --> 00:03:06,040 Speaker 1: When you're feeling wealthy, you're going to go out and 60 00:03:06,040 --> 00:03:07,839 Speaker 1: spend more even if you don't actually have that money 61 00:03:07,880 --> 00:03:10,720 Speaker 1: in your bank account. Is that exactly kind of how 62 00:03:10,760 --> 00:03:12,880 Speaker 1: it works? Is that what we're seeing playing out here? 63 00:03:12,919 --> 00:03:15,320 Speaker 1: Because do we actually have more money to spend or 64 00:03:15,360 --> 00:03:16,519 Speaker 1: do we just feel like it. 65 00:03:17,200 --> 00:03:19,720 Speaker 2: Can I make a strong recommendation to listeners to go 66 00:03:19,760 --> 00:03:22,560 Speaker 2: to the RBA web website and in the search engine 67 00:03:22,560 --> 00:03:26,679 Speaker 2: put wealth effect. YEP. They did a detailed paper about 68 00:03:26,880 --> 00:03:30,120 Speaker 2: five years ago from memory, and in the statement on 69 00:03:30,160 --> 00:03:33,440 Speaker 2: Monetary policy that came out just last month, there was 70 00:03:33,480 --> 00:03:36,560 Speaker 2: another page and a half. I think it was discussing 71 00:03:36,560 --> 00:03:39,119 Speaker 2: this wealth effect, as you point out, and you're quite right, 72 00:03:39,200 --> 00:03:42,400 Speaker 2: just because you've got value in your house and this 73 00:03:42,480 --> 00:03:44,720 Speaker 2: is a sort of contentious issue, just because your house 74 00:03:44,760 --> 00:03:46,680 Speaker 2: is sort of double in value in the last ten years, 75 00:03:47,120 --> 00:03:50,480 Speaker 2: or your superannuation account's sort of gone nicely because the 76 00:03:50,480 --> 00:03:54,720 Speaker 2: ASX is lifted and the other investments global investments from 77 00:03:54,720 --> 00:03:57,600 Speaker 2: our friendly FUNDA managers have gone up, that even you 78 00:03:57,600 --> 00:04:00,080 Speaker 2: don't have access to that cash, that wealth effect is 79 00:04:00,080 --> 00:04:04,200 Speaker 2: actually quite powerful. And part of the transmission from feeling 80 00:04:04,240 --> 00:04:09,320 Speaker 2: wealthier into actual spending is that most people on average 81 00:04:10,000 --> 00:04:11,960 Speaker 2: save a little bit of their money, they say, for 82 00:04:12,040 --> 00:04:15,600 Speaker 2: a rainy day they're worried about their future prosperity. But 83 00:04:15,720 --> 00:04:18,839 Speaker 2: if over the usual time lags, all of a sudden, 84 00:04:19,040 --> 00:04:20,680 Speaker 2: I've got an extra little bit of money in my 85 00:04:20,760 --> 00:04:22,760 Speaker 2: house that I didn't think I had or gine. My 86 00:04:22,760 --> 00:04:26,040 Speaker 2: superinnuation account's gone up nicely in the last year. I 87 00:04:26,080 --> 00:04:29,800 Speaker 2: won't save quite as much and I will spend a 88 00:04:29,800 --> 00:04:33,520 Speaker 2: little bit more. And from the RBA analysis, the areas 89 00:04:33,560 --> 00:04:36,960 Speaker 2: where that spending occurs mostly it is things like motor 90 00:04:37,000 --> 00:04:38,760 Speaker 2: vehicles seal. So when we're feeling wealthy, we'll buy a 91 00:04:38,760 --> 00:04:41,839 Speaker 2: new car, we'll buy new furniture and fittings for our house. 92 00:04:41,880 --> 00:04:43,600 Speaker 2: So they're the sort of things that we spend more 93 00:04:43,640 --> 00:04:45,919 Speaker 2: money on when we're feeling a little bit wealthier. And 94 00:04:45,960 --> 00:04:48,520 Speaker 2: if we look at those household spending numbers, that's sort 95 00:04:48,560 --> 00:04:52,040 Speaker 2: of where some of that discretionary spending was showing up. 96 00:04:52,800 --> 00:04:55,440 Speaker 1: Okay, I want to get to what's happening this week 97 00:04:55,520 --> 00:04:59,000 Speaker 1: because we have the RBA meeting today and tomorrow. But 98 00:04:59,040 --> 00:05:00,839 Speaker 1: there is something else that can came up last week 99 00:05:00,880 --> 00:05:03,599 Speaker 1: that is going to feed into the discussions in the RBA, 100 00:05:03,839 --> 00:05:08,400 Speaker 1: I would suspect, and that is the surgeon bond yields 101 00:05:08,400 --> 00:05:11,760 Speaker 1: that we saw last week. What's behind that, what does 102 00:05:11,800 --> 00:05:13,839 Speaker 1: it tell us and what does it mean for the 103 00:05:13,920 --> 00:05:15,080 Speaker 1: RBA discussions. 104 00:05:15,520 --> 00:05:18,919 Speaker 2: We saw yields moving higher in Japan. In fact, Japan, 105 00:05:19,040 --> 00:05:22,880 Speaker 2: which has had decades, not just years, but decades where 106 00:05:23,320 --> 00:05:26,680 Speaker 2: Japanese government bond yields have been hovering zero percent or 107 00:05:26,720 --> 00:05:29,760 Speaker 2: one percent. They've moved to record highst So the ten 108 00:05:29,800 --> 00:05:32,560 Speaker 2: and thirty year bonds in Japan are at three and 109 00:05:32,600 --> 00:05:36,159 Speaker 2: a half heading towards four percent. Incredible increase. And that's 110 00:05:36,160 --> 00:05:39,839 Speaker 2: on the back of higher inflation in Japan. And because 111 00:05:39,960 --> 00:05:44,880 Speaker 2: Japan and Japanese are massive savers in the global economy, 112 00:05:44,880 --> 00:05:49,080 Speaker 2: they are heavily investors in the international economy. If they're 113 00:05:49,080 --> 00:05:51,000 Speaker 2: all of a sudden getting a higher yield at home, 114 00:05:51,240 --> 00:05:53,920 Speaker 2: risk free or low risk, they'll keep their money at home, 115 00:05:53,920 --> 00:05:56,520 Speaker 2: and that has big implications for currency markets. We saw 116 00:05:56,520 --> 00:05:58,800 Speaker 2: the US dollar sort of gyrating a bit towards the 117 00:05:58,880 --> 00:06:01,440 Speaker 2: end of last week, ending to be a little bit lower, 118 00:06:01,760 --> 00:06:04,880 Speaker 2: and the bond market reaction was seen here too in 119 00:06:04,920 --> 00:06:08,240 Speaker 2: Australia where our ten year years got to four point 120 00:06:08,279 --> 00:06:11,280 Speaker 2: sixty five four point seven percent, even though the US 121 00:06:11,400 --> 00:06:15,680 Speaker 2: numbers are weaker. It was all domestic and Asia specific 122 00:06:15,839 --> 00:06:17,480 Speaker 2: issues that were driving yields higher. 123 00:06:18,680 --> 00:06:22,039 Speaker 1: So to the RBA then, and what the long term, 124 00:06:22,240 --> 00:06:25,440 Speaker 1: longer term outlook is than for interest rates they are 125 00:06:25,480 --> 00:06:28,760 Speaker 1: meeting today and tomorrow. Presumably rates are going to be 126 00:06:28,960 --> 00:06:34,120 Speaker 1: on hold, but are we into a long period of 127 00:06:34,160 --> 00:06:39,000 Speaker 1: holding or signs pointing towards a hike sooner rather than later. 128 00:06:40,320 --> 00:06:43,599 Speaker 2: Market pricing a month and a half ago had one 129 00:06:43,600 --> 00:06:46,000 Speaker 2: and a half to two rate cuts priced into middle 130 00:06:46,000 --> 00:06:49,160 Speaker 2: of twenty twenty six. We now have one to one 131 00:06:49,200 --> 00:06:51,839 Speaker 2: on a bit rate hikes priced in. And that's not 132 00:06:51,880 --> 00:06:55,359 Speaker 2: to say the market is wrong necessarily, but the market 133 00:06:55,400 --> 00:06:58,640 Speaker 2: reacts to news and the news over the last month. Yeah, 134 00:06:58,640 --> 00:07:00,960 Speaker 2: we had the inflation number or was that two weeks ago? 135 00:07:01,080 --> 00:07:04,320 Speaker 2: Now as we just discussed better household spending numbers, good 136 00:07:04,360 --> 00:07:07,560 Speaker 2: compositional shift in the GDP numbers, the global issues with 137 00:07:08,000 --> 00:07:11,240 Speaker 2: Japan coming through, and so the RBA will be fully 138 00:07:11,560 --> 00:07:14,240 Speaker 2: fully aware of these trends, and so yes, rates are 139 00:07:14,280 --> 00:07:17,560 Speaker 2: on hold. But what Michelle Bullock will say, and p 140 00:07:17,600 --> 00:07:21,120 Speaker 2: certainly particularly be quizzed about at her press conference on 141 00:07:21,160 --> 00:07:24,480 Speaker 2: Tuesday afternoon, will be well, if we do have this 142 00:07:24,680 --> 00:07:26,960 Speaker 2: better economic news, do you think that you're going to 143 00:07:26,960 --> 00:07:29,200 Speaker 2: be hiking rates? I think still too early for that. 144 00:07:29,480 --> 00:07:32,160 Speaker 2: I said, one quarter of data lovely to see, but 145 00:07:32,200 --> 00:07:34,320 Speaker 2: it's not the definitive thing that forces them to say, Look, 146 00:07:34,360 --> 00:07:37,840 Speaker 2: we may be flagging the possibility of rates going up. 147 00:07:38,280 --> 00:07:40,000 Speaker 2: I think she'll go back to that language that she 148 00:07:40,120 --> 00:07:43,560 Speaker 2: used earlier. I'm not ruling anything in or anything out. 149 00:07:43,920 --> 00:07:45,880 Speaker 2: So rates could go up, they could go down, and 150 00:07:45,920 --> 00:07:48,239 Speaker 2: we need to see more information. And as we discussed 151 00:07:48,320 --> 00:07:51,720 Speaker 2: last week, Michael, that CPI that inflation result has some 152 00:07:51,840 --> 00:07:55,080 Speaker 2: quirks in it. So it's not absolutely sure that we've 153 00:07:55,080 --> 00:07:58,640 Speaker 2: got a trend acceleration and inflation. If that proves to 154 00:07:58,640 --> 00:08:00,880 Speaker 2: be the case when we get in the new year, YEP, 155 00:08:01,000 --> 00:08:03,760 Speaker 2: rate hikes they're on the table. If it proves to 156 00:08:03,760 --> 00:08:06,720 Speaker 2: be there as a transitory, then we could be in 157 00:08:06,760 --> 00:08:09,080 Speaker 2: for this period where rates are on hold for a 158 00:08:09,200 --> 00:08:10,320 Speaker 2: long long time. 159 00:08:11,040 --> 00:08:14,000 Speaker 1: What about jobs then, because we get the labor force 160 00:08:14,200 --> 00:08:19,320 Speaker 1: numbers out this Thursday, a strong number could perhaps bring 161 00:08:19,440 --> 00:08:20,560 Speaker 1: forward the rate hike. 162 00:08:21,120 --> 00:08:23,800 Speaker 2: Oh that's a really good question. And it's a really 163 00:08:23,960 --> 00:08:28,800 Speaker 2: interesting side effect that if we do see that job's 164 00:08:28,880 --> 00:08:31,600 Speaker 2: number being strong the unemployment rate going back down, then 165 00:08:31,680 --> 00:08:35,200 Speaker 2: of course, yes, you do get that real possibility that 166 00:08:35,280 --> 00:08:37,880 Speaker 2: will do if inflation's a little elevated, the labor market's 167 00:08:37,880 --> 00:08:39,760 Speaker 2: a little bit tighter than we think, the rate hike 168 00:08:39,840 --> 00:08:43,200 Speaker 2: discussion will certainly be elevated. So market's looking for about 169 00:08:43,200 --> 00:08:45,800 Speaker 2: a twenty five thousand increase in employment, unemployment to be 170 00:08:45,800 --> 00:08:48,960 Speaker 2: steady at four point three percent. Any deviation from that 171 00:08:49,040 --> 00:08:51,560 Speaker 2: will have really important implications for market thinking. 172 00:08:52,559 --> 00:08:54,920 Speaker 1: One last thing to mention, and it's going to be 173 00:08:54,920 --> 00:08:57,840 Speaker 1: a big one this week the Federal Reserve meeting in 174 00:08:57,880 --> 00:09:01,640 Speaker 1: the US. It seems to be, according to all the commentary, 175 00:09:01,640 --> 00:09:05,600 Speaker 1: increasingly likely that they will cut rates. Is that what 176 00:09:05,720 --> 00:09:08,640 Speaker 1: you're seeing? And I suppose in an economy as big 177 00:09:08,720 --> 00:09:11,360 Speaker 1: as the US, how does that play out? How does 178 00:09:11,360 --> 00:09:13,359 Speaker 1: a rate cut play out on that scale? 179 00:09:14,120 --> 00:09:17,680 Speaker 2: Look, this is the rate cuts priced in almost completely. Yes, 180 00:09:17,679 --> 00:09:20,400 Speaker 2: and everybody's saying that they will they will hike interstraits 181 00:09:20,400 --> 00:09:25,199 Speaker 2: and the like. But that's really important. But the discussion 182 00:09:25,280 --> 00:09:27,839 Speaker 2: in the US is what is happening to inflation a 183 00:09:27,840 --> 00:09:30,240 Speaker 2: little bit like what we're seeing in Australia. Will a 184 00:09:30,360 --> 00:09:34,640 Speaker 2: rate cut in the US actually fuel concerns about, well, 185 00:09:34,679 --> 00:09:37,560 Speaker 2: the Fed's got something wrong. We've got Donald Trump sort 186 00:09:37,559 --> 00:09:40,400 Speaker 2: of saying that he's got a new chairperson of the 187 00:09:40,400 --> 00:09:44,680 Speaker 2: FED ready to anoint when Jerome Power finishes up next year, 188 00:09:45,160 --> 00:09:47,000 Speaker 2: and of course it's going to be probably someone very 189 00:09:47,000 --> 00:09:49,120 Speaker 2: friendly to him. So we get this sort of debate 190 00:09:49,400 --> 00:09:52,880 Speaker 2: starting to unfold. What if the FED takes the wrong 191 00:09:52,960 --> 00:09:57,240 Speaker 2: decision over ease as monetary policy, causing inflation to be 192 00:09:57,320 --> 00:09:58,920 Speaker 2: higher in the US, and that's going to cause a 193 00:09:58,920 --> 00:10:01,120 Speaker 2: lot of market skinnishness. We're not quite there yet. I 194 00:10:01,120 --> 00:10:03,640 Speaker 2: think this rate cuts justified the labor market numbers a week. 195 00:10:03,920 --> 00:10:05,800 Speaker 2: But boy, oh boy, if we get into the new 196 00:10:05,880 --> 00:10:09,719 Speaker 2: year and one of mister Trump's friends is chairperson of 197 00:10:09,760 --> 00:10:13,120 Speaker 2: the Federal Reserve and they cut rates inappropriately, that's when 198 00:10:13,120 --> 00:10:17,040 Speaker 2: you get really violent gyrations in markets. That's what the 199 00:10:17,080 --> 00:10:18,439 Speaker 2: market's looking for, all right. 200 00:10:18,480 --> 00:10:21,160 Speaker 1: It is a massive week ahead. Enjoy it, Steven, Thank 201 00:10:21,200 --> 00:10:22,400 Speaker 1: you very much for your time this morning. 202 00:10:22,480 --> 00:10:24,000 Speaker 2: Bigger than Ben hur Thanks Michael. 203 00:10:24,600 --> 00:10:26,440 Speaker 1: That was a kind of a Stephen Cook Coolest, better 204 00:10:26,480 --> 00:10:28,319 Speaker 1: known as the Kook. You can find him at the 205 00:10:28,400 --> 00:10:30,720 Speaker 1: kook dot com and follow him on ex using the 206 00:10:30,720 --> 00:10:33,040 Speaker 1: handle of the Kook. I'm Michael Thompson and this is 207 00:10:33,080 --> 00:10:34,160 Speaker 1: Fear and Greed Q and a